-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sf8pv2xP6pj1xrMFn6sFo8I/kSCJbLeHqIePRX9bszCoWYgRX8Q5HBpWI53TBgKA rOebueoMU707rxsX2YPs2A== 0000950123-99-003931.txt : 19990503 0000950123-99-003931.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950123-99-003931 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDMAN SACHS GROUP INC CENTRAL INDEX KEY: 0000886982 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 133501777 FISCAL YEAR END: 1126 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-74449 FILM NUMBER: 99605549 BUSINESS ADDRESS: STREET 1: 85 BROAD ST CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 2129021000 MAIL ADDRESS: STREET 1: 85 BROAD ST CITY: NEW YORK STATE: NY ZIP: 10004 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999 REGISTRATION NO. 333-74449 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE GOLDMAN SACHS GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 6211 13-4019460 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 85 BROAD STREET NEW YORK, NEW YORK 10004 (212) 902-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ROBERT J. KATZ GREGORY K. PALM GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NEW YORK 10004 (212) 902-1000 (NAMES, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE) ------------------------ COPIES TO: RICARDO A. MESTRES, JR. ALAN L. BELLER JOHN P. MEAD CHRISTOPHER E. AUSTIN DAVID B. HARMS CHRISTOPHER J. WALTON ROBERT W. REEDER III CLEARY, GOTTLIEB, STEEN & HAMILTON SULLIVAN & CROMWELL ONE LIBERTY PLAZA 125 BROAD STREET NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10004 (212) 225-2000 (212) 558-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If the delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion. Dated April 30, 1999. 60,000,000 Shares THE GOLDMAN SACHS GROUP, INC. [GOLDMAN SACHS LOGO] Common Stock ------------------------ This is an initial public offering of shares of common stock of The Goldman Sachs Group, Inc. This prospectus relates to an offering of 48,000,000 shares in the United States and Canada. In addition, 8,000,000 shares are being offered outside the United States, Canada and the Asia/ Pacific region and 4,000,000 shares are being offered in the Asia/Pacific region. Goldman Sachs is offering 42,000,000 of the shares to be sold in the offerings. Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association are each offering an additional 9,000,000 shares. Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $45 and $55. Goldman Sachs intends to list the common stock on the New York Stock Exchange under the symbol "GS". See "Risk Factors" beginning on page 11 to read about factors you should consider before buying shares of the common stock. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
Per Share Total --------- ----- Initial public offering price............................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to Goldman Sachs................. $ $ Proceeds, before expenses, to the selling shareholders...... $ $
To the extent that the underwriters sell more than 60,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 9,000,000 shares from Goldman Sachs at the initial public offering price less the underwriting discount. The underwriters expect to deliver the shares in New York, New York on , 1999. ------------------------ Global Coordinator GOLDMAN, SACHS & CO. ------------------------ GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS MERRILL LYNCH & CO. J.P. MORGAN & CO. MORGAN STANLEY DEAN WITTER PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES SALOMON SMITH BARNEY SANFORD C. BERNSTEIN & CO., INC. SCHRODER & CO. INC. ------------------------ Prospectus dated , 1999. 3 OUR BUSINESS PRINCIPLES 1. Our clients' interests always come first. Our experience shows that if we serve our clients well, our own success will follow. 2. Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard. 3. Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders. 4. We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest. 5. We stress creativity and imagination in everything we do. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client's problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry. 6. We make an unusual effort to identify and recruit the very best person for every job. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm. 7. We offer our people the opportunity to move ahead more rapidly than is possible at most other places. We have yet to find the limits to the responsibility that our best people are able to assume. Advancement depends solely on ability, performance and contribution to the Firm's success, without regard to race, color, religion, sex, age, national origin, disability, sexual orientation, or any other impermissible criterion or circumstance. 8. We stress teamwork in everything we do. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the Firm and its clients. 9. The dedication of our people to the Firm and the intense effort they give their jobs are greater than one finds in most other organizations. We think that this is an important part of our success. 10. We consider our size an asset that we try hard to preserve. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success. 11. We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction. 12. We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable. 13. Our business is highly competitive, and we aggressively seek to expand our client relationships. However, we must always be fair competitors and must never denigrate other firms. 14. Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the Firm and in their personal lives. 2 4 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors" on pages 11-21. THE GOLDMAN SACHS GROUP, INC. Goldman Sachs is a leading global investment banking and securities firm with three principal business lines: - Investment Banking; - Trading and Principal Investments; and - Asset Management and Securities Services. Our goal is to be the advisor of choice for our clients and a leading participant in global financial markets. We provide services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments and high net worth individuals. For our fiscal year ended November 27, 1998, our net revenues were $8.5 billion and our pre-tax earnings were $2.9 billion, and for our fiscal quarter ended February 26, 1999, our net revenues were $3.0 billion and our pre-tax earnings were $1.2 billion. As of February 26, 1999, our total assets were $230.6 billion and our partners' capital was $6.6 billion. We have over time produced strong earnings growth and attractive returns on partners' capital through different economic and market conditions. Over the last 15 years, our pre-tax earnings have grown from $462 million in 1983 to $2.9 billion in 1998, representing a compound annual growth rate of 13%. Economic and market conditions can, however, significantly affect our performance. For example, in the second half of fiscal 1998, our performance was adversely affected by turbulence in global financial markets. We have achieved this growth, which has been generated without the benefit of a large acquisition, by maintaining an intense commitment to our clients, focusing on our core businesses and key opportunities, and operating as an integrated franchise. Because we believe that the needs of our clients are global and that international markets have high growth potential, we have built upon our strength in the United States to achieve leading positions in other parts of the world. Today, we have a strong global presence as evidenced by the geographic breadth of our transactions, leadership in our core products and the size of our international operations. As of February 26, 1999, we operated offices in 23 countries and 36% of our 13,000 employees were based outside the United States. We are committed to a distinctive culture and set of core values. These values are reflected in our Business Principles, which emphasize placing our clients' interests first, integrity, commitment to excellence and innovation, and teamwork. Goldman Sachs is managed by its principal owners. Simultaneously with the offerings, we will grant restricted stock units, stock options or interests in a defined contribution plan to substantially all of our employees. Following the offerings, our employees, including former partners, will own approximately 66% of Goldman Sachs. None of our employees are selling shares in the offerings. WHY WE ARE GOING PUBLIC We have decided to become a public company for three principal reasons: - to secure permanent capital to grow; - to share ownership broadly among our employees now and through future compensation; and - to permit us to use publicly traded securities to finance strategic acquisitions that we may elect to make in the future. 3 5 SUMMARY FINANCIAL DATA ($ in millions)
AS OF OR FOR AS OF OR FOR THREE MONTHS YEAR ENDED NOVEMBER ENDED FEBRUARY ------------------------------ ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- Net revenues: Investment Banking........................ $ 2,113 $ 2,587 $ 3,368 $ 633 $ 902 Trading and Principal Investments......... 2,693 2,926 2,379 1,182 1,357 Asset Management and Securities Services............................... 1,323 1,934 2,773 657 736 -------- -------- -------- ------- -------- Total net revenues.......................... $ 6,129 $ 7,447 $ 8,520 $ 2,472 $ 2,995 ======== ======== ======== ======= ======== Pre-tax earnings(1)......................... $ 2,606 $ 3,014 $ 2,921 $ 1,022 $ 1,188 Total assets................................ 152,046 178,401 217,380 -- 230,624 Partners' capital........................... 5,309 6,107 6,310 -- 6,612 Pre-tax return on average partners' capital(1)................................ 51% 53% 47% -- --
- --------------- Read the table above in conjunction with the footnotes to "Selected Consolidated Financial Data" as well as the following footnote: (1) Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our pre-tax earnings and compensation and benefits expense have not reflected any payments for services rendered by our managing directors who are profit participating limited partners. Accordingly, our historical pre-tax earnings understate the expected operating costs to be incurred by us after the offerings. As a corporation, we will include payments for services rendered by our managing directors who were profit participating limited partners in compensation and benefits expense. For financial information that reflects pro forma compensation and benefits expense as if we had been a corporation, see "Pro Forma Consolidated Financial Information". ------------------------ STRATEGY AND PRINCIPAL BUSINESS LINES Our strategy is to grow our three core businesses -- Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services -- in markets throughout the world. Our leadership position in investment banking provides us with access to governments, financial institutions and corporate clients globally. Trading and principal investing has been an important part of our culture and earnings, and we remain committed to these businesses irrespective of their volatility. Managing wealth is one of the fastest growing segments of the financial services industry and we are positioning our asset management and securities services businesses to take advantage of that growth. INVESTMENT BANKING Investment Banking represented 39% of fiscal 1998 net revenues and 35% of fiscal 1997 net revenues. We are a market leader in both the financial advisory and underwriting businesses, serving over 3,000 clients worldwide. For the period January 1, 1994 to December 31, 1998, we had the industry-leading market share of 25.3% in worldwide mergers and acquisitions advisory services, having advised on over $1.7 trillion of transactions. Over the same period, we also achieved number one market shares of 15.2% in underwriting worldwide initial public offerings and 14.4% in underwriting worldwide common stock issues. The source for this market share information is Securities Data Company. 4 6 TRADING AND PRINCIPAL INVESTMENTS Trading and Principal Investments represented 28% of fiscal 1998 net revenues and 39% of fiscal 1997 net revenues. We make markets in equity and fixed income products, currencies and commodities; enter into swaps and other derivative transactions; engage in proprietary trading and arbitrage; and make principal investments. In trading, we focus on building lasting relationships with our most active clients while maintaining leadership positions in our key markets. We believe our research, market-making and proprietary activities enhance our understanding of markets and ability to serve our clients. ASSET MANAGEMENT AND SECURITIES SERVICES Asset Management and Securities Services represented 33% of fiscal 1998 net revenues and 26% of fiscal 1997 net revenues. We provide global investment management and advisory services; earn commissions on agency transactions; manage merchant banking funds; and provide prime brokerage, securities lending and financing services. Our asset management business has grown rapidly, with assets under supervision increasing from $92.7 billion as of November 25, 1994 to $369.7 billion as of February 26, 1999, representing a compound annual growth rate of 38%. As of February 26, 1999, we had $206.4 billion of assets under management. We manage merchant banking funds that had $15.5 billion of capital commitments as of the end of fiscal 1998. Assets under supervision are comprised of assets under management and other client assets. Assets under management typically generate fees based on a percentage of their value. Other client assets are comprised of assets in brokerage accounts of primarily high net worth individuals, on which we earn commissions. We pursue our strategy to grow our three core businesses through an emphasis on: EXPANDING HIGH VALUE-ADDED BUSINESSES To achieve strong growth and high returns, we seek to build leadership positions in high value-added services such as mergers and acquisitions, executing large and complex transactions for institutional investors and asset management. INCREASING THE STABILITY OF OUR EARNINGS While we plan to continue to grow each of our core businesses, our goal is to gradually increase the stability of our earnings by emphasizing growth in Investment Banking and Asset Management and Securities Services. PURSUING INTERNATIONAL OPPORTUNITIES We believe that our global reach will allow us to take advantage of international growth opportunities. For example, we expect increased business activity as a result of the establishment of the European Economic and Monetary Union, the shift we anticipate toward privatization of pension systems and the changing demographics around the world. LEVERAGING THE FRANCHISE We believe our various businesses are generally stronger and more successful because they are part of the Goldman Sachs franchise. Our culture of teamwork fosters cooperation among our businesses, which allows us to provide our clients with a full range of products and services on a coordinated basis. COMPETITIVE STRENGTHS STRONG CLIENT RELATIONSHIPS We focus on building long-term client relationships. For example, in fiscal 1998, over 75% of our Investment Banking revenues represented business from existing clients. DISTINCTIVE PEOPLE AND CULTURE Our most important asset is our people. We seek to reinforce our employees' commitment to our culture and values through recruiting, training, a comprehensive review system and a compensation philosophy that rewards teamwork. GLOBAL REACH We have achieved leading positions in major international markets by capitalizing on 5 7 our product knowledge and global research, as well as by building a local presence where appropriate. As a result, we are one of the few truly global investment banking and securities firms with the ability to execute large and complex cross-border transactions. INDUSTRY AND ECONOMIC OUTLOOK We believe that significant growth and profit opportunities exist in the financial services industry over the long term. These opportunities derive from long-term trends, including financial market deregulation, the globalization of the world economy, the increasing focus of companies on shareholder value, consolidations in various industries, growth in investable funds and accelerating technology and financial product innovation. We believe that over the last 15 years these trends, coupled with generally declining interest rates and favorable market conditions, have contributed to a substantially higher rate of growth in activity in the financial services industry than the growth in overall economic activity. While the future economic environment may not be as favorable as that experienced in the last 15 years and there may be periods of adverse economic and market conditions, we believe that these trends should continue to affect the financial services industry positively over the long term. The following table sets forth selected key industry indicators: KEY INDUSTRY INDICATORS ($ in billions, except gross domestic product) (volume in millions of shares)
AS OF OR FOR YEAR ENDED DECEMBER 31, ----------------------------------- CAGR(6) 1983 1988 1993 1998 '83-'98 ---- ---- ---- ---- ------- Worldwide gross domestic product (in trillions)(1)......................... $ 10 $ 18 $ 24 $ 29(7) 8%(7) Worldwide mergers and acquisitions(2)... 96 527 460 2,522 24 Worldwide equity issued(2).............. 50 51 172 269 12 Worldwide debt issued(2)................ 146 631 1,546 2,932 22 Worldwide equity market capitalization(3)..................... 3,384 9,728 14,016 27,459 15 NYSE average daily volume............... 85 162 265 674 15 Worldwide pension assets(4)............. $1,900 $3,752 $ 6,560 $10,975 12 U.S. mutual fund assets(5).............. 293 810 2,075 5,530 22
- --------------- (1) Source: The Economist Intelligence Unit, January 1999. (2) Source: Securities Data Company. (3) Source: International Finance Corporation. (4) Source: InterSec Research Corp. (5) Source: Investment Company Institute. (6) Compound annual growth rate. (7) Data as of December 31, 1997; compound annual growth rate 1983-1997. ------------------------ OUR HEADQUARTERS Our headquarters are located at 85 Broad Street, New York, New York 10004, telephone (212) 902-1000. 6 8 THE OFFERINGS Common stock: Offered by Goldman Sachs.................................. 42,000,000 shares Offered by Sumitomo Bank Capital Markets, Inc. ........... 9,000,000 shares Offered by Kamehameha Activities Association(1)........... 9,000,000 shares ----------- Total.................................................. 60,000,000 shares =========== U.S. offering............................................. 48,000,000 shares International offering.................................... 8,000,000 shares Asia/Pacific offering..................................... 4,000,000 shares ----------- Total.................................................. 60,000,000 shares =========== Shares outstanding as adjusted for the offerings(2): Shares issued in the incorporation transactions(3)........ 381,130,459 Shares contributed to the defined contribution plan....... 12,567,587 ----------- Shares outstanding prior to the offerings(4).............. 393,698,046 Shares offered by Goldman Sachs........................... 42,000,000 ----------- Shares outstanding as adjusted for the offerings(5)....... 435,698,046 ===========
- --------------- (1) Kamehameha Activities Association is the owner of the shares to be offered. The Estate of Bernice Pauahi Bishop, an affiliate of Kamehameha Activities Association, is joining in and consenting to the sale. (2) Excludes 9,000,000 shares of common stock that we may issue upon exercise of the underwriters' options to purchase additional shares as described in "Underwriting", 30,070,535 shares of common stock underlying the restricted stock units awarded to employees based on a formula, 33,303,595 shares of common stock underlying the restricted stock units awarded to employees on a discretionary basis and 40,000,028 shares of common stock underlying the stock options awarded to employees on a discretionary basis. (3) Includes 7,903,480 shares of nonvoting common stock issued to Sumitomo Bank Capital Markets, Inc. that are convertible into shares of common stock on a one-for-one basis. (4) Shares outstanding, including the shares of common stock underlying the restricted stock units awarded to employees based on a formula, are 423,768,581 prior to the offerings. (5) For the purpose of calculating basic earnings per share and book value per share, shares of common stock and nonvoting common stock outstanding include 30,070,535 shares of common stock underlying the restricted stock units awarded to employees based on a formula since future service is not required as a condition to the delivery of the underlying shares of common stock. The shares of common stock underlying these restricted stock units generally will be issuable and deliverable in equal installments on or about the first, second and third anniversaries of the consummation of the offerings, assuming the relevant conditions are satisfied. ------------------------ Voting Rights.......... The holders of common stock will have one vote per share. Dividend Policy........ The holders of common stock, as well as the holders of nonvoting common stock, will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors. Our board of directors currently intends to declare quarterly dividends on all outstanding shares and expects that the first quarterly dividend will be $0.12 per share, and that it will be declared during the third quarter of fiscal 1999. For a discussion of the factors that affect the determination by our board of directors to declare dividends, as well as other matters concerning our dividend policy, see "Dividend Policy" and "Business -- Regulation". Use of Proceeds........ We will receive net proceeds from our sales of common stock in the offerings of approximately $2.0 billion. We will use the net proceeds to provide additional funds for our operations and for other general corporate purposes, although we have not yet determined a specific 7 9 use. Pending specific application of the net proceeds, we expect to use them to purchase short-term marketable securities. We will not receive any of the proceeds from sales of common stock by Sumitomo Bank Capital Markets, Inc. or Kamehameha Activities Association in the offerings. Risk Factors........... For a discussion of factors you should consider before buying shares of common stock, see "Risk Factors". New York Stock Exchange Symbol............... GS 8 10 SUMMARY CONSOLIDATED FINANCIAL DATA The summary historical consolidated income statement and balance sheet data set forth below have been derived from our consolidated financial statements and their notes. Our consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as of November 28, 1997 and November 27, 1998 and for the years ended November 29, 1996, November 28, 1997 and November 27, 1998. Our condensed consolidated financial statements have been reviewed by PricewaterhouseCoopers LLP as of February 26, 1999 and for the three months ended February 26, 1999. These financial statements are included elsewhere in this prospectus, together with the reports thereon of PricewaterhouseCoopers LLP. The summary historical consolidated income statement and balance sheet data set forth below as of November 25, 1994, November 24, 1995 and November 29, 1996 and for the years ended November 25, 1994 and November 24, 1995 have been derived from our audited consolidated financial statements that are not included in this prospectus. The summary historical consolidated income statement and balance sheet data set forth below as of and for the three months ended February 26, 1999 have been derived from our unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim results set forth below for the three months ended February 26, 1999 may not be indicative of results for the full year. The pro forma data set forth below for the year ended November 27, 1998 and as of and for the three months ended February 26, 1999 have been derived from the pro forma data set forth in "Pro Forma Consolidated Financial Information" included elsewhere in this prospectus. The pro forma consolidated income statement information set forth in "Pro Forma Consolidated Financial Information" for the year ended November 27, 1998 has been examined by PricewaterhouseCoopers LLP. The pro forma consolidated financial information as of and for the three months ended February 26, 1999 has been reviewed by PricewaterhouseCoopers LLP. In addition to the offerings of common stock, the pro forma adjustments reflect the transactions described under "Certain Relationships and Related Transactions", compensation and benefits related to services rendered by our managing directors who were profit participating limited partners, the provision for corporate income taxes and the other transactions described under "Pro Forma Consolidated Financial Information". The summary consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Pro Forma Consolidated Financial Information" and the consolidated financial statements and their notes. 9 11 SUMMARY CONSOLIDATED FINANCIAL DATA
AS OF OR FOR YEAR ENDED NOVEMBER AS OF OR FOR --------------------------------------------------- THREE MONTHS 1994 1995 1996 1997 1998 ENDED FEBRUARY 1999 ---- ---- ---- ---- ---- ------------------- (unaudited) (in millions, except per share amounts) INCOME STATEMENT DATA: Net revenues.................................. $ 3,537 $ 4,483 $ 6,129 $ 7,447 $ 8,520 $ 2,995 Pre-tax earnings(1)........................... 508 1,368 2,606 3,014 2,921 1,188 BALANCE SHEET DATA: Total assets(2)............................... $95,296 $100,066 $152,046 $178,401 $217,380 $230,624 Long-term borrowings.......................... 14,418 13,358 12,376 15,667 19,906 20,405 Partners' capital............................. 4,771 4,905 5,309 6,107 6,310 6,612 PRO FORMA DATA(3): Pro forma net earnings........................ -- -- -- -- $ 1,271 $ 520 Pro forma diluted earnings per share as adjusted for the offerings(4)............... -- -- -- -- 2.70 1.08 Pro forma stockholders' equity as adjusted for the offerings............................... -- -- -- -- -- $ 6,997 Pro forma book value per share as adjusted for the offerings............................... -- -- -- -- -- 15.02 SELECTED DATA AND RATIOS (UNAUDITED): Pre-tax return on average partners' capital(1).................................. 10% 28% 51% 53% 47% -- Ratio of compensation and benefits to net revenues(1)................................. 51 45 40 42 45 43% Assets under supervision: Assets under management..................... $43,671 $ 52,358 $ 94,599 $135,929 $194,821 $206,380 Other client assets......................... 49,061 57,716 76,892 102,033 142,018 163,315 ------- -------- -------- -------- -------- -------- Total assets under supervision................ $92,732 $110,074 $171,491 $237,962 $336,839 $369,695 ======= ======== ======== ======== ======== ========
- --------------- (1) Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our pre-tax earnings and compensation and benefits expense have not reflected any payments for services rendered by our managing directors who are profit participating limited partners. Accordingly, our historical pre-tax earnings understate the expected operating costs to be incurred by us after the offerings. As a corporation, we will include payments for services rendered by our managing directors who were profit participating limited partners in compensation and benefits expense. For financial information that reflects pro forma compensation and benefits expense as if we had been a corporation, see "Pro Forma Consolidated Financial Information". (2) Total assets and liabilities were increased by $11.64 billion as of November 27, 1998 and $8.99 billion as of February 26, 1999 due to the adoption of the provisions of Statement of Financial Accounting Standards No. 125 that were deferred by Statement of Financial Accounting Standards No. 127. For a discussion of Statement of Financial Accounting Standards Nos. 125 and 127, see "Accounting Developments" in Note 2 to the audited consolidated financial statements. (3) Reflects such adjustments as are necessary, in the opinion of management, for a fair presentation of the results of operations and stockholders' equity of Goldman Sachs on a pro forma basis. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments. (4) Calculated based on weighted-average diluted shares outstanding after giving effect to the pro forma adjustments and as adjusted to reflect the issuance of 42,000,000 shares of common stock offered by Goldman Sachs at the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments and the calculation of pro forma earnings per share. 10 12 RISK FACTORS An investment in the common stock involves a number of risks, some of which, including market, liquidity, credit, operational, legal and regulatory risks, could be substantial and are inherent in our businesses. You should carefully consider the following information about these risks, together with the other information in this prospectus, before buying shares of common stock. MARKET FLUCTUATIONS COULD ADVERSELY AFFECT OUR BUSINESSES IN MANY WAYS As an investment banking and securities firm, our businesses are materially affected by conditions in the financial markets and economic conditions generally, both in the United States and elsewhere around the world. The equity and debt markets in the United States and elsewhere have achieved record or near record levels, and this favorable business environment will not continue indefinitely. In the event of a market downturn, our businesses could be adversely affected in many ways, including those described below. Our revenues are likely to decline in such circumstances and, if we were unable to reduce expenses at the same pace, our profit margins would erode. For example, in the second half of fiscal 1998, we recorded negative net revenues from our Trading and Principal Investments business and from mid-August to mid-October the number of equity underwritings and announced mergers and acquisitions transactions in which we participated declined substantially due to adverse economic and market conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment" for a discussion of the market environment in which we operated during that period. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility. We May Incur Significant Losses from Our Trading and Investment Activities Due to Market Fluctuations and Volatility We generally maintain large trading and investment positions in the fixed income, currency, commodity and equity markets. To the extent that we own assets, i.e., have long positions, in any of those markets, a downturn in those markets could result in losses from a decline in the value of those long positions. Conversely, to the extent that we have sold assets we do not own, i.e., have short positions, in any of those markets, an upturn in those markets could expose us to potentially unlimited losses as we attempt to cover our short positions by acquiring assets in a rising market. We may from time to time have a trading strategy consisting of holding a long position in one asset and a short position in another, from which we expect to earn revenues based on changes in the relative value of the two assets. If, however, the relative value of the two assets changes in a direction or manner that we did not anticipate or against which we are not hedged, we might realize a loss in those paired positions. We incurred significant losses in our Trading and Principal Investments business in the second half of fiscal 1998 from this type of "relative value" trade. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment" for a discussion of those losses and the market environment in which we operated during that period. In addition, we maintain substantial trading positions that can be adversely affected by the level of volatility in the financial markets, i.e., the degree to which trading prices fluctuate over a particular period, in a particular market, regardless of market levels. Our Investment Banking Revenues May Decline in Adverse Market or Economic Conditions Unfavorable financial or economic conditions would likely reduce the number and size of transactions in which we provide underwriting, mergers and acquisitions advisory and other services. Our Investment Banking revenues, in the form of financial advisory and underwriting fees, are directly related to the number and size of the transactions in which we participate and would therefore be adversely affected by a sustained market downturn. In particular, our results of operations would be adversely affected by a significant 11 13 reduction in the number or size of mergers and acquisitions transactions. We May Generate Lower Revenues from Commissions and Asset Management Fees in a Market Downturn A market downturn could lead to a decline in the volume of transactions that we execute for our customers and, therefore, to a decline in the revenues we receive from commissions and spreads. In addition, because the fees that we charge for managing our clients' portfolios are in many cases based on the value of those portfolios, a market downturn that reduces the value of our clients' portfolios or increases the amount of withdrawals would reduce the revenue we receive from our asset management business. Holding Large and Concentrated Positions May Expose Us to Large Losses Concentration of risk in the past has increased the losses that we have incurred in our arbitrage, market-making, block trading, underwriting and lending businesses and may continue to do so in the future. Goldman Sachs has committed substantial amounts of capital to these businesses, which often require Goldman Sachs to take large positions in the securities of a particular issuer or issuers in a particular industry, country or region. Moreover, the trend in all major capital markets is towards larger and more frequent commitments of capital in many of these activities. For example, as described under "Business -- Trading and Principal Investments -- Equities", we are experiencing an increase in the number and size of block trades that we execute, and we expect this trend to continue. Our Hedging Strategies May Not Prevent Losses If any of the variety of instruments and strategies we utilize to hedge our exposure to various types of risk are not effective, we may incur losses. Many of our strategies are based on historical trading patterns and correlations. For example, if we hold a long position in an asset, we may hedge this position by taking a short position in an asset where the short position has, historically, moved in a direction that would offset a change in value in the long position. However, these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. We have often hedged our exposure to corporate fixed income securities by taking a short position in U.S. Treasury securities, since historically the value of U.S. Treasury securities has changed in a manner similar to changes in the value of corporate fixed income securities. Due to the move by investors to higher credit quality fixed income securities in mid-August to mid-October 1998, however, the prices for corporate fixed income securities declined while the prices for U.S. Treasury securities increased and, as a result, we incurred losses on both positions. Unexpected market developments also affected other hedging strategies during this time, and unanticipated developments could impact these or different hedging strategies in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" for a discussion of the policies and procedures we use to identify, monitor and manage the risks we assume in conducting our businesses and of refinements we have made to our risk management policies and procedures as a result of our recent experience. A Prolonged Market Downturn Could Impair Our Operating Results While we encountered extremely difficult market conditions in mid-August to mid-October 1998, the financial markets rebounded late in the fourth quarter of fiscal 1998. At some time in the future, there may be a more sustained period of market decline or weakness that will leave us operating in a difficult market environment and subject us to the risks that we describe in this section for a longer period of time. Market Risk May Increase the Other Risks That We Face In addition to the potentially adverse effects on our businesses described above, market risk could exacerbate other risks that we face. For example, if we incur substantial 12 14 trading losses, our need for liquidity could rise sharply while our access to liquidity could be impaired. In addition, in conjunction with a market downturn, our customers and counterparties could incur substantial losses of their own, thereby weakening their financial condition and increasing our credit risk to them. Our liquidity risk and credit risk are described below. OUR RISK MANAGEMENT POLICIES AND PROCEDURES MAY LEAVE US EXPOSED TO UNIDENTIFIED OR UNANTICIPATED RISK We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our policies and procedures to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risk are based upon our use of observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. For example, the market movements of the late third and early fourth quarters of fiscal 1998 were larger and involved greater divergences in relative asset values than we anticipated. This caused us to experience trading losses that were greater and recurred more frequently than some of our risk measures indicated were likely to occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment" for a discussion of the market environment in which we operated during the second half of fiscal 1998 and "-- Risk Management" for a discussion of the policies and procedures we use to identify, monitor and manage the risks we assume in conducting our businesses and of refinements we have made to our risk management policies and procedures as a result of our recent experience. Other risk management methods depend upon evaluation of information regarding markets, clients or other matters that is publicly available or otherwise accessible by Goldman Sachs. This information may not in all cases be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risk requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective. LIQUIDITY RISK COULD IMPAIR OUR ABILITY TO FUND OPERATIONS AND JEOPARDIZE OUR FINANCIAL CONDITION Liquidity, i.e., ready access to funds, is essential to our businesses. In addition to maintaining a cash position, we rely on three principal sources of liquidity: borrowing in the debt markets; access to the repurchase and securities lending markets; and selling securities and other assets. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity" for a discussion of our sources of liquidity. An Inability to Access the Debt Capital Markets Could Impair Our Liquidity We depend on continuous access to the debt capital markets to finance our day-to-day operations. An inability to raise money in the long-term or short-term debt markets, or to engage in repurchase agreements or securities lending, could have a substantial negative effect on our liquidity. Our access to debt in amounts adequate to finance our activities could be impaired by factors that affect Goldman Sachs in particular or the financial services industry in general. For example, lenders could develop a negative perception of our long-term or short-term financial prospects if we incurred large trading losses, if the level of our business activity decreased due to a market downturn, if regulatory authorities took significant action against us or if we discovered that one of our employees had engaged in serious unauthorized or illegal activity. Our ability to borrow in the debt markets also could be impaired by factors that are not specific to Goldman Sachs, such as a severe disruption of the financial markets or negative views about the prospects for the investment banking, securities or financial services industries generally. We also depend on banks to finance our day-to-day operations. As a result of the recent consolidation in the banking industry, 13 15 some of our lenders have merged or consolidated with other banks and financial institutions. While we have not been materially adversely affected to date, it is possible that further consolidation could lead to a loss of a number of our key banking relationships and a reduction in the amount of credit extended to us. An Inability to Access the Short-Term Debt Markets Could Impair Our Liquidity We depend on the issuance of commercial paper and promissory notes as a principal source of unsecured short-term funding for our operations. As of February 26, 1999, Goldman Sachs had $21.63 billion of outstanding commercial paper and promissory notes with a weighted-average maturity of approximately 75 days. Our liquidity depends to an important degree on our ability to refinance these borrowings on a continuous basis. Investors who hold our outstanding commercial paper and promissory notes have no obligation to purchase new instruments when the outstanding instruments mature. Our Liquidity Could Be Adversely Affected If Our Ability to Sell Assets Is Impaired If we were unable to borrow in the debt capital markets, we would need to liquidate assets in order to meet our maturing liabilities. In certain market environments, such as times of market volatility or uncertainty, overall market liquidity may decline. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may have to sell assets at depressed prices, which could adversely affect our results of operations and financial condition. Our ability to sell our assets may be impaired by other market participants seeking to sell similar assets into the market at the same time. In the late third and early fourth quarters of fiscal 1998, for example, the markets for some assets were adversely affected by simultaneous attempts by a number of institutions to sell similar assets. A Reduction in Our Credit Ratings Could Adversely Affect Our Liquidity and Competitive Position and Increase Our Borrowing Costs Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. These ratings are assigned by rating agencies, which may reduce or withdraw their ratings or place Goldman Sachs on "credit watch" with negative implications at any time. Credit ratings are also important to Goldman Sachs when competing in certain markets and when seeking to engage in longer-term transactions, including over-the-counter derivatives. A reduction in our credit ratings could increase our borrowing costs and limit our access to the capital markets. This, in turn, could reduce our earnings and adversely affect our liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity -- Credit Ratings" for additional information concerning our credit ratings. CREDIT RISK EXPOSES US TO LOSSES CAUSED BY FINANCIAL OR OTHER PROBLEMS EXPERIENCED BY THIRD PARTIES We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties include our trading counterparties, customers, clearing agents, exchanges, clearing houses and other financial intermediaries as well as issuers whose securities we hold. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. This risk may arise, for example, from holding securities of third parties; entering into swap or other derivative contracts under which counterparties have long-term obligations to make payments to us; executing securities, futures, currency or commodity trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries; and extending credit to our clients through bridge or margin loans or other arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Manage- 14 16 ment -- Credit Risk" for a further discussion of the credit risks to which we are exposed. We May Suffer Significant Losses from Our Credit Exposures In recent years, we have significantly expanded our swaps and other derivatives businesses and placed a greater emphasis on providing credit and liquidity to our clients. As a result, our credit exposures have increased in amount and in duration. In addition, as competition in the financial services industry has increased, we have experienced pressure to assume longer-term credit risk, extend credit against less liquid collateral and price more aggressively the credit risks that we take. Our Clients and Counterparties May Be Unable to Perform Their Obligations to Us as a Result of Economic or Political Conditions Country, regional and political risks are components of credit risk, as well as market risk. Economic or political pressures in a country or region, including those arising from local market disruptions or currency crises, may adversely affect the ability of clients or counterparties located in that country or region to obtain foreign exchange or credit and, therefore, to perform their obligations to us. See "-- We Are Exposed to Special Risks in Emerging and Other Markets" for a further discussion of our exposure to these risks. Defaults by a Large Financial Institution Could Adversely Affect Financial Markets Generally and Us Specifically The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default by, one institution could lead to significant liquidity problems or losses in, or defaults by, other institutions. This is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we interact on a daily basis. The possibility of default by a major market participant in the second half of fiscal 1998 and concerns throughout the financial industry regarding the resulting impact on markets led us to participate in an industry-wide consortium that invested in Long-Term Capital Portfolio, L.P., which is described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity -- The Balance Sheet". Actual defaults, increases in perceived default risk and other similar events could arise in the future and could have an adverse effect on the financial markets and on Goldman Sachs. The Information That We Use in Managing Our Credit Risk May Be Inaccurate or Incomplete Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud. We may also fail to receive full information with respect to the trading risks of a counterparty. In addition, in cases where we have extended credit against collateral, we may find that we are undersecured, for example, as a result of sudden declines in market values that reduce the value of collateral. OUR COMPUTER SYSTEMS AND THOSE OF THIRD PARTIES MAY NOT ACHIEVE YEAR 2000 READINESS -- YEAR 2000 READINESS DISCLOSURE With the year 2000 approaching, many institutions around the world are reviewing and modifying their computer systems to ensure that they are Year 2000 compliant. The issue, in general terms, is that many existing computer systems and microprocessors (including those in non-information technology equipment and systems) use only two digits to identify a year in the date field with the assumption that the first two digits of the year are always "19". Consequently, on January 1, 2000, computers that are not Year 2000 compliant may read the year as 1900. Systems that calculate, compare or sort using the incorrect date may malfunction. 15 17 Our Computer Systems May Fail Because we are dependent, to a very substantial degree, upon the proper functioning of our computer systems, a failure of our systems to be Year 2000 compliant would have a material adverse effect on us. Failure of this kind could, for example, cause settlement of trades to fail, lead to incomplete or inaccurate accounting, recording or processing of trades in securities, currencies, commodities and other assets, result in generation of erroneous results or give rise to uncertainty about our exposure to trading risks and our need for liquidity. If not remedied, potential risks include business interruption or shutdown, financial loss, regulatory actions, reputational harm and legal liability. The Computer Systems of Third Parties on Which We Depend May Fail We depend upon the proper functioning of third-party computer and non-information technology systems. These parties include trading counterparties, financial intermediaries such as securities and commodities exchanges, depositories, clearing agencies, clearing houses and commercial banks and vendors such as providers of telecommunication services and other utilities. We continue to assess counterparties, intermediaries and vendors with whom we have important financial or operational relationships to determine the extent of their Year 2000 preparedness. We have not yet received sufficient information from all parties about their Year 2000 preparedness to assess the effectiveness of their efforts. Moreover, in many cases, we are not in a position to verify the accuracy or completeness of the information we receive from third parties and as a result are dependent on their willingness and ability to disclose, and to address, their Year 2000 problems. In addition, in some international markets in which we do business, the level of awareness and remediation efforts relating to the Year 2000 issue may be less advanced than in the United States. If third parties with whom we interact have Year 2000 problems that are not remedied, problems could include the following: - - in the case of vendors, disruption of important services upon which Goldman Sachs depends, such as telecommunications and electrical power; - - in the case of third-party data providers, receipt of inaccurate or out-of-date information that would impair our ability to perform critical data functions, such as pricing our securities or other assets; - - in the case of financial intermediaries, such as exchanges and clearing agents, failed trade settlements, inability to trade in certain markets and disruption of funding flows; - - in the case of banks and other lenders, disruption of capital flows potentially resulting in liquidity stress; and - - in the case of counterparties and customers, financial and accounting difficulties for those parties that expose Goldman Sachs to increased credit risk and lost business. Disruption or suspension of activity in the world's financial markets is also possible. Our Revenues May Be Adversely Affected If Market Activity Decreases Shortly Before and After the Year 2000 We believe that uncertainty about the success of remediation efforts generally may cause many market participants to reduce the level of their market activities temporarily as they assess the effectiveness of these efforts during a "phase-in" period beginning in late 1999. We believe that lenders are likely to take similar steps, which will result in a reduction in available funding sources. Consequently, there may be a downturn in customer and general market activity for a short period of time before and after January 1, 2000. If this occurs, our net revenues may be adversely affected, possibly materially, depending on how long the reduction in activity continues and how broadly it affects the markets. In addition, we expect to reduce our own trading activities and the size of our balance sheet in order to manage the number and type of our transactions that settle during 16 18 this period and our related funding needs. This also could reduce our net revenues. We cannot predict the magnitude of the impact that these kinds of reductions would have on our businesses. We May Be Exposed to Litigation as a Result of Year 2000 Problems We may be exposed to litigation with our customers and counterparties as a result of Year 2000 problems. For example, litigation could arise from problems relating to our internal systems or to external systems on which we depend, as well as from problems involving companies in which our clients or the funds we manage hold investments. Our Year 2000 Program May Not Be Effective and Our Estimates of Timing and Cost May Not Be Accurate Our Year 2000 program may not be effective and our estimates about the timing and cost of completing our program may not be accurate. For a description of our program and the steps that remain to be taken, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management -- Operational and Year 2000 Risks -- Year 2000 Readiness Disclosure". OTHER OPERATIONAL RISKS MAY DISRUPT OUR BUSINESSES, RESULT IN REGULATORY ACTION AGAINST US OR LIMIT OUR GROWTH We face operational risk arising from mistakes made in the confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions we process have become increasingly complex. Consequently, we rely heavily on our financial, accounting and other data processing systems. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. In recent years, we have substantially upgraded and expanded the capabilities of our data processing systems and other operating technology, and we expect that we will need to continue to upgrade and expand in the future to avoid disruption of, or constraints on, our operations. LEGAL AND REGULATORY RISKS ARE INHERENT AND SUBSTANTIAL IN OUR BUSINESSES Substantial legal liability or a significant regulatory action against Goldman Sachs could have a material financial effect or cause significant reputational harm to Goldman Sachs, which in turn could seriously harm our business prospects. Our Exposure to Legal Liability Is Significant We face significant legal risks in our businesses and the volume and amount of damages claimed in litigation against financial intermediaries are increasing. These risks include potential liability under securities or other laws for materially false or misleading statements made in connection with securities and other transactions, potential liability for the "fairness opinions" and other advice we provide to participants in corporate transactions and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to tell them of the risks or that they were not authorized or permitted to enter into these transactions with us and that their obligations to Goldman Sachs are not enforceable. Particularly in our rapidly growing business focused on high net worth individuals, we are increasingly exposed to claims against Goldman Sachs for recommending investments that are not consistent with a client's investment objectives or engaging in unauthorized or excessive trading. During a prolonged market downturn, we would expect these types of claims to increase. We are also subject to claims arising from disputes with employees for alleged discrimination or harassment, among other things. These risks often may be difficult to assess or quantify and their existence and 17 19 magnitude often remain unknown for substantial periods of time. We incur significant legal expenses every year in defending against litigation, and we expect to continue to do so in the future. See "Business -- Legal Matters" for a discussion of some of the legal matters in which we are currently involved. Extensive Regulation of Our Businesses Limits Our Activities and May Subject Us to Significant Penalties The financial services industry is subject to extensive regulation. Goldman Sachs is subject to regulation by governmental and self-regulatory organizations in the United States and in virtually all other jurisdictions in which it operates around the world. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with Goldman Sachs and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements. We face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or prohibited from engaging in some of our business activities. See "Business -- Regulation" for a further discussion of the regulatory environment in which we conduct our businesses. Legal Restrictions on Our Clients May Reduce the Demand for Our Services New laws or regulations or changes in enforcement of existing laws or regulations applicable to our clients may also adversely affect our businesses. For example, changes in antitrust enforcement could affect the level of mergers and acquisitions activity and changes in regulation could restrict the activities of our clients and, therefore, the services we provide on their behalf. EMPLOYEE MISCONDUCT COULD HARM GOLDMAN SACHS AND IS DIFFICULT TO DETECT AND DETER There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur. Misconduct by employees could include binding Goldman Sachs to transactions that exceed authorized limits or present unacceptable risks, or hiding from Goldman Sachs unauthorized or unsuccessful activities, which, in either case, may result in unknown and unmanaged risks or losses. Employee misconduct could also involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not be effective in all cases. THE FINANCIAL SERVICES INDUSTRY IS INTENSELY COMPETITIVE AND RAPIDLY CONSOLIDATING The financial services industry -- and all of our businesses -- are intensely competitive, and we expect them to remain so. We compete on the basis of a number of factors, including transaction execution, our products and services, innovation, reputation and price. We have experienced intense price competition in some of our businesses in recent years, such as underwriting fees on investment grade debt offerings and privatizations. We believe we may experience pricing pressures in these and other areas in the future as some of our competitors seek to obtain market share by reducing prices. We Face Increased Competition Due to a Trend Toward Consolidation In recent years, there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wide 18 20 range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenues in an effort to gain market share, which could result in pricing pressure in our businesses. Consolidation Has Increased Our Need for Capital This trend toward consolidation and convergence has significantly increased the capital base and geographic reach of our competitors. This trend has also hastened the globalization of the securities and other financial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. Our Ability to Expand Internationally Will Depend on Our Ability to Compete Successfully with Local Financial Institutions We believe that some of our most significant challenges and opportunities will arise outside the United States, as described under "Industry and Economic Outlook". In order to take advantage of these opportunities, we will have to compete successfully with financial institutions based in important non-U.S. markets, particularly in Europe. Some of these institutions are larger, better capitalized and have a stronger local presence and a longer operating history in these markets. Our Revenues May Decline Due to Competition from Alternative Trading Systems Securities and futures transactions are now being conducted through the Internet and other alternative, non-traditional trading systems, and it appears that the trend toward alternative trading systems will continue and probably accelerate. A dramatic increase in computer-based or other electronic trading may adversely affect our commission and trading revenues, reduce our participation in the trading markets and associated access to market information and lead to the creation of new and stronger competitors. WE ARE EXPOSED TO SPECIAL RISKS IN EMERGING AND OTHER MARKETS In conducting our businesses in major markets around the world, including many developing markets in Asia, Latin America and Eastern Europe, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. These risks range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price controls and other restrictive governmental actions. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into U.S. dollars or other currencies, or to take those dollars or other currencies out of those countries. To date, a relatively small part of our businesses has been conducted in emerging and other markets. As we expand our businesses in these areas, our exposure to these risks will increase. Turbulence in Emerging Markets May Adversely Affect Our Businesses In the last several years, various emerging market countries have experienced severe economic and financial disruptions, including significant devaluations of their currencies and low or negative growth rates in their economies. The possible effects of these conditions include an adverse impact on our businesses and increased volatility in financial markets generally. Moreover, economic or market problems in a single country or region are increasingly affecting other markets generally. For example, the economic crisis in Russia in August 1998 adversely affected other emerging markets and led to turmoil in financial markets worldwide. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Environment" for a discussion of the business environment in which we operated during the second half of fiscal 1998. A continuation of these situations could adversely affect global economic conditions and world markets and, in turn, could adversely affect our businesses. Among the risks are 19 21 regional or global market downturns and, as noted above, increasing liquidity and credit risks, particularly in Japan where the economy continues to be weak and we have significant exposure. Compliance with Local Laws and Regulations May Be Difficult In many countries, the laws and regulations applicable to the securities and financial services industries are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market. Our inability to remain in compliance with local laws in a particular foreign market could have a significant and negative effect not only on our businesses in that market but also on our reputation generally. These uncertainties may also make it difficult for us to structure our transactions in such a way that the results we expect to achieve are legally enforceable in all cases. See "-- Legal and Regulatory Risks Are Inherent and Substantial in Our Businesses -- Our Exposure to Legal Liability Is Significant" for additional information concerning these matters and "Business -- Regulation" for a discussion of the regulatory environment in which we conduct our businesses. OUR CONVERSION TO CORPORATE FORM MAY ADVERSELY AFFECT OUR ABILITY TO RECRUIT, RETAIN AND MOTIVATE KEY EMPLOYEES Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition in the financial services industry for qualified employees is intense. Our continued ability to compete effectively in our businesses depends on our ability to attract new employees and to retain and motivate our existing employees. In connection with the offerings and the conversion of Goldman Sachs from partnership to corporate form, the managing directors who were profit participating limited partners will receive substantial amounts of common stock in exchange for their interests in Goldman Sachs. Because these shares of common stock will be received in exchange for partnership interests, ownership of these shares will not be dependent upon these partners' continued employment. However, these shares will be subject to certain restrictions on transfer under a shareholders' agreement and a portion may be pledged to support these partners' obligations under noncompetition agreements. The transfer restrictions under the shareholders' agreement may, however, be waived, as described under "Certain Relationships and Related Transactions -- Shareholders' Agreement -- Transfer Restrictions" and "-- Waivers". The steps we have taken to encourage the continued service of these individuals after the offerings may not be effective. For a description of the compensation plan for our senior professionals to be implemented after the offerings, see "Management -- The Partner Compensation Plan". In connection with the offerings and conversion of Goldman Sachs from partnership to corporate form, employees, other than the managing directors who were profit participating limited partners, will receive grants of restricted stock units, stock options or interests in a defined contribution plan. The incentives to attract, retain and motivate employees provided by these awards or by future arrangements may not be as effective as the opportunity, which existed prior to conversion, to become a partner of Goldman Sachs. See "Management -- The Employee Initial Public Offering Awards" for a description of these awards. GOLDMAN SACHS WILL BE CONTROLLED BY ITS MANAGING DIRECTORS WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER SHAREHOLDERS Upon completion of the offerings, our managing directors will collectively own not less than 281,000,000 shares of common stock, or 61% of the total shares of common stock outstanding, which includes the shares of common stock underlying the restricted stock units to be awarded based on a formula. These shares will be subject to a shareholders' agreement, which will provide for coordinated voting by the parties. Further, both Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, which together will own 42,937,355 shares of common stock, or 9.4% of the total shares of common stock outstanding after consummation of the offerings, have agreed to vote their shares of common stock in the same manner as a majority of the shares held by our 20 22 managing directors are voted. See "Certain Relationships and Related Transactions -- Shareholders' Agreement -- Voting" and "-- Voting Agreement" for a discussion of these voting arrangements. As a result of these arrangements, the managing directors initially will be able to elect our entire board of directors, control the management and policies of Goldman Sachs and, in general, determine, without the consent of the other shareholders, the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the assets of Goldman Sachs. The managing directors initially will be able to prevent or cause a change in control of Goldman Sachs. Provisions of Our Organizational Documents May Discourage an Acquisition of Goldman Sachs Our organizational documents contain provisions that will impede the removal of directors and may discourage a third party from making a proposal to acquire us. For example, our board of directors may, without the consent of shareholders, issue preferred stock with greater voting rights than the common stock. See "Description of Capital Stock -- Certain Anti-Takeover Matters" for a discussion of these anti-takeover provisions. OUR SHARE PRICE MAY DECLINE DUE TO THE LARGE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of common stock, or the possibility of such sales, may adversely affect the price of the common stock and impede our ability to raise capital through the issuance of equity securities. See "Shares Eligible for Future Sale" for a discussion of possible future sales of common stock. Upon consummation of the offerings, there will be 457,865,101 shares of common stock outstanding. Of these shares, the 60,000,000 shares of common stock expected to be sold in the offerings will be freely transferable without restriction or further registration under the Securities Act of 1933. The remaining 397,865,101 shares of common stock will be available for future sale upon the expiration or the waiver of transfer restrictions or in accordance with registration rights. See "Shares Eligible for Future Sale" for a discussion of the shares of common stock that may be sold into the public market in the future. OUR COMMON STOCK MAY TRADE AT PRICES BELOW THE INITIAL PUBLIC OFFERING PRICE The price of the common stock after the offerings may fluctuate widely, depending upon many factors, including the perceived prospects of Goldman Sachs and the securities and financial services industries in general, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts' recommendations or projections, changes in general economic or market conditions and broad market fluctuations. The common stock may trade at prices significantly below the initial public offering price. THE LIQUIDITY OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY AN INABILITY OF GOLDMAN, SACHS & CO. TO ACT AS A MARKET-MAKER IN THE COMMON STOCK We have applied to list the common stock on the NYSE. The NYSE listing does not, however, guarantee that a trading market for the common stock will develop or, if a market does develop, the liquidity of that market for the common stock. After the offerings, because Goldman, Sachs & Co. is a member of the NYSE and because of Goldman, Sachs & Co.'s relationship to us, it will not be permitted under the rules of the NYSE to make markets in, or recommendations regarding the purchase or sale of, the common stock. This may adversely affect the trading market for the common stock. WE EXPECT TO RECORD A SUBSTANTIAL PRE-TAX LOSS IN THE SECOND QUARTER OF FISCAL 1999 We expect to record a substantial pre-tax loss in the second quarter of fiscal 1999 due to a number of nonrecurring items described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations". 21 23 USE OF PROCEEDS Based upon an initial public offering price of $50.00 per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus), Goldman Sachs estimates that it will receive net proceeds from the U.S., international and Asia/Pacific offerings of $2.0 billion (or $2.4 billion if the underwriters' options to purchase additional shares are exercised in full), after deducting the underwriting discounts and estimated expenses that are payable by Goldman Sachs in the offerings. The above amounts do not include underwriting discounts that will be received by Goldman, Sachs & Co., Goldman Sachs International and Goldman Sachs (Asia) L.L.C. as underwriters in the offerings. We will use the net proceeds to provide additional funds for our operations and for other general corporate purposes, although we have not yet determined a specific use. Pending specific application of the net proceeds, we intend to use them to purchase short-term marketable securities. We will not receive any of the proceeds from the sale of shares of our common stock by Sumitomo Bank Capital Markets, Inc. or Kamehameha Activities Association. DIVIDEND POLICY The holders of common stock and nonvoting common stock of Goldman Sachs will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors. Our board of directors currently intends to declare quarterly dividends on all outstanding shares of common stock and nonvoting common stock and expects that the first quarterly dividend will be $0.12 per share, and that it will be declared during the third quarter of fiscal 1999. The declaration of dividends by Goldman Sachs is subject to the discretion of our board of directors. Our board of directors will take into account such matters as general business conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us, the effect on our debt ratings and such other factors as our board of directors may deem relevant. See "Business -- Regulation" for a discussion of potential regulatory limitations on our receipt of funds from our regulated subsidiaries. 22 24 REPORT OF INDEPENDENT ACCOUNTANTS ON PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION To the Partners, The Goldman Sachs Group, L.P.: We have examined the pro forma adjustments reflecting (i) the incorporation transactions and the related transactions described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions"; (ii) compensation to managing directors who were profit participating limited partners; (iii) compensation in the form of restricted stock units awarded to employees in lieu of ongoing cash compensation; and (iv) the provision for corporate income taxes (collectively, the "Pro Forma Adjustments"), and the offerings, all as described in Note 2 to the Pro Forma Consolidated Financial Information (included on pages 25 to 31 of this prospectus) and the application of those adjustments to the historical amounts in the Pro Forma Consolidated Income Statement Information for the year ended November 27, 1998. The historical consolidated income statement information is derived from the historical consolidated financial statements of Goldman Sachs, which were audited by us and which are included elsewhere in this prospectus. The Pro Forma Adjustments are based upon management's assumptions described in Note 2 to the Pro Forma Consolidated Financial Information. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included such procedures as we considered necessary in the circumstances. The objective of this pro forma consolidated financial information is to show what the significant effects on the historical income statement information of Goldman Sachs might have been had the Pro Forma Adjustments and the offerings occurred at an earlier date. However, the Pro Forma Consolidated Income Statement Information is not necessarily indicative of the results of operations that would have been attained had the above-mentioned Pro Forma Adjustments and the offerings actually occurred earlier. In our opinion, management's assumptions provide a reasonable basis for presenting the significant effects directly attributable to the above-mentioned Pro Forma Adjustments and the offerings, all as described in Note 2 to the Pro Forma Consolidated Financial Information, the related pro forma adjustments give appropriate effect to those assumptions, and the "Pro Forma" and "Pro Forma as Adjusted for Offerings" columns reflect the proper application of those adjustments to the historical consolidated income statement amounts in the Pro Forma Consolidated Income Statement Information for the year ended November 27, 1998. PricewaterhouseCoopers LLP New York, New York April 27, 1999. 23 25 REVIEW REPORT OF INDEPENDENT ACCOUNTANTS ON PRO FORMA CONSOLIDATED FINANCIAL INFORMATION To the Partners, The Goldman Sachs Group, L.P.: We have reviewed the pro forma adjustments reflecting (i) the incorporation transactions and the related transactions described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions"; (ii) compensation to managing directors who were profit participating limited partners; (iii) compensation in the form of restricted stock units awarded to employees in lieu of ongoing cash compensation; (iv) the provision for corporate income taxes; (v) the redemption of Goldman Sachs' senior limited partnership interests; (vi) cash distributions by The Goldman Sachs Group, L.P. to its partners in the second quarter of fiscal 1999 in accordance with the Goldman Sachs partnership agreement, including distributions for partner income taxes related to Goldman Sachs' earnings in the first quarter of fiscal 1999, capital withdrawals by the managing directors who were profit participating limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association and distributions to satisfy obligations to retired limited partners; and (vii) the recognition of net tax assets (collectively, the "Pro Forma Adjustments"), and the offerings, all as described in Note 2 to the Pro Forma Consolidated Financial Information (included on pages 25 to 31 of this prospectus) and the application of those adjustments to the historical amounts in the Pro Forma Consolidated Balance Sheet Information as of February 26, 1999 and the Pro Forma Consolidated Income Statement Information for the three months then ended. The historical consolidated financial statement information is derived from the historical condensed consolidated financial statements of Goldman Sachs, which were reviewed by us and which are included elsewhere in this prospectus. The Pro Forma Adjustments are based upon management's assumptions described in Note 2 to the Pro Forma Consolidated Financial Information. Our review was made in accordance with standards established by the American Institute of Certified Public Accountants. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's assumptions, the pro forma adjustments and the application of those adjustments to historical financial information. Accordingly, we do not express such an opinion. The objective of this pro forma consolidated financial information is to show what the significant effects on the historical financial information of Goldman Sachs might have been had the Pro Forma Adjustments and the offerings occurred at an earlier date. However, the Pro Forma Consolidated Income Statement Information and the Pro Forma Consolidated Balance Sheet Information are not necessarily indicative of the results of operations or related effects on financial position that would have been attained had the above-mentioned Pro Forma Adjustments and the offerings actually occurred earlier. Based on our review, nothing came to our attention that caused us to believe that management's assumptions do not provide a reasonable basis for presenting the significant effects directly attributable to the above-mentioned Pro Forma Adjustments and the offerings, all as described in Note 2 to the Pro Forma Consolidated Financial Information, that the related pro forma adjustments do not give appropriate effect to those assumptions, or that the "Pro Forma" and "Pro Forma as Adjusted for Offerings" columns do not reflect the proper application of those adjustments to the historical consolidated financial statement amounts in the Pro Forma Consolidated Balance Sheet Information as of February 26, 1999 and the Pro Forma Consolidated Income Statement Information for the three months then ended. PricewaterhouseCoopers LLP New York, New York April 27, 1999. 24 26 PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following Pro Forma Consolidated Financial Information is based upon the historical consolidated financial statements of Goldman Sachs. In addition to the offerings, this information reflects the pro forma effects of the following items: - - the incorporation transactions and the related transactions described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions"; - - compensation to managing directors who were profit participating limited partners; - - compensation in the form of restricted stock units awarded to employees in lieu of ongoing cash compensation; - - the provision for corporate income taxes; - - the redemption of our senior limited partnership interests; - - cash distributions by The Goldman Sachs Group, L.P. to its partners in the second quarter of fiscal 1999 in accordance with its partnership agreement, including distributions for partner income taxes related to earnings in the first quarter of fiscal 1999, capital withdrawals by the managing directors who were profit participating limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association and distributions to satisfy obligations to retired limited partners; and - - the recognition of net tax assets. These items are collectively referred to as the "Pro Forma Adjustments". The Pro Forma Consolidated Income Statement Information does not give effect to the following items because of their non-recurring nature: - - the restricted stock units awarded to employees based on a formula; - - the initial irrevocable contribution of shares of common stock to the defined contribution plan; - - the recognition of net tax assets; and - - a contribution to the Goldman Sachs Fund, a charitable foundation. The Pro Forma Consolidated Balance Sheet Information, however, does give effect to these non-recurring items. The Pro Forma Adjustments are based upon available information and certain assumptions that management believes are reasonable. The Pro Forma Consolidated Financial Information and accompanying notes should be read in conjunction with the consolidated financial statements and their notes. THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION PRESENTED IS NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL POSITION THAT MIGHT HAVE OCCURRED HAD THE PRO FORMA ADJUSTMENTS ACTUALLY TAKEN PLACE AS OF THE DATES SPECIFIED, OR THAT MAY BE EXPECTED TO OCCUR IN THE FUTURE. 25 27 PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION (in millions, except per share data)
YEAR ENDED NOVEMBER 27, 1998 --------------------------------------------------------------------------- PRO FORMA PRO FORMA ADJUSTMENT AS ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS ---------- ----------- ------------ ------------- ------------- Total revenues.............................. $22,478 $ -- $22,478 $ -- $22,478 Interest expense, principally on short-term funding................................... 13,958 28(a) 13,986 -- 13,986 ------- ------- ------- ----- ------- Revenues, net of interest expense........... 8,520 (28) 8,492 -- 8,492 Compensation and benefits, excluding employee initial public offering awards... 3,838 303(b) 4,141 -- 4,141 Employee initial public offering awards..... -- 435(c) 435 -- 435 Other operating expenses.................... 1,761 -- 1,761 -- 1,761 ------- ------- ------- ----- ------- Total operating expenses.................... 5,599 738 6,337 -- 6,337 Pre-tax earnings............................ 2,921 (766) 2,155 -- 2,155 Provision for taxes......................... 493 391(d) 884 -- 884 ------- ------- ------- ----- ------- Net earnings................................ $ 2,428 $(1,157) $ 1,271 $ -- $ 1,271 ======= ======= ======= ===== ======= Shares outstanding: Basic..................................... 424(e) 42(f) 466 Diluted................................... 428(e) 42(f) 470 Earnings per share: Basic..................................... $ 3.00 $ 2.73 Diluted................................... 2.97 2.70
PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION (unaudited) (in millions, except per share data)
THREE MONTHS ENDED FEBRUARY 26, 1999 --------------------------------------------------------------------------- PRO FORMA PRO FORMA ADJUSTMENT AS ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS ---------- ----------- ------------ ------------- ------------- Total revenues.............................. $ 5,856 $ -- $ 5,856 $ -- $ 5,856 Interest expense, principally on short-term funding................................... 2,861 7(a) 2,868 -- 2,868 ------- ------- ------- ----- ------- Revenues, net of interest expense........... 2,995 (7) 2,988 -- 2,988 Compensation and benefits, excluding employee initial public offering awards... 1,275 191(b) 1,466 -- 1,466 Employee initial public offering awards..... -- 109(c) 109 -- 109 Other operating expenses.................... 532 -- 532 -- 532 ------- ------- ------- ----- ------- Total operating expenses.................... 1,807 300 2,107 -- 2,107 Pre-tax earnings............................ 1,188 (307) 881 -- 881 Provision for taxes......................... 181 180(d) 361 -- 361 ------- ------- ------- ----- ------- Net earnings................................ $ 1,007 $ (487) $ 520 $ -- $ 520 ======= ======= ======= ===== ======= Shares outstanding: Basic..................................... 428(e) 42(f) 470 Diluted................................... 438(e) 42(f) 480 Earnings per share: Basic..................................... $ 1.22 $ 1.11 Diluted................................... 1.19 1.08
The accompanying notes are an integral part of the Pro Forma Consolidated Financial Information. 26 28 PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION (unaudited) (in millions, except per share data)
AS OF FEBRUARY 26, 1999 ------------------------------------------------------------------------ PRO FORMA PRO FORMA ADJUSTMENT AS ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA FOR OFFERINGS FOR OFFERINGS ---------- ----------- --------- ------------- ------------- Cash and cash equivalents.................... $ 3,345 $ (200)(g) $ 134 $1,989(f) $ 2,123 (891)(h) (888)(i) (1,232)(k) Other........................................ 227,279 1,764(l) 229,043 -- 229,043 -------- ------- -------- ------ -------- Total assets................................. $230,624 $(1,447) $229,177 $1,989 $231,166 ======== ======= ======== ====== ======== Long-term borrowings......................... $ 20,405 $ 371(a) $ 20,776 $ -- $ 20,776 Other........................................ 203,228 165(b) 203,393 -- 203,393 -------- ------- -------- ------ -------- Total liabilities............................ 223,633 536 224,169 -- 224,169 Partners' capital, partners' capital allocated for income taxes and potential withdrawals, and accumulated other comprehensive income....................... 6,991 (371)(a) (891)(h) (888)(i) (3,609)(j) (1,232)(k) -------- ------- -------- ------ -------- Total partnership capital.................... 6,991 (6,991) -- -- -- Common stock and nonvoting common stock, par value $0.01 per share...................... -- 4(j) 4 -- 4 Restricted stock units....................... -- 3,169(m) 3,169 -- 3,169 Additional paid-in capital................... -- 3,605(j) 4,233 1,989(f) 6,222 628(m) Retained earnings............................ -- (165)(b) (733) -- (733) (200)(g) 1,764(l) (2,132)(m) Unearned compensation........................ -- (1,665)(m) (1,665) -- (1,665) -------- ------- -------- ------ -------- Total stockholders' equity................... -- 5,008 5,008 1,989 6,997 Total liabilities, partnership capital and stockholders' equity....................... $230,624 $(1,447) $229,177 $1,989 $231,166 ======== ======= ======== ====== ======== Book value per share......................... $ 11.82 $ 15.02
The accompanying notes are an integral part of the Pro Forma Consolidated Financial Information. 27 29 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION NOTE 1: BASIS OF PRESENTATION As permitted by the rules and regulations of the SEC, the Pro Forma Consolidated Financial Information is presented on a condensed basis. The Pro Forma Consolidated Balance Sheet Information was prepared as if the Pro Forma Adjustments had occurred as of February 26, 1999. Book value per share equals stockholders' equity divided by the shares of common stock and nonvoting common stock outstanding, including the shares of common stock underlying the restricted stock units awarded to employees based on a formula, of 423,768,581 prior to the offerings and 465,768,581 as adjusted for the offerings. See Note 2(e) below for a further discussion of shares outstanding. The Pro Forma Consolidated Income Statement Information for the fiscal year ended November 27, 1998 and the three-month fiscal period ended February 26, 1999 was prepared as if the Pro Forma Adjustments had taken place at the beginning of fiscal 1998. For pro forma purposes, the offerings and, where applicable, the related transactions reflect an assumed price of $50.00 per share, the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus. NOTE 2: PRO FORMA ADJUSTMENTS AND ADJUSTMENT FOR OFFERINGS (a) RETIRED LIMITED PARTNERS EXCHANGE OF INTERESTS FOR DEBENTURES. Adjustment to reflect the issuance of junior subordinated debentures to the retired limited partners in exchange for their interests in The Goldman Sachs Group, L.P. and certain affiliates. These junior subordinated debentures will have a principal amount of $295 million, an initial carrying value of $371 million and an effective interest rate of 7.5%. The annual interest expense to be recorded on these debentures in the first year will be $28 million. (b) COMPENSATION AND BENEFITS, EXCLUDING EMPLOYEE INITIAL PUBLIC OFFERING AWARDS. Since Goldman Sachs has operated as a partnership, there is no meaningful historical measure of the compensation and benefits that would have been paid, in corporate form, to the managing directors who were profit participating limited partners for services rendered in fiscal 1998 and in the three months ended February 26, 1999. Accordingly, management has estimated these amounts, which are substantially performance-based, by reference to a pro forma ratio of total compensation and benefits to net revenues that it deemed appropriate for Goldman Sachs as a whole, given the historical operating results in these periods. As a result, additional compensation and benefits expense related to the managing directors who were profit participating limited partners of $427 million in fiscal 1998 and $242 million in the three months ended February 26, 1999 has been recorded on the Pro Forma Consolidated Income Statement Information. The future compensation and benefits related to services rendered by the managing directors who were profit participating limited partners will be based upon measures of financial performance, including net revenues, pre-tax earnings and the ratio of compensation and benefits to net revenues, as described under "Management -- The Partner Compensation Plan -- Determination of Salary and Bonus". Management anticipates that, consistent with industry practice, it will adjust the form and structure of its compensation arrangements to achieve a relationship of compensation and benefits to net revenues within a range that it believes is appropriate given prevailing market conditions. In addition to the employee initial public offering awards, restricted stock units will also be granted to employees in lieu of a portion of ongoing cash compensation. Of the total restricted stock units assumed to be granted in lieu of cash compensation, 50% will require future service as a condition to the delivery of the underlying shares of common stock. In accordance with Accounting Principles Board Opinion No. 25, the restricted stock units with future service requirements will be recorded as compensation expense over the four-year service period 28 30 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) following the date of grant. Goldman Sachs expects to record this expense over the service period as follows: 52%, 28%, 14% and 6% in years one, two, three and four, respectively. If these stock-based awards had been made from the beginning of fiscal 1998, historical compensation expense would have been reduced by $124 million in fiscal 1998 and $51 million in the three months ended February 26, 1999 because a portion of cash compensation recorded in these periods would have been replaced by restricted stock units with future service requirements. These reductions are reflected in the Pro Forma Consolidated Income Statement Information. The adjustment of $165 million to the Pro Forma Consolidated Balance Sheet Information reflects the additional compensation and benefits that we would have recorded assuming the Pro Forma Adjustments had occurred as of February 26, 1999. This adjustment includes $232 million in compensation and benefits related to the managing directors who were profit participating limited partners offset by a reduction of $67 million related to the issuance of restricted stock units to employees, in lieu of a portion of cash compensation, for which future service is required as a condition to the delivery of the underlying shares of common stock. This adjustment to the Pro Forma Consolidated Balance Sheet Information excludes the compensation expense of $26 million in the first quarter of fiscal 1999 related to the portion of restricted stock units that, for pro forma income statement purposes only, were assumed to be awarded in fiscal 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Operating Expenses" for a discussion of the actual expense we expect to record in the second quarter of fiscal 1999. (c) EXPENSE RELATED TO EMPLOYEE INITIAL PUBLIC OFFERING AWARDS. Adjustment to reflect the amortization of the 33,303,595 restricted stock units awarded to employees on a discretionary basis. These restricted stock units will have a value of $1,665 million, approximately 26% of which will be amortized as a non-cash expense in the twelve months following the date of grant. The remaining 74% of the value of these restricted stock units will be amortized over the next four years as follows: 26%, 26%, 15% and 7% in years two, three, four and five, respectively. The options to purchase 40,000,028 shares of common stock awarded to employees on a discretionary basis 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. The estimated fair value of these discretionary options on the date of grant is $667 million using a Black-Scholes option pricing model. If Statement of Financial Accounting Standards No. 123 had been applied, compensation expense of $174 million and $44 million would have been included in the Pro Forma Consolidated Income Statement Information in fiscal 1998 and the three months ended February 26, 1999, respectively. See "Management -- The Employee Initial Public Offering Awards" for a description of these awards. (d) PRO FORMA PROVISION FOR INCOME TAXES. Adjustment to reflect a pro forma provision for income taxes for Goldman Sachs in corporate form at an effective tax rate of 41%. (e) PRO FORMA COMMON STOCK AND NONVOTING COMMON STOCK. Shares outstanding, computed on a weighted-average basis, after giving effect to the Pro Forma Adjustments. For the purpose of calculating basic earnings per share and book value per share, shares outstanding prior to the offerings includes the nonvoting common stock, the shares of common stock irrevocably contributed to the defined contribution plan and, pursuant to Statement of Financial Accounting Standards No. 128, the shares of common stock underlying the restricted stock units awarded to employees based on a formula since future service is not required as a condition to the 29 31 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) delivery of the underlying shares of common stock. With respect to the three months ended February 26, 1999, pro forma basic shares outstanding also includes the shares of common stock underlying the restricted stock units assumed to be awarded in lieu of ongoing cash compensation in fiscal 1998 for which future service would not have been required as a condition to the delivery of the underlying shares of common stock. Pro forma diluted shares outstanding prior to the offerings reflects the dilutive effect of the common stock deliverable pursuant to the restricted stock units awarded to employees on a discretionary basis, and, with respect to the three months ended February 26, 1999, the dilutive effect of the shares of common stock underlying the restricted stock units assumed to be awarded in lieu of ongoing cash compensation in fiscal 1998 for which future service would have been required as a condition to the delivery of the underlying shares of common stock. (f) ADJUSTMENT FOR THE OFFERINGS. Shares as adjusted to reflect the issuance of 42,000,000 shares of common stock offered by The Goldman Sachs Group, Inc. Net proceeds from the offerings reflect the deduction of underwriting discounts and of estimated expenses payable by Goldman Sachs in connection with the offerings. The adjustment for the offerings excludes 9,000,000 shares of common stock issuable upon exercise of the underwriters' options to purchase additional shares, which are described under "Underwriting". (g) CHARITABLE CONTRIBUTION. Adjustment to reflect the charitable contribution of $200 million. (h) RETIRED LIMITED PARTNER EXCHANGES OF INTERESTS FOR CASH. Adjustment to reflect the payment of $891 million in cash to the retired limited partners in exchange for their interests in The Goldman Sachs Group, L.P. and certain affiliates. (i) REDEMPTION OF SENIOR LIMITED PARTNERSHIP INTERESTS FOR CASH. Adjustment to reflect the redemption of the senior limited partnership interests for cash of $888 million by The Goldman Sachs Group, L.P. prior to the incorporation transactions described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions -- Incorporation Transactions". (j) PARTNER EXCHANGES OF INTERESTS FOR SHARES. Adjustment of $3,609 million to reflect the issuance of 265,019,073 shares of common stock to the managing directors who were profit participating limited partners, 47,270,551 shares of common stock to retired limited partners, 29,961,934 shares of common stock and 7,903,480 shares of nonvoting common stock to Sumitomo Bank Capital Markets, Inc. and 30,975,421 shares of common stock to Kamehameha Activities Association, in exchange for their respective interests in The Goldman Sachs Group, L.P. and certain affiliates. (k) CASH DISTRIBUTIONS. Adjustment to reflect cash distributions of $1,232 million by The Goldman Sachs Group, L.P. to its partners, including Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, in the second quarter of fiscal 1999 in accordance with its partnership agreement, including distributions for partner income taxes related to earnings in the first quarter of fiscal 1999, capital withdrawals by the managing directors who were profit participating limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association and distributions to satisfy obligations to certain retired limited partners. Goldman Sachs expects that additional cash distributions for partner income taxes related to earnings in the second quarter of fiscal 1999 will be significant due, in part, to certain expenses that are not deductible by the partners. Goldman Sachs expects to record a substantial tax asset on the consummation of the offerings related to these expenses. These cash distributions and the related tax asset are not reflected in the Pro Forma Consolidated Balance Sheet Information. 30 32 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (l) NET TAX ASSETS. Adjustment to reflect the addition to retained earnings related to the recognition of a net tax asset of $1,764 million under Statement of Financial Accounting Standards No. 109 at an effective tax rate of 41%. The components of this net tax asset, which will be included in "Other assets" on the consolidated statement of financial condition, are (i) a net benefit of $808 million related to the conversion of The Goldman Sachs Group, L.P. to corporate form, (ii) a benefit of $874 million related to the 30,070,535 restricted stock units awarded to employees based on a formula and the initial irrevocable contribution of 12,567,587 shares of common stock to the defined contribution plan and (iii) a benefit of $82 million related to the charitable contribution. As discussed in Note 2(k) above, Goldman Sachs expects to record a substantial tax asset on the consummation of the offerings related to certain expenses that are not deductible by the partners in fiscal 1999. The tax asset associated with these expenses in the second quarter of fiscal 1999 is not reflected in the Pro Forma Consolidated Balance Sheet Information. (m) EFFECT ON STOCKHOLDERS' EQUITY OF EMPLOYEE INITIAL PUBLIC OFFERING AWARDS. Adjustment to reflect the effect on the components of stockholders' equity, excluding the tax benefit described in Note 2(l) above, of (i) the restricted stock units awarded to employees based on a formula, (ii) the initial irrevocable contribution of shares of common stock to the defined contribution plan and (iii) the restricted stock units awarded to employees on a discretionary basis. The following table sets forth each of these components as of February 26, 1999:
COMMON STOCK ADDITIONAL AND NONVOTING RESTRICTED PAID-IN RETAINED UNEARNED COMMON STOCK STOCK UNITS CAPITAL EARNINGS COMPENSATION ------------- ----------- ---------- -------- ------------ (in millions) Restricted stock units awarded based on a formula............................. $-- $1,504 $ -- $(1,504) $ -- Contribution of shares of common stock to the defined contribution plan...... -- -- 628 (628) -- Restricted stock units awarded on a discretionary basis................... -- 1,665 -- -- (1,665) --- ------ ---- ------- ------- Total Adjustment........................ $-- $3,169 $628 $(2,132) $(1,665) === ====== ==== ======= =======
31 33 DILUTION As of February 26, 1999, the pro forma net tangible book value of Goldman Sachs was approximately $4.84 billion, or approximately $11.43 per share (which includes the shares of nonvoting common stock, the shares of common stock irrevocably contributed to the defined contribution plan and the shares of common stock underlying the restricted stock units awarded to employees based on a formula). "Pro forma net tangible book value" per share represents the amount of Goldman Sachs' total consolidated tangible assets minus total consolidated liabilities, divided by the 423,768,581 shares outstanding on a pro forma basis after giving effect to the Pro Forma Adjustments described under "Pro Forma Consolidated Financial Information". After giving effect to the sale by The Goldman Sachs Group, Inc. of 42,000,000 shares of common stock in the offerings at an assumed initial public offering price of $50.00 per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus) and after deducting the underwriting discounts and estimated expenses payable by Goldman Sachs in the offerings, the pro forma net tangible book value of Goldman Sachs as of February 26, 1999 would have been approximately $6.83 billion, or approximately $14.67 per share. This represents an immediate increase in net tangible book value of $3.24 per share to existing shareholders and an immediate dilution in net tangible book value of $35.33 per share to new investors purchasing shares of common stock at the assumed initial public offering price. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share of common stock..................................................... $50.00 Pro forma net tangible book value per share before giving effect to the offerings(1)............................. $11.43 Increase in net tangible book value per share attributable to the sale of common stock in the offerings(2)........ 3.24 ------ Pro forma net tangible book value per share after giving effect to the offerings(1)................................ 14.67 ------ Dilution in net tangible book value per share to new investors(3).............................................. $35.33 ======
- --------------- (1) Goldman Sachs' intangible assets as of February 26, 1999 were $166 million, comprised primarily of goodwill, equivalent to $0.39 per share, after giving effect to the Pro Forma Adjustments described under "Pro Forma Consolidated Financial Information", and $0.36 per share after giving effect to the offerings. (2) After deducting the underwriting discounts and estimated expenses payable by Goldman Sachs in the offerings. (3) Dilution is determined by subtracting pro forma net tangible book value per share after giving effect to the offerings from the assumed initial public offering price per share paid by a new investor. ------------------------ The foregoing table assumes no exercise of the underwriters' options to purchase 9,000,000 additional shares of common stock, which are described under "Underwriting". Shares outstanding excludes 40,000,028 shares of common stock deliverable pursuant to the options awarded to employees on a discretionary basis, 33,303,595 shares of common stock deliverable pursuant to the restricted stock units awarded to employees on a discretionary basis and shares of common stock that may be awarded in the future under the stock incentive plan. See "Management -- The Employee Initial Public Offering Awards" for a description of these awards and the stock incentive plan. 32 34 CAPITALIZATION The following table sets forth the consolidated capitalization of Goldman Sachs as of February 26, 1999: - - on an historical basis; - - on a pro forma basis after giving effect to the Pro Forma Adjustments described under "Pro Forma Consolidated Financial Information"; and - - as adjusted for the sale of 42,000,000 shares of common stock by The Goldman Sachs Group, Inc. in the offerings at an assumed initial public offering price of $50.00 per share, the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus, and after deduction of the underwriting discounts and estimated expenses payable by Goldman Sachs in the offerings. This table should be read in conjunction with the consolidated financial statements and their notes and the Pro Forma Consolidated Financial Information and their notes, and assumes no exercise of the underwriters' options to purchase additional shares that are described under "Underwriting".
AS OF FEBRUARY 26, 1999 ----------------------------------------------- PRO FORMA AS ADJUSTED HISTORICAL PRO FORMA FOR THE OFFERINGS ---------- --------- ----------------- ($ in millions) Short-term borrowings (including commercial paper)(1)....... $33,863 $33,863 $33,863 ======= ======= ======= Long-term borrowings(2): Senior debt(3)............................................ $20,405 $20,405 $20,405 Junior subordinated debentures(4)......................... -- 371 371 ------- ------- ------- Total long-term borrowings......................... 20,405 20,776 20,776 Partners' capital........................................... 6,612 -- -- Stockholders' equity: Preferred stock, par value $0.01 per share; 150,000,000 shares authorized, no shares issued and outstanding..... -- -- -- Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 385,794,566 shares issued and outstanding (427,794,566 shares issued and outstanding as adjusted)(5)......................................... -- 4 4 Restricted stock units; 63,374,130 units issued and outstanding(6).......................................... -- 3,169 3,169 Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, 7,903,480 shares issued and outstanding......................................... -- 0 0 Additional paid-in capital................................ -- 4,233 6,222 Retained earnings......................................... -- (733) (733) Unearned compensation(7).................................. (1,665) (1,665) ------- ------- ------- Total stockholders' equity......................... -- 5,008 6,997 ------- ------- ------- Total capitalization............................. $27,017 $25,784 $27,773 ======= ======= =======
- --------------- (1) Includes current portion of long-term borrowings of $6,285 million. See Note 4 to the condensed consolidated financial statements as of February 26, 1999 for further information regarding Goldman Sachs' short-term borrowings. (2) After the offerings and subject to market conditions, we intend to raise additional funds in the public debt securities market, including through an anticipated $1 billion offering of long-term debt securities. (3) Includes subordinated debt of Goldman, Sachs & Co. of $275 million. (4) Consists of junior subordinated debentures issued to the retired limited partners as part of the incorporation transactions. See "Certain Relationships and Related Transactions -- Incorporation and Related Transactions" for further information regarding the issuance of the debentures. (5) Common stock outstanding includes 12,567,587 shares of common stock irrevocably contributed to the defined contribution plan. Common stock outstanding excludes 40,000,028 shares of common stock deliverable pursuant to the options awarded to employees on a discretionary basis. See "Management -- The Employee Initial Public Offering Awards" for more detailed information regarding these awards. (6) Restricted stock units include 30,070,535 shares of common stock underlying the restricted stock units awarded to employees based on a formula and 33,303,595 shares of common stock underlying the restricted stock units awarded to employees on a discretionary basis. (7) Unearned compensation relates to the award of the restricted stock units awarded to employees on a discretionary basis. 33 35 SELECTED CONSOLIDATED FINANCIAL DATA The selected historical consolidated income statement and balance sheet data set forth below have been derived from Goldman Sachs' consolidated financial statements and their notes. Goldman Sachs' consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent public accountants, as of November 28, 1997 and November 27, 1998 and for the years ended November 29, 1996, November 28, 1997 and November 27, 1998. Goldman Sachs' consolidated financial statements have been reviewed by PricewaterhouseCoopers LLP as of February 26, 1999 and for the three months ended February 27, 1998 and February 26, 1999. These financial statements are included elsewhere in this prospectus, together with the reports thereon of PricewaterhouseCoopers LLP. The selected historical consolidated income statement and balance sheet data set forth below as of November 25, 1994, November 24, 1995 and November 29, 1996 and for the years ended November 25, 1994 and November 24, 1995 have been derived from audited consolidated financial statements of Goldman Sachs not included in this prospectus. The selected historical consolidated income statement and balance sheet data set forth below as of and for the three months ended February 26, 1999 and for the three months ended February 27, 1998 have been derived from Goldman Sachs' unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim results set forth below for the three months ended February 26, 1999 may not be indicative of results for the full year. The pro forma data set forth below for the year ended November 27, 1998 and as of and for the three months ended February 26, 1999 have been derived from the pro forma data set forth in "Pro Forma Consolidated Financial Information" included elsewhere in this prospectus. The pro forma consolidated income statement information set forth in "Pro Forma Consolidated Financial Information" for the year ended November 27, 1998 have been examined by PricewaterhouseCoopers LLP. The pro forma consolidated financial information as of and for the three months ended February 26, 1999 has been reviewed by PricewaterhouseCoopers LLP. The selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Pro Forma Consolidated Financial Information" and the consolidated financial statements and their notes.
AS OF OR FOR THREE MONTHS AS OF OR FOR YEAR ENDED NOVEMBER ENDED FEBRUARY --------------------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- (unaudited) (in millions, except per share amounts) INCOME STATEMENT DATA: Total revenues.................................. $12,452 $ 14,324 $ 17,289 $ 20,433 $ 22,478 $ 5,903 $ 5,856 Interest expense................................ 8,915 9,841 11,160 12,986 13,958 3,431 2,861 ------- -------- -------- -------- -------- -------- -------- Net revenues.................................... 3,537 4,483 6,129 7,447 8,520 2,472 2,995 Compensation and benefits(1).................... 1,789 2,005 2,421 3,097 3,838 1,100 1,275 Other operating expenses........................ 1,240 1,110 1,102 1,336 1,761 350 532 ------- -------- -------- -------- -------- -------- -------- Pre-tax earnings(1)............................. $ 508 $ 1,368 $ 2,606 $ 3,014 $ 2,921 $ 1,022 $ 1,188 ======= ======== ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets(2)................................. $95,296 $100,066 $152,046 $178,401 $217,380 -- $230,624 Long-term borrowings............................ 14,418 13,358 12,376 15,667 19,906 -- 20,405 Total liabilities(2)............................ 89,981 94,686 145,753 171,864 210,996 -- 223,633 Partners' capital............................... 4,771 4,905 5,309 6,107 6,310 -- 6,612 PRO FORMA DATA:(3) Pro forma net earnings.......................... -- -- -- -- $ 1,271 -- $ 520 Pro forma diluted earnings per share(4)......... -- -- -- -- 2.97 -- 1.19 Pro forma diluted earnings per share as adjusted for the offerings(5).......................... -- -- -- -- 2.70 -- 1.08 Pro forma diluted shares as adjusted for the offerings(5).................................. -- -- -- -- 470 -- 480 Pro forma stockholders' equity as adjusted for the offerings................................. -- -- -- -- -- -- $ 6,997 Pro forma book value per share as adjusted for the offerings................................. -- -- -- -- -- -- 15.02
34 36 SELECTED CONSOLIDATED FINANCIAL DATA
AS OF OR FOR THREE MONTHS AS OF OR FOR YEAR ENDED NOVEMBER ENDED FEBRUARY --------------------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- ($ in millions) SELECTED DATA AND RATIOS (UNAUDITED): Pre-tax return on average partners' capital(1).................................... 10% 28% 51% 53% 47% -- -- Ratio of compensation and benefits to net revenues(1)................................... 51 45 40 42 45 44% 43% Employees: United States................................. 5,822 5,356 5,818 6,879 8,349 7,008 8,244 International................................. 3,176 2,803 3,159 3,743 4,684 3,891 4,634 ------- -------- -------- -------- -------- -------- -------- Total employees(6).............................. 8,998 8,159 8,977 10,622 13,033 10,899 12,878 ======= ======== ======== ======== ======== ======== ======== Assets under supervision: Assets under management....................... $43,671 $ 52,358 $ 94,599 $135,929 $194,821 $151,189 $206,380 Other client assets........................... 49,061 57,716 76,892 102,033 142,018 114,928 163,315 ------- -------- -------- -------- -------- -------- -------- Total assets under supervision.................. $92,732 $110,074 $171,491 $237,962 $336,839 $266,117 $369,695 ======= ======== ======== ======== ======== ======== ========
- --------------- (1) Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our pre-tax earnings and compensation and benefits expense have not reflected any payments for services rendered by our managing directors who are profit participating limited partners. Accordingly, our historical pre-tax earnings understate the expected operating costs to be incurred by us after the offerings. As a corporation, we will include payments for services rendered by our managing directors who were profit participating limited partners in compensation and benefits expense. For financial information that reflects pro forma compensation and benefits expense as if we had been a corporation, see "Pro Forma Consolidated Financial Information". (2) Total assets and liabilities were increased by $11.64 billion as of November 27, 1998 and $8.99 billion as of February 26, 1999 due to the adoption of the provisions of Statement of Financial Accounting Standards No. 125 that were deferred by Statement of Financial Accounting Standards No. 127. For a discussion of Statement of Financial Accounting Standards Nos. 125 and 127, see "Accounting Developments" in Note 2 to the audited consolidated financial statements. (3) Reflects such adjustments as are necessary, in the opinion of management, for a fair presentation of the results of operations and stockholders' equity of Goldman Sachs on a pro forma basis. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments. (4) Calculated based on weighted-average diluted shares outstanding after giving effect to the Pro Forma Adjustments. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments and the calculation of pro forma earnings per share. (5) Calculated based on weighted-average diluted shares outstanding after giving effect to the Pro Forma Adjustments and as adjusted to reflect the issuance of 42,000,000 shares of common stock offered by The Goldman Sachs Group, Inc. at the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments and the calculation of pro forma earnings per share. (6) Excludes employees of Goldman Sachs' two property management subsidiaries, The Archon Group, L.P. and Archon Group (France) S.C.A. Substantially all of the costs of these employees are reimbursed to Goldman Sachs by the real estate investment funds to which the two companies provide property management services. In addition, as of February 26, 1999, we had 3,400 temporary staff and consultants. For more detailed information regarding our employees, see "Business -- Employees". 35 37 REPORT OF INDEPENDENT ACCOUNTANTS ON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS To the Partners, The Goldman Sachs Group, L.P.: We have examined Management's Discussion and Analysis of Financial Condition and Results of Operations, except as discussed in the third paragraph below ("MD&A"), taken as a whole, of The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm") for the three-year period ended November 27, 1998, included on pages 37 to 61 of this prospectus. Management is responsible for the preparation of the Firm's MD&A pursuant to the rules and regulations adopted by the Securities and Exchange Commission. Our responsibility is to express an opinion on the presentation based on our examination. We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of the Firm as of November 27, 1998 and November 28, 1997, and for each of the three years in the period ended November 27, 1998, and in our report dated January 22, 1999, we expressed an unqualified opinion on those financial statements. Our examination of MD&A was made in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence supporting the historical amounts and disclosures in the presentation. An examination also includes assessing the significant determinations made by management as to the relevance of information to be included and the estimates and assumptions that affect reported information. We believe that our examination provides a reasonable basis for our opinion. The preparation of MD&A requires management to interpret the criteria, make determinations as to the relevance of information to be included, and make estimates and assumptions that affect reported information. MD&A includes information regarding the estimated future impact of transactions and events that have occurred or are expected to occur, expected sources of liquidity and capital resources, operating trends, commitments, and uncertainties, including those related to the Year 2000 readiness issue. Actual results in the future may differ materially from management's present assessment of this information because events and circumstances frequently do not occur as expected. Our examination of MD&A of the Firm did not include (i) the information presented under the headings "VaR" or "VaR Methodology, Assumptions and Limitations" or (ii) information for the three months ended February 26, 1999 and February 27, 1998. Accordingly, we express no opinion on such information. In our opinion, the Firm's presentation of MD&A for the three-year period ended November 27, 1998 includes, in all material respects, the required elements of the rules and regulations adopted by the Securities and Exchange Commission; the historical financial amounts included therein have been accurately derived, in all material respects, from the Firm's financial statements; and the underlying information, determinations, estimates, and assumptions of the Firm provide a reasonable basis for the disclosures contained therein. PricewaterhouseCoopers LLP New York, New York March 15, 1999. 36 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Goldman Sachs is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base. Our activities are divided into three principal business lines: - - Investment Banking, which includes financial advisory services and underwriting; - - Trading and Principal Investments, which includes fixed income, currency and commodities ("FICC"), equities and principal investments (principal investments reflect primarily our investments in our merchant banking funds); and - - Asset Management and Securities Services, which includes asset management, securities services and commissions. All references to 1996, 1997 and 1998 refer to our fiscal year ended, or the date, as the context requires, November 29, 1996, November 28, 1997 and November 27, 1998, respectively, and all references to February 1998 and February 1999 refer to our three-month fiscal period ended, or the date, as the context requires, February 27, 1998 and February 26, 1999, respectively. When we use the terms "Goldman Sachs", "we" and "our", we mean, prior to the principal incorporation transactions that are described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions -- Incorporation Transactions", The Goldman Sachs Group, L.P., a Delaware limited partnership, and its consolidated subsidiaries and, after the incorporation transactions, The Goldman Sachs Group, Inc., a Delaware corporation, and its consolidated subsidiaries. BUSINESS ENVIRONMENT Economic and market conditions can significantly affect our performance. For a number of years leading up to the second half of 1998, we operated in a generally favorable macroeconomic environment characterized by low inflation, low interest rates and strong equity markets in the United States and many international markets. This favorable economic environment provided a positive climate for our investment banking activities, as well as for our customer-driven and proprietary trading activities. Economic conditions were also favorable for wealth creation which contributed positively to growth in our asset management businesses. From mid-August to mid-October 1998, the Russian economic crisis, the turmoil in Asian and Latin American emerging markets and the resulting move to higher credit quality fixed income securities by many investors led to substantial declines in global financial markets. Investors broadly sold credit-sensitive products, such as corporate and high-yield debt, and bought higher-rated instruments, such as U.S. Treasury securities, which caused credit spreads to widen dramatically. This market turmoil also caused a widespread decline in global equity markets. As a major dealer in fixed income securities, Goldman Sachs maintains substantial inventories of corporate and high-yield debt. Goldman Sachs regularly seeks to hedge the interest rate risk on these positions through, among other strategies, short positions in U.S. Treasury securities. In the second half of 1998, we suffered losses from both the decline in the prices of corporate and high-yield debt instruments that we owned and the increase in the prices of the U.S. Treasury securities in which we had short positions. This market turmoil also led to trading losses in our fixed income relative value trading positions. Relative value trading positions are intended to profit from a perceived temporary dislocation in the relationship between the values of different financial instruments. From mid-August to mid-October 1998, the components of these relative value positions moved in directions that we did not anticipate and the volatilities of some of our positions increased to three times prior levels. When Goldman Sachs and other market participants with similar positions simultaneously sought to reduce positions and exposures, this caused a substantial reduction in market liquidity and a continuing decline in prices. 37 39 In the second half of 1998, we also experienced losses in equity arbitrage and in the value of a number of merchant banking investments. Later in the fourth quarter of 1998, market conditions improved as the U.S. Federal Reserve cut interest rates, the International Monetary Fund finalized a credit agreement with Brazil and a consortium of 14 financial institutions, including Goldman Sachs, recapitalized Long-Term Capital Portfolio, L.P. For a further discussion of Long-Term Capital Portfolio, L.P., see "-- Liquidity -- The Balance Sheet" below. Our earnings in the second half of 1998 were adversely affected by market conditions from mid-August to mid-October. In this difficult business environment, Trading and Principal Investments recorded net revenues of $464 million in the third quarter of 1998 and net revenues of negative $663 million in the fourth quarter of 1998. As a result, Trading and Principal Investments did not make a significant contribution to pre-tax earnings in 1998. In the first quarter of 1999, we operated in a generally favorable macroeconomic environment characterized by low inflation and low interest rates. Global financial markets recovered from the turbulent conditions of the second half of 1998, leading to narrowing credit spreads and an increase in mergers and acquisitions and other corporate activity. The macroeconomic environment in the first quarter of 1999 was particularly favorable in the United States, where inflationary pressures were minimal and interest rates were left unchanged by the U.S. Federal Reserve. Economic growth in Europe was sluggish despite a simultaneous cut in interest rates by 11 European central banks in December and the successful establishment of the European Economic and Monetary Union in January. Markets in Asia and Latin America were generally characterized by continuing economic and financial difficulties, particularly in Japan and Brazil. In a number of Asian emerging markets, however, economic and market conditions stabilized in the first quarter of 1999. RESULTS OF OPERATIONS Management believes that the best measure by which to assess Goldman Sachs' historical profitability is pre-tax earnings because, as a partnership, we generally have not been subject to U.S. federal or state income taxes. See "-- Provision for Taxes" below and Note 2 to the audited consolidated financial statements for a further discussion of our provision for taxes. Since historically we have operated as a partnership, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our compensation and benefits expense has not reflected any payments for services rendered by managing directors who are profit participating limited partners and has therefore understated the expected operating costs to be incurred by us after the offerings. As a corporation, we will include these payments to managing directors who were profit participating limited partners in compensation and benefits expense, as discussed under "Pro Forma Consolidated Financial Information". See "Management -- The Partner Compensation Plan" for a further discussion of the plan to be adopted for the purpose of compensating our managing directors who were profit participating limited partners. Moreover, in connection with the offerings, we will record the effect of the following non-recurring items in the second quarter of 1999: - - the award of the restricted stock units to employees based on a formula; - - the initial irrevocable contribution of shares of common stock to the defined contribution plan; - - the recognition of net tax assets; and - - the contribution to the Goldman Sachs Fund, a charitable foundation. We also expect to record additional expense in the second quarter of 1999 equal to (i) 50% of the estimated compensation and benefits of the managing directors who were profit participating limited partners in 1999 based on the annualized results for the first half of 1999 offset by (ii) the effect of issuing 38 40 restricted stock units to employees, in lieu of cash compensation, for which future service is required as a condition to the delivery of the underlying shares of common stock. In accordance with Accounting Principles Board Opinion No. 25, these restricted stock units will be recorded as compensation expense over the four-year vesting period following the date of grant. As a result, we expect to record a substantial pre-tax loss in the second quarter of 1999. See "Risk Factors -- We Expect to Record a Substantial Pre-Tax Loss in the Second Quarter of Fiscal 1999". The composition of our historical net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in economic and market conditions. As a result, period-to-period comparisons may not be meaningful. See "Risk Factors" for a discussion of factors that could affect our future performance. OVERVIEW The following table sets forth our net revenues and pre-tax earnings: FINANCIAL OVERVIEW (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Net revenues....................... $6,129 $7,447 $8,520 $2,472 $2,995 Pre-tax earnings................... 2,606 3,014 2,921 1,022 1,188
------------------------ FEBRUARY 1999 VERSUS FEBRUARY 1998. Our net revenues were $2.99 billion in the three-month period ended February 1999, an increase of 21% compared to the same period in 1998. Net revenue growth was strong in Investment Banking, which increased 42%, primarily due to higher market levels of mergers and acquisitions and underwriting activity. Net revenues in Trading and Principal Investments increased 15% as higher net revenues in FICC and equities more than offset a reduction in principal investments. Net revenues in Asset Management and Securities Services increased 12% due to increased assets under management and higher customer balances in securities services. Pre-tax earnings increased 16% to $1.19 billion for the period. 1998 VERSUS 1997. Our net revenues were $8.52 billion in 1998, an increase of 14% compared to 1997. Net revenue growth was strong in Investment Banking, which increased 30%, due to higher levels of mergers and acquisitions activity, and in Asset Management and Securities Services, which increased 43%, due to increased commissions, higher customer balances in securities services and increased assets under management. Net revenues in Trading and Principal Investments decreased 19% compared to the prior year, due primarily to a 30% reduction of net revenues in FICC. Pre-tax earnings in 1998 were $2.92 billion compared to $3.01 billion in the prior year. 1997 VERSUS 1996. Our net revenues were $7.45 billion in 1997, an increase of 22% compared to 1996. Net revenue growth was strong in Asset Management and Securities Services, which increased 46%, due to increased commissions and asset management fees and higher assets under management and customer balances in securities services. Net revenues in Investment Banking increased 22% due to increased levels of mergers and acquisitions and debt underwriting activity. Net revenues in Trading and Principal Investments increased 9% over the prior year, due to higher net revenues in FICC and principal investments. Pre-tax earnings were $3.01 billion in 1997, an increase of 16% over the prior year. 39 41 The following table sets forth the net revenues of our principal business lines: NET REVENUES BY PRINCIPAL BUSINESS LINE (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Investment Banking............. $2,113 $2,587 $3,368 $ 633 $ 902 Trading and Principal Investments.................. 2,693 2,926 2,379 1,182 1,357 Asset Management and Securities Services..................... 1,323 1,934 2,773 657 736 ------ ------ ------ ------ ------ Total net revenues............. $6,129 $7,447 $8,520 $2,472 $2,995 ====== ====== ====== ====== ======
------------------------ Net revenues in our principal business lines represent total revenues less allocations of interest expense to specific securities, commodities and other positions in relation to the level of financing incurred by each position. Interest expense is allocated to Trading and Principal Investments and the securities services component of Asset Management and Securities Services. Net revenues may not be indicative of the relative profitability of any principal business line. INVESTMENT BANKING Goldman Sachs provides a broad range of investment banking services to a diverse group of corporations, financial institutions, governments and individuals. Our investment banking activities are divided into two categories: - - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs; and - - UNDERWRITING. Underwriting includes public offerings and private placements of equity and debt securities. The following table sets forth the net revenues of our Investment Banking business: INVESTMENT BANKING NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY ------------------------------ ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Financial advisory.......... $ 931 $1,184 $1,774 $363 $522 Underwriting................ 1,182 1,403 1,594 270 380 ------ ------ ------ ---- ---- Total Investment Banking.... $2,113 $2,587 $3,368 $633 $902 ====== ====== ====== ==== ====
------------------------ FEBRUARY 1999 VERSUS FEBRUARY 1998. The Investment Banking business achieved net revenues of $902 million in the three-month period ended February 1999, an increase of 42% compared to the same period in 1998. Net revenue growth was strong in both financial advisory and underwriting, particularly in the communications, media and 40 42 entertainment, healthcare and financial institutions groups. Our Investment Banking business was particularly strong in Europe and the United States. Financial advisory revenues increased 44% compared to the same period in 1998, primarily due to higher market levels of mergers and acquisitions activity as the trend toward consolidation continued in various industries. Underwriting revenues increased 41%, primarily due to increased levels of equity underwriting activity in Europe. 1998 VERSUS 1997. The Investment Banking business achieved net revenues of $3.37 billion in 1998, an increase of 30% compared to 1997. Net revenue growth was strong in financial advisory and, to a lesser extent, in underwriting as Goldman Sachs' global presence and strong client base enabled it to capitalize on higher levels of activity in many industry groups, including communications, media and entertainment, financial institutions, general industrials and retail. Net revenue growth in our Investment Banking business was strong in all major regions in 1998 compared to the prior year. Financial advisory revenues increased 50% compared to 1997 due to increased revenues from mergers and acquisitions advisory assignments, which principally resulted from consolidation within various industries and generally favorable U.S. and European stock markets. Despite a substantial decrease in the number of industry-wide underwriting transactions in August and September of 1998, underwriting revenues increased 14% for the year, primarily due to increased revenues from equity and high-yield corporate debt underwriting activities. 1997 VERSUS 1996. The Investment Banking business achieved net revenues of $2.59 billion in 1997, an increase of 22% compared to 1996. Net revenue growth was strong in both financial advisory and underwriting, particularly in the financial institutions, general industrials and real estate groups. Financial advisory revenues increased 27% compared to 1996 primarily due to increased revenues from mergers and acquisitions activity in the market as a whole. Underwriting revenues increased 19% primarily due to increased revenues from investment grade and high-yield debt underwriting, which resulted from lower interest rates. Revenues from equity underwriting activities increased modestly over 1996 levels. TRADING AND PRINCIPAL INVESTMENTS Our Trading and Principal Investments business facilitates customer transactions and takes proprietary positions through market-making in and trading of fixed income and equity products, currencies, commodities, and swaps and other derivatives. The Trading and Principal Investments business includes the following: - - FICC. We make markets in and trade fixed income products, currencies and commodities, structure and enter into a wide variety of derivative transactions and engage in proprietary trading and arbitrage activities; - - EQUITIES. We make markets in and trade equities and equity-related products, structure and enter into equity derivative transactions and engage in proprietary trading and equity arbitrage; and - - PRINCIPAL INVESTMENTS. Principal investments primarily represents net revenues from our investments in our merchant banking funds. Net revenues from principal investments do not include management fees and the increased share of the income and gains from our merchant banking funds to which Goldman Sachs is entitled when the return on investments exceeds certain threshold returns to fund investors. These management fees and increased shares of income and gains are included in the net revenues of Asset Management and Securities Services. Substantially all of our inventory is marked-to-market daily and, therefore, its value and our net revenues are subject to fluctuations based on market movements. In addition, net revenues derived from our principal investments in privately held concerns and in real estate may fluctuate significantly depending on the revaluation or sale of these investments in any given period. 41 43 The following table sets forth the net revenues of our Trading and Principal Investments business: TRADING AND PRINCIPAL INVESTMENTS NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) FICC..................................... $1,749 $2,055 $1,438 $ 741 $ 876 Equities................................. 730 573 795 365 455 Principal investments.................... 214 298 146 76 26 ------ ------ ------ ------ ------ Total Trading and Principal Investments............................ $2,693 $2,926 $2,379 $1,182 $1,357 ====== ====== ====== ====== ======
------------------------ FEBRUARY 1999 VERSUS FEBRUARY 1998. The Trading and Principal Investments business achieved net revenues of $1.36 billion in the three-month period ended February 1999, an increase of 15% compared to the same period in 1998. Strong performances in FICC and equities more than offset a net revenue reduction in principal investments. Net revenues in FICC increased 18% compared to the same period in 1998, primarily due to higher net revenues from market-making and trading of currencies, corporate bonds and mortgage-backed securities, partially offset by lower net revenues from fixed income derivatives. Net revenues in equities increased 25% compared to the same period in 1998, primarily due to increased market-making net revenues resulting from strong over-the-counter transaction volume in Europe and the United States. Net revenues from principal investments decreased 66%, due to lower gains on the disposition of investments and a reduction in net revenues related to the mark-to-market of our principal investments. 1998 VERSUS 1997. Net revenues in Trading and Principal Investments were $2.38 billion in 1998, a decrease of 19% compared to 1997. This decrease in net revenues was concentrated in the second half of the year. See "-- Business Environment" above for a discussion of the losses suffered in Trading and Principal Investments in the second half of 1998. For the full year, significant net revenue reductions in FICC and principal investments were partially offset by increased net revenues in equities. Net revenues in FICC decreased 30% compared to 1997 due to an extraordinarily difficult environment in the second half of 1998. The net revenue reduction in FICC was concentrated in fixed income arbitrage and high-yield debt trading, which experienced losses in 1998 due to a reduction in liquidity and widening credit spreads in the second half of the year. An increase in net revenues from market-making and trading in fixed income derivatives, currencies and commodities partially offset this decline. Net revenues in equities increased 39% compared to 1997 as higher net revenues in derivatives and European shares were partially offset by losses in equity arbitrage. The derivatives business generated significantly higher net revenues due, in part, to strong customer demand for over-the-counter products, particularly in Europe. Net revenues from European shares increased as Goldman Sachs benefited from generally favorable equity markets and increased customer demand. The equity arbitrage losses were due principally to the underperformance of various equity positions versus their benchmark hedges, to widening of spreads in a variety of relative value trades and to lower prices for event-oriented securities resulting from a re- 42 44 duction in announced mergers and acquisitions and other corporate activity in the second half of 1998. Net revenues from principal investments declined 51% compared to 1997 as investments in certain publicly held companies decreased in value during the second half of 1998. This decrease was partially offset by an increase in gains on the disposition of investments, compared to the prior year. 1997 VERSUS 1996. The Trading and Principal Investments business achieved net revenues of $2.93 billion in 1997, an increase of 9% compared to 1996. Strong performances in FICC and principal investments more than offset a net revenue reduction in equities. Net revenues in FICC increased 17% compared to 1996 due principally to higher net revenues from market-making and trading in currencies, fixed income derivatives and commodities. Fixed income arbitrage activities also contributed to net revenue growth in FICC. Net revenues from market-making in and trading of emerging market debt securities and corporate bonds declined in 1997 compared to 1996. Net revenues in equities decreased 22% in 1997 compared to 1996 due principally to reductions in net revenues from derivatives and convertibles resulting from volatility in the global equity markets in October and November 1997 and declining asset values in Japan in late November 1997. This reduction was partially offset by increased net revenues from higher customer trading volume in certain European over-the-counter markets. Net revenues from principal investments increased 39% in 1997 compared to 1996, as certain companies in which we invested through our merchant banking funds completed initial public offerings and our positions in other publicly held companies increased in value. ASSET MANAGEMENT AND SECURITIES SERVICES Asset Management and Securities Services is comprised of the following: - - ASSET MANAGEMENT. Asset management generates management fees by providing investment advisory services to a diverse and rapidly growing client base of institutions and individuals; - - SECURITIES SERVICES. Securities services includes prime brokerage, financing services and securities lending and our matched book businesses, all of which generate revenue primarily in the form of fees or interest rate spreads; and - - COMMISSIONS. Commission-based businesses include agency transactions for clients on major stock and futures exchanges. Revenues from the increased share of the income and gains derived from our merchant banking funds are also included in commissions. 43 45 The following table sets forth the net revenues of our Asset Management and Securities Services business: ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------------- 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Asset management................... $ 242 $ 458 $ 675 $139 $202 Securities services................ 354 487 730 170 207 Commissions........................ 727 989 1,368 348 327 ------ ------ ------ ---- ---- Total Asset Management and Securities Services.............. $1,323 $1,934 $2,773 $657 $736 ====== ====== ====== ==== ====
--------------- Goldman Sachs' assets under supervision are comprised of assets under management and other client assets. Assets under management typically generate fees based on a percentage of their value and include our mutual funds, separate accounts managed for institutional and individual investors, our merchant banking funds and other alternative investment funds. Other client assets are comprised of assets in brokerage accounts of primarily high net worth individuals, on which we earn commissions. The following table sets forth our assets under supervision: ASSETS UNDER SUPERVISION (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------------- -------------------- 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Assets under management............ $ 94,599 $135,929 $194,821 $151,189 $206,380 Other client assets..... 76,892 102,033 142,018 114,928 163,315 -------- -------- -------- -------- -------- Total assets under supervision........... $171,491 $237,962 $336,839 $266,117 $369,695 ======== ======== ======== ======== ========
------------------------ FEBRUARY 1999 VERSUS FEBRUARY 1998. The Asset Management and Securities Services business achieved net revenues of $736 million in the three-month period ended February 1999, an increase of 12% compared to the same period in 1998. Strong performances in asset management and securities services more than offset a net revenue reduction in commissions. Asset management revenues increased 45% compared to the same period in 1998, primarily reflecting a 43% increase in average assets under management. In the 1999 period, approximately half of the increase in assets under management was attributable to net asset inflows, with the balance reflecting market appreciation. Net revenues from securities services increased 22% during the period, primarily due to growth in our securities borrowing and lending businesses. Commission revenues decreased 6%, as an increase in equity commissions was more than offset by a reduction in revenues from the increased share of income and gains from our merchant banking funds compared to a particularly strong period in the prior year. 44 46 1998 VERSUS 1997. The Asset Management and Securities Services business achieved net revenues of $2.77 billion in 1998, an increase of 43% compared to 1997. All major components of the business line exhibited strong net revenue growth. Asset management revenues increased 47% during this period, reflecting a 41% increase in average assets under management over 1997. In 1998, approximately 80% of the increase in assets under management was attributable to net asset inflows, with the remaining 20% reflecting market appreciation. Net revenues from securities services increased 50%, primarily due to growth in our securities borrowing and lending businesses. Commission revenues increased 38% as generally strong and highly volatile equity markets resulted in increased transaction volumes in listed equity securities. Revenues from the increased share of income and gains from our merchant banking funds also contributed significantly to the increase in commission revenues. 1997 VERSUS 1996. The Asset Management and Securities Services business achieved net revenues of $1.93 billion in 1997, an increase of 46% compared to 1996. All major components of the business line exhibited strong net revenue growth. Asset management revenues increased 89% during this period, reflecting a 73% increase in average assets under management due to strong net asset inflows, market appreciation and assets added through the acquisitions of Liberty Investment Management in January 1997 and Commodities Corporation in June 1997. Net revenue growth in securities services was 38%, principally reflecting growth in our securities borrowing and lending businesses. Commission revenues increased 36% as customer trading volumes increased significantly on many of the world's principal stock exchanges, including those in the United States where industry-wide volumes increased substantially in the third and fourth quarters of 1997. Revenues from the increased share of income and gains from our merchant banking funds also contributed significantly to the increase in commission revenues. OPERATING EXPENSES In recent years, our operating expenses have increased as a result of numerous factors, including higher levels of compensation, expansion of our asset management business, increased worldwide activities, greater levels of business complexity and additional systems and consulting costs relating to various technology initiatives. Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our compensation and benefits expense has not reflected any payments for services rendered by our managing directors who are profit participating limited partners. Accordingly, our historical compensation and benefits, the principal component of our operating expenses, will increase significantly after the offerings since, as a corporation, we will include these payments to our managing directors who were profit participating limited partners in compensation and benefits expense. We expect to record additional expense in the second quarter of 1999 equal to (i) 50% of the estimated compensation and benefits of the managing directors who were profit participating limited partners in 1999 based on the annualized results for the first half of 1999 offset by (ii) the effect of issuing restricted stock units to employees, in lieu of cash compensation, for which future service is required as a condition to the delivery of the underlying shares of common stock. In accordance with Accounting Principles Board Opinion No. 25, these restricted stock units will be recorded as compensation expense over the four-year vesting period following the date of grant. In addition, we expect to record non-cash compensation expense related to the amortization of the restricted stock units awarded to employees on a discretionary basis over the five-year period following the consummation of the offerings. The non-cash expense related to these restricted stock units is a fixed amount that is not dependent on our operating results in any given period. See "Pro Forma Consolidated Financial Information" for a further discussion of these items. 45 47 The following table sets forth our operating expenses and number of employees: OPERATING EXPENSES AND EMPLOYEES ($ in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY ---------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (unaudited) Compensation and benefits..... $2,421 $ 3,097 $ 3,838 $ 1,100 $ 1,275 Brokerage, clearing and exchange fees............... 278 357 424 93 111 Market development............ 137 206 287 54 77 Communications and technology.................. 173 208 265 58 78 Depreciation and amortization................ 172 178 242 42 97 Occupancy..................... 154 168 207 44 78 Professional services and other....................... 188 219 336 59 91 ------ ------- ------- ------- ------- Total operating expenses...... $3,523 $ 4,433 $ 5,599 $ 1,450 $ 1,807 ====== ======= ======= ======= ======= Employees at period end(1).... 8,977 10,622 13,033 10,899 12,878
- --------------- (1) Excludes employees of Goldman Sachs' two property management subsidiaries, The Archon Group, L.P. and Archon Group (France) S.C.A. Substantially all of the costs of these employees are reimbursed to Goldman Sachs by the real estate investment funds to which the two companies provide property management services. In addition, as of February 1999, we had approximately 3,400 temporary staff and consultants. For more detailed information regarding our employees, see "Business -- Employees". FEBRUARY 1999 VERSUS FEBRUARY 1998. Operating expenses were $1.81 billion in the three-month period ended February 1999, an increase of 25% over the same period in 1998, primarily due to increased compensation and benefits and higher other operating expenses due to, among other things, Goldman Sachs' increased worldwide activities. Compensation and benefits decreased as a percentage of net revenues to 43% from 44% in the same period in 1998. Employment levels increased 18% compared to the same period in 1998, with particularly strong growth in investment banking and asset management. Expenses associated with our temporary staff and consultants were $98 million for the three-month period ended February 1999, an increase of 55%, reflecting preparations for the Year 2000 and greater levels of business activity. Brokerage, clearing and exchange fees increased 19%, primarily due to higher transaction volumes in fixed income derivatives and futures contracts. Market development expenses increased 43% and professional services and other expenses increased 54%, due to higher levels of business activity. Communications and technology expenses increased 34%, reflecting higher telecommunications and market data costs associated with higher employment levels and additional spending on technology initiatives. Depreciation and amortization increased significantly due to certain fixed asset write-offs and to capital expenditures on telecommunications and technology-related equipment and leasehold improvements in support of Goldman Sachs' increased worldwide activities. Occupancy expenses increased 77%, reflecting additional office space needed to accommodate higher employment levels. 1998 VERSUS 1997. Operating expenses were $5.60 billion in 1998, an increase of 26% over 1997, primarily due to increased compensation and benefits expense. Compensation and benefits increased as a percentage of net revenues to 45% from 42% in 1997, principally as a result of increases in employment levels and in ex- 46 48 penses associated with temporary staff and consultants. Employment levels increased 23% during the year, with particularly strong growth in asset management. Expenses associated with our temporary staff and consultants were $330 million in 1998, an increase of 85% compared to 1997, reflecting greater business activity, Goldman Sachs' global expansion and consulting costs associated with various technology initiatives, including preparations for the Year 2000 and the establishment of the European Economic and Monetary Union. Brokerage, clearing and exchange fees increased 19%, primarily due to higher transaction volumes in European and U.S. equities and futures contracts. Market development expenses increased 39% and professional services and other expenses increased 53%, due to higher levels of business activity and Goldman Sachs' global expansion. Communications and technology expenses increased 27%, reflecting higher telecommunications and market data costs associated with higher employment levels and additional spending on technology initiatives. Depreciation and amortization increased 36%, principally due to capital expenditures on telecommunications and technology-related equipment and leasehold improvements. Occupancy expenses increased 23%, reflecting additional office space needed to accommodate higher employment levels. 1997 VERSUS 1996. Operating expenses were $4.43 billion in 1997, an increase of 26% over 1996, primarily due to increased compensation and benefits expense. Compensation and benefits increased as a percentage of net revenues to 42% from 40% in 1996. This increase primarily reflected higher compensation due to higher profit levels and an 18% increase in employment levels across Goldman Sachs due to higher levels of market activity and our global expansion into new businesses and markets. Expenses associated with our temporary staff and consultants also contributed to the increase in compensation and benefits as a percentage of net revenues. These expenses were $178 million in 1997, an increase of 55% compared to 1996, reflecting greater business activity, Goldman Sachs' global expansion and consulting costs associated with various technology initiatives. Brokerage, clearing and exchange fees increased 28%, primarily due to higher transaction volumes in global equities, derivatives and currencies. Market development expenses increased 50% and professional services and other expenses increased 16%, due to higher levels of business activity and Goldman Sachs' global expansion. Communications and technology expenses increased 20%, reflecting higher telecommunications and market data costs associated with higher employment levels and additional spending on technology initiatives. Depreciation and amortization increased 3%. Occupancy expenses increased 9%, reflecting additional office space needed to accommodate higher employment levels. PROVISION FOR TAXES The Goldman Sachs Group, L.P., as a partnership, generally has not been subject to U.S. federal and state income taxes. The earnings of The Goldman Sachs Group, L.P. and certain of its subsidiaries have been subject to the 4% New York City unincorporated business tax. In addition, certain of our non-U.S. subsidiaries have been subject to income taxes in their local jurisdictions. The amount of our provision for income and unincorporated business taxes has varied significantly from year to year depending on the mix of earnings among our subsidiaries. For information on the pro forma effective tax rate of Goldman Sachs under corporate form, see "Pro Forma Consolidated Financial Information". GEOGRAPHIC DATA For a summary of the total revenues, net revenues, pre-tax earnings and identifiable assets of Goldman Sachs by geographic region, see Note 9 to the audited consolidated financial statements. CASH FLOWS Our cash flows are primarily related to the operating and financing activities under- 47 49 taken in connection with our trading and market-making transactions. YEAR ENDED NOVEMBER 1998 Cash and cash equivalents increased to $2.84 billion in 1998. Cash of $62 million was provided by operating activities. Cash of $656 million was used for investing activities, primarily for leasehold improvements and the purchase of telecommunications and technology-related equipment and certain financial instruments. Financing activities provided $2.10 billion of cash, reflecting an increase in the net issuance of long-term and short-term borrowings, partially offset by a decrease in net repurchase agreements, distributions to partners, cash outflows related to partners' capital allocated for income taxes and potential withdrawals and the termination of our profit participation plans. See Note 8 to the audited consolidated financial statements for a discussion of the termination of the profit participation plans. YEAR ENDED NOVEMBER 1997 Cash and cash equivalents decreased to $1.33 billion in 1997. Operating activities provided cash of $70 million. Cash of $693 million was used for investing activities, primarily for the purchase of certain financial instruments and technology-related equipment. Cash of $258 million was used for financing activities, principally due to a decrease in net repurchase agreements, distributions to partners and cash outflows related to partners' capital allocated for income taxes and potential withdrawals, partially offset by the net issuance of long-term and short-term borrowings. YEAR ENDED NOVEMBER 1996 Cash and cash equivalents increased to $2.21 billion in 1996. Cash of $14.63 billion was used for operating activities, primarily to fund higher net trading assets due to increased levels of business activity. Cash of $218 million was used for investing activities, primarily for the purchase of technology-related equipment and leasehold improvements. Financing activities provided $16.10 billion of cash, reflecting an increase in net repurchase agreements and the net issuance of long-term borrowings, partially offset by distributions to partners and cash outflows related to partners' capital allocated for income taxes and potential withdrawals. LIQUIDITY MANAGEMENT OVERSIGHT OF LIQUIDITY Management believes that one of the most important issues for a company in the financial services sector is access to liquidity. Accordingly, Goldman Sachs has established a comprehensive structure to oversee its liquidity and funding policies. The Finance Committee has responsibility for establishing and assuring compliance with our asset and liability management policies and has oversight responsibility for managing liquidity risk, the size and composition of our balance sheet and our credit ratings. See "-- Risk Management -- Risk Management Structure" below for a further description of the committees that participate in our risk management process. The Finance Committee meets monthly, and more often when necessary, to evaluate our liquidity position and funding requirements. Our Treasury Department manages the capital structure, funding, liquidity and relationships with creditors and rating agencies on a global basis. The Treasury Department works jointly with our global funding desk in managing our borrowings. The global funding desk is primarily responsible for our transactional short-term funding activity. LIQUIDITY POLICIES In order to maintain an appropriate level of liquidity, management has implemented several liquidity policies as outlined below. DIVERSIFICATION OF FUNDING SOURCES AND LIQUIDITY PLANNING. Goldman Sachs maintains diversified funding sources with both banks and non-bank lenders globally. Management believes that Goldman Sachs' relationships with its lenders are critical to its liquidity. We maintain close contact with our primary lenders to keep them advised of significant developments that affect us. 48 50 Goldman Sachs also has access to diversified funding sources with over 800 creditors, including banks, insurance companies, mutual funds, bank trust departments and other asset managers. We monitor our creditors to maintain broad and diversified credit, and no single creditor represented more than 5% of our uncollateralized funding sources as of November 1998. Uncollateralized funding sources principally include our short-term and long-term borrowings and letters of credit. We access liquidity in a variety of markets in the United States as well as in Europe and Asia. In addition, we make extensive use of the repurchase agreement market and have raised debt in the private placement, the SEC's Rule 144A and the commercial paper markets, as well as through Eurobonds, money broker loans, commodity-based financings, letters of credit and promissory notes. After the offerings and subject to market conditions, we intend to raise additional funds in the public debt securities market, including through an anticipated $1 billion offering of long-term debt securities. We seek to structure our liabilities to avoid significant amounts of debt coming due on any one day or during any single week or year. In addition, we maintain and update annually a liquidity crisis plan that provides guidance in the event of a liquidity crisis. The annual update of this plan is reviewed and approved by our Finance Committee. ASSET LIQUIDITY. Goldman Sachs maintains a highly liquid balance sheet. Many of our assets are readily funded in the repurchase agreement markets, which generally have proven to be a consistent source of funding, even in periods of market stress. Substantially all of our inventory turns over rapidly and is marked-to-market daily. We maintain long-term borrowings and partners' capital substantially in excess of our less liquid assets. DYNAMIC LIQUIDITY MANAGEMENT. Goldman Sachs seeks to manage the composition of its asset base and the maturity profile of its funding to ensure that it can liquidate its assets prior to its liabilities coming due, even in times of liquidity stress. We have traditionally been able to fund our liquidity needs through collateralized funding, such as repurchase transactions and securities lending, as well as short-term and long-term borrowings and partners' capital. To further evaluate the adequacy of our liquidity management policies and guidelines, we perform weekly "stress funding" simulations of disruptions to our access to unsecured credit. EXCESS LIQUIDITY. In addition to maintaining a highly liquid balance sheet and a significant portion of longer-term liabilities to assure liquidity even during adverse conditions, we seek to maintain a liquidity cushion that consists principally of unencumbered U.S. government and agency obligations to ensure the availability of immediate liquidity. This pool of highly liquid assets averaged $14.17 billion during 1998 and $12.54 billion during 1997. LIQUIDITY RATIO MAINTENANCE. It is Goldman Sachs' policy to further manage its liquidity by maintaining a "liquidity ratio" of at least 100%. This ratio measures the relationship between the loan value of our unencumbered assets and our short-term unsecured liabilities. The maintenance of this liquidity ratio is intended to ensure that we could fund our positions on a fully secured basis in the event that we were unable to replace our unsecured debt maturing within one year. Under this policy, we seek to maintain unencumbered assets in an amount that, if pledged or sold, would provide the funds necessary to replace unsecured obligations that are scheduled to mature (or where holders have the option to redeem) within the coming year. INTERCOMPANY FUNDING. Most of the liquidity of Goldman Sachs is raised by The Goldman Sachs Group, L.P., which then lends the necessary funds to its subsidiaries and affiliates. We carefully manage our intercompany exposure by generally requiring intercompany loans to have maturities equal to or shorter than the maturities of the aggregate borrowings of The Goldman Sachs Group, L.P. This policy ensures that the subsidiaries' obligations to The Goldman Sachs Group, L.P. will generally mature in advance of The Goldman Sachs Group, L.P.'s third-party long-term borrowings. In addition, 49 51 many of the advances made to our subsidiaries and affiliates are secured by marketable securities or other liquid collateral. We generally fund our equity investments in subsidiaries with partners' capital. THE BALANCE SHEET Goldman Sachs maintains a highly liquid balance sheet that fluctuates significantly between financial statement dates. In the fourth quarter of 1998, we temporarily decreased our total assets to reduce risk and increase liquidity in response to difficult conditions in the global financial markets. Our total assets were $230.62 billion as of February 1999 and $217.38 billion as of November 1998. Our balance sheet size as of February 1999 and November 1998 increased by $8.99 billion and $11.64 billion, respectively, due to the adoption of the provisions of Statement of Financial Accounting Standards No. 125 that were deferred by Statement of Financial Accounting Standards No. 127. For a discussion of Statement of Financial Accounting Standards Nos. 125 and 127, see "-- Accounting Developments" below and Note 2 to the audited consolidated financial statements. As of February 1999 and November 1998, we held approximately $999 million and $1.04 billion, respectively, in high-yield debt securities and $1.39 billion and $1.49 billion, respectively, in bank loans, all of which are valued on a mark-to-market basis. These assets may be relatively illiquid during times of market stress. We seek to diversify our holdings of these assets by industry and by geographic location. As of February 1999 and November 1998, we held approximately $1.04 billion and $1.17 billion, respectively, of emerging market securities, and $103 million and $109 million, respectively, in emerging market loans, all of which are valued on a mark-to-market basis. Of the $1.14 billion and $1.28 billion in emerging market securities and loans, as of February 1999 and November 1998, respectively, approximately $778 million and $968 million were sovereign obligations, many of which are collateralized as to principal at stated maturity. In September 1998, a consortium of 14 banks and brokerage firms, including Goldman Sachs, made an equity investment in Long-Term Capital Portfolio, L.P., a major market participant. The objectives of this investment were to provide sufficient capital to permit Long-Term Capital Portfolio, L.P. to continue active management of its positions and, over time, to reduce risk exposures and leverage, to return capital to the participants in the consortium and ultimately to realize the potential value of the portfolio. We invested $300 million in Long-Term Capital Portfolio, L.P. CREDIT RATINGS Goldman Sachs relies upon the debt capital markets to fund a significant portion of its day-to-day operations. The cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important to us when competing in certain markets and when seeking to engage in longer-term transactions, including over-the-counter derivatives. A reduction in our credit ratings could increase our borrowing costs and limit our access to the capital markets. This, in turn, could reduce our earnings and adversely affect our liquidity. The following table sets forth our credit ratings as of November 1998:
SHORT-TERM DEBT LONG-TERM DEBT --------------- -------------- Moody's Investors Service, Inc. .............. P-1 A1 Standard & Poor's Ratings Services(1)......... A-1+ A+ Fitch IBCA, Inc. ............................. F1+ AA- CBRS Inc. .................................... A-1 (High) A+
----------------------------- (1) On September 25, 1998, Standard & Poor's Ratings Services affirmed Goldman Sachs' credit ratings but revised its outlook to "negative". On April 16, 1999, Standard & Poor's Ratings Services revised its outlook to "stable". 50 52 LONG-TERM DEBT As of November 1998, our consolidated long-term borrowings were $19.91 billion. Substantially all of these borrowings were unsecured and consisted principally of senior borrowings with maturities extending to 2024. The weighted average maturity of our long-term borrowings as of November 1998 was approximately four years. Substantially all of our long-term borrowings are swapped into U.S. dollar obligations with short-term floating rates of interest in order to minimize our exposure to interest rates and foreign exchange movements. See Note 5 to the audited consolidated financial statements for further information regarding our long-term borrowings. REGULATED SUBSIDIARIES Many of our principal subsidiaries are subject to extensive regulation in the United States and elsewhere. Goldman, Sachs & Co., a registered U.S. broker-dealer, is regulated by the SEC, the Commodity Futures Trading Commission, the Chicago Board of Trade, the NYSE and the NASD. Goldman Sachs International, a registered United Kingdom broker-dealer, is subject to regulation by the Securities and Futures Authority Limited and the Financial Services Authority. Goldman Sachs (Japan) Ltd., a Tokyo-based broker-dealer, is subject to regulation by the Japanese Ministry of Finance, the Financial Supervisory Agency, the Tokyo Stock Exchange, the Tokyo International Financial Futures Exchange and the Japan Securities Dealers Association. Several other subsidiaries of Goldman Sachs are regulated by securities, investment advisory, banking and other regulators and authorities around the world. Compliance with the rules of these regulators may prevent us from receiving distributions, advances or repayment of liabilities from these subsidiaries. See Note 8 to the audited consolidated financial statements and Note 5 to the unaudited condensed consolidated financial statements for further information regarding our regulated subsidiaries. RISK MANAGEMENT Goldman Sachs has a comprehensive risk management process to monitor, evaluate and manage the principal risks assumed in conducting its activities. These risks include market, credit, liquidity, operational, legal and reputational exposures. RISK MANAGEMENT STRUCTURE Goldman Sachs seeks to monitor and control its risk exposure through a variety of separate but complementary financial, credit, operational and legal reporting systems. We believe that we have effective procedures for evaluating and managing the market, credit and other risks to which we are exposed. Nonetheless, the effectiveness of our policies and procedures for managing risk exposure can never be completely or accurately predicted or fully assured. For example, unexpectedly large or rapid movements or disruptions in one or more markets or other unforeseen developments can have a material adverse effect on our results of operations and financial condition. The consequences of these developments can include losses due to adverse changes in inventory values, decreases in the liquidity of trading positions, higher volatility in our earnings, increases in our credit risk to customers and counterparties and increases in general systemic risk. See "Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in Many Ways" for a discussion of the effect that market fluctuations can have on our businesses. Goldman Sachs has established risk control procedures at several levels throughout the organization. Trading desk managers have the first line of responsibility for managing risk within prescribed limits. These managers have in-depth knowledge of the primary sources of risk in their individual markets and the instruments available to hedge our exposures. In addition, a number of committees described in the following table are responsible for establishing trading limits, monitoring adherence to these limits and for general oversight of our risk management process. 51 53
- --------------------------------------------------------------------------------------------------- COMMITTEE FUNCTION - --------------------------------------------------------------------------------------------------- Management Committee All risk control functions ultimately report to the Management Committee. Through both direct and delegated authority, the Management Committee approves all of Goldman Sachs': - operating activities; - trading risk parameters; and - customer review guidelines. - --------------------------------------------------------------------------------------------------- Risk Committees The Firmwide Risk Committee: - periodically reviews the activities of existing businesses; - approves new businesses and products; - approves divisional market risk limits and reviews business unit market risk limits; - approves inventory position limits for selected country exposures and business units; - approves sovereign credit risk limits and credit risk limits by ratings group; and - reviews scenario analyses based on abnormal or "catastrophic" market movements. The FICC Risk Committee sets market risk limits for individual business units and sets issuer-specific net inventory position limits. The Equities Risk Committee sets market risk limits for individual business units that consist of gross and net inventory position limits and, for equity derivatives, limits based on market move scenario analysis. The Asset Management Control Oversight Committee and Asset Management Risk Committee oversee various operational, credit, pricing and business practices issues. - --------------------------------------------------------------------------------------------------- Global Compliance and Control The Global Compliance and Control Committee provides Committee oversight of our compliance and control functions, including internal audit, reviews our legal, reputational, operational and control risks, and periodically reviews the activities of existing businesses. - --------------------------------------------------------------------------------------------------- Commitments Committee The Commitments Committee approves: - equity and non-investment grade debt underwriting commitments; - loans extended by Goldman Sachs; and - unusual financing structures and transactions that involve significant capital exposure. The Commitments Committee has delegated to the Credit Department the authority to approve underwriting commitments for investment grade debt and certain other products. - --------------------------------------------------------------------------------------------------- Credit Policy Committee The Credit Policy Committee establishes and reviews broad credit policies and parameters that are implemented by the Credit Department. - --------------------------------------------------------------------------------------------------- Finance Committee The Finance Committee is responsible for oversight of our capital, liquidity and funding needs and for setting certain inventory position limits. - ---------------------------------------------------------------------------------------------------
52 54 Segregation of duties and management oversight are fundamental elements of our risk management process. Accordingly, departments that are independent of the revenue producing units, such as the Firmwide Risk, Credit, Controllers, Global Operations, Central Compliance, Management Controls and Legal Departments, in part perform risk management functions, which include monitoring, analyzing and evaluating risk. MARKET RISK The potential for changes in the market value of our trading positions is referred to as "market risk". Our trading positions result from underwriting, market-making and proprietary trading activities. The broadly defined categories of market risk include exposures to interest rates, currency rates, equity prices and commodity prices. - - Interest rate risks primarily result from exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates, mortgage prepayment speeds and credit spreads. - - Currency rate risks result from exposures to changes in spot prices, forward prices and volatilities of currency rates. - - Equity price risks result from exposures to changes in prices and volatilities of individual equities, equity baskets and equity indices. - - Commodity price risks result from exposures to changes in spot prices, forward prices and volatilities of commodities, such as electricity, natural gas, crude oil, petroleum products and precious and base metals. We seek to manage these risk exposures through diversifying exposures, controlling position sizes and establishing hedges in related securities or derivatives. For example, we may hedge a portfolio of common stock by taking an offsetting position in a related equity-index futures contract. The ability to manage an exposure may, however, be limited by adverse changes in the liquidity of the security or the related hedge instrument and in the correlation of price movements between the security and related hedge instrument. In addition to applying business judgment, senior management uses a number of quantitative tools to manage our exposure to market risk. These tools include: - - risk limits based on a summary measure of market risk exposure referred to as Value-at-Risk or "VaR"; - - risk limits based on a scenario analysis that measures the potential effect of a significant widening of credit spreads on our trading net revenues; - - inventory position limits for selected business units and country exposures; and - - scenario analyses which measure the potential effect on our trading net revenues of abnormal market movements. We also estimate the broader potential impact of a sustained market downturn on our investment banking and merchant banking activities. VaR. VaR is the potential loss in value of Goldman Sachs' trading positions due to adverse movements in markets over a defined time horizon with a specified confidence level. For the VaR numbers reported below, a one-day time horizon and a 95% confidence level were used. This means that there is a one in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR. Thus, shortfalls from expected trading net revenues on a single trading day greater than the reported VaR would be anticipated to occur, on average, about once a month. Shortfalls on a single day can exceed reported VaR by significant amounts. Shortfalls can also accumulate over a longer time horizon such as a number of consecutive trading days. For a discussion of the limitations of our risk measures, see "Risk Factors -- Our Risk Management Policies and Procedures May Leave Us Exposed to Unidentified or Unanticipated Risk". The VaR numbers below are shown separately for interest rate, currency, equity and 53 55 commodity products, as well as for our overall trading positions. These VaR numbers include the underlying product positions and related hedges, which may include positions in other product areas. For example, the hedge of a foreign exchange forward may include an interest rate futures position and the hedge of a long corporate bond position may include a short position in the related equity. VaR METHODOLOGY, ASSUMPTIONS AND LIMITATIONS. The modeling of the risk characteristics of our trading positions involves a number of assumptions and approximations. While management believes that these assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and different assumptions and/or approximations could produce materially different VaR estimates. We use historical data to estimate our VaR and, to better reflect asset volatilities and correlations, these historical data are weighted to give greater importance to more recent observations. Given its reliance on historical data, VaR is most effective in estimating risk exposures in markets in which there are no sudden fundamental changes or shifts in market conditions. An inherent limitation of VaR is that past changes in market risk factors, even when weighted toward more recent observations, may not produce accurate predictions of future market risk. For example, the asset volatilities to which we were exposed in the second half of 1998 were substantially larger than those reflected in the historical data used during that time period to estimate our VaR. Moreover, VaR calculated for a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or offset with hedges within one day. VaR also should be evaluated in light of the methodology's other limitations. For example, when calculating the VaR numbers shown below, we assume that asset returns are normally distributed. Non-linear risk exposures on options and the potentially mitigating impact of intra-day changes in related hedges would likely produce non-normal asset returns. Different distributional assumptions could produce a materially different VaR. The following table sets forth our daily VaR for substantially all of our trading positions: DAILY VaR (in millions)
AS OF NOVEMBER RISK CATEGORIES 1998 --------------- -------- Interest rates............................................ $ 27.3 Currency rates............................................ 9.0 Equity prices............................................. 25.3 Commodity prices.......................................... 7.0 Diversification effect(1)................................. (25.7) ------ Firmwide.................................................. $ 42.9 ======
- --------------- (1) Equals the difference between firmwide daily VaR and the sum of the daily VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated. ------------------------ The daily VaR for substantially all of our trading positions as of February 1999 was not materially different from our daily VaR as of November 1998. For a discussion of what our daily VaR would have been as of November 1998 had we used our volatility and correlation data as of May 29, 1998, see "Business -- Trading and Principal Investments -- Trading Risk Management -- Risk Reduction". 54 56 NON-TRADING RISK The market risk associated with our non-trading financial instruments, including investments in our merchant banking funds, is measured using a sensitivity analysis that estimates the potential reduction in our net revenues associated with hypothetical market movements. As of February 1999 and November 1998, non-trading market risk was not material. RECENT ENHANCEMENTS TO RISK MANAGEMENT While VaR continues to be a core tool in our risk management process, management has increased its emphasis on the supplemental measures described below: - - CREDIT SPREAD LIMITS. In addition to VaR, the Firmwide Risk Committee now sets market risk limits based on a scenario analysis of widening credit spreads similar to those experienced in the second half of 1998; and - - SCENARIO ANALYSES. Management is using scenario analyses that reflect more extreme market conditions, such as large increases in market volatility as well as substantial and sustained adverse movements in the volatility and correlation of our relative value positions. Notwithstanding these measures, we continue to hold trading positions that are substantial in both number and size, and are subject to significant market risk. In addition, management may choose to increase Goldman Sachs' risk levels in the future. See "Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in Many Ways" and "-- Our Risk Management Policies and Procedures May Leave Us Exposed to Unidentified or Unanticipated Risk" for a discussion of the risks associated with our trading positions. VALUATION OF TRADING INVENTORY Substantially all of our inventory positions are marked-to-market on a daily basis and changes are recorded in net revenues. The individual business units are responsible for pricing the positions they manage. The Controllers Department, in conjunction with the Firmwide Risk Department, regularly performs pricing reviews. TRADING NET REVENUES DISTRIBUTION The following chart sets forth the frequency distribution for substantially all of our daily trading net revenues for the year ended November 1998: DAILY TRADING NET REVENUES [DAILY TRADING NET REVENUES BAR CHART]
Daily Trading Net Revenues in Millions of Dollars Number of Days - ----------------------------------------------------------------------------- less than (60) .................................................... 9 (60)-(40) ......................................................... 5 (40)-(20) ......................................................... 22 (20)-0 ............................................................ 31 0-20 .............................................................. 87 20-40 ............................................................. 67 40-60 ............................................................. 24 greater than 60 ................................................... 6
DAILY TRADING NET REVENUES (IN MILLIONS OF DOLLARS) 55 57 CREDIT RISK Credit risk represents the loss that we would incur if a counterparty or issuer of securities or other instruments we hold fails to perform its contractual obligations to us. To reduce our credit exposures, we seek to enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We do not take into account any such agreements when calculating credit risk, however, unless management believes a legal right of setoff exists under an enforceable master netting agreement. For most businesses, counterparty credit limits are established by the Credit Department, which is independent of the revenue-producing departments, based on guidelines set by the Firmwide Risk and Credit Policy Committees. Our global credit management systems monitor current and potential credit exposure to individual counterparties and on an aggregate basis to counterparties and their affiliates. The systems also provide management with information regarding overall credit risk by product, industry sector, country and region. RISK LIMITS Business unit risk limits are established by the risk committees and may be further segmented by the business unit managers to individual trading desks. Market risk limits are monitored on a daily basis by the Firmwide Risk Department and are reviewed regularly by the appropriate risk committee. Limit violations are reported to the appropriate risk committee and the appropriate business unit managers. Inventory position limits are monitored by the Controllers Department and position limit violations are reported to the appropriate business unit managers and the Finance Committee. When inventory position limits are used to monitor market risk, they are also monitored by the Firmwide Risk Department and violations are reported to the appropriate risk committee. DERIVATIVE CONTRACTS Derivative contracts are financial instruments, such as futures, forwards, swaps or option contracts, that derive their value from underlying assets, indices, reference rates or a combination of these factors. Derivative instruments may be entered into by Goldman Sachs in privately negotiated contracts, which are often referred to as over-the-counter derivatives, or they may be listed and traded on an exchange. Most of our derivative transactions are entered into for trading purposes. We use derivatives in our trading activities to facilitate customer transactions, to take proprietary positions and as a means of risk management. We also enter into non-trading derivative contracts to manage the interest rate and currency exposure on our long-term borrowings. Derivatives are used in many of our businesses, and we believe that the associated market risk can only be understood relative to the underlying assets or risks being hedged, or as part of a broader trading strategy. Accordingly, the market risk of derivative positions is managed with all of our other non-derivative risk. Derivative contracts are reported on a net-by-counterparty basis on our consolidated statements of financial condition where management believes a legal right of setoff exists under an enforceable master netting agreement. For an over-the-counter derivative, our credit exposure is directly with our counterparty and continues until the maturity or termination of such contract. The following table sets forth the distribution, by credit rating, of substantially all of our exposure with respect to over-the-counter derivatives as of November 1998, after taking into consideration the effect of netting agreements. The categories shown reflect our internally determined public rating agency equivalents. 56 58 OVER-THE-COUNTER DERIVATIVE CREDIT EXPOSURES ($ in millions)
CREDIT RATING EQUIVALENT AMOUNT PERCENTAGE - ------------------------ ------ ---------- AAA/Aaa..................................... $ 2,170 12% AA/Aa2...................................... 5,571 30 A/A2........................................ 4,876 26 BBB/Baa2.................................... 3,133 17 BB/Ba2 or lower............................. 1,970 11 Unrated(1).................................. 730 4 ------- --- $18,450 100% ======= ===
- --------------- (1) In lieu of making an individual assessment of such counterparties' credit, we make a determination that the collateral held in respect of such obligations is sufficient to cover our exposure. In making this determination, we take into account various factors, including legal uncertainties and market volatility. ------------------------ As of November 1998, we held approximately $2.97 billion in collateral against these over-the-counter derivative exposures. This collateral consists predominantly of cash and U.S. government and agency securities and is usually received by us under agreements entitling us to require additional collateral upon specified increases in exposure or the occurrence of negative credit events. In addition to obtaining collateral and seeking netting agreements, we attempt to mitigate default risk on derivatives by entering into agreements that enable us to terminate or reset the terms of transactions after specified time periods or upon the occurrence of credit-related events, and by seeking third- party guarantees of the obligations of some counterparties. Derivatives transactions may also involve the legal risk that they are not authorized or appropriate for a counterparty, that documentation has not been properly executed or that executed agreements may not be enforceable against the counterparty. We attempt to minimize these risks by obtaining advice of counsel on the enforceability of agreements as well as on the authority of a counterparty to effect the derivative transaction. OPERATIONAL AND YEAR 2000 RISKS OPERATIONAL RISK. Goldman Sachs may face reputational damage, financial loss or regulatory risk in the event of an operational failure or error. A systems failure or failure to enter a trade properly into our records may result in an inability to settle transactions in a timely manner or a breach of regulatory requirements. Settlement errors or delays may cause losses due to damages owed to counterparties or movements in prices. These operational and systems risks may arise in connection with our own systems or as a result of the failure of an agent acting on our behalf. The Global Operations Department is responsible for establishing, maintaining and approving policies and controls with respect to the accurate inputting and processing of transactions, clearance and settlement of transactions, the custody of securities and other instruments and the detection and prevention of employee errors or improper or fraudulent activities. Its personnel work closely with the Information Technology Department in creating systems to enable appropriate supervision and management of its policies. The Global Operations Department is also responsible, together with other areas of Goldman Sachs, including the Legal and Compliance Departments, for ensuring compliance with applicable regulations with respect to the clearance and settlement of transactions and the margining of positions. The Network Management Department oversees our relationships with our clearance and settlement agents, regularly reviews agents' performance and meets with these agents to review operational issues. 57 59 YEAR 2000 READINESS DISCLOSURE. Goldman Sachs has determined that it will be required to modify or replace portions of its information technology systems, both hardware and software, and its non-information technology systems so that they will properly recognize and utilize dates beyond December 31, 1999. We presently believe that with modifications to existing software, conversions to new software and replacement of some hardware, the Year 2000 issue will be satisfactorily resolved in our own systems worldwide. However, if such modifications and conversions are not made or are not completed on a timely basis, the Year 2000 issue would have a material adverse effect on Goldman Sachs. Moreover, even if these changes are successful, failure of third parties to which we are financially or operationally linked to address their own Year 2000 problems would also have a material adverse effect on Goldman Sachs. For a description of the Year 2000 issue and some of the related risks, including possible problems that could arise, see "Risk Factors -- Our Computer Systems and Those of Third Parties May Not Achieve Year 2000 Readiness -- Year 2000 Readiness Disclosure". Recognizing the broad scope and complexity of the Year 2000 problem, we have established a Year 2000 Oversight Committee to promote awareness and ensure the active participation of senior management. This Committee, together with numerous sub-committees chaired by senior managers throughout Goldman Sachs and our Global Year 2000 Project Office, is responsible for planning, managing and monitoring our Year 2000 efforts on a global basis. Our Management Controls Department assesses the scope and sufficiency of our Year 2000 Program and verifies that the principal aspects of our Year 2000 program are being implemented according to plan. Our Year 2000 plans are based on a five-phase approach, which includes awareness; inventory, assessment and planning; remediation; testing; and implementation. The awareness phase (in which we defined the scope and components of the problem, our methodology and approach and obtained senior management support and funding) was completed in September 1997. We also completed the inventory, assessment and planning phase for our systems in September 1997. By the end of March 1999, we completed the remediation, testing and implementation phases for 99% of our mission-critical systems, and we plan to complete these three phases for the remaining 1% by the end of June 1999. In March 1999, we completed the first cycle of our internal integration testing with respect to critical securities and transaction flows. This cycle, which related to U.S. products, was completed successfully with no material problem. The remaining cycle, which will relate primarily to non-U.S. products, is to be completed in June 1999. This testing is intended to validate that our systems can successfully perform critical business functions beginning in January 2000. With respect to our non-mission-critical systems, we expect to complete our Year 2000 efforts during calendar 1999. For technology products that are supplied by third-party vendors, we have completed an inventory, ranked products according to their importance and developed a strategy for achieving Year 2000 readiness for substantially all non-compliant versions of software and hardware. While this process included collecting information from vendors, we are not relying solely on vendors' verifications that their products are Year 2000 compliant or ready. As of March 31, 1999, we had substantially completed testing and implementation of vendor-supplied technology products that we consider mission-critical. With respect to telecommunications carriers, we are relying on information provided by these vendors as to whether they are Year 2000 compliant because these vendors have indicated that they will not test with individual companies. We are also addressing Year 2000 issues that may exist outside our own technology activities, including our facilities, external service providers and other third parties with which we interface. We have inventoried and ranked our customers, business and trading partners, utilities, exchanges, depositories, clearing and custodial banks and other third parties with which we have important financial and operational relationships. We are continuing to assess the Year 2000 preparedness of 58 60 these customers, business and trading partners and other third parties. By the end of March 1999, we had participated in approximately 115 "external", i.e., industry-wide or point-to-point, tests with exchanges, clearing houses and other industry utilities, as well as the "Beta" test sponsored by the Securities Industry Association for its U.S. members in July 1998. We successfully completed all of these tests with no material problems. By the end of June 1999, we expect to have participated in approximately 60 additional external tests, including the Securities Industry Association "Streetwide" test scheduled to be completed in April 1999 and other major industry tests in those global markets where we conduct significant business. Acknowledging that a Year 2000 failure, whether internal or external, could have an adverse effect on the ability to conduct day-to-day business, we are employing a comprehensive and global approach to contingency planning. Our contingency planning objective is to identify potential system failure points that support processes that are critical to our mission and to develop contingency plans for those failures that may reasonably be expected to occur, with the general goal of ensuring, to the maximum extent practical, that minimum acceptable levels of service can be maintained by us. In the event of system failures, our contingency plans will not guarantee that existing levels of service will be fully maintained, especially if these failures involve external systems or processes over which we have little or no direct control or involve multiple failures across a variety of systems. We anticipate that contingency plans for our core business units will be substantially completed during June 1999, and by September 30, 1999 for the rest of our businesses. In addition, we are developing contingency plans for funding and balance sheet management and other related activities. We expect our contingency plans to include establishing additional sources of liquidity that could be drawn upon in the event of systems disruption. We are also developing a crisis management group to guide us through the transition period. We expect to reduce trading activity in the period leading up to January 2000 to minimize the impact of potential Year 2000-related failures. A reduction in trading activity by us or by other market participants in anticipation of possible Year 2000 problems could adversely affect our results of operations, as discussed under "Risk Factors -- Our Computer Systems and Those of Third Parties May Not Achieve Year 2000 Readiness -- Year 2000 Readiness Disclosure". We have incurred and expect to continue to incur expenses allocable to internal staff, as well as costs for outside consultants, to complete the remediation and testing of internally developed systems and the replacement and testing of third-party products and services, including non-technology products and services, in order to achieve Year 2000 compliance. We currently estimate that these costs will total approximately $150 million, a substantial majority of which has been spent to date. These estimates include the cost of technology personnel but do not include the cost of most non-technology personnel involved in our Year 2000 effort. The remaining cost of our Year 2000 program is expected to be incurred in 1999 and early 2000. The Year 2000 program costs will continue to be funded through operating cash flow. These costs are expensed as incurred. We do not expect that the costs associated with implementing our Year 2000 program will have a material adverse effect on our results of operations, financial condition, liquidity or capital resources. The costs of the Year 2000 program and the date on which we plan to complete the Year 2000 modifications are based on current estimates, which reflect numerous assumptions about future events, including the continued availability of resources, the timing and effectiveness of third-party remediation plans and other factors. We can give no assurance that these estimates will be achieved, and actual results could differ materially from our plans. Specific factors that might cause material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct relevant computer source codes and embedded chip technology, the results of internal 59 61 and external testing and the timeliness and effectiveness of remediation efforts of third parties. In order to focus attention on the Year 2000 problem, management has deferred several technology projects that address other issues. However, we do not believe that this deferral will have a material adverse effect on our results of operations or financial condition. ACCOUNTING DEVELOPMENTS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", effective for transactions occurring after December 31, 1996. Statement of Financial Accounting Standards No. 125 establishes standards for distinguishing transfers of financial assets that are accounted for as sales from transfers that are accounted for as secured borrowings. The provisions of Statement of Financial Accounting Standards No. 125 relating to repurchase agreements, securities lending transactions and other similar transactions were deferred by the provisions of Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125", and became effective for transactions entered into after December 31, 1997. This Statement requires that the collateral obtained in certain types of secured lending transactions be recorded on the balance sheet with a corresponding liability reflecting the obligation to return such collateral to its owner. Effective January 1, 1998, we adopted the provisions of Statement of Financial Accounting Standards No. 125 that were deferred by Statement of Financial Accounting Standards No. 127. The adoption of this standard increased our total assets and liabilities by $8.99 billion and $11.64 billion as of February 1999 and November 1998, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", effective for periods ending after December 15, 1997, with restatement required for all prior periods. Statement of Financial Accounting Standards No. 128 establishes new standards for computing and presenting earnings per share. This Statement replaces primary and fully diluted earnings per share with "basic earnings per share", which excludes dilution, and "diluted earnings per share", which includes the effect of all potentially dilutive common shares and other dilutive securities. Because we have not historically reported earnings per share, this Statement will have no impact on our historical financial statements. This Statement will, however, apply to our financial statements that are prepared after the offerings. See "Pro Forma Consolidated Financial Information" for a calculation of pro forma earnings per share. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997, with reclassification of earlier periods required for comparative purposes. Statement of Financial Accounting Standards No. 131 establishes the criteria for determining an operating segment and establishes the disclosure requirements for reporting information about operating segments. We intend to adopt this standard at the end of fiscal 1999. This Statement is limited to issues of reporting and presentation and, therefore, will not affect our results of operations or financial condition. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997, with restatement of disclosures for earlier periods required for comparative purposes. Statement of Financial Accounting Standards No. 132 revises certain employers' disclosures about pension and other post-retirement benefit plans. We intend to adopt this standard at the end of fiscal 1999. This Statement is limited to issues of reporting and 60 62 presentation and, therefore, will not affect our results of operations or financial condition. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", effective for fiscal years beginning after December 15, 1998. Statement of Position No. 98-1 requires that certain costs of computer software developed or obtained for internal use be capitalized and amortized over the useful life of the related software. We currently expense the cost of all software development in the period in which it is incurred. We intend to adopt this Statement in fiscal 2000 and are currently assessing its effect. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal years beginning after June 15, 1999. Statement of Financial Accounting Standards No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. We intend to adopt this standard in fiscal 2000 and are currently assessing its effect. 61 63 INDUSTRY AND ECONOMIC OUTLOOK As a global provider of financial services, Goldman Sachs is affected by overall macroeconomic and market conditions in various regions around the world. For a number of years, we have operated in a generally favorable macroeconomic environment characterized by low inflation, low and declining interest rates and strong equity markets. In particular, the U.S. economy, the largest in the world and an important influence on overall world economic activity, has been undergoing one of the longest periods of post-war economic expansion. As of March 1999, the current U.S. expansion had lasted 96 months compared to a post-war average period of expansion of 46 months. Recognizing that the favorable macroeconomic and market environments will be subject to periodic reversals, which may significantly and adversely affect our businesses, we believe that significant growth and profit opportunities exist for financial intermediaries in the United States and abroad. These opportunities derive from several long-term trends, including the following: - - DEREGULATION. Financial market deregulation, including the elimination of bank deposit interest rate ceilings and the expansion of commercial banks and other financial institutions into securities underwriting activities, has resulted in the creation of new and broader sources of credit, which have reduced the variability and the cyclicality in the supply of credit. This, in turn, has in the past reduced volatility in economic activity, leading to longer economic expansions with increased investment spending, resulting in higher levels of capital raising; - - GLOBALIZATION. Heightened global competition has created a need for cross-border capabilities and economies of scale, resulting in increased joint venture and mergers and acquisitions activity; - - FOCUS ON SHAREHOLDER VALUE. Increasing focus on shareholder value has fueled an increase in restructuring and strategic initiatives, yielding additional financial advisory and capital-raising opportunities; - - CONSOLIDATION. Moderate growth, limited pricing flexibility and the need for economies of scale have substantially increased consolidation opportunities in certain industries, and record levels of profit have provided companies with the resources to pursue strategic combinations, creating substantial demand for mergers and acquisitions advisory services and subsequent capital raising; - - DEMOGRAPHICS. Changing demographics in the United States and other developed economies have increased the pool of savings available for private investment and the need for increased funding of pension plans due to the aging of the population, creating substantial demand for investment products and services; and - - FINANCIAL PRODUCT INNOVATION. Technology and financial expertise have led to the development of new financial products better tailored to the risk/reward requirements of investors, increasing trading flows and proprietary investment opportunities. We believe that over the last 15 years these trends, coupled with generally declining interest rates and favorable market conditions, have contributed to a substantially higher rate of growth in activity in the financial services industry than the growth in overall economic activity. The future economic environment may not be as favorable as that experienced in the last 15 years and, in particular, the period of declining interest rates in the United States may not continue. There may also be periods of adverse economic and market conditions. Nonetheless, we believe that these trends should continue to affect the financial services industry positively over the long term. However, see "Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in Many Ways" for a discussion of the effect that adverse economic conditions and market fluctuations can have on our businesses. 62 64 The following table sets forth selected key industry indicators: KEY INDUSTRY INDICATORS ($ in billions, except gross domestic product) (volume in millions of shares)
AS OF OR FOR YEAR ENDED DECEMBER 31, -------------------------------------- CAGR(8) 1983 1988 1993 1998 '83-'98 ---- ---- ---- ---- ------- GENERAL ECONOMIC ACTIVITY: (in trillions) Worldwide gross domestic product(1)..... $ 10 $ 18 $ 24 $ 29(9) 8%(9) U.S. gross domestic product(2).......... 4 5 7 9 6 ADVISORY ACTIVITIES/FINANCING: Worldwide mergers and acquisitions(3)... 96 527 460 2,522 24 Worldwide equity issued(3).............. 50 51 172 269 12 Worldwide debt issued(3)................ 146 631 1,546 2,932 22 WORLD EQUITY MARKETS: Worldwide equity market capitalization(4)..................... 3,384 9,728 14,016 27,459 15 U.S. market capitalization(4)........... 1,898 2,794 5,136 13,451 14 FT/S&P Actuaries World Indices(TM) -- The World Index(5)..... NA 129 178 359 11 Dow Jones Industrial Average............ 1,259 2,169 3,754 9,181 14 S&P 500................................. 165 278 466 1,229 14 NYSE average daily volume............... 85 162 265 674 15 INVESTED FUNDS: Worldwide pension assets(6)............. $1,900 $3,752 $ 6,560 $10,975 12 Number of U.S. mutual funds(7).......... 1,026 2,715 4,558 7,343 14 U.S. mutual fund assets(7).............. $ 293 $ 810 $ 2,075 $ 5,530 22
- --------------- (1) Source: The Economist Intelligence Unit, January 1999. (2) Source: U.S. Department of Commerce, Bureau of Economic Analysis. (3) Source: Securities Data Company. (4) Source: International Finance Corporation. (5) Index is calculated on a local currency basis based on total returns. CAGR is based on 1988-1998 data. The FT/S&P Actuaries World Indices are owned by FTSE International Limited, Goldman, Sachs & Co. and Standard & Poor's Ratings Services. The Indices are compiled by FTSE International and Standard & Poor's Ratings Services in conjunction with the Faculty of Actuaries and the Institute of Actuaries. (6) Source: InterSec Research Corp. (7) Source: Investment Company Institute. (8) Compound annual growth rate. (9) Data as of December 31, 1997; CAGR 1983-1997. 63 65 We believe scale, global resources and leading market positions are important competitive advantages for financial intermediaries in this environment. In addition, we believe that circumstances in certain regions should provide opportunities for financial intermediaries. EUROPE The European Economic and Monetary Union commenced on January 1, 1999 and created a monetary union in Europe with a single currency. As a result, we believe that over time a pan-European capital market will develop that is likely to rival that of the United States in size and liquidity. We believe that financial intermediaries generally are expected to benefit from a number of anticipated developments, including: - - pan-European consolidation and financial restructuring yielding an increase in mergers and acquisitions activity; - - an increase in third-party assets under management and a major shift towards investments in equity securities due to an expected move to private pension fund systems, changing demographics and the elimination of intra-European Economic and Monetary Union currency risk; - - a reallocation of equity portfolios to reflect pan-European indices; - - the establishment of a European high-yield market to fund the growth of emerging high-growth industries and to satisfy investors' demands for higher yield; and - - increased equity issuance and higher equity trading volumes. ASIA Since 1997, the currency weakness and disruptions, the deterioration in certain of the region's banking systems, the weakness in the property sector in many of the region's countries, as well as slowing consumer income growth, have led to a significant and continuing weakening of these economies and their stock markets. These developments have adversely affected the economic and market conditions in the region and at times have affected economic and market conditions elsewhere. We believe, however, that financial intermediaries could have significant opportunities in this region if stability improves and the economies, which represent approximately 60% of the world's population, resume their growth. In the near term, these potential opportunities could include: - - an increase in mergers and acquisitions and other financial advisory services in connection with corporate restructurings; - - an increase in trading opportunities as financial intermediaries meet the liquidity needs of their clients; and - - an increase in capital raising as Asian corporations and governments access the international capital markets rather than the regional banking system to refinance and to fund future growth. In the longer term, these potential opportunities could include: - - the emergence of corporate and real estate principal investment opportunities as a result of corporate and government restructurings; and - - an increase in third-party assets under management and a major shift towards investments in equity securities due to an anticipated move to private pension fund systems, changing demographics and the relaxation of foreign exchange restrictions. 64 66 BUSINESS OVERVIEW Goldman Sachs is a leading global investment banking and securities firm with three principal business lines: - - Investment Banking; - - Trading and Principal Investments; and - - Asset Management and Securities Services. Our goal is to be the advisor of choice for our clients and a leading participant in global financial markets. We provide services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments and high net worth individuals. Because we believe that the needs of our clients are global and that international markets have high growth potential, we have built upon our strength in the United States to achieve leading positions in other parts of the world. Today, we have a strong global presence as evidenced by the geographic breadth of our transactions, leadership in our core products and the size of our international operations. As of February 1999, we operated offices in 23 countries and 36% of our 13,000 employees were based outside the United States. We are committed to a distinctive culture and set of core values. These values are reflected in our Business Principles, which emphasize placing our clients' interests first, integrity, commitment to excellence and innovation, and teamwork. Goldman Sachs is managed by its principal owners. Simultaneously with the offerings, we will grant restricted stock units, stock options or interests in a defined contribution plan to substantially all of our employees. Following the offerings, our employees, including former partners, will own approximately 66% of Goldman Sachs. None of our employees are selling shares in the offerings. Goldman Sachs is the successor to a commercial paper business founded in 1869 by Marcus Goldman. Since then, we have grown our business as a participant and intermediary in securities and other financial activities to become one of the leading firms in the industry. In 1989, The Goldman Sachs Group, L.P. was formed to serve as the parent company of the Goldman Sachs organization. As of November 30, 1996, The Goldman Sachs Group, L.P. was restructured. On that date, the non-retiring former general partners of The Goldman Sachs Group, L.P. converted their general partner interests into limited partner interests and became profit participating limited partners of The Goldman Sachs Group, L.P. Concurrently, The Goldman Sachs Corporation was admitted as The Goldman Sachs Group, L.P.'s sole general partner. The common stock of The Goldman Sachs Corporation is owned by our managing directors who are profit participating limited partners, all of whom are active in our businesses. The Goldman Sachs Group, Inc. was formed to succeed to the business of The Goldman Sachs Group, L.P. Simultaneously with the offerings, we will complete a number of transactions in order to convert from partnership to corporate form. See "Certain Relationships and Related Transactions -- Incorporation and Related Transactions" for additional information concerning these transactions. MARKET SHARE DATA Except as otherwise indicated, all amounts with respect to the volume, number and market share of mergers and acquisitions and underwriting transactions and related ranking information have been derived from information compiled and classified by Securities Data Company. Securities Data Company obtains and gathers its information from sources it considers reliable, but Securities Data Company does not guarantee the accuracy or completeness of the information. In the case of mergers and acquisitions, data are based upon the dollar value of announced transactions for the period indicated, taken as a whole, with full credit to each of the advisors to each party in a transaction. In the case of underwritings, data are based upon the dollar value of total proceeds raised (exclusive of any option to purchase additional shares) with equal credit to each bookrunner for the period indicated, taken as 65 67 a whole. As a result of this method of compiling data, percentages may add to more than 100%. STRATEGY AND PRINCIPAL BUSINESS LINES Our strategy is to grow our three core businesses -- Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services -- in markets throughout the world. Our leadership position in investment banking provides us with access to governments, financial institutions and corporate clients globally. Trading and principal investing has been an important part of our culture and earnings, and we remain committed to these businesses irrespective of their volatility. Managing wealth is one of the fastest growing segments of the financial services industry and we are positioning our asset management and securities services businesses to take advantage of that growth. Our assets under supervision, for example, have grown from $92.7 billion as of November 1994 to $369.7 billion as of February 1999, representing a compound annual growth rate of 38%. Our business lines are comprised of various product and service offerings that are set forth in the following chart: PRIMARY PRODUCTS AND ACTIVITIES BY BUSINESS LINE
TRADING AND PRINCIPAL ASSET MANAGEMENT AND INVESTMENT BANKING INVESTMENTS SECURITIES SERVICES ------------------ --------------------- -------------------- - -- Equity and debt -- Bank loans -- Commissions underwriting -- Commodities -- Institutional and high - -- Financial restructuring -- Currencies net worth asset advisory services -- Equity and fixed income management - -- Mergers and acquisitions derivatives -- Margin lending advisory services -- Equity and fixed income -- Matched book - -- Real estate advisory securities -- Merchant banking fees services -- Principal investments -- Increased shares of -- Proprietary arbitrage merchant banking fund income and gains -- Mutual funds -- Prime brokerage -- Securities lending
------------------------ INVESTMENT BANKING Investment Banking represented 39% of 1998 net revenues and 35% of 1997 net revenues. We are a market leader in both the financial advisory and underwriting businesses, serving over 3,000 clients worldwide. For the period January 1, 1994 to December 31, 1998, we had the industry-leading market share of 25.3% in worldwide mergers and acquisitions advisory services, having advised on over $1.7 trillion of transactions. Over the same period, we also achieved number one market shares of 15.2% in underwriting worldwide initial public offerings and 14.4% in underwriting worldwide common stock issues. TRADING AND PRINCIPAL INVESTMENTS Trading and Principal Investments represented 28% of 1998 net revenues and 39% of 1997 net revenues. We make markets in equity and fixed income products, currencies and commodities; enter into swaps and other derivative transactions; engage in proprietary trading and arbitrage; and make principal investments. In trading, we focus on building lasting relationships with our most active clients while maintaining leadership positions in our key markets. We believe our research, market-making and proprietary activities enhance our understanding of markets and ability to serve our clients. ASSET MANAGEMENT AND SECURITIES SERVICES Asset Management and Securities Services represented 33% of 1998 net revenues and 26% of 1997 net revenues. We provide global investment management and advisory services; earn commissions on agency transactions; manage merchant banking funds; and provide prime brokerage, securities lending and financing services. Our asset management business has grown rapidly, with assets 66 68 under supervision increasing from $92.7 billion as of November 25, 1994 to $369.7 billion as of February 26, 1999, representing a compound annual growth rate of 38%. As of February 26, 1999, we had $206.4 billion of assets under management. We manage merchant banking funds that had $15.5 billion of capital commitments as of the end of 1998. We pursue our strategy to grow our three core businesses through an emphasis on: EXPANDING HIGH VALUE-ADDED BUSINESSES To achieve strong growth and high returns, we seek to build leadership positions in high value-added services for our clients. For example, we have substantially increased the number of professionals in investment banking to improve and expand our ability to execute mergers and acquisitions, initial public offerings and high-yield financings. In trading, we structure and execute large and complex transactions for institutional investors, pension funds and corporate clients around the world. In asset management, we emphasize equity and alternative investment products and use our established international presence to build a global asset management franchise. INCREASING THE STABILITY OF OUR EARNINGS We seek to balance the stability of our earnings with return on equity and long-term earnings growth. We believe our trading businesses are key ingredients to our success. While we plan to continue to grow our trading businesses, the financial market shocks of the past year underscored the importance of our strategy of emphasizing growth in our investment banking, asset management and securities services businesses. Through a greater relative emphasis on these businesses, our goal is to gradually increase the stability of our earnings. PURSUING INTERNATIONAL OPPORTUNITIES We believe that our global reach will allow us to take advantage of growth in international markets. In Europe, for example, we anticipate that the recent establishment of the European Economic and Monetary Union will, over time, create a large pan-European market rivaling the U.S. capital markets in size and liquidity. We believe this will generate increased activity across our businesses in the region. In Asia, we believe that an increase in corporate restructurings and in the need for liquidity will increase our mergers and acquisitions and trading opportunities. In the longer term, we anticipate additional opportunities in asset management activities due to a shift we anticipate toward the privatization of pension systems and in demographics. LEVERAGING THE FRANCHISE We believe our various businesses are generally stronger and more successful because they are part of the Goldman Sachs franchise. Our culture of teamwork fosters cooperation among our businesses, which allows us to provide our clients with a full range of products and services on a coordinated basis. Our investment bankers, for example, refer clients who are selling their businesses to those in Goldman Sachs who manage wealth. In addition, our merchant banking investments in companies lead to future clients for investment banking. COMPETITIVE STRENGTHS STRONG CLIENT RELATIONSHIPS We focus on building long-term client relationships. In 1998, over 75% of our Investment Banking revenues represented business from existing clients. We also aggressively pursue new client relationships as evidenced by the over 400 investment banking transactions we completed for first-time clients in 1998. In our trading businesses, we structure and execute transactions across a wide array of markets and countries to meet our clients' needs. In our asset management business, we managed assets for three of the five largest pension pools in the United States as ranked as of September 30, 1998 by Pensions & Investments and maintain accounts for 41% of the 1998 "Forbes 400 List of the Richest Americans". DISTINCTIVE PEOPLE AND CULTURE Our most important asset is our people. We seek to reinforce our employees' commitment to our culture and values through 67 69 recruiting, training, a comprehensive 360-degree review system and a compensation philosophy that rewards teamwork. We were ranked number seven in Fortune magazine's "The 100 Best Companies to Work for in America" in January 1999 and were ranked number three in Fortune magazine's 1999 "The Top 50 MBA Dream Companies", the highest-ranked investment banking and securities firm in each case. GLOBAL REACH Over the past decade, we have made a significant commitment to building a worldwide business. We have achieved leading positions in major international markets by capitalizing on our product knowledge and global research, as well as by building a local presence where appropriate. In doing so, we have become one of the few truly global investment banking and securities firms with the ability to execute large and complex cross-border transactions. We had the number one market share of 23.2% in cross-border mergers and acquisitions for the period January 1, 1994 to December 31, 1998. In addition, in Japan, we were the largest non-Japanese mutual fund manager as of the end of February 1999, according to The Investment Trusts Association. ------------------------ SUMMARY FINANCIAL DATA (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- Net revenues: Investment Banking....... $2,113 $2,587 $3,368 $ 633 $ 902 Trading and Principal Investments........... 2,693 2,926 2,379 1,182 1,357 Asset Management and Securities Services... 1,323 1,934 2,773 657 736 ------ ------ ------ ------ ------ Total net revenues......... $6,129 $7,447 $8,520 $2,472 $2,995 ====== ====== ====== ====== ======
------------------------ INVESTMENT BANKING Goldman Sachs provides a broad range of investment banking services to a diverse group of over 3,000 clients worldwide, including corporations, financial institutions, governments and individuals. Our investment banking activities are divided into two categories: - - FINANCIAL ADVISORY. Financial advisory includes advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs; and - - UNDERWRITING. Underwriting includes public offerings and private placements of equity and debt securities. 68 70 The following table sets forth the net revenues of our Investment Banking business: INVESTMENT BANKING NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- Financial advisory............ $ 931 $1,184 $1,774 $363 $522 Underwriting.................. 1,182 1,403 1,594 270 380 ------ ------ ------ ---- ---- Total Investment Banking...... $2,113 $2,587 $3,368 $633 $902 ====== ====== ====== ==== ====
In Investment Banking, we provide our clients with quality advice and execution as part of our effort to develop and maintain long-term relationships as their lead investment bank. ORGANIZATION We have continuously adapted our organizational structure to meet changing market dynamics and our clients' needs. Our current structure, which is organized along regional, execution and industry groups, seeks to combine client-focused investment bankers with execution and industry expertise. Because our businesses are global, we have adapted our organization to meet the demands of our clients in each geographic region. Through our commitment to teamwork, we believe that we provide services in an integrated fashion for the benefit of our clients. We believe an important competitive advantage in our marketing effort is Investment Banking Services, a core group of professionals who focus on developing and maintaining strong client relationships. These bankers, who are organized regionally and/or by industry group, work with senior executives of our clients to identify areas where Goldman Sachs can provide capital-raising, financial advisory or other products and services. The broad base of experience and knowledge of our Investment Banking Services professionals enables them to analyze our clients' objectives efficiently and to bring to bear the appropriate resources of Goldman Sachs to satisfy those objectives. Our Corporate Finance, Debt and Equity Capital Markets, Leveraged Finance and Mergers and Acquisitions groups bring product expertise and innovation to clients in a variety of industries. These groups are responsible for the execution of specific client transactions as well as the building of strong client relationships. In an effort to serve our clients' needs in targeted industries, we have established several industry focus groups. These include: Chemicals; Communications, Media and Entertainment; Energy and Power; Financial Institutions; Healthcare; High Technology; Hotels and Gaming; Real Estate; Retailing; and Transportation. Drawing on specialized knowledge of industry-specific trends, these groups provide the full range of investment banking products and services to our clients. Reflecting our commitment to innovation, Investment Banking has established a New Products group whose professionals focus on creating new financial products. These professionals have particular expertise in integrating finance with accounting, tax and securities laws and work closely with other investment banking teams to provide innovative solutions to difficult client problems. Our structuring expertise has proven to be particularly valuable in addressing client needs in areas such as complex cross-border mergers and acquisitions and convertible and other hybrid equity financings. FINANCIAL ADVISORY Financial advisory includes a broad range of advisory assignments with respect to 69 71 mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs. Goldman Sachs is a leading investment bank in worldwide mergers and acquisitions. During calendar 1998, we advised on 340 mergers and acquisitions transactions with a combined value of $957 billion. Our mergers and acquisitions capabilities are evidenced by our significant share of assignments in large, complex transactions where we provide multiple services, including "one-stop" acquisition financing, currency hedging and cross-border structuring expertise. Goldman Sachs advised on seven of the ten largest mergers and acquisitions transactions through December 31, 1998. We have also been successful in Europe, including in intra-country transactions, and we are a leading mergers and acquisitions advisor in France, Germany and Spain. The following table illustrates our leadership in the mergers and acquisitions advisory market for the indicated period taken as a whole: GOLDMAN SACHS' MERGERS AND ACQUISITIONS MARKET DATA For the period January 1, 1994 through December 31, 1998 ($ in billions)
MARKET NUMBER OF CATEGORY RANK(1) SHARE VOLUME TRANSACTIONS -------- ------- ------ ------ ------------ Worldwide............................... 1 25.3% $1,715 1,334 Worldwide, transactions over $500 million............................... 1 34.8 1,593 470 Worldwide, transactions over $1 billion............................... 1 38.4 1,470 297 United States........................... 1 32.8 1,316 907 United States, transactions over $500 million............................... 1 41.3 1,228 339 United States, transactions over $1 billion............................... 1 44.3 1,142 221
- --------------- (1) Rank in any one year during the period presented may vary from the rank for the period taken as a whole. ------------------------ Mergers and acquisitions is an example of how one activity can generate cross-selling opportunities for other areas of Goldman Sachs. For example, a client we are advising in a purchase transaction may seek our assistance in obtaining financing and in hedging interest rate or foreign currency risks associated with the acquisition. In the case of dispositions, owners and senior executives of the acquired company often will seek asset management services. In these cases, our high net worth relationship managers provide comprehensive advice on investment alternatives and execute the client's desired strategy. UNDERWRITING From January 1, 1994 through March 31, 1999, Goldman Sachs has served as lead manager in transactions that have raised more than $1 trillion of capital for clients worldwide. We underwrite a wide range of securities and other instruments, including common and preferred stock, convertible securities, investment grade debt, high-yield debt, sovereign and emerging markets debt, municipal debt, bank loans, asset-backed securities and real estate-related securities, such as mortgage-backed securities and the securities of real estate investment trusts. 70 72 EQUITY UNDERWRITING. Equity underwriting has been a long-term core strength of Goldman Sachs. The following table illustrates our leadership position in equity underwriting for the indicated period taken as a whole: GOLDMAN SACHS' EQUITY UNDERWRITING MARKET DATA For the period January 1, 1994 through December 31, 1998 ($ in billions)
TOTAL MARKET PROCEEDS NUMBER OF CATEGORY RANK(1) SHARE RAISED ISSUES(2) -------- ------- ------ -------- --------- Worldwide initial public offerings....................... 1 15.2% $ 44 300 Worldwide initial public offerings, proceeds over $500 million................................................ 1 23.3 25 59 Worldwide public common stock offerings.................. 1 14.4 101 634 U.S. initial public offerings............................ 1 15.3 31 179 U.S. initial public offerings, proceeds over $500 million................................................ 1 30.1 16 29 U.S. public common stock offerings....................... 2 14.3 71 381
- --------------- (1) Rank in any one year during the period presented may vary from the rank for the period taken as a whole. (2) The number of issues reflects the number of tranches; an offering by a single issuer could have multiple tranches. ------------------------ As with mergers and acquisitions, we have been particularly successful in winning mandates for large, complex equity underwritings. As evidenced in the chart above, our market share of initial public offerings with total proceeds over $500 million is substantially higher than our market share of all initial public offerings. We believe our leadership in large initial public offerings reflects our expertise in complex transactions, research strengths, track record and distribution capabilities. In the international arena, we have also acted as lead manager on many of the largest initial public offerings. We were named the Asian Equity House of the Year by International Financing Review in 1998. We believe that a key factor in our equity underwriting success is the close working relationship between the investment bankers, research analysts and sales force as coordinated by our Equity Capital Markets group. Goldman Sachs' equities sales force is one of the most experienced and effective sales organizations in the industry. With 350 institutional sales professionals and 420 high net worth relationship managers located in every major market around the world, Goldman Sachs has relationships with a large and diverse group of investors. Global Investment Research is critical to our ability to succeed in the equity underwriting business. We believe that high quality equity research is a significant competitive advantage in the market for new equity issues. In this regard, Goldman Sachs' research has been consistently ranked among the industry's global leaders. See "-- Global Investment Research" for detailed information regarding our Global Investment Research Department. DEBT UNDERWRITING. We engage in the underwriting and origination of various types of debt instruments that we broadly categorize as follows: investment grade debt for corporations, governments, municipalities and agencies; leveraged finance, which includes high-yield debt and bank loans for non-investment grade issuers; emerging market debt, which includes corporate and sovereign issues; and asset-backed securities. We have employed a focused approach in debt underwriting, emphasizing high value-added areas in servicing our clients. We believe that the leveraged finance market is a key growth opportunity for our debt underwriting business. Over the last three years, we have more than doubled the number of debt underwriting professionals dedicated to this area. 71 73 The table below sets forth our rank, market position, our total proceeds raised and the number of debt transactions in which we have acted as underwriter in the following areas for the indicated period taken as a whole: GOLDMAN SACHS' DEBT UNDERWRITING MARKET DATA For the period January 1, 1994 through December 31, 1998 ($ in billions)
TOTAL MARKET PROCEEDS NUMBER OF CATEGORY(1) RANK(5) SHARE RAISED ISSUES(6) ----------- ------- ------ -------- --------- Worldwide debt(2).................................. 3 8.4% $695 4,684 Worldwide straight debt(3)......................... 3 8.9 559 4,165 U.S. investment grade straight debt(3)............. 3 12.0 419 3,590 U.S. investment grade industrial straight debt(3).......................................... 1 19.5 81 517 U.S. high-yield debt(4)............................ 5 8.0 33 184
- --------------- (1) All categories include publicly registered and Rule 144A issues. (2) Includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. (3) "Straight debt" excludes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and municipal debt. (4) Excludes issues with both investment grade and non-investment grade ratings, often referred to as "split-rated issues". (5) Rank in any one year during the period presented may vary from the rank for the period taken as a whole. (6) The number of issues reflects the number of tranches; an offering by a single issuer could have multiple tranches. ------------------------ TRADING AND PRINCIPAL INVESTMENTS Our Trading and Principal Investments business facilitates customer transactions and takes proprietary positions through market-making in and trading of fixed income and equity products, currencies, commodities, and swaps and other derivatives. In order to meet the needs of our clients, our Trading and Principal Investments business is diversified across a wide range of products. For example, we make markets in traditional investment grade debt securities, structure complex derivatives and securitize mortgages and insurance risk. A fundamental tenet of our approach is that we believe our willingness and ability to take risk distinguishes us and substantially enhances our client relationships. Our Trading and Principal Investments business includes the following: - - FIXED INCOME, CURRENCY AND COMMODITIES. Goldman Sachs makes markets in and trades fixed income products, currencies and commodities, structures and enters into a wide variety of derivative transactions and engages in proprietary trading and arbitrage activities; - - EQUITIES. Goldman Sachs makes markets in and trades equities and equity-related products, structures and enters into equity derivative transactions and engages in proprietary trading and equity arbitrage; and - - PRINCIPAL INVESTMENTS. Principal investments primarily represents Goldman Sachs' net revenues from its investments in its merchant banking funds. 72 74 The following table sets forth the net revenues of our Trading and Principal Investments business: TRADING AND PRINCIPAL INVESTMENTS NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ---------------- 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- FICC....................... $1,749 $2,055 $1,438 $ 741 $ 876 Equities................... 730 573 795 365 455 Principal investments...... 214 298 146 76 26 ------ ------ ------ ------ ------ Total Trading and Principal Investments.............. $2,693 $2,926 $2,379 $1,182 $1,357 ====== ====== ====== ====== ======
------------------------ FIXED INCOME, CURRENCY AND COMMODITIES FICC is a large and diversified operation through which we engage in a variety of customer-driven market-making and proprietary trading and arbitrage activities. FICC's principal products are: - - Bank loans - - Commodities - - Currencies - - Derivatives - - Emerging market debt - - Global government securities - - High-yield securities - - Investment grade corporate securities - - Money market instruments - - Mortgage securities and loans - - Municipal securities We generate trading net revenues from our customer-driven business in three ways. First, in large, highly liquid markets we undertake a high volume of transactions for modest spreads. Second, by capitalizing on our strong market relationships and capital position, we also undertake transactions in less liquid markets where spreads are generally larger. Finally, we generate net revenues from structuring and executing transactions that address complex client needs. In our proprietary activities, we assume a variety of risks and devote substantial resources to identify, analyze and benefit from these exposures. We leverage our strong research capabilities and capitalize on our proprietary analytical models to analyze information and make informed trading judgments. We seek to benefit from perceived disparities in the value of assets in the trading markets and from macroeconomic and company-specific trends. FICC has established itself as a leading market participant by using a three-part approach to deliver high quality service to its clients. First, we offer broad market-making, research and market knowledge to our clients on a global basis. Second, we create innovative solutions to complex client problems by drawing upon our structuring and trading expertise. Third, we use our expertise to take positions in markets when we believe the return is at least commensurate with the risk. A core activity in FICC is market-making in a broad array of securities and products. For example, we are a primary dealer in many of the largest government bond markets around the world, including the United States, Japan, the United Kingdom and Canada; we are a member of the major futures exchanges; and we have interbank dealer status in the currency markets in New York, London, Tokyo and Hong Kong. Our willingness to make markets in a broad range of fixed income, currency and commodity products and their derivatives is crucial both to our client relationships and to support our underwriting business by providing secondary market liquidity. Our clients value counterparties that are active in the marketplace and are willing to provide liquidity and research-based points of view. In addition, we believe that our significant investment in research capabilities 73 75 and proprietary analytical models are critical to our ability to provide advice to our clients. Our research capabilities include quantitative and qualitative analyses of global economic, currency and financial market trends, as well as credit analyses of corporate and sovereign fixed income securities. Our clients often confront complex problems that require creative approaches. We assist our clients who seek to hedge or reallocate their risks and profit from expected price movements. To do this we bring to bear the ability of our experienced professionals to understand the needs of our clients and our ability to manage the risks associated with complex solutions to problems. In recognition of our ability to meet these client needs, we were ranked by Institutional Investor in February 1999 as the number two derivatives dealer for the second straight year. In addition, we were named by Euroweek in January 1999 as the "Best provider of swaps and other derivatives". EQUITIES Goldman Sachs engages in a variety of market-making, proprietary trading and arbitrage activities in equity securities and equity-related products (such as convertible securities and equity derivative instruments) on a global basis. Goldman Sachs makes markets and positions blocks of stock to facilitate customers' transactions and to provide liquidity in the marketplace. Goldman Sachs is a member of most of the major stock exchanges, including New York, London, Frankfurt, Tokyo and Hong Kong. As agent, we execute brokerage transactions in equity securities for institutional and individual customers that generate commission revenues. Commissions earned on agency transactions are recorded in Asset Management and Securities Services. In equity trading, as in FICC, we generate net revenues from our customer-driven business in three ways. First, in large, highly liquid principal markets, such as the over-the-counter market for equity securities, we undertake a high volume of transactions for modest spreads. In the Nasdaq National Market, we were the second largest market maker, by aggregate volume, among the top 100 most actively traded stocks in calendar 1998. Second, by capitalizing on our strong market relationships and capital position, we also undertake large transactions, such as block trades and positions in securities, in which we benefit from spreads that are generally larger. Finally, we also benefit from structuring complex transactions. Goldman Sachs was a pioneer and is a leader in the execution of large block trades (trades of 50,000 or more shares) in the United States and abroad. In calendar 1998, we executed over 50 block trades of at least $100 million each. We have been able to capitalize on our expertise in block trading, our global distribution network and our willingness to commit capital to effect increasingly large and complex customer transactions. We expect corporate consolidation and restructuring and increased demand for certainty and speed of execution by sellers and issuers of securities to increase both the frequency and size of sales of large blocks of equity securities. We believe that we are well positioned to benefit from this trend. Block transactions, however, expose us to increased risks, including those arising from holding large and concentrated positions and decreasing spreads. See "Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in Many Ways -- Holding Large and Concentrated Positions May Expose Us to Large Losses" for a discussion of the risks associated with holding a large position in a single issuer and "Risk Factors -- The Financial Services Industry Is Intensely Competitive and Rapidly Consolidating" for a discussion of the competitive risks that we face. We are active in the listed options and futures markets, and we structure, distribute and execute over-the-counter derivatives on market indices, industry groups and individual company stocks to facilitate customer transactions and our proprietary activities. We develop quantitative strategies and render advice with respect to portfolio hedging and restructuring and asset allocation transactions. We also create specially tailored instruments to enable sophisticated investors to undertake hedging strategies and establish or 74 76 liquidate investment positions. We are one of the leading participants in the trading and development of equity derivative instruments. We are an active participant in the trading of futures and options on most of the major exchanges in the United States, Europe and Asia. Equity arbitrage has long been an important part of our equity franchise. Our strategy is based on making investments on a global basis through a diversified portfolio across different markets and event categories. This business focuses on event-oriented special situations where we are not acting as an advisor and on relative value trades. These special situations include mergers and acquisitions, corporate restructurings, recapitalizations and legal and regulatory events. Equity arbitrage leverages our global infrastructure and network of research analysts to analyze carefully a broad range of trading and investment strategies across a wide variety of markets. Investment decisions are the product of rigorous fundamental, situational and, frequently, regulatory and legal analysis. Although market conditions led us to decrease the number and size of positions maintained by our equity arbitrage business during 1998, we believe that over time, as opportunities present themselves, our equity arbitrage business will likely increase its activity. TRADING RISK MANAGEMENT We believe that our trading and market-making capabilities are key ingredients to our success. While these businesses have generally earned attractive returns, we have in the past incurred significant trading losses in periods of market turbulence, such as in 1994 and 1998. Our trading risk management process seeks to balance our ability to profit from trading positions with our exposure to potential losses. Risk management includes input from all levels of Goldman Sachs, from the trading desks to the Firmwide Risk Committee. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" for a further discussion of our risk management policies and procedures. 1998 EXPERIENCE. From mid-August to mid-October 1998, the Russian economic crisis, the turmoil in Asian and Latin American emerging markets and the resulting move to higher quality fixed income securities by many investors led to substantial declines in global financial markets. Investors broadly sold credit-sensitive products, such as corporate and high-yield debt, and bought higher-rated instruments, such as U.S. Treasury securities, which caused credit spreads to widen dramatically. This market turmoil also caused a widespread decline in global equity markets. As a major dealer in fixed income securities, we maintain substantial inventories of corporate and high-yield debt. We regularly seek to hedge the interest rate risk on these positions through, among other strategies, short positions in U.S. Treasury securities. In the second half of 1998, we suffered losses from both the decline in the prices of corporate and high-yield debt instruments that we owned and the increase in the prices of the U.S. Treasury securities in which we had short positions. These market shocks also led to trading losses in our fixed income relative value trading positions. Relative value trading positions are intended to profit from a perceived temporary dislocation in the relationship between the values of different financial instruments. From mid-August to mid-October 1998, the components of these relative value positions moved in directions that we did not anticipate and the volatilities of certain positions increased to three times prior levels. When we and other market participants with similar positions simultaneously sought to reduce positions and exposures, this caused a substantial reduction in market liquidity and a continuing decline in prices. In the second half of 1998, we also experienced losses in equity arbitrage and in the value of a number of merchant banking investments. RISK REDUCTION. Over the course of this period, we actively reduced our positions and exposure to severe market disruptions of the type described above. Our current scenario models estimate our exposure to a substantial widening in credit spreads and adverse 75 77 movements in relative value trades of the type experienced in mid-August to mid-October 1998. These models indicate that, as of November 1998, our exposure to a potential reduction in net trading revenues as a result of these events was over 40% lower than in August 1998. In addition, the daily VaR of substantially all of our trading positions declined from $47 million as of May 29, 1998 to $43 million as of November 1998. The November 1998 daily VaR reflects the reduction in positions discussed above, offset by the higher market volatility, changes in correlation and other market conditions experienced in the second half of 1998. If the daily VaR as of November 1998 had been determined using the volatility and correlation data as of May 29, 1998, the daily VaR would have been $31 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" for a discussion of VaR and its limitations. As part of the continuous effort to refine our risk management policies and procedures, we have recently made a number of adjustments to the way that we evaluate risk and set risk limits. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management -- Market Risk" for a further discussion of our policies and procedures for evaluating market risk and setting related limits. Notwithstanding these actions, we continue to hold trading positions that are substantial in both number and size, and are subject to significant market risk. In addition, management may choose to increase our risk levels in the future. See "Risk Factors -- Market Fluctuations Could Adversely Affect Our Businesses in Many Ways" and "-- Our Risk Management Policies and Procedures May Leave Us Exposed to Unidentified or Unanticipated Risk" for a discussion of the risks associated with our trading positions. PRINCIPAL INVESTMENTS In connection with our merchant banking activities, we invest with our clients by making principal investments in funds that we raise and manage. As of November 1998, we had committed $2.8 billion, of which $1.7 billion had been funded, of the $15.5 billion total equity capital committed for our merchant banking funds. The funds' investments generate capital appreciation or depreciation and, upon disposition, realized gains or losses. See "-- Asset Management and Securities Services -- Merchant Banking" for a discussion of our merchant banking funds. As of November 1998, our aggregate carrying value of principal investments held directly or through our merchant banking funds was approximately $1.4 billion, which was comprised of corporate principal investments with an aggregate carrying value of approximately $609 million and real estate investments with an aggregate carrying value of approximately $753 million. ASSET MANAGEMENT AND SECURITIES SERVICES Asset Management and Securities Services is comprised of the following: - - ASSET MANAGEMENT. Asset management generates management fees by providing investment advisory services to a diverse and rapidly growing client base of institutions and individuals; - - SECURITIES SERVICES. Securities services includes prime brokerage, financing services and securities lending and our matched book businesses, all of which generate revenue primarily in the form of fees or interest rate spreads; and - - COMMISSIONS. Commission-based businesses include agency transactions for clients on major stock and futures exchanges. Revenues from the increased share of income and gains derived from our merchant banking funds are also included in commissions. 76 78 The following table sets forth the net revenues of our Asset Management and Securities Services business: ASSET MANAGEMENT AND SECURITIES SERVICES NET REVENUES (in millions)
THREE MONTHS ENDED YEAR ENDED NOVEMBER FEBRUARY -------------------------- ------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- Asset management.............. $ 242 $ 458 $ 675 $139 $202 Securities services........... 354 487 730 170 207 Commissions................... 727 989 1,368 348 327 ------ ------ ------ ---- ---- Total Asset Management and Securities Services......... $1,323 $1,934 $2,773 $657 $736 ====== ====== ====== ==== ====
------------------------ ASSET MANAGEMENT Goldman Sachs is seeking to build a premier global asset management business. We offer a broad array of investment strategies and advice across all major asset classes: global equity; fixed income, including money markets; currency; and alternative investment products (i.e., investment vehicles with non-traditional investment objectives and/or strategies). Assets under supervision are comprised of assets under management and other client assets. Assets under management typically generate fees based on a percentage of their value and include our mutual funds, separate accounts managed for institutional and individual investors, our merchant banking funds and other alternative investment funds. Other client assets are comprised of assets in brokerage accounts of primarily high net worth individuals, on which we earn commissions. Over the last five years, we have rapidly grown our assets under supervision, as set forth in the graph below: ASSETS UNDER SUPERVISION (in billions)
ASSETS UNDER MANAGEMENT OTHER CLIENT ASSETS TOTAL ----------------------- ------------------- ----- '1994' 44 49 $ 93 '1995' 52 58 $110 '1996' 94 77 $171 '1997' 136 102 $238 '1998' 195 142 $337 'February 1999' 207 163 $370
77 79 As of February 1999, equities and alternative investments represented 51% of our total assets under management. Since 1996, these two asset classes have been the primary drivers of our growth in assets under management. The following table sets forth the amount of assets under management by asset class: ASSETS UNDER MANAGEMENT BY ASSET CLASS (in billions)
AS OF AS OF NOVEMBER FEBRUARY ------------------------------------ -------- 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ASSET CLASS Equity..................... $ 6 $ 9 $34 $ 52 $ 69 $ 73 Fixed income and currency.. 17 19 26 36 50 53 Money markets.............. 18 20 27 31 46 48 Alternative investment(1)............ 3 4 8 17 30 32 --- --- --- ---- ---- ---- Total...................... $44 $52 $95 $136 $195 $206 === === === ==== ==== ====
----------------------- (1) Includes private equity, real estate, quantitative asset allocation and other funds that we manage. ------------------------ Since the beginning of 1996, we have increased the resources devoted to our asset management business, including adding over 850 employees. In addition, over the past three years, Goldman Sachs has made three asset management acquisitions in order to expand its geographic reach and broaden its global equity and alternative investment portfolio management capabilities. Our global reach has been important in growing assets under management. From November 1996 to February 1999, our assets under management, excluding our merchant banking funds, sourced from outside the United States grew by over $35 billion. As of February 1999, we managed approximately $46 billion sourced from Europe. In Japan, deregulation, high individual savings rates and low local rates of return have been important drivers of growth for our asset management business during the 1990s. Over the last three years, we have built a significant asset management business in Japan, and, as of February 1999, we managed $23 billion of assets sourced from Japan. In Japan, as of the end of February 1999, we were the largest non-Japanese investment trust manager, according to The Investment Trusts Association, and we managed four of the top 15 open-ended mutual funds ranked by mutual fund assets, according to IFIS Inc. We believe that substantial opportunities exist to grow our asset management business in Japan, by increasing our institutional client base and expanding the third-party distribution network through which we offer our mutual funds. CLIENTS. Our primary clients are institutions, high net worth individuals and retail investors. We access clients through both direct and third-party channels. 78 80 The table below sets forth the amount of assets under supervision by distribution channel and client category as of November 1998: ASSETS UNDER SUPERVISION BY DISTRIBUTION CHANNEL (in billions)
ASSETS UNDER SUPERVISION(1) PRIMARY INVESTMENT VEHICLES -------------- --------------------------- - - Directly distributed -- Institutional.............. $ 121 Separate managed accounts Commingled vehicles -- High net worth individuals................ 156 Brokerage accounts Limited partnerships Separate managed accounts - - Third-party distributed -- Institutional and retail... 48 Mutual funds ------ Total........................... $ 325 ======
- --------------- (1) Excludes $12 billion in our merchant banking funds. ------------------------ Our institutional clients include corporations, insurance companies, pension funds, foundations and endowments. We managed assets for three of the five largest pension pools in the United States as ranked as of September 30, 1998 by Pensions & Investments, and we have 18 clients for whom we manage at least $1 billion each. In the individual high net worth area, we have established approximately 10,000 high net worth accounts worldwide, including accounts with 41% of the 1998 "Forbes 400 List of the Richest Americans". We believe this is a high growth opportunity because this market (defined as the market for individual investors with a net worth in excess of $5 million) is highly fragmented and growing rapidly and accounts for approximately $10 trillion of investable assets according to a study by McKinsey & Co. At the center of our effort is a team of over 420 relationship managers, located in 12 U.S. and six international offices. These professionals have an average of over seven years of experience at Goldman Sachs and have exhibited low turnover and superior productivity relative to the industry average. In the third-party distribution channel, we distribute our mutual funds on a worldwide basis through banks, brokerage firms, insurance companies and other financial intermediaries. As of December 31, 1998, we were the third largest manager in the U.S. institutional money market sector according to information compiled by Strategic Insight. In Japan, we also utilize a third-party distribution network consisting principally of the largest Japanese brokerage firms. MERCHANT BANKING Goldman Sachs has an established successful record in the corporate and real estate merchant banking business, having raised $15.5 billion of committed capital for 15 private investment funds, as of November 1998, of which $9.0 billion had been funded. We have committed $2.8 billion and funded $1.7 billion of these amounts; our clients, including pension plans, endowments, charitable institutions and high net worth individuals, have provided the remainder. Some of these investment funds pursue, on a global basis, long-term investments in equity and debt securities in privately negotiated transactions, leveraged buyouts and acquisitions. As of November 1998, these funds had total committed capital of $7.7 billion, which includes two funds with $1.0 billion of committed 79 81 capital that are in the process of being wound down. Other funds, with total committed capital of $7.8 billion as of November 1998, invest in real estate operating companies and debt and equity interests in real estate assets. Our strategy with respect to each merchant banking fund is to invest opportunistically to build a portfolio of investments that is diversified by industry, product type, geographic region and transaction structure and type. Our merchant banking funds leverage our long-standing relationships with companies, investors, entrepreneurs and financial intermediaries around the world to source potential investment opportunities. In addition, our merchant banking funds and their portfolio companies have generated business for other areas of Goldman Sachs, including equity underwriting, leveraged and other financing fees and merger advisory fees. Located in eight offices around the world, our investment professionals identify, manage and sell investments on behalf of our merchant banking funds. Goldman Sachs has two subsidiaries that manage real estate assets, The Archon Group, L.P. and Archon Group (France) S.C.A. In addition, our merchant banking professionals work closely with other departments and benefit from the expertise of specialists in debt and equity research, investment banking, leveraged and mortgage finance and equity capital markets. Merchant banking activities generate three revenue streams. First, we receive a management fee that is generally a percentage of a fund's committed capital, invested capital, total gross acquisition cost or asset value. These annual management fees, which are included in our asset management revenues, have historically been a recurring source of revenue. Second, we receive from each fund, after that fund has achieved a minimum return for fund investors, an increased share of the fund's income and gains that is a percentage, typically 20%, of the capital appreciation and gains from the fund's investments. Revenues from the increased share of the funds' income and gains are included in commissions. Third, Goldman Sachs, as a substantial investor in these funds, is allocated its proportionate share of the funds' unrealized appreciation or depreciation arising from changes in fair value as well as gains and losses upon realization. These items are included in Trading and Principal Investments. SECURITIES SERVICES Securities services consists predominantly of Global Securities Services, which provides prime brokerage, financing services and securities lending to a diversified U.S. and international customer base, including hedge funds, pension funds and high net worth individuals. Securities services also includes our matched book businesses. We offer prime brokerage services to our clients, allowing them the flexibility to trade with most brokers while maintaining a single source for financing and portfolio reports. Our prime brokerage activities provide multi-product clearing and custody in 50 markets, consolidated multi-currency accounting and reporting and offshore fund administration and servicing for our most active clients. Additionally, we provide financing to our clients through margin loans collateralized by securities held in the client's account. In recent years, we have significantly increased our prime brokerage client base. Securities lending activities principally involve the borrowing and lending of equity securities to cover customer and Goldman Sachs' short sales and to finance Goldman Sachs' long positions. In addition, we are an active participant in the securities lending broker-to-broker business and the third-party agency lending business. Trading desks in New York, Boston, London, Tokyo and Hong Kong provide 24-hour coverage in equity markets worldwide. We believe the rapidly developing international stock lending market presents a significant growth opportunity for us. Lenders of securities include pension plan sponsors, mutual funds, insurance companies, investment advisors, endowments, bank trust departments and individuals. We have entered into exclusive relationships with certain lenders that have given us access to large pools of securities, some of which are often hard to locate in the general lender 80 82 market, providing us with a competitive advantage. We believe that a significant cause of the growth in short sales, which require the borrowing of securities, has been the rapid increase in complex trading strategies, such as index arbitrage, convertible bond and warrant arbitrage, option strategies, and sector and market neutral strategies where shares are sold short to hedge exposure from derivative instruments. COMMISSIONS Goldman Sachs generates commissions by executing agency transactions on major stock and futures exchanges worldwide. We effect agency transactions for clients located throughout the world. In recent years, aggregate commissions have increased as a result of growth in transaction volume on the major exchanges. As discussed above, commissions also include the increased share of income and gains from merchant banking funds as well as commissions earned from brokerage transactions for high net worth individuals. For a discussion regarding our increased share of the income and gains from our merchant banking funds, see "-- Merchant Banking" above, and for a discussion regarding high net worth individuals, see "-- Asset Management -- Clients" above. In anticipation of continued growth in electronic connectivity and online trading, Goldman Sachs has made strategic investments in alternative trading systems to gain experience and participate in the development of this market. See "Risk Factors -- The Financial Services Industry Is Intensely Competitive and Rapidly Consolidating -- Our Revenues May Decline Due to Competition from Alternative Trading Systems" for a discussion of the competitive risks posed by alternative trading systems generally. GLOBAL INVESTMENT RESEARCH Our Global Investment Research Department provides fundamental research on economies, debt and equity markets, commodities markets, industries and companies on a worldwide basis. For over two decades, we have committed the resources on a global scale to develop an industry-leading position for our investment research products. We believe that investment research is a significant factor in our strong competitive position in debt and equity underwritings and in our generation of commission revenues. Major investors worldwide recognize Goldman Sachs for its value-added research products, which are highly rated in client polls across the Americas, Europe and Asia. Our Research Department is the only one to rank in the top three in each of the last 15 calendar years in Institutional Investor's "All- America Research Team" survey. In December 1998, the Research Department also achieved top honors for global investment research from Institutional Investor. In Europe, based on the Institutional Investor "1999 All-Europe Research Team" survey, the Research Department ranked number one for coverage of pan-European sectors and number three in European Strategy and Economics. Global Investment Research employs a team approach that provides equity research coverage of approximately 2,300 companies worldwide, 53 economies and 26 stock markets. This is accomplished through four groups: - - the Economic Research group, which formulates macroeconomic forecasts for economic activity, foreign exchange, and interest rates based on the globally coordinated views of its regional economists; - - the Portfolio Strategy group, which forecasts equity market returns and provides recommendations on both asset allocation and industry representation; - - the Company/Industry group, which provides fundamental analysis, forecasts and investment recommendations for companies and industries worldwide. Equity research analysts are organized regionally by sector and globally into more than 20 industry teams, which allows for extensive collaboration and knowledge sharing on important investment themes; and - - the Commodities Research group, which provides research on the global commodity markets. 81 83 INTERNET STRATEGY We believe that Internet technology and electronic commerce will, over time, change the ways that securities are traded and distributed, creating both opportunities and challenges for our businesses. In response, we have a program of internal development and external investment. Internally, we are extending our global electronic trading and information distribution capabilities to our clients via the Internet. These capabilities cover many of our fixed income, equities and mutual fund products in markets around the world. We are also using the Internet to improve the ease and quality of communication with our institutional and high net worth clients. For example, investors have on-line access to our investment research, mutual fund data and valuation models and our high net worth clients are increasingly accessing their portfolio information over the Internet. We have also recently established GS-Online(SM), which, in conjunction with Goldman, Sachs & Co., will act as an underwriter of securities offerings via the Internet and other electronic means. GS-Online(SM) will deal initially only with other underwriters and syndicate members and not with members of the public. Externally, we have invested in electronic commerce concerns such as Bridge Information Systems, Inc., TradeWeb LLC, Archipelago, L.L.C., The BRASS Utility, L.L.C., OptiMark Technologies, Inc. and, most recently, Wit Capital Group, Inc. Through these investments, we gain an increased understanding of business developments and opportunities in this emerging sector. For a discussion of how Goldman Sachs could be adversely affected by these developments, see "Risk Factors -- The Financial Services Industry Is Intensely Competitive and Rapidly Consolidating -- Our Revenues May Decline Due to Competition from Alternative Trading Systems". INFORMATION TECHNOLOGY Technology is fundamental to our overall business strategy. Goldman Sachs is committed to the ongoing development, maintenance and use of technology throughout the organization, with expenditures, including employee costs, of approximately $970 million in 1998 and a budget of $1.2 billion in 1999. We have developed significant software and systems over the past several years. Our technology initiatives can be broadly categorized into three efforts: - - enhancing client service through increased connectivity and the provision of high value-added, tailored services; - - risk management; and - - overall efficiency and control. We have tailored our services to our clients by providing them with electronic access to our products and services. For example, we developed the GS Financial Workbench(SM), an Internet web site that clients and employees can use to download research reports, access earnings and valuation models, submit trades, monitor accounts, build and view presentations, calculate derivative prices and view market data. First made available in early 1995, the GS Financial Workbench(SM) represents a joint effort among all of our business areas to create one comprehensive site for clients and employees to access our products and services. We have also developed software that enables us to monitor and analyze our market and credit risks. This risk management software not only analyzes market risk on firmwide, divisional and trading desk levels, but also breaks down our risk into its underlying exposures, permitting management to evaluate exposures on the basis of specific interest rate, currency rate, equity price or commodity price changes. To assist further in the management of our credit exposures, data from many sources are aggregated daily into credit management systems that give senior management and professionals in the Credit and Controllers Departments the ability to receive timely information with respect to credit exposures worldwide, including netting information, and the ability to analyze complex risk situations effectively. Our software accesses these data, allows for quick analysis at the level of individual trades and interacts with other Goldman Sachs systems. 82 84 Technology has been a significant factor in improving the overall efficiency of many areas of Goldman Sachs. By automating many trading procedures, we have substantially increased our efficiency and accuracy. We currently have projects under way to ensure that our technology is Year 2000 compliant. See "Risk Factors -- Our Computer Systems and Those of Third Parties May Not Achieve Year 2000 Readiness -- Year 2000 Readiness Disclosure" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management -- Operational and Year 2000 Risks -- Year 2000 Readiness Disclosure" for a further discussion of the risks we face in achieving Year 2000 readiness and our progress to date. EMPLOYEES Management believes that one of the strengths and principal reasons for the success of Goldman Sachs is the quality and dedication of its people and the shared sense of being part of a team. Goldman Sachs was ranked number seven in Fortune magazine's "The 100 Best Companies to Work for in America" in January 1999 and was ranked number three in Fortune magazine's 1999 "The Top 50 MBA Dream Companies", the highest ranking investment banking and securities firm in each case. We strive to maintain a work environment that fosters professionalism, excellence, diversity and cooperation among our employees worldwide. Instilling the Goldman Sachs culture in all employees is a continuous process, of which training is an essential part. We recently opened a 34,000 square foot training center in New York City, near our world headquarters. All employees are offered the opportunity to participate in education and periodic seminars that we sponsor at various locations throughout the world. We also sponsor off-site meetings for the various business units that are designed to promote collaboration among co-workers. Another important part of instilling the Goldman Sachs culture in all employees is our employee review process. Employees are reviewed by supervisors, co-workers and employees they supervise in a 360-degree review process that is integral to our team approach. In 1998, over 140,000 reviews were completed, evidencing the comprehensive nature of this process. We also believe that good citizenship is an important part of being a member of the Goldman Sachs team. To that end, we established our Community TeamWorks initiative in 1997. As part of Community TeamWorks, all employees are offered the opportunity to spend a day working at a charitable organization of their choice while continuing to receive their full salary for that day. In 1998, approximately two-thirds of our employees participated in Community TeamWorks. The commitment of our partners to the community is also demonstrated by their having given over $90 million in each of the last two years to charities, including private foundations. As of February 1999, we had approximately 13,000 employees. In addition, The Archon Group, L.P. and Archon Group (France) S.C.A., subsidiaries of Goldman Sachs that provide real estate services for our real estate investment funds, had a total of approximately 1,260 employees as of February 1999. Goldman Sachs is reimbursed for substantially all of the costs of these employees by these funds. See "Management -- The Employee Initial Public Offering Awards" for a discussion of the steps taken by Goldman Sachs to encourage the continued service of its employees after the offerings and see "Risk Factors -- Our Conversion to Corporate Form May Adversely Affect Our Ability to Recruit, Retain and Motivate Key Employees" for a discussion of the factors that may have an adverse impact on the effectiveness of these efforts. COMPETITION The financial services industry -- and all of our businesses -- are intensely competitive, and we expect them to remain so. Our competitors are other brokers and dealers, investment banking firms, insurance companies, investment advisors, mutual funds, hedge funds, commercial banks and merchant banks. We compete with some of our com- 83 85 petitors globally and with some others on a regional, product or niche basis. We compete on the basis of a number of factors, including transaction execution, our products and services, innovation, reputation and price. Competition is also intense for the attraction and retention of qualified employees. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract new employees and retain and motivate our existing employees. See "-- Employees" for a discussion of our efforts in this regard. In recent years there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenues in an effort to gain market share, which could result in pricing pressure in our businesses. This trend toward consolidation and convergence has significantly increased the capital base and geographic reach of our competitors. This trend has also hastened the globalization of the securities and other finan-cial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. We believe that some of our most significant challenges and opportunities will arise outside the United States. See "Industry and Economic Outlook" for a discussion of these challenges and opportunities. In order to take advantage of these opportunities, we will have to compete successfully with financial institutions based in important non-U.S. markets, particularly in Europe. Some of these institutions are larger, better capitalized and have a stronger local presence and a longer operating history in these markets. We have experienced intense price competition in some of our businesses in recent years. For example, equity and debt underwriting discounts have been under pressure for a number of years and the ability to execute trades electronically, through the Internet and other alternative trading systems may increase the pressure on trading commissions. It appears that this trend toward alternative trading systems will continue and perhaps accelerate. Similarly, underwriting spreads in Latin American and other privatizations have been subject to considerable pressure in the last year. We believe that we may experience pricing pressures in these and other areas in the future as some of our competitors seek to obtain market share by reducing prices. See "Risk Factors -- The Financial Services Industry Is Intensely Competitive and Rapidly Consolidating" for a discussion of the competitive risks we face in our businesses. REGULATION Goldman Sachs' business is, and the securities and commodity futures and options industries generally are, subject to extensive regulation in the United States and elsewhere. As a matter of public policy, regulatory bodies in the United States and the rest of the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets, not with protecting the interests of Goldman Sachs' shareholders or creditors. In the United States, the SEC is the federal agency responsible for the administration of the federal securities laws. Goldman, Sachs & Co. is registered as a broker-dealer and as an investment adviser with the SEC and as a broker-dealer in all 50 states and the District of Columbia. Self-regulatory organizations, such as the NYSE, adopt rules and examine broker-dealers, such as Goldman, Sachs & Co. In addition, state securities and other regulators also have regulatory or oversight authority over Goldman, Sachs & Co. Similarly, our businesses are also subject to 84 86 regulation by various non-U.S. governmental and regulatory bodies and self-regulatory authorities in virtually all countries where we have offices. Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure, record-keeping, the financing of customers' purchases and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect the mode of operation and profitability of Goldman Sachs. The U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees. Occasionally, our subsidiaries have been subject to investigations and proceedings, and sanctions have been imposed for infractions of various regulations relating to our activities, none of which has had a material adverse effect on us or our businesses. The commodity futures and options industry in the United States is subject to regulation under the Commodity Exchange Act, as amended. The Commodity Futures Trading Commission is the federal agency charged with the administration of the Commodity Exchange Act and the regulations thereunder. Goldman, Sachs & Co. is registered with the Commodity Futures Trading Commission as a futures commission merchant, commodity pool operator and commodity trading advisor. As a registered broker-dealer and member of various self-regulatory organizations, Goldman, Sachs & Co. is subject to the SEC's uniform net capital rule, Rule 15c3-1. This rule specifies the minimum level of net capital a broker-dealer must maintain and also requires that at least a minimum part of its assets be kept in relatively liquid form. Goldman, Sachs & Co. is also subject to the net capital requirements of the Commodity Futures Trading Commission and various securities and commodity exchanges. See Note 8 to the audited consolidated financial statements and Note 5 to the unaudited condensed consolidated financial statements for a discussion of our net capital. The SEC and various self-regulatory organizations impose rules that require notification when net capital falls below certain predefined criteria, dictate the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC's uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital. In January 1999, the SEC adopted revisions to its uniform net capital rule and related regulations that permit the registration of over-the-counter derivatives dealers as broker-dealers. An over-the-counter derivatives dealer can, upon adoption of a risk management framework in accordance with the new rules, utilize a capital requirement based upon proprietary models for estimating market risk exposures. We have established Goldman Sachs Financial Markets, L.P. and are in the process of registering this company with the SEC as an over-the-counter derivatives dealer to conduct in a more capital efficient manner certain over-the-counter derivative businesses now conducted in other affiliates. Goldman Sachs is an active participant in the international fixed income and equity markets. Many of our affiliates that participate in those markets are subject to comprehensive regulations that include some form of capital adequacy rule and other customer protection rules. For example, Goldman Sachs provides investment services in and from the United Kingdom under a regulatory regime that is undergoing comprehensive restructuring aimed at implementing the Finan- 85 87 cial Services Authority as the United Kingdom's unified regulator. The relevant Goldman Sachs entities in London are at present regulated by the Securities and Futures Authority Limited in respect of their investment banking, individual asset management, brokerage and principal trading activities, and the Investment Management Regulatory Organization in respect of their institutional asset management and fund management activities. Some of these Goldman Sachs entities are also regulated by the London Stock Exchange and other United Kingdom securities and commodities exchanges of which they are members. It is expected, however, that commencing in 2000 the responsibilities of the Securities and Futures Authority Limited and Investment Management Regulatory Organization will be taken over by the Financial Services Authority. The investment services that are subject to oversight by United Kingdom regulators are regulated in accordance with European Union directives requiring, among other things, compliance with certain capital adequacy standards, customer protection requirements and conduct of business rules. These standards, requirements and rules are similarly implemented, under the same directives, throughout the European Union and are broadly comparable in scope and purpose to the regulatory capital and customer protection requirements imposed under the SEC and Commodity Futures Trading Commission rules. European Union directives also permit local regulation in each jurisdiction, including those in which we operate, to be more restrictive than the requirements of such directives and these local requirements can result in certain competitive disadvantages to Goldman Sachs. In addition, the Japanese Ministry of Finance and the Financial Supervisory Agency in Japan as well as German, French and Swiss banking authorities, among others, regulate various of our subsidiaries and also have capital standards and other requirements comparable to the rules of the SEC. Compliance with net capital requirements of these and other regulators could limit those operations of our subsidiaries that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also could restrict our ability to withdraw capital from our regulated subsidiaries, which in turn could limit our ability to repay debt or pay dividends on our common stock. LEGAL MATTERS We are involved in a number of judicial, regulatory and arbitration proceedings (including those described below) concerning matters arising in connection with the conduct of our businesses. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but might be material to our operating results for any particular period, depending, in part, upon the operating results for such period. MOBILEMEDIA SECURITIES LITIGATION Goldman, Sachs & Co. has been named as a defendant in a purported class action lawsuit commenced on December 6, 1996 and pending in the U.S. District Court for the District of New Jersey. This lawsuit was brought on behalf of purchasers of common stock of MobileMedia Corporation in an underwritten offering in 1995 and purchasers of senior subordinated notes of MobileMedia Communications Inc. in a concurrent underwritten offering. Defendants are MobileMedia Corporation, certain of its officers and directors, and the lead underwriters, including Goldman, Sachs & Co. MobileMedia Corporation is currently reorganizing in bankruptcy. Goldman, Sachs & Co. underwrote 2,242,500 shares of common stock, for a total price of approximately $53 million, and Goldman Sachs International underwrote 718,750 shares, for a total price of approximately $17 million. Goldman, Sachs & Co. underwrote approximately $38 million in principal amount of the senior subordinated notes. The consolidated class action complaint alleges violations of the disclosure requirements of the federal securities laws and seeks compensatory and/or rescissory damages. In light of MobileMedia Corporation's 86 88 bankruptcy, the action against it has been stayed. Defendants' motion to dismiss was denied in October 1998. ANTITRUST MATTERS RELATING TO UNDERWRITINGS Goldman, Sachs & Co. is one of numerous financial services companies that have been named as defendants in certain purported class actions brought in the U.S. District Court for the Southern District of New York by purchasers of securities in public offerings, who claim that the defendants engaged in conspiracies in violation of federal antitrust laws in connection with these offerings. The plaintiffs in each instance seek treble damages as well as injunctive relief. One of the actions, which was commenced on August 21, 1998, alleges that the defendants have conspired to discourage or restrict the resale of securities for a period after the offerings, including by imposing "penalty bids". Defendants moved to dismiss the complaint in November 1998. The plaintiffs amended their complaint in February 1999, modifying their claims in various ways, including limiting the proposed class to retail purchasers of public offerings. Several other actions were commenced, beginning on November 3, 1998, that allege that the defendants, many of whom are also named in the other action discussed above, have conspired to fix at 7% the discount that underwriting syndicates receive from issuers of shares in certain offerings. Goldman, Sachs & Co. received a Civil Investigative Demand on April 29, 1999 from the U.S. Department of Justice requesting information with respect to its investigation of an alleged conspiracy among securities underwriters to fix underwriting fees. ROCKEFELLER CENTER PROPERTIES, INC. LITIGATION Several former shareholders of Rockefeller Center Properties, Inc. brought purported class actions in the U.S. District Court for the District of Delaware and the Delaware Chancery Court arising from the acquisition of Rockefeller Center Properties, Inc. by an investor group in July 1996. The defendants in the actions include, among others, Goldman, Sachs & Co., Whitehall Real Estate Partnership V, a fund advised by Goldman, Sachs & Co., a Goldman, Sachs & Co. managing director and other members of the investor group. The federal court actions, which have since been consolidated, were filed beginning on November 15, 1996, and the state court action was filed on May 29, 1998. The complaints generally allege that the proxy statement disseminated to former Rockefeller Center Properties, Inc. stockholders in connection with the transaction was deficient, in violation of the disclosure requirements of the federal securities laws. The plaintiffs are seeking, among other things, unspecified damages, rescission of the acquisition, and/or disgorgement. In a series of decisions, the federal court has granted summary judgment dismissing all the claims in the federal action. The plaintiffs have appealed those rulings. The state action has been stayed pending disposition of the federal action. REICHHOLD CHEMICALS LITIGATION Reichhold Chemicals, Inc. and Reichhold Norway ASA brought a claim in March 30, 1998 in the Commercial Court in London against Goldman Sachs International in relation to the plaintiffs' 1997 purchase of the polymer division of one of Goldman Sachs International's Norwegian clients, Jotun A/S. The plaintiffs claim that they overpaid by $40 million based upon misrepresentations concerning the financial performance of the polymer division. In November 1998, the Commercial Court granted Goldman Sachs International's application for a stay of the action pending the outcome of arbitration proceedings between Reichhold Chemicals, Inc. and Reichhold Norway ASA, on the one hand, and Jotun A/S in Norway, on the other. The stay order is currently being reviewed by an appellate court. MATTERS RELATING TO MUNICIPAL SECURITIES Goldman, Sachs & Co., together with a number of other firms active in the municipal securities area, has received requests begin- 87 89 ning in June 1995 for information from the SEC and certain other federal and state agencies and authorities with respect to the pricing of escrow securities sold by Goldman, Sachs & Co. to certain municipal bond issuers in connection with the advanced refunding of municipal securities. Goldman, Sachs & Co. understands that certain municipal bond issuers to which Goldman, Sachs & Co. sold escrow securities have also received such inquiries. There have been published reports that an action under the Federal False Claims Act was filed in February 1995 alleging unlawful and undisclosed overcharges in certain advance refunding transactions by a private plaintiff on behalf of the United States and that Goldman, Sachs & Co., together with a number of other firms, is a named defendant in that action. The complaint was reportedly filed under seal while the government determines whether it will pursue the claims directly. Goldman, Sachs & Co. is also one of many municipal underwriting firms that have been named as defendants in a purported class action brought on November 24, 1998 in the U.S. District Court for the Middle District of Florida by the Clerk of Collier County, Florida on behalf of municipal issuers which purchased escrow securities since October 1986 in connection with advance refundings. The amended complaint alleges that the securities were excessively "marked up" in violation of the Investment Advisers Act and Florida law, and seeks to recover the difference between the actual and alleged "fair" prices. The defendants moved to dismiss the complaint on April 30, 1999. AMF SECURITIES LITIGATION The Goldman Sachs Group, L.P., Goldman, Sachs & Co. and a Goldman, Sachs & Co. managing director have been named as defendants in a purported class action lawsuit commenced on April 27, 1999 in the U.S. District Court for the Southern District of New York. This lawsuit was brought on behalf of purchasers of stock of AMF Bowling, Inc. in an underwritten initial public offering of 15,525,000 shares of common stock in November 1997 at a price of $19.50 per share. Defendants are AMF Bowling, Inc., certain officers and directors of AMF Bowling, Inc. (including the Goldman, Sachs & Co. managing director), and the lead underwriters of the offering (including Goldman, Sachs & Co.). The complaint alleges violations of the disclosure requirements of the federal securities laws and seeks compensatory damages and/or rescission. The complaint asserts that The Goldman Sachs Group, L.P. and the Goldman, Sachs & Co. managing director are liable as controlling persons under the federal securities laws because certain funds managed by Goldman Sachs owned a majority of the outstanding common stock of AMF Bowling, Inc. and the managing director served as its chairman at the time of the offering. PROPERTIES Our principal executive offices are located at 85 Broad Street, New York, New York, and comprise approximately 969,000 square feet of leased space, pursuant to a lease agreement expiring in June 2008 (with an option to renew for up to 20 additional years). We also occupy over 500,000 square feet at each of 1 New York Plaza and 10 Hanover Square in New York, New York, pursuant to lease agreements expiring in September 2004 (with an option to renew for ten years) and June 2018, respectively. We also have a 15-year lease for approximately 590,000 square feet at 180 Maiden Lane in New York, New York, that expires in March 2014. In total, we lease over 3.1 million square feet in the New York area, having more than doubled our space since November 1996. We have additional offices in the United States and elsewhere in the Americas. Together, these offices comprise approximately 650,000 square feet of leased space. Consistent with Goldman Sachs' global approach to its business, we also have offices in Europe, Asia, Africa and Australia. In Europe, we have offices that total approximately 790,000 square feet. Our largest presence in Europe is in London, where we lease approximately 639,000 square feet through various leases, with the principal one, for 88 90 Peterborough Court, expiring in 2016. An additional 396,000 square feet of leased space in London is expected to be occupied during 2001. In Asia, we have offices that total approximately 360,000 square feet. Our largest offices in these regions are in Tokyo and Hong Kong. In Tokyo, we currently lease approximately 175,000 square feet under leases that expire between November 1999 and June 2005. In Hong Kong, we currently lease approximately 103,000 square feet under a lease that expires in May 2000. We recently entered into a new 12-year lease in Hong Kong for approximately 190,000 square feet. There are also significant expansion efforts underway in Tokyo and Singapore. Our space requirements have increased significantly over the last several years. Currently, Goldman Sachs is at or near capacity at most of its locations. As a result, we have been actively leasing additional space to support our anticipated growth. Based on our progress to date, we believe that we will be able to acquire additional space to meet our anticipated needs. 89 91 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS 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.
NAME AGE POSITION ---- --- -------- Henry M. Paulson, Jr. 53 Director, Chairman and Chief Executive Officer Robert J. Hurst 53 Director and Vice Chairman John A. Thain 43 Director, President and Co-Chief Operating Officer John L. Thornton 45 Director, President and Co-Chief Operating Officer Sir John Browne 51 Director James A. Johnson 55 Director John L. Weinberg 74 Director Robert J. Katz 51 General Counsel Gregory K. Palm 50 General Counsel Robin Neustein 45 Chief of Staff Leslie M. Tortora 42 Chief Information Officer David A. Viniar 43 Chief Financial Officer Barry L. Zubrow 46 Chief Administrative Officer
------------------------ 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 90 92 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. THE MANAGEMENT AND PARTNERSHIP COMMITTEES 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 91 93 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. INFORMATION REGARDING THE BOARD OF DIRECTORS 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. COMMITTEES OF THE BOARD OF DIRECTORS 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 92 94 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. EXECUTIVE COMPENSATION 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"). FISCAL 1998 COMPENSATION INFORMATION(1)
NAME AND PRINCIPAL POSITION - --------------------------- Henry M. Paulson, Jr.,...................................... $12,700,000 1998: Co-Chairman and Co-Chief Executive Officer (1999: Director, Chairman and Chief Executive Officer) Robert J. Hurst,............................................ 11,300,000 1998: Vice Chairman (1999: Director and Vice Chairman) John A. Thain,.............................................. 11,200,000 1998: Chief Financial Officer (1999: Director, President and Co-Chief Operating Officer) John L. Thornton,........................................... 9,900,000 1998: Chairman of International Operations (1999: Director, President and Co-Chief Operating Officer) Jon S. Corzine(2)........................................... 12,800,000 1998: Co-Chairman and Co-Chief Executive Officer Roy J. Zuckerberg(3)........................................ 11,000,000 1998: Vice Chairman
------------------------- (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 which 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. (2) Mr. Corzine is leaving Goldman Sachs after the completion of the offerings. (3) Mr. Zuckerberg retired in November 1998. ---------------------- 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. 93 95 EMPLOYMENT, NONCOMPETITION AND PLEDGE AGREEMENTS 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: - - form, or acquire a 5% or greater ownership, voting or profit participation interest in, any competitive enterprise; or - - associate with any competitive enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity that had a relationship to that managing director's activities at Goldman Sachs. When we refer to a "competitive enterprise", we are referring to any business enterprise that engages in any activity, or owns a significant interest in any entity that engages in any activity, that competes with any activity in which we are engaged. 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: - - solicit any client with whom that managing director worked, or whose identity became known to him or her in connection with his or her employment with Goldman Sachs, to transact business with a competitive enterprise or reduce or refrain from doing any business with Goldman Sachs; - - interfere with or damage any relationship between Goldman Sachs and any client or prospective client; or - - solicit any employee of Goldman Sachs to apply for, or accept employment with, any competitive enterprise. TRANSFER OF CLIENT RELATIONSHIPS. Each managing director who was a profit participating limited partner is required, upon termination of his or her employment, to take all actions and do all things reasonably requested by Goldman Sachs during a 90-day cooperation period to maintain for Goldman Sachs the business, goodwill and business 94 96 relationships with Goldman Sachs' clients with which he or she worked. 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 death of the relevant managing director; - - the expiration of the 24-month period following the termination of the employment of the relevant managing director; or - - the fifth anniversary of the date of the consummation of the offerings. NONEXCLUSIVITY AND ARBITRATION 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. THE EMPLOYEE INITIAL PUBLIC OFFERING AWARDS 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: - - substantially all employees will receive a grant of restricted stock units awarded based on a formula, with respect to which up to an aggregate of 30,070,535 shares of common stock will be deliverable; - - certain senior employees, principally managing directors who were not profit participating limited partners, will be selected to participate in the defined contribution plan described below, to which Goldman Sachs will make an initial irrevocable contribution of 12,567,587 shares of common stock; - - certain employees will receive a grant of restricted stock units awarded on a discretionary basis, with respect to which up to an aggregate of 33,303,595 shares of common stock will be deliverable; and - - certain employees will receive a grant of options to purchase shares of common stock awarded on a discretionary basis, with respect to which up to an aggregate of 40,000,028 shares of common stock will be deliverable. The restricted stock units awarded to employees based on a formula, the restricted stock units awarded to employees on a discretionary basis and the options to purchase shares of common stock awarded to employees on a discretionary basis will be granted under the stock incentive plan described below. The restricted stock units awarded to employees on a discretionary and a formula basis described below will confer only the rights of a general unsecured creditor of Goldman Sachs and no rights as a shareholder of Goldman Sachs until the common stock underlying such award is delivered. Any shares of common stock acquired by a managing director pursuant to the awards will be subject to the shareholders' agreement described in "Certain Relation- 95 97 ships and Related Transactions -- Shareholders' Agreement". 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 $1,504 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 $1,665 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 96 98 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 12,567,587 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 $628 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: - - the common stock underlying any outstanding restricted stock units awarded based on a formula will be delivered; - - any outstanding restricted stock units awarded on a discretionary basis will vest and the common stock underlying these restricted stock units will be delivered; - - any outstanding unexercised options to purchase shares of common stock awarded on a discretionary basis will become exercisable and will be exercisable for a period of one year following such termination of employment (but in no event later than the tenth anniversary of the date of the consummation of the offerings) and thereafter terminate; and - - under the defined contribution plan, any unvested portion of the common stock attributable to the initial contribution by Goldman Sachs to the defined contribution plan will vest and be distributed. "Change in control" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving The Goldman Sachs Group, Inc. or sale or other disposition of all or substantially all of the assets of The Goldman Sachs Group, Inc. to an entity that is not an affiliate of The Goldman Sachs 97 99 Group, Inc. that, in each case, requires shareholder approval under the law of The Goldman Sachs Group, Inc.'s jurisdiction of organization, unless immediately following such transaction, either: - - at least 50% of the total voting power of the surviving entity or its parent entity, if applicable, is represented by securities of The Goldman Sachs Group, Inc. that were outstanding immediately prior to the transaction; or - - at least 50% of the members of the board of directors of the surviving entity, or its parent entity, if applicable, following the transaction were incumbent directors (including directors whose election or nomination was approved by the incumbent directors) of The Goldman Sachs Group, Inc. at the time of the board of directors' approval of the execution of the initial agreement providing for the transaction. "Cause" includes, among other things, the grantee's or participant's conviction of certain misdemeanors or felonies, violation of applicable laws and violation of any policy of Goldman Sachs, including policies with respect to hedging and confidentiality. "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 98 100 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. 99 101 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 12,567,587 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 100 102 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. 101 103 THE PARTNER COMPENSATION PLAN 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 completion 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. 102 104 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth as of the date of this prospectus certain information regarding the beneficial ownership of our common stock: - - immediately prior to the consummation of the offerings, but after giving effect to the incorporation transactions and the related transactions that are described under "Certain Relationships and Related Transactions -- Incorporation and Related Transactions"; and - - as adjusted to reflect the sale of the shares of our common stock pursuant to the offerings by: 1. each person who is known to Goldman Sachs to be the beneficial owner of more than 5% of our common stock after the offerings; 2. each director and named executive officer of Goldman Sachs; and 3. all directors and executive officers of Goldman Sachs as a group. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to the shares beneficially owned by them. None of our employees are selling shares in the offerings. For purposes of this table, information as to the shares of common stock is calculated based on 385,794,566 shares of common stock outstanding prior to the consummation of the offerings and 427,794,566 shares of common stock outstanding after the offerings, and assumes that the underwriters' options to purchase additional shares are not exercised. For purposes of this table, "beneficial ownership" is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock that such person has the right to acquire within 60 days after the date of this prospectus. For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or persons has the right to acquire within 60 days after the date of this prospectus are deemed to be outstanding but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR OWNED AFTER TO OFFERINGS NUMBER OF OFFERINGS --------------------- SHARES --------------------- NAME NUMBER PERCENT OFFERED NUMBER PERCENT - ---- ------ ------- ---------- ------ ------- 5% Shareholders: Sumitomo Bank Capital Markets, Inc.(1)............................. 29,961,934 7.8% 9,000,000 20,961,934 4.9% Kamehameha Activities Association(2)... 30,975,421 8.0 9,000,000 21,975,421 5.1 Directors and named executive officers: Henry M. Paulson, Jr.(3)............... 4,132,235 1.1 0 4,132,235 * Robert J. Hurst(3)..................... 3,835,124 * 0 3,835,124 * John A. Thain(3)....................... 3,101,426 * 0 3,101,426 * John L. Thornton(3).................... 3,012,541 * 0 3,012,541 * Sir John Browne(3)..................... 0 -- 0 0 -- James A. Johnson(3).................... 0 -- 0 0 -- John L. Weinberg(3).................... 444,444 * 0 444,444 * Jon S. Corzine(4)...................... 4,414,198 1.1 0 4,414,198 1.0 Roy J. Zuckerberg(5)................... 3,026,974 * 0 3,026,974 * All directors and continuing executive officers as a group (13 persons)(6).... 26,152,648 6.8 0 26,152,648 6.1
- --------------- * Less than 1% of the outstanding shares of common stock. 103 105 (1) 277 Park Avenue, New York, New York 10172. For purposes of calculating the number of shares of common stock beneficially owned prior to the offerings, includes 9,000,000 shares of common stock beneficially owned by Sumitomo Bank Capital Markets, Inc. that will be sold in the offerings. Excludes 7,903,480 shares of common stock that Sumitomo Bank Capital Markets, Inc. would receive upon the conversion of its 7,903,480 shares of nonvoting common stock. The shares of nonvoting common stock are not convertible until the 185th day after completion of the offerings. For a description of the nonvoting common stock, see "Description of Capital Stock -- Nonvoting Common Stock". Sumitomo Bank Capital Markets, Inc. in the ordinary course of business enters into derivative contracts and other transactions with Goldman Sachs. These contracts and other transactions are negotiated on an arm's-length basis and contain customary terms and conditions. (2) 567 South King Street, Suite 150, Honolulu, Hawaii 96813. Kamehameha Activities Association is the owner of the shares to be offered. The Estate of Bernice Pauahi Bishop, an affiliate of Kamehameha Activities Association, is joining in and consenting to the sale. Kamehameha Activities Association in the ordinary course of business is an investor in a number of Goldman Sachs' merchant banking funds and from time to time is a party to other transactions with Goldman Sachs. These investments and transactions are negotiated on an arm's-length basis and contain customary terms and conditions. (3) c/o The Goldman Sachs Group, Inc., 85 Broad Street, New York, New York 10004. Excludes any shares of common stock subject to the shareholders' agreement referred to below that are owned by other parties to the shareholders' agreement. While each of Messrs. Paulson, Hurst, Thain and Thornton is a party to the shareholders' agreement and is a member of the Shareholders' Committee, each disclaims beneficial ownership of the shares of common stock subject to the shareholders' agreement other than those specified above for each such person individually, and each disclaims beneficial ownership of the shares of common stock subject to the voting agreements between Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, respectively, on the one hand, and Goldman Sachs, on the other hand. See "Certain Relationships and Related Transactions -- Shareholders' Agreement" for a discussion of the shareholders' agreement and the voting agreements. (4) Mr. Corzine, who is leaving Goldman Sachs after the completion of the offerings, served as Chairman or Co-Chairman and Chief Executive Officer or Co-Chief Executive Officer of The Goldman Sachs Group, L.P. during fiscal 1998. (5) Mr. Zuckerberg, who retired in November 1998, served as Vice Chairman of The Goldman Sachs Group, L.P. during fiscal 1998. (6) Total excludes the shares of common stock beneficially owned by Messrs. Corzine and Zuckerberg, former executive officers of The Goldman Sachs Group, L.P. Each continuing executive officer is a party to the shareholders' agreement and each disclaims beneficial ownership of the shares of common stock subject to the shareholders' agreement other than those specified above, and each disclaims beneficial ownership of the shares of common stock subject to the voting agreements between Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, respectively, on the one hand, and Goldman Sachs, on the other hand. See "Certain Relationships and Related Transactions -- Shareholders' Agreement" for a discussion of the shareholders' agreement and the voting agreements. 104 106 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following are descriptions of the material provisions of the agreements and other documents discussed below. You should, however, refer to the exhibits that are a part of the registration statement for a copy of each agreement and document. See "Available Information". INCORPORATION AND RELATED TRANSACTIONS Simultaneously with the consummation of the offerings, we will complete a number of transactions in order to have The Goldman Sachs Group, Inc. succeed to the business of The Goldman Sachs Group, L.P. The principal incorporation transactions and related transactions are summarized below. INCORPORATION TRANSACTIONS Pursuant to our plan of incorporation: - - The Goldman Sachs Corporation, which is the general partner of The Goldman Sachs Group, L.P., will merge into The Goldman Sachs Group, Inc. In this transaction, the managing directors who were profit participating limited partners and who are shareholders of The Goldman Sachs Corporation will receive common stock and the other shareholders of The Goldman Sachs Corporation will receive common stock; - - The managing directors who were profit participating limited partners will exchange their interests in The Goldman Sachs Group, L.P. and certain affiliates for 265,019,073 shares of common stock (these amounts include shares issuable in the merger of The Goldman Sachs Corporation into The Goldman Sachs Group, Inc.); - - The retired limited partners of Goldman Sachs will exchange their interests in The Goldman Sachs Group, L.P. and certain affiliates for cash, junior subordinated debentures or common stock (or a combination thereof). It is expected that these transactions will result in the payment of approximately $891 million in cash and the issuance of $295 million principal amount of junior subordinated debentures and of 47,270,551 shares of common stock (these amounts include the shares of common stock issuable to the retired limited partners in the merger of The Goldman Sachs Corporation into The Goldman Sachs Group, Inc.); - - Sumitomo Bank Capital Markets, Inc. will exchange its interests in The Goldman Sachs Group, L.P. and Goldman, Sachs & Co. for 29,961,934 shares of common stock and 7,903,480 shares of nonvoting common stock; - - Kamehameha Activities Association will exchange its interests in The Goldman Sachs Group, L.P. for 30,975,421 shares of common stock; and - - After all the interests of The Goldman Sachs Group, L.P. have been transferred to The Goldman Sachs Group, Inc., The Goldman Sachs Group, L.P. will be merged into The Goldman Sachs Group, Inc. RELATED TRANSACTIONS - - The restricted stock units awarded to employees based on a formula or on a discretionary basis as well as options to purchase shares of common stock awarded on a discretionary basis will be granted, the initial irrevocable contribution of shares of common stock to the defined contribution plan will be made and certain senior employees, principally managing directors who are not profit participating limited partners, will be selected to participate in the defined contribution plan; and - - After the consummation of the offerings, we will make a $200 million cash contribution to the Goldman Sachs Fund, a charitable foundation. The Goldman Sachs Fund, which has been in existence for over 30 years, is the entity that has historically conducted charitable initiatives for Goldman Sachs. The Goldman Sachs Fund is subject to federal tax rules that prohibit it from engaging in any act of self-dealing or any activities that result in an impermissible benefit to private persons. While the Goldman Sachs Fund has no specific intention to contribute to organizations with which Goldman Sachs' executive officers or directors are affiliated, the Goldman Sachs Fund 105 107 may in the future make contributions to educational and other organizations with which Goldman Sachs' directors or executive officers are involved. SHAREHOLDERS' AGREEMENT PERSONS AND SHARES COVERED Each profit participating limited partner, other than Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, and each other person who is or becomes a managing director on the date of the consummation of the offerings or thereafter will be a party to the shareholders' agreement. After the consummation of the offerings, not less than 281,000,000 shares of common stock will be subject to the shareholders' agreement. The shares covered by the shareholders' agreement will include generally all shares of common stock acquired from Goldman Sachs by a party to the shareholders' agreement, including: - - any shares of common stock received by the managing directors who were profit participating limited partners pursuant to the incorporation transactions, except for certain shares that aggregate less than 140,000 shares; - - any shares of common stock received from the defined contribution plan; - - any shares of common stock received pursuant to the restricted stock units awarded to employees based on a formula, the restricted stock units awarded on a discretionary basis or the options to purchase shares of common stock awarded on a discretionary basis; and - - unless otherwise determined by our board of directors and the Shareholders' Committee referred to below, any shares of common stock received from Goldman Sachs through any other employee compensation, benefit or similar plan. Shares of common stock purchased in the open market or in a subsequent underwritten public offering will not be subject to the shareholders' agreement. The Shareholders' Committee may also exclude from the application of all or part of the shareholders' agreement all or any portion of the common stock acquired by a managing director who is a new employee of Goldman Sachs. TRANSFER RESTRICTIONS Each party to the shareholders' agreement will agree, among other things, to: - - have beneficial ownership while he or she is a managing director of at least 25% of the cumulative number of his or her shares that are beneficially owned or acquired, and are or become subject to the shareholders' agreement; and - - comply with the underwriters' 180-day lock-up arrangement described under "Underwriting". The profit participating limited partners, other than Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, will be subject to additional restrictions on their ability to transfer shares received in connection with the incorporation transactions described under "-- Incorporation and Related Transactions -- Incorporation Transactions". Under these additional restrictions, each of these persons has agreed that he or she will not transfer any of these shares, other than up to 140,000 shares in the aggregate that will be excluded from these restrictions, until the third anniversary of the date of the consummation of the offerings. These restrictions will lapse in equal installments on each of the third, fourth and fifth anniversaries of the date of the consummation of the offerings. All transfer restrictions applicable to a party to the shareholders' agreement, except for the underwriters' 180-day lock-up, terminate upon death. WAIVERS Except in the case of a third-party tender or exchange offer, the additional transfer restrictions applicable to profit participating limited partners, other than Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, may be waived or terminated at any time by the Shareholders' Committee. The Shareholders' Committee also has the power to waive the other transfer restrictions 106 108 to permit parties to the shareholders' agreement to: - - participate as sellers in underwritten public offerings of common stock and tender and exchange offers and share repurchase programs by Goldman Sachs; - - transfer shares to charities, including charitable foundations; - - transfer shares held in employee benefit plans; and - - transfer shares in specific transactions (for example, to immediate family members and trusts) or circumstances. In the case of a third-party tender or exchange offer, all transfer restrictions may be waived or terminated: - - if our board of directors is recommending acceptance or is not making any recommendation with respect to acceptance of the tender or exchange offer, by a majority of the voting interests referred to below; or - - if our board of directors is recommending rejection of the tender or exchange offer, by 66 2/3% of the outstanding voting interests referred to below. In the case of a tender or exchange offer by Goldman Sachs, a majority of the outstanding voting interests may also elect to waive or terminate the transfer restrictions. In any event, the underwriters' 180-day lock-up may not be waived without the consent of the underwriters. VOTING Prior to any vote of the shareholders of Goldman Sachs, the shareholders' agreement requires a separate, preliminary vote of the voting interests on each matter upon which a vote of the shareholders is proposed to be taken. Each share subject to the shareholders' agreement will be voted in accordance with the majority of the votes cast by the voting interests in the preliminary vote. In elections of directors, each share subject to the shareholders' agreement will be voted in favor of the election of those persons receiving the highest numbers of votes cast by the voting interests in the preliminary vote. Prior to January 1, 2001, "voting interests" means all shares that are subject to the shareholders' agreement. Thereafter, "voting interests" means all shares subject to the shareholders' agreement held by all managing directors. OTHER RESTRICTIONS The shareholders' agreement also prevents the persons subject to the shareholders' agreement from engaging in the following activities relating to any securities of Goldman Sachs with any person who is not a person subject to the shareholders' agreement or a director or employee of Goldman Sachs: - - participating in a proxy solicitation; - - depositing any shares subject to the shareholders' agreement in a voting trust or subjecting any of these shares to any voting agreement or arrangement; - - forming, joining or in any way participating in a "group"; or - - proposing certain transactions with Goldman Sachs or seeking the removal of any of our directors or any change in the composition of our board of directors. TERM, AMENDMENT AND CONTINUATION The shareholders' agreement is to continue in effect until the earlier of January 1, 2050 and the time it is terminated by the vote of 66 2/3% of the outstanding voting interests referred to above. The additional transfer restrictions applicable to profit participating limited partners, other than Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, will not terminate upon the expiration or termination of the shareholders' agreement unless previously waived or terminated or unless subsequently waived or terminated by our board of directors. The shareholders' agreement may generally be amended at any time by a majority of the outstanding voting interests referred to above. Unless otherwise terminated, in the event of any transaction in which a third party succeeds to the business of Goldman Sachs and in which persons subject to the shareholders' agreement hold securities of the third party, the shareholders' agreement will remain in full force and effect as to the securities of the third party, and the third party shall succeed to the rights and obliga- 107 109 tions of Goldman Sachs under the shareholders' agreement. INFORMATION REGARDING THE SHAREHOLDERS' COMMITTEE The terms and provisions of the shareholders' agreement will be administered by the Shareholders' Committee. The Shareholders' Committee will initially consist of the persons subject to the shareholders' agreement who are both employees of Goldman Sachs and members of our board of directors. It is possible that over time all or a majority of the members of the Shareholders' Committee will not be members of our board of directors. Members of the Shareholders' Committee are entitled to indemnification from Goldman Sachs in their capacities as members of the Shareholders' Committee as described under "Description of Capital Stock -- Limitation of Liability and Indemnification Matters". VOTING AGREEMENT Both Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association have agreed to vote their shares of common stock in the same manner as a majority of the shares of common stock held by the managing directors of Goldman Sachs are voted. The obligations of Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association under the voting agreements are enforceable by The Goldman Sachs Group, Inc. The managing directors will have no right to enforce the voting agreements. INSTRUMENT OF INDEMNIFICATION In connection with the offerings, Goldman Sachs will enter into an instrument of indemnification. The instrument of indemnification will cover certain former partners of Goldman Sachs, including the managing directors who were profit participating limited partners, each current director and executive officer of Goldman Sachs, the retired limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association. Under the instrument of indemnification, in the event any indemnitee is, or is threatened to be, made a party to any action, suit or proceeding by reason of the fact that such indemnitee was a general or limited partner, shareholder, member, director, officer, employee or agent of The Goldman Sachs Group, L.P. or certain of its affiliates or subsidiaries or is serving or served, at the request of The Goldman Sachs Group, L.P. or certain of its affiliates or subsidiaries, in any of these capacities in another enterprise, Goldman Sachs is, subject to certain exceptions, obligated to indemnify and hold such indemnitee harmless from any losses, damages or expenses incurred by such indemnitee in the action, suit or proceeding. The instrument of indemnification does not duplicate the obligations of Goldman Sachs under the tax indemnification agreement described below. The indemnification obligation of Goldman Sachs under the instrument of indemnification also extends to the indemnification obligations that certain indemnitees, including each current director and executive officer of The Goldman Sachs Group, Inc., may have to other indemnitees. The instrument of indemnification also provides that Goldman Sachs will, subject to certain exceptions, release each indemnitee from all actions, suits or other claims that The Goldman Sachs Group, L.P. may have had or which Goldman Sachs, as a successor to The Goldman Sachs Group, L.P., may have arising out of an indemnitee's partnership or other interest in The Goldman Sachs Group, L.P. or certain of its affiliates or subsidiaries or arising out of the conduct of such indemnitee while engaged in the conduct of the business of The Goldman Sachs Group, L.P. or its affiliates or subsidiaries. DIRECTOR AND OFFICER INDEMNIFICATION We will enter into an agreement that provides indemnification to our directors and officers and to the directors and certain officers of the general partner of The Goldman Sachs Group, L.P., members of our Management Committee or our Partnership Committee or the former Executive Committee of The Goldman Sachs Group, L.P. and all other persons requested or authorized by our board of directors or the board of directors of the general partner of The Goldman Sachs Group, L.P. to take actions on behalf of us, The Goldman Sachs Group, L.P. or the general partner of The Goldman Sachs Group, 108 110 L.P. in connection with the plan of incorporation, the registration statement and certain other registration statements for all losses, damages, costs and expenses incurred by the indemnified person arising out of the relevant registration statements or the transactions contemplated by the plan of incorporation. This agreement is in addition to our indemnification obligations under our by-laws as described under "Description of Capital Stock -- Limitation of Liability and Indemnification Matters". TAX INDEMNIFICATION AGREEMENT AND RELATED MATTERS An entity that has historically operated in corporate form generally is liable for any adjustments to the corporation's taxes for periods prior to its initial public offering. In contrast, the partners of The Goldman Sachs Group, L.P., rather than Goldman Sachs, generally will be liable for adjustments to taxes (including U.S. federal and state income taxes) attributable to the operations of The Goldman Sachs Group, L.P. and its affiliates prior to the offerings. In connection with the offerings, we will enter into a tax indemnification agreement to indemnify certain former limited partners of The Goldman Sachs Group, L.P., including the managing directors who were profit participating limited partners, each current director and executive officer of The Goldman Sachs Group, Inc., the retired limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, against certain increases in each tax indemnitee's taxes that relate to activities of The Goldman Sachs Group, L.P. or certain of its affiliates in respect of periods prior to the offerings. We will be required to make additional payments to offset any taxes payable by a tax indemnitee in respect of payments made pursuant to the tax indemnification agreement only to the extent the payments made to that tax indemnitee exceed a fixed amount. Any such payment of additional taxes by Goldman Sachs will be offset by any tax benefit received by the tax indemnitee. The tax indemnification agreement includes provisions that permit Goldman Sachs to control any tax proceeding or contest which might result in Goldman Sachs being required to make a payment under the tax indemnification agreement. The incorporation transactions described under "-- Incorporation and Related Transactions -- Incorporation Transactions" are structured in a manner that is not expected to result in a significantly disproportionate tax or other burden to any partner of The Goldman Sachs Group, L.P. If the incorporation transactions were to have a disproportionate effect on any partner, Goldman Sachs may, but is not required to, make special payments and arrangements with any person who incurs a disproportionate tax or other burden. 109 111 DESCRIPTION OF CAPITAL STOCK Pursuant to our amended and restated certificate of incorporation, our authorized capital stock consists of 4,350,000,000 shares, each with a par value of $0.01 per share, of which: - - 150,000,000 shares are designated as preferred stock; - - 4,000,000,000 shares are designated as common stock, 457,865,101 shares of which will be outstanding as of the consummation of the offerings, including 30,070,535 shares of common stock underlying the restricted stock units awarded based on a formula; and - - 200,000,000 shares are designated as nonvoting common stock, 7,903,480 shares of which will be outstanding as of the consummation of the offerings. All outstanding shares of common stock and nonvoting common stock are, and the shares of common stock offered hereby will be, when issued and sold, validly issued, fully paid and nonassessable. The shareholders' agreement contains provisions relating to the voting and disposition of certain shares of common stock. See "Certain Relationships and Related Transactions -- Shareholders' Agreement" for a discussion of those provisions. PREFERRED STOCK Our authorized capital stock includes 150,000,000 shares of preferred stock. Our board of directors is authorized to divide the preferred stock into series and, with respect to each series, to determine the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. Our board of directors could, without shareholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of common stock and which could have certain anti-takeover effects. Subject to the rights of the holders of any series of preferred stock, the number of authorized shares of any series of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by resolution adopted by our board of directors and approved by the affirmative vote of the holders of a majority of the voting power of all outstanding shares of capital stock entitled to vote on the matter, voting together as a single class. COMMON STOCK Each holder of common stock is entitled to one vote for each share owned of record on all matters submitted to a vote of shareholders. There are no cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock voting for the election of directors can elect all the directors if they choose to do so, subject to any voting rights of holders of preferred stock to elect directors. For a discussion of the ability of the parties to the shareholders' agreement initially to elect all of our directors, see "Risk Factors -- Goldman Sachs Will Be Controlled by Its Managing Directors Whose Interests May Differ from Those of Other Shareholders". Subject to the preferential rights of any holders of any outstanding series of preferred stock, the holders of common stock, together with the holders of the nonvoting common stock, will be entitled to such dividends and distributions, whether payable in cash or otherwise, as may be declared from time to time by our board of directors from legally available funds. Subject to the preferential rights of holders of any outstanding series of preferred stock, upon our liquidation, dissolution or winding-up and after payment of all prior claims, the holders of common stock, with the shares of the common stock and the nonvoting common stock being considered as a single class for this purpose, will be entitled to receive pro rata all our assets. Any dividend in shares of common stock paid on or with respect to shares of common stock may be paid only with shares of common stock. 110 112 Other than the shareholder protection rights discussed below, holders of common stock have no redemption or conversion rights or preemptive rights to purchase or subscribe for securities of Goldman Sachs. NONVOTING COMMON STOCK The nonvoting common stock will have the same rights and privileges as, and will rank equally and share proportionately with, and be identical in all respects as to all matters to, the common stock, except that the nonvoting common stock will have no voting rights other than those voting rights required by law. All of the outstanding shares of nonvoting common stock will be beneficially owned by Sumitomo Bank Capital Markets, Inc. on the date of the consummation of the offerings. Our board of directors will not declare or pay dividends, and no dividend will be paid, with respect to any outstanding share of common stock or nonvoting common stock, unless, simultaneously, the same dividend is paid with respect to each share of common stock and nonvoting common stock, except that in the case of any dividend in the form of capital stock of a subsidiary of Goldman Sachs, the capital stock of the subsidiary distributed to holders of common stock may differ from the capital stock of the subsidiary distributed to holders of the nonvoting common stock to the extent and only to the extent that the common stock and the nonvoting common stock differ. Any dividend paid on or with respect to nonvoting common stock may be paid only with shares of nonvoting common stock. The shares of nonvoting common stock may not be converted into common stock until the 185th day after the date of the consummation of the offerings. Beginning on the 185th day the nonvoting common stock will, upon transfer by Sumitomo Bank Capital Markets, Inc. to a third party, and in certain other circumstances, convert into shares of common stock on a one-for-one basis. The nonvoting common stock has standard anti-dilution provisions. SHAREHOLDER PROTECTION RIGHTS Each share of common stock and non-voting common stock has attached to it a shareholder protection right. The shareholder protection rights initially are represented only by the certificates for the shares and will not trade separately from the shares unless and until: - - it is announced by Goldman Sachs that a person or group has become the beneficial owner of 15% or more of the outstanding common stock (other than persons deemed to beneficially own common stock solely because they are parties to the shareholders' agreement, members of the Shareholders' Committee or certain other persons)(an "acquiring person"); or - - ten business days (or such later date as our board of directors may fix by resolution) after the date a person or group commences a tender or exchange offer that would result in such person or group becoming an acquiring person. If and when the shareholder protection rights separate and prior to the date of the announcement by Goldman Sachs that any person has become an acquiring person, each shareholder protection right will entitle the holder to purchase, in the case of shareholder protection rights relating to the common stock, 1/100 of a share of Series A participating preferred stock or, in the case of shareholder protection rights relating to the nonvoting common stock, 1/100 of a share of Series B participating preferred stock, in each case, for an exercise price of $250. Each 1/100 of a share of Series A participating preferred stock and Series B participating preferred stock would have economic and voting terms equivalent to one share of common stock and nonvoting common stock, respectively. Upon the date of the announcement by Goldman Sachs that any person or group has become an acquiring person, each shareholder protection right (other than shareholder protection rights beneficially owned by the acquiring person or their transferees, which shareholder protection rights become void) will entitle its holder to purchase, for the exercise price, a number of shares of 111 113 common stock or, in the case of shareholder protection rights relating to nonvoting common stock, a number of shares of nonvoting common stock having a market value of twice the exercise price. Also, if, after the date of the announcement by Goldman Sachs that any person has become an acquiring person, the acquiring person controls our board of directors and: - - Goldman Sachs is involved in a merger or similar form of business combination and (i) any term of the transaction provides for different treatment of the shares of capital stock held by the acquiring person as compared to the shares of capital stock held by all other shareholders or (ii) the person with whom such transaction occurs is the acquiring person or an affiliate thereof; or - - Goldman Sachs sells or transfers assets representing more than 50% of its assets or generating more than 50% of its operating income or cash flow to any person other than Goldman Sachs or its wholly owned subsidiaries, then each shareholder protection right will entitle its holder to purchase, for the exercise price, a number of shares (A) with respect to shareholder protection rights relating to the common stock, of capital stock with the greatest voting power in respect of the election of directors and (B) with respect to shareholder protection rights relating to the nonvoting common stock, of capital stock identical to the stock described in clause (A) except with voting provisions identical to that of the nonvoting common stock, of either the acquiring person or the other party to such transaction, depending on the circumstances of the transaction, having a market value of twice the exercise price. If any person or group acquires from 15% to and including 50% of the common stock, our board of directors may, at its option, exchange each outstanding shareholder protection right, except for those held by an acquiring person or their transferees, for one share of common stock or, in the case of shareholder protection rights relating to nonvoting common stock, one share of nonvoting common stock. The shareholder protection rights may be redeemed by our board of directors for $0.01 per shareholder protection right prior to the date of the announcement by Goldman Sachs that any person has become an acquiring person. Our charter permits this redemption right to be exercised by our board of directors (or certain directors specified or qualified by the terms of the instrument governing the shareholder protection rights). The shareholder protection rights will not prevent a takeover of Goldman Sachs. However, these rights may cause substantial dilution to a person or group that acquires 15% or more of the common stock unless the shareholder protection rights are first redeemed by our board of directors. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS Our charter provides that a director of Goldman Sachs will not be liable to Goldman Sachs or its shareholders for monetary damages for breach of fiduciary duty as a director, except in certain cases where liability is mandated by the Delaware General Corporation Law. Our by-laws provide for indemnification, to the fullest extent permitted by law, of any person made or threatened to be made a party to any action, suit or proceeding by reason of the fact that such person is or was a director or officer of Goldman Sachs, or is or was a director of a subsidiary of Goldman Sachs, or is or was a member of the Shareholders' Committee acting under the shareholders' agreement or, at the request of Goldman Sachs, serves or served as a director or officer of or in any other capacity for, or in relation to, any other enterprise, against all expenses, liabilities, losses and claims actually incurred or suffered by such person in connection with the action, suit or proceeding. Our by-laws also provide that, to the extent authorized from time to time by our board of directors, Goldman Sachs may provide to any one or more employees and other agents of Goldman Sachs or any subsidiary or other enterprise, rights of indemnification and to receive payment or reimbursement of expenses, including attorneys' fees, that are similar to the rights conferred by the by-laws 112 114 on directors and officers of Goldman Sachs or any subsidiary or other enterprise. CHARTER PROVISIONS APPROVING CERTAIN ACTIONS Our charter provides that our board of directors may determine to take the following actions, in its sole discretion, and Goldman Sachs and each shareholder of Goldman Sachs will, to the fullest extent permitted by law, be deemed to have approved and ratified, and waived any claim relating to, the taking of any of these actions: - - causing Goldman Sachs to register with the SEC for resale shares of common stock held by our directors, employees and former directors and employees and our subsidiaries and affiliates and former partners and employees of The Goldman Sachs Group, L.P. and its subsidiaries and affiliates as discussed under "Shares Eligible for Future Sale -- Other Registration Rights"; - - making payments to, and other arrangements with, certain former limited partners of Goldman Sachs, including managing directors who were profit participating limited partners, in order to compensate them for, or to prevent, significantly disproportionate adverse tax or other consequences as discussed under "Certain Relationships and Related Transactions -- Tax Indemnification Agreement and Related Matters"; and - - making a $200 million contribution to the Goldman Sachs Fund, a charitable foundation. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Upon completion of the offerings, Goldman Sachs will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or a transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation's outstanding voting stock. Under Section 203, a business combination between Goldman Sachs and an interested stockholder is prohibited unless it satisfies one of the following conditions: - - prior to the time the stockholder became an interested stockholder, the board of directors of Goldman Sachs must have previously approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - - on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of Goldman Sachs outstanding at the time the transaction commenced (excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are directors and officers); or - - the business combination is approved by the board of directors of Goldman Sachs and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Our board of directors has adopted a resolution providing that neither the shareholders' agreement nor the voting agreements of Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association will create an "interested stockholder". CERTAIN ANTI-TAKEOVER MATTERS Our charter and by-laws will, upon consummation of the offerings, include a number of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors 113 115 rather than pursue non-negotiated takeover attempts. These provisions include: CLASSIFIED BOARD OF DIRECTORS Our charter will provide for a board of directors divided into three classes, with one class to be elected each year to serve for a three-year term. The terms of the initial classes of directors will terminate on the date of the annual meetings of shareholders in 2000, 2001 and 2002. As a result, at least two annual meetings of shareholders may be required for the shareholders to change a majority of our board of directors. In addition, the shareholders of Goldman Sachs can only remove directors for cause by the affirmative vote of the holders of not less than 80% of the outstanding shares of capital stock of Goldman Sachs entitled to vote in the election of directors. Vacancies on our board of directors may be filled only by our board of directors. The classification of directors and the inability of shareholders to remove directors without cause and to fill vacancies on the board of directors will make it more difficult to change the composition of our board of directors, but will promote a continuity of existing management. CONSTITUENCY PROVISION In accordance with our charter, a director of Goldman Sachs may (but is not required to) in taking any action (including an action that may involve or relate to a change or potential change in control of Goldman Sachs) consider, among other things, the effects that Goldman Sachs' actions may have on other interests or persons (including its employees, former partners of The Goldman Sachs Group, L.P. and the community) in addition to our shareholders. ADVANCE NOTICE REQUIREMENTS Our by-laws establish advance notice procedures with regard to shareholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of shareholders of Goldman Sachs. These procedures provide that notice of such shareholder proposals must be timely given in writing to the Secretary of Goldman Sachs prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at the principal executive offices of Goldman Sachs not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the by-laws. SPECIAL MEETINGS OF SHAREHOLDERS Our charter and by-laws deny shareholders the right to call a special meeting of shareholders. Our charter and by-laws provide that special meetings of the shareholders may be called only by a majority of the board of directors. NO WRITTEN CONSENT OF SHAREHOLDERS Our charter requires all shareholder actions to be taken by a vote of the shareholders at an annual or special meeting, and does not permit our shareholders to act by written consent, without a meeting. MAJORITY VOTE NEEDED FOR SHAREHOLDER PROPOSALS Our by-laws require that any shareholder proposal be approved by a majority of all of the outstanding shares of common stock and not by only a majority of the shares present at the meeting and entitled to vote. This requirement may make it more difficult to approve shareholder resolutions. AMENDMENT OF BY-LAWS AND CHARTER Our charter requires the approval of not less than 80% of the voting power of all outstanding shares of Goldman Sachs' capital stock entitled to vote to amend any by-law by shareholder action or the charter provisions described in this section. Those provisions will make it more difficult to dilute the anti- takeover effects of our by-laws and our charter. BLANK CHECK PREFERRED STOCK Our charter provides for 150,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable the board of directors to render more difficult or to dis- 114 116 courage an attempt to obtain control of Goldman Sachs by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, the board of directors were to determine that a takeover proposal is not in the best interests of Goldman Sachs, the board of directors could cause shares of preferred stock to be issued without shareholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquiror or insurgent shareholder or shareholder group. In this regard, the charter grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock and nonvoting common stock. The issuance may also adversely affect the rights and powers, including voting rights, of such holders and may have the effect of delaying, deterring or preventing a change in control of Goldman Sachs. The board of directors currently does not intend to seek shareholder approval prior to any issuance of shares of preferred stock, unless otherwise required by law. LISTING We intend to list the common stock on the NYSE. TRANSFER AGENT The transfer agent for the common stock will be ChaseMellon Shareholder Services, L.L.C. 115 117 SHARES ELIGIBLE FOR FUTURE SALE Prior to the offerings, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the common stock. Upon completion of the offerings, there will be 457,865,101 shares of common stock outstanding, including 30,070,535 shares of common stock underlying the restricted stock units awarded based on a formula but excluding 7,903,480 shares of nonvoting common stock. Of these shares, 60,000,000 shares of common stock expected to be sold in the offerings will be freely transferable without restriction or further registration under the Securities Act of 1933. Of the remaining 397,865,101 shares of common stock outstanding: - - 264,882,840 shares held by the managing directors who were profit participating limited partners will not be transferable until on or after the third anniversary of the date of the consummation of the offerings, unless these restrictions are waived, and will also be subject to the underwriters' lock-up described below. See "Certain Relationships and Related Transactions -- Shareholders' Agreement"; - - 20,961,934 shares will be held by Sumitomo Bank Capital Markets, Inc. and, together with the 7,903,480 shares of nonvoting common stock that it will hold, will be transferable only as described under "-- Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association Registration Rights", unless these restrictions are waived by our board of directors. All of these shares will also be subject to the underwriters' lock-up described below; - - 21,975,421 shares will be held by Kamehameha Activities Association and will be transferable only as described under "-- Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association Registration Rights", unless these restrictions are waived by our board of directors. All of these shares will also be subject to the underwriters' lock-up described below; - - 47,270,551 shares will be held by the retired limited partners, of which 101,878 shares will be subject only to the underwriters' lock-up described below, 31,099,839 shares will be transferable beginning one year after the date of the consummation of the offerings, and the remainder of which will be transferrable beginning three years after the date of the consummation of the offerings, unless these restrictions are waived. All of these shares are also subject to the underwriters' lock-up described below; - - 12,567,587 shares held by the defined contribution plan will not be distributable to the plan participants until on or about the third, fourth and fifth anniversaries of the date of the initial contribution, assuming the relevant conditions have been satisfied. See "Management -- The Employee Initial Public Offering Awards" for a description of the defined contribution plan; - - 30,070,535 shares of common stock underlying the restricted stock units awarded based on a formula generally will be deliverable beginning on or about the first anniversary of the date of the consummation of the offerings, assuming the relevant conditions are satisfied, as described in "Management -- The Employee Initial Public Offering Awards -- Formula Awards"; and - - 136,233 shares of common stock held by the managing directors who were profit participating limited partners will be subject to the underwriters' lock-up described below and will be eligible for resale pursuant to Rule 144 after one year as described below. Shares of common stock underlying the restricted stock units awarded on a discretionary basis will be deliverable beginning on or about the third anniversary of the date of the consummation of the offerings, assuming the relevant conditions have been satisfied. The options to purchase shares of common stock awarded on a discretionary basis will be exercisable beginning on or about the third anniversary of the date of the consummation 116 118 of the offerings, assuming the relevant conditions have been satisfied. See "Management--The Employee Initial Public Offering Awards" for a discussion of the terms of the restricted stock units awarded based on a formula, the restricted stock units awarded on a discretionary basis and the options to purchase shares of common stock awarded on a discretionary basis. Goldman Sachs, Sumitomo Bank Capital Markets, Inc., Kamehameha Activities Association, the parties to the shareholders' agreement, including all of the directors and executive officers of The Goldman Sachs Group, Inc., and the retired limited partners have agreed not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to the shares of common stock underlying any of the restricted stock units awarded based on a formula, or the restricted stock units awarded on a discretionary basis, the options to purchase shares of common stock awarded on a discretionary basis or accounts in the defined contribution plan, in each case, received by non-managing directors or to any future awards made under the stock incentive plan. We intend to file a registration statement with the SEC in order to register the reoffer and resale of the shares of common stock issued pursuant to the defined contribution plan, restricted stock units awarded based on a formula, restricted stock units awarded on a discretionary basis and options to purchase shares of common stock awarded on a discretionary basis. As a result, any shares of common stock delivered under these awards will, subject to any restrictions under the shareholders' agreement, be freely transferable to the public unless the shares of common stock are acquired by an "affiliate" of Goldman Sachs. Any shares of common stock acquired by an "affiliate" of Goldman Sachs will be transferable to the public in accordance with the SEC's Rule 144. The shares of common stock received by the managing directors who were profit participating limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association will constitute "restricted securities" for purposes of the Securities Act of 1933. As a result, absent registration under the Securities Act of 1933 or compliance with Rule 144 thereunder or an exemption therefrom, these shares of common stock will not be freely transferable to the public. For a description of the registration rights granted to Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association and the restrictions on the transfer of their shares of common stock, see "-- Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association Registration Rights" below and for a description of the registration rights that may be granted to the managing directors who were profit participating limited partners, see "-- Other Registration Rights" below. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns "restricted securities" may not sell those securities until they have been beneficially owned for at least one year. Thereafter, the person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - - 1% of the number of shares of common stock then outstanding (which will equal approximately 4,277,946 shares immediately after the offerings); or - - the average weekly trading volume of the common stock on the NYSE during the four calendar weeks preceding the filing with the SEC of a notice on the SEC's Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain other requirements regarding the manner of sale, notice and availability of current public information about Goldman Sachs. Under Rule 144(k), a person who is not, and has not been at any time during the 90 days preceding a sale, an affiliate of Goldman Sachs and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period 117 119 of any prior owner except an affiliate) is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. While the shares of common stock received by the retired limited partners will constitute "restricted securities", these shares will be freely transferable by the retired limited partners in accordance with Rule 144(k) upon the lapse or waiver of the transfer restrictions described above. SUMITOMO BANK CAPITAL MARKETS, INC. AND KAMEHAMEHA ACTIVITIES ASSOCIATION REGISTRATION RIGHTS Goldman Sachs is a party to agreements with Sumitomo Bank Capital Markets, Inc. and The Sumitomo Bank, Limited under which Sumitomo Bank Capital Markets, Inc. and The Sumitomo Bank, Limited may require Goldman Sachs to register under the Securities Act of 1933 certain of Sumitomo Bank Capital Markets, Inc.'s shares of common stock, which includes shares of common stock receivable upon the conversion of the nonvoting common stock. Goldman Sachs is a party to similar agreements with Kamehameha Activities Association. Except for certain transfers to wholly owned subsidiaries, each registration rights holder has agreed that it will only dispose of common stock (i) by means of a widely dispersed underwritten public offering and (ii) pursuant to the exercise of the registration rights set forth below. Each registration rights holder has the right: - - on up to ten occasions (but not more than twice every 12 months) to require Goldman Sachs to register shares of common stock under the Securities Act of 1933; and - - to include its shares of common stock in any registered public offering in which the managing directors participate. Prior to the first anniversary of the date of the consummation of the offerings, the registration rights holders are not permitted to transfer shares of common stock or nonvoting common stock. Between the first and third anniversaries of the date of the consummation of the offerings, each registration rights holder may use its available registration rights described above to sell: - - In each 12-month period following the first and second anniversary of the date of the consummation of the offerings, up to 20% of the shares of common stock received by such registration rights holder in the incorporation transactions (such holder's "original block"); and - - With the consent of Goldman Sachs, common stock constituting up to an additional 13 1/3% of such holder's original block. In each 12-month period following the third anniversary of the date of the consummation of the offerings, each registration rights holder may use its available registration rights described above to sell common stock constituting up to 33 1/3% of its original block. These rights are not available for nonvoting common stock. In addition to the rights described above, each registration rights holder will also be entitled to sell additional shares of common stock to the extent that managing directors who were profit participating limited partners sell shares of common stock in an amount which in any one year period following the offerings represents, in the aggregate, a greater percentage of the number of shares of common stock issued to these managing directors in the incorporation transactions than the percentages specified above (i.e., 0% during year one, 20% during years two and three, and 33 1/3% thereafter). The exercise by the registration rights holders of their respective rights under their registration rights agreement may, if we determine that such exercise would interfere with a public offering by us, be delayed by us for up to 90 days. Goldman Sachs has agreed to bear certain customary expenses associated with the offering of common stock by Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association. Thereafter, the registration rights agreements provide that the expenses of an offering of common stock are generally the responsibility of each participating registration rights holder selling common stock, apportioned on a pro rata basis. Under the 118 120 registration rights agreements, Goldman Sachs has agreed to indemnify each participating registration rights holder against certain liabilities, including those arising under the Securities Act of 1933. The registration rights agreements also provide that if Goldman Sachs makes a general offer to purchase shares of common stock held by the managing directors who were profit participating limited partners, then a registration rights holder will be permitted to participate in such transaction on a pro rata basis with these managing directors. In addition, a registration rights holder may tender its shares of common stock in any tender or exchange offer recommended for approval by our board of directors (or as to which our board of directors makes no recommendation). OTHER REGISTRATION RIGHTS The managing directors who were profit participating limited partners are not being granted the right to require Goldman Sachs to register the shares of common stock that they received in connection with the incorporation transactions under the Securities Act of 1933. However, the plan of incorporation and our charter permit our board of directors to grant registration rights to these managing directors. As a result, the board of directors may at any time and from time to time grant registration rights to these managing directors. The ability of our board of directors to grant registration rights to the managing directors who were profit participating limited partners, together with the ability of the Shareholders' Committee under the shareholders' agreement to waive the transfer restrictions related to the managing directors who were profit participating limited partners thereunder and under the plan of incorporation, could, if exercised, permit these managing directors to sell significant amounts of common stock at any time following the expiration of the underwriters' lock-up. See "Risk Factors -- Our Share Price May Decline Due to the Large Number of Shares Eligible for Future Sale" for a further discussion of the risks associated with these actions. VALIDITY OF COMMON STOCK The validity of the common stock offered hereby will be passed upon for The Goldman Sachs Group, Inc. by Sullivan & Cromwell, New York, New York, and for the underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York. Certain legal matters will be passed upon for The Goldman Sachs Group, Inc. by one of its General Counsel, Robert J. Katz or Gregory K. Palm. Sullivan & Cromwell has in the past represented, and continues to represent, one or more of the underwriters and their affiliates in a variety of matters. Cleary, Gottlieb, Steen & Hamilton has in the past represented, and continues to represent, Goldman Sachs in a variety of matters. EXPERTS The financial statements of Goldman Sachs as of November 28, 1997 and November 27, 1998 and for each of the three years in the period ended November 27, 1998 included in this prospectus and the financial statement schedule included in the registration statement have been so included in reliance on the report of Pricewaterhouse-Coopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The historical consolidated income statement data and balance sheet data set forth in "Selected Consolidated Financial Data" for each of the five years in the period ended November 27, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The Pro Forma Consolidated Income Statement Information for the year ended 119 121 November 27, 1998 included in this prospectus has been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, on their examination of the Pro Forma Adjustments as described in Note 2 to the Pro Forma Consolidated Financial Information, and the application of those adjustments to the historical amounts in the Pro Forma Consolidated Income Statement Information for the year ended November 27, 1998, given on the authority of said firm as experts in performing examinations of pro forma financial information in accordance with standards established by the American Institute of Certified Public Accountants. The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", except for the (i) information presented under the headings "VaR" or "VaR Methodology, Assumptions and Limitations" and (ii) information for the three months ended February 26, 1999 and February 27, 1998, taken as a whole, of Goldman Sachs for the three-year period ended November 27, 1998 included in this prospectus has been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in performing examinations of management's discussion and analysis of financial condition and results of operations in accordance with standards established by the American Institute of Certified Public Accountants. With respect to the unaudited condensed consolidated financial statements of Goldman Sachs as of and for the three months ended February 26, 1999 and for the three months ended February 27, 1998, and the unaudited consolidated pro forma balance sheet information as of February 26, 1999 and the related unaudited consolidated pro forma income statement information for the three months then ended, included in this prospectus, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports dated April 9, 1999 with respect to the unaudited condensed consolidated financial statements of Goldman Sachs as of and for the three months ended February 26, 1999 and for the three months ended February 27, 1998, and April 27, 1999 with respect to the unaudited pro forma consolidated balance sheet information as of February 26, 1999 and the related unaudited pro forma consolidated income statement information for the three months then ended, appearing herein state that they did not audit and they do not express an opinion on the unaudited historical financial information or the unaudited pro forma financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the unaudited historical financial information and on the unaudited pro forma financial information because those reports are not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933. Except as otherwise indicated, all amounts with respect to the volume, number and market share of mergers and acquisitions and underwriting transactions and related ranking information included in this prospectus have been derived from information compiled and classified by Securities Data Company and have been so included in reliance on Securities Data Company's authority as experts in compiling and classifying information as to securities transactions. 120 122 AVAILABLE INFORMATION Upon completion of the offerings, Goldman Sachs will be required to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any documents filed by us at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public through the SEC's Internet site at http://www.sec.gov and through the NYSE, 20 Broad Street, New York, New York 10005, on which our common stock is listed. After the offerings, we expect to provide annual reports to our shareholders that include financial information reported on by our independent public accountants. We have filed a registration statement on Form S-1 with the SEC. This prospectus is a part of the registration statement and does not contain all of the information in the registration statement. Whenever a reference is made in this prospectus to a contract or other document of Goldman Sachs, please be aware that such reference is not necessarily complete and that you should refer to the exhibits that are a part of the registration statement for a copy of the contract or other document. You may review a copy of the registration statement at the SEC's public reference room in Washington, D.C., as well as through the SEC's Internet site. 121 123 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements as of November 27, 1998 and November 28, 1997 and for the three years in the period ended November 27, 1998 Report of Independent Accountants........................... F-2 Consolidated Statements of Earnings......................... F-3 Consolidated Statements of Financial Condition.............. F-4 Consolidated Statements of Changes in Partners' Capital..... F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 Condensed Consolidated Financial Statements as of February 26, 1999 and for the three months ended February 26, 1999 and February 27, 1998 (unaudited) Review Report of Independent Accountants.................... F-24 Condensed Consolidated Statements of Earnings............... F-25 Condensed Consolidated Statement of Financial Condition..... F-26 Condensed Consolidated Statement of Changes in Partners' Capital................................................... F-27 Condensed Consolidated Statements of Cash Flows............. F-28 Notes to Condensed Consolidated Financial Statements........ F-29
F-1 124 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners, The Goldman Sachs Group, L.P.: In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of earnings, changes in partners' capital and cash flows (included on pages F-3 to F-23 of this prospectus) present fairly, in all material respects, the consolidated financial position of The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm") as of November 27, 1998 and November 28, 1997, and the results of their consolidated operations and their consolidated cash flows for the three years in the period ended November 27, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Firm's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated statements of financial condition as of November 29, 1996, November 24, 1995 and November 25, 1994, and the related consolidated statements of earnings, changes in partners' capital and cash flows for the years ended November 24, 1995 and November 25, 1994 (none of which are presented herein); and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the selected historical consolidated income statement and balance sheet data for each of the five years in the period ended November 27, 1998 (included on pages 34 and 35 of this prospectus) is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. PricewaterhouseCoopers LLP New York, New York January 22, 1999. F-2 125 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED NOVEMBER ----------------------------------- 1996 1997 1998 ---- ---- ---- (in millions) REVENUES: Investment banking........................................ $ 2,113 $ 2,587 $ 3,368 Trading and principal investments......................... 2,496 2,303 2,015 Asset management and securities services.................. 981 1,456 2,085 Interest income........................................... 11,699 14,087 15,010 ------- ------- ------- Total revenues.................................. 17,289 20,433 22,478 Interest expense, principally on short-term funding....... 11,160 12,986 13,958 ------- ------- ------- Revenues, net of interest expense............... 6,129 7,447 8,520 OPERATING EXPENSES: Compensation and benefits................................. 2,421 3,097 3,838 Brokerage, clearing and exchange fees..................... 278 357 424 Market development........................................ 137 206 287 Communications and technology............................. 173 208 265 Depreciation and amortization............................. 172 178 242 Occupancy................................................. 154 168 207 Professional services and other........................... 188 219 336 ------- ------- ------- Total operating expenses........................ 3,523 4,433 5,599 Pre-tax earnings.......................................... 2,606 3,014 2,921 Provision for taxes....................................... 207 268 493 ------- ------- ------- Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 126 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF NOVEMBER -------------------- 1997 1998 ---- ---- (in millions) ASSETS: Cash and cash equivalents................................... $ 1,328 $ 2,836 Cash and securities segregated in compliance with U.S. federal and other regulations (principally U.S. government obligations).............................................. 4,903 7,887 Receivables from brokers, dealers and clearing organizations............................................. 3,754 4,321 Receivables from customers and counterparties............... 10,060 14,953 Securities borrowed......................................... 51,058 69,158 Securities purchased under agreements to resell............. 39,376 37,484 Right to receive securities................................. -- 7,564 Financial instruments owned, at fair value: Commercial paper, certificates of deposit and time deposits............................................... 1,477 1,382 U.S. government, federal agency and sovereign obligations............................................ 25,736 24,789 Corporate debt............................................ 11,321 10,744 Equities and convertible debentures....................... 11,870 11,066 State, municipal and provincial obligations............... 1,105 918 Derivative contracts...................................... 13,788 21,299 Physical commodities...................................... 1,092 481 Other assets................................................ 1,533 2,498 -------- -------- $178,401 $217,380 ======== ======== LIABILITIES AND NET WORTH: Short-term borrowings, including commercial paper........... $ 21,008 $ 27,430 Payables to brokers, dealers and clearing organizations..... 952 730 Payables to customers and counterparties.................... 22,995 36,179 Securities loaned........................................... 17,627 21,117 Securities sold under agreements to repurchase.............. 44,057 36,257 Obligation to return securities............................. -- 9,783 Financial instruments sold, but not yet purchased, at fair value: U.S. government, federal agency and sovereign obligations............................................ 22,371 22,360 Corporate debt............................................ 1,708 1,441 Equities and convertible debentures....................... 6,357 6,406 Derivative contracts...................................... 15,964 24,722 Physical commodities...................................... 78 966 Other liabilities and accrued expenses...................... 3,080 3,699 Long-term borrowings........................................ 15,667 19,906 -------- -------- 171,864 210,996 Commitments and contingencies Partners' capital allocated for income taxes and potential withdrawals............................................... 430 74 Partners' capital........................................... 6,107 6,310 -------- -------- $178,401 $217,380 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 127 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEAR ENDED NOVEMBER ----------------------------- 1996 1997 1998 ---- ---- ---- (in millions) Partners' capital, beginning of year........................ $ 4,905 $ 5,309 $ 6,107 Additions: Net earnings.............................................. 2,399 2,746 2,428 Capital contributions..................................... 4 89 9 ------- ------- ------- Total additions................................... 2,403 2,835 2,437 Deductions: Returns on capital and certain distributions to partners............................................... (473) (557) (619) Termination of the Profit Participation Plans............. -- -- (368) Transfers to partners' capital allocated for income taxes and potential withdrawals, net......................... (1,526) (1,480) (1,247) ------- ------- ------- Total deductions.................................. (1,999) (2,037) (2,234) ------- ------- ------- Partners' capital, end of year.............................. $ 5,309 $ 6,107 $ 6,310 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 128 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER ------------------------------- 1996 1997 1998 ---- ---- ---- (in millions) Cash flows from operating activities: Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428 Non-cash items included in net earnings: Depreciation and amortization........................... 172 178 242 Deferred income taxes................................... 85 32 23 Changes in operating assets and liabilities: Cash and securities segregated in compliance with U.S. federal and other regulations.......................... (1,445) (670) (2,984) Net receivables from brokers, dealers and clearing organizations.......................................... 169 (1,599) (789) Net payables to customers and counterparties............ 4,279 2,339 8,116 Securities borrowed, net................................ (17,075) (8,124) (14,610) Financial instruments owned, at fair value.............. (9,415) (7,439) 148 Financial instruments sold, but not yet purchased, at fair value............................................. 5,276 11,702 7,559 Other, net.............................................. 926 905 (71) -------- ------- -------- Net cash (used for)/provided by operating activities........................................... (14,629) 70 62 -------- ------- -------- Cash flows from investing activities: Property, leasehold improvements and equipment............ (258) (259) (476) Financial instruments owned, at fair value................ 115 (360) (180) Acquisitions, net of cash acquired........................ (75) (74) -- -------- ------- -------- Net cash used for investing activities................ (218) (693) (656) -------- ------- -------- Cash flows from financing activities: Short-term borrowings, net................................ 391 1,082 2,193 Securities sold under agreements to repurchase, net....... 16,012 (4,717) (5,909) Issuance of long-term borrowings.......................... 5,172 7,734 10,527 Repayment of long-term borrowings......................... (3,986) (1,855) (2,058) Capital contributions..................................... 4 89 9 Returns on capital and certain distributions to partners................................................ (473) (557) (619) Termination of the Profit Participation Plans............. -- -- (368) Partners' capital allocated for income taxes and potential withdrawals............................................. (1,017) (2,034) (1,673) -------- ------- -------- Net cash provided by/(used for) financing activities........................................... 16,103 (258) 2,102 -------- ------- -------- Net increase/(decrease) in cash and cash equivalents...... 1,256 (881) 1,508 Cash and cash equivalents, beginning of year................ 953 2,209 1,328 -------- ------- -------- Cash and cash equivalents, end of year...................... $ 2,209 $ 1,328 $ 2,836 ======== ======= ========
SUPPLEMENTAL DISCLOSURES: Cash payments for interest approximated the related expense for each of the fiscal periods presented. Payments of income taxes were not material. A zero coupon bond of $32 million representing a portion of the acquisition price of CIN Management Limited was recorded on the consolidated statement of financial condition as of November 1996 and was excluded from the consolidated statement of cash flows as it represented a non-cash item. An increase in total assets and liabilities of $11.64 billion related to the provisions of SFAS No. 125 that were deferred under SFAS No. 127 was excluded from the consolidated statement of cash flows for the year ended November 1998 as it represented a non-cash item. The accompanying notes are an integral part of these consolidated financial statements. F-6 129 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group L.P."), together with its consolidated subsidiaries (collectively, the "Firm"), is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base. The Firm's activities are divided into three principal business lines: - Investment Banking, which includes financial advisory services and underwriting; - Trading and Principal Investments, which includes fixed income, currency and commodities ("FICC"), equities and principal investments (principal investments reflect primarily the Firm's investments in its merchant banking funds); and - Asset Management and Securities Services, which includes asset management, securities services and commissions. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Group L.P. and its U.S. and international subsidiaries including Goldman, Sachs & Co. ("GS&Co.") and J. Aron & Company in New York, Goldman Sachs International ("GSI") in London and Goldman Sachs (Japan) Ltd. ("GSJL") in Tokyo. Certain reclassifications have been made to prior year amounts to conform to the current presentation. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles that require management to make estimates and assumptions regarding trading inventory valuations, partner retirements, the outcome of pending litigation and other matters that affect the consolidated financial statements and related disclosures. These estimates and assumptions are based on judgment and available information and, consequently, actual results could be materially different from these estimates. Unless otherwise stated herein, all references to 1996, 1997 and 1998 refer to the Firm's fiscal year ended, or the date, as the context requires, November 29, 1996, November 28, 1997 and November 27, 1998, respectively. CASH AND CASH EQUIVALENTS The Firm defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. REPURCHASE AGREEMENTS AND COLLATERALIZED FINANCING ARRANGEMENTS Securities purchased under agreements to resell and securities sold under agreements to repurchase, principally U.S. government, federal agency and investment-grade foreign sovereign obligations, represent short-term collateralized financing transactions and are carried at their contractual amounts plus accrued interest. These amounts are presented on a net-by- counterparty basis, where management believes a legal right of setoff exists under an enforceable master netting agreement. The Firm takes possession of securities purchased under agreements to resell, monitors the market value of the underlying securities on a daily basis and obtains additional collateral as appropriate. F-7 130 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Securities borrowed and loaned are recorded on the statements of financial condition based on the amount of cash collateral advanced or received. These transactions are generally collateralized by either cash, securities or letters of credit. The Firm takes possession of securities borrowed, monitors the market value of securities loaned and obtains additional collateral as appropriate. Income or expense is recognized as interest over the life of the transaction. FINANCIAL INSTRUMENTS Gains and losses on financial instruments and commission income and related expenses are recorded on a trade date basis in the consolidated statements of earnings. For purposes of the consolidated statements of financial condition only, purchases and sales of financial instruments, including agency transactions, are generally recorded on a settlement date basis. Recording such transactions on a trade date basis would not result in a material adjustment to the consolidated statements of financial condition. Substantially all financial instruments used in the Firm's trading and non-trading activities are carried at fair value or amounts that approximate fair value and unrealized gains and losses are recognized in earnings. Fair value is based generally on listed market prices or broker or dealer price quotations. To the extent that prices are not readily available, fair value is based on either internal valuation models or management's estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. Certain over-the-counter ("OTC") derivative instruments are valued using pricing models that consider, among other factors, current and contractual market prices, time value, and yield curve and/or volatility factors of the underlying positions. The fair value of the Firm's trading and non-trading assets and liabilities is discussed further in Notes 3, 4 and 5. PRINCIPAL INVESTMENTS Principal investments are carried at fair value, generally as evidenced by quoted market prices or by comparable substantial third-party transactions. Where fair value is not readily ascertainable, principal investments are recorded at cost or management's estimate of the realizable value. The Firm is entitled to receive merchant banking overrides (i.e., an increased share of a fund's income and gains) when the return on the fund's investments exceeds certain threshold returns. Overrides are based on investment performance over the life of each merchant banking fund, and future investment underperformance may require amounts previously distributed to the Firm to be returned to the funds. Accordingly, overrides are recognized in earnings only when management determines that the probability of return is remote. Overrides are included in "Asset Management and Securities Services" on the consolidated statements of earnings. DERIVATIVE CONTRACTS Derivatives used for trading purposes are reported at fair value and are included in "Derivative contracts" on the consolidated statements of financial condition. Gains and losses on derivatives used for trading purposes are included in "Trading and Principal Investments" on the consolidated statements of earnings. Derivatives used for non-trading purposes include interest rate futures contracts and interest rate and currency swap agreements, which are primarily utilized to convert a substantial portion of the Firm's fixed rate debt into U.S. dollar-based floating rate obligations. Gains and losses on F-8 131 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) these transactions are generally deferred and recognized as adjustments to interest expense over the life of the derivative contract. Gains and losses resulting from the early termination of derivatives used for non-trading purposes are generally deferred and recognized over the remaining life of the underlying debt. If the underlying debt is terminated prior to its stated maturity, gains and losses on these transactions, including the associated hedges, are recognized in earnings immediately. Derivatives are reported on a net-by-counterparty basis on the consolidated statements of financial condition where management believes a legal right of setoff exists under an enforceable master netting agreement. PROPERTY, LEASEHOLD IMPROVEMENTS AND EQUIPMENT Depreciation and amortization generally are computed using accelerated cost recovery methods for all property and equipment and for leasehold improvements where the term of the lease is greater than the economic useful life of the asset. All other leasehold improvements are amortized on a straight-line basis over the term of the lease. GOODWILL The cost of acquired companies in excess of the fair value of net assets acquired at acquisition date is recorded as goodwill and amortized over periods of 15 to 25 years on a straight-line basis. PROVISION FOR TAXES The Firm accounts for income taxes incurred by its corporate subsidiaries in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". The consolidated statements of earnings for the periods presented include a provision for, or benefit from, income taxes on income earned, or losses incurred, by Group L.P. and its subsidiaries including a provision for, or benefit from, unincorporated business tax on income earned, or losses incurred, by Group L.P. and its subsidiaries conducting business in New York City. No additional income tax provision is required in the consolidated statements of earnings because Group L.P. is a partnership and the remaining tax effects accrue directly to its partners. FOREIGN CURRENCY TRANSLATION Assets and liabilities of subsidiaries whose functional currency is other than the U.S. dollar are translated using currency exchange rates prevailing at the end of the period presented, while revenues and expenses are translated using average exchange rates during the period. Gains or losses resulting from the translation of foreign currency financial statements are recorded as cumulative translation adjustments, and are included as a component of "Partners' capital allocated for income taxes and potential withdrawals" on the consolidated statements of financial condition. Gains or losses resulting from foreign exchange transactions are recorded in earnings. INVESTMENT BANKING Underwriting revenues and fees from mergers and acquisitions and other corporate finance advisory assignments are recorded when the underlying transaction is completed under the terms of the engagement. Syndicate expenses related to securities offerings in which the Firm acts as an underwriter or agent are deferred until the related revenue is recognized. F-9 132 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING DEVELOPMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", effective for transactions occurring after December 31, 1996. SFAS No. 125 establishes standards for distinguishing transfers of financial assets that are accounted for as sales from transfers that are accounted for as secured borrowings. The provisions of SFAS No. 125 relating to repurchase agreements, securities lending transactions and other similar transactions were deferred by the provisions of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125", and became effective for transactions entered into after December 31, 1997. This Statement requires that the collateral obtained in certain types of secured lending transactions be recorded on the balance sheet with a corresponding liability reflecting the obligation to return such collateral to its owner. Effective January 1, 1998, the Firm adopted the provisions of SFAS No. 125 that were deferred by SFAS No. 127. The adoption of this standard increased the Firm's total assets and liabilities by $11.64 billion as of November 1998. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("EPS"), effective for periods ending after December 15, 1997, with restatement required for all prior periods. SFAS No. 128 establishes new standards for computing and presenting EPS. This Statement replaces primary and fully diluted EPS with "basic EPS", which excludes dilution, and "diluted EPS", which includes the effect of all potentially dilutive common shares and other dilutive securities. Because the Firm has not historically reported EPS, this Statement will have no impact on the Firm's historical financial statements. This Statement will, however, apply to financial statements of the Firm prepared after the offerings. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", effective for fiscal years beginning after December 15, 1997, with reclassification of earlier periods required for comparative purposes. SFAS No. 130 establishes standards for the reporting and presentation of comprehensive income and its components in the financial statements. The Firm intends to adopt this standard in the first quarter of fiscal 1999. This Statement is limited to issues of reporting and presentation and, therefore, will not affect the Firm's results of operations or financial condition. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997, with reclassification of earlier periods required for comparative purposes. SFAS No. 131 establishes the criteria for determining an operating segment and establishes the disclosure requirements for reporting information about operating segments. The Firm intends to adopt this standard at the end of fiscal 1999. This Statement is limited to issues of reporting and presentation and, therefore, will not affect the Firm's results of operations or financial condition. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997, with restatement of disclosures for earlier periods required for comparative purposes. SFAS No. 132 revises certain employers' disclosures about pension and other post-retirement benefit plans. The Firm intends to adopt this standard at the end of fiscal 1999. This Statement is limited to issues of reporting and presentation and, therefore, will not affect the Firm's results of operations or financial condition. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Accounting for F-10 133 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Costs of Computer Software Developed or Obtained for Internal Use", effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 requires that certain costs of computer software developed or obtained for internal use be capitalized and amortized over the useful life of the related software. The Firm currently expenses the cost of all software development in the period in which it is incurred. The Firm intends to adopt this Statement in fiscal 2000 and is currently assessing its effect. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. The Firm intends to adopt this standard in fiscal 2000 and is currently assessing its effect. NOTE 3. FINANCIAL INSTRUMENTS Financial instruments, including both cash instruments and derivatives, are used to manage market risk, facilitate customer transactions, engage in trading transactions and meet financing objectives. These instruments can be either executed on an exchange or negotiated in the OTC market. Transactions involving financial instruments sold, but not yet purchased, entail an obligation to purchase a financial instrument at a future date. The Firm may incur a loss if the market value of the financial instrument subsequently increases prior to the purchase of the instrument. FAIR VALUE OF FINANCIAL INSTRUMENTS Substantially all of the Firm's assets and liabilities are carried at fair value or amounts that approximate fair value. Trading assets and liabilities, including derivative contracts used for trading purposes, are carried at fair value and reported as financial instruments owned and financial instruments sold, but not yet purchased on the consolidated statements of financial condition. Non-trading assets and liabilities are carried at fair value or amounts that approximate fair value. Non-trading assets include cash and cash equivalents, cash and securities segregated in compliance with U.S. federal and other regulations, receivables from brokers, dealers and clearing organizations, receivables from customers and counterparties, securities borrowed, securities purchased under agreements to resell, right to receive securities and certain investments, primarily those made in connection with the Firm's merchant banking activities. Non-trading liabilities include short-term borrowings, payables to brokers, dealers and clearing organizations, payables to customers and counterparties, securities loaned, securities sold under agreements to repurchase, obligation to return securities, other liabilities and accrued expenses and long-term borrowings. Fair value of the Firm's long-term borrowings and associated hedges is discussed in Note 5. F-11 134 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) TRADING AND PRINCIPAL INVESTMENTS The Firm's Trading and Principal Investments business facilitates customer transactions and takes proprietary positions through market-making in and trading of securities, currencies, commodities and swaps and other derivatives. Derivative financial instruments are often used to hedge cash instruments or other derivative financial instruments as an integral part of the Firm's strategies. As a result, it is necessary to view the results of any activity on a fully-integrated basis, including cash positions, the effect of related derivatives and the financing of the underlying positions. Net revenues represent total revenues less allocations of interest expense to specific securities, commodities and other positions in relation to the level of financing incurred by each. The following table sets forth the net revenues of the Firm's Trading and Principal Investments business:
YEAR ENDED NOVEMBER -------------------------- 1996 1997 1998 ---- ---- ---- (in millions) FICC................................................... $1,749 $2,055 $1,438 Equities............................................... 730 573 795 Principal investments.................................. 214 298 146 ------ ------ ------ Total Trading and Principal Investments................ $2,693 $2,926 $2,379 ====== ====== ======
RISK MANAGEMENT The Firm seeks to monitor and control its risk exposure through a variety of separate but complementary financial, credit, operational and legal reporting systems for individual entities and the Firm as a whole. Management believes that it has effective procedures for evaluating and managing the market, credit and other risks to which it is exposed. The Management Committee, the Firm's primary decision-making body, determines (both directly and through delegated authority) the types of business in which the Firm engages, approves guidelines for accepting customers for all product lines, outlines the terms under which customer business is conducted and establishes the parameters for the risks that the Firm is willing to undertake in its business. MARKET RISK. The Firmwide Risk Committee, which reports to senior management and meets weekly, is responsible for managing and monitoring all of the Firm's risk exposures. In addition, the Firm maintains segregation of duties, with credit review and risk-monitoring functions performed by groups that are independent from revenue-producing departments. The potential for changes in the market value of the Firm's trading positions is referred to as "market risk". The Firm's trading positions result from underwriting, market-making and proprietary trading activities. The broadly defined categories of market risk include exposures to interest rates, currency rates, equity prices and commodity prices. - - Interest rate risks primarily result from exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates, mortgage prepayment speeds and credit spreads. - - Currency rate risks result from exposures to changes in spot prices, forward prices and volatilities of currency rates. F-12 135 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - - Equity price risks result from exposures to changes in prices and volatilities of individual equities, equity baskets and equity indices. - - Commodity price risks result from exposures to changes in spot prices, forward prices and volatilities of commodities, such as electricity, natural gas, crude oil, petroleum products and precious and base metals. These risk exposures are managed through diversification, by controlling position sizes and by establishing offsetting hedges in related securities or derivatives. For example, the Firm may hedge a portfolio of common stock by taking an offsetting position in a related equity-index futures contract. The ability to manage these exposures may, however, be limited by adverse changes in the liquidity of the security or the related hedge instrument and in the correlation of price movements between the security and the related hedge instrument. CREDIT RISK. Credit risk represents the loss that the Firm would incur if a counterparty or issuer of securities or other instruments it holds fails to perform its contractual obligations to the Firm. To reduce its credit exposures, the Firm seeks to enter into netting agreements with counterparties that permit the Firm to offset receivables and payables with such counterparties. The Firm does not take into account any such agreements when calculating credit risk, however, unless management believes a legal right of setoff exists under an enforceable master netting agreement. Credit concentrations may arise from trading, underwriting and securities borrowing activities and may be impacted by changes in economic, industry or political factors. The Firm's concentration of credit risk is monitored actively by the Credit Policy Committee. As of November 1998, U.S. government and federal agency obligations represented 7% of the Firm's total assets. In addition, most of the Firm's securities purchased under agreements to resell are collateralized by U.S. government, federal agency and sovereign obligations. DERIVATIVE ACTIVITIES Most of the Firm's derivative transactions are entered into for trading purposes. The Firm uses derivatives in its trading activities to facilitate customer transactions, to take proprietary positions and as a means of risk management. The Firm also enters into non-trading derivative contracts to manage the interest rate and currency exposure on its long-term borrowings. Non- trading derivatives related to the Firm's long-term borrowings are discussed in Note 5. Derivative contracts are financial instruments, such as futures, forwards, swaps or option contracts, that derive their value from underlying assets, indices, reference rates or a combination of these factors. Derivatives may involve future commitments to purchase or sell financial instruments or commodities, or to exchange currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, securities, commodities or indices. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments, that derive their values or contractually required cash flows from the price of some other security or index. Derivatives also exclude option features that are embedded in cash instruments, such as the conversion features and call provisions embedded in bonds. The Firm has elected to include commodity-related contracts in its derivative disclosure, although not required to do so, as these contracts may be settled in cash or are readily convertible into cash. F-13 136 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The gross notional (or contractual) amounts of derivative financial instruments represent the volume of these transactions and not the amounts potentially subject to market risk. In addition, measurement of market risk is meaningful only when all related and offsetting transactions are taken into consideration. Gross notional (or contractual) amounts of derivative financial instruments used for trading purposes with off-balance-sheet market risk are set forth below:
AS OF NOVEMBER ---------------------- 1997 1998 ---- ---- (in millions) INTEREST RATE RISK: Financial futures and forward settlement contracts......... $334,916 $ 406,302 Swap agreements............................................ 918,067 1,848,977 Written option contracts................................... 351,359 423,561 EQUITY PRICE RISK: Financial futures and forward settlement contracts......... 7,457 7,405 Swap agreements............................................ 1,993 2,752 Written option contracts................................... 51,916 54,856 CURRENCY AND COMMODITY PRICE RISK: Financial futures and forward settlement contracts......... 355,882 420,138 Swap agreements............................................ 32,355 51,502 Written option contracts................................... 179,481 183,929
Market risk on purchased option contracts is limited to the market value of the option; therefore, purchased option contracts have no off-balance-sheet market risk. The gross notional (or contractual) amounts of purchased option contracts used for trading purposes are set forth below:
AS OF NOVEMBER -------------------- 1997 1998 ---- ---- (in millions) PURCHASED OPTION CONTRACTS: Interest rate............................................... $301,685 $509,770 Equity...................................................... 24,021 59,571 Currency and commodity...................................... 180,859 186,748
The Firm utilizes replacement cost as its measure of derivative credit risk. Replacement cost, as reported in financial instruments owned, at fair value on the consolidated statements of financial condition, represents amounts receivable from various counterparties, net of any unrealized losses owed where management believes a legal right of setoff exists under an enforceable master netting agreement. Replacement cost for purchased option contracts is the market value of the contract. The Firm controls its credit risk through an established credit approval process, by monitoring counterparty limits, obtaining collateral where appropriate and, in some cases, using legally enforceable master netting agreements. F-14 137 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of derivative financial instruments used for trading purposes, computed in accordance with the Firm's netting policy, is set forth below:
AS OF NOVEMBER ------------------------------------------------ 1997 1998 ---------------------- ---------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------- ----------- (in millions) PERIOD END: Forward settlement contracts............................. $ 3,634 $ 3,436 $ 4,061 $ 4,201 Swap agreements.......................................... 4,269 5,358 10,000 11,475 Option contracts......................................... 5,787 7,166 7,140 9,038 ------- ------- ------- ------- Total.................................................... $13,690 $15,960 $21,201 $24,714 ======= ======= ======= ======= MONTHLY AVERAGE: Forward settlement contracts............................. $ 3,351 $ 3,162 $ 4,326 $ 3,979 Swap agreements.......................................... 3,397 4,020 7,340 8,158 Option contracts......................................... 4,511 5,059 6,696 8,958 ------- ------- ------- ------- Total.................................................... $11,259 $12,241 $18,362 $21,095 ======= ======= ======= =======
NOTE 4. SHORT-TERM BORROWINGS The Firm obtains secured short-term financing principally through the use of repurchase agreements and securities lending agreements, collateralized mainly by U.S. government, federal agency, investment grade foreign sovereign obligations and equity securities. The Firm obtains unsecured short-term borrowings through issuance of commercial paper, promissory notes and bank loans. The carrying value of these short-term obligations approximates fair value due to their short-term nature. Short-term borrowings are set forth below:
AS OF NOVEMBER ------------------ 1997 1998 ---- ---- (in millions) Commercial paper....................................... $ 4,468 $10,008 Promissory notes(1).................................... 10,411 10,763 Bank loans and other(1)................................ 6,129 6,659 ------- ------- Total(2)............................................... $21,008 $27,430 ======= =======
- --------------- (1) As of November 1997 and November 1998, short-term borrowings included $2,454 million and $2,955 million of long-term borrowings maturing within one year, respectively. (2) Weighted average interest rates for total short-term borrowings, including commercial paper, were 5.43 % as of November 1997 and 5.19% as of November 1998. The Firm maintains unencumbered securities with a market value in excess of all uncollateralized short-term borrowings. F-15 138 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5. LONG-TERM BORROWINGS The Firm's long-term borrowings are set forth below:
AS OF NOVEMBER ------------------- 1997 1998 ---- ---- (in millions) Fixed-rate obligations(1) U.S. dollar denominated.............................. $ 5,217 $ 5,260 Non-U.S. dollar denominated.......................... 1,556 2,066 Floating-rate obligations(2) U.S. dollar denominated.............................. 8,342 11,858 Non-U.S. dollar denominated.......................... 552 722 ------- ------- Total long-term borrowings(3).......................... $15,667 $19,906 ======= =======
- --------------- (1) Interest rate ranges for U.S. dollar and non-U.S. dollar fixed rate obligations are set forth below:
AS OF NOVEMBER --------------- 1997 1998 ---- ---- U.S. dollar denominated High...................................................... 10.10% 10.10% Low....................................................... 5.82 5.74 Non-U.S. dollar denominated High...................................................... 9.51 9.51 Low....................................................... 1.90 1.90
(2) Floating interest rates generally are based on LIBOR, the U.S. treasury bill rate or the federal funds rate. Certain equity-linked and indexed instruments are included in floating rate obligations. (3) Long-term borrowings bear fixed or floating interest rates and have maturities that range from 1 to 30 years from the date of issue. Long-term borrowings by maturity date are set forth below:
AS OF NOVEMBER 1997 AS OF NOVEMBER 1998 ------------------------------ ------------------------------ U.S. NON-U.S. U.S. NON-U.S. DOLLAR DOLLAR TOTAL DOLLAR DOLLAR TOTAL ------ -------- ----- ------ -------- ----- (in millions) MATURITY DATES: 1998................. $ 1,159 $ 135 $ 1,294 $ -- $ -- $ -- 1999................. 2,436 451 2,887 2,443 199 2,642 2000................. 2,544 263 2,807 4,293 272 4,565 2001................. 971 142 1,113 2,261 148 2,409 2002................. 1,376 281 1,657 1,669 265 1,934 2003................. 941 109 1,050 1,409 412 1,821 2004-24.............. 4,132 727 4,859 5,043 1,492 6,535 ------- ------ ------- ------- ------ ------- Total................ $13,559 $2,108 $15,667 $17,118 $2,788 $19,906 ======= ====== ======= ======= ====== =======
F-16 139 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Firm enters into non-trading derivative contracts, such as interest rate and currency swap agreements, to effectively convert a substantial portion of its fixed rate long-term borrowings into U.S. dollar-based floating rate obligations. Accordingly, the aggregate carrying value of these long-term borrowings and related hedges approximates fair value. The effective weighted average interest rates for long-term borrowings, after hedging activities, are set forth below:
AS OF AS OF NOVEMBER 1997 NOVEMBER 1998 --------------- ---------------- AMOUNT RATE AMOUNT RATE ------ ---- ------ ---- ($ in millions) Long-term borrowings: Fixed-rate obligations................ $ 291 7.76% $ 222 8.09% Floating-rate obligations............. 15,376 5.84 19,684 5.63 ------- ------- Total long-term borrowings................ $15,667 5.88 $19,906 5.66 ======= =======
The notional amounts, fair value and carrying value of the related swap agreements used for non-trading purposes are set forth below:
AS OF NOVEMBER -------------- 1997 1998 ---- ---- (in millions) Notional amount........................................ $8,708 $10,206
AS OF NOVEMBER ----------------------------------------------- 1997 1998 ---------------------- --------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- (in millions) Fair value.......................... $212 $4 $519 $7 Carrying value...................... 98 4 98 8
NOTE 6. COMMITMENTS AND CONTINGENCIES LITIGATION The Firm is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Firm's financial condition, but might be material to the Firm's operating results for any particular period, depending, in part, upon the operating results for such period. LEASES The Firm has obligations under long-term non-cancelable lease agreements, principally for office space, expiring on various dates through 2016. Certain agreements are subject to periodic escalation charges for increases in real estate taxes and other charges. Minimum rental commitments, net of minimum sublease rentals, under non-cancelable leases for 1999 and the F-17 140 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) succeeding four years and rent charged to operating expense for the last three years are set forth below:
(in millions) MINIMUM RENTAL COMMITMENTS: 1999.......................................... $ 142 2000.......................................... 139 2001.......................................... 139 2002.......................................... 136 2003.......................................... 128 Thereafter.................................... 860 ------ Total............................... $1,544 ====== NET RENT EXPENSE: 1996.......................................... $ 83 1997.......................................... 87 1998.......................................... 104
OTHER COMMITMENTS The Firm acts as an investor in merchant banking transactions which includes making long-term investments in equity and debt securities in privately negotiated transactions, corporate acquisitions and real estate transactions, and in connection with a bridge loan fund. In connection with these activities, the Firm had commitments to invest up to $670 million and $1.39 billion in corporate and real estate merchant banking investment and bridge loan funds as of November 1997 and November 1998, respectively. In connection with loan origination and participation, the Firm had loan commitments of $5.23 billion and $1.51 billion as of November 1997 and November 1998, respectively. These commitments are agreements to lend to counterparties, have fixed termination dates and are contingent on all conditions to borrowing set forth in the contract having been met. Since these commitments may expire unused, the total commitment amount does not necessarily reflect the actual future cash flow requirements. The Firm also had outstanding guarantees of $786 million and $790 million relating to its fund management activities as of November 1997 and November 1998, respectively. The Firm had pledged securities of $23.60 billion and $22.88 billion as collateral for securities borrowed of approximately equivalent value as of November 1997 and November 1998, respectively. The Firm obtains letters of credit issued to counterparties by various banks that are used in lieu of securities or cash to satisfy various collateral and margin deposit requirements. Letters of credit outstanding were $10.13 billion and $8.81 billion as of November 1997 and November 1998, respectively. NOTE 7. EMPLOYEE BENEFIT PLANS The Firm sponsors various pension plans and certain other post-retirement benefit plans, primarily health care and life insurance, which cover most employees worldwide. The Firm also provides certain benefits to former or inactive employees prior to retirement. Plan benefits are primarily based on the employee's compensation and years of service. Pension costs are F-18 141 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) determined actuarially and are funded in accordance with the Internal Revenue Code. Plan assets are held in a trust and consist primarily of listed stocks and U.S. bonds. A summary of these plans is set forth below: DEFINED BENEFIT PENSION PLANS The components of pension expense/(income) are set forth below:
YEAR ENDED NOVEMBER -------------------- 1996 1997 1998 ---- ---- ---- (in millions) Service cost, benefits earned during the period............. $ 15 $ 15 $ 14 Interest cost on projected benefit obligation............... 8 10 11 Return on plan assets....................................... (24) (18) (14) Net amortization............................................ 14 4 (1) ---- ---- ---- Total pension expense............................. $ 13 $ 11 $ 10 ==== ==== ==== U.S. plans.................................................. $ (1) $ (3) $ (3) International plans......................................... 14 14 13 ---- ---- ---- Total pension expense............................. $ 13 $ 11 $ 10 ==== ==== ====
The weighted average assumptions used to develop net periodic pension cost and the actuarial present value of the projected benefit obligation are set forth below. The assumptions represent a weighted average of the assumptions used for the U.S. and international plans and are based on the economic environment of each applicable country.
YEAR ENDED NOVEMBER -------------------- 1996 1997 1998 ---- ---- ---- U.S. PLANS: Discount rate............................................... 7.50% 7.50% 7.00% Rate of increase in future compensation levels.............. 5.00 5.00 5.00 Expected long-term rate of return on plan assets............ 7.50 7.50 7.50 INTERNATIONAL PLANS: Discount rate............................................... 5.70 5.70 5.00 Rate of increase in future compensation levels.............. 5.30 5.30 4.75 Expected long-term rate of return on plan assets............ 7.00 7.00 6.00
F-19 142 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status of the qualified plans is set forth below:
YEAR ENDED NOVEMBER -------------- 1997 1998 ---- ---- (in millions) Actuarial present value of vested benefit obligation........ $(149) $(203) ----- ----- Accumulated benefit obligation.............................. (151) (207) Effect of future salary increases........................... (16) (21) ----- ----- Projected benefit obligation................................ (167) (228) Plan assets at fair market value............................ 187 208 ----- ----- Projected benefit obligation less than/(greater than) plan assets.................................................... 20 (20) Unrecognized net loss....................................... 2 43 Unrecognized net transition gain............................ (20) (18) ----- ----- Prepaid pension cost, end of year........................... $ 2 $ 5 ===== ===== PREPAID PENSION COST: U.S. plans.................................................. $ 2 $ 5 International plans......................................... -- -- ----- ----- Prepaid pension cost, end of year........................... $ 2 $ 5 ===== =====
POST-RETIREMENT PLANS The Firm has unfunded post-retirement benefit plans that provide medical and life insurance for eligible retirees, employees and dependents. The Firm's accrued post-retirement benefit liability was $50 million and $53 million as of November 1997 and November 1998, respectively. The Firm's expense for these plans was $6 million, $7 million and $6 million in the years ended 1996, 1997 and 1998, respectively. POST-EMPLOYMENT PLANS Post-employment benefits include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits, and continuation of health care and life insurance coverage provided to former or inactive employees after employment but before retirement. The accrued but unfunded liability under the plans was $12 million and $10 million as of November 1997 and November 1998, respectively. The Firm's expense for these plans was $2 million in each of the fiscal years ended 1996, 1997 and 1998. DEFINED CONTRIBUTION PLANS The Firm contributes to employer sponsored U.S. and international defined contribution plans. The Firm's contribution to the U.S. plans was $39 million, $44 million and $48 million for the years ended 1996, 1997 and 1998, respectively. The Firm's contribution to the international plans was $7 million, $14 million and $10 million for the years ended 1996, 1997 and 1998, respectively. F-20 143 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8. CAPITAL PARTNERS' CAPITAL Partners' capital includes both the general partner's and limited partners' capital and is subject to certain withdrawal restrictions. As of November 1998, the Firm had $6.31 billion in partners' capital. Managing directors that are participating limited partners in Group L.P. ("PLPs") who elect to retire are entitled to redeem their capital over a period of not less than five years following retirement, but often reinvest a significant portion of their capital as limited partners for longer periods. Partners' capital was reduced by $368 million in 1998 due to the termination of the Profit Participation Plans under which certain employees received payments based on the earnings of the Firm. Partners' capital allocated for income taxes and potential withdrawals represents management's estimate of net amounts currently distributable, primarily to the PLPs, under the Partnership Agreement, for items including, among other things, income taxes and capital withdrawals. Sumitomo Bank Capital Markets, Inc. ("SBCM"), a limited partner that had capital invested of approximately $834 million as of November 1998, may require Group L.P. to redeem its capital over a five-year period beginning no earlier than 2007. Kamehameha Activities Association ("KAA"), a limited partner that had capital invested of approximately $757 million as of November 1998, may require Group L.P. to redeem $391 million of its capital over a five-year period beginning no earlier than 2010 and $366 million of its capital over a five-year period beginning no earlier than 2013. Institutional Limited Partners (other than SBCM and KAA) had aggregate capital invested of $755 million as of November 1998. Group L.P. must repay these Institutional Limited Partners' capital as follows: $270 million in six equal annual installments commencing in December 2001, $257 million in March 2005, $146 million in November 2013 and $82 million in November 2023. Group L.P. may defer any required redemption of capital if the redemption would cause a subsidiary subject to regulatory authority to be in violation of the rules of such authority or if the withdrawal of funds to satisfy the redemption from an unregulated subsidiary would have a material effect on such subsidiary. REGULATED SUBSIDIARIES GS&Co. is a registered U.S. broker-dealer subsidiary, which is subject to the Securities and Exchange Commission's "Uniform Net Capital Rule", and has elected to compute its net capital in accordance with the "Alternative Net Capital Requirement" of that rule. As of November 1997 and November 1998, GS&Co. had regulatory net capital, as defined, of $1.77 billion and $3.25 billion, respectively, which exceeded the amounts required by $1.37 billion and $2.70 billion, respectively. GSI, a registered U.K. broker-dealer and subsidiary of Group L.P., is subject to the capital requirements of the Securities and Futures Authority Limited and GSJL, a Tokyo-based broker-dealer, is subject to the capital requirements of the Japanese Ministry of Finance and the Financial Supervisory Agency. As of November 1997 and November 1998, GSI and GSJL were in compliance with their local capital adequacy requirements. Certain other subsidiaries of the Firm are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate. As of November 1997 and November 1998, these subsidiaries were in compliance with their local capital adequacy requirements. F-21 144 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. GEOGRAPHIC DATA The Firm's activities as an investment banking and securities firm constitute a single business segment pursuant to SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise". Due to the highly integrated nature of international financial markets, the Firm manages its business based on the profitability of the enterprise as a whole, not by geographic region. Accordingly, management believes that profitability by geographic region is not necessarily meaningful. The total revenues, net revenues, pre-tax earnings and identifiable assets of Group L.P. and its consolidated subsidiaries by geographic region are summarized below:
YEAR ENDED NOVEMBER ----------------------------- 1996 1997 1998 ---- ---- ---- (in millions) TOTAL REVENUES: Americas(1)......................................... $12,864 $15,091 $15,972 Europe.............................................. 3,762 4,463 5,156 Asia................................................ 663 879 1,350 ------- ------- ------- Total............................................... $17,289 $20,433 $22,478 ======= ======= ======= NET REVENUES: Americas(1)......................................... $ 4,397 $ 5,104 $ 5,436 Europe.............................................. 1,355 1,739 2,180 Asia................................................ 377 604 904 ------- ------- ------- Total............................................... $ 6,129 $ 7,447 $ 8,520 ======= ======= ======= PRE-TAX EARNINGS: Americas(1)......................................... $ 1,963 $ 2,061 $ 1,527 Europe.............................................. 536 683 913 Asia................................................ 107 270 481 ------- ------- ------- Total............................................... $ 2,606 $ 3,014 $ 2,921 ======= ======= =======
F-22 145 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF NOVEMBER ----------------------------------- 1996 1997 1998 ---- ---- ---- (in millions) IDENTIFIABLE ASSETS: Americas(1).......................................... $ 171,345 $ 206,312 $ 229,412 Europe............................................... 62,172 80,551 106,721 Asia................................................. 6,894 13,240 19,883 Eliminations......................................... (88,365) (121,702) (138,636) --------- --------- --------- Total................................................ $ 152,046 $ 178,401 $ 217,380 ========= ========= =========
- --------------- (1) Americas principally represents the United States. NOTE 10. QUARTERLY RESULTS (UNAUDITED)
YEAR ENDED NOVEMBER 1996 ------------------------------------ 1ST 2ND 3RD 4TH --- --- --- --- (in millions) Total revenues....................................... $4,030 $4,656 $4,313 $4,290 Interest expense, principally on short-term funding............................................ 2,566 2,986 2,845 2,763 ------ ------ ------ ------ Revenues, net of interest expense.................... 1,464 1,670 1,468 1,527 Operating expenses................................... 899 961 879 784 ------ ------ ------ ------ Pre-tax earnings..................................... 565 709 589 743 Provision for taxes.................................. 21 23 31 132 ------ ------ ------ ------ Net earnings.................................... $ 544 $ 686 $ 558 $ 611 ====== ====== ====== ======
YEAR ENDED NOVEMBER 1997 ------------------------------------ 1ST 2ND 3RD 4TH --- --- --- --- (in millions) Total revenues....................................... $4,932 $4,608 $5,957 $4,936 Interest expense, principally on short-term funding............................................ 2,975 2,934 3,727 3,350 ------ ------ ------ ------ Revenues, net of interest expense.................... 1,957 1,674 2,230 1,586 Operating expenses................................... 1,052 1,064 1,298 1,019 ------ ------ ------ ------ Pre-tax earnings..................................... 905 610 932 567 Provision for taxes.................................. 44 99 60 65 ------ ------ ------ ------ Net earnings.................................... $ 861 $ 511 $ 872 $ 502 ====== ====== ====== ======
YEAR ENDED NOVEMBER 1998 ------------------------------------ 1ST 2ND 3RD 4TH --- --- --- --- (in millions) Total revenues....................................... $5,903 $6,563 $5,735 $4,277 Interest expense, principally on short-term funding............................................ 3,431 3,574 3,591 3,362 ------ ------ ------ ------ Revenues, net of interest expense.................... 2,472 2,989 2,144 915 Operating expenses................................... 1,450 1,952 1,389 808 ------ ------ ------ ------ Pre-tax earnings..................................... 1,022 1,037 755 107 Provision for taxes.................................. 138 190 102 63 ------ ------ ------ ------ Net earnings.................................... $ 884 $ 847 $ 653 $ 44 ====== ====== ====== ======
F-23 146 REVIEW REPORT OF INDEPENDENT ACCOUNTANTS To the Partners, The Goldman Sachs Group, L.P.: We have reviewed the condensed consolidated statement of financial condition of The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm") as of February 26, 1999, and the related condensed consolidated statements of earnings, and cash flows for the three months ended February 26, 1999 and February 27, 1998 and the related condensed consolidated statement of changes in partners' capital for the three months ended February 26, 1999 (included on pages F-25 to F-33 of this prospectus). These financial statements are the responsibility of the Firm's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. PricewaterhouseCoopers LLP New York, New York April 9, 1999. F-24 147 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED FEBRUARY ------------------ 1998 1999 ------- ------- (unaudited) (in millions) REVENUES: Investment banking.......................................... $ 633 $ 902 Trading and principal investments........................... 1,115 1,398 Asset management and securities services.................... 512 543 Interest income............................................. 3,643 3,013 ------ ------ Total revenues.................................... 5,903 5,856 Interest expense, principally on short-term funding......... 3,431 2,861 ------ ------ Revenues, net of interest expense................. 2,472 2,995 OPERATING EXPENSES: Compensation and benefits................................... 1,100 1,275 Brokerage, clearing and exchange fees....................... 93 111 Market development.......................................... 54 77 Communications and technology............................... 58 78 Depreciation and amortization............................... 42 97 Occupancy................................................... 44 78 Professional services and other............................. 59 91 ------ ------ Total operating expenses.......................... 1,450 1,807 Pre-tax earnings............................................ 1,022 1,188 Provision for taxes......................................... 138 181 ------ ------ Net earnings................................................ $ 884 $1,007 ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-25 148 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF FEBRUARY 1999 ------------- (unaudited) (in millions) ASSETS: Cash and cash equivalents................................... $ 3,345 Cash and securities segregated in compliance with U.S. federal and other regulations (principally U.S. government obligations).............................................. 7,361 Receivables from brokers, dealers and clearing organizations............................................. 4,624 Receivables from customers and counterparties............... 19,311 Securities borrowed......................................... 74,036 Securities purchased under agreements to resell............. 41,776 Right to receive securities................................. 7,280 Financial instruments owned, at fair value: Commercial paper, certificates of deposit and time deposits............................................... 1,413 U.S. government, federal agency and sovereign obligations............................................ 26,580 Corporate debt............................................ 9,080 Equities and convertible debentures....................... 11,298 State, municipal and provincial obligations............... 1,021 Derivative contracts...................................... 20,441 Physical commodities...................................... 688 Other assets................................................ 2,370 -------- $230,624 ======== LIABILITIES AND NET WORTH: Short-term borrowings, including commercial paper........... $ 33,863 Payables to brokers, dealers and clearing organizations..... 1,294 Payables to customers and counterparties.................... 32,143 Securities loaned........................................... 24,770 Securities sold under agreements to repurchase.............. 36,906 Obligation to return securities............................. 9,078 Financial instruments sold, but not yet purchased, at fair value: U.S. government, federal agency and sovereign obligations............................................ 29,391 Corporate debt............................................ 1,579 Equities and convertible debentures....................... 8,238 Derivative contracts...................................... 22,677 Physical commodities...................................... 267 Other liabilities and accrued expenses...................... 3,022 Long-term borrowings........................................ 20,405 -------- 223,633 Commitments and contingencies Accumulated other comprehensive income...................... (37) Partners' capital allocated for income taxes and potential withdrawals............................................... 416 Partners' capital........................................... 6,612 -------- $230,624 ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-26 149 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
PERIOD ENDED FEBRUARY 1999 -------- (unaudited) (in millions) Partners' capital, beginning of period...................... $6,310 Additions: Net earnings.............................................. 1,007 Capital contributions..................................... 48 ------ Total additions................................... 1,055 Deductions: Returns on capital and certain distributions to partners............................................... (171) Transfers to partners' capital allocated for income taxes and potential withdrawals, net......................... (582) ------ Total deductions.................................. (753) ------ Partners' capital, end of period............................ $6,612 ======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-27 150 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY ------------------- 1998 1999 -------- ------- (unaudited) (in millions) Cash flows from operating activities: Net earnings.............................................. $ 884 $ 1,007 Non-cash items included in net earnings: Depreciation and amortization.......................... 42 97 Deferred income taxes.................................. 8 5 Changes in operating assets and liabilities: Cash and securities segregated in compliance with U.S. federal and other regulations......................... (191) 526 Net receivables from brokers, dealers and clearing organizations......................................... 233 260 Net payables to customers and counterparties........... 1,950 (8,394) Securities borrowed, net............................... (12,579) (1,225) Financial instruments owned, at fair value............. (51,461) (2,267) Financial instruments sold, but not yet purchased, at fair value............................................ 14,601 8,205 Other, net............................................. (759) (617) -------- ------- Net cash used for operating activities............... (47,272) (2,403) Cash flows from investing activities: Property, leasehold improvements and equipment......... (63) (103) Financial instruments owned, at fair value............. (45) 58 -------- ------- Net cash used for investing activities............... (108) (45) -------- ------- Cash flows from financing activities: Short-term borrowings, net............................. 11,500 2,567 Securities sold under agreements to repurchase, net.... 34,157 (3,643) Issuance of long-term borrowings....................... 5,630 4,468 Repayment of long-term borrowings...................... (608) (105) Capital contributions.................................. 6 48 Returns on capital and certain distributions to partners.............................................. (157) (171) Partners' capital allocated for income taxes and potential withdrawals................................. (309) (207) -------- ------- Net cash provided by financing activities............ 50,219 2,957 -------- ------- Net increase in cash and cash equivalents.............. 2,839 509 Cash and cash equivalents, beginning of period.............. 1,328 2,836 -------- ------- Cash and cash equivalents, end of period.................... $ 4,167 $ 3,345 ======== =======
- --------------- SUPPLEMENTAL DISCLOSURES: Cash payments for interest approximated the related expense for each of the fiscal periods presented. Payments of income taxes were not material. The increases in total assets and liabilities related to the provisions of Statement of Financial Accounting Standards No. 125 that were deferred under Statement of Financial Accounting Standards No. 127 were excluded from the consolidated statements of cash flows as they represented non-cash items. The accompanying notes are an integral part of these condensed consolidated financial statements. F-28 151 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. DESCRIPTION OF BUSINESS The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group L.P."), together with its consolidated subsidiaries (collectively, the "Firm"), is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base. The Firm's activities are divided into three principal business lines: - Investment Banking, which includes financial advisory services and underwriting; - Trading and Principal Investments, which includes fixed income, currency and commodities ("FICC"), equities and principal investments (principal investments reflect primarily the Firm's investments in its merchant banking funds); and - Asset Management and Securities Services, which includes asset management, securities services and commissions. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Group L.P. and its U.S. and international subsidiaries including Goldman, Sachs & Co. ("GS&Co.") and J. Aron & Company in New York, Goldman Sachs International ("GSI") in London and Goldman Sachs (Japan) Ltd. ("GSJL") in Tokyo. The consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included elsewhere in this prospectus. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles that require management to make estimates and assumptions regarding trading inventory valuations, partner retirements, the outcome of pending litigation and other matters that affect the consolidated financial statements and related disclosures. These estimates and assumptions are based on judgment and available information and, consequently, actual results could be materially different from these estimates. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim period operating results may not be indicative of the operating results for a full year. Unless otherwise stated herein, all references to February 1998 and February 1999 refer to the Firm's fiscal quarter ended, or the date, as the context requires, February 27, 1998 and February 26, 1999, respectively. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and presentation of comprehensive income and its components in the financial statements. This Statement is effective for fiscal years beginning after December 15, 1997 and was adopted by the Firm in the first quarter of 1999. The components of comprehensive income are set forth below: F-29 152 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY ------------------ 1998 1999 ------- ------- (in millions) Net earnings............................................. $ 884 $1,007 Other comprehensive loss Foreign currency translation adjustment................ (5) (6) ------ ------ Total comprehensive income............................... $ 879 $1,001 ====== ======
NOTE 3. FINANCIAL INSTRUMENTS Gains and losses on financial instruments and commission income and related expenses are recorded on a trade date basis in the consolidated statements of earnings. For purposes of the consolidated statement of financial condition only, purchases and sales of financial instruments, including agency transactions, are generally recorded on a settlement date basis. Recording such transactions on a trade date basis would not result in a material adjustment to the consolidated statement of financial condition. Substantially all financial instruments used in the Firm's trading and non-trading activities are carried at fair value or amounts that approximate fair value and unrealized gains and losses are recognized in earnings. Fair value is based generally on listed market prices or broker or dealer price quotations. To the extent that prices are not readily available, fair value is based on either internal valuation models or management's estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. Certain over-the-counter derivative instruments are valued using pricing models that consider, among other factors, current and contractual market prices, time value, and yield curve and/or volatility factors of the underlying positions. The Firm's Trading and Principal Investments business facilitates customer transactions and takes proprietary positions through market-making in and trading of securities, currencies, commodities and swaps and other derivatives. Derivative financial instruments are often used to hedge cash instruments or other derivative financial instruments as an integral part of the Firm's strategies. As a result, it is necessary to view the results of any activity on a fully-integrated basis, including cash positions, the effect of related derivatives and the financing of the underlying positions. Net revenues represent total revenues less allocations of interest expense to specific securities, commodities and other positions in relation to the level of financing incurred by each. The following table sets forth the net revenues of the Firm's Trading and Principal Investments business:
THREE MONTHS ENDED FEBRUARY ------------------ 1998 1999 ------- ------- (in millions) FICC..................................................... $ 741 $ 876 Equities................................................. 365 455 Principal investments.................................... 76 26 ------ ------ Total Trading and Principal Investments.................. $1,182 $1,357 ====== ======
F-30 153 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) DERIVATIVE ACTIVITIES Most of the Firm's derivative transactions are entered into for trading purposes. The Firm uses derivatives in its trading activities to facilitate customer transactions, to take proprietary positions and as a means of risk management. The Firm also enters into non-trading derivative contracts to manage the interest rate and currency exposure on its long-term borrowings. Derivative contracts are financial instruments, such as futures, forwards, swaps or option contracts, that derive their value from underlying assets, indices, reference rates or a combination of these factors. Derivatives may involve future commitments to purchase or sell financial instruments or commodities, or to exchange currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, securities, commodities or indices. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments, that derive their values or contractually required cash flows from the price of some other security or index. Derivatives also exclude option features that are embedded in cash instruments, such as the conversion features and call provisions embedded in bonds. The Firm has elected to include commodity-related contracts in its derivative disclosure, although not required to do so, as these contracts may be settled in cash or are readily convertible into cash. Derivatives used for trading purposes are reported at fair value and are included in "Derivative contracts" on the consolidated statement of financial condition. Gains and losses on derivatives used for trading purposes are included in "Trading and Principal Investments" on the consolidated statements of earnings. The Firm utilizes replacement cost as its measure of derivative credit risk. Replacement cost, as reported in financial instruments owned, at fair value on the consolidated statement of financial condition, represents amounts receivable from various counterparties, net of any unrealized losses owed where management believes a legal right of setoff exists under an enforceable master netting agreement. Replacement cost for purchased option contracts is the market value of the contract. The Firm controls its credit risk through an established credit approval process, by monitoring counterparty limits, obtaining collateral where appropriate and, in some cases, using legally enforceable master netting agreements. The fair value of derivative financial instruments used for trading purposes, computed in accordance with the Firm's netting policy, is set forth below:
AS OF FEBRUARY 1999 ---------------------- ASSETS LIABILITIES ------ ----------- (in millions) Forward settlement contracts................................ $ 3,991 $ 3,725 Swap agreements............................................. 9,233 10,460 Option contracts............................................ 7,140 8,484 ------- ------- Total....................................................... $20,364 $22,669 ======= =======
Derivatives used for non-trading purposes include interest rate futures contracts and interest rate and currency swap agreements, which are primarily utilized to convert a substantial portion of the Firm's fixed rate debt into U.S. dollar-based floating rate obligations. Gains and losses on these transactions are generally deferred and recognized as adjustments to interest expense F-31 154 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) over the life of the derivative contract. Gains and losses resulting from the early termination of derivatives used for non-trading purposes are generally deferred and recognized over the remaining life of the underlying debt. If the underlying debt is terminated prior to its stated maturity, gains and losses on these transactions, including the associated hedges, are recognized in earnings immediately. The fair value and carrying value of derivatives used for non- trading purposes are set forth below:
AS OF FEBRUARY 1999 --------------------- ASSETS LIABILITIES ------ ----------- (in millions) Fair value........................................ $319 $13 Carrying value.................................... 77 8
NOTE 4. SHORT-TERM BORROWINGS The Firm obtains secured short-term financing principally through the use of repurchase agreements and securities lending agreements, collateralized mainly by U.S. government, federal agency, investment grade foreign sovereign obligations and equity securities. The Firm obtains unsecured short-term borrowings through issuance of commercial paper, promissory notes and bank loans. The carrying value of these short-term obligations approximates fair value due to their short term nature. Short-term borrowings are set forth below:
AS OF FEBRUARY 1999 ------------- (in millions) Commercial paper............................................ $10,740 Promissory notes*........................................... 10,893 Bank loans and other*....................................... 12,230 ------- Total....................................................... $33,863 =======
- --------------- * As of February 1999, short-term borrowings included $6,285 million of long-term borrowings maturing within one year. The Firm maintains unencumbered securities with a market value in excess of all uncollateralized short-term borrowings. NOTE 5. REGULATED SUBSIDIARIES GS&Co. is a registered U.S. broker-dealer subsidiary, which is subject to the Securities and Exchange Commission's "Uniform Net Capital Rule", and has elected to compute its net capital in accordance with the "Alternative Net Capital Requirement" of that rule. As of February 1999, GS&Co. had regulatory net capital, as defined, of $2.89 billion, which exceeded the amount required by $2.40 billion. GSI, a registered U.K. broker-dealer and subsidiary of Group L.P., is subject to the capital requirements of the Securities and Futures Authority Limited and GSJL, a Tokyo-based broker-dealer, is subject to the capital requirements of the Japanese Ministry of Finance and the Financial Supervisory Agency. As of February 1999, GSI and GSJL were in compliance with their local capital adequacy requirements. F-32 155 THE GOLDMAN SACHS GROUP, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Certain other subsidiaries of the Firm are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate. As of February 1999, these subsidiaries were in compliance with their local capital adequacy requirements. NOTE 6. CONTINGENCIES The Firm is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Firm's financial condition, but might be material to the Firm's operating results for any particular period, depending, in part, upon the operating results for such period. F-33 156 UNDERWRITING The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc., Kamehameha Activities Association and the underwriters for the U.S. offering (the "U.S. underwriters") named below have entered into an underwriting agreement with respect to the shares being offered in the United States and Canada. Subject to certain conditions, each U.S. underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential Securities Incorporated, Salomon Smith Barney Inc., Sanford C. Bernstein & Co., Inc. and Schroder & Co. Inc. are the representatives of the U.S. underwriters.
Number of U.S. Underwriters Shares ----------------- --------- Goldman, Sachs & Co. ....................................... Bear, Stearns & Co. Inc. ................................... Credit Suisse First Boston Corporation...................... Donaldson, Lufkin & Jenrette Securities Corporation......... Lehman Brothers Inc. ....................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... J.P. Morgan Securities Inc. ................................ Morgan Stanley & Co. Incorporated........................... PaineWebber Incorporated.................................... Prudential Securities Incorporated.......................... Salomon Smith Barney Inc. .................................. Sanford C. Bernstein & Co., Inc. ........................... Schroder & Co. Inc. ........................................ ---------- Total....................................................... 48,000,000 ==========
--------------- If the U.S. underwriters sell more shares than the total number set forth in the table above, the U.S. underwriters have an option to buy up to an additional 7,200,000 shares from The Goldman Sachs Group, Inc. to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the U.S. underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the U.S. underwriters by The Goldman Sachs Group, Inc. Such amounts are shown assuming both no exercise and full exercise of the U.S. underwriters' option to purchase 7,200,000 additional shares. Paid by The Goldman Sachs Group, Inc. ----------------------------------------------
No Full Exercise Exercise ----------- ------------- Per Share............ $ $ Total................ $ $
U-1 157 Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all of the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. The offer and sale by the underwriters of the shares of common stock is subject to the underwriters having received and accepted the shares from The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association. In addition, the underwriters may, in their sole discretion, reject all or any part of any order for the shares which is received by them. The underwriters expect to deliver the shares in New York, New York on the date indicated on the front cover page of this prospectus in exchange for payment in immediately available funds. The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association have entered into underwriting agreements with underwriters for the sale of 8,000,000 shares outside of the United States, Canada and the Asia/Pacific region and 4,000,000 shares in the Asia/Pacific region. The terms and conditions of all three offerings are the same and the sale of shares in all three offerings are conditioned on each other. Goldman Sachs International, ABN AMRO Rothschild, Banque Nationale de Paris, BAYERISCHE HYPO- und VEREINSBANK Aktiengesellschaft, Cazenove & Co., Commerzbank Aktiengesellschaft, Deutsche Bank AG London, ING Barings Limited as Agent for ING Bank N.V., London Branch, Kleinwort Benson Limited, MEDIOBANCA - Banca di Credito Finanziaro S.p.A., Paribas and UBS AG, acting through its division Warburg Dillon Read, are representatives of the underwriters for the international offering outside of the United States, Canada and the Asia/Pacific region (the "International underwriters") and Goldman Sachs (Asia) L.L.C., BOCI Asia Limited, China Development Industrial Bank Inc., China International Capital Corporation Limited, Daiwa Securities (H.K.) Limited, The Development Bank of Singapore Ltd, HSBC Investment Bank Asia Limited, Jardine Fleming Securities Limited, KOKUSAI Securities (Hong Kong) Limited, Kotak Mahindra (International) Limited, The Nikko Merchant Bank (Singapore) Limited, Nomura International plc, Samsung Securities Co., Ltd., Standard Chartered Asia Limited and Were Stockbroking Limited are representatives of the underwriters for the Asia/Pacific region offering (the "Asia/Pacific underwriters"). The Goldman Sachs Group, Inc. has granted the International and Asia/Pacific underwriters options similar to that described above to purchase up to an aggregate of an additional 1,800,000 shares. The underwriters for each of the three offerings have entered into an agreement in which they have agreed to restrictions on where and to whom they and any dealer purchasing from them may offer shares as a part of the distribution of the shares. The underwriters have also agreed that they may sell shares among each of the underwriting groups. The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc., Kamehameha Activities Association, the parties to the shareholders' agreement, including all of the directors and executive officers of The Goldman Sachs Group, Inc., and the retired limited partners have agreed not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to the shares of common stock underlying any awards described under "Management -- The Employee Initial Public Offering Awards" that are received by persons who are not managing directors or any U-2 158 future awards granted under the stock incentive plan. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions. Prior to the offerings, there has been no public market for the shares. The initial public offering price will be negotiated among The Goldman Sachs Group, Inc. and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be The Goldman Sachs Group, Inc.'s historical performance, estimates of the business potential and earnings prospects of The Goldman Sachs Group, Inc., an assessment of The Goldman Sachs Group, Inc.'s management and the consideration of the above factors in relation to market valuation of companies in related businesses. The common stock will be listed on the NYSE under the symbol "GS". In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders. In connection with the offerings, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offerings. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offerings are in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise. After the offerings, because Goldman, Sachs & Co. is a member of the NYSE and because of its relationship to The Goldman Sachs Group, Inc., it will not be permitted under the rules of the NYSE to make markets in or recommendations regarding the purchase or sale of the common stock. This may adversely affect the trading market for the common stock. Also, because of the relationship between Goldman, Sachs & Co. and The Goldman Sachs Group, Inc., the offerings are being conducted in accordance with Rule 2720 of the NASD. That rule requires that the initial public offering price can be no higher than that recommended by a "qualified independent underwriter", as defined by the NASD. Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated have served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part. Each of Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated has received $10,000 from The Goldman Sachs Group, Inc. as compensation for such role. The underwriters may not confirm sales to discretionary accounts without the prior written approval of the customer. Goldman, Sachs & Co., Goldman Sachs International and Goldman Sachs (Asia) L.L.C. are subsidiaries of The Goldman Sachs Group, Inc. In aggregate, these three affiliated underwriters have severally agreed to purchase % of the shares being offered in the three offerings. If any of the shares underwritten by these three affiliates are sold by them at a price less than the U-3 159 initial public offering price, the net proceeds from the offerings to The Goldman Sachs Group, Inc. on a consolidated basis will be reduced because such affiliates and The Goldman Sachs Group, Inc. are accounted for on a consolidated basis. The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association estimate that their shares of the total expenses of the offerings, excluding underwriting discounts and commissions, will be approximately $ , $ and $ , respectively. The Goldman Sachs Group, Inc., Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. This prospectus may be used by the underwriters and other dealers in connection with offers and sales of the shares, including sales of shares initially sold by the underwriters in the offerings being made outside of the United States, to persons located in the United States. U-4 160 The inside back cover of this prospectus is a series of photographs of Goldman Sachs employees participating in our Community TeamWorks initiative. The following text appears in the center of the page: THE WORLD OF GOLDMAN SACHS The dedication we bring to our professional relationships extends beyond the world of finance into our communities. At Goldman Sachs, we work side by side with our clients to 'adopt' schools, clean parks, build housing for those in need and engage in a host of other acts of citizenship. Each volunteer relationship is an investment with returns that not only enrich our communities, but also benefit our clients--by strengthening our sense of teamwork and enriching our understanding of and appreciation for people and places beyond our daily responsibilities. 161 - ------------------------------------------------------- - ------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell or to buy only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ------------------ TABLE OF CONTENTS
Page ---- Our Business Principles............... 2 Prospectus Summary.................... 3 Risk Factors.......................... 11 Use of Proceeds....................... 22 Dividend Policy....................... 22 Reports of Independent Accountants on Pro Forma Consolidated Financial Information......................... 23 Pro Forma Consolidated Financial Information......................... 25 Dilution.............................. 32 Capitalization........................ 33 Selected Consolidated Financial Data................................ 34 Report of Independent Accountants on Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 37 Industry and Economic Outlook......... 62 Business.............................. 65 Management............................ 90 Principal and Selling Shareholders.... 103 Certain Relationships and Related Transactions........................ 105 Description of Capital Stock.......... 110 Shares Eligible for Future Sale....... 116 Validity of Common Stock.............. 119 Experts............................... 119 Available Information................. 121 Index to Consolidated Financial Statements.......................... F-1 Underwriting.......................... U-1
------------------ Through and including , 1999 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- 60,000,000 Shares THE GOLDMAN SACHS GROUP, INC. Common Stock ------------------ [GOLDMAN SACHS LOGO] ------------------ GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS MERRILL LYNCH & CO. J.P. MORGAN & CO. MORGAN STANLEY DEAN WITTER PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES SALOMON SMITH BARNEY SANFORD C. BERNSTEIN & CO., INC. SCHRODER & CO. INC. Representatives of the Underwriters ------------------------------------------------------- ------------------------------------------------------- 162 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses, other than underwriting discounts and commissions, to be incurred in connection with the distribution of the securities registered under this registration statement:
AMOUNT TO BE PAID ---------- SEC registration fee........................................ $1,055,010 NASD fees and expenses...................................... 30,500 Legal fees and expenses..................................... 900,000 Fees and expenses of qualification under state securities laws (including legal fees)............................... 20,000 NYSE listing fees and expenses.............................. 504,600 Accounting fees and expenses................................ 1,600,000 Printing and engraving fees................................. 3,610,500 Registrar and transfer agent's fees......................... 250,000 Miscellaneous............................................... 1,029,390 ---------- Total............................................. $9,000,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee of or agent to the Registrant. The statute provides that it is not exclusive of other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 6.4 of the Registrant's by-laws provides for indemnification by the Registrant of any director or officer (as such term is defined in the by-laws) of the Registrant who is or was a director of any of its subsidiaries, is or was a member of the Shareholders' Committee (as defined in the prospectus included in this registration statement) acting pursuant to the shareholders' agreement (as defined in the prospectus included in this registration statement) or, at the request of the Registrant, is or was serving as a director or officer of, or in any other capacity for, any other enterprise, to the fullest extent permitted by law. The by-laws also provide that the Registrant shall advance expenses to a director or officer and, if reimbursement of such expenses is demanded in advance of the final disposition of the matter with respect to which such demand is being made, upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the Registrant. To the extent authorized from time to time by the board of directors of the Registrant, the Registrant may provide to any one or more employees of the Registrant, one or more officers, employees and other agents of any subsidiary or one or more directors, officers, employees and other agents of any other enterprise, rights of indemnification and to receive payment or reimbursement of expenses, including attorneys' fees, that are similar to the rights conferred in the by-laws of the Registrant on directors and officers of the Registrant or any subsidiary or other enterprise. The by-laws do not limit the power of the Registrant or its board of directors to provide other indemnification and expense reimbursement rights to II-1 163 directors, officers, employees, agents and other persons otherwise than pursuant to the by-laws. The Registrant intends to enter into agreements with certain directors, officers and employees who are asked to serve in specified capacities at subsidiaries and other entities. The Registrant will enter into an agreement that provides indemnification to its directors and officers and to the directors and certain officers of the general partner of The Goldman Sachs Group, L.P., members of its Management Committee or its Partnership Committee or the former Executive Committee of The Goldman Sachs Group, L.P. and all other persons requested or authorized by the Registrant's board of directors or the board of directors of the general partner of The Goldman Sachs Group, L.P. to take actions on behalf of the Registrant, The Goldman Sachs Group, L.P. or the general partner of The Goldman Sachs Group, L.P. in connection with the plan of incorporation, this registration statement and certain other registration statements for all losses, damages, costs and expenses incurred by the indemnified person arising out of the relevant registration statements or the transactions contemplated by the plan of incorporation. This agreement is in addition to the Registrant's indemnification obligations under its by-laws. Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for payments of unlawful dividends or unlawful stock repurchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. The Registrant's amended and restated certificate of incorporation provides for such limitation of liability. Policies of insurance are maintained by the Registrant under which its directors and officers are insured, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been such directors or officers. Reference is also made to Section 9 of the underwriting agreement filed as Exhibit 1.1 to the registration statement for information concerning the underwriters' obligation to indemnify the Registrant and its officers and directors in certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES As part of the incorporation transactions, the Registrant has entered into definitive binding agreements to issue: (i) shares of the Registrant's common stock, par value $0.01 per share, to certain managing directors who were profit participating limited partners of The Goldman Sachs Group, L.P. in exchange for all of the managing directors' interests in The Goldman Sachs Group, L.P. and certain other entities; (ii) shares of common stock and 12% junior subordinated debentures of the Registrant to certain retired limited partners of The Goldman Sachs Group, L.P. in exchange for all of such limited partners' interests in The Goldman Sachs Group, L.P. and certain other entities; (iii) shares of common stock and shares of the Registrant's nonvoting common stock, par value $0.01 per share, to Sumitomo Bank Capital Markets, Inc.; and (iv) shares of common stock to Kamehameha Activities Association. Also simultaneously with the offerings, the Registrant will make awards of restricted stock units and/or options to substantially all of its employees and will make an irrevocable contribution of common stock to a nonqualified defined contribution plan. The offering and sale of the shares of common stock, junior subordinated debentures and nonvoting common stock to the managing directors who were profit participating limited partners, retired limited partners, Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association will not be registered under the Securities Act of 1933, as amended, because the offering and sale (i) will be made in reliance on the II-2 164 exemption provided by Section 4(2) of the Securities Act of 1933 and Rule 506 thereunder for transactions by an issuer not involving a public offering (with the recipients representing their intentions to acquire the securities for their own accounts and not with a view to the distribution thereof and acknowledging that the securities will be issued in a transaction not registered under the Securities Act of 1933) or (ii) will be made outside the United States pursuant to Regulation S under the Securities Act of 1933 to persons who are not citizens or residents of the United States. The foregoing employee awards and contribution of common stock will not be registered under the Securities Act of 1933 because the awards and contribution either will not involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that the awards will be made to a relatively broad class of employees who will provide no consideration in exchange for their awards, or will be offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and in compliance with Rule 506 thereunder. On April 13, 1999, the Registrant entered into an arrangement with a group of 10 employees pursuant to which a portion of a performance-based bonus that is payable to such employees in 2002 will be paid in shares of common stock of the Registrant valued at the initial public offering price per share in the offerings. Under this arrangement, up to 386,500 shares of common stock may be issued (based upon the midpoint of the range of initial public offering prices set forth on the cover page of the prospectus included in this registration statement). The offering and sale of these 386,500 shares of common stock was made pursuant to Rule 701 under the Securities Act of 1933. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 1.1 Form of Underwriting Agreement. 2.1 Plan of Incorporation. 2.2 Form of Agreement and Plan of Merger of The Goldman Sachs Corporation into The Goldman Sachs Group, Inc. 2.3 Form of Agreement and Plan of Merger of The Goldman Sachs Group, L.P. into The Goldman Sachs Group, Inc. 3.1 Certificate of Incorporation of The Goldman Sachs Group, Inc. 3.2 Form of Amended and Restated Certificate of Incorporation of The Goldman Sachs Group, Inc. 3.3 Form of Amended and Restated By-Laws of The Goldman Sachs Group, Inc. 4.1 Specimen of certificate representing The Goldman Sachs Group, Inc.'s common stock, par value $0.01 per share. 4.2 Form of Stockholder Protection Rights Agreement, dated as of April 5, 1999, between The Goldman Sachs Group, Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs Group, Inc. 10.1 Lease, dated June 11, 1985, between Metropolitan Life Insurance Company and Goldman, Sachs & Co.* 10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank (National Association) and The Goldman Sachs Group, L.P., as amended.* 10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC and The Goldman Sachs Group, L.P.* 10.4 Lease, dated as of July 16, 1998, between TCC Acquisition Corp. and The Goldman Sachs Group, L.P.*
II-3 165 10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International, (iii) Restamove Limited, (iv) The Goldman Sachs Group, L.P. and (v) Itochu Corporation.* 10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International, (iii) Restamove Limited, (iv) The Goldman Sachs Group, L.P. and (v) Itochu Corporation (Form of Occupational Lease among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International and (iii) The Goldman Sachs Group, L.P.).* 10.7 Agreement relating to Developer's Fit Out Works to be carried out at 120 Fleet Street, London, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited, (ii) Goldman Sachs Property Management, (iii) Itochu Corporation and (iv) The Goldman Sachs Group, L.P.* 10.8 Agreement relating to One Carter Lane, London EC4, dated March 25, 1998, among Britel Fund Trustees Limited, Goldman Sachs International, The Goldman Sachs Group, L.P., English Property Corporation plc and MEPC plc.* 10.9 Fit Out Works Agreement relating to One Carter Lane, London EC4, dated March 25, 1998, among Britel Fund Trustees Limited, Goldman Sachs International, Goldman Sachs Property Management, The Goldman Sachs Group, L.P., English Property Corporation plc and MEPC plc.* 10.10 Underlease of premises known as One Carter Lane, London EC4, dated September 9, 1998, among Britel Fund Trustees Limited, Goldman Sachs International and The Goldman Sachs Group, L.P.* 10.11 Lease, dated March 5, 1994, among Shine Hill Development Limited, Shine Belt Limited, Fair Page Limited, Panhy Limited, Maple Court Limited and Goldman Sachs (Asia) Finance, as amended.* 10.12 Guarantee, dated November 17, 1993, between Shine Hill Development Limited and The Goldman Sachs Group, L.P.* 10.13 Agreement for Lease, dated November 29, 1998, between Turbo Top Limited and Goldman Sachs (Asia) Finance.* 10.14 Summary of Tokyo Leases. 10.15 Form of The Goldman Sachs 1999 Stock Incentive Plan. 10.16 Form of The Goldman Sachs Defined Contribution Plan. 10.17 Letter Agreement with Mr. Weinberg. 10.18 Form of The Goldman Sachs Partner Compensation Plan. 10.19 Form of Employment Agreement. 10.20 Form of Agreement Relating to Noncompetition and Other Covenants. 10.21 Form of Pledge Agreement. 10.22 Form of Award Agreement (Formula RSUs). 10.23 Form of Award Agreement (Discretionary RSUs). 10.24 Form of Option Agreement (Discretionary Options). 10.25 Form of Tax Indemnification Agreement, by and among The Goldman Sachs Group, Inc. and various parties. 10.26 Form of Shareholders' Agreement among The Goldman Sachs Group, Inc. and various parties.
II-4 166 10.27 Instrument of Indemnification. 10.28 Form of Indemnification Agreement. 10.29 Subscription Agreement, dated as of April 24, 1992, among the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi Holdings Corporation, Royal Hawaiian Shopping Center, Inc. and The Goldman Sachs Group, L.P. 10.30 Subscription Agreement, dated as of November 21, 1994, among the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi Holdings Corporation, Royal Hawaiian Shopping Center, Inc. and The Goldman Sachs Group, L.P. 10.31 Letter Agreement, dated March 15, 1999, among Kamehameha Activities Association and The Goldman Sachs Group, L.P. 10.32 Amended and Restated Subscription Agreement, dated as of March 28, 1989, among The Sumitomo Bank, Limited, Sumitomo Bank Capital Markets, Inc., Goldman, Sachs & Co. and The Goldman Sachs Group, L.P. 10.33 Letter Agreement, dated March 15, 1999, among The Sumitomo Bank, Limited, Sumitomo Bank Capital Markets, Inc. and The Goldman Sachs Group, L.P. 10.34 Lease, dated September 24, 1992, from LDT Partners to Goldman Sachs International. 15.1 Letter re Unaudited Interim Financial Information. 21.1 List of subsidiaries of The Goldman Sachs Group, L.P.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1 above). 23.3 Consent of Sir John Browne.* 23.4 Consent of James A. Johnson.* 23.5 Consent of Securities Data Company. 23.6 Consent of John L. Weinberg. 24.1 Powers of Attorney.* 27.1 Financial Data Schedule.*
- --------------- * Previously filed. (b) FINANCIAL STATEMENT SCHEDULES Condensed financial information of The Goldman Sachs Group, L.P. and report of PricewaterhouseCoopers LLP thereon. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against II-5 167 public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (b) To provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (c) (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 168 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to Registration Statement (No. 333-74449) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, New York on the 29th day of April, 1999. THE GOLDMAN SACHS GROUP, INC. By: /s/ GREGORY K. PALM ------------------------------------ Name: Gregory K. Palm Title: General Counsel Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement (No. 333-74449) has been signed by the following persons in the capacities indicated on the 29th day of April, 1999:
TITLE SIGNATURE ----- --------- Director and Co-Chairman of the Board * ---------------------------------------------- Jon S. Corzine Director, Co-Chairman of the Board and Chief Executive Officer (Principal Executive Officer) * ---------------------------------------------- Henry M. Paulson, Jr. Director and Vice Chairman * ---------------------------------------------- Robert J. Hurst Director, President and Co-Chief Operating Officer * ---------------------------------------------- John A. Thain Director, President and Co-Chief Operating Officer * ---------------------------------------------- John L. Thornton Chief Financial Officer (Principal Financial Officer) * ---------------------------------------------- David A. Viniar Principal Accounting Officer * ---------------------------------------------- Sarah G. Smith *By: /s/ GREGORY K. PALM - -------------------------------------------------- Name: Gregory K. Palm Attorney-in-Fact
II-7 169 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners, The Goldman Sachs Group, L.P.: In connection with our audits of the consolidated financial statements of The Goldman Sachs Group, L.P. and Subsidiaries as of November 27, 1998 and November 28, 1997, and for the three years in the period ended November 27, 1998, which financial statements are included on pages F-3 to F-23 of this Form S-1, we have also audited the financial statement schedule listed in Item 16(b) herein. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP New York, New York January 22, 1999. S-1 170 SCHEDULE IV CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE GOLDMAN SACHS GROUP, L.P. CONDENSED STATEMENTS OF EARNINGS (PARENT COMPANY ONLY)
YEAR ENDED NOVEMBER ----------------------------- 1996 1997 1998 ---- ---- ---- (in millions) REVENUES: Equity earnings of subsidiaries............................. $ 2,184 $ 2,378 $ 1,780 Principal investments....................................... 208 339 540 Interest income, principally from affiliates................ 2,602 2,943 4,369 ------- ------- ------- Total revenues......................................... 4,994 5,660 6,689 Interest expense, principally on short-term funding......... 2,547 2,858 4,201 ------- ------- ------- Revenues, net of interest expense...................... 2,447 2,802 2,488 OPERATING EXPENSES: Compensation and benefits................................... 13 12 9 Other....................................................... 33 29 43 ------- ------- ------- Total operating expenses............................... 46 41 52 Pre-tax earnings............................................ 2,401 2,761 2,436 Provision for unincorporated business taxes................. 2 15 8 ------- ------- ------- Net earnings................................................ $ 2,399 $ 2,746 $ 2,428 ======= ======= =======
See note to condensed financial statements. S-2 171 SCHEDULE IV THE GOLDMAN SACHS GROUP, L.P. CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)
AS OF NOVEMBER ------------------ 1997 1998 ---- ---- (in millions) ASSETS: Cash and cash equivalents................................... $ 4 $ 11 Financial instruments owned, at fair value.................. 1,896 2,147 Receivables from affiliates................................. 23,767 33,562 Subordinated loan receivables from affiliates............... 6,889 8,668 Investment in subsidiaries.................................. 5,005 5,077 Other....................................................... 434 1,123 ------- ------- $37,995 $50,588 ======= ======= LIABILITIES AND NET WORTH: Short-term borrowings, including commercial paper........... $16,597 $23,364 Payables to affiliates...................................... 119 1,679 Other....................................................... 137 147 Long-term borrowings: With third parties........................................ 14,290 18,584 With affiliates........................................... 315 430 ------- ------- 31,458 44,204 Partners' capital allocated for income taxes and potential withdrawals............................................... 430 74 Partners' capital........................................... 6,107 6,310 ------- ------- $37,995 $50,588 ======= =======
See note to condensed financial statements. S-3 172 SCHEDULE IV THE GOLDMAN SACHS GROUP, L.P. CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
YEAR ENDED NOVEMBER ----------------------------- 1996 1997 1998 ---- ---- ---- (in millions) Cash flows from operating activities: Net earnings.............................................. $ 2,399 $ 2,746 $ 2,428 Non-cash items included in net earnings: Equity in earnings of subsidiaries...................... (2,184) (2,378) (1,780) Depreciation and amortization........................... 25 19 35 Changes in operating assets and liabilities: Financial instruments owned, at fair value................ (110) (395) (8) Other, net................................................ (43) (98) (501) ------- ------- ------- Net cash provided by/(used for) operating activities.... 87 (106) 174 ------- ------- ------- Cash flows from investing activities: Financial instruments owned, at fair value................ 126 (331) (243) Receivables from affiliates, net.......................... (1,476) (4,320) (8,235) Subordinated loan receivables from affiliates............. (480) (1,528) (1,779) Investment in subsidiaries................................ 2,031 2,147 1,362 Property, leasehold improvements and equipment............ (1) (4) (145) ------- ------- ------- Net cash provided by/(used for) investing activities.... 200 (4,036) (9,040) ------- ------- ------- Cash flows from financing activities: Short-term borrowings, net................................ 496 39 2,586 Issuance of long-term borrowings.......................... 4,636 7,498 10,289 Repayment of long-term borrowings......................... (3,886) (1,005) (1,698) Capital contributions..................................... 4 89 9 Returns on capital and certain distributions to partners................................................ (473) (557) (619) Termination of the Profit Participation Plans............. -- -- (21) Partners' capital allocated for income taxes and potential withdrawals, net........................................ (1,017) (2,034) (1,673) ------- ------- ------- Net cash (used for)/provided by financing activities.... (240) 4,030 8,873 ------- ------- ------- Net increase/(decrease) in cash and cash equivalents...... 47 (112) 7 Cash and cash equivalents, beginning of year................ 69 116 4 ------- ------- ------- Cash and cash equivalents, end of year...................... $ 116 $ 4 $ 11 ======= ======= =======
SUPPLEMENTAL DISCLOSURES: Cash payments for interest approximated the related expense for each of the fiscal periods presented. Payments of unincorporated business taxes were not material. Cash payments of $347 million related to the termination of the Profit Participation Plans in 1998 were paid by Group L.P.'s subsidiaries and were excluded from the condensed statement of cash flows above as these payments represented non-cash items to Group L.P. See note to condensed financial statements. S-4 173 SCHEDULE IV THE GOLDMAN SACHS GROUP, L.P. NOTE TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The condensed unconsolidated financial statements of The Goldman Sachs Group, L.P. should be read in conjunction with the consolidated financial statements of The Goldman Sachs Group, L.P. and Subsidiaries and the footnotes thereto. Certain reclassifications have been made to prior year amounts to conform to the current presentation. Investments in subsidiaries are accounted for using the equity method. The condensed unconsolidated financial statements have been prepared in accordance with generally accepted accounting principles that require management to make estimates and assumptions regarding investment valuations, partner retirements, the outcome of pending litigation and other matters that affect the condensed unconsolidated financial statements and related disclosures. These estimates and assumptions are based on judgment and available information and, consequently, actual results could be materially different from these estimates. S-5 174 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------ ------------ 1.1 Form of Underwriting Agreement. 2.1 Plan of Incorporation. 2.2 Form of Agreement and Plan of Merger of The Goldman Sachs Corporation into The Goldman Sachs Group, Inc. 2.3 Form of Agreement and Plan of Merger of The Goldman Sachs Group, L.P. into The Goldman Sachs Group, Inc. 3.1 Certificate of Incorporation of The Goldman Sachs Group, Inc. 3.2 Form of Amended and Restated Certificate of Incorporation of The Goldman Sachs Group, Inc. 3.3 Form of Amended and Restated By-Laws of The Goldman Sachs Group, Inc. 4.1 Specimen of certificate representing The Goldman Sachs Group, Inc.'s common stock, par value $0.01 per share. 4.2 Form of Stockholder Protection Rights Agreement, dated as of April 5, 1999, between The Goldman Sachs Group, Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 5.1 Opinion of Sullivan & Cromwell, counsel to The Goldman Sachs Group, Inc. 10.1 Lease, dated June 11, 1985, between Metropolitan Life Insurance Company and Goldman, Sachs & Co.* 10.2 Lease, dated April 5, 1994, between The Chase Manhattan Bank (National Association) and The Goldman Sachs Group, L.P., as amended.* 10.3 Lease, dated as of August 22, 1997, between Ten Hanover LLC and The Goldman Sachs Group, L.P.* 10.4 Lease, dated as of July 16, 1998, between TCC Acquisition Corp. and The Goldman Sachs Group, L.P.* 10.5 Agreement for Lease, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International, (iii) Restamove Limited, (iv) The Goldman Sachs Group, L.P. and (v) Itochu Corporation.* 10.6 Annexure 1 to Agreement for Lease, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International, (iii) Restamove Limited, (iv) The Goldman Sachs Group, L.P. and (v) Itochu Corporation (Form of Occupational Lease among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited trading as Fleet Street Partnership, (ii) Goldman Sachs International and (iii) The Goldman Sachs Group, L.P.).* 10.7 Agreement relating to Developer's Fit Out Works to be carried out at 120 Fleet Street, London, dated April 2, 1998, among (i) JC No. 3 (UK) Limited and Fleet Street Square Management Limited, (ii) Goldman Sachs Property Management, (iii) Itochu Corporation and (iv) The Goldman Sachs Group, L.P.*
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SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------ ------------ 10.8 Agreement relating to One Carter Lane, London EC4, dated March 25, 1998, among Britel Fund Trustees Limited, Goldman Sachs International, The Goldman Sachs Group, L.P., English Property Corporation plc and MEPC plc.* 10.9 Fit Out Works Agreement relating to One Carter Lane, London EC4, dated March 25, 1998, among Britel Fund Trustees Limited, Goldman Sachs International, Goldman Sachs Property Management, The Goldman Sachs Group, L.P., English Property Corporation plc and MEPC plc.* 10.10 Underlease of premises known as One Carter Lane, London EC4, dated September 9, 1998, among Britel Fund Trustees Limited, Goldman Sachs International and The Goldman Sachs Group, L.P.* 10.11 Lease, dated March 5, 1994, among Shine Hill Development Limited, Shine Belt Limited, Fair Page Limited, Panhy Limited, Maple Court Limited and Goldman Sachs (Asia) Finance, as amended.* 10.12 Guarantee, dated November 17, 1993, between Shine Hill Development Limited and The Goldman Sachs Group, L.P.* 10.13 Agreement for Lease, dated November 29, 1998, between Turbo Top Limited and Goldman Sachs (Asia) Finance.* 10.14 Summary of Tokyo Leases. 10.15 Form of The Goldman Sachs 1999 Stock Incentive Plan. 10.16 Form of The Goldman Sachs Defined Contribution Plan. 10.17 Letter Agreement with Mr. Weinberg. 10.18 Form of The Goldman Sachs Partner Compensation Plan. 10.19 Form of Employment Agreement. 10.20 Form of Agreement Relating to Noncompetition and Other Covenants. 10.21 Form of Pledge Agreement. 10.22 Form of Award Agreement. (Formula RSUs). 10.23 Form of Award Agreement. (Discretionary RSUs). 10.24 Form of Option Agreement. (Discretionary Options). 10.25 Form of Tax Indemnification Agreement, by and among The Goldman Sachs Group, Inc. and various parties. 10.26 Form of Shareholders' Agreement among The Goldman Sachs Group, Inc. and various parties. 10.27 Instrument of Indemnification. 10.28 Form of Indemnification Agreement. 10.29 Subscription Agreement, dated as of April 24, 1992, among the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi Holdings Corporation, Royal Hawaiian Shopping Center, Inc. and The Goldman Sachs Group, L.P. 10.30 Subscription Agreement, dated as of November 21, 1994, among the Trustees of the Estate of Bernice Pauahi Bishop, Pauahi Holdings Corporation, Royal Hawaiian Shopping Center, Inc. and The Goldman Sachs Group, L.P. 10.31 Letter Agreement, dated March 15, 1999, among Kamehameha Activities Association and The Goldman Sachs Group, L.P.
176
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------ ------------ 10.32 Amended and Restated Subscription Agreement, dated as of March 28, 1989, among The Sumitomo Bank, Limited, Sumitomo Bank Capital Markets, Inc., Goldman, Sachs & Co. and The Goldman Sachs Group, L.P. 10.33 Letter Agreement, dated March 15, 1999, among The Sumitomo Bank, Limited, Sumitomo Bank Capital Markets, Inc. and The Goldman Sachs Group, L.P. 10.34 Lease, dated September 24, 1992, from LDT Partners to Goldman Sachs International. 15.1 Letter re Unaudited Interim Financial Information. 21.1 List of subsidiaries of The Goldman Sachs Group, L.P.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1 above). 23.3 Consent of Sir John Browne.* 23.4 Consent of James A. Johnson.* 23.5 Consent of Securities Data Company. 23.6 Consent of John L. Weinberg. 24.1 Powers of Attorney.* 27.1 Financial Data Schedule.*
- --------------- * Previously filed. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 THE GOLDMAN SACHS GROUP, INC. COMMON STOCK (PAR VALUE $.01 PER SHARE) UNDERWRITING AGREEMENT (U.S. VERSION) ........................., 1999 Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential Securities Incorporated, Salomon Smith Barney Inc., Sanford C. Bernstein & Co., Inc., Schroder & Co. Inc., As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004. Ladies and Gentlemen: The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 33,600,000 shares and, at the election of the Underwriters, up to 7,200,000 additional shares of Common Stock, par value $.01 per share ("Stock"), of GS Inc., Sumitomo Bank Capital Markets, Inc., proposes, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 7,200,000 shares of Stock and Kamehameha Activities Association proposes, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 7,200,000 shares of Stock. The Estate of Bernice Pauahi Bishop is joining in and consenting to the sale of Stock by Kamehameha Acivities Association, and for the purposes of Sections 1(b) and (2), the introductory paragraph to Section 8, and Sections 8(r), 12, 14, 15 and 18, and the first paragraph following Section 18 only, all references to a Selling Stockholder shall include Kamehameha Activities Association and the Estate of Bernice Pauahi Bishop, jointly as if they were one Selling Stockholder. Without limiting the generality of the foregoing, the Estate of Bernice Pauahi Bishop intends to and hereby agrees to sell, pursuant to Section 2 hereof, all of its interest, if any, in the 7,200,000 shares of Stock held of record by Kamehameha Activities Association to be sold pursuant to this Agreement. Sumitomo Bank Capital Markets, Inc. and Kamehameha Activities Association, and for purposes of Section 1(b) and (2), the introductory paragraph to Section 8, and Sections 8(r), 12, 14, 15 and 18 only, the Estate of Bernice Pauahi Bishop, are referred to as the "Selling Stockholders" and individually as a "Selling Stockholder". The aggregate of 48,000,000 shares to be sold by GS Inc. and the Selling Stockholders is herein called the "Firm Shares" and the aggregate of 7,200,000 additional 2 shares to be sold by GS Inc. is herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares." For purposes of the representations and warranties set forth in Section 1(a), the second sentence of Section 3(e), Section 7 and the conditions set forth in Sections 8(k) and 8(l), prior to the consummation of the Incorporation Transactions (as defined below), references to the "Company" shall be deemed to be references to The Goldman Sachs Group, L.P., a Delaware limited partnership ("Group"), and after consummation of the Incorporation Transactions, references to the "Company" shall be deemed to be references to GS Inc. It is understood and agreed to by all parties that GS Inc. and the Selling Stockholders (including the Estate of Bernice Pauahi Bishop) are concurrently entering into an agreement (the "Asia/Pacific Underwriting Agreement") providing for the sale by GS Inc. and the Selling Stockholders of up to a total of 4,600,000 shares of Stock (the "Asia/Pacific Shares"), including the option to purchase additional shares thereunder, through arrangements with certain underwriters in the Asia/Pacific Region (the "Asia/Pacific Underwriters"), for whom Goldman Sachs (Asia) L.L.C., BOCI Asia Limited, China Development Industrial Bank Inc., China International Capital Corporation (Hong Kong) Limited, Daiwa Securities (H.K.) Limited, The Development Bank of Singapore Ltd, HSBC Investment Bank Asia Limited, Jardine Fleming Securities Limited, Kokusai Securities (Hong Kong) Limited, Kotak Mahindra (International) Limited, The Nikko Merchant Bank (Singapore) Limited, Nomura International plc, Samsung Securities Co., Ltd., Standard Chartered Asia Limited and Were Stockbroking Limited, are acting as lead managers, and an agreement (the "International Underwriting Agreement") providing for the sale by GS Inc. and the Selling Stockholders (including the Estate of Bernice Pauahi Bishop) of up to a total of 9,200,000 shares of Stock (the "International Shares"), including the option to purchase additional shares thereunder, through arrangements with certain underwriters outside the United States and the Asia/Pacific Region (the "International Underwriters"), for whom Goldman Sachs International, ABN AMRO Rothschild, Banque Nationale de Paris, Bayerische Hypo und Vereinsbank AG, Cazenove & Co., Commerzbank Aktiengesellschaft, Deutsche Bank AG London, ING Barings Limited as Agent for ING Bank NV, London Branch, Kleinwort Benson Limited, Mediobanca - Banca di Credito Finanziaro S.p.A., Paribas and UBS AG, acting through its division Warburg Dillon Read, are acting as lead managers. Anything herein or therein to the contrary notwithstanding, the respective closings under this Agreement, the Asia/Pacific Underwriting Agreement and the International Underwriting Agreement are hereby expressly made conditional on one another. The Underwriters hereunder, the Asia/Pacific Underwriters and the International Underwriters are simultaneously entering into an Agreement among Underwriting Syndicates (the "Agreement among Syndicates") which provides, among other things, that Goldman, Sachs & Co. shall act as global coordinator for the offering of shares of Stock and for the transfer of shares of Stock among the three syndicates. Except as the context may otherwise require, the Asia/Pacific Underwriters and the International Underwriters are referred to herein collectively as the "Global Underwriters" and the Asia/Pacific Underwriting Agreement and the International Underwriting Agreement are referred to herein collectively as the "Global Underwriting Agreements". -2- 3 Three forms of prospectus are to be used in connection with the offering and sale of shares of Stock contemplated by the foregoing, one relating to the Shares hereunder (the "U.S. Prospectus"), one relating to the Asia/Pacific Shares and another relating to the International Shares. The other two forms of prospectus will be identical to the U.S. Prospectus except for the front cover page, the back cover page, the text under the caption "Underwriting" and for the addition of a section captioned "Certain United States Tax Consequences to Non-U.S. Holders of Common Stock". Except as used in Sections 2, 4, 5, 11 and 13 herein, and except as the context may otherwise require, references hereinafter to the Shares shall include all the shares of Stock which may be sold pursuant to either this Agreement, the Asia/Pacific Underwriting Agreement or the International Underwriting Agreement, and references herein to any prospectus whether in preliminary or final form, and whether as amended or supplemented, shall include the U.S., the Asia/Pacific and the International versions thereof. It is understood and agreed to by all parties that in connection with the conversion of the business of Group to corporate form, a series of transactions that are described in the Prospectus (as defined in Section 1(a)(i) hereof) under the caption "Certain Relationships and Related Transactions-- Incorporation and Related Transactions--Incorporation Transactions" will occur not later than concurrent with the First Time of Delivery (as defined in Section 5(a) hereof). Such transactions are hereinafter referred to as the "Incorporation Transactions". The award of restricted stock units to employees based on a formula (the "Formula RSUs"), the award of restricted stock units to employees on a discretionary basis (the "Discretionary RSUs") and the award of options for Stock to employees on a discretionary basis (the "Discretionary Options"), and the contribution of the shares of Stock to the defined contribution plan (the "DCP"), as described in the Prospectus under the heading "Certain Relationships and Related Transactions--Incorporation and Related Transactions--Related Transactions" are hereinafter referred to as the "Related Transactions". 1. (a) GS Inc. represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-1 (File No. 333-74449) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became or will become effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary -3- 4 prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; and such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"); (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to GS Inc. by an Underwriter through Goldman, Sachs & Co. or by any QIU expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1; (iii) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to GS Inc. by an Underwriter through Goldman, Sachs & Co. or by any QIU expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1; (iv) Neither the Company nor any of its subsidiaries that are listed or that are required to be listed pursuant to the requirements of Form S-1 in Exhibit 21 to -4- 5 the Registration Statement (the "Significant Subsidiaries") has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the partners' capital or capital stock, as applicable, or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or partners' capital, as applicable, or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (v) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (vi) GS Inc. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; each corporate subsidiary of the Company that is a Significant Subsidiary (a "Corporate Significant Subsidiary"), each partnership subsidiary of the Company in which the Company or one of its subsidiaries is a general partner that is a Significant Subsidiary (a "Partnership Significant Subsidiary"), each unlimited liability company subsidiary of the Company that is a Significant Subsidiary (a "ULLC Significant Subsidiary") and each limited liability company in which the Company or one of its subsidiaries is a managing member that is a Significant Subsidiary (an "LLC Significant Subsidiary") has been duly incorporated or organized, as the case may be, and is validly existing as a corporation, partnership, unlimited liability company or limited liability company, as the case may be, in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be, with the power -5- 6 (corporate, partnership, unlimited liability company or limited liability company, as the case may be) and authority to own its properties and conduct its business as described in the Prospectus; and upon consummation of the Incorporation Transactions, which will occur immediately prior to or simultaneously with the First Time of Delivery, GS Inc. will succeed to the business of Group as described in the Prospectus; (vii) GS Inc. has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of GS Inc. have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the capital stock contained in the Prospectus; all of the issued shares of capital stock of each Corporate Significant Subsidiary, all of the issued shares of each ULLC Significant Subsidiary and all of the membership interests in each LLC Significant Subsidiary have been duly and validly authorized and issued, are fully paid and, in the case of any Corporate Significant Subsidiaries and LLC Significant Subsidiaries, are non-assessable and (except for (A) directors' qualifying shares, (B) as of the date of this Agreement, interests in Goldman Sachs Holdings L.L.C. ("GSHLLC") and (C) as of each Time of Delivery, GSHLLC) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; and all of the partnership interests in each Partnership Significant Subsidiary have been duly and validly created and (except for (A) as of the date of this Agreement, interests in Goldman, Sachs & Co., Goldman Sachs Mitsui Marine Derivative Products, L.P. ("GSMMDP") and J. Aron & Company and (B) as of each Time of Delivery, GSMMDP) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (viii) The Shares to be issued and sold by GS Inc. to the Underwriters hereunder and under the Global Underwriting Agreements have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; (ix) The issue and sale of the Shares to be sold by GS Inc. hereunder and under the Global Underwriting Agreements and the compliance by GS Inc. with all of the provisions of this Agreement and the Global Underwriting Agreements and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of GS Inc. or the organizational documents of any of its Significant Subsidiaries or any statute or any order, rule or regulation of any court -6- 7 or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares by GS Inc. or the consummation by GS Inc. of the transactions contemplated by this Agreement and the Global Underwriting Agreements, except the registration under the Act of the Shares, the registration of the Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), listing of the Shares on the New York Stock Exchange, Inc., and such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters and the Global Underwriters; (x) Neither the Company nor any of its Significant Subsidiaries is in violation of its organizational documents or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (xi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the securities described therein, in the Asia/Pacific and International versions of the Prospectus under the caption "Certain United States Tax Consequences to Non-U.S. Holders of Common Stock" and in the Prospectus under the caption "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (xii) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, partners' capital or stockholders' equity, as applicable, or results of operations of the Company and its subsidiaries; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xiii) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company", as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xiv) The Company and its Significant Subsidiaries have such concessions, permits, licenses, consents, exemptions, franchises, authorizations, orders, -7- 8 registrations, qualifications and other approvals (each, an "Authorization") of, and have made all filings with and notices to, all Federal, state and foreign governments, governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, as are necessary to consummate the Incorporation Transactions and the Related Transactions, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, reasonably be expected to (i) have a material adverse effect on the prospects, financial position, partners' capital or stockholders' equity, as applicable, or results of operations of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"), or (ii) adversely effect the validity, performance or consummation of the transactions contemplated by this Agreement and the Global Underwriting Agreements. Each such Authorization is valid and in full force and effect and the Company and each of its Significant Subsidiaries is in compliance with all of the terms and conditions thereof; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and other than as disclosed in the Prospectus, such Authorizations contain no restrictions that are materially more burdensome than those imposed on Group or any of its Significant Subsidiaries immediately prior to the consummation of the Incorporation Transactions; except in each case described in this sentence where such failure to be valid and in full force and effect or to be in compliance or where the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; (xv) All stockholder, partnership and limited liability company member approvals necessary for the Company and each Significant Subsidiary to consummate the Incorporation Transactions and the Related Transactions have been obtained and are in full force and effect. The consummation of the Incorporation Transactions and the Related Transactions will not (i) conflict with or constitute a breach of any of the terms or provisions of, or a default under, (A) the organizational documents of the Company, (B) any of the organizational documents of any of the Company's Significant Subsidiaries, or (C) any indenture, loan agreement, mortgage, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound, or (ii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any government or court or any governmental body or agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties; except in each case described in clauses (i)(B) and (C) and clause (ii) of this sentence for such conflicts, breaches, defaults and violations as would not, singly or in the aggregate, reasonably be expected to (x) have a Material Adverse Effect; or (y) -8- 9 adversely affect the validity, performance or consummation of the transactions contemplated by this Agreement and the Global Underwriting Agreements; (xvi) The Company and its Significant Subsidiaries possess all Authorizations issued by the appropriate Federal, state and foreign governments, governmental or regulatory authorities, self-regulatory organizations and all courts or other tribunals, and are members in good standing of each Federal, state or foreign exchange, board of trade, clearing house or association and self-regulatory or similar organization necessary to conduct their respective businesses as described in the Prospectus; (xvii) The statements set forth under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Management--Operational and Year 2000 Risks--Year 2000 Readiness Disclosure" and "Risk Factors--Firm and Third-Party Computer Systems May Not Achieve Year 2000 Readiness--Year 2000 Readiness Disclosure" accurately and fairly set forth the current state of the Company's efforts to address the Year 2000 Problem and the risks and costs of the Company relating to the Year 2000 Problem. The "Year 2000 Problem" as used herein means any significant risk that computer hardware or software used in the receipt, transmission, processing, manipulation, storage, retrieval, transmission or other utilization of data or in the operation of mechanical or electrical systems of any kind will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively as in the case of dates or time periods occurring prior to January 1, 2000; (xviii) PricewaterhouseCoopers LLP, who have certified certain financial statements of Group and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (xix) It is not necessary in connection with the (i) the grant, issuance, offer, sale and delivery of the securities to be issued by GS Inc. pursuant to the Incorporation Transactions, (ii) the grant, offer or sale of the Formula RSUs, the Discretionary RSUs, and the Discretionary Options, or (iii) the contribution of the shares of Stock to the DCP, to register any such securities under the Act, or to qualify any indenture under the Trust Indenture Act of 1939, as amended; (xx) GS Inc. has duly authorized, executed and delivered the Shareholders' Agreement, each Employment Agreement and each Noncompetition Agreement (each such capitalized term not defined herein having the meaning ascribed to it in the Prospectus); the Shareholders' Agreement is a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles; and GS Inc. has obtained -9- 10 the signature of each other party to each Employment Agreement, each Noncompetition Agreement and the Shareholders' Agreement; provided, however, that GS Inc., makes no representation or warranty as to the authorization, execution or delivery of any such agreement by any other party thereto; and (xxi) No holders of securities of GS Inc. or Group have any preemptive rights to acquire any securities of the Company or any rights to the registration of any securities under the Registration Statement. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, each of the Underwriters and GS Inc. that: (i) No consent, approval, authorization or order of, or filing with, any governmental agency or body is required for the execution and delivery of this Agreement and the Global Underwriting Agreements, the sale of the Shares to be sold by such Selling Stockholder or the consummation by such Selling Stockholder of the transactions contemplated by this Agreement and the Global Underwriting Agreements, except as described in section 3 of the Letter Agreement, dated March 15, 1999, among the Sumitomo Bank, Limited, Sumitomo Bank Capital Markets, Inc. and Group and except the registration under the Act of such Shares, the registration under the Exchange Act of the Stock, the listing of such Shares on the New York Stock Exchange and such as may be required under state securities or Blue Sky laws, which consents, approvals, authorizations, orders and filings are the only consents, approvals, authorizations, orders and filings necessary for the execution and delivery by such Selling Stockholder of this Agreement, the Global Underwriting Agreements and the Power of Attorney hereinafter referred to in clause (viii) below, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder and under the Global Underwriting Agreements, and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Global Underwriting Agreements and the Power of Attorney and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder and under the Global Underwriting Agreements; (ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and under the Global Underwriting Agreements and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Global Underwriting Agreements and the Power of Attorney and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the certificate of incorporation, by-laws or other organizational or constituent documents of such Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency or body -10- 11 having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) Such Selling Stockholder has, and immediately prior to the First Time of Delivery (as defined in Section 5 hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder and under the Global Underwriting Agreements, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto and thereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters and the Global Underwriters; (iv) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, it will not, directly or indirectly, offer, sell, contract to sell or otherwise dispose of, including, without limitation, through the entry into a cash-settled derivative instrument, except as provided hereunder or under the Global Underwriting Agreements, any shares of Stock or any securities of GS Inc. that are substantially similar to the Stock, including but not limited to any securities that are convertible into or exercisable or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities, without the prior written consent of Goldman, Sachs & Co.; (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of GS Inc. to facilitate the sale or resale of the Shares; (vi) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (vii) To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to GS Inc. by such Selling Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will, conform in all material respects to the -11- 12 requirements of the Act and the rules and regulations of the Commission thereunder and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (viii) Such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement and the Global Underwriting Agreements on behalf of such Selling Stockholder, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Global Underwriting Agreements; and (ix) The appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, is to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the dissolution of such Selling Stockholder or by the occurrence of any other event; if such Selling Stockholder should be dissolved or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Global Underwriting Agreement; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. 2. Subject to the terms and conditions herein set forth, (a) GS Inc. agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly to purchase from GS Inc. at a purchase price per share of $__________, and (b) each of the Selling Stockholders, severally and not jointly (except that Kamehameha Activities Association and the Estate of Bernice Pauahi are acting jointly), agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price determined by GS Inc. and the Underwriters as specified in clause (a), the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by GS Inc. and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from GS Inc. and all of the Selling Stockholders hereunder and (c) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided -12- 13 below, GS Inc. agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from GS Inc., at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. GS Inc., as and to the extent indicated in Schedule II hereto, hereby grants to the Underwriters the right to purchase at their election up to 7,200,000 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering overallotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to GS Inc., given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 5 hereof) or, unless you and GS Inc. otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. (a) GS Inc. hereby confirms its engagement of Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated as, and Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated hereby severally confirm their agreement with GS Inc. to render services as, "qualified independent underwriters" within the meaning of Rule 2720(b)(15) of the National Association of Securities Dealers, Inc. (the "NASD") with respect to the offering and sale of the Shares. Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, in their capacities as qualified independent underwriters and not otherwise, are referred to herein collectively as the "QIUs". -13- 14 (b) As compensation for the services of the QIUs hereunder, GS Inc. agrees to pay the QIUs $_____ in the aggregate at the First Time of Delivery to be divided equally among the QIUs. 4. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 5. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to GS Inc. and the Selling Stockholders shall be delivered by or on behalf of GS Inc. and the Selling Stockholders to Goldman, Sachs & Co., including, at the option of Goldman, Sachs & Co., -14- 15 through the facilities of The Depository Trust Company ("DTC") for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified to Goldman, Sachs & Co. by GS Inc. and each of the Selling Stockholders, upon at least forty-eight hours' prior notice. Kamehameha Activities Association and the Estate of Bernice Pauahi Bishop agree that Kamehameha Activities Association will receive payment for the Shares to be sold jointly by them. GS Inc. will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 or at the office of DTC or its designated custodian, as the case may be (the "Designated Office"). The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on ............., 1999 or on such other time and date as Goldman, Sachs & Co. and GS Inc. may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and GS Inc. may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross-receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(q) hereof, will be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, N.Y. 10004 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at each Time of Delivery. A meeting will be held at the Closing Location at 2:30 p.m., New York City time, on the New York Business Day next preceding each Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 5, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 6. GS Inc. agrees with each of the Underwriters and with each of the QIUs: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus which shall be disapproved by you promptly after reasonable notice thereof; to advise you and the QIUs, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed -15- 16 and to furnish you and the QIUs copies thereof; to advise you and the QIUs, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith GS Inc. shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; and to comply with all applicable securities and other laws, rules and regulations in each such jurisdiction; (c) Prior to 10:00 A.M., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters and the QIUs with copies of the Prospectus in New York City in such quantities as you and the QIUs may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus, to notify you and the QIUs and upon your request to prepare and furnish without charge to each Underwriter and each QIU and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the -16- 17 Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of GS Inc. and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of GS Inc., Rule 158 under the Act); (e) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to, directly or indirectly, offer, sell, contract to sell or otherwise dispose of, including, without limitation, through the entry into a cash-settled derivative instrument, except as provided hereunder and under the Global Underwriting Agreements, any shares of Stock or any securities of GS Inc. that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exercisable or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than as contemplated by the Prospectus and pursuant to employee benefit plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), and not to directly or indirectly, agree to any amendment or waiver of the provisions of Section 2.3(a) of the Shareholders' Agreement to permit any Transfer (as defined in the Shareholders' Agreement) in violation of such Section 2.3(a), in each case without the prior written consent of Goldman, Sachs & Co.; and during the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, GS Inc. will not permit any RLP (as such term is defined in the Prospectus) to directly or indirectly, offer, sell, contract to sell or otherwise dispose of, including, without limitation, through the entry into a cash-settled derivative instrument, any shares of Stock received in the Incorporation Transactions or any securities of GS Inc. received in the Incorporation Transactions that are substantially similar to the Stock, including but not limited to any securities that are convertible into or exercisable or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities, in violation of the terms of the Plan of Incorporation (as such term is defined in the Prospectus) without the prior written consent of Goldman, Sachs & Co.; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of GS Inc. and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of GS Inc. and its subsidiaries for such quarter in reasonable detail; (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders generally, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of GS -17- 18 Inc. is listed; and (ii) such additional information concerning the business and financial condition of GS Inc. as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of GS Inc. and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement and the Global Underwriting Agreements in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To use its best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange, Inc. (the "Exchange"); (j) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act; and (k) If GS Inc. elects to rely upon Rule 462(b) under the Act, to file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and at the time of filing to either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 7. The Company covenants and agrees with each Selling Stockholder and with the several Underwriters and the QIUs that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters, the QIUs and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Global Underwriting Agreements, the Agreement among Syndicates, the Selling Agreements, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 6(b) hereof; (iv) all fees and expenses in connection with listing the Shares on the New York Stock Exchange; (v) the filing fees incident to, and the fees and disbursements of counsel in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the fees and reasonable expenses of the QIUs; (vii) the cost of preparing stock certificates; (viii) the cost and charges of any transfer agent or registrar; and (ix) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. Each Selling Stockholder covenants and agrees with the Company, the other Selling Stockholder, the -18- 19 several Underwriters and the QIUs that such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section, including: (i) any fees and expenses of counsel for such Selling Stockholder; (ii) such Selling Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact and (iii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with clause (iii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 9, 10 and 13 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 8. The respective obligations of the several Underwriters and the several QIUs hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in the discretion of the Underwriters and the QIUs, respectively, to the condition that all representations and warranties and other statements of GS Inc. and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that GS Inc. and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 6(a) hereof; if GS Inc. has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to the reasonable satisfaction of the Underwriters; (b) Cleary, Gottlieb, Steen & Hamilton, counsel for the Underwriters and the QIUs, shall have furnished to you and the QIUs such written opinions and letter (a draft of such opinion and letter is attached as Annex II(a) hereto), dated such -19- 20 Time of Delivery, to the effect that the matters set forth in the Asia/Pacific and International versions of the Prospectus under the caption "Certain United States Tax Consequences to Non-U.S. Holders of Common Stock", insofar as they purport to describe the provisions of the laws referred to therein, are accurate, complete and fair and with respect to the matters set forth in paragraphs (i), (ii), (vi), (ix) and (xii) of subsection (d) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Sullivan & Cromwell, counsel for GS Inc., shall have furnished to you and the QIUs their written opinion (a draft of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) GS Inc. has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware; (ii) All of the outstanding shares of Stock, including the Shares, have been duly authorized and validly issued and are fully paid and nonassessable; (iii) All regulatory consents, authorizations, approvals and filings required to be obtained or made by GS Inc. under the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware for the issuance, sale and delivery of the Shares sold by GS Inc. to the Underwriters have been obtained or made; (iv) The issuance of the Shares and the sale of the Shares by GS Inc. to you pursuant to the Underwriting Agreement and the Global Underwriting Agreements do not, and the performance by GS Inc. of its obligations under, the Underwriting Agreement and the Global Underwriting Agreements will not, (a) violate the Certificate of Incorporation or By-laws of GS Inc., (b) violate the Plan of Incorporation of Group, included as Exhibit Number 2.1 of the Registration Statement, (c) result in a default under or breach of the agreements listed in Part II, Item 16(a), Exhibit Numbers 10.1 through 10.28 of the Registration Statement, (d) violate any court orders listed in the Officer's Certificate of Robert J. Katz, General Counsel of GS Inc., or (e) violate any Federal law of the United States or law of the State of New York applicable to GS Inc.; provided, however, that for purposes of this paragraph (iv), such counsel may state that they express no opinion with respect to Federal or state securities laws, other antifraud laws and fraudulent transfer laws; provided, further, that such counsel may also state that insofar as performance by GS Inc. of its obligations under the Underwriting Agreement is concerned, they -20- 21 are expressing no opinion as to bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability relating to or affecting creditors' rights; (v) GS Inc. has duly authorized, executed and delivered each Employment Agreement and each Noncompetition Agreement; (vi) This Agreement and the Global Underwriting Agreements have been duly authorized, executed and delivered by GS Inc.; and (vii) GS Inc. is not, and after giving effect to the offering and sale of the Shares will not be, an "investment company", as such term is defined in the Investment Company Act. Such counsel shall also furnish you and the QIUs with a letter to the effect that, as counsel to GS Inc., they reviewed the Registration Statement and the Prospectus, participated in discussions with your representatives and those of GS Inc. and its accountants and advised GS Inc. as to the requirements of the Act and the applicable rules and regulations thereunder; between the date of the Prospectus and such Time of Delivery, such counsel participated in further discussions with your representatives and those of GS Inc. and its accountants in which the contents of certain portions of the Prospectus and related matters were discussed and reviewed certain certificates of certain officers of GS Inc., an opinion and letter addressed to you from Gregory K. Palm, Esq. and letters addressed to you and the QIUs from GS Inc.'s independent accountants; on the basis of the information that such counsel gained in the course of the performance of the services referred to above, considered in the light of such counsel's understanding of the applicable law and the experience such counsel have gained through their practice under the Act, they will confirm to you and the QIUs that, in such counsel's opinion, the Registration Statement, and the Prospectus, as of the effective date of the Registration Statement, appeared on their face to be appropriately responsive in all material respects to the requirements of the Act and the applicable rules and regulations of the Commission thereunder; nothing that came to such counsel's attention in the course of such review has caused such counsel to believe that the Registration Statement, as of its effective date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; nothing that came to the attention of such counsel in the course of the procedures described in the second clause of this paragraph has caused such counsel to believe that the Prospectus, as of its date or as of such Time of Delivery, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; such counsel may state that the limitations inherent in the independent verification of factual matters and the character of -21- 22 determinations involved in the registration process are such that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus except for those made under the captions "Description of Capital Stock" and "Underwriting" in the Prospectus insofar as they relate to provisions of documents therein described and those made under the caption "Certain United States Tax Consequences to Non-U.S. Holders of Common Stock" in the Asia/Pacific and International versions of the Prospectus insofar as they relate to provisions of U.S. Federal tax law therein described; also, such counsel need express no opinion or belief as to the financial statements or other financial data derived from accounting records contained in the Registration Statement or the Prospectus; finally, such counsel may assume that any Rule 462(b) Registration Statement was filed with the Commission prior to the time that any confirmations of the sale of any of the Shares were sent or given to investors. In addition, such counsel shall state that they do not know of any litigation instituted or threatened against GS Inc. that would be required to be disclosed in the Prospectus that is not so disclosed, provided, that such counsel may also state that they call to your attention that GS Inc. has an internal legal department and that while such counsel represents GS Inc. and its affiliates on a regular basis, such counsel's engagement has been limited to specific matters as to which it was consulted and, accordingly, such counsel's knowledge with respect to litigation instituted or threatened against GS Inc. is limited; and that they do not know of any documents that are required to be filed as exhibits to the Registration Statement that are not so filed. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied upon certificates of officers of GS Inc. and its subsidiaries, certificates of public officials and other sources believed by such counsel to be responsible; (d) Gregory K. Palm, Esq., a General Counsel for GS Inc., shall have furnished to you and the QIUs his written opinion (a draft of such opinion is attached as Annex II(c) hereto), dated such Time of Delivery, in form and substance satisfactory to you to the effect that: (i) GS Inc. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) GS Inc. has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of GS Inc. (including -22- 23 the Shares being delivered at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform to the description of the Stock contained in the Prospectus; (iii) GS Inc. has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of GS Inc., provided that such counsel shall state that he believes that you and he are justified in relying upon such opinions and certificates); (iv) Each of Goldman, Sachs & Co. and J. Aron & Company has been duly organized and is validly existing as a limited partnership and general partnership, respectively, in good standing under the laws of its jurisdiction of formation; and the general partnership interests in Goldman, Sachs & Co. and in J. Aron & Company have been duly and validly created and are owned directly or indirectly by GS Inc., free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of GS Inc. or its subsidiaries, provided that such counsel shall state that he believes that you and he are justified in relying upon such opinions and certificates); (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which GS Inc. or any of its subsidiaries is a party or of which any property of GS Inc. or any of its subsidiaries is the subject which is reasonably likely to individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of GS Inc. and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) This Agreement and the Global Underwriting Agreements have been duly authorized, executed and delivered by GS Inc.; (vii) The issue and sale of the Shares being delivered at such Time of Delivery to be sold by GS Inc., and the compliance by GS Inc. with all of the provisions of this Agreement and the Global Underwriting Agreements and the consummation of the transactions herein and therein contemplated (other than the Incorporation Transactions and Related Transactions) will not -23- 24 conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which GS Inc. or any of its subsidiaries is a party or by which GS Inc. or any of its subsidiaries is bound or to which any of the property or assets of GS Inc. or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of GS Inc. or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over GS Inc. or any of its subsidiaries or any of their properties; provided, however, that, for the purposes of this paragraph (vii), such counsel need not express any opinion with respect to Federal or state securities laws, other antifraud laws, and fraudulent transfer laws; provided, further, that insofar as the compliance by GS Inc. with all of the provisions of this Agreement and the Global Underwriting Agreements and the consummation of the transactions herein and therein contemplated are concerned, such counsel need not express any opinion as to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights; (viii) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body of the United States of America or the State of New York is required for the issue and sale of the Shares or the consummation by GS Inc. of the transactions contemplated by this Agreement and the Global Underwriting Agreements (other than the Incorporation Transactions and the Related Transactions), except the registration under the Act of the Shares, the registration of the Stock under the Exchange Act and the listing of the Shares on the New York Stock Exchange, each of which has been obtained or made, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters and the Global Underwriters; (ix) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the securities described therein, and under the caption "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (x) GS Inc. and its Significant Subsidiaries have such Authorizations of, and have made all filings with and notices to, the courts and governmental agencies or bodies of the United States of America and the State of New York, as are necessary to consummate the Incorporation -24- 25 Transactions and the Related Transactions, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, reasonably be expected to (i) have a Material Adverse Effect or (ii) adversely affect the validity, or materially affect the performance, of the transactions contemplated by this Agreement and the Global Underwriting Agreements (including the Incorporation Transactions and Related Transactions). Each such Authorization is valid and in full force and effect; and, to the best of such counsel's knowledge, no event has occurred that would reasonably be expected to result in the revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would reasonably be expected to result in any other material impairment of the rights of the holder of any such Authorization; and other than as disclosed in the Prospectus, such Authorizations contain no restrictions that are materially more burdensome than those imposed on Group or any of its Significant Subsidiaries immediately prior to the consummation of the Incorporation Transactions; except in each case described in this sentence where such failure to be valid and in full force and effect or the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; (xi) All stockholder, partnership and limited liability company member approvals necessary for GS Inc. and each Significant Subsidiary to consummate the Incorporation Transactions and the Related Transactions have been obtained and are in full force and effect. The consummation of the Incorporation Transactions and the Related Transactions will not (i) conflict with or constitute a breach of any of the terms or provisions of, or a default under, (A) the organizational documents of GS Inc., (B) the organizational documents of any of GS Inc.'s Significant Subsidiaries, or (C) any material indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument known to such counsel to which GS Inc. or any of its subsidiaries is a party or by which GS Inc. or any of its subsidiaries is bound or to which any of the property or assets of GS Inc. and its subsidiaries is subject, or (ii) violate or conflict with any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over GS Inc. or any of its subsidiaries or any of their properties; provided, however, that, for the purposes of this paragraph (xi), such counsel need not express any opinion with respect to Federal or state securities laws, other antifraud laws, and fraudulent transfer laws, and, insofar as the consummation of the Incorporation Transactions and Related Transactions are concerned, such counsel need not express any opinion as to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights; provided, further, except in each case described in clauses (i)(B) and (c) and -25- 26 clause (ii) of this sentence, for such conflicts, breaches, defaults and violations as would not, singly or in the aggregate, be reasonably expected to (x) have a Material Adverse Effect, or (y) adversely affect the validity, or materially affect the performance, of the transactions contemplated by this Agreement and the Global Underwriting Agreements (including the Incorporation Transactions and Related Transactions); and (xii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by GS Inc. prior to such Time of Delivery (other than the financial statements and related schedules therein and other financial data derived from GS Inc.'s accounting records, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; although he does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those referred to in the opinion in subsections (ii) and (ix) of this Section 8(d), he has no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by GS Inc. prior to such Time of Delivery (other than the financial statements and related schedules therein and other financial data derived from GS Inc.'s accounting records, as to which such counsel need not express any opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by GS Inc. prior to such Time of Delivery (other than the financial statements and related schedules therein and other financial data derived from GS Inc.'s accounting records, as to which such counsel need not express any opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by GS Inc. prior to such Time of Delivery (other than the financial statements and related schedules therein and other financial data derived from GS Inc.'s accounting records, as to which such counsel need not express any opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and he does not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required. -26- 27 In rendering such opinion, such counsel may state that he expresses no opinion as to the laws of any jurisdiction other than the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware. Such counsel may also state that, insofar as such opinion involves factual matters, he has relied upon certificates of officers of GS Inc. and its subsidiaries and certificates of public officials and other sources believed by such counsel to be responsible. In addition, such counsel may state that he has examined, or has caused members of GS Inc.'s legal department to examine, such partnership records, certificates and other documents, and such questions of law, as he has considered necessary or appropriate for the purposes of such opinion; (e) Linklaters & Paines, United Kingdom counsel for GS Inc., shall have furnished to you and the QIUs their written opinion (a draft of such opinion is attached as Annex II(d) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) Goldman Sachs International has been duly incorporated and is validly existing as a private unlimited company, in good standing under the laws of England; and (ii) All of the issued shares of Goldman Sachs International have been duly and validly authorized and issued, are fully paid, and are owned by Goldman Sachs Holdings (U.K.) L.L.C., which are themselves indirectly owned by GS Inc., free and clear from all liens, encumbrances, equities or claims. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the Companies Act of England. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied upon certificates of officers of GS Inc. and certificates of public officials and other sources believed by such counsel to be responsible; (f) Cravath, Swaine & Moore, special counsel to Sumitomo Bank Capital Markets, Inc., as indicated in Schedule II hereto, shall have furnished to you and the QIUs their written opinion (a draft of such opinion is attached as Annex II(e) hereto) dated the First Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) This Agreement and the Global Underwriting Agreements have been duly authorized, executed and delivered by or on behalf of such Selling Stockholder; (ii) No consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Global -27- 28 Underwriting Agreements in connection with the Shares to be sold by such Selling Stockholder hereunder or thereunder, except the registration under the Act of the Shares, the registration under the Exchange Act of the Stock, the listing of the Shares on the New York Stock Exchange, all of which have been duly obtained and are in full force and effect, and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters or the Global Underwriters; (iii) Good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, has been transferred to each of the several Underwriters or International Underwriters or Asia/Pacific Underwriters, as the case may be, who have purchased such Shares in good faith and without notice of any such lien, encumbrance, equity or claim or any other adverse claim within the meaning of the Uniform Commercial Code; and (iv) A Power of Attorney has been duly executed and delivered by such Selling Stockholder and constitutes a valid and binding agreement of such Selling Stockholder in accordance with its terms. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware; (g) Robert A. Rabbino, counsel to Sumitomo Bank Capital Markets, Inc., as indicated in Schedule II hereto, shall have furnished to you and the QIUs his written opinion (a draft of such opinion is attached as Annex II(f) hereto) dated the First Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The sale of the Shares to be sold by such Selling Stockholder hereunder and under the Global Underwriting Agreements and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Global Underwriting Agreements and the Power of Attorney and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the organizational documents of such Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency or body having -28- 29 jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (ii) Immediately prior to such Time of Delivery such Selling Stockholder had good and valid title to the Shares to be sold at such Time of Delivery by such Selling Stockholder under this Agreement and the Global Underwriting Agreements, free and clear of all liens, encumbrances, equities or claims, and full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder and thereunder; and (iii) A Power of Attorney has been duly executed and delivered by such Selling Stockholder and constitutes a valid and binding agreement of such Selling Stockholder in accordance with its terms. In rendering such opinion, such counsel may state that he expresses no opinion as to the laws of any jurisdiction other than the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware and in rendering the opinion in subparagraph (iii) such counsel may rely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on the Shares sold by such Selling Stockholder, provided that such counsel shall state that he believes that you, the QIUs and he are justified in relying upon such certificate; (h) Cravath, Swaine & Moore, special counsel for Kamehameha Activities Association and the Estate of Bernice Pauahi Bishop, acting jointly as if they were one Selling Stockholder, as indicated in Schedule II hereto, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(g) hereto), dated the First Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) This Agreement and the Global Underwriting Agreements have been duly executed and delivered by or on behalf of such Selling Stockholder; (ii) No consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the consummation -29- 30 of the transactions contemplated by this Agreement and the Global Underwriting Agreements in connection with the Shares to be sold by such Selling Stockholder hereunder or thereunder, except the registration under the Act of such Shares, the registration under the Exchange Act of the Stock and the listing of such Shares on the New York Stock Exchange, all of which have been duly obtained and are in full force and effect, and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters or the Global Underwriters; (iii) Good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, has been transferred to each of the several Underwriters or International Underwriters or Asia/Pacific Underwriters, as the case may be, who have purchased such Shares in good faith and without notice of any such lien, encumbrance, equity or claim or any other adverse claim within the meaning of the Uniform Commercial Code; and (iv) A Power of Attorney has been duly executed and delivered by such Selling Stockholder and constitutes a valid and binding agreement of such Selling Stockholder in accordance with its terms. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the Federal laws of the United States and the laws of the State of New York. Such counsel may also state that as to matters of law of the State of Hawaii, such counsel has relied on the opinion to you and the QIUs referred to in Section 8(i) below; (i) Cades Schutte Fleming & Wright, counsel for Kamehameha Activities Association and the Estate of Bernice Pauahi Bishop, acting jointly as if they were one Selling Stockholder, as indicated in Schedule II hereto, shall have furnished to you and the QIUs their written opinion (a draft of such opinion is attached as Annex II(h) hereto), dated the First Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) This Agreement and the Global Underwriting Agreements have been duly authorized, executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and thereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement and the Global Underwriting Agreements and the Power of Attorney and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party -30- 31 or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the organizational documents of such Selling Stockholder or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (ii) No consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Global Underwriting Agreements in connection with the Shares to be sold by such Selling Stockholder hereunder or thereunder, except such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters or the Global Underwriters; (iii) Immediately prior to such Time of Delivery such Selling Stockholder had good and valid title to the Shares to be sold at such Time of Delivery by such Selling Stockholder under this Agreement and the Global Underwriting Agreements, free and clear, to the best of such counsel's knowledge, of all liens, encumbrances, equities or claims, and full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder and thereunder; (iv) Good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, has been transferred to each of the several Underwriters or International Underwriters or Asia/Pacific Underwriters, as the case may be, who have purchased such Shares in good faith and without notice of any such lien, encumbrance, equity or claim or any other adverse claim within the meaning of the Uniform Commercial Code; and (v) A Power of Attorney has been duly executed and delivered by such Selling Stockholder and constitutes a valid and binding agreement of such Selling Stockholder in accordance with its terms. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the laws of the State of Hawaii and in rendering the opinion in subparagraph (iii) such counsel may rely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on the Shares sold by such Selling Stockholder, provided that such counsel shall state that they believe that you and they are justified in relying upon such certificate. In addition, such counsel may also -31- 32 state that as to all matters of the laws of the State of New York, such counsel is relying on the opinion to you and the QIUs referred to in Section 8(h) hereof; (j) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished to you and the QIUs a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (k)(i) Neither the Company nor any of its Significant Subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the partners' capital or capital stock, as applicable, or long-term debt of the Company or any of its Significant Subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (l) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; (m) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a suspension or material limitation in trading in GS Inc.'s securities on the New York Stock Exchange; (iii) a general moratorium on -32- 33 commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (n) The Shares to be sold by GS Inc. and the Selling Stockholders at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the New York Stock Exchange; (o) The Incorporation Transactions shall have been consummated in all material respects, as described in the Prospectus; (p) GS Inc. shall have complied with the provisions of Section 6(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; (q) The Amended and Restated Certificate of Incorporation of GS Inc., in substantially the form filed as an exhibit to the Registration Statement, shall have been filed with the Secretary of State of the State of Delaware and shall have become effective; and (r) GS Inc. shall have furnished or caused to be furnished to you, and the Selling Stockholders shall have furnished to you, at such Time of Delivery, certificates of officers of GS Inc. and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of GS Inc. and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by GS Inc. and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and GS Inc. shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (i) of this Section, and as to such other matters as you may reasonably request. 9. (a) GS Inc. will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or -33- 34 necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that GS Inc. shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to GS Inc. by any Underwriter through Goldman, Sachs & Co. expressly for use therein or by any QIU expressly for use therein. (b) Each Selling Stockholder, severally and not jointly, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to GS Inc. by such Selling Stockholder expressly for use therein; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to GS Inc. by any Underwriter through Goldman, Sachs & Co. expressly for use therein or by any QIU expressly for use therein; provided, further, that the liability of a Selling Stockholder pursuant to this subsection (b) shall not exceed the amount of net proceeds received by such Selling Stockholder from the sale of its Shares pursuant to this Agreement. For purposes of this Section 9(b), written information furnished to GS Inc. by Kamehameha Activities Association expressly for use in any Preliminary Prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto shall be deemed to include any written information furnished to GS Inc. by the Estate of Bernice Pauahi Bishop for use in any of the foregoing. (c) Each Underwriter will indemnify and hold harmless GS Inc. and each Selling Stockholder against any losses, claims, damages or liabilities to which GS -34- 35 Inc. or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to GS Inc. by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse GS Inc. and each Selling Stockholder for any legal or other expenses reasonably incurred by GS Inc. or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (which shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought under this Section 9 (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. -35- 36 (e) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by GS Inc. and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of GS Inc. and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by GS Inc. and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by GS Inc. and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by GS Inc. or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. GS Inc., each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and no -36- 37 Selling Stockholder shall be required to contribute an amount that exceeds the net proceeds received by such Selling Stockholder from the sale of its Shares pursuant to this Agreement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) The obligations of GS Inc. and the Selling Stockholders under this Section 9 shall be in addition to any liability which GS Inc. and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of GS Inc. (INCLUDING ANY PERSON WHO, WITH HIS OR HER CONSENT, IS NAMED IN THE REGISTRATION STATEMENT AS ABOUT TO BECOME A DIRECTOR OF GS INC.) and to each person, if any, who controls GS Inc. or any Selling Stockholder within the meaning of the Act. 10. (a) GS Inc. will indemnify and hold harmless each QIU, in its capacity as QIU, against any losses, claims, damages or liabilities, joint or several, to which such QIU may become subject, in such capacity, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each QIU for any legal or other expenses reasonably incurred by such QIU in connection with investigating or defending any such action or claim as such expenses are incurred. (b) Promptly after receipt by a QIU indemnified under subsection (a) above of notice of the commencement of any action, such QIU shall, if a claim in respect thereof is to be made against GS Inc. under such subsection, notify GS Inc. in writing of the commencement thereof; but the omission so to notify GS Inc. shall not relieve GS Inc. from any liability which it may have to any QIU otherwise than under such subsection. In case any such action shall be brought against any QIU and it shall notify GS Inc. of the commencement thereof, GS Inc. shall be entitled to participate therein, and, to the extent that it shall wish to assume the defense thereof, with counsel satisfactory to such QIU (who shall not, except with the consent of such QIU, be counsel to GS Inc.), and, after notice from GS Inc. to such QIU of its election so to assume the defense thereof, GS Inc. shall not be liable to -37- 38 such QIU under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such QIU, in connection with the defense thereof other than reasonable costs of investigation. GS Inc. shall not, without the written consent of the QIU being indemnified, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought under this Section 10 (whether or not such QIU is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of such QIU from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of such QIU. (c) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless a QIU, in its capacity as QIU, under subsection (a) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then GS Inc. shall contribute to the amount paid or payable by such QIU as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by GS Inc. on the one hand and the QIUs on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the QIUs failed to give the notice required under subsection (b) above, then GS Inc. shall contribute to such amount paid or payable by such QIU in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of GS Inc. on the one hand and the QIUs on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by GS Inc. on the one hand and the QIUs on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by GS Inc., as set forth in the table on the cover page of the Prospectus, bear to the total fee payable to the QIUs pursuant to Section 3 hereof. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by GS Inc. on the one hand or the QIUs on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. GS Inc. and each of the QIUs agree that it would not be just and equitable if contributions pursuant to this subsection (c) were determined by pro rata allocation (even if the QIUs were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (c). The amount paid or payable by a QIU as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably -38- 39 incurred by such QIU in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d) The obligations of GS Inc. under this Section 10 shall be in addition to any liability which GS Inc. may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls a QIU within the meaning of the Act. 11. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then GS Inc. and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify GS Inc. and the Selling Stockholders that you have so arranged for the purchase of such Shares, or GS Inc. and the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or GS Inc. and the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and GS Inc. agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and GS Inc. and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, then GS Inc. and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. -39- 40 (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and GS Inc. and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if GS Inc. and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of GS Inc. to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or any QIU or GS Inc. or the Selling Stockholders, except for the expenses to be borne by GS Inc. or Group, as applicable, and the Selling Stockholders and the Underwriters as provided in Section 3(e) and Section 7 hereof and the indemnity and contribution agreements in Section 9 and Section 10 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 12. The respective indemnities, agreements, representations, warranties and other statements of GS Inc., the Selling Stockholders, the several Underwriters and the QIUs, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter, any QIU or any controlling person of any Underwriter or QIU, or GS Inc., or any of the Selling Stockholders, or any officer or director or controlling person of GS Inc., or any controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares. Anything herein to the contrary notwithstanding, the indemnity agreements of GS Inc. in subsection (a) of Section 9 hereof, the representations and warranties in subsections (a)(ii) and (a)(iii) of Section 1 hereof and any representation or warranty as to the accuracy of the Registration Statement or the Prospectus contained in any certificate furnished by GS Inc. pursuant to Section 8 hereof, insofar as they may constitute a basis for indemnification for liabilities (other than payment by GS Inc. of expenses incurred or paid in the successful defense of any action, suit or proceeding) arising under the Act, shall not extend to the extent of any interest therein of a controlling person or partner of an Underwriter who is a director or officer who signed the Registration Statement or controlling person of GS Inc. when the Registration Statement has become effective or who, with his or her consent, is named in the registration statement as about to become a Director of GS Inc., except in each case to the extent that an interest of such character shall have been determined by a court of appropriate jurisdiction as not against public policy as expressed in the Act. Unless in the opinion of counsel for GS Inc. the matter has been settled by controlling precedent, GS Inc. will, if a claim for such indemnification is asserted, submit to a court of appropriate jurisdiction the question of whether such interest -40- 41 is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 13. If this Agreement shall be terminated pursuant to Section 11 hereof, none of GS Inc., Group or the Selling Stockholders shall then be under any liability to any Underwriter or QIU except as provided in the second sentence of Section 3(e) hereof and Sections 7, 9 and 10 hereof; but, if for any other reason any Shares are not delivered by or on behalf of GS Inc. and the Selling Stockholders as provided herein, GS Inc. will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but GS Inc., Group and the Selling Stockholders shall then be under no further liability to any Underwriter or QIU in respect of the Shares not so delivered except as provided in the second sentence of Section 3(e) hereof and Sections 7, 9 and 10 hereof. 14. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives; and in all dealings with any Selling Stockholder hereunder, you and GS Inc. shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 32 Old Slip, 9th Floor, New York, New York 10004, Attention: Registration Department; if to the QIUs shall be delivered or sent by mail, telex, or facsimile transmission to Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, 11th floor, New York, New York 10172, Attention: Elizabeth DiChiaro, phone: 212 892-4350, facsimile: 212 892-3966, Merrill Lynch, Pierce, Fenner & Smith Incorporated, 250 Vesey Street, 25th floor, New York, New York 10281, Attention: Investment Banking, phone: 212 449-6739, facsimile: 212 449-1000, and Morgan Stanley & Co. Incorporated, 1585 Broadway, 33rd floor, New York, New York 10036, Attention: William Wright, phone: 212 761-7911, facsimile 212 761-0358; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to such Selling Stockholder at its address set forth in Schedule II hereto; and if to GS Inc. or Group shall be delivered or sent by mail, telex or facsimile transmission to the address of GS Inc. set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 9 (d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to GS Inc. or the Selling Stockholders by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 15. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the QIUs, GS Inc., Group and the Selling Stockholders and, to the extent provided in Sections 9, 10 and 12 hereof, the officers and directors of GS Inc. and each -41- 42 person who controls GS Inc., any Selling Stockholder, any QIU or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 16. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us ten counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, each of the QIUs, GS Inc. and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters (U.S. Version), the form of which shall be submitted to GS Inc. and the Selling Stockholders for examination upon request, but without warranty on your part as to the authority of the signers thereof. -42- 43 Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, The Goldman Sachs Group, Inc. By:.......................................... Name: Title: The Goldman Sachs Group, L.P. By: The Goldman Sachs Corporation By:.......................................... Name: Title: Sumitomo Bank Capital Markets, Inc. By:.......................................... Name: Title: Kamehameha Activities Association By:.......................................... Name: Title: The Trustees of the Estate of Bernice Pauahi Bishop Accepted as of the date hereof, -43- 44 Goldman, Sachs & Co. Names of Co-Representatives By:....................................................................... (Goldman, Sachs & Co.) On behalf of each of the Underwriters Donaldson, Lufkin & Jenrette Securities Corporation By:....................................................................... Name: Title: Merrill Lynch, Pierce, Fenner & Smith Incorporated By:....................................................................... Name: Title: Morgan Stanley & Co. Incorporated By:....................................................................... Name: Title: -44- 45 SCHEDULE I
Number of Optional Shares to be Total Number of Purchased if Firm Shares Maximum Option Underwriter to be Purchased Exercised ----------- --------------- --------- Goldman, Sachs & Co............................................ Bear, Stearns & Co. Inc........................................ Credit Suisse First Boston Corporation......................... Donaldson, Lufkin & Jenrette Securities Corporation............ Lehman Brothers Inc............................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated............. J.P. Morgan Securities Inc..................................... Morgan Stanley & Co. Incorporated.............................. PaineWebber Incorporated....................................... Prudential Securities Incorporated............................. Salomon Smith Barney Inc....................................... Sanford C. Bernstein & Co., Inc................................ Schroder & Co. Inc............................................. ---------- --------- Total................................................. 48,000,000 7,200,000 ========== =========
-45- 46 SCHEDULE II
Number of Optional Shares to be Total Number Sold if of Firm Shares Maximum Option to be Sold Exercised ---------- --------- The Company ....................................... 33,600,000 7,200,000 The Selling Stockholders: Sumitomo Bank Capital Markets, Inc. (a) .. 7,200,000 Kamehameha Activities Association and the Estate of Bernice Pauahi Bishop (b) ...... 7,200,000 ---------- --------- Total .................................... 48,000,000 7,200,000 ========== =========
(a) This Selling Stockholder, 277 Park Avenue, New York, New York 10172, is represented by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, as to the matters of the Federal law of the United States and the laws of the State of New York, and Robert A. Rabbino, Esq., General Counsel, The Sumitomo Bank, Limited, 277 Park Avenue, New York, New York, 10172, and has appointed [names of attorney-in-fact (not less than two)], and each of them as the Attorney-in-Fact for such Selling Stockholder. (b) This Selling Stockholder, 567 South King Street, Suite 150, Honolulu, Hawaii 96813, is represented by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, as to matters of the Federal law of the United States and the laws of the State of New York, and Cades Schutte Fleming & Wright, 1000 Bishop Street, Honolulu, Hawaii 96813, as to matters of the laws of the State of Hawaii, and has appointed [names of attorney-in-fact (not less than two)], and each of them as the Attorney-in-Fact for such Selling Stockholder. -46- 47 ANNEX I Pursuant to Section 8(g) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters and the QIUs to the effect that: (i) They are independent certified public accountants with respect to Group and its subsidiaries and GS Inc. within the meaning of the Act and the applicable rules and regulations adopted by the Commission; (ii) In their opinion, the financial statements, the Selected Consolidated Financial Data with respect to the consolidated results of operations and financial position of Group for the five most recent fiscal years, management's discussion and analysis of financial condition and results of operations and any supplementary financial information and schedules (and, if applicable, financial forecasts and/or pro forma financial information) examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act, Item 301 of Regulation S-K under the Act, Item 303 of Regulation S-K under the Act and the related rules and regulations adopted by the Commission; and, if applicable, they have made an examination or a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts, management's discussion and analysis of financial condition and results of operations and/or condensed financial statements derived from audited financial statements of Group for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of earnings, consolidated statements of financial condition, consolidated statements of changes in partners' capital and consolidated statements of cash flows included in the Prospectus as indicated in their reports thereon copies of which have been furnished to the Representatives; and on the basis of specified procedures including inquiries of officials of Group who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the Commission, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to 48 form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the Commission; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of Group for any interim period included in the Prospectus agrees with the corresponding amounts (after restatements where applicable) in the unaudited consolidated financial statements for such interim period(s); (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301 and 302, respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of Group and its subsidiaries, inspection of the minute books of the Management Committee of Group and of the Board of Directors of GS Inc. and of the general partner of Goldman, Sachs & Co. since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of Group and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited consolidated statements of earnings, consolidated statements of financial position, consolidated statements of changes in partners' capital and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the Commission, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of earnings, consolidated statements of financial position, consolidated statements of changes in partners' capital and consolidated statements of cash flows included in the Prospectus for them to be in conformity with generally accepted accounting principles; (B) any other unaudited statement of earnings data and statement of financial position items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and -2- 49 items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited condensed financial statements referred to in Clause (A) and any unaudited statement of earnings data and statement of financial position items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (D) as of a specified date not more than five days prior to the date of such letter, there have been any changes in partners' capital or any increase in the consolidated long-term debt of GS Inc. and its subsidiaries, or any decreases in consolidated net current assets or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (E) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (D) there were any decreases in consolidated total revenues or consolidated revenues, net of interest expense, or pre-tax earnings or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of Group and its subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of Group and its subsidiaries and have found them to be in agreement. -3- EX-2.1 3 PLAN OF INCORPORATION 1 Exhibit 2.1 AMENDED AND RESTATED PLAN OF INCORPORATION OF THE GOLDMAN SACHS GROUP, L.P. 2 THIS PLAN OF INCORPORATION IS BEING MADE AVAILABLE ON A CONFIDENTIAL BASIS SOLELY FOR THE PURPOSES DESCRIBED HEREIN. BY ACCEPTING ACCESS TO THIS PLAN OF INCORPORATION, EACH RECIPIENT AGREES NOT TO COPY ALL OR ANY PORTION OF IT AND TO KEEP ITS CONTENTS CONFIDENTIAL. -2- 3 Table of Contents Introduction Section 1 General Description of Proposed Transactions Section 2 Common Stock that PLPs will Receive Section 3 Treatment of Other Constituencies under this Plan Section 4 Ongoing Equity Incentives Section 5 Employment Agreement Section 6 Hedging Section 7 Certain Transfer Restrictions on Shares Section 8 Shareholders' Agreement Section 9 Noncompetition and Related Arrangements Section 10 Arrangements Concerning Goldman Sachs-Sponsored Funds Section 11 Release and Indemnification Arrangements Section 12 Consequences of an Election to Retire Section 13 Amendments to this Plan Section 14 Tax Consequences Section 15 Management of GS Inc. Section 16 Other Section 17 Documents PLPs and RLPs are Being Asked to Sign Section 18 Copies of this Plan and Contact Persons Exhibit A-1 Incorporation Term Sheet and Organizational Charts Exhibit A-2 Additional Information Concerning Proposed Merger Transactions Exhibit B Amended and Restated Certificate of Incorporation of The Goldman Sachs Group, Inc. Exhibit C By-Laws of The Goldman Sachs Group, Inc. Exhibit D Form S-1 Registration Statement Incorporated by Reference Exhibit E Term Sheet for Junior Subordinated Nontransferable Debentures to be Issued to Schedule I Limited Partners Exhibit F Form of Employment Agreement Exhibit G Hedging Restrictions Exhibit H Shareholders' Agreement Exhibit I Agreement Regarding Noncompetition and other Covenants (attaching form of Pledge Agreement as Exhibit A) Exhibit J Indemnification Agreement - General Exhibit K Indemnification Agreement - Tax Exhibit L Indemnification Agreement - Registration Statements and Matters Relating to the IPO Exhibit M Representations and Warranties Exhibit N Registration Arrangements Exhibit O Section 262 of the Delaware General Corporation Law (Appraisal Rights) Exhibit P Letter Agreement with Sumitomo Bank Capital Markets, Inc. -i- 4 Exhibit Q Letter Agreement with Kamehameha Activities Association -ii- 5 INTRODUCTION GENERAL This is the Amended and Restated Plan of Incorporation (this "Plan") of The Goldman Sachs Group, L.P. ("GS Group"), pursuant to Article I, Section 14 of the GS Group Memorandum of Agreement (the "GS Group Partnership Agreement") to facilitate, among other matters, an initial public offering (the "IPO") of the common stock ("Common Stock") of The Goldman Sachs Group, Inc. ("GS Inc."), which will be the corporate successor to GS Group. The Board of Directors of The Goldman Sachs Corporation ("GS Corp."), acting as the general partner (the "General Partner") of GS Group, unanimously approved this Plan and its submission to the Schedule II Limited Partners (the "PLPs") of GS Group for a vote in accordance with the GS Group Partnership Agreement. If approved by the PLPs in accordance with the GS Group Partnership Agreement, this Plan shall constitute (a) an agreement among GS Group, GS Corp., as the General Partner, GS Inc., the PLPs and the other participants herein to implement this Plan and all the transactions and agreements related hereto described herein and (b) an amendment to the GS Group Partnership Agreement. A MEETING OF THE PLPS WILL BE HELD AT 7:00 A.M., NEW YORK CITY TIME, ON MONDAY, MARCH 8, 1999, AT WHICH THE PLPS WILL BE ASKED TO CONSENT TO THIS PLAN. The approval of PLPs having 51% in interest in the profits of GS Group allocable to the PLPs as set forth in Schedule II to the GS Group Partnership Agreement is required to approve this Plan and authorize the General Partner to implement this Plan. CHOICES AVAILABLE TO PLPS In connection with this Plan, each PLP will have three choices: 1. CONSENT TO THIS PLAN AND, IF THIS PLAN IS ADOPTED, THEREBY ELECT TO PARTICIPATE IN THIS PLAN. Participation in this Plan includes receiving Common Stock in exchange for the PLP's interests in GS Group and its affiliates, and becoming bound by all other aspects of this Plan including, but not limited to, the employment agreement (unless otherwise notified by GS Inc.), the agreement regarding noncompetition and other covenants, the pledge agreement, the shareholders' agreement and certain applicable release and indemnification arrangements (each of which is described herein and is attached as an exhibit hereto). 2. WITHHOLD CONSENT TO THIS PLAN AND, IF THIS PLAN IS NONETHELESS ADOPTED, ELECT TO PARTICIPATE IN THIS PLAN WITH THE EFFECTS NOTED IN CLAUSE 1 ABOVE. 6 3. WITHHOLD CONSENT TO THIS PLAN AND, IF THIS PLAN IS NONETHELESS ADOPTED, ELECT NOT TO PARTICIPATE IN THIS PLAN. In this event the PLP will not be bound by the terms of this Plan and the PLP will be treated as having elected to retire from GS Group immediately prior to the consummation of the Incorporation Transactions (as defined below) or such other time specified by the General Partner. Such PLP will be entitled to payment in respect of the value of such PLP's interests in GS Group and its affiliates (including dated account interests (after the dated account interests have been valued at their fair value) and without giving effect to any adjustment for firm goodwill) in accordance with the GS Group Partnership Agreement. "Dated account interests" means the interest of a partner in GS Group's principal investments and real estate principal investments and other dated account interests. ACTION REQUIRED BY PLPS These choices are provided for in the Consent Document for Plan of Incorporation and Power of Attorney (the "Consent Document and Power of Attorney"), which will be distributed at the March 8 meeting. (A sample copy of the Consent Document and Power of Attorney is attached to this Plan). If a PLP does not timely complete and deliver the Consent Document and Power of Attorney, such PLP will be deemed to have withheld consent to this Plan and if it is nonetheless adopted, to have selected the option described in Clause 3 above and will be treated as having elected to retire from GS Group. PLPs who hold any part of their interest in GS Group through an entity PLP must execute two Consent Documents and Powers of Attorney in order to accept this Plan -- one on behalf of such PLP and one on behalf of such entity. If only one related PLP consents, both PLPs will be deemed to have selected the option described in Clause 3 above and will be treated as having elected to retire from GS Group. Each PLP who or which elects to participate in this Plan will become a party to this Plan. CHOICES AVAILABLE TO RLPS If this Plan is adopted, the General Partner will make available to Schedule I Limited Partners of GS Group ("RLPs") the alternatives provided for in this Plan as described in Section 3. * * * * UNDER THE TERMS OF THE GS GROUP PARTNERSHIP AGREEMENT, EACH PARTNER OF GS GROUP (WHETHER OR NOT CONSENTING) HAS IRREVOCABLY WAIVED ANY RIGHT TO CONTEST THE TERMS OF THIS PLAN, WHETHER ON THE GROUNDS OF UNEQUAL OR DISPARATE TREATMENT, INCONSISTENCY OR -2- 7 CONFLICT WITH THE TERMS AND PROVISIONS OF THE GS GROUP PARTNERSHIP AGREEMENT, UNFAIRNESS OR FOR ANY OTHER REASON. -3- 8 1. GENERAL DESCRIPTION OF PROPOSED TRANSACTIONS The incorporation of GS Group will be accomplished by having (1) GS Corp., the general partner of GS Group, merge into GS Inc., (2) all of the other partners in GS Group (other than the holders of Senior Limited Partnership Interests ("SLPs") and PLPs and RLPs who do not participate in this Plan) either (a) with respect to certain entities that are wholly-owned by PLPs or RLPs, merge with and into GS Inc. or (b) with respect to all other partners, transfer their partnership interests in GS Group to GS Inc., in each case, in exchange for, (i) in the case of PLPs and Kamehameha Activities Association ("KAA") (an affiliate of The Estate of Bernice Pauahi Bishop (the "Bishop Estate") through which the Bishop Estate holds its partnership interest), Common Stock, (ii) in the case of Sumitomo Bank Capital Markets, Inc. ("SBCM"), Common Stock (voting and nonvoting), and (iii) in the case of RLPs, cash, Common Stock and/or GS Inc. subordinated debentures, and (3) GS Group, after all of the interests in GS Group have been transferred to GS Inc., merge into GS Inc. The transactions described in the preceeding sentence are referred to herein to as the "Incorporation Transactions." Prior to the Incorporation Transactions, among other transactions, the SLPs' interests will be redeemed for cash and PLPs and RLPs who do not participate in the Plan will retire and receive the distribution provided for in the GS Group Partnership Agreement. Immediately following the Incorporation Transactions, GS Inc. will consummate an initial public offering of its common stock (the "IPO"). The transactions described in this paragraph are referred to herein collectively as the "Proposed Transactions." Exhibit A contains a more detailed summary of each of the significant steps of the Proposed Transactions, in each case as currently contemplated. The General Partner will have the right under this Plan to vary the Proposed Transactions if it deems any changes to be necessary or desirable. GS Inc. is a Delaware corporation organized to be the corporate successor to GS Group. GS Inc. has not conducted any business operations prior to the date of this Plan. Drafts of the proposed Amended and Restated Certificate of Incorporation and By-Laws of GS Inc. are attached as Exhibits B and C, respectively. No PLP or RLP will be permitted to sell any shares of Common Stock in the IPO. The Form S-1 Registration Statement of GS Inc. for the IPO on file with the Securities and Exchange Commission is incorporated by reference herein as Exhibit D. 2. COMMON STOCK THAT PLPS WILL RECEIVE Each PLP who elects to participate in this Plan will receive Common Stock in exchange for such PLP's interests in GS Group and its affiliates. A description of the capital stock of GS Inc. is contained in the Registration Statement incorporated by reference herein as Exhibit D. Prior to the March 8, 1999 meeting of the PLPs, the General Partner will develop a valuation of GS Inc. and its affiliates for purposes of allocating shares of Common Stock under -4- 9 this Plan on a pro forma basis giving effect to this Plan and the IPO (the "Allocation Valuation"). Based upon the Allocation Valuation and the number of shares of Common Stock expected to be outstanding after consummation of the IPO, a per common share price will be established (the "Per Share Price"). Based on the Allocation Valuation and the Per Share Price, a determination will then be made as to the number of shares of Common Stock (i) expected to be sold in the IPO and (ii) to be (a) allocated to constituencies other than the PLPs, SBCM and KAA (e.g., the RLPs and the non-PLP employees) under this Plan and (b) reserved for purposes of Sections 10 (Arrangements Concerning Goldman Sachs-Sponsored Funds) and 16 (Other - Right of General Partner or GS Inc. to Make Special Arrangements) of this Plan (such reserved shares, the "Unallocated Shares"). The remaining shares expected to be outstanding after the IPO (the "Participating Partner Shares") will be allocated among the PLPs, SBCM and KAA as follows: (i) SBCM will be allocated Common Stock (voting and non-voting, as described below) representing approximately 11.34% of the Participating Partner Shares and KAA will be allocated Common Stock representing approximately 9.28% of the Participating Partner Shares; (ii) each PLP who participates in this Plan will first be allocated shares of Common Stock with an aggregate value (based upon the Per Share Price) equal to 100% of such PLP's Adjusted Capital (as defined below); and (iii) each PLP who participates in this Plan will then be allocated shares of Common Stock constituting such PLP's portion of the balance of the Participating Partner Shares available after the allocation of Common Stock under clauses (i) and (ii) (the "Profit Shares") calculated by multiplying the number of Profit Shares by the ratio of the profits interest of such PLP (as set forth in Schedule II to the GS Group Partnership Agreement) to the aggregate profits interests of all PLPs who participate in this Plan. Any Unallocated Shares not necessary for purposes of Section 10 (Arrangements Concerning Goldman Sachs-Sponsored Funds) or 16 of this Plan (Other - Right of General Partner or GS Inc. to Make Special Arrangements) will be allocated to SBCM, KAA and the PLPs in accordance with clauses (i) and (iii) above. The foregoing computations will permit the calculation of the expected number of shares of Common Stock that will be issued under this Plan to each PLP who participates in this Plan. The General Partner will inform each PLP of the actual number of shares of Common Stock to be issued to such PLP who or which participates in this Plan on or prior to the date of the consummation of the IPO (the "IPO Date"). "Adjusted Capital" for a PLP will be determined as of the opening of business, New York City time, on November 28, 1998, with the adjustments set forth below. The Adjusted Capital of -5- 10 a PLP will reflect (a) the value of such PLP's dated account interests valued at their fair value as of the opening of business, New York City time, on November 28, 1998 (provided that dispositions of publicly-traded securities (and, in the sole discretion of the General Partner, other assets) reflected in dated accounts effected between the opening of business, New York City time, on November 28, 1998 and the close of business, New York City time, on February 26, 1999 at prices more or less favorable than such fair value as of November 28, 1998 will be reflected at their disposition price and publicly-traded securities (and, in the sole discretion of the General Partner, other assets) reflected in dated accounts will be valued at their market value as of the close of business, New York City time, on February 26, 1999), (b) fiscal 1999 withdrawals from the PLP's capital account (unless otherwise determined by the General Partner), (c) the creation of and adjustments to certain reserves and the related tax effects, (d) capital contributions made by PLPs after the opening of business, New York City time, on November 28, 1998, and (e) other adjustments that the General Partner may deem appropriate in its sole discretion. The General Partner may, in its sole discretion, select a different Per Share Price and/or a later date for determining Adjusted Capital and/or the Allocation Valuation and establish the number of shares of Common Stock to be issued using such different Per Share Price and/or such later determination of Adjusted Capital and/or the Allocation Valuation. The General Partner generally has the right, in its sole discretion, to amend this Plan in any respect that it deems appropriate. See "Section 13 - Amendments to this Plan" for a discussion of those changes to this Plan that may give a PLP who or which has previously elected to participate in this Plan the right to retire from GS Group and receive payment in accordance with the GS Group Partnership Agreement. None of the changes described in the preceding paragraph would afford a PLP a retirement right. 3. TREATMENT OF OTHER CONSTITUENCIES UNDER THIS PLAN Classes of partners in GS Group other than PLPs and other members of the Goldman Sachs community will be treated as follows under this Plan: SCHEDULE I LIMITED PARTNERS A. Each RLP may accept this Plan and elect to receive with respect to such RLP's Adjusted Capital: 1. Shares of Common Stock with an aggregate value (based upon the Per Share Price) equal to 130% (150% in the case of an RLP who retired as a PLP at the end of fiscal year 1998 (a "1998 RLP")) of such RLP's Adjusted Capital; or -6- 11 2. Junior subordinated nontransferable debentures of GS Inc. with a principal amount equal to 100% of such RLP's Adjusted Capital, bearing interest at 12% per annum, with a maturity in November 2006 (longer maturities will be made available to RLPs who currently have longer-dated capital); such debentures having the other terms set forth in the Term Sheet for Junior Subordinated Nontransferable Debentures attached as Exhibit E; or 3. Cash in an amount equal to 130% (150% in the case of a 1998 RLP) of such RLP's Adjusted Capital; or 4. Any combination of the foregoing. Except as described below, Adjusted Capital for an RLP will be determined as of the same time and using the same valuations of assets, liabilities, reserves and contingencies as those used for calculating Adjusted Capital for the PLPs. For purposes of computing an RLP's Adjusted Capital, all capital awaiting settlement ("CAS") will be treated as part of such RLP's Adjusted Capital. In the 1999 fiscal year, certain RLPs have been permitted to contribute additional amounts to their capital accounts. These amounts will not be included in Adjusted Capital and will be repaid prior to the Incorporation Transactions. The General Partner may, in its sole discretion, select a different Per Share Price and/or a later date for determining Adjusted Capital and/or the Allocation Valuation and establish the number of shares of Common Stock to be issued using such different Per Share Price and/or such later determination of Adjusted Capital and/or the Allocation Valuation. The General Partner generally has the right, in its sole discretion, to amend this Plan in any respect that it deems appropriate. See "Section 13 - Amendments to this Plan" for a discussion of those changes to this Plan that may give an RLP who or which has previously elected to participate in this Plan the right to retire from GS Group, with the effect set forth in Alternative B below. None of the changes described in the preceding paragraph would afford an RLP a retirement right. B. Any RLP may alternatively not accept this Plan and, prior to the Incorporation Transactions, receive the distribution provided for in the GS Group Partnership Agreement (cash or junior subordinated nontransferable debentures issued pursuant to the GS Group Partnership Agreement in an amount equal to (i) the RLP's capital contribution less adjustments to reserves to that date and (ii) the value of the RLP's pro rata share of items omitted from settlement with such RLP, including amounts attributable to dated account interests). -7- 12 By acceptance of this Plan, an RLP who chooses to take Common Stock will agree to (i) the terms of the underwriters' lock-up restriction in connection with the IPO, (ii) a one-year lock-up restriction for all shares of Common Stock issued in respect of up to 50% of such RLP's Adjusted Capital (provided that to the extent that an individual RLP owns an interest in GS Group directly and is affiliated with an entity RLP that also owns an interest in GS Group (e.g., an individual RLP and the individual RLP's family limited partnership), the individual RLP may allocate among the individual RLP and the affiliated entity RLP the shares of Common Stock subject to the one-year lock-up restriction provided in this clause (ii) and the three-year lock-up restriction provided in clause (iii) below in his or her discretion as long as no more than the number of shares of Common Stock issued in respect of 50% of the aggregate Adjusted Capital of such RLPs is subject to the one-year lock-up restriction provided in this clause (ii)), (iii) a three-year lock-up restriction for all other shares of Common Stock issued in respect of such RLP's Adjusted Capital, and (iv) the hedging restrictions described in Section 6 hereof. Each RLP who participates in this Plan will execute a confidentiality agreement which is based on the confidentiality provisions in the GS Group Partnership Agreement. Shares of Common Stock allocable to an RLP will be held in the record name of a custodian or other agent selected by GS Inc. pursuant to a custodial agreement until the lapse of the lock-up restrictions described above. In order for an RLP to accept the offer outlined in Alternative A, such RLP must agree to be bound by all aspects of this Plan. Each RLP who or which accepts this Plan will become a party to this Plan. An RLP who selects Alternative A will have the benefit of the indemnification arrangements provided below under "Release and Indemnification Arrangements" in Section 11. An RLP who selects Alternative B will not have the benefit of the indemnification arrangements and will retain all personal liabilities such RLP had as a partner in GS Group and its affiliates and their respective predecessors. An RLP's election of Alternative A or Alternative B will not be revocable or subject to amendment or alteration. RLPs shall not be permitted to transfer interests in GS Group pending consummation of this Plan. With respect to an RLP that is not an "accredited investor" (as defined in Rule 501 under the Securities Act of 1933, as amended) and as determined by the General Partner in its sole discretion to be necessary or prudent to achieve compliance with or expedite consummation of this Plan under applicable law, the value of such RLP's interest in GS Group may be paid to such RLP in accordance with the provisions of the GS Group Partnership Agreement in lieu of permitting such RLP to participate in this Plan or the right to elect to retire as described above. CAPITAL AWAITING SETTLEMENT, RESERVE BALANCES AND DEBENTURES Under this Plan, the General Partner may, in its sole discretion, (a) make offers to any former partners (i) with CAS, (ii) who are subject to reserves or (iii) who hold debentures of GS Group, on whatever terms and conditions the General Partner deems appropriate and (b) establish the manner of making any such offer. -8- 13 SENIOR LIMITED PARTNERS It is expected that the interests of SLPs will be redeemed for cash prior to the Incorporation Transactions. SUMITOMO BANK CAPITAL MARKETS, INC. SBCM is entitled under the GS Group Partnership Agreement to elect to receive a combination of the following: A. Voting and/or non-voting Common Stock (limited, as to voting stock, to 4.9% of the outstanding shares); and B. Convertible preferred stock of GS Inc. It is expected that SBCM will elect to receive all Common Stock (i.e., voting and nonvoting). The Common Stock that SBCM will receive will represent approximately 11.34% of the Participating Partner Shares. The voting Common Stock that SBCM will hold after the IPO Date will represent 4.9% of the outstanding voting Common Stock. Attached as Exhibit P and deemed part of this Plan is the letter agreement with SBCM, as amended, that provides for, among other things, the issuance of Common Stock (voting and nonvoting) to SBCM, certain adjustments to and distribution of capital, SBCM's sale of Common Stock as part of the IPO, the hedging restrictions applicable to SBCM and certain amendments to SBCM's registration rights. The Registration Statement incorporated by reference herein as Exhibit D sets forth a description of the rights of SBCM, including SBCM's registration rights following the IPO. If this Plan is adopted, SBCM will become a party to this Plan. KAMEHAMEHA ACTIVITIES ASSOCIATION KAA is entitled to receive voting Common Stock under the GS Group Partnership Agreement. The Common Stock that KAA will receive will represent approximately 9.28% of the Participating Partner Shares. Attached as Exhibit Q and deemed part of this Plan is the letter agreement with KAA, as amended, that provides for, among other things, certain adjustments to and distributions of capital, KAA's sale of Common Stock as part of the IPO, the hedging restrictions applicable to KAA and certain amendments to KAA's registration rights. The Registration Statement incorporated by reference herein as Exhibit D sets forth a description of the rights of KAA, including KAA's registration rights following the IPO. If this Plan is adopted, KAA will become a party to this Plan. -9- 14 NON-PLP EMPLOYEES On the IPO Date, GS Inc. will make substantial awards of equity-based compensation to the Firm's employees (including certain consultants and advisors), other than PLPs. These awards are expected to consist of the following elements: A. A formula-based award of restricted stock units ("RSUs") under which Common Stock generally will be delivered in equal installments on or about the first, second and third anniversaries of the IPO Date, unless the recipient engages in conduct detrimental to GS Inc. and its affiliates (together with their predecessors and successors, the "Firm") prior to delivery of the Common Stock. No future service is required to receive delivery of Common Stock. Conduct detrimental to the Firm would include conduct for which an employee could be terminated for cause, soliciting clients or employees of the Firm, engaging in competitive activities and violating Firm policy, including as to confidentiality and hedging. These awards will be made available to virtually all employees. B. A discretionary award of RSUs and stock options that generally will vest in equal installments on or about the third, fourth and fifth anniversaries of the IPO Date so long as prior to the relevant vesting date the employee's employment with the Firm has not been terminated for any reason and the employee has not engaged in conduct detrimental to the Firm on or prior to the relevant vesting date. C. A contribution of stock to a defined contribution plan (the "DCP") with the employees' rights to receive the stock generally vesting in equal installments on or about the third, fourth and fifth anniversaries of the IPO Date so long as prior to the relevant vesting date the employee's employment with the Firm has not been terminated for any reason and the employee has not engaged in conduct detrimental to the Firm on or prior to the relevant vesting date. A further description of these awards is included in the Registration Statement incorporated by reference herein as Exhibit D. GOLDMAN SACHS FOUNDATION It is currently expected that, after the consummation of the IPO and as part of this Plan, approximately $200 million in cash will be donated by GS Inc. to a charitable foundation established by the Firm. * * * * * -10- 15 The General Partner has the authority under this Plan not to offer securities of GS Inc. to or exchange securities of GS Inc. with any person if the General Partner determines, in its sole discretion, that the making of such offer or the consummation of such exchange could violate any applicable laws or regulations, including securities laws. In the event that any interest in GS Group is held by two or more related persons (e.g., an individual and such individual's corporation, limited liability company, family limited partnership or revocable trust), all such persons must elect to participate in this Plan or not participate in this Plan and, if all elect to participate, must execute all necessary documents. If such elections are not made, such documents are not executed or such elections are inconsistent, the General Partner will determine that an election has been made by all related persons not to participate in this Plan. 4. ONGOING EQUITY INCENTIVES GS Inc. will put in place ongoing equity incentives including RSU, restricted stock and option programs. GS Inc. is also expected to have a Firm performance-based compensation plan beginning in the 1999 fiscal year in which certain employees (currently expected to include the existing PLPs who are employed by the Firm immediately following the IPO) are expected to participate. Participants in the Firm performance-based plan will be selected on a discretionary basis. There is no assurance that any particular PLP will be eligible to participate in any of these ongoing equity incentives. 5. EMPLOYMENT AGREEMENT Each PLP who participates in this Plan will agree, unless otherwise requested by GS Inc., to be bound by an employment agreement (the form of which is attached as Exhibit F). The employment agreement will provide that the PLP will serve as a managing director for an initial term ending on November 24, 2000 and thereafter for no set term. Under the employment agreement, the PLP will have such duties and responsibilities as the Firm may from time to time determine and will devote such PLP's entire working time to the business and affairs of the Firm. The agreement will be terminable by the PLP or the Firm at any time upon 90 days' advance written notice and will require arbitration of disputes. The Firm may elect to place a PLP on paid leave for all or part of such 90-day notice period. -11- 16 6. HEDGING Attached as Exhibit G are hedging restrictions relating to securities of GS Inc. and financial services companies, which, assuming this Plan is adopted, are effective as of March 4, 1999. The General Partner of GS Group (until the IPO Date) and the Board of Directors of GS Inc. (thereafter) are expressly authorized to elaborate upon or change these restrictions from time to time. 7. CERTAIN TRANSFER RESTRICTIONS ON SHARES Each PLP and RLP who participates in this Plan will be subject to the following significant restrictions on the Transfer (as hereinafter defined) of Common Stock received by such PLP or RLP from GS Inc. pursuant to this Plan. PLPs who participate in this Plan also will be parties to the Shareholders' Agreement described in Section 8 below, which will impose further restrictions on Transfers of shares of Common Stock owned by each PLP. For purposes of the restrictions described in this section and the Shareholders' Agreement, the term "Transfer" generally includes any sale, transfer, pledge or other disposition of securities of GS Inc., including any disposition of the economic or other risks of ownership through hedging transactions or derivatives involving GS Inc. securities, other than certain hedging transactions permitted under the Shareholders' Agreement. UNDERWRITERS' LOCK-UP AND FIRM-WIDE TRADING RESTRICTIONS All shares of Common Stock which a PLP or an RLP receives pursuant to this Plan will be subject to the underwriters' lock-up restriction in connection with the IPO and, in the case of PLPs and RLPs employed by the Firm (including as consultants), to any trading restrictions applicable to Firm employees or consultants. PLP RESTRICTIONS Any shares of Common Stock that a PLP receives pursuant to this Plan (other than shares of Common Stock received in exchange for interests in the Funds as described in Section 10 and any other shares of Common Stock so designated by GS Inc. prior to the IPO Date to accommodate particular situations such as those referred to under "Section 16 -- Other--Right of General Partner to Make Special Arrangements" (all such other shares, the "Excluded Shares")) may be Transferred only as follows (the "PLP Transfer Restrictions"): - 33 1/3% of such shares may be Transferred at any time after the third anniversary of the IPO Date. - An additional 33 1/3% of such shares may be Transferred at any time after the fourth anniversary of the IPO Date. -12- 17 - All of such shares may be Transferred at any time after the fifth anniversary of the IPO Date. The PLP Transfer Restrictions may generally be waived or terminated only by action of the Shareholders' Committee established pursuant to the Shareholders' Agreement. In the case of a third-party tender or exchange offer, however, the PLP Transfer Restrictions may be waived only by 66 2/3% of the outstanding Voting Interests (as defined below) if the Board of Directors of GS Inc. is recommending rejection of the tender or exchange offer, and only by a majority of the outstanding Voting Interests if the Board of Directors of GS Inc. is recommending acceptance of the tender or exchange offer or is not making any recommendation with respect to acceptance. In the case of a tender or exchange offer by GS Inc., the PLP Transfer Restrictions may be waived either by the Shareholders' Committee or a majority of the outstanding Voting Interests. The PLP Transfer Restrictions as to a PLP will terminate upon the death of such PLP, although the underwriters' lock-up restrictions in the IPO will continue to apply. If the Shareholders' Agreement is terminated prior to the expiration or termination of the PLP Transfer Restrictions, the PLP Transfer Restrictions will continue to apply unless waived or terminated by the Board of Directors of GS Inc. RLP RESTRICTIONS Any shares of Common Stock that an RLP receives pursuant to this Plan (other than Excluded Shares) may be Transferred only as follows (the "RLP Transfer Restrictions"): - Shares issued in respect of 50% or less of an RLP's Adjusted Capital may be Transferred at any time after the first anniversary of the IPO Date. - All of such shares may be Transferred at any time after the third anniversary of the IPO Date. The RLP Transfer Restrictions may be waived or terminated only by the Board of Directors of GS Inc. The RLP Transfer Restrictions as to an RLP will terminate upon the death of such RLP, although the underwriters' lock-up restrictions in the IPO will continue to apply. CUSTODY ARRANGEMENTS All shares of Common Stock issued to a PLP or an RLP must be held in a brokerage, custody or similar account maintained at Goldman, Sachs & Co. or another firm as GS Inc. may determine. GS Inc. will be entitled to monitor all activity in each PLP's or RLP's account and to enforce applicable transfer and hedging restrictions, any Firm trading restrictions applicable to employees and consultants as in effect from time to time and (in the case of PLPs) the pledge arrangements described in Section 9 below. Any Common Stock held in such an account may be held of record by a custodian or nominee. GS Inc. may require each PLP or RLP to execute an account agreement with the custodian or other firm, in such form as GS Inc. may determine -13- 18 (which may include customary provisions relating to indemnification of the custodian or other firm and an undertaking to arbitrate custody-related disputes). 8. SHAREHOLDERS' AGREEMENT Each PLP who participates in this Plan will be subject to the provisions of a Shareholders' Agreement which is also expected to include as parties all managing directors of GS Inc. and its affiliates. A copy of the Shareholders' Agreement is attached as Exhibit H. COVERED PERSONS AND COVERED SHARES Each PLP who participates in this Plan and each other person who is a managing director on the IPO Date or becomes a managing director thereafter will be a party to the Shareholders' Agreement (collectively, the "Covered Persons"). The shares covered by the Shareholders' Agreement (the "Covered Shares") generally will be all shares of Common Stock acquired from GS Inc. by a Covered Person and beneficially owned by the Covered Person at the time in question. Covered Shares will include any shares of Common Stock received by the PLPs pursuant to this Plan except for Excluded Shares (as defined in "Section 7 - -- Certain Restrictions on Shares"). Thus, Covered Shares will include shares of Common Stock (i) received by Covered Persons pursuant to the plans and awards described under "Non-PLP Employees" in Section 3, above and (ii) received by Covered Persons from the Firm through any other employee compensation, benefit or similar plan. Covered Shares will not include any shares of Common Stock purchased by a Covered Person in the open market or in a subsequent underwritten public offering or other shares excluded from the definition of Covered Shares by action of the Board of Directors of GS Inc. prior to the IPO or, in the case of a deferred compensation plan, at any time. The Shareholders' Agreement will require that all Covered Shares be held in a custody account until released for Transfer in accordance with the provisions of the Shareholders' Agreement and this Plan. TRANSFER RESTRICTIONS AND WAIVERS Covered Shares will be subject to transfer restrictions under the Shareholders' Agreement. Each Covered Person will agree in the Shareholders' Agreement to: - retain Sole Beneficial Ownership (as defined in the Shareholders' Agreement) of Covered Shares at least equal to 25% of the total number of Covered Shares beneficially owned by such Covered Person at the time such Covered Person became a Covered Person or acquired by such Covered Person thereafter and with no reduction for any shares -14- 19 Transferred (the "General Transfer Restrictions"), for so long as he or she is a Covered Person and an employee of GS Inc. (an "Employee Covered Person"); - comply with the underwriters' 180-day lockup arrangement in the IPO with respect to all Common Stock; - comply with respect to all Common Stock with certain "black-out" restrictions related to future primary or secondary offerings of Common Stock if requested to do so by GS Inc.; and - comply with restrictions that may be imposed by GS Inc. from time to time to enable GS Inc. or another party to account for a business combination using the pooling-of-interests method of accounting. Each PLP will also be subject to the PLP Transfer Restrictions described above under "Section 7--Certain Transfer Restrictions on Shares." The General Transfer Restrictions (and the other provisions of the Shareholders' Agreement) may generally be waived by a majority of the outstanding Voting Interests. In the case of a third-party tender or exchange offer, the General Transfer Restrictions may be waived or amended only by 66 2/3% of the outstanding Voting Interests if the Board of Directors of GS Inc. is recommending rejection of the tender or exchange offer, and only by a majority of the outstanding Voting Interests if the Board of Directors of GS Inc. is recommending acceptance of the tender or exchange offer or is not making any recommendation with respect to acceptance. The Shareholders' Committee also has the power to waive the General Transfer Restrictions to permit Covered Persons to: - participate as sellers in underwritten public offerings of Common Stock and tender or exchange offers and share repurchase programs by GS Inc.; - Transfer Covered Shares to charities, including charitable foundations; - Transfer Covered Shares held in employee benefit plans; and - Transfer Covered Shares in specific transactions (for example, to immediate family members and trusts). The General Transfer Restrictions may be waived, in connection with any tender or exchange offer by GS Inc., by the affirmative vote of a majority of the outstanding Voting Interests. -15- 20 VOTING Prior to any vote of the shareholders of GS Inc., the Shareholders' Agreement will require a separate, preliminary vote of the Voting Interests on each matter upon which a vote of the shareholders of GS Inc. is proposed to be taken (a "Preliminary Vote"). In general, each Covered Share held by an Employee Covered Person and other Covered Shares which cannot then be Transferred without violating the PLP Transfer Restrictions ("Voted Covered Shares") will be voted in accordance with the majority of the votes cast by the Voting Interests in the Preliminary Vote. In elections of directors, each Voted Covered Share will be voted in favor of the election of those persons, equal in number to the number of such positions to be filled, receiving the highest numbers of votes cast by the Voting Interests in the Preliminary Vote. "Voting Interests" are all Covered Shares beneficially owned by all Covered Persons through December 31, 2000 and thereafter are all Covered Shares beneficially owned by all Employee Covered Persons. The Shareholders' Agreement contains an irrevocable proxy and power-of-attorney authorizing the Shareholders' Committee to vote the Voted Covered Shares. OTHER RESTRICTIONS The Shareholders' Agreement will also prevent Covered Persons from engaging in certain activities with any person that is not a Covered Person or a director, officer or employee of GS Inc. acting in his or her capacity as such (a "Restricted Person"). Among other things, a Covered Person may not participate in a proxy solicitation to or with a Restricted Person; deposit any Covered Shares in a voting trust or subject any Covered Shares to any voting agreement or arrangement that includes any Restricted Person; form, join or in any way participate in a "group" with any Restricted Person; or, together with any Restricted Person, propose certain transactions with GS Inc. or seek the removal of any directors of GS Inc. or any change in the composition of the Board of Directors of GS Inc. TERM, AMENDMENT AND CONTINUATION The Shareholders' Agreement will continue in effect until the earlier of January 1, 2050 and the time it is terminated by the vote of 66 2/3% of the Voting Interests. The Shareholders' Agreement can be amended only by a majority (66 2/3% with respect to certain provisions) of the outstanding Voting Interests. In the event of any transaction in which a third party succeeds to the business of GS Inc. and in which Covered Persons hold securities of such third party, unless otherwise terminated, the Shareholders' Agreement will remain in full force and effect as to the securities of such third party, and such third party shall succeed to the rights and obligations of GS Inc. under the Shareholders' Agreement. -16- 21 ADMINISTRATION A Shareholders' Committee will be formed to administer the terms and provisions of the Shareholders' Agreement. The Shareholders' Committee will generally act through a majority of its members at meetings of the Shareholders' Committee and unanimously if acting by written consent. The Shareholders' Committee initially will consist of those Covered Persons who are employees of the Firm and members of the Board of Directors of GS Inc. If there are fewer than three such individuals, the Shareholders' Committee shall include other Covered Persons who are employees of the Firm and are selected pursuant to procedures established by the Shareholders' Committee. 9. NONCOMPETITION AND RELATED ARRANGEMENTS Each PLP who participates in this Plan will be bound by an agreement of noncompetition and other covenants (the "noncompetition agreement") which is a successor to, and substantially similar (other than with respect to liquidated damages and the pledge) to, the comparable provision in the GS Group Partnership Agreement. The principal features of this agreement are: A. Confidential information concerning the business, operations, financial affairs, organizational and personnel matters, policies, procedures and other non-public matters of the Firm and of third parties (including the existence of and any information concerning any dispute between a PLP and the Firm), will not be permitted to be disclosed. B. While employed by the Firm and for a period ending 12 months after the later of the IPO Date or the date the PLP is no longer employed by the Firm, a PLP will not, without the prior written consent of GS Inc., be permitted to (a) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise (as defined below), or (b) associate (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity (i) which is similar or substantially related to any activity in which the PLP was engaged, in whole or in part, at the Firm, or (ii) for which the PLP had direct or indirect managerial or supervisory responsibility at the Firm, or (iii) which calls for the application of the same or similar specialized knowledge or skills as those utilized by the PLP in his or her activities with the Firm, at any time during the one-year period immediately prior to termination of such PLP's employment (or, in the case of actions while employed, the one-year period prior to such actions) and irrespective of the purpose of the activity or whether the activity is or was in furtherance of advisory, agency, proprietary or fiduciary business of either the Firm or the Competitive Enterprise. (By way of example only, this provision would -17- 22 preclude an "advisory" investment banker from joining a leveraged buy-out firm or a research analyst from becoming a proprietary trader or joining a hedge fund). The term "Competitive Enterprise" means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Firm is engaged. The activities covered by the previous sentence include, without limitation, financial services such as investment banking, public or private finance, lending, financial advisory services, private investing (for anyone other than the PLP or member of the PLP's family), merchant banking, asset or hedge fund management, insurance or reinsurance underwriting or brokerage, property management, or securities, futures, commodities, energy, derivatives or currency brokerage, sales, lending, custody, clearance, settlement or trading). C. While employed by the Firm and for a period ending 18 months after the later of the IPO Date or the date the PLP is no longer employed by the Firm, a PLP will not be permitted, in any manner, to directly or indirectly, (i) Solicit (as defined below) any Client (as defined below) to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Firm, or (ii) interfere with or damage (or attempt to interfere with or damage) any relationship between the Firm and any such Client. The term "Solicit" means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person, in any manner, to take or refrain from taking any action. The term "Client" means any client or prospective client of the Firm to whom the PLP provided services, or for whom the PLP transacted business, or whose identity became known to the PLP in connection with the PLP's relationship with or employment by the Firm. D. While employed by the Firm and for a period ending 18 months after the later of the IPO Date or the date the PLP is no longer employed by the Firm, a PLP will not be permitted, in any manner, to directly or indirectly, Solicit any person who is an employee of the Firm to apply for or to accept employment with any Competitive Enterprise. E. Each PLP will agree, if such PLP's employment is terminated by the PLP or the Firm, to take all actions and do all things during a 90-day cooperation period reasonably requested by the Firm to maintain for the Firm the business, goodwill and business relationships with the Firm's clients with whom the PLP worked during the term of such PLP's employment. -18- 23 F. Prior to accepting employment with any other person or entity during the PLP's employment with the Firm and for a period ending 18 months after the later of the IPO Date or the date the PLP is no longer employed by the Firm, the PLP will provide such prospective employer with written notice of the terms of the noncompetition agreement (and simultaneously send a copy of that notice to GS Inc.). G. Without limiting the Firm's ability to obtain injunctive relief relating to any breach of the noncompetition agreement, the noncompetition agreement will provide for liquidated damages due upon a breach, as determined by the Board of Directors of GS Inc. in its good faith judgment, of the provisions of the noncompetition agreement described in clauses B through D above (the "noncompetition provisions") at any time prior to the fifth anniversary of the IPO Date. The amount of liquidated damages represents an attempt to estimate the harm that would be incurred by GS Inc. if a PLP violates such PLP's obligations under the noncompetition provisions. There will be two levels of liquidated damages. For PLPs who initially will serve as members of the Board of Directors of GS Inc. or on one of the other management committees of the Firm (e.g., the equivalent of the current Management Committee or Partnership Committee), the liquidated damages will be set at $15 million. For all other PLPs, the amount will be $10 million. Following the fifth anniversary of the IPO Date, there will be no liquidated damages and, in the event of a breach of the noncompetition agreement by a PLP, the Firm will be entitled to such relief as may be awarded by an arbitrator or court. By participating in this Plan, each PLP agrees to the liquidated damages amount applicable to such PLP. Pursuant to a pledge agreement (the "pledge agreement") to be entered into on the IPO Date, Common Stock (or other collateral acceptable to GS Inc. with an equal or greater market value) will be pledged by the PLP as security for the payment of the liquidated damages. The Common Stock (or other acceptable collateral) initially pledged will have a market value (based upon the initial public offering price in the IPO) equal to 100% of the required liquidated damages amount at the IPO Date. At no time may a PLP substitute collateral unless the value of substitute collateral is greater than or equal to the value of the released collateral. Absent any breach, all of the collateral will be released on the earliest of (i) the fifth anniversary of the IPO Date, (ii) the PLP's death, or (iii) the expiration of the 24-month period following the later of (A) the termination of the PLP's employment with the Firm or (B) the IPO Date. No collateral will be released if there are pending disputes with the PLP as to the existence of a breach of the noncompetition agreement or GS Inc.'s exercise of its remedies thereunder, including realization against the collateral. The liquidated damages in the noncompetition agreement are in addition to, and not in lieu of, any forfeitures of awards (required pursuant to the terms of any such awards) that may be granted to the PLP in the future under one or more of the Firm's compensation, benefit or similar plans. -19- 24 Pursuant to the GS Group Partnership Agreement, any partner in GS Group who does not participate in this Plan will continue to be bound by the confidentiality, noncompetition, nonsolicitation and cooperation provisions of the GS Group Partnership Agreement as currently in effect. A copy of the PLP noncompetition agreement and the pledge agreement are attached as Exhibit I. 10. ARRANGEMENTS CONCERNING GOLDMAN SACHS-SPONSORED FUNDS A PLP who participates in this Plan and an RLP or other person who participates in this Plan and elects to receive shares of Common Stock and, in each case, who has interests in Goldman Sachs-sponsored funds (the "Funds"), including, without limitation, the Stone Street Funds, the Bridge Street Funds and the Managing Directors' Investment Funds, shall, if requested by the General Partner, be required to choose one of the following actions (at the election of such PLP, RLP or other person): A. Transfer interests in the Funds to a wholly-owned corporation; or B. Transfer interests in the Funds to such person's spouse. If the General Partner determines to require a PLP, RLP or other person to choose one of the above actions, the General Partner will notify such affected person when he or she is required to make the choice. If the affected person is notified that he or she must choose to take one of the actions and fails to make the election in the time specified in the notice from the General Partner, the General Partner will elect to (i) require the affected person to transfer interests in the relevant Funds to GS Inc. as part of this Plan in exchange for Common Stock (which will be subject to the underwriters' lock-up in the IPO, to the hedging restrictions referred to in Section 6 above and to applicable securities laws and Firm-imposed transfer restrictions, but will not be subject to the Shareholders' Agreement or to the other transfer restrictions described in Section 7), (ii) require the affected person to transfer interests in the relevant Funds to the general partner of the relevant Fund (or another affiliate of GS Group designated by GS Group) in exchange for cash or (iii) a combination of the foregoing, in each case, in the sole discretion of the General Partner. 11. RELEASE AND INDEMNIFICATION ARRANGEMENTS In connection with this Plan, GS Inc. will provide the following release and indemnification arrangements covering liabilities, if any, in relation to tax and non-tax claims: -20- 25 A. Release and Indemnification (Other than for Taxes). GS Inc. will release and indemnify each PLP and RLP who participates in this Plan and certain former partners, as well as SBCM and KAA, with respect to specified liabilities and will assume the obligations of those participants in this Plan who are indemnifying parties under the indemnification agreement dated as of November 30, 1996. This indemnification is attached as Exhibit J. B. Tax Indemnification. GS Inc. will indemnify each PLP and RLP who participates in this Plan and certain former partners, as well as SBCM and KAA, against increased tax liabilities resulting from adjustments to tax returns filed by GS Group or any affiliate (or by an indemnitee to the extent of items attributable to GS Group or an affiliate) for open periods prior to the Incorporation Transactions (other than certain specified periods). The amount of any increased taxes with respect to which a PLP (or other indemnitee) has received a payment from GS Inc. and which are subsequently refunded or credited to such PLP (or other indemnitee) will, to the extent not taken into account in determining the amount of the indemnity, be reimbursed to GS Inc. by such PLP (or other indemnitee). GS Inc. will gross-up payments under the tax indemnification to the extent that indemnified taxes exceed a fixed amount for each of the indemnitees that will be specified by GS Inc. (in its sole discretion). This indemnification is attached as Exhibit K. 12. CONSEQUENCES OF AN ELECTION TO RETIRE As noted in the Introduction, one of the choices available to a PLP and an RLP under the GS Group Partnership Agreement will be to elect to retire as a partner in GS Group. Each PLP withholding consent to the adoption of this Plan and each RLP will have until 5:00 p.m., New York City time, on March 15, 1999 to make this election. A PLP may make this election through the Consent Document and Power of Attorney, which will be distributed at the March 8 meeting. An RLP may make this election through the Acceptance Document and Power of Attorney, which is being sent to the RLPs. The effectiveness of any election to retire received prior to the approval of this Plan by the PLPs will be conditioned upon approval of this Plan by the PLPs. If a PLP elects or has been deemed to elect to retire, such retirement will occur immediately prior to the Incorporation Transactions. Upon retirement as a partner, the PLP will become entitled to receive payment of such PLP's interest in GS Group and its affiliates valued in the manner provided in the GS Group Partnership Agreement as if such PLP had retired and not elected to become an RLP. Thus, a retiring PLP will be entitled only to payment in respect of the value of such PLP's interests in GS Group and its affiliates (including such PLP's dated account interests (after the dated account interests have been valued at their fair value) and without giving effect to any adjustment for firm goodwill) in accordance with the GS Group Partnership Agreement. In addition, the retiring PLP will not have the benefit of the indemnification arrangements described in -21- 26 "Section 11 -- Release and Indemnification Arrangements" and will retain whatever personal liabilities such PLP had as a partner in GS Group and its affiliates and their respective predecessors. For a discussion of the consequences of an RLP's election to retire, see "Section 3 --Treatment of Other Constituencies under this Plan -- Schedule I Limited Partners." 13. AMENDMENTS TO THIS PLAN The General Partner, in its sole discretion, may amend this Plan in any respect prior to the consummation of this Plan, including making any amendments to the Exhibits to this Plan, provided that (i) an amendment shall not be binding upon a PLP if it would (a) change the employment agreement or the noncompetition or pledge agreements provided for in this Plan to make any such agreements materially more burdensome to the PLP (which would include increasing the amount of liquidated damages), (b) change this Plan or the Shareholders' Agreement to lengthen or otherwise change in a manner materially adverse to such PLP the Transfer Restrictions described therein, or (c) change the method for allocating Participating Partner Shares among the PLPs set forth in clauses (ii) and (iii) of Section 2 above (it being understood that the selection of a different Per Share Price and/or a later date for determining Adjusted Capital and/or the Allocation Valuation shall not be such a change in the method for allocating Participating Partner Shares among the PLPs) in a manner that is materially adverse to such PLP without, in each case referred to in clause (a), (b) or (c), either (A) obtaining the consent of such PLP or (B) offering such PLP the opportunity (in lieu of accepting such change) to elect to retire from GS Group immediately prior to the consummation of the Incorporation Transactions and receive payment in respect of the value of such PLP's interests in accordance with the GS Group Partnership Agreement, (ii) an amendment shall not be binding upon an RLP if it would (a) change the percentages of Adjusted Capital used for calculating the number of shares of Common Stock, principal amount of debentures or amount of cash to be received by such RLP under clauses 1 through 4 of Section 3.A above, (b) change the provisions of any Junior Subordinated Nontransferable Debentures to be received by such RLP from those set forth in Exhibit E, or (c) change this Plan to lengthen or otherwise change the RLP Transfer Restrictions, in each case referred to in clause (a), (b) or (c), in a manner that is materially adverse to such RLP without either (A) obtaining the consent of such RLP or (B) offering such RLP the opportunity (in lieu of accepting such change) to elect to retire from GS Group immediately prior to the consummation of the Incorporation Transactions and receive payment in respect of the value of such RLP's interests in accordance with the GS Group Partnership Agreement, (iii) an amendment to this Plan shall not be binding on SBCM if such amendment (a) effects a modification to this Plan that makes this Plan, as so modified, inconsistent with Section 5 of Article II of the GS Group Partnership Agreement (which provides for terms upon which a plan for the incorporation of the business of GS Group may be adopted without the consent of SBCM), without obtaining the consent of SBCM or (b) effects a modification to Section 11 (Release and Indemnification Arrangements) or Section 16 (Other -- Release) hereof that (A) materially and adversely effects SBCM's rights under this Plan and (B) is not of general applicability to all parties who are subject to the Section modified, and (iv) an amendment to this Plan shall not be binding on KAA if such amendment (a) -22- 27 effects a modification to this Plan that makes this Plan, as so modified, inconsistent with Section 5 of Article VI and Section 5 of Article II of the GS Group Partnership Agreement (which provides for terms upon which a plan for the incorporation of the business of GS Group may be adopted without the consent of KAA), without obtaining the consent of KAA or (b) effects a modification to Section 11 (Release and Indemnification Arrangements) or Section 16 (Other -- Release) hereof that (A) materially and adversely effects KAA's rights under this Plan and (B) is not of general applicability to all parties who are subject to the Section modified. Following consummation of the Plan, the Board of Directors of GS Inc. may waive or amend any aspect of the Plan that has not yet been completed or reflected in a separate agreement but any such amendment shall not be binding upon a PLP or an RLP if it would be materially adverse to such PLP or RLP unless the consent of such PLP or RLP has been obtained. The PLP Transfer Restrictions and RLP Transfer Restrictions may be waived as provided in "Section 7 - Certain Transfer Restrictions on Shares." 14. TAX CONSEQUENCES TREATMENT OF PLPS WHO PARTICIPATE IN THIS PLAN The Incorporation Transactions have been structured so that a PLP who receives solely Common Stock in exchange for such PLP's interest in GS Group and its affiliates will not recognize income, gain or loss for U.S. federal income tax purposes, except in certain limited circumstances described below. The contributions of interests in GS Group and its affiliates to GS Inc. for Common Stock will qualify as tax-free contributions to a controlled corporation under Section 351 of the United States Internal Revenue Code of 1986, as amended (the "Code"), and the mergers of GS Corp. and certain corporations that are PLPs into GS Inc. for Common Stock will qualify as tax-free reorganizations under Section 368 of the Code. As a result, the following U.S. federal income tax consequences will apply to a PLP that participates in this Plan: Exchange of GS Group Interest for Common Stock. A PLP who exchanges such PLP's directly-held interests in GS Group and its affiliates solely for Common Stock will not recognize gain or loss, subject to the discussion below regarding indemnification payments and certain consequences to nonresident alien PLPs. The PLP's basis in the Common Stock will be equal to the PLP's basis in the interests transferred (calculated without regard to the PLP's share of any liabilities of GS Group or the affiliate). Treatment of PLPs Who Hold Interests in GS Group through Corporations. A PLP who holds a PLP interest in GS Group through a wholly-owned corporation that merges into GS Inc. (a "PLP Corporation") will not recognize gain or loss on the exchange of such PLP's shares in the PLP Corporation for Common Stock. The PLP's basis in the Common Stock will be the same as such PLP's basis in the shares of the PLP Corporation. -23- 28 Exchange of Common or Preferred Stock in GS Corp. for Common Stock. A PLP who exchanges common or preferred stock in GS Corp. for Common Stock will not recognize gain or loss on the exchange. The PLP's basis in the Common Stock will be equal to the PLP's basis in the common or preferred stock of GS Corp. that is exchanged therefor. PLPs who hold both common and preferred stock of GS Corp. will receive two separate lots of Common Stock so that the appropriate tax basis may be assigned to each lot of Common Stock. Treatment of Indemnification Payments. A PLP who receives an indemnification payment for a personal liability (such as income taxes) will be subject to tax on such payment, generally at the time it is received. A portion of the payment will be treated as interest (determined by discounting the payment back to the IPO Date), and the remainder generally will be treated as capital gain. Treatment of Certain Nonresident Alien PLPs. A PLP who is a nonresident alien and who exchanges a directly-held interest in GS Group or an affiliate solely for Common Stock will be subject to U.S. tax on the portion of such PLP's gain that is attributable to such PLP's proportionate share of the U.S. real property interests held by GS Group and its lower-tier partnerships or the affiliate. The gain generally will be taxable as capital gain. NONRESIDENT PLPS A PLP who is not a resident of the United States may be subject to different tax treatment in such PLP's residence country. TAX OPINION Consummation of this Plan will be conditioned upon receipt of an opinion of Sullivan & Cromwell to the effect that a PLP who receives solely Common Stock in exchange for such PLP's interests in GS Group and, if applicable, its affiliates will not recognize income, gain or loss for U.S. federal income tax purposes in respect of the transfers of those interests to GS Inc., except to the extent described above with respect to certain nonresident alien PLPs and the treatment of indemnification payments. TAX REPRESENTATIONS In order to ensure compliance with requirements for tax-free treatment, all PLPs who or which participate in this Plan are required to make the representations set forth in Exhibit M, including representations to the effect that (1) the PLP does not currently have any agreement, whether written or oral, to dispose of the Common Stock, (2) at the time of the Incorporation Transactions, the PLP will not have any agreement, whether written or oral, to dispose of the Common Stock and (3) for all tax purposes, the PLP will treat the exchange of the PLP's interest in GS Group and, if applicable, its affiliates for Common Stock as a transaction governed by Section 351 of the Code, the merger of GS Corp. into GS Inc. as a transaction governed by Section 368 of -24- 29 the Code and, if the PLP owns an interest in GS Group through a PLP Corporation that is merging into GS Inc., the merger of the PLP Corporation into GS Inc. as a transaction governed by Section 368 of the Code. The other constituencies, including RLPs, who or which participate in this Plan will be required to make similar representations. TREATMENT OF PLPS WHO DO NOT PARTICIPATE IN THIS PLAN A PLP interested in the tax consequences of not fully participating in this Plan and retiring as a partner in GS Group should contact Esta Stecher in the Tax Department. FURTHER INFORMATION Any PLP with questions concerning the tax treatment of this Plan or who would like a more detailed explanation of the tax consequences (including the consequences under the tax laws of any state or foreign country) should contact Esta Stecher in the Tax Department. 15. MANAGEMENT OF GS INC. The Amended and Restated Certificate of Incorporation of GS Inc. will provide for a classified Board of Directors consisting of three classes. It is anticipated that at the IPO Date a majority of the Board will be drawn from the current members of the Board of Directors of GS Corp. Beginning in 2000, at each annual meeting of shareholders, directors will be elected for three-year terms and until their respective successors have been elected and qualified. A director may be removed only for cause and only 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. GS Inc. will enter into an indemnification agreement in the form attached as Exhibit L with each director of GS Inc. and each officer of GS Inc. who signs the registration statement for the IPO and the other registration statements to be filed by GS Inc., to indemnify them for actions taken in consummating the transactions contemplated by this Plan.. 16. OTHER ARBITRATION Without diminishing the finality and conclusive effect of any determination by the General Partner (or its Board of Directors) or by GS Inc. (or its Board of Directors) of any matter under this Plan which is provided herein to be determined by the General Partner (or its Board of Directors) or by GS Inc. (or its Board of Directors) or of the waiver referred under "Section 16 - - Other Waiver", any dispute, controversy or claim arising out of or relating to or concerning the provisions of this Plan or any of the Exhibits to this Plan (other than any Exhibit that contains its own -25- 30 provisions for the resolution of disputes and other than Exhibit B (Amended and Restated Certificate of Incorporation of GS Inc.) and Exhibit C (By-Laws of GS Inc.), shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. ("NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association ("AAA") in accordance with the commercial arbitration rules of the AAA; provided, however, that, (i) notwithstanding the foregoing, in addition to the right to compel arbitration of any dispute or controversy, GS Inc., GS Corp. or GS Group may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in New York City, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily, or permanently enforcing the provisions of this Plan or to enforce an arbitration award and, for the purposes of this provision, each participant in this Plan expressly consents to the jurisdiction of any such court in respect of any such action and waives to the fullest extent permitted by applicable law any objection to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in such court, agrees that proof shall not be required that monetary damages for breach of the provisions of this Plan would be difficult to calculate and that remedies at law would be inadequate and irrevocably appoints the General Counsel of GS Inc. and GS Corp., as the participant's agent for service of process in connection with any such action or proceeding, who shall promptly advise such participant in this Plan of any such service of process and (ii) any dispute between GS Group and SBCM or KAA which is subject to the provisions of Article II, Section 9, Article VI, Section 9 or Article VII, Section 9 of the GS Group Partnership Agreement shall be resolved as provided in the applicable section. DETERMINATIONS UNDER PLAN Each person participating in this Plan agrees that the Board of Directors of GS Corp. and, following the merger of GS Corp. into GS Inc., the Board of Directors of GS Inc. shall have the right to make all determinations under this Plan and each Exhibit to this Plan and each Annex to the notice of submission of this Plan to RLPs (other than matters reserved for the determination of the Shareholders' Committee under the Shareholders' Agreement). GS GROUP PARTNERSHIP AGREEMENT If adopted, this Plan shall constitute an amendment to the GS Group Partnership Agreement and the provisions of this Plan, to the extent that they are inconsistent with the GS Group Partnership Agreement will control. The provisions of the GS Group Partnership Agreement will continue to apply to all partners until the IPO Date. Moreover, the covenants in the GS Group Partnership Agreement which apply to RLPs and PLPs will continue to apply to such RLPs and PLPs until the expiration of any applicable time period specified therein. These covenants include provisions relating to confidentiality, noncompetition and nonsolicitation. PLPs and RLPs who retire as partners in GS Group rather than participate in this Plan will continue to be subject to the relevant provisions of the GS Group Partnership Agreement as currently in effect. For all purposes hereof, a deceased PLP (or the estate of a deceased PLP) will continue to be treated as a PLP under this Plan. -26- 31 ABANDONMENT AND TERMINATION OF PLAN This Plan may be abandoned at any time by the General Partner. If the IPO has not been consummated by November 24, 2000, unless re-approved, this Plan will be automatically abandoned and will be of no further force and effect. WAIVER Under the terms of the GS Group Partnership Agreement, each partner in GS Group (whether or not consenting), has irrevocably waived any right to contest the terms of this Plan, whether on the grounds of unequal or disparate treatment, inconsistency or conflict with the terms and provisions of the GS Group Partnership Agreement, unfairness or for any other reason. RELEASE Each person (other than GS Inc., GS Corp. and GS Group) participating in this Plan will, by virtue of such participation, irrevocably release GS Inc., GS Corp., GS Group, each and every affiliate, shareholder, subsidiary, partner, officer, member, director and employee of GS Inc., GS Corp. and GS Group and their affiliates in their capacities as such and each other person who participates in this Plan ("Releasees") from any claims, liabilities, costs, expenses, actions, suits or demands however arising, whether at law or in equity, contingent, known or unknown, which any such person may have or assert, in respect of any interest in GS Group and its affiliates or arising out of any partnership or employment relationship with GS Group and its affiliates that such person or such person's heirs, successors or assigns had with any such person on or prior to the IPO Date; provided that this release shall not extend to (i) indebtedness owing to a person participating in this Plan by any Releasee, (ii) representations or warranties made or agreements entered into by a Releasee in connection with the Plan, and (iii) any conduct that resulted from a Releasee's bad faith, fraud or criminal act or omission. REPRESENTATIONS AND WARRANTIES Each person participating in this Plan will, by virtue of such participation, be deemed to make certain representations and warranties with respect to: (a) such person's intention regarding ownership of the stock and certain other matters upon which tax counsel can rely in rendering its opinion regarding the tax consequences of this Plan; (b) certain securities law matters; (c) ownership of partnership interests by such person and (d) other matters, which are attached as Exhibit M for PLPs and are annexed to the notice of submission for RLPs. Each person who elects to participate in this Plan agrees, if so requested by the General Partner, to make additional representations and warranties. -27- 32 RIGHT OF GENERAL PARTNER OR GS INC. TO MAKE SPECIAL ARRANGEMENTS The transactions included in this Plan have been structured in a manner that is expected not to result in a significantly disproportionate tax or other burden to any partner participating in this Plan in any jurisdiction. If it develops that the consummation of this Plan would, in fact, have (or had) such an impact, the General Partner and GS Inc. will have the right, but not the obligation, at any time either before or after the IPO Date to make special arrangements with any person participating in this Plan or such person's estate or legal representative (including special payments) to ameliorate, in whole or in part, such adverse impact. Each person participating in this Plan recognizes, acknowledges and agrees that this paragraph shall not create any right on the part of such person to any such special arrangement or accommodation. Each person participating in this Plan hereby waives, and each future stockholder of GS Inc. will be deemed to have waived, any right to object to a decision by the General Partner or the Board of Directors of GS Inc. to make such special arrangements. REGISTRATION OF CERTAIN SECURITIES FOR RESALE As part of this Plan, GS Inc. proposes to issue certain securities which have not been registered under the Securities Act of 1933 and recognizes that in certain circumstances it may be desirable that some or all of such securities and other securities be registered for sale or resale under such Act. A term sheet relating to the undertakings of GS Inc. under such circumstances is attached as Exhibit N. Accordingly, it is acknowledged as part of this Plan that if GS Inc. determines to so register such securities under such Act, GS Inc. will undertake responsibility for representations and warranties, covenants, payment of expenses, satisfaction of closing conditions and indemnification and contribution which are customarily found in registration rights agreements. The obligation of GS Inc. to assume responsibility for the matters referred to in the preceding sentence shall be subject, however, to the determination by GS Inc. in its sole discretion to register such securities in the first instance. Each person participating in this Plan hereby waives, and each future stockholder of GS Inc. will be deemed to have waived, any right to object to a decision by the General Partner or the Board of Directors of GS Inc. to assume such responsibilities. BENEFIT Nothing in this Plan, express or implied, is intended or shall be construed to confer upon or give to any person other than GS Group, GS Corp., GS Inc. and, to the extent expressly provided herein, the PLPs, the RLPs, any other person participating in this Plan, SBCM and KAA, any remedy or claim under or by reason of this Plan or any term, covenant or condition hereof, all of which shall be for the sole and exclusive benefit of the parties mentioned above in this paragraph; except that the provision set forth above in this Section 16 under "Release" shall be enforceable by the Releasee's mentioned therein. -28- 33 HEADINGS The headings of the Sections of this Plan are inserted as a matter of convenience and for reference purposes only, are of no binding effect, and in no respect define, limit or describe the scope of this Plan or the intent of any Section. NOTICES Any notices, demands, requests and other communications required or permitted to be given to a PLP, RLP, SBCM, KAA or other participant in this Plan shall be deemed duly given if communicated directly or if sent to the address of such party as set forth on the records of GS Group, GS Corp. or GS Inc. EXHIBITS All Exhibits to this Plan shall be deemed part of this Plan and incorporated herein, where applicable, as if fully set forth herein. ENTIRE AGREEMENT This Agreement, including the Exhibits hereto, represents the entire understanding and agreement among GS Group, GS Corp., GS Inc., the PLPs, the RLPs, SBCM, KAA and the other participants herein with respect to the subject matter hereof, and supersedes all prior negotiations among such parties hereto with respect to such subject matter. Each PLP consenting to this Plan and RLP or other person who accepts this Plan expressly agrees that none of GS Group, GS Corp. or GS Inc. has made any representations, warranties, promises or inducements in connection with this Plan other than as provided herein. GOVERNING LAW THIS PLAN WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THIS PLAN REPRESENTS AN AMENDMENT TO THE GS GROUP PARTNERSHIP AGREEMENT, IN WHICH EVENT SUCH AMENDMENT WILL BE GOVERNED BY DELAWARE LAW, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE GENERAL PARTNER IS EXPRESSLY AUTHORIZED TO MAKE ANY CHANGES TO THIS GOVERNING LAW PROVISION AND THE GOVERNING LAW PROVISIONS OF ANY EXHIBIT AS IT SHALL DEEM NECESSARY OR DESIRABLE PRIOR TO THE IPO DATE. GS INC. TO BE BOUND BY PLAN By executing a copy of this Plan, GS Inc. agrees to be bound by all of the provisions of this Plan (and related documents and agreements) applicable to it, either directly or as a result of the mergers of GS Corp. and GS Group into GS Inc. It is further agreed as part of this Plan that GS Inc. -29- 34 shall have the benefit of and shall be entitled to enforce all of its rights under this Plan (and related documents and agreements) applicable to it, either directly or as a result of the mergers of GS Corp. and GS Group into GS Inc. 17. DOCUMENTS PLPs AND RLPs ARE BEING ASKED TO SIGN GENERAL POWER OF ATTORNEY Each PLP will be furnished a Consent Document and Power of Attorney and each RLP will be furnished an Acceptance Document and Power of Attorney (each, a "Document"). For each PLP, the applicable Document is the document by which such PLP will cast such PLP's vote on whether this Plan should be adopted and, if this Plan is adopted, by which such PLP may elect to participate in this Plan, or, alternatively, to retire under the GS Group Partnership Agreement. For each RLP, the applicable Document is the document by which such RLP may elect to participate in this Plan, or, alternatively, to retire under the GS Group Partnership Agreement. Each PLP and each RLP who elects to participate in this Plan by executing the applicable Document will thereby become a party to this Plan. In addition, for those PLPs and RLPs who do not elect to retire, the applicable Document includes their power of attorney authorizing designated officers of the Firm to take all actions on their behalf to implement this Plan and related arrangements and execute Exhibits and other documents on their behalf. Each PLP and RLP electing to participate in this Plan must execute the applicable Document. If, as GS Corp. anticipates, this Plan is adopted and a PLP or RLP fails to execute and deliver the applicable Document by 5:00 p.m., New York City time, on March 15, 1999, such PLP or RLP, as the case may be, will be treated the same as a PLP or RLP who elects to retire. PARTNER, STOCKHOLDER AND MEMBER ACTION Without limiting the authority conferred above under "General Power of Attorney", each PLP, each RLP and each other person participating in this Plan in the capacity as a partner, stockholder, member or other owner of an entity which is the subject of this Plan hereby authorizes such attorney-in-fact under the applicable foregoing Document to take all action on the following matters to the extent such action is required (references are to portions of this Plan or an Exhibit where information on such matter may be found): a) Each of the actions, transactions and mergers listed on the documents included as part of Exhibit A; b) Each of the actions listed in the applicable Document; and -30- 35 c) Approval of the Goldman Sachs employee benefit plans described in Exhibit D under the caption "Management." AGREEMENT TO ASSIST IN CONSUMMATING TRANSACTIONS In addition to signing the applicable Document, each person participating in this Plan agrees that such person will execute and deliver, or cause to be executed and delivered, or to obtain and provide such additional information, documents, instruments and agreements as the General Partner or GS Inc. may request in order to implement this Plan. Among other things, the General Partner and GS Inc. may require additional information and documentation in connection with interests and securities held in trust or by related entities and in connection with transfers having a relationship to community property jurisdictions. 18. COPIES OF DOCUMENTS AND CONTACT PERSONS From Friday, March 5 through Friday, March 12, copies of this Plan (including the current draft Form S-1 Registration Statement and all other exhibits hereto) will be made available for inspection by PLPs and RLPs at the following times: Weekdays from 9:00 a.m. (local time) until 5:00 p.m. (local time) Weekends from noon (local time) until 5:00 p.m. (local time) (and otherwise by prior arrangement) at the following locations: Goldman, Sachs & Co. 12th Floor 85 Broad Street New York, New York 10004 c/o James McHugh (902-5738) Goldman Sachs International 3rd Floor Daniel House 140 Fleet Street London, EC4A 2BJ, England c/o Therese Miller (774-1315) Goldman Sachs (Japan) Ltd. ARK Mori Bldg. 6th Floor 12-32, Akasaka 1-chome -31- 36 Minato-ku, Tokyo 107, Japan c/o Haruko Watanuki (3589-7091) Goldman Sachs (Asia) L.L.C. 35th Floor Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Central Hong Kong c/o Pamela Root (2978-0655) Financial, tax, legal and other personnel will be available at the PLP meeting on Monday, March 8 and the RLP meetings on Tuesday, March 9 and Thursday, March 11 to answer questions concerning this Plan. UNLESS OTHERWISE DESIGNATED, THE SECURITIES OF GS INC. TO BE DISTRIBUTED OTHER THAN IN THE IPO HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR THE REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PLAN OR ANY OTHER DOCUMENT IN CONNECTION HEREWITH OR RECOMMENDED THE APPROVAL OF THIS PLAN OR THE ACQUISITION OF ANY SUCH SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. IN MAKING A DECISION TO PARTICIPATE IN THIS PLAN AND ACQUIRE GS INC. SECURITIES, PLPS AND RLPS MUST RELY ON THEIR OWN EXAMINATION OF GS INC. -32- 37 AMENDMENT AND RESTATEMENT On April , 1999 this Plan was amended and restated. In effecting such amendment and restatement provisions which spoke prospectively at the time this Plan was originally submitted to the PLPs were not generally revised to reflect the taking or omission of actions or the occurrence of events subsequent to the submission of the Plan to the PLPs or to reflect changes in the terms of any Exhibit the provisions of which are described or summarized in the Plan. The amendment and restatement is not intended to create any implication that actions or events which had not been taken or had not occurred at the time of such submission and that are referred to in this amended and restated Plan as to have been taken or to occur prospectively were not taken or did not occur prior to such amendment and restatement. Similarly, where such actions were taken or did occur, the existence of the prospective references in this amended and restated Plan shall not create any implication that such actions or events must or are expected to be retaken or to occur again following the date of this amended and restated Plan. Moreover, the terms and provisions of each Exhibit in the form ultimately adopted, executed or delivered supercede the terms and provisions of any previous form of such Exhibit and any description or summary of such terms or provisions contained in the Plan or the Plan as amended or restated. -33- 38 * * * ACKNOWLEDGEMENT By executing this Plan, the undersigned agree that this Plan shall constitute an agreement among GS Group, GS Corp., as General Partner of GS Group, GS Inc. the PLPs consenting to this Plan, SBCM, KAA, the RLPs and certain former partners accepting this Plan and, as provided above, an amendment to the GS Group Partnership Agreement. THE GOLDMAN SACHS CORPORATION By: /s/ Gregory K. Palm _________________________________ Name: Gregory K. Palm Title: General Counsel THE GOLDMAN SACHS GROUP, L.P. By: The Goldman Sachs Corporation By: /s/ Gregory K. Palm ____________________________ Name: Gregory K. Palm Title: General Counsel THE GOLDMAN SACHS GROUP, INC. By: /s/ Gregory K. Palm _________________________________ Name: Gregory K. Palm Title: General Counsel -34- EX-2.2 4 FORM OF AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2.2 S&C Draft of April 20, 1999 AGREEMENT AND PLAN OF MERGER AGREEMENT OF MERGER, dated as of May __, 1999, pursuant to Section 251 of the General Corporation Law of the State of Delaware (the "DGCL"), between THE GOLDMAN SACHS GROUP, INC., a Delaware corporation ("GS Inc."), and THE GOLDMAN SACHS CORPORATION, a Delaware corporation (the "Merging Entity"). WITNESSETH that: WHEREAS, each of the parties hereto desires that the Merging Entity merge (the "Merger") with and into GS Inc. as hereinafter specified with GS Inc. being the surviving corporation; and WHEREAS, certain redemptions of preferred stock of the Merging Entity may be effected in contemplation of the Merger; NOW, THEREFORE, the parties to this Agreement, in consideration of the mutual covenants, agreements and provisions hereinafter contained, do hereby prescribe the terms and conditions of the Merger and mode of carrying the same into effect as follows: FIRST: At the Effective Time (as hereinafter defined), the Merging Entity shall be merged with and into GS Inc., with GS Inc. being the surviving entity. SECOND: The Merger is intended to qualify as a "reorganization" within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended. 2 THIRD: The manner of converting the outstanding shares of capital stock of the Merging Entity and GS Inc. shall be as follows: (a) Each share of Class B Common Stock, par value $1.00 per share, of the Merging Entity which shall be issued and outstanding immediately prior to the effectiveness of this Agreement (the "Effective Time"), other than any such as to which appraisal rights have been validly asserted, shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive 2,376 shares (the "Class B Merger Consideration") of common stock, par value $0.01 per share, of GS Inc. (the "GS Inc. Common Stock"), and such shares of Class B Common Stock shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each holder of any such shares of Class B Common Stock as recorded in the books of the Merging Entity shall thereafter cease to have any rights with respect to such shares of Class B Common Stock, except the right to receive the Class B Merger Consideration for such shares of Class B Common Stock upon the Effective Time. The shares of GS Inc. Common Stock that are issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger. (b) The shares of each of the several series of Preferred Stock, par value $1.00 per share, of the Merging Entity which shall be issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive the consideration set forth in the attached Schedule A (the "Preferred Stock Merger Consideration"), and such shares of Preferred Stock shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each holder of any such shares of Preferred Stock as recorded in the books of the Merging Entity shall thereafter cease to have any rights with respect to such shares of Preferred Stock, except the right to receive the Preferred Stock Merger Consideration for such shares of Preferred Stock upon the Effective Time. (c) The shares of GS Inc. Common Stock owned by the Merging Entity prior to the Effective Time and owned by GS Inc. as a result of the Merger shall be canceled. FOURTH: The terms and conditions of the Merger are as follows: (a) the separate existence of the Merging Entity shall cease, and GS Inc. shall possess all the rights, privileges, powers and franchises of the Merging Entity, of a public as well as of a private nature, and shall be subject to all of the restrictions, disabilities and duties of the Merging Entity; -2- 3 (b) all property of the Merging Entity, real, personal and mixed, all debts due to the Merging Entity on whatever account and all other things in action or belonging to the Merging Entity shall be vested in GS Inc.; (c) the title to any real estate vested by deed or otherwise in the Merging Entity shall not revert or be in any way impaired, but all rights of creditors therein and all liens thereon shall be preserved unimpaired; (d) all debts, liabilities, duties and other obligations of the Merging Entity under any and all indentures, loan agreements, revolving credit agreements, liquidity agreements, letters of credit and reimbursement agreements, notes, guarantees or other agreements or other instruments to which the Merging Entity is a party or by which it is bound shall attach to GS Inc. and may be enforced against GS Inc. to the same extent as if said debts, liabilities and duties had been incurred or contracted by GS Inc.; (e) GS Inc. expressly assumes all debts, liabilities, duties and other obligations of the Merging Entity under any and all indentures, loan agreements, revolving credit agreements, liquidity agreements, letters of credit and reimbursement agreements, notes, guarantees or other agreements or other instruments to which the Merging Entity is a party or by which it is bound; and (f) any claim existing or action or proceeding pending by or against the Merging Entity may be prosecuted as if the Merger had not taken place, or GS Inc. may be proceeded against or substituted in place of the Merging Entity. FIFTH: The Merger shall become effective upon the filing of a Certificate of Merger with the Secretary of State of Delaware or at such other time as the parties may agree and as shall be stated in the Certificate of Merger (the "Effective Time"). SIXTH: The certificate of incorporation and by-laws of GS Inc., as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and by-laws of the surviving corporation. The directors of GS Inc. immediately prior to the Effective Time shall be the directors of the surviving corporation. -3- 4 SEVENTH: At any time prior to the Effective Time, this Agreement may be amended, modified or terminated by the Board of Directors of GS Inc. notwithstanding approval by the stockholders of all or any of the parties hereto. EIGHTH: All rights and obligations under this Agreement and Plan of Merger shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws. -4- 5 IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval and authority duly given by resolutions adopted by the Board of Directors of the Merging Entity and the consent of all of its stockholders and resolutions adopted by the Board of Directors of GS Inc., have caused these presents to be executed by each party hereto as the respective act, deed and agreement of each of said parties, as of the date first written above. THE GOLDMAN SACHS CORPORATION By:_______________________________ Name: Esta E. Stecher Title: Executive Vice President THE GOLDMAN SACHS GROUP, INC. By:_______________________________ Name: Gregory K. Palm Title: General Counsel -5- 6 By his signature below, the undersigned certifies that no shares of stock of The Goldman Sachs Group, Inc. were issued prior to the adoption by the Board of Directors of The Goldman Sachs Group, Inc. of the resolution approving this Agreement and Plan of Merger. ---------------------------------- Name: James B. McHugh Title: Assistant Secretary By his signature below, the undersigned certifies that this Agreement and Plan of Merger was duly signed on behalf of The Goldman Sachs Corporation, was authorized and approved by the Board of Directors thereof and thereafter was duly approved and adopted by at least a majority of the outstanding stock thereof entitled to vote thereon by unanimous written consent. ---------------------------------- Name: James B. McHugh Title: Assistant Secretary -6- EX-2.3 5 FORM OF AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2.3 S&C Draft of April 20, 1999 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of May __, 1999, pursuant to Section 263 of the General Corporation Law of the State of Delaware and Section 17-211 of the Delaware Revised Uniform Limited Partnership Act, between THE GOLDMAN SACHS GROUP, INC., a Delaware corporation ("GS Inc."), and THE GOLDMAN SACHS GROUP, L.P., a Delaware limited partnership (the "Merging Entity"). WITNESSETH that: WHEREAS, prior to the effectiveness of the Merger, GS Inc. shall have acquired all of the partnership interests in the Merging Entity including all of the interests in profits and capital of the Merging Entity; and WHEREAS, each of the parties hereto desires that the Merging Entity merge (the "Merger") with and into GS Inc. as hereinafter specified with GS Inc. being the surviving corporation; NOW, THEREFORE, the parties to this Agreement, in consideration of the mutual covenants, agreements and provisions hereinafter contained, do hereby prescribe the terms and conditions of the Merger and mode of carrying the same into effect as follows: FIRST: At the Effective Time (as hereinafter defined), the Merging Entity shall be merged with and into GS Inc., with GS Inc. being the surviving entity. 2 SECOND: At the Effective Time, GS Inc. shall own all of the partnership interests in the Merging Entity and shall be the only partner in the Merging Entity other than GS Transitory LLC (which shall be a limited partner in the Merging Entity without any partnership interest in the Merging Entity including no interest in profits or capital of the Merging Entity), all of the limited liability company interests in which are owned by GS Inc. and which will be simultaneously merged with and into GS Inc. THIRD: At the Effective Time, all of the partnership interests of the Merging Entity will be canceled. GS Transitory LLC shall receive no consideration in connection with the Merger. The shares of common stock of GS Inc., par value $0.01 per share ("GS Inc. Common Stock"), that are issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger, except that shares of GS Inc. Common Stock owned by the Merging Entity immediately prior to the Effective Time shall be canceled. FOURTH: The terms and conditions of the Merger are as follows: (a) the separate existence of the Merging Entity shall cease, and GS Inc. shall possess all the rights, privileges, powers and franchises of the Merging Entity, of a public as well as of a private nature, and shall be subject to all of the restrictions, disabilities and duties of the Merging Entity; (b) all property of the Merging Entity, real, personal and mixed, all debts due to the Merging Entity on whatever account and all other things in action or belonging to the Merging Entity shall be vested in GS Inc.; (c) the title to any real estate vested by deed or otherwise in the Merging Entity shall not revert or be in any way impaired, but all rights of creditors therein and all liens thereon shall be preserved unimpaired; (d) all debts, liabilities, duties and other obligations of the Merging Entity under any and all indentures, loan agreements, revolving credit agreements, liquidity agreements, letters of credit and reimbursement agreements, notes, guarantees or other agreements or instruments to which the Merging Entity is a party or by which it is bound shall attach to GS Inc. and may be enforced against -2- 3 GS Inc. to the same extent as if said debts, liabilities and duties had been incurred or contracted by GS Inc.; (e) GS Inc. expressly assumes all debts, liabilities, duties and other obligations of the Merging Entity under any and all indentures, loan agreements, revolving credit agreements, liquidity agreements, letters of credit and reimbursement agreements, notes, guarantees or other agreements or instruments to which the Merging Entity is a party or by which it is bound; and (f) any claim existing or action or proceeding pending by or against the Merging Entity may be prosecuted as if the Merger had not taken place, or GS Inc. may be proceeded against or substituted in place of the Merging Entity. FIFTH: The Merger shall become effective upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware or at such other time as the parties may agree and as shall be stated in the Certificate of Merger (the "Effective Time"). SIXTH: The certificate of incorporation and by-laws of GS Inc., as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and by-laws of the surviving corporation. The directors of GS Inc. immediately prior to the Effective Time shall be the directors of the surviving corporation. SEVENTH: At any time prior to the Effective Time, this Agreement may be amended, modified or terminated by the Board of Directors of GS Inc. notwithstanding approval by the stockholders or partners of any of the parties hereto. EIGHTH: ALL RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT AND PLAN OF MERGER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. -3- 4 IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval and authority duly given by the general partner and the Schedule II limited partners of the Merging Entity and resolutions adopted by the Board of Directors of GS Inc., have caused these presents to be executed by each party hereto as the respective act, deed and agreement of each of said parties, as of the date first written above. THE GOLDMAN SACHS GROUP, L.P. By: The Goldman Sachs Group, Inc., as General Partner By:_______________________________ Name: Gregory K. Palm Title: General Counsel THE GOLDMAN SACHS GROUP, INC. By:_______________________________ Name: Gregory K. Palm Title: General Counsel -4- 5 By his signature below, the undersigned certifies that no shares of stock of The Goldman Sachs Group, Inc. were issued prior to the adoption by the Board of Directors of The Goldman Sachs Group, Inc. of the resolution approving the Agreement and Plan of Merger. ---------------------------------- Name: James B. McHugh Title: Assistant Secretary -5- EX-3.1 6 CERTIFICATE OF INCORPORATION 1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 03:15 PM 07/21/1998 981283699-2923466 CERTIFICATE OF INCORPORATION OF THE GOLDMAN SACHS GROUP, INC. FIRST. The name of the Corporation is The Goldman Sachs Group, Inc. SECOND. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 1,000, of which 900 shares of the par value of $0.001 per share shall be designated as a Common Stock and 100 shares of the par value of $0.001 per share shall be designated as Preferred Stock. Shares of Preferred Stock may be issued in one or more series from time to time as determined by the board of directors, and the board of directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the 2 shares of each series of Preferred Stock, including the following: (a) the distinctive serial designation of such series which shall distinguish it from other series; (b) the number of shares included in such series; (c) the dividend rate (or method of determining such rate), if any, payable to the holders of the shares of such series, any conditions upon which such dividends shall be paid and the date or dates upon which such dividends shall be payable; (d) whether dividends on the shares of such series shall be cumulative and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative; (e) the amount or amounts which shall be payable out of the assets of the Corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of the shares of such series; (f) the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or -2- 3 at the option of the holder or holders thereof or upon the happening of a specified event or events; (g) the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (h) whether or not the shares of such series shall be convertible or exchangeable, at any time or times at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, and the price or prices or rate or rates of exchange or conversion and any adjustments applicable thereto; and (i) whether or not the holders of the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so the terms of such voting rights. FIFTH. The name and mailing address of the incorporator is Gregory K. Palm, 85 Broad Street, New York, New York 10004. -3- 4 SIXTH. The board of directors of the Corporation is expressly authorized to adopt, amend or repeal by-laws of the Corporation. SEVENTH. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the Corporation. EIGHTH. The number of directors of the Corporation shall be fixed by the board of directors from time to time pursuant to the by-laws of the Corporation. NINTH. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended. No amendment, modification or repeal of this Article NINTH shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal. IN WITNESS WHEREOF, I have signed this certificate of incorporation this 20th day of July, 1998. /s/ Gregory K. Palm ------------------- Gregory K. Palm Incorporator -4- EX-3.2 7 FORM OF AMENDED & RESTATED CERTIFICATE OF INC. 1 EXHIBIT 3.2 Draft of April 20, 1999 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE GOLDMAN SACHS GROUP, INC. THE GOLDMAN SACHS GROUP, INC., a corporation organized and existing under the Delaware General Corporation Law (the "Corporation"), does hereby certify: 1. The Corporation has not received any payment for any of its stock. 2. The Corporation's original certificate of incorporation was filed on July 21, 1998 with the Secretary of State of the State of Delaware under the name The Goldman Sachs Group, Inc. 3. The following amendment and restatement of the Corporation's Certificate of Incorporation was approved and duly adopted by a majority of the Corporation's Board of Directors in accordance with the provisions of Sections 241 and 245 of the Delaware General Corporation Law: FIRST. The name of the Corporation is The Goldman Sachs Group, Inc. 2 SECOND. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. Without limiting the generality of the foregoing, the Corporation shall have all of the powers conferred on corporations by the Delaware General Corporation Law and other law, including the power and authority to make an initial charitable contribution (as defined in Section 170(c) of the Internal Revenue Code of 1986, as currently in effect or as the same may hereafter be amended) of up to an aggregate of $200,000,000 to one or more entities the "Contribution"), and to make other charitable contributions from time to time thereafter, in such amounts, on such terms and conditions and for such purposes as may be lawful. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue -2- 3 is 4,350,000,000, of which 4,000,000,000 shares of the par value of $0.01 per share shall be a separate class designated as Common Stock, 200,000,000 shares of the par value of $0.01 per share shall be a separate class designated as Nonvoting Common Stock and 150,000,000 shares of the par value of $0.01 per share shall be a separate class designated as Preferred Stock. COMMON STOCK AND NONVOTING COMMON STOCK Except as set forth in this Article FOURTH, the Common Stock and the Nonvoting Common Stock (together, the "Common Shares") shall have the same rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters. (i) Voting. Except as may be provided in this Amended and Restated Certificate of Incorporation or required by law, the Common Stock shall have voting rights in the election of directors and on all other matters presented to stockholders, with each holder of Common Stock being entitled to one vote for each share of Common Stock held of record by such holder on such matters. The Nonvoting Common Stock shall have no voting rights other -3- 4 than such rights as may be required by the first sentence of Section 242(b)(2) of the Delaware General Corporation Law or any similar provision hereafter enacted; provided that an amendment of this Amended and Restated Certificate of Incorporation to increase or decrease the number of authorized shares of Nonvoting Common Stock (but not below the number of shares thereof then outstanding) may be adopted by resolution adopted by the board of directors of the Corporation and approved by the affirmative vote of the holders of a majority of the voting power of all outstanding shares of Common Stock of the Corporation and all other outstanding shares of stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law or any similar provision hereafter enacted, with such outstanding shares of Common Stock and other stock considered for this purpose as a single class, and no vote of the holders of any shares of Nonvoting Common Stock, voting separately as a class, shall be required therefor. (ii) Dividends. Subject to the rights of the holders of any series of Preferred Stock, holders of Common -4- 5 Stock and holders of Nonvoting Common Stock shall be entitled to receive such dividends and distributions (whether payable in cash or otherwise) as may be declared on the Common Shares by the board of directors of the Corporation from time to time out of assets or funds of the Corporation legally available therefor; provided that the board of directors of the Corporation shall declare no dividend, and no dividend shall be paid, with respect to any outstanding share of Common Stock or Nonvoting Common Stock, whether in cash or otherwise (including any dividend in shares of Common Stock on or with respect to shares of Common Stock or any dividend in shares of Nonvoting Common Stock on or with respect to shares of Nonvoting Common Stock (collectively, "Stock Dividends")), unless, simultaneously, the same dividend is declared or paid with respect to each share of Common Stock and Nonvoting Common Stock. If a Stock Dividend is declared or paid with respect to one class, then a Stock Dividend shall likewise be declared or paid with respect to the other class and shall consist of shares of such other class in a number that bears the same relationship to the total number of shares of such other -5- 6 class, issued and outstanding immediately prior to the payment of such dividend, as the number of shares comprising the Stock Dividend with respect to the first referenced class bears to the total number of shares of such first referenced class, issued and outstanding immediately prior to the payment of such dividend. Stock Dividends with respect to Common Stock may be paid only with shares of Common Stock. Stock Dividends with respect to Nonvoting Common Stock may be paid only with shares of Nonvoting Common Stock. Notwithstanding the foregoing, in the case of any dividend in the form of capital stock of a subsidiary of the Corporation, the capital stock of the subsidiary distributed to holders of Common Stock shall be identical to the capital stock of the subsidiary distributed to holders of Nonvoting Common Stock, except that the capital stock distributed to holders of Common Stock may have full or any other voting rights and the capital stock distributed to holders of Nonvoting Common Stock shall be non-voting to the same extent as the Nonvoting Common Stock is non-voting. (iii) Subdivisions, Combinations and Mergers. If the Corporation shall in any manner split, subdivide or combine the outstanding shares of Common Stock or the outstanding shares of Nonvoting Common Stock, the -6- 7 outstanding shares of the other such class of the Common Shares shall likewise be split, subdivided or combined in the same manner proportionately and on the same basis per share. In the event of any merger, statutory share exchange, consolidation or similar form of corporate transaction involving the Corporation (whether or not the Corporation is the surviving entity), the holders of Common Stock and the holders of Nonvoting Common Stock shall be entitled to receive the same per share consideration, if any, except that any securities received by holders of Common Stock in consideration of such stock may have full or any other voting rights and any securities received by holders of Nonvoting Common Stock in consideration of such stock shall be non-voting to the same extent as the Nonvoting Common Stock is non-voting. (iv) Rights on Liquidation. Subject to the rights of the holders of any series of Preferred Stock, in the event of any liquidation, dissolution or winding-up of the Corporation (whether voluntary or involuntary), the assets of the Corporation available for distribution to stockholders shall be distributed in equal amounts per share to the holders of Common Stock and the holders of Nonvoting Common Stock, as if such classes constituted a single class. -7- 8 For purposes of this paragraph, a merger, statutory share exchange, consolidation or similar corporate transaction involving the Corporation (whether or not the Corporation is the surviving entity), or the sale, transfer or lease by the Corporation of all or substantially all its assets, shall not constitute or be deemed a liquidation, dissolution or winding-up of the Corporation. PREFERRED STOCK Shares of Preferred Stock may be issued in one or more series from time to time as determined by the board of directors of the Corporation, and the board of directors of the Corporation is authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, including the following: (i) the distinctive serial designation of such series which shall distinguish it from other series; (ii) the number of shares included in such series; -8- 9 (iii) whether dividends shall be payable to the holders of the shares of such series and, if so, the basis on which such holders shall be entitled to receive dividends (which may include, without limitation, a right to receive such dividends or distributions as may be declared on the shares of such series by the board of directors of the Corporation, a right to receive such dividends or distributions, or any portion or multiple thereof, as may be declared on the Common Stock or any other class of stock or, in addition to or in lieu of any other right to receive dividends, a right to receive dividends at a particular rate or at a rate determined by a particular method, in which case such rate or method of determining such rate may be set forth), the form of such dividend, any conditions on which such dividends shall be payable and the date or dates, if any, on which such dividends shall be payable; (iv) whether dividends on the shares of such series shall be cumulative and, if so, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative; -9- 10 (v) the amount or amounts, if any, which shall be payable out of the assets of the Corporation to the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the relative rights of priority, if any, of payment of the shares of such series; (vi) the price or prices (in cash, securities or other property or a combination thereof) at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event or events; (vii) the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices (in cash, securities or other property or a combination thereof) at which, the period or periods within which and the terms and conditions upon which the shares of -10- 11 such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (viii) whether or not the shares of such series shall be convertible or exchangeable, at any time or times at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or any other securities or property of the Corporation or any other entity, and the price or prices (in cash, securities or other property or a combination thereof) or rate or rates of conversion or exchange and any adjustments applicable thereto; and (ix) whether or not the holders of the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so the terms of such voting rights, which may provide, among other things and subject to the other provisions of this Amended and Restated Certificate of Incorporation, that each share of such series shall carry one vote or more -11- 12 or less than one vote per share, that the holders of such series shall be entitled to vote on certain matters as a separate class (which for such purpose may be comprised solely of such series or of such series and one or more other series or classes of stock of the Corporation) and that all the shares of such series entitled to vote on a particular matter shall be deemed to be voted on such matter in the manner that a specified portion of the voting power of the shares of such series or separate class are voted on such matter. For all purposes, this Amended and Restated Certificate of Incorporation shall include each certificate of designations (if any) setting forth the terms of a series of Preferred Stock. Subject to the rights, if any, of the holders of any series of Preferred Stock set forth in a certificate of designations, an amendment of this Amended and Restated Certificate of Incorporation to increase or decrease the number of authorized shares of any series of Preferred Stock (but not below the number of shares thereof then outstanding) may be adopted by resolution adopted by the -12- 13 board of directors of the Corporation and approved by the affirmative vote of the holders of a majority of the voting power of all outstanding shares of Common Stock of the Corporation and all other outstanding shares of stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law or any similar provision hereafter enacted, with such outstanding shares of Common Stock and other stock considered for this purpose as a single class, and no vote of the holders of any series of Preferred Stock, voting as a separate class, shall be required therefor. Except as otherwise required by law or provided in the certificate of designations for the relevant series, holders of Common Shares, as such, shall not be entitled to vote on any amendment of this Amended and Restated Certificate of Incorporation that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other series of Preferred Stock, to vote thereon as a separate class pursuant to this -13- 14 Amended and Restated Certificate of Incorporation or pursuant to the Delaware General Corporation Law as then in effect. OPTIONS, WARRANTS AND OTHER RIGHTS The board of directors of the Corporation is authorized to create and issue options, warrants and other rights from time to time entitling the holders thereof to purchase securities or other property of the Corporation or any other entity, including any class or series of stock of the Corporation or any other entity and whether or not in connection with the issuance or sale of any securities or other property of the Corporation, for such consideration (if any), at such times and upon such other terms and conditions as may be determined or authorized by the board of directors of the Corporation and set forth in one or more agreements or instruments. Among other things and without limitation, such terms and conditions may provide for the following: (i) adjusting the number or exercise price of such options, warrants or other rights or the amount or nature of the securities or other property receivable -14- 15 upon exercise thereof in the event of a subdivision or combination of any securities, or a recapitalization, of the Corporation, the acquisition by any person of beneficial ownership of securities representing more than a designated percentage of the voting power of any outstanding series, class or classes of securities, a change in ownership of the Corporation's securities or a merger, statutory share exchange, consolidation, reorganization, sale of assets or other occurrence relating to the Corporation or any of its securities, and restricting the ability of the Corporation to enter into an agreement with respect to any such transaction absent an assumption by another party or parties thereto of the obligations of the Corporation under such options, warrants or other rights; (ii) restricting, precluding or limiting the exercise, transfer or receipt of such options, warrants or other rights by any person that becomes the beneficial owner of a designated percentage of the voting power of any outstanding series, class or classes of securities of the Corporation or any direct -15- 16 or indirect transferee of such a person, or invalidating or voiding such options, warrants or other rights held by any such person or transferee; and (iii) permitting the board of directors (or certain directors specified or qualified by the terms of the governing instruments of such options, warrants or other rights) to redeem, terminate or exchange such options, warrants or other rights. This paragraph shall not be construed in any way to limit the power of the board of directors of the Corporation to create and issue options, warrants or other rights. FIFTH. The name and mailing address of the incorporator is Gregory K. Palm, 85 Broad Street, New York, New York 10004. SIXTH. All corporate powers shall be exercised by the board of directors of the Corporation, except as otherwise specifically required by law or as otherwise provided in this Amended and Restated Certificate of Incorporation. Any meeting of stockholders may be postponed by action of the board of directors at any time in advance of such meeting. The board of directors of the Corporation -16- 17 shall have the power to adopt such rules and regulations for the conduct of the meetings and management of the affairs of the Corporation as they may deem proper and the power to adjourn any meeting of stockholders without a vote of the stockholders, which powers may be delegated by the board of directors to the chairman of such meeting either in such rules and regulations or pursuant to the by-laws of the Corporation. Special meetings of stockholders of the Corporation may be called at any time by, but only by, the board of directors of the Corporation, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. The board of directors of the Corporation is authorized to adopt, amend or repeal by-laws of the Corporation. No adoption, amendment or repeal of a by-law by action of stockholders shall be effective unless approved by the affirmative vote of the holders of not less than 80% of the voting power of all outstanding shares of Common Stock of the Corporation and all other outstanding shares of stock of the Corporation entitled to vote on such matter, -17- 18 with such outstanding shares of Common Stock and other stock considered for this purpose as a single class. Any vote of stockholders required by this Article SIXTH shall be in addition to any other vote of stockholders that may be required by law, this Amended and Restated Certificate of Incorporation, the by-laws of the Corporation, any agreement with a national securities exchange or otherwise. SEVENTH. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the Corporation. EIGHTH. The directors of the Corporation shall be divided into three classes. The number of directors of the Corporation and the number of directors in each class of directors shall be fixed only by resolution of the board of directors of the Corporation from time to time. The initial term of office of the first such class of directors shall expire at the annual meeting of stockholders in 2000, the initial term of office of the second such class of directors shall expire at the annual meeting of stockholders in 2001 and the initial term of office of the third such class of directors shall expire at the annual meeting of stockholders -18- 19 in 2002, with each such class of directors to hold office until their successors have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed the directors whose terms expire at such annual meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders in the third year following the year of their election and until their successors have been duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes in such manner as the board of directors of the Corporation shall determine, but no decrease in the number of directors may shorten the term of any incumbent director. No director who is part of any such class of directors may be removed except both for cause and with the affirmative vote of the holders of not less than 80% of the voting power of all outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, considered for this purpose as a single class. Vacancies and newly created directorships resulting from any increase in the authorized number of -19- 20 directors or from any other cause (other than vacancies and newly created directorships which the holders of any class or classes of stock or series thereof are expressly entitled by this Amended and Restated Certificate of Incorporation to fill) shall be filled by, and only by, a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Any director appointed to fill a vacancy or a newly created directorship shall hold office until the next election of the class of directors of the director which such director replaced or the class of directors to which such director was appointed, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Notwithstanding the foregoing, in the event that the holders of any class or series of Preferred Stock of the Corporation shall be entitled, voting separately as a class, to elect any directors of the Corporation, then the number of directors that may be elected by such holders voting separately as a class shall be in addition to the number fixed pursuant to a resolution of the board of directors of the Corporation. Except as otherwise provided in the terms -20- 21 of such class or series, (i) the terms of the directors elected by such holders voting separately as a class shall expire at the annual meeting of stockholders next succeeding their election without regard to the classification of other directors and (ii) any director or directors elected by such holders voting separately as a class may be removed, with or without cause, by the holders of a majority of the voting power of all outstanding shares of stock of the Corporation entitled to vote separately as a class in an election of such directors. NINTH. In taking any action, including action that may involve or relate to a change or potential change in the control of the Corporation, a director of the Corporation may consider, among other things, both the long-term and short-term interests of the Corporation and its stockholders and the effects that the Corporation's actions may have in the short term or long term upon any one or more of the following matters: (i) the prospects for potential growth, development, productivity and profitability of the Corporation; -21- 22 (ii) the Corporation's current employees; (iii) the retired former partners of The Goldman Sachs Group, L.P. ("GS Group") and the Corporation's employees and other beneficiaries receiving or entitled to receive retirement, welfare or similar benefits from or pursuant to any plan sponsored, or agreement entered into, by the Corporation; (iv) the Corporation's customers and creditors; (v) the ability of the Corporation to provide, as a going concern, goods, services, employment opportunities and employment benefits and otherwise to contribute to the communities in which it does business; and (vi) such other additional factors as a director may consider appropriate in such circumstances. Nothing in this Article NINTH shall create any duty owed by any director of the Corporation to any person or entity to consider, or afford any particular weight to, any of the foregoing matters or to limit his or her consideration to the foregoing matters. No such employee, retired former partner of GS Group, former employee, beneficiary, customer, -22- 23 creditor or community or member thereof shall have any rights against any director of the Corporation or the Corporation under this Article NINTH. TENTH. From and after the consummation of the initial public offering of the shares of Common Stock of the Corporation, no action of stockholders of the Corporation required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting of stockholders, without prior notice and without a vote, and the power of stockholders of the Corporation to consent in writing to the taking of any action without a meeting is specifically denied. Notwithstanding this Article TENTH, the holders of any series of Preferred Stock of the Corporation shall be entitled to take action by written consent to such extent, if any, as may be provided in the terms of such series. ELEVENTH. No provision of Article SIXTH, EIGHTH, NINTH, TENTH or TWELFTH or of this Article ELEVENTH shall be amended, modified or repealed, and no provision inconsistent with any such provision shall become part of this Amended and Restated Certificate of Incorporation, unless such -23- 24 matter is approved by the affirmative vote of the holders of not less than 80% of the voting power of all outstanding shares of Common Stock of the Corporation and all other outstanding shares of stock of the Corporation entitled to vote on such matter, with such outstanding shares of Common Stock and other stock considered for this purpose as a single class. Any vote of stockholders required by this Article ELEVENTH shall be in addition to any other vote of the stockholders that may be required by law, this Amended and Restated Certificate of Incorporation, the by-laws of the Corporation, any agreement with a national securities exchange or otherwise. TWELFTH. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director of the Corporation, except to the extent that such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended. Pursuant to the Plan of Incorporation of GS Group, dated as of March 8, 1999, as currently in effect or as the -24- 25 same may hereafter be amended (the "Plan"), the Corporation has the right, but not the obligation, to make special arrangements with any person who was a partner of GS Group participating in the Plan to ameliorate, in whole or in part, certain significantly disproportionate tax or other burdens. The board of directors of the Corporation is authorized to cause the Corporation to make such arrangements (which may include special payments) as the board of directors of the Corporation may, in its sole discretion, deem appropriate to effectuate the intent of the relevant provision of the Plan and the Corporation and each stockholder of the Corporation shall, to the fullest extent permitted by law, be deemed to have approved and ratified any such determination and to have waived any claim or objection on behalf of the Corporation or any such stockholder arising out of the making of such arrangements. Pursuant to the Plan, the Corporation has the right, but not the obligation, to register with the Securities and Exchange Commission the resale of certain securities of the Corporation by directors, employees and former directors and employees of the Corporation and its -25- 26 subsidiaries and affiliates and former partners and employees of GS Group and its subsidiaries and affiliates and to undertake various actions and to enter into agreements and arrangements in connection therewith (collectively, the "Registration Arrangements"). The board of directors of the Corporation is authorized to cause the Corporation to undertake such Registration Arrangements as the board of directors of the Corporation may, in its sole discretion, deem appropriate and the Corporation and each stockholder of the Corporation shall, to the fullest extent permitted by law, be deemed to have approved and ratified any such determination and to have waived any claim or objection on behalf of the Corporation or any such stockholder arising out of the undertaking of such Registration Arrangements. The Corporation and each stockholder of the Corporation shall, to the fullest extent permitted by law, be deemed to have approved and ratified any decision by the board of directors of the Corporation to make the Contribution referred to in Article THIRD, including the amount thereof (up to the limit specified in Article THIRD) -26- 27 and to have waived any claim or objection on behalf of the Corporation or any such stockholder arising out of any such decision to make, or the making of, the Contribution. The authorizations, approvals and ratifications contained in the second, third and fourth paragraphs of this Article TWELFTH shall not be construed to indicate that any other arrangements or contributions not specifically referred to in such paragraphs are, by reason of such omission, not within the power and authority of the board of directors of the Corporation or that the determination of the board of directors of the Corporation with respect thereto should be judged by any legal standard other than that which would have applied but for the inclusion of the second, third and fourth paragraphs of this Article TWELFTH. No amendment, modification or repeal of this Article TWELFTH shall adversely affect any right or protection of a director of the Corporation that exists at the time of such amendment, modification or repeal. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed and attested by its duly -27- 28 authorized officer on this ____ day of _______________, 1999. ------------------------------ Gregory K. Palm -28- EX-3.3 8 FORM OF AMENDED & RESTATED BY-LAWS 1 EXHIBIT 3.3 Draft of April 28, 1999 BY-LAWS OF THE GOLDMAN SACHS GROUP, INC. ARTICLE I Stockholders Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other business properly brought before the meeting may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of stockholders may be called at any time by, and only by, the Board of Directors, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. 2 Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. Quorum. At each meeting of stockholders, except where otherwise required by law, the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, where a separate vote by class or classes is required for any matter, the holders of a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum to take action with respect to that vote on that matter. Two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the meeting of such class may be adjourned from time to time in the manner provided by Sections 1.4 and 1.6 of these by-laws until a quorum of such class shall be so present or represented. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not -2- 3 limited to its own stock, held by it in a fiduciary capacity. Section 1.6. Organization. Meetings of stockholders shall be presided over by a Chairman of the Board, if any, or in the absence of a Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice Chairman of the Board by a Chief Executive Officer, or in the absence of a Chief Executive Officer by a President, or in the absence of a President by a Chief Operating Officer, or in the absence of a Chief Operating Officer by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. A Secretary, or in the absence of a Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of a Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to adjourn a meeting of stockholders without a vote of stockholders and to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting and are not inconsistent with any rules or regulations adopted by the Board of Directors pursuant to the provisions of the certificate of incorporation, including the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls for each item upon which a vote is to be taken. Section 1.7. Inspectors. Prior to any meeting of stockholders, the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a President, a Chief Operating Officer, a Vice President or any other officer designated by the Board shall appoint one or more inspectors to act at such meeting and -3- 4 make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the Corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was -4- 5 obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.8. Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. If the certificate of incorporation provides for more or less than one vote for any share on any matter, every reference in these by-laws to a majority or other proportion of shares of stock shall refer to such majority or other proportion of the votes of such shares of stock. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with a Secretary. Voting at meetings of stockholders need not be by written ballot unless so directed by the chairman of the meeting or the Board of Directors. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise required by law, the certificate of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority (or, in the case of an election of directors, -5- 6 a plurality) of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise required by law, the certificate of incorporation or these by-laws. Section 1.9. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to the action for which a record date is being established. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. -6- 7 Section 1.10. List of Stockholders Entitled to Vote. A Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the municipality where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 1.11. Advance Notice of Stockholder Nominees for Director and Other Stockholder Proposals. (a) The matters to be considered and brought before any annual or special meeting of stockholders of the Corporation shall be limited to only such matters, including the nomination and election of directors, as shall be brought properly before such meeting in compliance with the procedures set forth in this Section 1.11. (b) For any matter to be properly brought before any annual meeting of stockholders, the matter must be (i) specified in the notice of annual meeting given by or at the direction of the Board of Directors, (ii) otherwise brought before the annual meeting by or at the direction of the Board of Directors or (iii) brought before the annual meeting in the manner specified in this Section 1.11(b)(x) by a stockholder that holds of record stock of the Corporation entitled to vote at the annual meeting on such matter (including any election of a director) or (y) by a person (a "Nominee Holder") that holds such stock through a nominee or "street name" holder of record of such stock and can demonstrate to the Corporation such indirect ownership of, and such Nominee Holder's entitlement to vote, such stock on such matter. In addition to any other requirements under applicable law, the certificate of incorporation and -7- 8 these by-laws, persons nominated by stockholders for election as directors of the Corporation and any other proposals by stockholders shall be properly brought before an annual meeting of stockholders only if notice of any such matter to be presented by a stockholder at such meeting (a "Stockholder Notice") shall be delivered to a Secretary at the principal executive office of the Corporation not less than ninety nor more than one hundred and twenty days prior to the first anniversary date of the annual meeting for the preceding year (or, in the case of the annual meeting of stockholders to be held in 2000, not less than ninety nor more than one hundred and twenty days prior to May 1, 2000); provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty days before and ends thirty days after such anniversary date (or May 1, 2000, in the case of the annual meeting of stockholders to be held in 2000) (an annual meeting date outside such period being referred to herein as an "Other Meeting Date"), such Stockholder Notice shall be given in the manner provided herein by the later of (i) the close of business on the date ninety days prior to such Other Meeting Date or (ii) the close of business on the tenth day following the date on which such Other Meeting Date is first publicly announced or disclosed. Any stockholder desiring to nominate any person or persons (as the case may be) for election as a director or directors of the Corporation at an annual meeting of stockholders shall deliver, as part of such Stockholder Notice, a statement in writing setting forth the name of the person or persons to be nominated, the number and class of all shares of each class of stock of the Corporation owned of record and beneficially by each such person, as reported to such stockholder by such person, the information regarding each such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission, each such person's signed consent to serve as a director of the Corporation if elected, such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation owned of record and beneficially by such stockholder and, in the case of a Nominee Holder, evidence establishing such Nominee Holder's indirect ownership of stock and entitlement to vote such -8- 9 stock for the election of directors at the annual meeting. Any stockholder who gives a Stockholder Notice of any matter (other than a nomination for director) proposed to be brought before an annual meeting of stockholders shall deliver, as part of such Stockholder Notice, the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation owned of record and beneficially by such stockholder, any material interest of such stockholder in the matter proposed (other than as a stockholder), if applicable, and, in the case of a Nominee Holder, evidence establishing such Nominee Holder's indirect ownership of stock and entitlement to vote such stock on the matter proposed at the annual meeting. As used in these by-laws, shares "beneficially owned" shall mean all shares which such person is deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the "Exchange Act"). If a stockholder is entitled to vote only for a specific class or category of directors at a meeting (annual or special), such stockholder's right to nominate one or more individuals for election as a director at the meeting shall be limited to such class or category of directors. Notwithstanding any provision of this Section 1.11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at the next annual meeting of stockholders is increased by virtue of an increase in the size of the Board of Directors and either all of the nominees for director at the next annual meeting of stockholders or the size of the increased Board of Directors is not publicly announced or disclosed by the Corporation at least one hundred days prior to the first anniversary of the preceding year's annual meeting (or, in the case of the annual meeting of stockholders to be held in 2000, at least one hundred days prior to May 1, 2000), a Stockholder Notice shall also be considered timely hereunder, but only with respect to nominees to stand for election at the next annual meeting as the result of any new positions created by such increase, if it shall be delivered -9- 10 to a Secretary at the principal executive office of the Corporation not later than the close of business on the tenth day following the first day on which all such nominees or the size of the increased Board of Directors shall have been publicly announced or disclosed. (c) Except as provided in the immediately following sentence, no matter shall be properly brought before a special meeting of stockholders unless such matter shall have been brought before the meeting pursuant to the Corporation's notice of such meeting. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder entitled to vote for the election of such director(s) at such meeting may nominate a person or persons (as the case may be) for election to such position(s) as are specified in the Corporation's notice of such meeting, but only if the Stockholder Notice required by Section 1.11(b) hereof shall be delivered to a Secretary at the principal executive office of the Corporation not later than the close of business on the tenth day following the first day on which the date of the special meeting and either the names of all nominees proposed by the Board of Directors to be elected at such meeting or the number of directors to be elected shall have been publicly announced or disclosed. (d) For purposes of this Section 1.11, a matter shall be deemed to have been "publicly announced or disclosed" if such matter is disclosed in a press release reported by the Dow Jones News Service, the Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission. (e) In no event shall the adjournment of an annual meeting or a special meeting, or any announcement thereof, commence a new period for the giving of notice as provided in this Section 1.11. This Section 1.11 shall not apply to (i) any stockholder proposal made pursuant to Rule 14a-8 under the Exchange Act or (ii) any nomination of a director in an election in which only the holders of one or more series of Preferred Stock of the Corporation issued pursuant -10- 11 to Article FOURTH of the certificate of incorporation are entitled to vote (unless otherwise provided in the terms of such stock). (f) The chairman of any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether notice of nominees and other matters proposed to be brought before a meeting has been duly given in the manner provided in this Section 1.11 and, if not so given, shall direct and declare at the meeting that such nominees and other matters shall not be considered. Section 1.12. Approval of Stockholder Proposals. Except as otherwise required by law, any matter (other than a nomination for director) that has been properly brought before an annual or special meeting of stockholders of the Corporation by a stockholder (including a Nominee Holder) in compliance with the procedures set forth in Section 1.11 shall require for approval thereof the affirmative vote of the holders of not less than a majority of all outstanding shares of Common Stock of the Corporation and all other outstanding shares of stock of the Corporation entitled to vote on such matter, with such outstanding shares of Common Stock and other stock considered for this purpose as a single class. Any vote of stockholders required by this Section 1.12 shall be in addition to any other vote of stockholders of the Corporation that may be required by law, the certificate of incorporation or these by-laws, by any agreement with a national securities exchange or otherwise. ARTICLE II Board of Directors Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise required by law or provided in the certificate of incorporation. The number of directors of -11- 12 the Corporation and the number of directors in each class of directors shall be fixed only by resolution of the Board of Directors from time to time. If the holders of any class or classes of stock or series thereof are entitled by the certificate of incorporation to elect one or more directors, the preceding sentence shall not apply to such directors and the number of such directors shall be as provided in the terms of such stock. Directors need not be stockholders. Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until the next election of the class or category for which such director shall have been chosen, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a President, a Chief Operating Officer or a Secretary. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. No director may be removed except as provided in the certificate of incorporation. Vacancies and newly created directorships resulting from any increase in the authorized number of directors (other than any directors elected in the manner described in the next sentence) or from any other cause shall be filled by, and only by, a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled by the certificate of incorporation to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by, and only by, a majority of the directors elected by such class or classes or series then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy or a newly created directorship shall hold office until the next election of the class of directors of the director which such director replaced or the class of directors to which such director was appointed, and until his or her successor -12- 13 is elected and qualified or until his or her earlier resignation or removal. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by a Chairman of the Board, if any, by a Vice Chairman of the Board, if any, by a Chief Executive Officer, if any, by a President, if any, by a Chief Operating Officer, if any, or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. Section 2.5. Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At each meeting of the Board of Directors, one-half of the number of directors equal to (i) the total number of directors fixed by resolution of the board of directors (including any vacancies) plus (ii) the number of directors elected by a holder or holders of Preferred Stock voting separately as a class, as described in the fourth paragraph of Article EIGHTH of the certificate of incorporation (including any vacancies), shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of -13- 14 incorporation or these by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members or a majority of the members of the Board present may adjourn the meeting from time to time until a quorum shall be present. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by a Chairman of the Board, if any, or in the absence of a Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice Chairman of the Board, by a Chief Executive Officer, or in the absence of a Chief Executive Officer, by a President, or in the absence of a President, by a Chief Operating Officer, or in the absence of a Chief Operating Officer, by a chairman chosen at the meeting. A Secretary, or in the absence of a Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of a Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, then in office consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 2.9. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, the Board of Directors shall have the authority to fix the compensation of directors. ARTICLE III Committees -14- 15 Section 3.1. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to stockholders for approval or (ii) adopting, amending or repealing these by-laws. Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws. -15- 16 ARTICLE IV Officers Section 4.1. Officers; Election or Appointment. The Board of Directors shall take such action as may be necessary from time to time to ensure that the Corporation has such officers as are necessary, under Section 5.1 of these by-laws and the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended, to enable it to sign stock certificates. In addition, the Board of Directors at any time and from time to time may elect (i) one or more Chairmen of the Board and/or one or more Vice Chairmen of the Board from among its members, (ii) one or more Chief Executive Officers, one or more Presidents and/or one or more Chief Operating Officers, (iii) one or more Vice Presidents, one or more Treasurers and/or one or more Secretaries and/or (iv) one or more other officers, in the case of each of (i), (ii), (iii) and (iv) if and to the extent the Board deems desirable. The Board of Directors may give any officer such further designations or alternate titles as it considers desirable. In addition, the Board of Directors at any time and from time to time may authorize any officer of the Corporation to appoint one or more officers of the kind described in clauses (iii) and (iv) above. Any number of offices may be held by the same person and directors may hold any office unless the certificate of incorporation or these by-laws otherwise provide. Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless otherwise provided in the resolution of the Board of Directors electing or authorizing the appointment of any officer, each officer shall hold office until his or her successor is elected or appointed and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to such person or persons as the Board may designate. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any officer authorized by the -16- 17 Board to appoint a person to hold an office of the Corporation may also remove such person from such office with or without cause at any time, unless otherwise provided in the resolution of the Board providing such authorization. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election or appointment of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting or by an officer authorized by the Board to appoint a person to hold such office. Section 4.3. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. A Secretary or such other officer appointed to do so by the Board shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE V Stock Section 5.1. Certificates; Uncertificated Shares. The shares of stock in the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to any such shares represented by a certificate theretofore issued until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a -17- 18 resolution or resolutions by the Board of Directors of the Corporation, every holder of stock represented by certificates, and upon request every holder of uncertificated shares, shall be entitled to have a certificate signed by or in the name of the Corporation by a Chairman or Vice Chairman of the Board or a President or Vice President, and by a Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, representing the number of shares of stock in the Corporation owned by such holder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Certificates representing shares of stock of the Corporation may bear such legends regarding restrictions on transfer or other matters as any officer or officers of the Corporation may determine to be appropriate and lawful. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise required by law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of such class or series of stock and the qualifications, limitations or restrictions of such preferences and/or -18- 19 rights. Within a reasonable time after the issuance or transfer of uncertificated shares of any class or series of stock, the Corporation shall send to the registered owner thereof a written notice containing the information required by law to be set forth or stated on certificates representing shares of such class or series or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of such class or series and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 6.2. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be -19- 20 approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 6.4. Indemnification. The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director or officer of the Corporation, is or was a director, officer, trustee, member, stockholder, partner, incorporator or liquidator of a Subsidiary of the Corporation, is or was a member of the Shareholders' Committee acting pursuant to the Shareholders' Agreement, to be entered into among the Corporation and certain of its Stockholders as contemplated by the Plan of Incorporation of The Goldman Sachs Group, L.P. adopted on March 8, 1999, as amended, or serves or served at the request of the Corporation as a director, officer, trustee, member, stockholder, partner, incorporator or liquidator of or in any other capacity for any other enterprise. -20- 21 Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon demand by such person and, if any such demand is made in advance of the final disposition of any such action, suit or proceeding, promptly upon receipt by the Corporation of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person, who shall be presumed to have relied upon it in serving or continuing to serve as a director or officer or in such other capacity as provided above. In addition, the rights provided to any person by this by-law shall survive the termination of such person as any such director, officer, trustee, member, stockholder, partner, incorporator or liquidator and, insofar as such person served at the request of the Corporation as a director, officer, trustee, member, stockholder, partner, incorporator or liquidator of or in any other capacity for any other enterprise, shall survive the termination of such request as to service prior to termination of such request. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. Notwithstanding anything contained in this Section 6.4, except for proceedings to enforce rights provided in this Section 6.4, the Corporation shall not be obligated under this Section 6.4 to provide any indemnification or any payment or reimbursement of expenses to any director, officer or other person in connection with a proceeding (or part thereof) initiated by such person (which shall not include counterclaims or crossclaims initiated by others) unless the Board of Directors has authorized or consented to such proceeding (or part thereof) in a resolution adopted by the Board. For purposes of this by-law, the term "Subsidiary" shall mean any corporation, partnership, limited liability company or other entity in which the Corporation owns, directly or indirectly, a majority of the economic or voting ownership interest; the term "other enterprise" shall -21- 22 include any corporation, partnership, limited liability company, joint venture, trust, association or other unincorporated organization or other entity and any employee benefit plan; the term "officer," when used with respect to the Corporation, shall refer to any officer elected by or appointed pursuant to authority granted by the Board of Directors of the Corporation pursuant to clauses (i), (ii), (iii) and (iv) of Section 4.1 of these by-laws, when used with respect to a Subsidiary or other enterprise that is a corporation, shall refer to any person elected or appointed pursuant to the by-laws of such Subsidiary or other enterprise or chosen in such manner as is prescribed by the by-laws of such Subsidiary or other enterprise or determined by the Board of Directors of such Subsidiary or other enterprise, and when used with respect to a Subsidiary or other enterprise that is not a corporation or is organized in a foreign jurisdiction, the term "officer" shall include in addition to any officer of such entity, any person serving in a similar capacity or as the manager of such entity; service "at the request of the Corporation" shall include service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. To the extent authorized from time to time by the Board of Directors, the Corporation may provide to (i) any one or more employees and other agents of the Corporation, (ii) any one or more officers, employees and other agents of any Subsidiary and (iii) any one or more directors, officers, employees and other agents of any other enterprise, rights of indemnification and to receive payment or reimbursement of expenses, including attorneys' fees, that are similar to the rights conferred in this Section 6.4 on directors and officers of the Corporation or any -22- 23 Subsidiary or other enterprise. Any such rights shall have the same force and effect as they would have if they were conferred in this Section 6.4. Nothing in this Section 6.4 shall limit the power of the Corporation or the Board of Directors to provide rights of indemnification and to make payment and reimbursement of expenses, including attorneys' fees, to directors, officers, employees, agents and other persons otherwise than pursuant to this Section 6.4. Section 6.5. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, limited liability company, joint venture, trust, association or other unincorporated organization or other entity in which one or more of its directors or officers serve as directors, officers, trustees or in a similar capacity or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting -23- 24 of the Board of Directors or of a committee which authorizes the contract or transaction. Section 6.6. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 6.7. Laws and Regulations; Close of Business. (a) For purposes of these by-laws, any reference to a statute, rule or regulation of any governmental body means such statute, rule or regulation (including any successor thereto) as the same may be amended from time to time. (b) Any reference in these by-laws to the close of business on any day shall be deemed to mean 5:00 P.M. New York time on such day, whether or not such day is a business day. Section 6.8. Amendment of By-Laws. These by-laws may be amended, modified or repealed, and new by-laws may be adopted at any time, by the Board of Directors. Stockholders of the Corporation may adopt additional by-laws and amend, modify or repeal any by-law whether or not adopted by them, but only in accordance with Article SIXTH of the certificate of incorporation. -24- EX-4.1 9 SPECIMEN CERTIFICATE 1 [GOLDMAN SACHS LOGO] [PICTURE OF BUILDING AT 30 PINE STREET] CUSIP 38141G 10 4 SEE REVERSE FOR CERTAIN DEFINITIONS [PICTURE OF MARCUS GOLDMAN] COMMON STOCK SHARES [AND SAMUEL SACHS] par value of $.01 This certificate is transferable in New York, NY and Ridgefield Park, NJ NUMBER GS Incorporated under the laws of the State of Delaware The Goldman Sachs Group, Inc. This is to certify that /s/ Henry M. Paulson Jr. Chairman and Chief Executive Officer /s/ Dan H. Jester Treasurer is the owner of CERTIFICATE OF STOCK FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF Countersigned and Registered: The Goldman Sachs Group, Inc. transferable on the books of the Corporation by the holder ChaseMellon hereof in person, or by duly authorized attorney, upon surrender of this certificate properly Shareholder Services, L.L.C. endorsed. This certificate is not valid unless countersigned and registered by the Transfer Transfer Agent and Registrar Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly Authorized Signature authorized officers. Dated
[GOLDMAN SACHS SEAL] 2 THE GOLDMAN SACHS GROUP, INC. The Corporation will furnish without charge to each shareholder who so requests a statement of the designations, powers, preferences and relative participating, optional or other special rights of each class of stock or series thereof of the Corporation and the qualifications, limitations or restrictions of such preference and/or rights. Such request may be made to the Corporation or the Transfer Agent. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JIT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- Custodian ----------- ------------ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. For Value Received, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ---------------------------------------- - ---------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ------------------------------------------------------------------------Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated -------------------------------- ------------------------------------------------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - ---------------------------------------------------------- THE SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15. Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of April 1999 (as such may be amended from time to time, the "Rights Agreement"), between The Goldman Sachs Group, Inc. (the "Corporation") and the Rights Agent named therein, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may become exercisable for securities or assets of the Corporation or securities of another entity, may be exchanged for shares of Common Stock or other securities or assets of the Corporation, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge after the receipt of a written request therefor. -------------------------------------------- AMERICAN BANK NOTE COMPANY 680 BLAIR MILL ROAD HORSHAM, PA 19044 (215) 657-3480 -------------------------------------------- SALES: R. JOHNS: 212-593-5700 -------------------------------------------- /NET/BANKNOTE/Home/e/GoldmanSachs HB1145 -------------------------------------------- -------------------------------------------- PRODUCTION COORDINATOR: David Sokloff 215-830-2197 PROOF OF APRIL 6, 1999 THE GOLDMAN SACHS GROUP, INC. H 61145 bk -------------------------------------------- OPERATOR: KOSHY/hj/lr -------------------------------------------- NEW -------------------------------------------- EX-4.2 10 FORM OF STOCKHOLDER PROTECTION RIGHTS AGREEMENT 1 EXHIBIT 4.2 S&C Draft of April 21, 1999 STOCKHOLDER PROTECTION RIGHTS AGREEMENT dated as of April 5, 1999 between THE GOLDMAN SACHS GROUP, INC. and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent 2 STOCKHOLDER PROTECTION RIGHTS AGREEMENT Table of Contents
Page ARTICLE I DEFINITIONS 1.1 Definitions.....................................................................................2 ARTICLE II THE RIGHTS 2.1 Legend on Common Share Certificates............................................................13 2.2 Exercise of Rights; Separation of Rights.......................................................14 2.3 Adjustments to Exercise Price; Number of Rights................................................17 2.4 Date on Which Exercise is Effective............................................................20 2.5 Execution, Authentication, Delivery and Dating of Rights Certificates..........................20 2.6 Registration, Registration of Transfer and Exchange............................................21 2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates......................................23 2.8 Persons Deemed Owners..........................................................................24 2.9 Delivery and Cancellation of Certificates......................................................24 2.10 Agreement of Rights Holders....................................................................25 ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in........................................................................................26 3.2 Flip-over......................................................................................30 ARTICLE IV THE RIGHTS AGENT 4.1 General........................................................................................31 4.2 Merger or Consolidation or Change of Name of Rights Agent......................................33 4.3 Duties of Rights Agent.........................................................................34 4.4 Change of Rights Agent.........................................................................38
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ARTICLE V MISCELLANEOUS 5.1 Redemption.....................................................................................39 5.2 Expiration.....................................................................................40 5.3 Issuance of New Rights Certificates............................................................40 5.4 Supplements and Amendments.....................................................................41 5.5 Fractional Shares..............................................................................42 5.6 Rights of Action...............................................................................42 5.7 Holder of Rights Not Deemed a Stockholder......................................................43 5.8 Notice of Proposed Actions.....................................................................43 5.9 Notices........................................................................................44 5.10 Suspension of Exercisability...................................................................45 5.11 Costs of Enforcement...........................................................................45 5.12 Successors.....................................................................................45 5.13 Benefits of this Agreement.....................................................................46 5.14 Determination and Actions by the Board of Directors, etc.......................................46 5.15 Descriptive Headings...........................................................................46 5.16 GOVERNING LAW; EXCLUSIVE JURISDICTION..........................................................46 5.17 Counterparts...................................................................................48 5.18 Severability...................................................................................48
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EXHIBITS Exhibit A Form of Rights Certificate For Common Stock (Together with Form of Election to Exercise)
-iii- 5 Exhibit B Form of Rights Certificate For Nonvoting Common Stock (Together with Form of Election to Exercise) Exhibit C Form of Certificate of Designation and Terms of Series A Participating Preferred Stock of The Goldman Sachs Group, Inc. Exhibit D Form of Certificate of Designation and Terms of Series B Participating Preferred Stock of The Goldman Sachs Group, Inc.
-iv- 6 STOCKHOLDER PROTECTION RIGHTS AGREEMENT STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time, this "Agreement"), dated as of April 5, 1999, between The Goldman Sachs Group, Inc., a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent hereunder). WITNESSETH: WHEREAS, the Board of Directors of the Company has, as provided in Section 2.3, authorized the issuance of one voting class right ("Voting Class Right") in respect of each share of Common Stock (as hereinafter defined) and one nonvoting class right ("Nonvoting Class Right") in respect of each share of Nonvoting Common Stock (as hereinafter defined) initially issued by the Company or thereafter issued by the Company and prior to the Separation Time (as hereinafter defined) and, to the extent provided in Section 5.3, each share of Common Stock and Nonvoting Common Stock issued after the Separation Time; WHEREAS, subject to the terms and conditions hereof, each Right (as hereinafter defined) entitles the holder thereof, after the Separation Time, to purchase securities or assets of the Company (or, in certain cases, securities of certain other entities) pursuant to the terms and subject to the conditions set forth herein; and WHEREAS, the Company desires to appoint the Rights Agent to act on behalf of the Company, and the Rights Agent is willing so to act, in connection with the 7 issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein; NOW THEREFORE, in consideration of the premises and the respective agreements set forth herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms have the meanings indicated: "Acquiring Person" shall mean any Person who is a Beneficial Owner of 15% or more of the outstanding shares of Common Stock; provided, however, that the term "Acquiring Person" shall not include any Person (i) who shall become the Beneficial Owner of 15% or more of the outstanding shares of Common Stock solely as a result of an acquisition by the Company of shares of Common Stock, until such time hereafter or thereafter as any such Person shall become the Beneficial Owner (other than by means of a stock dividend or stock split) of any additional shares of Common Stock, (ii) who becomes the Beneficial Owner of 15% or more of the outstanding shares of Common Stock but who acquired Beneficial Ownership of shares of Common Stock without any plan or intention to seek or affect control of the Company, if such Person promptly divests (without exercising or retaining any power, including voting, with respect to such shares), or promptly enters into an agreement with the Company satisfactory to the Company, in its sole discretion, to divest sufficient Common Shares so that such Person ceases to be the Beneficial Owner of 15% or -2- 8 more of the outstanding shares of Common Stock or (iii) who Beneficially Owns shares of Common Stock consisting solely of one or more of (A) shares of Common Stock Beneficially Owned pursuant to the grant or exercise of an option granted to such Person (an "Option Holder") by the Company in connection with an agreement to merge with, or acquire, the Company entered into prior to a Flip-in Date, (B) shares of Common Stock Beneficially Owned by such Option Holder or its Affiliates or Associates at the time of grant of such option and (C) Common Shares acquired by Affiliates or Associates of such Option Holder after the time of such grant which, in the aggregate, amount to less than 1% of the outstanding shares of Common Stock. In addition, the Company, The Goldman Sachs Corporation, any Subsidiary of the Company and any employee stock ownership or other employee benefit plan of the Company or a Subsidiary of the Company shall not be an Acquiring Person (each an "Excluded Person"). "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act, as such Rule is in effect on the date of this Agreement; provided, however, that no Excluded Person shall be considered an Affiliate or Associate of any Person who is a director, officer, partner or trustee of such Excluded Person. "Agreement" shall have the meaning set forth in the Preamble. A Person shall be deemed the "Beneficial Owner", and to have "Beneficial Ownership" of, and to "Beneficially Own", any securities as to which such Person or any of such Person's Affiliates or Associates is or may be deemed to be the beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, as such Rules are in effect on the date of this Agreement, as well as any securities as to which such Person or any of such -3- 9 Person's Affiliates or Associates has the right to become Beneficial Owner (whether such right is exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" or to have "Beneficial Ownership" of, or to "Beneficially Own", any security (i) solely because such security has been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered security is accepted for payment or exchange, (ii) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such security pursuant to a revocable proxy given in response to a public proxy or consent solicitation made to more than ten holders of shares of a class of stock of the Company registered under Section 12 of the Exchange Act and pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act, except if such power (or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Exchange Act (or any similar provision of a comparable or successor report), or (iii) solely because such Person (x) is a party to the Shareholders' Agreement or is a member of the Shareholders' Committee or a designated proxy or attorney in fact thereunder or (y) is a party to the Voting Agreements or is a designated proxy or attorney in fact thereunder or because the vote of such Person together with other Persons determines the manner in which shares of Common Stock are voted pursuant to the Voting Agreements). -4- 10 Notwithstanding the foregoing, no officer or director of the Company shall be deemed to Beneficially Own any securities of any other Person by virtue of any actions such officer or director takes in such capacity. For purposes of this Agreement, in determining the percentage of the outstanding shares of Common Stock with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York are generally authorized or obligated by law or executive order to close. "Close of Business" on any given date shall mean 5:00 p.m. New York City time on such date or, if such date is not a Business Day, 5:00 p.m. New York City time on the next succeeding Business Day. "Common Shares" shall mean the shares of Nonvoting Common Stock and Common Stock of the Company. "Common Stock" shall mean the shares of Common Stock, par value $0.01 per share, of the Company. "Company" shall have the meaning set forth in the preamble. "Election to Exercise" shall have the meaning set forth in Section 2.2(d) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchange Ratio" shall have the meaning set forth in Section 3.1(c) hereof. -5- 11 "Exchange Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 3.1(c) hereof. "Excluded Person" shall have the meaning set forth in the definition of Acquiring Person. "Exercise Price" shall mean, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $250.00. "Expansion Factor" shall have the meaning set forth in Section 2.3(a) hereof. "Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii) the Redemption Time, (iii) the Close of Business on the tenth anniversary of the date of this Agreement, unless extended by action of the Board of Directors, and (iv) immediately prior to the effective time of a consolidation, merger or share exchange of the Company (A) into another corporation or (B) with another corporation in which the Company is the surviving corporation but Common Shares are converted into cash and/or securities of another corporation, in either case pursuant to an agreement entered into by the Company prior to a Stock Acquisition Date. "Flip-in Date" shall mean any Stock Acquisition Date or such later date and time as the Board of Directors of the Company may from time to time fix by resolution adopted prior to the public announcement by the Company causing the Stock Acquisition Date to occur or, thereafter, prior to the Flip-in Date that would otherwise have occurred. "Flip-over Entity," for purposes of Section 3.2, shall mean (i) in the case of a Flip-over Transaction or Event described in clause (i) of the definition thereof, the Person -6- 12 issuing any securities into which Common Shares are being converted or exchanged and, if no such securities are being issued, the other party to such Flip-over Transaction or Event and (ii) in the case of a Flip-over Transaction or Event referred to in clause (ii) of the definition thereof, the Person receiving the greatest portion of the (A) assets or (B) operating income or cash flow being transferred in such Flip-over Transaction or Event, provided in all cases if such Person is a subsidiary of a corporation, the parent corporation shall be the Flip-Over Entity. "Flip-over Stock" shall mean (i) with respect to the Voting Class Rights, the capital stock (or similar equity interest) with the greatest voting power in respect of the election of directors (or other persons similarly responsible for direction of the business and affairs) of the Flip-Over Entity, and (ii) with respect to the Nonvoting Class Rights, an equity security identical to the Flip-over Stock described in clause (i) above with voting provisions identical to that of the Nonvoting Common Stock. "Flip-over Transaction or Event" shall mean a transaction or series of transactions after a Flip-in Date in which, directly or indirectly, (i) the Company shall consolidate or merge or participate in a statutory share exchange with any other Person if, at the time of the consolidation, merger or statutory share exchange or at the time the Company enters into any agreement with respect to any such consolidation, merger or statutory share exchange, the Acquiring Person controls the Board of Directors of the Company and either (A) any term of or arrangement concerning the treatment of shares of Common Stock or Nonvoting Common Stock, as the case may be, in such consolidation, merger or statutory share exchange relating to the Acquiring Person is not identical to the -7- 13 terms and arrangements relating to other holders of the Common Stock or Nonvoting Common Stock, as the case may be, or (B) the Person with whom the transaction or series of transactions occurs is the Acquiring Person or an Affiliate or Associate of the Acquiring Person or (ii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer) assets (A) aggregating more than 50% of the assets (measured by either book value or fair market value) or (B) generating more than 50% of the operating income or cash flow, of the Company and its Subsidiaries (taken as a whole) to any Person (other than the Company or one or more of its wholly owned Subsidiaries) or to two or more such Persons which are Affiliates or Associates or otherwise acting in concert, if, at the time of the entry by the Company (or any such Subsidiary) into an agreement with respect to such sale or transfer of assets, the Acquiring Person controls the Board of Directors of the Company. An Acquiring Person shall be deemed to control the Company's Board of Directors when, following a Flip-in Date, the persons who were directors of the Company (or persons nominated and/or appointed as directors by vote of a majority of such persons) before the Stock Acquisition Date of such Acquiring Person shall cease to constitute a majority of the Company's Board of Directors. "Market Price" per share of any securities on any date shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if any event described in Section 2.3 hereof, or any analogous event, shall have caused the closing prices used to determine the Market Price on any Trading Days during such period of 20 Trading Days not to be fully comparable with -8- 14 the closing price on such date, each such closing price so used shall be appropriately adjusted in order to make it fully comparable with the closing price on such date. The closing price per share of any securities on any date shall be the last reported sale price, regular way, or, in case no such sale takes place or is quoted on such date, the average of the closing bid and asked prices, regular way, for each share of such securities, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, Inc. or, if the securities are not listed or admitted to trading on the New York Stock Exchange, Inc., as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if the securities are not listed or admitted to trading on any national securities exchange, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if on any such date the securities are not listed or admitted to trading on any national securities exchange or quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker (other than Goldman, Sachs & Co.) making a market in the securities selected by the Board of Directors of the Company; provided, however, that if on any such date the securities are not listed or admitted to trading on a national securities exchange or traded in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of securities on such date as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm other than Goldman, Sachs & Co., and set forth in a certificate delivered to the -9- 15 Rights Agent. For purposes of this Agreement, if the Nonvoting Common Stock is not listed or admitted to trading on a national securities exchange or traded in the over-the-counter market, the "Market Price" per share of the Nonvoting Common Stock on any date shall be the same as the "Market Price" per share of the Common Stock on such date. "Nonvoting Class Right" shall have the meaning set forth in the Recitals. "Nonvoting Common Stock" shall mean the Nonvoting Common Stock, par value $0.01 per share, of the Company. "Option Holder" shall have the meaning set forth in the definition of Acquiring Person. "Person" shall mean any individual, firm, partnership, limited liability company, association, group (as such term is used in Rule 13d-5 under the Exchange Act, as such Rule is in effect on the date of this Agreement), corporation or other entity; provided, however, that the Shareholders' Committee formed pursuant to the Shareholders' Agreement and any group or association that may exist or be deemed to exist as a result of entering into, or the operation of, the Shareholders' Agreement or the Voting Agreements shall not be considered a Person for purposes of this Agreement. "Preferred Stock" shall mean in the case of the Voting Class Rights, the Series A Participating Preferred Stock, par value $0.01 per share, of the Company created by a Certificate of Designation and Terms in substantially the form set forth in Exhibit C hereto appropriately completed, and in the case of the Nonvoting Class Rights, the Series B Participating Preferred Stock, par value $0.01 per share, of the Company created by a -10- 16 Certificate of Designation and Terms in substantially the form set forth in Exhibit D hereto appropriately completed. "Plan of Incorporation" shall mean the Plan of Incorporation of The Goldman Sachs Group, L.P., dated as of March 8, 1999, as currently in effect or as the same may hereafter be amended. "Redemption Price" shall mean an amount equal to one cent, $0.01. "Redemption Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 5.1 hereof. "Right" shall mean in the case of the Common Stock, a Voting Class Right, and in the case of the Nonvoting Common Stock, a Nonvoting Class Right. "Rights Agent" shall have the meaning set forth in the Preamble. "Rights Certificate" shall have the meaning set forth in Section 2.2(c) hereof. "Rights Register" shall have the meaning set forth in Section 2.6(a) hereof. "SBCM" shall have the meaning set forth in the definition of Voting Agreements. "Separation Time" shall mean the Close of Business on the earlier of (i) the tenth Business Day (or such later date as the Board of Directors of the Company may from time to time fix by resolution adopted prior to the Separation Time that would otherwise have occurred) after the date on which any Person commences a tender or exchange offer which, if consummated, would result in such Person's becoming an Acquiring Person and (ii) the Flip-in Date; provided, that if any tender or exchange offer referred to in clause (i) of this paragraph is cancelled, terminated or otherwise withdrawn prior to the Separation Time without the purchase of any Common Shares in connection therewith, such offer shall be deemed, for purposes of this paragraph, never to have been made. -11- 17 "Shareholders' Agreement" shall mean the Shareholders' Agreement to be entered into among the Company and certain of its stockholders, as the same may thereafter be amended, as contemplated by the Plan of Incorporation. "Stock Acquisition Date" shall mean the first date of public announcement by the Company expressly stating that a Person has become an Acquiring Person. "Subsidiary" of any specified Person shall mean any corporation or other entity of which a majority of the voting power of the equity securities or a majority of the equity or membership interest is Beneficially Owned, directly or indirectly, by such Person. "Trading Day," when used with respect to any securities, shall mean a day on which the New York Stock Exchange, Inc. is open for the transaction of business or, if such securities are not listed or admitted to trading on the New York Stock Exchange, Inc., a day on which the principal national securities exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if such securities are not listed or admitted to trading on any national securities exchange, a Business Day. "Voting Agreements" shall mean (i) the Voting Agreement, dated as of _________, 1999, by and among [ ], on the one hand, and The Sumitomo Bank, Limited, a corporation organized under the laws of Japan, and Sumitomo Bank Capital Markets, Inc., a Delaware corporation ("SBCM"), on the other hand, and (ii) the Voting Agreement, dated as of ________, 1999, by and among [ ], on the one hand, and The Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii, and Kamehameha Activities Association, a Hawaii non-profit corporation, on the other hand. -12- 18 "Voting Class Right" shall have the meaning set forth in the Recitals. ARTICLE II THE RIGHTS 2.1 Legend on Common Share Certificates. Certificates for the Common Shares issued after the date of this Agreement but prior to the Separation Time shall evidence one Right for each Common Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend (which legend may be modified as necessary on the certificates for the Common Stock or Nonvoting Common Stock, as the case may be, to reflect the application of this Agreement to the Common Stock or the Nonvoting Common Stock, as the case may be): Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of April 1999 (as such may be amended from time to time, the "Rights Agreement"), between The Goldman Sachs Group, Inc. (the "Corporation") and the Rights Agent named therein, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may become exercisable for securities or assets of the Corporation or securities of another entity, may be exchanged for Common Shares or other securities or assets of the Corporation, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge after the receipt of a written request therefor. If the Common Shares issued after the date of this Agreement but prior to the Separation Time shall be uncertificated, the registration of such Common Shares on the stock transfer books of the Company shall evidence one Right for each Common Share represented thereby and the Company will mail to every Person that holds such Common Shares a confirmation of the registration of such Common Shares on the stock -13- 19 transfer books of the Company, which confirmation will have impressed, printed, written or stamped thereon or otherwise affixed thereto the above legend. The Company will mail or arrange for the mailing of a copy of this Agreement to any Person that holds Common Shares, as evidenced by the registration of the Common Shares in the name of such Person on the stock transfer books of the Company, without charge after the receipt of a written request therefor. 2.2 Exercise of Rights; Separation of Rights. (a) Subject to Sections 3.1, 5.1 and 5.10 and subject to adjustment as herein set forth, each Right will entitle the holder thereof, after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price, one one-hundredth of a share of Preferred Stock. (b) Until the Separation Time, (i) no Right may be exercised and (ii) each Right will be evidenced by the certificate for the associated Common Share (or, if the Common Shares shall be uncertificated, by the registration of the associated Common Share on the stock transfer books of the Company) and will be transferable only together with, and will be transferred by a transfer of, such associated share. (c) Subject to the terms and conditions hereof, after the Separation Time and prior to the Expiration Time, the Rights (i) may be exercised and (ii) may be transferred independent of the Common Shares. Promptly following the Separation Time and receipt by the Rights Agent of notice thereof as well as receipt of all other relevant information, the Rights Agent will mail to each holder of record of a Common Share as of the Separation Time (other than any Person whose Rights have become void pursuant to Section 3.1(b)), at such holder's address as shown by the records of the Company (the -14- 20 Company hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (x) a certificate in substantially the form of Exhibit A hereto, in the case of the Common Stock, or in substantially the form of Exhibit B hereto, in the case of the Nonvoting Common Stock (in each case, a "Rights Certificate"), appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate which do not affect the duties or responsibilities of the Rights Agent and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any national securities exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (y) a disclosure statement describing the Rights. (d) Subject to the terms and conditions hereof, Rights may be exercised on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an Election to Exercise (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly and properly completed, accompanied by payment in cash, or by certified or official bank check or money order payable to the order of the Company, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of the Rights Certificates or the issuance or delivery of -15- 21 certificates (or, if uncertificated, the registration on the stock transfer books of the Company) for shares or depositary receipts (or both) in a name other than that of the holder of the Rights being exercised. (e) Upon receipt of a Rights Certificate, with an Election to Exercise accompanied by payment as set forth in Section 2.2(d), and subject to the terms and conditions hereof, the Rights Agent will thereupon promptly (i)(A) requisition from a transfer agent stock certificates evidencing such number of shares or other securities to be purchased or, in the case of uncertificated shares or other securities, requisition from a transfer agent a notice setting forth such number of shares or other securities to be purchased for which registration will be made on the stock transfer books of the Company (the Company hereby irrevocably authorizing its transfer agents to comply with all such requisitions), and (B) if the Company elects pursuant to Section 5.5 not to issue certificates (or effect registrations on the stock transfer books of the Company) representing fractional shares, requisition from the depositary selected by the Company depositary receipts representing the fractional shares to be purchased or requisition from the Company the amount of cash to be paid in lieu of fractional shares in accordance with Section 5.5 and (ii) after receipt of such certificates, depositary receipts, notices and/or cash, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered (in the case of certificates, depositary receipts or notices) in such name or names as may be designated by such holder. (f) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing -16- 22 the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Company covenants and agrees that it will (i) take all such action as may be necessary to ensure that all shares delivered (or evidenced by registration on the stock transfer books of the Company) upon exercise of Rights shall, at the time of delivery of the certificates (or registration) for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered (or registered) and fully paid and nonassessable; (ii) take all such action as may be necessary to comply with any applicable requirements of the Securities Act of 1933 or the Exchange Act, and the rules and regulations thereunder, and any other applicable law, rule or regulation, in connection with the issuance of any shares upon exercise of Rights; and (iii) pay when due and payable any and all federal and state taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any shares issued upon the exercise of Rights, provided, that the Company shall not be required to pay any tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates (or the registration) for shares in a name other than that of the holder of the Rights being transferred or exercised. 2.3 Adjustments to Exercise Price; Number of Rights. (a) In the event the Company shall at any time after the date of this Agreement and prior to the Separation Time (i) declare or pay a dividend on any class of Common Shares payable in Common Stock or Nonvoting Common Stock, as the case may be, (ii) subdivide any outstanding -17- 23 class of Common Shares or (iii) combine any outstanding class of Common Shares into a smaller number of shares of Common Stock or Nonvoting Common Stock, as the case may be, (x) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of shares of Common Stock or Nonvoting Common Stock (the "Expansion Factor"), that a holder of one share of Common Stock or Nonvoting Common Stock, as the case may be, immediately prior to such dividend, subdivision or combination would hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be distributed among the shares of Common Stock or Nonvoting Common Stock, as the case may be, with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision or combination, so that each such share of Common Stock or Nonvoting Common Stock, as the case may be, will have exactly one Right associated with it. Each adjustment made pursuant to this paragraph shall be made as of the payment or effective date for the applicable dividend, subdivision or combination. In the event the Company shall at any time after the date of this Agreement and prior to the Separation Time issue any Common Shares otherwise than in a transaction referred to in the preceding paragraph, each such Common Share so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such share (or, if the Common Shares shall be uncertificated, such Right shall be evidenced by the registration of such Common Shares -18- 24 on the stock transfer books of the Company). Rights shall be issued by the Company in respect of Common Shares that are issued or sold by the Company after the Separation Time only to the extent provided in Section 5.3. (b) In the event the Company shall at any time after the date of this Agreement and prior to the Separation Time issue or distribute any securities or assets in respect of, in lieu of or in exchange for Common Shares (other than pursuant to any non-extraordinary periodic cash dividend or a dividend paid solely in Common Shares) whether by dividend, in a reclassification or recapitalization (including any such transaction involving a merger, consolidation or share exchange), or otherwise, the Company shall make such adjustments, if any, in the Exercise Price, number of Rights and/or securities or other property purchasable upon exercise of Rights as the Board of Directors of the Company, in its sole discretion, may deem to be appropriate under the circumstances in order to adequately protect the interests of the holders of Rights generally, and the Company and the Rights Agent shall amend this Agreement as necessary to provide for such adjustments. (c) Each adjustment to the Exercise Price made pursuant to this Section 2.3 shall be calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.3, the Company shall (i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment and (ii) promptly file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein -19- 25 contained and shall have no duty with respect to and not be deemed to have knowledge of any adjustment unless and until it shall have received such a certificate. (d) Rights Certificates shall represent the securities purchasable under the terms of this Agreement, including any adjustment or change in the securities purchasable upon exercise of the Rights, even though such certificates may continue to express the securities purchasable at the time of issuance of the initial Rights Certificates. 2.4 Date on Which Exercise is Effective. Each Person in whose name any certificate for shares is issued (or registration on the stock transfer books is effected) upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares represented thereby on the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate (or registration) shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. 2.5 Execution, Authentication, Delivery and Dating of Rights Certificates. (a) The Rights Certificates shall be executed on behalf of the Company by one of its Chairmen of the Board, one of its Chief Executive Officers, one of its Presidents or one of its Vice Presidents, under its corporate seal reproduced thereon -20- 26 attested by one of its Secretaries or one of its Assistant Secretaries. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. Promptly after the Separation Time, the Company will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Company to the Rights Agent for counter-signature, and, subject to Section 3.1(b), the Rights Agent shall manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.2(c) hereof. No Rights Certificate shall be valid for any purpose unless manually countersigned by the Rights Agent. (b) Each Rights Certificate shall be dated the date of countersignature thereof. 2.6 Registration, Registration of Transfer and Exchange. (a) After the Separation Time, the Company will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Company will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Company and registering Rights and transfers of Rights after the Separation Time as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the -21- 27 Rights Agent will have the right to examine the Rights Register at all reasonable times after the Separation Time. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Section 2.6(c) and (d), the Company will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificate so surrendered. (b) Except as otherwise provided in Section 3.1(b), all Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Company, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. -22- 28 (d) The Company shall not register the transfer or exchange of any Rights after such Rights have become void under Section 3.1(b), been exchanged under Section 3.1(c) or been redeemed under Section 5.1. 2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Company and the Rights Agent prior to the Expiration Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the absence of notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. -23- 29 (d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and, subject to Section 3.1(b) shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.8 Persons Deemed Owners. Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate or notice of transfer, if uncertificated) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name such Rights Certificate (or, prior to the Separation Time, such Common Share certificate or Common Share registration, if uncertificated) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, including the payment of the Redemption Price and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Common Shares). 2.9 Delivery and Cancellation of Certificates. All Rights Certificates surrendered upon exercise or for registration of transfer or exchange shall, if surrendered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously counter- -24- 30 signed and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificates shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Company. 2.10 Agreement of Rights Holders. Every holder of Rights by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of Rights that: (a) prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Share; (b) after the Separation Time, the Rights Certificates will be transferable only on the Rights Register as provided herein; (c) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate or Common Share registration, if uncertificated) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate or Common Share registration, if uncertificated) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; -25- 31 (d) Rights beneficially owned by certain Persons will, under the circumstances set forth in Section 3.1(b), become void; and (e) this Agreement may be supplemented or amended from time to time pursuant to Section 2.3(b) or 5.4 hereof. ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in. (a) In the event that prior to the Expiration Time a Flip-in Date shall occur, except as provided in this Section 3.1, each Right shall constitute the right to purchase from the Company, upon exercise thereof in accordance with the terms hereof (but subject to Section 5.10), that number of shares of Common Stock, in the case of Voting Class Rights, or Nonvoting Common Stock, in the case of Nonvoting Class Rights, having an aggregate Market Price on the Stock Acquisition Date that gave rise to the Flip-in Date equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that on or after such Stock Acquisition Date any of the events described in Section 2.3(a) or (b), or any analogous event, shall have occurred with respect to the Common Shares). (b) Notwithstanding the foregoing, any Rights that are or were Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person or an Affiliate or Associate thereof or by any transferee, direct or indirect, of any of the foregoing shall become void and any holder of such Rights (including transferees) shall -26- 32 thereafter have no right to exercise or transfer such Rights under any provision of this Agreement. If any Rights Certificate is presented for assignment or exercise and the Person presenting the same will not complete the certification set forth at the end of the form of assignment or notice of election to exercise and provide such additional evidence of the identity of the Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners and their Affiliates and Associates) as the Company shall reasonably request, then the Company shall be entitled conclusively to deem the Beneficial Owner thereof to be an Acquiring Person or an Affiliate or Associate thereof or a transferee of any of the foregoing and accordingly will deem the Rights evidenced thereby to be void and not transferable or exercisable. (c) The Board of Directors of the Company may, at its option, at any time after a Flip-in Date and prior to the time that an Acquiring Person becomes the Beneficial Owner of more than 50% of the outstanding shares of Common Stock elect to exchange all (but not less than all) the then outstanding Rights (which shall not include Rights that have become void pursuant to the provisions of Section 3.1(b)) for shares of Common Stock, in the case of Voting Class Rights, and Nonvoting Common Stock, in the case of Nonvoting Class Rights, at an exchange ratio of one share of Common Stock or Nonvoting Common Stock, as the case may be, per Right, appropriately adjusted in order to protect the interests of holders of Rights generally in the event that after the Separation Time any of the events described in Section 2.3(a) or (b), or any analogous event, shall have occurred with respect to the Common Shares (such exchange ratio, as adjusted from time to time, being hereinafter referred to as the "Exchange Ratio"). -27- 33 Notwithstanding anything to the contrary contained in this Agreement, upon action of the Board of Directors of the Company electing to exchange the Rights pursuant to this Section 3.1(c), any Voting Class Rights held by SBCM shall be exchanged for shares of Common Stock only to the extent that SBCM's aggregate holdings constitute 4.9 percent or less of the outstanding Common Stock of the Company. Any Voting Class Rights of SBCM that upon exchange would cause SBCM to hold in excess of 4.9 percent of the Company's outstanding Common Stock will be exchanged for Nonvoting Common Stock. Immediately upon the action of the Board of Directors of the Company electing to exchange the Rights, without any further action and without any notice, the right to exercise the Rights will terminate and each Right (other than Rights that have become void pursuant to Section 3.1(b)) will thereafter represent only the right to receive a number of shares of Common Stock or Nonvoting Common Stock, as the case may be, multiplied by the Exchange Ratio. Promptly after the action of the Board of Directors electing to exchange the Rights, the Company shall give written notice thereof (specifying the steps to be taken to receive Common Shares in exchange for Rights) to the Rights Agent and the holders of the Rights (other than Rights that have become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by mailing such notice in accordance with Section 5.9. Each Person in whose name any certificate for shares is issued (or for whom any registration on the stock transfer books of the Company is made) upon the exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for all purposes -28- 34 be deemed to have become the holder of record of the shares represented thereby on, and such certificate (or registration on the stock transfer books of the Company) shall be dated (or registered as of), the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of any applicable taxes and other governmental charges payable by the holder was made; provided, however, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate (or registration on the stock transfer books of the Company) shall be dated (or registered as of), the next succeeding Business Day on which the stock transfer books of the Company are open. (d) Whenever the Company shall become obligated under Section 3.1(a) or (c) to issue Common Shares upon exercise of or in exchange for Rights, the Company, at its option, may substitute therefor shares of the applicable Preferred Stock, at a ratio of one one-hundredth of a share of Preferred Stock for each Common Share so issuable. (e) In the event that there shall not be sufficient treasury shares or authorized but unissued Common Shares or Preferred Stock of the Company to permit the exercise or exchange in full of the Rights in accordance with Section 3.1(a) or, if the Company so elects, to make the exchange referred to in Section 3.1(c), the Company shall either (i) call a meeting of stockholders seeking approval to cause sufficient additional shares to be authorized (provided that if such approval is not obtained the Company will take the action specified in clause (ii) of this sentence) or (ii) take such action as shall be -29- 35 necessary to ensure and provide, to the extent permitted by applicable law and any agreements or instruments in effect on the Stock Acquisition Date to which it is a party, that each Right shall thereafter constitute the right to receive, (x) at the Company's option, either (A) in return for the Exercise Price, debt or equity securities or other assets (or a combination thereof) having a fair value equal to twice the Exercise Price, or (B) without payment of consideration (except as otherwise required by applicable law), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the Exercise Price, or (y) if the Board of Directors of the Company elects to exchange the Rights in accordance with Section 3.1(c), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the product of the Market Price of a share of Common Stock or, if applicable, the Market Price of a share of Nonvoting Common Stock on the Stock Acquisition Date times the Exchange Ratio in effect on the Flip-in Date, where in any case set forth in (x) or (y) above the fair value of such debt or equity securities or other assets shall be as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm other than Goldman, Sachs & Co. 3.2 Flip-over. (a) Prior to the Expiration Time, the Company shall not enter into any agreement with respect to, consummate or permit to occur any Flip-over Transaction or Event unless and until it shall have entered into a supplemental agreement with the Flip-over Entity, for the benefit of the holders of the Rights, providing that, upon consummation or occurrence of the Flip-over Transaction or Event (i) each Right shall thereafter constitute the right to purchase from the Flip-over Entity, upon exercise thereof -30- 36 in accordance with the terms hereof, that number of shares of the applicable Flip-over Stock of the Flip-over Entity having an aggregate Market Price on the date of consummation or occurrence of such Flip-over Transaction or Event equal to twice the Exercise Price for the applicable Right for an amount in cash equal to the Exercise Price for the applicable Right (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that after such date of consummation or occurrence any of the events described in Section 2.3(a) or (b), or any analogous event, shall have occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of such Flip-over Transaction or Event and such supplemental agreement, all the obligations and duties of the Company pursuant to this Agreement. The provisions of this Section 3.2 shall apply to successive Flip-over Transactions or Events. (b) Prior to the Expiration Time, the Company shall not enter into any agreement with respect to, consummate or permit to occur any Flip-over Transaction or Event if at the time thereof there are any rights, warrants or securities outstanding or any other arrangements, agreements or instruments that would eliminate or otherwise diminish in any material respect the benefits intended to be afforded by this Rights Agreement to the holders of Rights upon consummation of such transaction. -31- 37 ARTICLE IV THE RIGHTS AGENT 4.1 General. (a) The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the preparation, delivery, amendment, administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, which gross negligence, bad faith or willful misconduct must be determined by a final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction, for any action taken, suffered or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including, without limitation, the costs and expenses of defending against any claim of liability. The indemnity provided herein shall survive the termination of this Agreement and the termination and the expiration of the Rights. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, -32- 38 punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. (b) The Rights Agent shall be authorized and protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its acceptance and administration of this Agreement in reliance upon any certificate for securities (or registration on the stock transfer books of the Company) purchasable upon exercise of Rights, Rights Certificate, certificate for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. 4.2 Merger or Consolidation or Change of Name of Rights Agent. (a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any Person succeeding to the shareholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the -33- 39 Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and obligations expressly imposed by this Agreement upon the following terms and conditions, all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the advice or opinion of such counsel will be full and complete authorization and protection to the Rights Agent and the Rights Agent shall -34- 40 incur no liability for or in respect of any action taken, suffered or omitted by it in good faith and in accordance with such advice or opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of the Market Price) be proved or established by the Company prior to taking, suffering or omitting any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be one of the Chairmen of the Board, one of the Chief Executive Officers, one of the Presidents or one of the Vice Presidents and by any Treasurer or any Assistant Treasurer or any Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate will be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own gross negligence, bad faith or willful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates, if any, for securities purchasable upon exercise of Rights or the Rights Certificates (except its -35- 41 countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. (e) The Rights Agent will not be under any liability or responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate, if any, for securities purchasable upon exercise of Rights or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 3.1(b) hereof) or any adjustment required under the provisions of Section 2.3, 3.1 or 3.2 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.3 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any securities purchasable upon exercise of Rights or any Rights or as to whether any securities purchasable upon exercise of Rights will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the -36- 42 Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be a Chairman of the Board, a Chief Executive Officer, a President or a Vice President, a Secretary or an Assistant Secretary, a Treasurer or an Assistant Treasurer of the Company, and to apply to such persons for advice or instructions in connection with its duties, and such instructions shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted by it in good faith in accordance with instructions of any such person. (h) The Rights Agent and any affiliate, stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other Person or legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the -37- 43 Company resulting from any such act, default, neglect or misconduct, absent gross negligence, bad faith or willful misconduct in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it believes that repayment of such funds or adequate indemnification against such risk of liability is not reasonably assured to it. 4.4 Change of Rights Agent. The Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice (or such lesser notice as is acceptable to the Company) in writing mailed to the Company and to each transfer agent of Common Shares by registered or certified mail, and to the holders of the Rights in accor dance with Section 5.9. The Company may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Company), then the holder of any Rights or the Rights Agent may apply to any court -38- 44 of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a Person organized and doing business under the laws of the United States or any state of the United States, in good standing, which is authorized under such laws to exercise the powers of the Rights Agent contemplated by this Agreement and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. -39- 45 ARTICLE V MISCELLANEOUS -40- 46 5.1 Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to the Flip-in Date, elect to redeem all (but not less than all) the then outstanding Rights at the Redemption Price and the Company, at its option, may pay the Redemption Price either in cash or in Common Stock, in the case of the Voting Class Rights, or in Nonvoting Common Stock, in the case of the Nonvoting Class Rights, or other securities of the Company deemed by the Board of Directors, in the exercise of its sole discretion, to be at least equivalent in value to the Redemption Price. (b) Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights (or, if the resolution of the Board of Directors electing to redeem the Rights states that the redemption will not be effective until the occurrence of a specified future time or event, upon the occurrence of such future time or event), without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive the Redemption Price in cash or securities, as determined by the Board of Directors. Promptly after the Rights are redeemed, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice in accordance with Section 5.9. 5.2 Expiration. The Rights and this Agreement shall expire at the Expiration Time and no Person shall have any rights pursuant to this Agreement or any Right after the Expiration Time, except, if the Rights are exchanged or redeemed, as provided in Section 3.1 or 5.1 hereof, respectively. -41- 47 5.3 Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares of stock purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Shares by the Company following the Separation Time and prior to the Expiration Time pursuant to the terms of securities convertible or redeemable into Common Shares or to options, in each case issued or granted prior to, and outstanding at, the Separation Time, the Company shall issue to the holders of such Common Shares, applicable Rights Certificates representing the appropriate number of applicable Rights in connection with the issuance or sale of such Common Shares; provided, however, in each case, (i) no such Rights Certificate shall be issued, if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or to the Person to whom such Rights Certificates would be issued, (ii) no such Rights Certificates shall be issued if, and to the extent that, appropriate adjustment shall have otherwise been made in lieu of the issuance thereof, and (iii) the Company shall not distribute Rights Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring Person or any transferee of any of the foregoing. 5.4 Supplements and Amendments. The Company and the Rights Agent may from time to time supplement or amend this Agreement without the approval -42- 48 of any holders of Rights (i) prior to the Flip-in Date, in any respect and (ii) on or after the Flip-in Date, to make any changes that the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of Rights generally or in order to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with any other provisions herein or otherwise defective. The Rights Agent will, upon the delivery of a certificate from an appropriate officer of the Company that states that the proposed supplement or amendment complies with this Section 5.4, duly execute and deliver any supplement or amendment hereto requested by the Company which satisfies the terms of the preceding sentence. Notwithstanding anything contained in this Agreement to the contrary, the Rights Agent may, but shall not be obligated to, enter into any supplement or amendment that affects the Rights Agent's rights, duties, obligations or immunities under this Agreement. 5.5 Fractional Shares. If the Company elects not to issue certificates representing (or register on the stock transfer books of the Company) fractional shares upon exercise or redemption of Rights, the Company shall, in lieu thereof, in the sole discretion of the Board of Directors, either (a) evidence such fractional shares by depositary receipts issued pursuant to an appropriate agreement between the Company and a depositary selected by it, providing that each holder of a depositary receipt shall have all of the rights, privileges and preferences to which such holder would be entitled as a beneficial owner of such fractional share, or (b) pay to the registered holder of such Rights the appropriate fraction of the Market Price per share in cash. -43- 49 5.6 Rights of Action. Subject to the terms of this Agreement (including Sections 3.1(b) and 5.14), rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Voting Class Rights or Nonvoting Class Rights, as the case may be, without the consent of the Rights Agent or of the holder of any other Voting Class Rights or Nonvoting Class Rights, as the case may be, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Voting Class Rights or Nonvoting Class Rights, as the case may be, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.7 Holder of Rights Not Deemed a Stockholder. No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any -44- 50 matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 5.8 hereof), or to receive dividends or subscription rights, or otherwise, until such Rights shall have been exercised or exchanged in accordance with the provisions hereof. 5.8 Notice of Proposed Actions. In case the Company shall propose after the Separation Time and prior to the Expiration Time (i) to effect or permit a Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 5.9 hereof, a notice of such proposed action, which shall specify the date on which such Flip-over Transaction or Event, liquidation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed action. 5.9 Notices. Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Company shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The Goldman Sachs Group, Inc. 85 Broad Street New York, New York 10004 Attention: Secretary -45- 51 Any notice or demand authorized or required by this Agreement to be given or made by the Company or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Ridgefield Park, New Jersey 07660-2108 Attention: General Counsel Notices or demands authorized or required by this Agreement to be given or made by the Company or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 5.10 Suspension of Exercisability. To the extent that the Company determines in good faith that some action will or need be taken pursuant to Section 3.1 or to comply with federal or state securities laws, the Company may suspend the exercisability of the Rights for a reasonable period in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement (with prompt written notice thereof to the Rights Agent) stating that the exercisability or exchangeability of the Rights has been temporarily suspended. Notice thereof pursuant to Section 5.9 shall not be required. -46- 52 Failure to give a notice pursuant to the provisions of this Agreement shall not affect the validity of any action taken hereunder. 5.11 Costs of Enforcement. The Company agrees that if the Company or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfill any of its obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce such holder's rights pursuant to any Rights or this Agreement. 5.12 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 5.13 Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement and this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of the Rights. 5.14 Determination and Actions by the Board of Directors, etc. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or -47- 53 advisable for the administration of this Agreement. All such actions, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) done or made by the Board, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors of the Company to any liability to the holders of the Rights. 5.15 Descriptive Headings. Descriptive headings appear herein for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 5.16 GOVERNING LAW; EXCLUSIVE JURISDICTION. (A) THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. (B) (I) THE COMPANY AND EACH HOLDER OF RIGHTS HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OVER ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. The Company and each holder of -48- 54 Rights acknowledge that the forum designated by this paragraph (b) has a reasonable relation to this Agreement, and to such Persons' relationship with one another. (ii) The Company and each holder of Rights hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding brought in any court referred to in paragraph (b)(i). The Company and each holder of Rights undertake not to commence any action subject to this Agreement in any forum other than the forum described in this paragraph (b). The Company and each holder of Rights agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon such Persons. 5.17 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.18 Severability. If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering -49- 55 unenforceable the remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. -50- 56 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. THE GOLDMAN SACHS GROUP, INC. By: ______________________________ Name: Title: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By: _______________________________ Name: Title: -51- 57 EXHIBIT A [Form of Common Stock Rights Certificate] Certificate No. W- __________ Voting Class Rights THE VOTING CLASS RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. VOTING CLASS RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID. Common Stock Rights Certificate The Goldman Sachs Group, Inc. This certifies that ____________________, or registered assigns, is the registered holder of the number of Voting Class Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Stockholder Protection Rights Agreement, dated as of April 5, 1999 (as amended from time to time, the "Rights Agreement"), between The Goldman Sachs Group, Inc., a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the close of business on April 5, 2009, one one-hundredth of a fully paid share of Series A Participating Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), of the Company (subject to adjustment as provided in the 58 Rights Agreement) at the Exercise Price referred to below, upon presentation and surrender of this Common Stock Rights Certificate with the Form of Election to Exercise duly executed at the office of the Rights Agent in The City of New York designated for such purpose. The Exercise Price shall initially be $250.00 per Voting Class Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the Voting Class Rights evidenced hereby may entitle the registered holder thereof to purchase securities of an entity other than the Company or securities of the Company other than Series A Preferred Stock or assets of the Company, all as provided in the Rights Agreement. This Common Stock Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Common Stock Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available without cost upon written request. This Common Stock Rights Certificate, with or without other Common Stock Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Common Stock Rights Certificate or Common Stock Rights Certificates of like tenor evidencing an aggregate number of -2- 59 Voting Class Rights equal to the aggregate number of Voting Class Rights evidenced by the Common Stock Rights Certificate or Common Stock Rights Certificates surrendered. If this Common Stock Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Common Stock Rights Certificate or Common Stock Rights Certificates for the number of whole Voting Class Rights not exercised. Subject to the provisions of the Rights Agreement, each Voting Class Right evidenced by this Common Stock Rights Certificate may be (a) redeemed by the Company under certain circumstances, at its option, at a redemption price of $0.01 per Voting Class Right or (b) exchanged by the Company under certain circumstances, at its option, for one share of Common Stock or one one-hundredth of a share of Series A Preferred Stock per Voting Class Right (or, in certain cases, other securities or assets of the Company), subject in each case to adjustment in certain events as provided in the Rights Agreement. No holder of this Common Stock Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of any securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights -3- 60 Agreement), or to receive dividends or subscription rights, or otherwise, until the Voting Class Rights evidenced by this Common Stock Rights Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Common Stock Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Date: ____________ ATTEST: THE GOLDMAN SACHS GROUP, INC. _______________________________ By_________________________________ Secretary Name: Title: Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By____________________________ Authorized Signature -4- 61 [Form of Reverse Side of Common Stock Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer this Common Stock Rights Certificate.) FOR VALUE RECEIVED ________________________ hereby sells, assigns and transfers unto ______________________________________________ _______________________________________________________ (Please print name and address of transferee) this Common Stock Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the within Common Stock Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________, ____ Signature Guaranteed: _____________________________________ Signature (Signature must correspond to name as written upon the face of this Common Stock Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion program), pursuant to Exchange Act Rule 17Ad-15. _______________________________________________________ (To be completed if true) 62 The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Voting Class Rights evidenced by this Common Stock Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _____________________________________ Signature ____________________________________ NOTICE In the event the certification set forth above is not completed in connection with a purported assignment, the Company will deem the Beneficial Owner of the Voting Class Rights evidenced by the enclosed Common Stock Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Voting Class Rights evidenced by such Common Stock Rights Certificate to be void and not transferable or exercisable. -2- 63 [To be attached to each Common Stock Rights Certificate] FORM OF ELECTION TO EXERCISE (To be executed if holder desires to exercise the Common Stock Rights Certificate.) TO: THE GOLDMAN SACHS GROUP, INC. The undersigned hereby irrevocably elects to exercise _______________________ whole Voting Class Rights represented by the attached Common Stock Rights Certificate to purchase the shares of Series A Preferred Stock issuable upon the exercise of such Voting Class Rights and requests that certificates for such shares be issued in the name of: Name: ___________________________________ Address: ___________________________________ ___________________________________ Social Security or Other Taxpayer Identification Number:_______________________________ If such number of Voting Class Rights shall not be all the Voting Class Rights evidenced by this Common Stock Rights Certificate, a new Common Stock Rights Certificate for the balance of such Voting Class Rights shall be registered in the name of and delivered to: Name: ___________________________________ Address: ___________________________________ ___________________________________ Social Security or Other Taxpayer Identification Number:_______________________________ Dated: _______________, ____ Signature Guaranteed: ______________________________________ Signature 64 (Signature must correspond to name as written upon the face of the attached Common Stock Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion program), pursuant to Exchange Act Rule 17Ad-15. _______________________________________________________ (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Voting Class Rights evidenced by the attached Common Stock Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ____________________________________ Signature _______________________________________________________ NOTICE In the event the certification set forth above is not completed in connection with a purported exercise, the Company will deem the Beneficial Owner of the Voting Class Rights evidenced by the attached Common Stock Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Voting Class Rights evidenced by such Common Stock Rights Certificate to be void and not transferable or exercisable. -2- 65 EXHIBIT B [Form of Nonvoting Common Stock Rights Certificate] Certificate No. W- _________ Nonvoting Class Rights THE NONVOTING CLASS RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. NONVOTING CLASS RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID. Nonvoting Class Rights Certificate The Goldman Sachs Group, Inc. This certifies that ____________________, or registered assigns, is the registered holder of the number of Nonvoting Class Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Stockholder Protection Rights Agreement, dated as of April 5, 1999 (as amended from time to time, the "Rights Agreement"), between The Goldman Sachs Group, Inc., a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the close of business on April 5, 2009, one one-hundredth of a fully paid share of Series B Participating Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock"), of the Company (subject to adjustment as provided in the Rights Agreement) at the Exercise Price referred to below, upon presentation and 66 surrender of this Nonvoting Common Stock Rights Certificate with the Form of Election to Exercise duly executed at the office of the Rights Agent in The City of New York designated for such purpose. The Exercise Price shall initially be $250.00 per Nonvoting Class Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the Nonvoting Class Rights evidenced hereby may entitle the registered holder thereof to purchase securities of an entity other than the Company or securities of the Company other than Series B Preferred Stock or assets of the Company, all as provided in the Rights Agreement. This Nonvoting Common Stock Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Nonvoting Common Stock Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available without cost upon written request. This Nonvoting Common Stock Rights Certificate, with or without other Nonvoting Common Stock Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Nonvoting Common Stock Rights Certificate or Nonvoting Common Stock Rights Certificates of like tenor -2- 67 evidencing an aggregate number of Nonvoting Class Rights equal to the aggregate number of Nonvoting Class Rights evidenced by the Nonvoting Common Stock Rights Certificate or Nonvoting Common Stock Rights Certificates surrendered. If this Nonvoting Common Stock Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Nonvoting Common Stock Rights Certificate or Nonvoting Common Stock Rights Certificates for the number of whole Nonvoting Class Rights not exercised. Subject to the provisions of the Rights Agreement, each Nonvoting Class Right evidenced by this Nonvoting Common Stock Rights Certificate may be (a) redeemed by the Company under certain circumstances, at its option, at a redemption price of $0.01 per Nonvoting Class Right or (b) exchanged by the Company under certain circumstances, at its option, for one share of Nonvoting Common Stock or one one-hundredth of a share of Series B Preferred Stock per Nonvoting Class Right (or, in certain cases, other securities or assets of the Company), subject in each case to adjustment in certain events as provided in the Rights Agreement. No holder of this Nonvoting Common Stock Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of any securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive -3- 68 notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Nonvoting Class Rights evidenced by this Nonvoting Common Stock Rights Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Nonvoting Common Stock Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Date: ____________ ATTEST: THE GOLDMAN SACHS GROUP, INC. ______________________________ By_________________________________ Secretary Name: Title: Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By____________________________ Authorized Signature -4- 69 [Form of Reverse Side of Nonvoting Common Stock Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer this Nonvoting Common Stock Rights Certificate.) FOR VALUE RECEIVED ________________________ hereby sells, assigns and transfers unto______________________________________________ ________________________________________________________ (Please print name and address of transferee) this Nonvoting Common Stock Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the within Nonvoting Common Stock Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________, ____ Signature Guaranteed: _____________________________________ Signature (Signature must correspond to name as written upon the face of this Common Stock Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion program), pursuant to Exchange Act Rule 17Ad-15. 70 _______________________________________________________ (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Nonvoting Class Rights evidenced by this Nonvoting Common Stock Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _____________________________________ Signature _______________________________________________________ NOTICE In the event the certification set forth above is not completed in connection with a purported assignment, the Company will deem the Beneficial Owner of the Nonvoting Class Rights evidenced by the enclosed Nonvoting Common Stock Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Nonvoting Common Stock Rights evidenced by such Nonvoting Class Rights Certificate to be void and not transferable or exercisable. -2- 71 [To be attached to each Nonvoting Common Stock Rights Certificate] FORM OF ELECTION TO EXERCISE (To be executed if holder desires to exercise the Nonvoting Common Stock Rights Certificate.) TO: THE GOLDMAN SACHS GROUP, INC. The undersigned hereby irrevocably elects to exercise _______________________ whole Nonvoting Class Rights represented by the attached Nonvoting Common Stock Rights Certificate to purchase the shares of Series B Preferred Stock issuable upon the exercise of such Nonvoting Class Rights and requests that certificates for such shares be issued in the name of: Name: ___________________________________ Address: ___________________________________ ___________________________________ Social Security or Other Taxpayer Identification Number:_______________________________ If such number of Nonvoting Class Rights shall not be all the Nonvoting Class Rights evidenced by this Nonvoting Common Stock Rights Certificate, a new Nonvoting Common Stock Rights Certificate for the balance of such Nonvoting Class Rights shall be registered in the name of and delivered to: Name: ___________________________________ Address: ___________________________________ ___________________________________ Social Security or Other Taxpayer Identification Number:_______________________________ Dated: _______________, ____ Signature Guaranteed: ______________________________________ Signature 72 (Signature must correspond to name as written upon the face of the attached Nonvoting Common Stock Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion program), pursuant to Exchange Act Rule 17Ad-15. _______________________________________________________ (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Nonvoting Class Rights evidenced by the attached Nonvoting Common Stock Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _____________________________________ Signature _______________________________________________________ NOTICE In the event the certification set forth above is not completed in connection with a purported exercise, the Company will deem the Beneficial Owner of the Nonvoting Class Rights evidenced by the attached Nonvoting Common Stock Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will deem the Nonvoting Class Rights evidenced by such Nonvoting Common Stock Rights Certificate to be void and not transferable or exercisable. -2- 73 EXHIBIT C FORM OF CERTIFICATE OF DESIGNATION AND TERMS OF SERIES A PARTICIPATING PREFERRED STOCK OF THE GOLDMAN SACHS GROUP, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, the undersigned, __________________ and ____________________, the ____________________, and __________, respectively, of The Goldman Sachs Group, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: Pursuant to authority granted by Article FOURTH of the Amended and Restated Certificate of Incorporation of the Corporation, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has adopted the following resolutions fixing the designation and certain terms, powers, preferences and other rights of a new series of the Corporation's Preferred Stock, par value $0.01 per share, and certain qualifications, limitations and restrictions thereon: RESOLVED, that there is hereby established a series of Preferred Stock, par value $0.01 per share, of the Corporation, and the designation and certain terms, powers, preferences and other rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows: (i) The distinctive serial designation of this series shall be "Series A Participating Preferred Stock" (hereinafter called "this Series"). Each share of this Series shall be identical in all respects with the other shares of this Series except as to the dates from and after which dividends thereon shall be cumulative. (ii) The number of shares in this Series shall initially be _______, which number may from time to time be increased or decreased (but not below the number then outstanding) by the Board of Directors. Shares of 74 this Series purchased by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. Shares of this Series may be issued in fractional shares, which fractional shares shall entitle the holder, in proportion to such holder's fractional share, to all rights of a holder of a whole share of this Series. (iii) The holders of full or fractional shares of this Series shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds legally available therefor, dividends, (A) on each date that dividends or other distributions (other than dividends or distributions payable in Common Stock of the Corporation) are payable on or in respect of Common Stock comprising part of the Reference Package (as defined below), in an amount per whole share of this Series equal to the aggregate amount of dividends or other distributions (other than dividends or distributions payable in Common Stock of the Corporation) that would be payable on such date to a holder of the Reference Package and (B) on the last day of March, June, September and December in each year, in an amount per whole share of this Series equal to the excess (if any) of $____* over the aggregate dividends paid per whole share of this Series during the three month period ending on such last day. Each such dividend shall be paid to the holders of record of shares of this Series on the date, not exceeding sixty days preceding such dividend or distribution payment date, fixed for the purpose by the Board of Directors in advance of payment of each particular dividend or distribution. Dividends on each full and each fractional share of this Series shall be cumulative from the date such full or fractional share is originally issued; provided that any such full or fractional share originally issued after a dividend record date and on or prior to the dividend payment date to which such record date relates shall not be entitled to receive the dividend payable on such dividend payment date or any amount in respect of the period from such original issuance to such dividend payment date. The term "Reference Package" shall initially mean 100 shares of Common Stock, par value $0.01 per share ("Common Stock"), of the Corporation. In the event the Corporation shall at any time - -------------- * Insert an amount equal to 1/4 of 1% of the Exercise Price divided by the number of shares of Series A Preferred Stock purchasable upon exercise of one Right. -2- 75 after the close of business on ________, ____* (A) declare or pay a dividend on any Common Stock payable in Common Stock, (B) subdivide any Common Stock or (C) combine any Common Stock into a smaller number of shares, then and in each such case the Reference Package after such event shall be the Common Stock that a holder of the Reference Package immediately prior to such event would hold thereafter as a result thereof. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided on this Series. This Series shall rank pari passu in all respects with the Series B Participating Preferred Stock of the Company except with respect to voting rights. So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or Nonvoting Common Stock or upon any other stock ranking junior to this Series as to dividends or upon liquidation, unless the full cumulative dividends (including the dividend to be paid upon payment of such dividend or other distribution) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. When dividends are not paid in full upon this Series and any other stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other stock ranking on a parity as to dividends shall be declared pro rata so that in all cases the amount of dividends declared per share on this Series and such other stock shall bear to each other the same ratio that accumulated dividends per share on the shares of the Series and such other stock bear to each other. Neither the Common Stock or Nonvoting Common Stock nor any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and - ------------------------- * For a certificate of designation relating to shares to be issued pursuant to Section 2.3 of the Rights Agreement, insert the Separation Time. For a certificate of designation relating to shares to be issued pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in Date. -3- 76 upon liquidation), unless the full cumulative dividends (including the dividend to be paid upon payment of such redemption, purchase or other acquisition) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. (iv) In the event of any merger, consolidation, reclassification or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of this Series shall at the same time be similarly exchanged or changed in an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that a holder of the Reference Package would be entitled to receive as a result of such transaction. (v) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of full and fractional shares of this Series shall be entitled, before any distribution or payment is made on any date to the holders of the Common Stock or Nonvoting Common Stock or any other stock of the Corporation ranking junior to this Series upon liquidation, to be paid in full an amount per whole share of this Series equal to the greater of (A) $__________* or (B) the aggregate amount distributed or to be distributed prior to such date in connection with such liquidation, dissolution or winding up to a holder of the Reference Package (such greater amount being hereinafter referred to as the "Liquidation Preference"), together with accrued dividends to such distribution or payment date, whether or not earned or declared. If such payment shall have been made in full to all holders of shares of this Series, the holders of shares of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such liquidation, dissolution or winding up unless proportionate distributive amounts shall be paid on account of the shares - ------------------------- * Insert an amount equal to 100 times the Exercise Price in effect as of the Separation Time. -4- 77 of this Series, ratably in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such liquidation, dissolution or winding up. Upon the liquidation, dissolution or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v) before any payment shall be made to the holders of Common Stock or Nonvoting Common Stock or any other stock of the Corporation ranking junior upon liquidation to this Series. For the purposes of this Section (v), the consolidation or merger of, or binding share exchange by, the Corporation with any other corporation shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation. (vi) The shares of this Series shall not be redeemable. (vii) In addition to any other vote or consent of stockholders required by law or by the Amended and Restated Certificate of Incorporation, as amended, of the Corporation, each whole share of this Series shall, on any matter, vote as a class with any other capital stock comprising part of the Reference Package and voting on such matter and shall have the number of votes thereon that a holder of the Reference Package would have. IN WITNESS WHEREOF, the undersigned have signed and attested this certificate on the ____ day of _________, _____. _______________________________________ Attest: _____________________ -5- 78 EXHIBIT D FORM OF CERTIFICATE OF DESIGNATION AND TERMS OF SERIES B PARTICIPATING PREFERRED STOCK OF THE GOLDMAN SACHS GROUP, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, the undersigned, __________________ and ____________________, the ____________________, and __________, respectively, of The Goldman Sachs Group, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: Pursuant to authority granted by Article FOURTH of the Amended and Restated Certificate of Incorporation of the Corporation, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has adopted the following resolutions fixing the designation and certain terms, powers, preferences and other rights of a new series of the Corporation's Preferred Stock, par value $0.01 per share, and certain qualifications, limitations and restrictions thereon: RESOLVED, that there is hereby established a series of Preferred Stock, par value $0.01 per share, of the Corporation, and the designation and certain terms, powers, preferences and other rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows: (i) The distinctive serial designation of this series shall be "Series B Participating Preferred Stock" (hereinafter called "this Series"). Each share of this Series shall be identical in all respects with the other shares of this Series except as to the dates from and after which dividends thereon shall be cumulative. (ii) The number of shares in this Series shall initially be _______, which number may from time to time be increased or decreased (but not below the number then outstanding) by the Board of Directors. Shares of 79 this Series purchased by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. Shares of this Series may be issued in fractional shares, which fractional shares shall entitle the holder, in proportion to such holder's fractional share, to all rights of a holder of a whole share of this Series. (iii) The holders of full or fractional shares of this Series shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds legally available therefor, dividends, (A) on each date that dividends or other distributions (other than dividends or distributions payable in Nonvoting Common Stock of the Corporation) are payable on or in respect of Nonvoting Common Stock comprising part of the Reference Package (as defined below), in an amount per whole share of this Series equal to the aggregate amount of dividends or other distributions (other than dividends or distributions payable in Nonvoting Common Stock of the Corporation) that would be payable on such date to a holder of the Reference Package and (B) on the last day of March, June, September and December in each year, in an amount per whole share of this Series equal to the excess (if any) of $____* over the aggregate dividends paid per whole share of this Series during the three month period ending on such last day. Each such dividend shall be paid to the holders of record of shares of this Series on the date, not exceeding sixty days preceding such dividend or distribution payment date, fixed for the purpose by the Board of Directors in advance of payment of each particular dividend or distribution. Dividends on each full and each fractional share of this Series shall be cumulative from the date such full or fractional share is originally issued; provided that any such full or fractional share originally issued after a dividend record date and on or prior to the dividend payment date to which such record date relates shall not be entitled to receive the dividend payable on such dividend payment date or any amount in respect of the period from such original issuance to such dividend payment date. The term "Reference Package" shall initially mean 100 shares of Nonvoting Common Stock, par value $0.01 per share ("Nonvoting Common Stock"), of the Corporation. In the event the - ------------------ * Insert an amount equal to 1/4 of 1% of the Exercise Price divided by the number of shares of Series B Preferred Stock purchasable upon exercise of one Right. -2- 80 Corporation shall at any time after the close of business on ________, ____* (A) declare or pay a dividend on any Nonvoting Common Stock payable in Nonvoting Common Stock, (B) subdivide any Nonvoting Common Stock or (C) combine any Nonvoting Common Stock into a smaller number of shares, then and in each such case the Reference Package after such event shall be the Nonvoting Common Stock that a holder of the Reference Package immediately prior to such event would hold thereafter as a result thereof. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided on this Series. This Series shall rank pari passu in all respects with the Series A Participating Preferred Stock of the Company except with respect to voting rights. So long as any shares of this Series are outstanding, no dividend (other than a dividend in Nonvoting Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or Nonvoting Common Stock or upon any other stock ranking junior to this Series as to dividends or upon liquidation, unless the full cumulative dividends (including the dividend to be paid upon payment of such dividend or other distribution) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. When dividends are not paid in full upon this Series and any other stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other stock ranking on a parity as to dividends shall be declared pro rata so that in all cases the amount of dividends declared per share on this Series and such other stock shall bear to each other the same ratio that accumulated dividends per share on the shares of the Series and such other stock bear to each other. Neither the Common Stock or Nonvoting Common Stock nor any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for - -------------------- * For a certificate of designation relating to shares to be issued pursuant to Section 2.3 of the Rights Agreement, insert the Separation Time. For a certificate of designation relating to shares to be issued pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in Date. -3- 81 stock of the Corporation ranking junior to this Series as to dividends and upon liquidation), unless the full cumulative dividends (including the dividend to be paid upon payment of such redemption, purchase or other acquisition) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. (iv) In the event of any merger, consolidation, reclassification or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of this Series shall at the same time be similarly exchanged or changed in an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that a holder of the Reference Package would be entitled to receive as a result of such transaction. (v) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of full and fractional shares of this Series shall be entitled, before any distribution or payment is made on any date to the holders of the Common Stock or Nonvoting Common Stock or any other stock of the Corporation ranking junior to this Series upon liquidation, to be paid in full an amount per whole share of this Series equal to the greater of (A) $__________* or (B) the aggregate amount distributed or to be distributed prior to such date in connection with such liquidation, dissolution or winding up to a holder of the Reference Package (such greater amount being hereinafter referred to as the "Liquidation Preference"), together with accrued dividends to such distribution or payment date, whether or not earned or declared. If such payment shall have been made in full to all holders of shares of this Series, the holders of shares of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such liquidation, dissolution or winding up unless - --------------------- * Insert an amount equal to 100 times the Exercise Price in effect as of the Separation Time. -4- 82 proportionate distributive amounts shall be paid on account of the shares of this Series, ratably in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such liquidation, dissolution or winding up. Upon the liquidation, dissolution or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v) before any payment shall be made to the holders of Common Stock or Nonvoting Common Stock or any other stock of the Corporation ranking junior upon liquidation to this Series. For the purposes of this Section (v), the consolidation or merger of, or binding share exchange by, the Corporation with any other corporation shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation. (vi) The shares of this Series shall not be redeemable. (vii) Each whole share of this Series shall have no voting rights other than such rights as may be required by law. (viii) If there are no shares of Nonvoting Common Stock outstanding, a holder of shares of this Series may, at its option, convert such shares into the same number of shares of Series A Participating Preferred Stock of the Corporation. If a holder elects not to convert the shares of this Series, the Reference Package shall be deemed to refer to 100 shares of Common Stock, par value $0.01 per share, of the Corporation and all references to Nonvoting Common Stock in paragraph (iii) hereof shall be deemed to refer to the Common Stock. IN WITNESS WHEREOF, the undersigned have signed and attested this certificate on the ____ day of _________, _____. ___________________________________ Attest: _______________________ -5- EX-5.1 11 OPINION OF SULLIVAN & CROMWELL 1 Exhibit 5.1 SULLIVAN & CROMWELL NEW YORK TELEPHONE: (212) 558-4000 TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) CABLE ADDRESS: LADYCOURT, NEW YORK FACSIMILE: (212) 558-3588 125 BROAD STREET, NEW YORK 10004-2498 ------- 1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805 1888 CENTURY PARK EAST, LOS ANGELES 90071-2901 8, PLACE VENDOME, 75001 PARIS ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY 101 COLLINS STREET, MELBOURNE 3000 2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100 NINE QUEEN'S ROAD, CENTRAL, HONG KONG OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN April 29, 1999 The Goldman Sachs Group, Inc., 85 Broad Street, New York, New York 10004. Dear Sirs: In connection with the registration under the Securities Act of 1933 (the "Act") of 69,000,000 shares (the "Securities") of Common Stock, par value $.01 per share, of The Goldman Sachs Group, Inc., a Delaware corporation (the "Company"), and 69,000,000 related stock purchase rights (the "Rights") to be issued pursuant to the Shareholder Protection Rights Agreement, dated as of April 5, 1999 (the "Rights Agreement"), between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent"), we, as your counsel, have examined such corporate and partnership records, certificates and other documents, and such questions of law, as we have considered necessary 2 -2- or appropriate for the purposes of this opinion. Upon the basis of such examination, we advise you that, in our opinion: (1) When the registration statement relating to the Securities and the Rights (the "Registration Statement") has become effective under the Act, an amended and restated certificate of incorporation of the Company substantially in the form filed as an exhibit to the Registration Statement has been duly filed with the Secretary of State of the State of Delaware, the terms of the sale of the Securities have been duly established in conformity with the Company's amended and restated certificate of incorporation, and the Securities have been duly issued and sold as contemplated by the Registration Statement, the Securities will be validly issued, fully paid and nonassessable. (2) Assuming that the Rights Agreement has been duly authorized, executed and delivered by the Rights Agent, when the Registration Statement has become effective under the Act, the Securities have been duly issued and sold as contemplated by the Registration Statement and the Rights 3 -3- have been issued in conformity with the Rights Agreement, the Rights associated with the Securities will be validly issued. In connection with our opinion set forth in paragraph (2) above, we note that the question whether the Board of Directors of the Company might be required to redeem the Rights at some future time will depend upon the facts and circumstances existing at that time and, accordingly, is beyond the scope of such opinion. The foregoing opinion is limited to the Federal laws of the United States and the General Corporation Law of the State of Delaware, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. We have relied as to certain matters on information obtained from public officials, officers of the Company and the general partner of The Goldman Sachs Group, L.P. and other sources believed by us to be responsible. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Validity of Common Stock" 4 -4- in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ Sullivan & Cromwell EX-10.14 12 SUMMARY OF TOKYO LEASES 1 Exhibit 10.14 SUMMARY OF TERMS OF LEASES FOR ARK MORI BUILDING 12-32, AKASAKA 1-CHOME, MINATO-KU, TOKYO 106, JAPAN A. LEASE RELATING TO PART OF THE 6TH AND 7TH FLOORS 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Minato Tochi Tatemono Ltd. (currently Goldman Sachs Realty Japan Ltd. ("GSRJL")) (Lessee). 2. Date: November 1, 1998 3. Area: 2,791.11 square meters (total) 4. Term: December 1, 1998 to November 30, 2000. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Currently Yen 415,384,155 (If the rent is increased at the time of renewal, the deposit will be increased by the amount that is 6 times the increased portion of the monthly rent; if, after such increase, the deposit is less than the amount that is 12 times the sum of the monthly rent as so increased and the then effective monthly maintenance fee, the deposit will be increased to such larger amount.) Rent: Currently Yen 27,818,993 per month (plus consumption tax*) (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The maintenance fee for the period from December 1, 1998 to March 31, 1999 is Yen 6,796,353 per month (plus consumption tax). Mori has notified GSRJL that the maintenance fee for the period from April 1, 1999 to March 31, 2000 will be Yen 6,796,353 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or - -------- * Until March 31, 1997, the rate of consumption tax was 3%, and it was increased to 5% on April 1, 1997, which is the currently effective rate. 2 other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. -2- 3 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -3- 4 B. LEASE RELATING TO PART OF THE 4TH AND 19TH FLOORS 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Minato Tochi Tatemono Ltd. (currently Goldman Sachs Realty Japan Ltd. ("GSRJL")) (Lessee). 2. Date: July 28, 1998 3. Area: 1,576.25 square meters (total) 4. Term: August 1, 1998 to July 31, 2000. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Currently Yen 234,583,830 (If the rent is increased at the time of renewal, the deposit will be increased by the amount that is 6 times the increased portion of the monthly rent; if, after such increase, the deposit is less than the amount that is 12 times the sum of the monthly rent as so increased and the then effective monthly maintenance fee, the deposit will be increased to such larger amount.) Rent: Currently Yen 15,710,484 per month (plus consumption tax) (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The maintenance fee for the period from August 1, 1998 to March 31, 1999 is Yen 3,731,394 per month (plus consumption tax). Mori has notified GSRJL that the maintenance fee for the period from April 1, 1999 to March 31, 2000 will be Yen 3,838,169 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: -4- 5 (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or -5- 6 (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -6- 7 C. LEASE RELATING TO PART OF 6TH FLOOR 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: November 13, 1997 3. Area: 1,382.22 square meters 4. Term: December 1, 1997 to November 30, 1999. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Currently Yen 205,707,516 (If the rent is increased at the time of renewal, the deposit will be increased by the amount that is 6 times the increased portion of the monthly rent; if, after such increase, the deposit is less than the amount that is 12 times the sum of the monthly rent as so increased and the then effective monthly maintenance fee, the deposit will be increased to such larger amount.) Rent: Currently Yen 13,776,587 per month (plus consumption tax) (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The maintenance fee for the period from April 1, 1998 to March 31, 1999 is Yen 3,365,706 per month (plus consumption tax). Mori has notified GSRJL that the maintenance fee for the period from April 1, 1999 to March 31, 2000 will be Yen 3,365,706 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. -7- 8 (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. -8- 9 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -9- 10 D. LEASE RELATING TO PART OF THE 30TH FLOOR 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: March 25, 1997 3. Area: 89.93 square meters 4. Term: March 25, 1996 to March 31, 1998. (The term was extended by the amendment to this Lease. See "D-1. Amendment to Lease relating to part of the 30th floor" below.) This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Currently Yen 10,462,464 (If the rent is increased at the time of renewal and the deposit is less than the amount that is 12 times the monthly rent as so increased, the deposit will be increased to such larger amount.) Rent: Initially Yen 652,892 per month (plus consumption tax); pursuant to the amendment to this Lease, increased to Yen 685,537 per month (plus consumption tax) starting in April 1998 (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The maintenance fee for the period from March 1, 1998 to March 31, 1999 is Yen 218,980 per month (plus consumption tax). Mori has notified GSRJL that the maintenance fee for the period from April 1, 1999 to March 31, 2000 will be Yen 218,980 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. -10- 11 (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. -11- 12 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. D-1. AMENDMENT TO LEASE RELATING TO PART OF THE 30TH FLOOR (SEE D. ABOVE) 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: [not dated] 3. Area: 89.93 square meters 4. Term: April 1, 1998 to March 31, 2000. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives -12- 13 the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Rent: Yen 685,537 per month (plus consumption tax) Others: See C. above for other key terms. -13- 14 E. LEASE RELATING TO PART OF THE 4TH FLOOR AND THE ENTIRE 5TH, 9TH AND 10TH FLOORS 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor), Mori Building Shoji Co., Ltd. (Lessor's Agent) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: July 1, 1994 3. Area: 10,397.95 square meters consisting of (i) office spaces of 10,011.58 square meters ("Space A") and (ii) a machine room of 386.37 square meters ("Space B") 4. Term: July 1, 1994 to June 30, 2005. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: For Space A Yen 734,112,000 from July 1, 1994 to June 30, 1995 Yen 1,090,260,000 from July 1, 1995 to June 30, 1999 Yen 1,155,675,600 from July 1, 1999 to June 30, 2001 Yen 1,225,016,136 from July 1, 2001 to June 30, 2003 Yen 1,298,517,108 from July 1, 2003 to June 30, 2005 For Space B Yen 0 from July 1, 1994 to June 30, 1995 Yen 25,228,800 from July 1, 1995 to June 30, 1999 Yen 26,742,528 from July 1, 1999 to June 30, 2001 Yen 28,347,084 from July 1, 2001 to June 30, 2003 Yen 30,047,904 from July 1, 2003 to June 30, 2005 Thereafter - if the rent is increased at the time of renewal and the deposit is less than the amount that is 12 times the monthly rent as so increased, the deposit will be increased to such larger amount. Rent: For Space A Yen 61,176,000 per month from July 1, 1994 to June 30, 1995 Yen 90,855,000 per month from July 1, 1995 to June 30, 1999 Yen 96,306,300 per month from July 1, 1999 to June 30, 2001 Yen 102,084,678 per month from July 1, 2001 to June 30, 2003 Yen 108,209,759 per month from July 1, 2003 to June 30, 2005 (in each case, plus consumption tax) For Space B Yen 0 per month from July 1, 1994 to June 30, 1995 -14- 15 Yen 2,102,400 per month from July 1, 1995 to June 30, 1999 Yen 2,228,544 per month from July 1, 1999 to June 30, 2001 Yen 2,362,257 per month from July 1, 2001 to June 30, 2003 Yen 2,503,992 per month from July 1, 2003 to June 30, 2005 (in each case, plus consumption tax) Thereafter - subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions. Maintenance Fee: For Space A Yen 24,378,197 per month from July 1, 1994 to June 30, 1995 Yen 22,713,750 per month from July 1, 1995 to June 30, 1999 Yen 24,076,575 per month from July 1, 1999 to June 30, 2001 Yen 25,521,170 per month from July 1, 2001 to June 30, 2003 Yen 27,052,440 per month from July 1, 2003 to June 30, 2005 (in each case, plus consumption tax) For Space B Yen 940,811 per month from July 1, 1994 to June 30, 1995 Yen 876,000 per month from July 1, 1995 to June 30, 1999 Yen 928,560 per month from July 1, 1999 to June 30, 2001 Yen 984,274 per month from July 1, 2001 to June 30, 2003 Yen 1,043,330 per month from July 1, 2003 to June 30, 2005 (in each case, plus consumption tax) Thereafter - GSRJL shall pay a maintenance fee which is annually set by Mori. (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. (iii) Perform any other acts which may cause trouble to Mori or other lessees. -15- 16 c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: -16- 17 (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to (i) 15 months' rent in the case of termination by Mori on or before June 30, 2005, or (ii) six months' rent in the case of termination by Mori after on or after July 1, 2005, as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. Notwithstanding the foregoing, Mori and GSRJL has agreed not to cancel this Lease in any event before June 30, 2005. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -17- 18 F. LEASE (NO. 1) RELATING TO PART OF THE 19TH FLOOR 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: April 8, 1999 3. Area: 744.04 square meters (total) 4. Term: April 12, 1999 to April 30, 2001. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Currently Yen 110,731,009 (If the rent is increased at the time of renewal, the deposit will be increased by the amount that is 6 times the increased portion of the monthly rent; if, after such increase, the deposit is less than the amount that is 12 times the sum of the monthly rent as so increased and the then effective monthly maintenance fee, the deposit will be increased to such larger amount.) Rent: Currently Yen 7,415,847 per month (plus consumption tax) (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The maintenance fee for the period from April 12, 1999 to March 31, 2000 is Yen 1,811,737 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. -18- 19 (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. -19- 20 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -20- 21 G. LEASE (NO. 2) RELATING TO PART OF THE 19TH FLOOR 1. Parties: Mori Building Co., Ltd. ("Mori") (Lessor) and Goldman Sachs Realty Japan Ltd. ("GSRJL") (Lessee). 2. Date: April 8, 1999 3. Area: 679.75 square meters (total) 4. Term: August 1, 1999 to July 31, 2001. This Lease will be renewed for additional two years from the day following the expiration date unless either Mori or GSRJL gives the other party notice of its intention to refuse renewal not later than six months before the expiration date. 5. Key Terms: Deposit: Initially Yen 101,163,114 (If the rent is increased at the time of renewal, the deposit will be increased by the amount that is 6 times the increased portion of the monthly rent; if, after such increase, the deposit is less than the amount that is 12 times the sum of the monthly rent as so increased and the then effective monthly maintenance fee, the deposit will be increased to such larger amount.) Rent: Initially Yen 6,775,068 per month (plus consumption tax) (subject to increase at Mori's option at the time of renewal; Mori may also increase the rent at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance Fee: This Lease provides that GSRJL shall pay a maintenance fee which is annually set by Mori. The initial maintenance fee for the period from August 1, 1999 to March 31, 2000 will be Yen 1,655,191 per month (plus consumption tax). (Mori may also increase the maintenance fee at any time if there have been significant increases in rents at neighboring buildings, taxes or other charges with respect to the building, or other changes in economic conditions.) Maintenance: a. GSRJL shall be solely responsible for the care of the leased premises and shall use such premises and areas of common use with the level of care exercised by a good caretaker. b. GSRJL shall not do any of the following in the building: (i) Bring in any object that is excessively heavy, flammable or dangerous, or do anything which may be harmful to the preservation of the building. (ii) Perform any act that may disturb the administration of the building, such as lodging, keeping a pet, etc. -21- 22 (iii) Perform any other acts which may cause trouble to Mori or other lessees. c. In the event of damage caused to Mori or other lessees due to the fault of GSRJL, its employees or contractors, GSRJL shall promptly notify Mori of such damage and compensate the other parties for damages sustained by them. d. GSRJL shall select from among its employees a person to be in charge of fire prevention and shall file with the appropriate fire station the name of the individual. Indemnification: Mori shall be indemnified for any damage resulting from fire, theft or the breakdown of facilities that are not attributable to its willful acts or gross negligence. 6. Provisions for Furniture, Fixtures, Out-fitting, Renovation: Renovation/Repair: a. GSRJL shall cooperate with Mori in the repair of, improvement of, refurbishment of or any other work to be conducted on the leased premises, common space, fixtures and equipment. Mori shall not be held responsible for any damage caused by such work, including the suspension of use of common space, restriction on the use of the leased premises and common space and reduced services. b. If Mori should conduct repairs on a large scale, Mori may terminate this Lease with twelve months' advance written notice to GSRJL. Repairs: a. If GSRJL intends to conduct repair work, GSRJL shall as a general principle obtain prior written consent from Mori and ask Mori or persons as designated by Mori to carry out such work. All the expenses required for such repair work shall be borne by GSRJL. 7. Prohibition of Assignment and Sublease: a. GSRJL shall not, regardless of the reason, assign or sublease any part or all of the leased premises or use the leased premises as a security. b. GSRJL shall not do any of the following without the written consent of Mori: (i) Allow a third party to use or live in a part or all of the leased premises, regardless of the purpose; or (ii) Set up a sign or install a telephone or telex in the leased premises in a name other than that of GSRJL. -22- 23 8. Termination of Lease: a. Mori may terminate this Lease, without notice, in any of the following events: (i) If GSRJL violates any one of the provisions of this Lease or any contract incidental thereto; or (ii) If a petition is filed by GSRJL for dissolution, bankruptcy, composition, arrangement, or corporate reorganization, or if GSRJL loses its social prestige due to the violation of law or unfair business conduct. b. Penalty for Termination of Lease: When this Lease is terminated by Mori, GSRJL shall pay to Mori a sum of money equivalent to six months' rent as a penalty. This, however, shall not include any claim for compensation for damages caused by Mori to GSRJL. c. Cancellation: (i) Either Mori or GSRJL may cancel this Lease with six months' written notice given to the other party when either party is forced to cancel this Lease due to compelling reasons during the life of this Lease. GSRJL, however, may immediately terminate this Lease by paying to Mori a sum of money equivalent to six months' rent. (ii) If GSRJL should cancel this Lease after execution but before commencement of this Lease due to reasons attributable to GSRJL, GSRJL shall pay to Mori as a penalty an amount equivalent to six months' rent. 9. Confidentiality Clause: Neither Mori nor GSRJL shall disclose the contents of this Lease to any third party. -23- 24 CERTIFICATE OF ENGLISH SUMMARIES Pursuant to Rule 403(c) under the Securities Act of 1933, as amended, and Rule 306 of Regulation S-T, the Registrant hereby certifies that the Summary of Tokyo Leases included as Exhibit No. 10.14 to the Registration Statement on Form S-1 (No. 333-74449) of The Goldman Sachs Group, Inc. is a fair and materially accurate summary of such Leases. THE GOLDMAN SACHS GROUP, INC. (Registrant) By: /s/ Gregory K. Palm ___________________ Gregory K. Palm General Counsel April 28, 1999 EX-10.15 13 FORM OF GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN 1 EXHIBIT 10.15 Draft 4/26/99 THE GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN 2 Table of Contents
Page ---- ARTICLE I GENERAL 1.1 Purpose.................................................................. 1 1.2 Definitions of Certain Terms............................................. 1 1.3 Administration........................................................... 2 1.4 Persons Eligible for Awards.............................................. 4 1.5 Types of Awards Under Plan............................................... 4 1.6 Shares Available for Awards.............................................. 4 ARTICLE II AWARDS UNDER THE PLAN 2.1 Agreements Evidencing Awards............................................. 6 2.2 No Rights as a Shareholder............................................... 6 2.3 Grant of Options and Stock Appreciation Rights........................... 6 2.4 Exercise of Options and Stock Appreciation Rights........................ 6 2.5 Grant of Restricted Stock................................................ 7 2.6 Grant of Restricted Stock Units.......................................... 7 2.7 Other Stock-Based Awards................................................. 7 2.8 Grant of Dividend Equivalent Rights...................................... 8 ARTICLE III MISCELLANEOUS 3.1 Amendment of the Plan.................................................... 8 3.2 Tax Withholding.......................................................... 8 3.3 Required Consents and Legends............................................ 9 3.4 Nonassignability Consent and............................................. 10 3.5 Requirement of Consent and Notification of Election Under Section 83(b) of the Code or Similar Provision....................................... 10 3.6 Requirement of Notification Upon Disqualifying Disposition Under Section 421(b) of the Code............................................. 11 3.7 Change in Control ....................................................... 11 3.8 Right of Discharge Reserved.............................................. 11
i 3 3.9 Nature of Payments....................................................... 11 3.10 Non-Uniform Determinations............................................... 12 3.11 Other Payments or Awards................................................. 12 3.12 Plan Headings............................................................ 12 3.13 Date of Adoption and Term of Plan........................................ 12 3.14 Governing Law............................................................ 13 3.15 Severability; Entire Agreement........................................... 13 3.16 Waiver of Claims......................................................... 13 3.17 No Third Party Beneficiaries............................................. 14 3.18 Successors and Assigns of GS Inc. ....................................... 14
ii 4 THE GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN ARTICLE I GENERAL 1.1 Purpose The purpose of The Goldman Sachs 1999 Stock Incentive Plan is to attract, retain and motivate officers, directors, employees (including prospective employees), consultants and others who may perform services for the Firm, to compensate them for their contributions to the long-term growth and profits of the Firm, and to encourage them to acquire a proprietary interest in the success of the Firm. 1.2 Definitions of Certain Terms 1.2.1 "Award" means an award made pursuant to the Plan. 1.2.2 "Award Agreement" means the written document by which each Award is evidenced. 1.2.3 "Board" means the Board of Directors of GS Inc. 1.2.4 "Certificate" means a stock certificate (or other appropriate document or evidence of ownership) representing shares of Common Stock of GS Inc. 1.2.5 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the applicable rulings and regulations thereunder. 1.2.6 "Committee" means the committee appointed by the Board to administer the Plan pursuant to Section 1.3. 1.2.7 "Common Stock" means common stock of GS Inc., par value $0.01 per share. 1.2.8 "Employment" means a grantee's performance of services for the Firm, as determined by the Committee. The terms "employ" and "employed" shall have their correlative meanings. 1 5 1.2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the applicable rules and regulations thereunder. 1.2.10 "Fair Market Value" means, with respect to a share of Common Stock on any day, the fair market value as determined in accordance with a valuation methodology approved by the Committee. 1.2.11 "Firm" means GS Inc. and its subsidiaries and affiliates. 1.2.12 "GS Inc." means The Goldman Sachs Group, Inc., and any successor thereto. 1.2.13 "Incentive Stock Option" means an Option that is intended to qualify for special federal income tax treatment pursuant to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Agreement. 1.2.14 "Nonqualified Stock Option" means an Option that is not an Incentive Stock Option. 1.2.15 "Option" means an Incentive Stock Option or a Nonqualified Stock Option or both, as the context requires. 1.2.16 "Plan" means The Goldman Sachs 1999 Stock Incentive Plan, as described herein and as hereafter amended from time to time. 1.3 Administration 1.3.1 Subject to Section 1.3.4, the Plan shall be administered by a committee appointed by the Board whose members shall serve at the pleasure of the Board. To the extent required for transactions under the Plan to qualify for the exemptions available under Rule 16b-3 promulgated under the Exchange Act, all actions relating to Awards to persons subject to Section 16 of the Exchange Act may be taken by the Board or a committee or subcommittee of the Board composed of two or more members, each of whom is a "non-employee director" within the meaning of Exchange Act Rule 16b-3. To the extent required for compensation realized from Awards under the Plan to be deductible by GS Inc. pursuant to Section 162(m) of the Code, such Awards may be granted by a committee or subcommittee of the Board composed of two or more members, each of whom is an "outside director" within the meaning of Code Section 162(m). 1.3.2 The Committee shall have complete control over the administration of the Plan and shall have the authority in its discretion to (a) exercise all of the powers granted to it 2 6 under the Plan, (b) construe, interpret and implement the Plan and any Award Agreements, (c) prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (d) make all determinations necessary or advisable in administering the Plan, (e) correct any defect, supply any omission and reconcile any inconsistency in the Plan, (f) amend the Plan to reflect changes in applicable law (whether or not the rights of the grantee of any Award are adversely affected, unless otherwise provided in such grantee's Award Agreement), (g) unless otherwise provided in an Award Agreement, amend any outstanding Award Agreement in any respect, whether or not the rights of the grantee of such Award are adversely affected, including, without limitation, to accelerate the time or times at which the Award becomes vested, unrestricted or may be exercised, waive or amend any goals, restrictions or conditions set forth in such Award Agreement, or impose new goals, restrictions and conditions, or reflect a change in the grantee's circumstances (e.g., a change to part-time employment status), or to permit GS Inc. to utilize the pooling-of-interests accounting method and (h) determine whether, to what extent and under what circumstances and method or methods (1) Awards may be (A) settled in cash, shares of Common Stock, other securities, other Awards or other property, (B) exercised or (C) canceled, forfeited or suspended, (2) shares of Common Stock, other securities, other Awards or other property, and other amounts payable with respect to an Award may be deferred either automatically or at the election of the grantee thereof or of the Committee, (3) loans (whether or not secured by Common Stock) may be extended by the Firm with respect to any Awards and (4) Awards may be settled by GS Inc., any of its subsidiaries or affiliates or any of its or their designees. 1.3.3 Actions of the Committee may be taken by the vote of a majority of its members. Any action may be taken by a written instrument signed by a majority of the Commit tee members, and action so taken shall be fully as effective as if it had been taken by a vote at a meeting. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be final, binding and conclusive. The Committee may allocate among its members and delegate to any person who is not a member of the Committee any of its administrative responsibilities. 1.3.4 Notwithstanding anything to the contrary contained herein: (a) until the Board shall appoint the members of the Committee, the Plan shall be administered by the Board and (b) the Board may, in its sole discretion, at any time and from time to time, grant Awards or administer the Plan. In either of the foregoing events, the Board shall have all of the authority and responsibility granted to the Committee herein. 1.3.5 No member of the Board or the Committee or any employee of the Firm shall be liable for any action or determination made in good faith with respect to the Plan or any Award thereunder. Each such person shall be indemnified and held harmless by GS Inc. against and from any loss, cost, liability, or expense that may be imposed upon or incurred by such person in connection with or resulting from any action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure 3 7 to act under the Plan or any Award Agreement and against and from any and all amounts paid by such person, with GS Inc.'s approval, in settlement thereof, or paid by such person in satisfaction of any judgment in any such action, suit or proceeding against such person, provided that GS Inc. shall have the right, at its own expense, to assume and defend the same. The foregoing right of indemnification shall not be available to a person to the extent that a final judgment or other final adjudication binding upon such person establishes that the acts or omissions of such person giving rise to the indemnification claim resulted from such person's bad faith, fraud or willful criminal act or omission. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under GS Inc.'s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that GS Inc. may have to indemnify such persons or hold them harmless. 1.4 Persons Eligible for Awards Awards under the Plan may be made to such officers, directors, employees (including prospective employees), consultants and other individuals who may perform services for the Firm, as the Committee may select. 1.5 Types of Awards Under Plan Awards may be made under the Plan in the form of (a) Options, (b) stock appreciation rights, (c) dividend equivalent rights, (d) restricted stock, (e) restricted stock units and (f) other equity-based or equity-related Awards which the Committee determines to be consistent with the purpose of the Plan and the interests of the Firm. No Incentive Stock Option (other than an Incentive Stock Option that may be assumed or issued by GS Inc. in connection with a transaction to which Section 424(a) of the Code applies) may be granted to a person who is not eligible to receive an Incentive Stock Option under the Code. 1.6 Shares Available for Awards 1.6.1 Total shares available. Subject to adjustment pursuant to Section 1.6.2, the total number of shares of Common Stock which may be delivered pursuant to Awards granted under the Plan through GS Inc.'s fiscal year ending in 2002 shall not exceed three hundred million shares and pursuant to Awards granted in each fiscal year thereafter shall 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. If, after the effective date 4 8 of the Plan, any Award is forfeited or otherwise terminates or is canceled without the delivery of shares of Common Stock, shares of Common Stock are surrendered or withheld from any Award to satisfy a grantee's income tax or other withholding obligations, or shares of Common Stock owned by a grantee are tendered to pay the exercise price of any Award granted under the Plan, then the shares covered by such forfeited, terminated or canceled Award or which are equal to the number of shares surrendered, withheld or tendered shall again become available for transfer pursuant to Awards granted or to be granted under this Plan. Notwithstanding the foregoing, but subject to adjustment as provided in Section 1.6.2., no more than two hundred million shares of Common Stock shall be delivered pursuant to 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 (i) in GS Inc.'s fiscal year ending in 1999 shall equal 3,500,000 shares of Common Stock and (ii) in each subsequent fiscal year shall equal 110% of the maximum number for the preceding fiscal year. Any shares of Common Stock (a) delivered by GS Inc., (b) with respect to which Awards are made by GS Inc. and (c) with respect to which GS Inc. becomes obligated to make Awards, in each case through the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity, shall not be counted against the shares of Common Stock available for Awards under this Plan. Shares of Common Stock which may be delivered pursuant to Awards may be authorized but unissued Common Stock or authorized and issued Common Stock held in GS Inc.'s treasury or otherwise acquired for the purposes of the Plan. 1.6.2 Adjustments. The Committee shall have the authority (but shall not be required) to adjust the number of shares of Common Stock authorized pursuant to Section 1.6.1 and to adjust equitably (including, without limitation, by payment of cash) the terms of any outstanding Awards (including, without limitation, the number of shares of Common Stock covered by each outstanding Award, the type of property to which the Award is subject and the exercise or strike price of any Award), in such manner as it deems appropriate to preserve the benefits or potential benefits intended to be made available to grantees of Awards, for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, spinoff, splitup, combination or reclassification of the Common Stock, or any other event the Committee determines in its sole discretion affects the capitalization of GS Inc., including any extraordinary dividend or distribution. After any adjustment made pursuant to this Section 1.6.2, the number of shares of Common Stock subject to each outstanding Award shall be rounded to the nearest whole number. 1.6.3 Except as provided in this Section 1.6 or under the terms of any applicable Award Agreement, there shall be no limit on the number or the value of shares of Common Stock that may be subject to Awards to any individual under the Plan. 1.6.4 There shall be no limit on the amount of cash, securities (other than shares of Common Stock as provided in this Section 1.6) or other property that may be delivered pursuant to any Award. 5 9 ARTICLE II AWARDS UNDER THE PLAN 2.1 Agreements Evidencing Awards Each Award granted under the Plan shall be evidenced by a written document which shall contain such provisions and conditions as the Committee deems appropriate. The Committee may grant Awards in tandem with or in substitution for any other Award or Awards granted under this Plan or any award granted under any other plan of the Firm. By accepting an Award pursuant to the Plan, a grantee thereby agrees that the Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement. 2.2 No Rights as a Shareholder No grantee of an Award shall have any of the rights of a shareholder of GS Inc. with respect to shares subject to such Award until the delivery of such shares. Except as otherwise provided in Section 1.6.2, no adjustments shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, Common Stock, other securities or other property) for which the record date is prior to the date such shares are delivered. 2.3 Grant of Options and Stock Appreciation Rights The Committee may grant (a) Options to purchase shares of Common Stock from GS Inc. and (b) stock appreciation rights, in such amounts and subject to such terms and conditions as the Committee may determine. 2.4 Exercise of Options and Stock Appreciation Rights 2.4.1 Any acceptance by the Committee of an optionee's written notice of exercise of an Option shall be conditioned upon payment for the shares being purchased. Such payment may be made in cash or by such other method as the Committee may from time to time prescribe. 6 10 2.4.2 After receiving payment from the optionee of the full Option exercise price, or after receiving notice from the grantee of the exercise of a stock appreciation right for which payment will be made by GS Inc. partly or entirely in shares of Common Stock, GS Inc. shall, subject to the provisions of the Plan or any Award Agreement, deliver the shares of Common Stock. 2.5 Grant of Restricted Stock The Committee may grant or offer for sale restricted shares of Common Stock in such amounts and subject to such terms and conditions as the Committee shall determine. Upon the delivery of such shares, the grantee shall have the rights of a shareholder with respect to the restricted stock, subject to any restrictions and conditions as the Committee may include in the applicable Award Agreement. In the event that a Certificate is issued in respect of restricted shares of Common Stock, such Certificate may be registered in the name of the grantee but shall be held by GS Inc. or its designated agent until the time the restrictions lapse. 2.6 Grant of Restricted Stock Units The Committee may grant Awards of restricted stock units in such amounts and subject to such terms and conditions as the Committee shall determine. A grantee of a restricted stock unit will have only the rights of a general unsecured creditor of GS Inc. until delivery of shares of Common Stock, cash or other securities or property is made as specified in the applicable Award Agreement. On the delivery date, the grantee of each restricted stock unit not previously forfeited shall receive one share of Common Stock, or cash, securities or other property equal in value to a share of Common Stock or a combination thereof, as specified by the Committee. 2.7 Other Stock-Based Awards The Committee may grant other types of equity-based or equity-related Awards (including the grant or offer for sale of unrestricted shares of Common Stock) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may entail the transfer of actual shares of Common Stock to Plan participants, or payment in cash or otherwise of amounts based on the value of shares of Common Stock, and may include, without 7 11 limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States. 2.8 Grant of Dividend Equivalent Rights The Committee may include in the Award Agreement with respect to any Award a dividend equivalent right entitling the grantee to receive amounts equal to all or any portion of the dividends that would be paid on the shares of Common Stock covered by such Award if such shares had been delivered pursuant to such Award. The grantee of a dividend equivalent right will have only the rights of a general unsecured creditor of GS Inc. until payment of such amounts is made as specified in the applicable Award Agreement. In the event such a provision is included in an Award Agreement, the Committee shall determine whether such payments shall be made in cash, in shares of Common Stock or in another form, whether they shall be conditioned upon the exercise of the Award to which they relate, the time or times at which they shall be made, and such other terms and conditions as the Committee shall deem appropriate. ARTICLE III MISCELLANEOUS 3.1 Amendment of the Plan 3.1.1 Unless otherwise provided in an Award Agreement, the Board may from time to time suspend, discontinue, revise or amend the Plan in any respect whatsoever, including in any manner that adversely affects the rights, duties or obligations of any grantee of an Award. 3.1.2 Unless otherwise determined by the Board, shareholder approval of any suspension, discontinuance, revision or amendment shall be obtained only to the extent necessary to comply with any applicable law, rule or regulation. 3.2 Tax Withholding 3.2.1 As a condition to the delivery of any shares of Common Stock pursuant to any Award or the lifting or lapse of restrictions on any Award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of GS Inc. or any of its subsidiaries or affiliates relating to an Award (including, without limitation, FICA tax), (a) GS Inc. may deduct or withhold (or cause to be deducted or withheld) from any 8 12 payment or distribution to a grantee whether or not pursuant to the Plan or (b) the Committee shall be entitled to require that the grantee remit cash to GS Inc. or any of its subsidiaries or affiliates (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of GS Inc. to satisfy such withholding obligation. 3.2.2 If the event giving rise to the withholding obligation involves a transfer of shares of Common Stock, then, unless the applicable Award Agreement provides otherwise, at the discretion of the Committee, the grantee may satisfy the withholding obligation described under Section 3.2.1 by electing to have GS Inc. withhold shares of Common Stock (which withholding, unless otherwise provided in the applicable Award Agreement, will be at a rate not in excess of the statutory minimum rate) or by tendering previously owned shares of Common Stock, in each case having a Fair Market Value equal to the amount of tax to be withheld (or by any other mechanism as may be required or appropriate to conform with local tax and other rules). For this purpose, Fair Market Value shall be determined as of the date on which the amount of tax to be withheld is determined (and GS Inc. may cause any fractional share amount to be settled in cash). 3.3 Required Consents and Legends 3.3.1 If the Committee shall at any time determine that any consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of any Award, the delivery of shares of Common Stock or the delivery of any cash, securities or other property under the Plan, or the taking of any other action thereunder (each such action being hereinafter referred to as a "plan action"), then such plan action shall not be taken, in whole or in part, unless and until such consent shall have been effected or obtained to the full satisfaction of the Committee. The Committee may direct that any Certificate evidencing shares delivered pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as the Committee may determine to be necessary or desirable, and may advise the transfer agent to place a stop order against any legended shares. 3.3.2 The term "consent" as used herein with respect to any plan action includes (a) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state, or local law, or law, rule or regulation of a jurisdiction outside the United States, (b) any and all written agreements and representations by the grantee with respect to the disposition of shares, or with respect to any other matter, which the Committee may deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made, (c) any and all other consents, clearances and approvals in respect of a plan action by any governmental or other regulatory body or any stock exchange or self-regulatory agency and (d) any and all consents or authorizations required to comply with, or 9 13 required to be obtained under, applicable local law or otherwise required by the Committee. Nothing herein shall require GS Inc. to list, register or qualify the shares of Common Stock on any securities exchange. 3.4 Nonassignability Except to the extent otherwise expressly provided in the applicable Award Agreement, no Award (or any rights and obligations thereunder) granted to any person under the Plan may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of (including through the use of any cash-settled instrument) (each such action being hereinafter referred to as an "assignment"), whether voluntarily or involuntarily, other than by will or by the laws of descent and distribution, and all such Awards (and any rights thereunder) shall be exercisable during the life of the grantee only by the grantee or the grantee's legal representative. Notwithstanding the immediately preceding sentence, the Committee may permit, under such terms and conditions that it deems appropriate in its sole discretion, a grantee to transfer any Award to any person or entity that the Committee so determines. Any assignment in violation of the provisions of this Section 3.4 shall be void. All of the terms and conditions of this Plan and the Award Agreements shall be binding upon any such permitted successors and assigns. 3.5 Requirement of Consent and Notification of Election Under Section 83(b) of the Code or Similar Provision No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provision of the law of a jurisdiction outside the United States may be made unless expressly permitted by the terms of the Award Agreement or by action of the Committee in writing prior to the making of such election. If a grantee of an Award, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted under the terms of the Award Agreement or by such Committee action to make any such election and the grantee makes the election, the grantee shall notify the Committee of such election within ten (10) days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision. 10 14 3.6 Requirement of Notification Upon Disqualifying Disposition Under Section 421(b) of the Code If any grantee shall make any disposition of shares of Common Stock delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such grantee shall notify GS Inc. of such disposition within 10 days thereof. 3.7 Change in Control 3.7.1 The Committee may provide in any Award Agreement for provisions relating to a "change in control" of GS Inc. or any of its subsidiaries or affiliates (as such term is defined by the Committee in any such Award Agreement), including, without limitation, the acceleration of the exercisability of, or the lapse of restrictions or deemed satisfaction of goals with respect to, any outstanding Awards. 3.7.2 Unless otherwise provided in the applicable Award Agreement, in the event of a merger, consolidation, mandatory share exchange or other similar business combination of GS Inc. with or into any other entity ("successor entity") or any transaction in which another person or entity acquires all of the issued and outstanding Common Stock of GS Inc., or all or substantially all of the assets of GS Inc., outstanding Awards may be assumed or an equivalent Award may be substituted by such successor entity or a parent or subsidiary of such successor entity. 3.8 Right of Discharge Reserved Nothing in the Plan or in any Award Agreement shall confer upon any grantee the right to continued Employment by the Firm or affect any right which the Firm may have to terminate such Employment. 3.9 Nature of Payments 3.9.1 Any and all grants of Awards and deliveries of Common Stock, cash, securities or other property under the Plan shall be in consideration of services performed or to be performed for the Firm by the grantee. Awards under the Plan may, in the discretion of the Committee, be made in substitution in whole or in part for cash or other compensation otherwise payable to an Employee. 3.9.2 All such grants and deliveries shall constitute a special discretionary 11 15 incentive payment to the grantee and shall not be required to be taken into account in computing the amount of salary or compensation of the grantee for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Firm or under any agreement with the grantee, unless the Firm specifically provides otherwise. 3.10 Non-Uniform Determinations The Committee's determinations under the Plan and Award Agreements need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations under Award Agreements, and to enter into nonuniform and selective Award Agreements, as to (a) the persons to receive Awards, (b) the terms and provisions of Awards and (c) whether a grantee's Employment has been terminated for purposes of the Plan. 3.11 Other Payments or Awards Nothing contained in the Plan shall be deemed in any way to limit or restrict GS Inc. from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect. 3.12 Plan Headings The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. 3.13 Date of Adoption and Term of Plan The Plan was adopted by the Board on April ___, 1999. Unless sooner terminated by the Board, the provisions of the Plan respecting the grant of Incentive Stock Options shall terminate on the day before the tenth anniversary of the adoption of the Plan by the Board, and no Incentive Stock Options shall thereafter be granted under the Plan. The Board reserves the right to terminate the Plan at any time; provided, however, that all Awards made under the Plan prior 12 16 to its termination shall remain in effect until such Awards have been satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Award Agreements. 3.14 Governing Law ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN AND EACH AWARD AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 3.15 Severability; Entire Agreement If any of the provisions of this Plan or any Award Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby; provided, that if any of such provisions is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Award Agreements contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter thereof. 3.16 Waiver of Claims Each grantee of an Award recognizes and agrees that prior to being selected by the Committee to receive an Award he or she has no right to any benefits hereunder. Accordingly, in consideration of the grantee's receipt of any Award hereunder, he or she expressly waives any right to contest the amount of any Award, the terms of any Award Agreement, any determination, action or omission hereunder or under any Award Agreement by the Committee, GS Inc. or the Board, or any amendment to the Plan or any Award Agreement (other than an amendment to this Plan or an Award Agreement to which his or her consent is expressly required by the express terms of an Award Agreement). 13 17 3.17 No Third Party Beneficiaries Except as expressly provided therein, neither the Plan nor any Award Agreement shall confer on any person other than the Firm and the grantee of any Award any rights or remedies thereunder. 3.18 Successors and Assigns of GS Inc. The terms of this Plan shall be binding upon and inure to the benefit of GS Inc. and its successors and assigns. IN WITNESS WHEREOF, and as evidence of the adoption of this Plan effective as of __________, 1999 by GS Inc., it has caused the same to be signed by its duly authorized officer this _____ day of __________, 1999. THE GOLDMAN SACHS GROUP, INC. By:___________________________ Name: Title: 14 EX-10.16 14 FORM OF GOLDMAN SACHS DEFINED CONTRIBUTION PLAN 1 Exhibit 10.16 Draft 4/26/99 THE GOLDMAN SACHS DEFINED CONTRIBUTION PLAN Preamble This Plan shall be known as The Goldman Sachs Defined Contribution Plan (the "Plan"). The object of the Plan is to provide certain select management employees of The Goldman Sachs Group, Inc. ("GS Inc.") and its subsidiaries and affiliates (collectively, the "Firm") with an ownership interest in GS Inc. and to align the interests of those employees with those of GS Inc.'s shareholders. The Plan is not intended to be qualified under Section 401(a) of the Internal Revenue Code, as amended, and is not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I Definitions Section 1.1 "Account" means a Participant's Stock Account or the Unallocated Stock Account, or both, as the context requires. Section 1.2 "Beneficiary" means the person or persons (including a trust or estate) who are entitled to receive any benefit payable hereunder by reason of the death of a Participant, as designated pursuant to Section 9.1. Section 1.3 "Board" means the Board of Directors of GS Inc. Section 1.4 "Cause" means any of the following: (i) the Participant's conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) the Participant's engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) the Participant's willful or grossly negligent failure to perform duties to the Firm; (iv) the Participant's violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which GS Inc. or any of its subsidiaries or affiliates is a member; (v) the Participant's violation of any Firm policy concerning hedging or confidential or proprietary information, or material violation of any other Firm policy as in effect from time to time; (vi) the Participant's engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon 2 the name, reputation or business interests of the Firm; or (vii) the Participant's engaging in any conduct detrimental to the Firm. The determination as to whether "Cause" has occurred shall be made by the Committee. The Committee shall also have the authority to waive the consequences under the Plan of the existence or occurrence of any of the events, acts or omissions constituting "Cause". Section 1.5 "Change in Control" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving GS Inc. (a "Reorganization") or sale or other disposition of all or substantially all of GS Inc.'s assets to an entity that is not an affiliate of GS Inc. (a "Sale"), that in each case requires the approval of GS Inc.'s stockholders under the law of GS Inc.'s jurisdiction of organization, whether for such Reorganization or Sale (or the issuance of securities of GS Inc. in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (i) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (A) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of GS Inc. in a Sale (in either case, the "Surviving Entity"), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, as such Rule is in effect on the Effective Date) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by GS Inc.'s securities (the "GS Inc. Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such GS Inc. Securities were converted pursuant to such Reorganization or Sale) or (ii) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale, individuals (the "Incumbent Directors") who either (1) were members of the Board on the Effective Date or (2) became directors subsequent to the Effective Date and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of GS Inc.'s proxy statement in which such persons are named as a nominee for director). Section 1.6 "Code" means the Internal Revenue Code of 1986, as amended, from time to time. Section 1.7 "Committee" means the committee appointed by the Board to administer the Plan pursuant to Section 7.1. -2- 3 Section 1.8 "Custody Account" means the custody account maintained by a Participant with The Chase Manhattan Bank or such successor custodian designated by GS Inc. Section 1.9 "Distribution Date" shall include (i) each IPO Distribution Date and (ii) such other date on which a Participant becomes vested in all or any portion of his or her Stock Account in accordance with the provisions of Article V. Section 1.10 "Effective Date" means ________, 1999. Section 1.11 "Employment" means a Participant's performance of services for the Firm, as determined by the Committee. The terms "employ" and "employed" shall have their correlative meanings. Section 1.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the applicable rules and regulations thereunder. Section 1.13 "Fair Market Value" means, with respect to a share of Stock on any day, the fair market value as determined in accordance with a valuation methodology approved by the Committee. Section 1.14 "Good Reason" means (i) as determined by the Committee, a materially adverse alteration in the Participant's position or in the nature or status of such Participant's responsibilities from those in effect immediately prior to the Change in Control, or (ii) the Firm's requiring such Participant's principal place of Employment to be located more than seventy-five (75) miles from the location where such Participant is principally employed at the time of the Change in Control (except for required travel on the Firm's business to an extent substantially consistent with the Participant's customary business travel obligations in the ordinary course of business prior to the Change in Control). -3- 4 Section 1.15 "IPO Contribution" means the initial ______ shares of Stock contributed to the Plan on the date of the consummation of the initial public offering of GS Inc.'s Stock. Section 1.16 "IPO Distribution Date" means the first day of each Window Period that begins on or immediately follows each of the third, fourth and fifth anniversaries of the date of the consummation of the initial public offering of GS Inc.'s Stock. Section 1.17 "Participant" means an employee of the Firm who is designated as a Participant by the Committee pursuant to Article II. Section 1.18 "Plan" means The Goldman Sachs Defined Contribution Plan, as described herein and as hereafter amended from time to time. Section 1.19 "Plan Year" means any calendar year or part thereof beginning on the Effective Date. Section 1.20 "Qualified Termination" means a Participant's termination of Employment by the Firm without Cause or by the Participant for Good Reason, but only in each case if such termination of Employment occurs within 18 months following a Change in Control. Section 1.21 "Shareholders' Agreement" means the Shareholders' Agreement, dated as of ________, 1999, among The Goldman Sachs Group, Inc. and the individuals listed on Appendix A thereto, as in effect from time to time. Section 1.22 "Stock" means GS Inc.'s common stock, par value $0.01 per share. Section 1.23 "Stock Account" means the separate account established in the name of each Participant under Section 4.1 to hold Stock that has been allocated to such Participant and any distributions received with respect to such Stock. Section 1.24 "Trust" means the legal entity created by the Trust Agreement. Section 1.25 "Trust Agreement" means the agreement, dated as of the Effective Date, by and between GS Inc. and the Trustee, including any amendments thereto, setting forth the rights and obligations of the parties thereto in respect of the contributions to and distributions from the Trust, and the establishment and administration of the Accounts pursuant to the Plan. -4- 5 Section 1.26 "Trustee" means any corporation, individual or individuals who shall accept the appointment as trustee to execute the duties of the trustee pursuant to the Trust Agreement. Section 1.27 "Unallocated Stock Account" means a separate account established under Section 4.1 to hold Stock pending the allocation and reallocation of such Stock to the Stock Accounts of Participants, and any distributions received with respect to such Stock. Section 1.28 "Window Period" means a period designated by the Committee during which employees of the Firm generally are permitted to purchase or sell shares of Stock. ARTICLE II Eligibility and Participation Each employee designated by the Committee shall become a Participant in the Plan on the date he or she is so designated; provided, however, that if such employee is or becomes a Managing Director, such employee's participation in the Plan is conditioned upon his or her becoming a party to the Shareholders' Agreement. A Participant shall remain a Participant until the date he or she receives a distribution of the entire vested portion of his or her Stock Account or, if earlier, the date such Participant's interest in his or her Stock Account is forfeited in accordance with Article V. ARTICLE III Contributions On the Effective Date, GS Inc. shall establish the Trust and irrevocably contribute the IPO Contribution to the Trust. GS Inc. may contribute additional shares of Stock or cash to the Trust from time to time at its sole discretion. -5- 6 ARTICLE IV Allocation of Contributions Section 4.1 Establishment of Accounts. There shall be established a Stock Account in the name of each Participant and a separate account (the Unallocated Stock Account) to which any forfeitures occurring hereunder shall be credited pending allocation to Participants. The Accounts shall also hold any distributions with respect to any shares of Stock held therein until such distributions are payable pursuant to the Plan. Section 4.2 Allocations to Participants' Accounts. The Committee shall in its sole discretion designate the number of shares of Stock allocable to the Stock Account of each Participant with respect to the IPO Contribution. With respect to each contribution other than the IPO Contribution, the Committee shall designate the number of shares of Stock (or the amount of cash) allocable to the Stock Account of each Participant on a formulaic basis as determined by the Committee in its sole discretion. Any Stock and distributions in respect of Stock in the Unallocated Stock Account as of the last day of each Plan Year shall be allocated among the Stock Accounts of each Participant who is an employee on the last day of such Plan Year in the proportion that each such Participant's allocation in respect of GS Inc.'s contributions for such Plan Year bears to the allocations of such contributions for all Participants who are employees on the last day of such Plan Year, or on such other formulaic basis as determined by the Committee in its sole discretion. Section 4.3 Voting of Stock; Tender or Exchange Offers. With respect to Stock allocated to Participants' Stock Accounts, each Participant shall be entitled to instruct the Trustee, on a confidential basis (a) as to the manner in which the Trustee's voting rights will be exercised with respect to any matter which involves the voting of such Stock allocated to the Participant's Stock Account, and (b) in the event of a tender or exchange offer for all or substantially all of the Stock of GS Inc., whether such Stock shall be tendered or exchanged by the Trustee. Notwithstanding the foregoing, all Stock allocated to the Stock Accounts of Participants who are subject to the Shareholders' Agreement shall be voted by the Trustee solely in accordance with the terms of the Shareholders' Agreement, and may be tendered or exchanged only if so permitted under the terms of the Shareholders' Agreement. Without limiting the foregoing, the Trust Agreement shall provide that the Trustee shall have no discretion and shall be required to vote, tender or exchange shares of Stock held by the Trust as follows: (i) shares of Stock allocated to a Participant's Stock Account shall be voted, tendered or exchanged, as applicable, in accordance with any instructions received from such Participant or such Participant's authorized representative pursuant to a duly executed power of attorney or similar instrument, (ii) shares of Stock held in a Participant's Stock Account with respect to which the Trustee does not receive instructions shall not be voted, tendered or -6- 7 exchanged, as applicable, and (iii) shares of Stock held in the Unallocated Stock Account shall be voted, tendered or exchanged, as applicable, in the same proportion as the shares of Stock allocated to Participants' Stock Accounts with respect to which instructions are received by the Trustee are voted, tendered or exchanged. ARTICLE V Vesting Section 5.1 Vesting of IPO Contribution. Except as otherwise provided in this Article V, a Participant shall vest on each IPO Distribution Date in one-third of his or her Stock Account attributable to the IPO Contribution (subject to rounding in the discretion of the Committee to avoid the vesting of fractional shares of Stock). Section 5.2 Special Rule for IPO Contribution. Notwithstanding any other provision of this Plan, provided that a Participant's Stock Account has not previously been forfeited, such Participant shall be 100% vested in the portion of his or her Stock Account attributable to the IPO Contribution upon (i) the death of such Participant or (ii) such Participant's Qualified Termination. Section 5.3 Forfeiture and Reallocation of IPO Contribution. Unless the Committee determines otherwise, and except under the circumstances specified in Section 5.2(ii), a Participant's unvested Stock in his or her Stock Account attributable to the IPO Contribution shall be forfeited and such Stock shall not be distributable to such Participant if: (i) prior to the relevant IPO Distribution Date: (A) such Participant's Employment with the Firm is terminated for any reason, or such Participant is no longer actively employed with the Firm (except as provided in Section 5.2(i)); or (B) with respect to such Participant, any of the events that constitute Cause has occurred; or (C) such Participant attempts to have any dispute under this Plan resolved in any manner that is not provided for by Sections 9.5 and 9.6; or (ii) such Participant fails to certify to GS Inc., in accordance with procedures established by the Committee, with respect to any relevant IPO -7- 8 Distribution Date that such Participant has complied, or the Committee determines that such Participant in fact as of such date has not complied, with all the terms and conditions of the Plan. By accepting the distribution of Stock (or cash) under the Plan, such Participant shall be deemed to have represented and certified at such time that he or she has complied with all the terms and conditions of the Plan. In the event that Stock in a Participant's Stock Account attributable to the IPO Contribution is forfeited by reason of this Section 5.3, such forfeited Stock shall be reallocated to other Participants' Stock Accounts in accordance with Section 4.2, and the Committee shall specify the terms and conditions (including timing) under which each such Participant shall vest in such reallocated amounts. Section 5.4 Vesting of Ongoing Contributions. With respect to each Plan contribution (other than the IPO Contribution), the Committee shall specify the terms and conditions (including timing) under which a Participant shall vest in any or all of his or her Account attributable to such contributions (or forfeitures of such contributions reallocated to such Participant). ARTICLE VI Distributions Section 6.1 General. (a) Except as provided below and in Section 9.10, all amounts and all shares of Stock credited to the Stock Account in which a Participant has vested under Article V shall be promptly distributable to such Participant (or, if applicable, his or her Beneficiary), and shall be subject to the provisions of Sections 9.8 and 9.9. Unless otherwise determined by the Committee, or as otherwise provided in the Plan, the distribution of shares of Stock shall be effected by book-entry credit to such Participant's Custody Account. No distribution of shares of Stock shall be made to any Participant unless such Participant has timely established a Custody Account. A Participant shall be the beneficial owner of any shares of Stock properly credited to the Custody Account. (b) Any cash dividends on shares of Stock allocated to a Participant's Stock Account on the record date for such dividend shall be distributed to such Participant as soon as practicable following the end of the calendar quarter in which such dividend is received without regard to whether such Participant is vested in the Stock in respect of which such dividend is received. No interest shall be payable on any dividends allocated to a Participant's Stock Account but not yet distributed. -8- 9 ARTICLE VII Organization of Plan Committee; Administration of Plan Section 7.1 The Committee. Subject to Section 7.3, the Plan shall be administered by a committee appointed by the Board whose members shall serve at the pleasure of the Board. To the extent required for transactions under the Plan to qualify for the exemptions available under Rule 16b-3 promulgated under the Exchange Act, all actions relating to Participants who are subject to Section 16 of the Exchange Act may be taken by the Board or a committee or subcommittee of the Board composed of two or more members, each of whom is a "non-employee director" within the meaning of Exchange Act Rule 16b-3. Section 7.2 Plan Administered by Committee. The Committee shall have complete control over the administration of the Plan and shall have the authority in its sole discretion to (a) exercise all of the powers granted to it under the Plan, (b) construe, interpret and implement the Plan, (c) prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (d) make all determinations necessary or advisable in administering the Plan, and (e) correct any defect, supply any omission and reconcile any inconsistency in the Plan. Action by the Committee may be taken by the vote of a majority of its members. Any action may be taken by a written instrument signed by a majority of the members of the Committee and action so taken shall be fully as effective as if it had been taken by a vote at a meeting. The determinations of the Committee on all matters relating to the Plan shall be final, binding and conclusive. Section 7.3 Power of Delegation; Indemnification. Notwithstanding anything to the contrary contained herein: (a) until the Board shall appoint the members of the Committee, the Plan shall be administered by the Board and (b) the Board may, in its sole discretion, at any time and from time to time, determine allocations of contributions or otherwise administer the Plan. In either of the foregoing events, the Board shall have all of the authority and responsibility granted to the Committee herein. The Committee may allocate among its members or delegate to any person who is not a member of the Committee any administrative responsibility which the Committee has hereunder. No member of the Board or the Committee or any employee of the Firm shall be liable for any action or determination made in good faith with respect to the Plan. Each such person shall be indemnified and held harmless by GS Inc. against and from any loss, cost, liability, or expense that may be imposed upon or incurred by such person in connection with or resulting from any action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person, with GS -9- 10 Inc.'s approval, in settlement thereof, or paid by such person in satisfaction of any judgment in any such action, suit or proceeding against such person, provided that GS Inc. shall have the right, at its own expense, to assume and defend the same. The foregoing right of indemnification shall not be available to a person to the extent that a final judgment or other final adjudication binding upon such person establishes that the acts or omissions of such person giving rise to the indemnification claim resulted from such person's bad faith, fraud or willful criminal act or omission. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under GS Inc.'s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that GS Inc. may have to indemnify such persons or hold them harmless. The responsibility of the Committee with respect to the management or control of the assets of the Trust may be delegated or allocated to the Trustee. Section 7.4 Communication by Committee. Decisions and directions of the Committee may be communicated to the Trustee, a Participant, a Beneficiary, GS Inc. or any other person who is to receive such decision or direction by a document signed by any one or more members of the Committee (or persons other than members) so authorized, and such decision or direction of the Committee may be relied upon by the recipient as being the decision of the Committee. The Committee may authorize one or more of its members, or a designee who is not a member, to sign on behalf of the entire Committee. ARTICLE VIII Amendment, Termination, etc. The Board reserves the right at any time and from time to time to modify, alter, amend, suspend, discontinue and terminate the Plan or the Trust Agreement; provided that, no such modification, alteration, amendment, suspension, discontinuance or termination shall materially adversely affect, without their consent, the rights of Participants under this Plan with respect to contributions previously made except that the Board reserves the right to (a) accelerate the vesting of Participants' Stock Accounts and in its discretion provide that Stock distributed from such Stock Accounts may not be transferable until the Distribution Dates as of which such Stock would have otherwise become vested (and that in respect of such Stock the Participants may remain subject to the repayment obligations of Section 9.11 in the circumstances under which the Stock would not have been distributed pursuant to Section 5.3) and (b) make distributions to Participants upon the termination of the Plan. Notwithstanding the foregoing, no modification, alteration, amendment or termination of the Plan may be made which would cause or permit any part of the assets of the Trust to be used for, or diverted to, purposes other than for the -10- 11 exclusive benefit of Participants or their Beneficiaries, or which would cause any part of the assets of the Trust to revert to or become the property of the Firm. Any modification, alteration or amendment to the Plan shall be in writing signed by the Chief Executive Officer of GS Inc. or his designee. ARTICLE IX Miscellaneous Section 9.1 Designation of Beneficiaries. A Participant may designate, in accordance with procedures established by the Committee, a Beneficiary or Beneficiaries to receive all or part of the amounts payable hereunder in the event of such Participant's death. A designation of a Beneficiary may be replaced by a new designation or may be revoked by a Participant at any time in accordance with procedures established by the Committee. In the event of a Participant's death, the amounts payable hereunder with respect to which a designation of Beneficiary has been made shall be paid in accordance with the Plan to such designated Beneficiary or Beneficiaries. Any amounts payable upon death and not subject to such designation shall be distributed to the Participant's estate. If there is any question as to the legal right of any Beneficiary to receive payment of amounts hereunder, the amounts in question may be paid to the Participant's estate, in which event the Firm shall have no further liability to anyone with respect to such amounts. A Beneficiary shall have no rights under the Plan other than the right, subject to the immediately preceding sentence, to receive such amounts, if any, as may be payable under this Section 9.1. Section 9.2 Nonassignability. No rights granted to any Participant or any Beneficiary under the Plan (including any interest in the Accounts) may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of (including through the use of any cash-settled instrument) (each such action being hereinafter referred to as an "assignment"), whether voluntarily or involuntarily, other than by will or by the laws of descent and distribution. Any assignment in violation of the provisions of this Section 9.2 shall be void. All the terms of this Plan shall be binding upon such permitted successors and assigns. Section 9.3 Plan Creates No Employment Rights. Nothing in the Plan shall confer upon any Participant the right to continue in the employ of the Firm or affect any right which the Firm may have to terminate such Employment. Section 9.4 Limit on Liability. No person shall have any right or interest in the Plan and/or the Trust other than as provided herein. The Trust assets shall under no circumstances be available to the creditors of the Firm. All distributions under the Plan -11- 12 shall be paid or provided solely from the Trust assets, and the Firm shall have no responsibility or liability to any Participant or Beneficiary relating to the Stock or other assets contributed to the Trust. Any final distribution to any Participant or Beneficiary in accordance with the provisions of the Plan shall be in full satisfaction of all claims against the Trust, the Trustee, the Committee, the Board, GS Inc., the Firm and its employees with respect to the Plan or Trust. Section 9.5 Arbitration. Any dispute, controversy or claim between the Firm and any Participant arising out of or relating to or concerning the provisions of the Plan or the Trust shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by any Participant must first be submitted to the Committee in accordance with claim procedures determined by the Committee in its sole discretion. This Section is subject to the provisions of Section 9.6. Section 9.6 Choice of Forum. (a) THE FIRM AND EACH PARTICIPANT, AS A CONDITION TO SUCH PARTICIPANT'S PARTICIPATION IN THE PLAN, HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO THE PROVISIONS OF SECTION 9.5. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and each Participant, as a condition to such Participant's participation in the Plan, acknowledge that the forum designated by this Section 9.6(a) has a reasonable relation to the Plan, and to the relationship between such Participant and the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of Sections 9.5 and 9.6. (b) The agreement by the Firm and each Participant as to forum is independent of the law that may be applied in the action, and the Firm and each Participant, as a condition to such Participant's participation in the Plan, (i) agree to such forum even if the forum may under applicable law choose to apply non-forum law, (ii) hereby waive, to the fullest extent permitted by applicable law, any objection which the Firm or such Participant now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Section 9.6(a), (iii) undertake not to commence any action arising out of or relating to or concerning the Plan in any forum other than the forum described in this Section 9.6 and (iv) agree that, to the fullest extent permitted by applicable law, a final and non-appealable -12- 13 judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the Firm and each Participant. (c) Each Participant, as a condition to such Participant's participation in the Plan, hereby irrevocably appoints the General Counsel of GS Inc. as such Participant's agent for service of process in connection with any action or proceeding arising out of or relating to or concerning the Plan which is not arbitrated pursuant to the provisions of Section 9.5, who shall promptly advise such Participant of any such service of process. (d) Each Participant hereby agrees, as a condition to such Participant's participation in the Plan, to keep confidential the existence of, and any information concerning, a dispute described in Section 9.5 or 9.6, except that a Participant may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to such Participant's legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). (e) Each Participant recognizes and agrees that prior to being selected by the Committee to participate in the Plan such Participant has no right to any benefits hereunder. Accordingly, in consideration of a Participant's selection to participate in the Plan, each Participant expressly waives any right to contest the amount of any contribution to the Plan, the terms of the Plan, any determination, action or omission hereunder by the Committee, GS Inc. or the Board, or any amendment to the Plan (other than an amendment to which such Participant's consent is expressly required by Article VIII). Section 9.7 Governing Law. ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Section 9.8 Taxes and Withholding. (a) Upon a Participant's vesting in all or any portion of his or her Stock Account, or in connection with any distribution or other event that gives rise to a federal or other governmental tax withholding obligation relating to the Plan (including, without limitation, FICA tax), the Trustee shall be entitled to require that the Participant remit cash in an amount sufficient in the opinion of the Trustee and the Committee to satisfy such withholding obligation. Alternatively, if the event giving rise to the withholding obligation involves a transfer of shares of Stock, then, at the discretion of the Committee, the Participant may elect to satisfy the withholding obligation described above by (i) remitting cash, (ii) instructing the Trustee to withhold shares of Stock or tendering previously owned shares of Stock (in each case having a Fair Market Value equal to the amount of tax to be withheld) or (iii) any other mechanism as may be -13- 14 required or appropriate to conform with local tax and other rules. For this purpose, Fair Market Value shall be determined as of the date on which the amount of tax to be withheld is determined (and any fractional share amount may be settled in cash). If the Participant does not satisfy the withholding obligation in accordance with any of the methods described above in this Section 9.8(a), the Trustee may cause such withholding taxes to be deducted or withheld from the vested portion of the Participant's Stock Account or any payment or distribution to the Participant pursuant to the Plan, and the Firm may deduct or withhold (or cause to be deducted or withheld) such taxes from any other payment or distribution by the Firm to the Participant. (b) The Trustee may transfer to the Firm any amounts (cash or shares of Stock) withheld or received from the Participant pursuant to Section 9.8(a). Any deduction of shares of Stock from the Participant's Stock Account by the Trustee pursuant to this Section 9.8 shall be treated as a distribution from the Trust to such Participant and an election by the Participant to have such shares of Stock applied to satisfy the withholding obligation. (c) No Participant may make an election pursuant to section 83(b) of the Code with respect to his or her interest in the Trust, any shares of Stock or any other property held by the Trust. Section 9.9 Right of Offset. The Committee shall have the right to direct the Trustee to withhold distribution of the vested portion of a Participant's Stock Account until the Participant settles any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) such Participant then owes to the Firm. Section 9.10 Consents and Legends. The vesting and distribution to a Participant of any shares of Stock may be conditioned on the receipt to the full satisfaction of the Committee of (a) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, or law, rule or regulation of a jurisdiction outside the United States, (b) any and all written agreements and representations by the grantee with respect to the disposition of shares, or with respect to any other matter, which the Committee shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made, (c) any and all other consents, clearances and approvals in respect of a plan action by any governmental or other regulatory body or any stock exchange or self-regulatory agency that the Committee may determine to be necessary or advisable and (d) any and all consents or authorizations required to comply with, or required to be obtained under, applicable local law or otherwise required by the Committee. Nothing herein shall require GS Inc. to list, -14- 15 register or qualify the shares of Stock on any securities exchange. GS Inc. may affix to any stock certificate (or other document or evidence of ownership) representing shares of Stock distributed under the Plan any legend that the Committee determines in its sole discretion to be necessary or advisable (including to reflect any restrictions to which a Participant may be subject under a separate agreement with GS Inc.). GS Inc. may advise the transfer agent to place a stop order against any legended shares of Stock. Section 9.11 Forfeiture and Repayment after Erroneous Vesting. If, following any date on which a Participant becomes vested in all or any portion of his or her Stock Account (the "erroneously vested portion"), the Committee determines that all terms and conditions of the Plan were not satisfied on the relevant vesting date, such Participant or former Participant shall cease to be vested in, and shall forfeit, such erroneously vested portion, and the Trust shall be entitled to receive, and such Participant or former Participant shall be obligated to pay the Trust immediately upon demand therefor the Fair Market Value of any Shares (determined as of the date of vesting) and the amount of any cash delivered in respect of any distribution of the erroneously vested portion, without reduction for any Shares (or cash) applied to satisfy withholding tax or other obligations in respect of such erroneous vesting event. Section 9.12 Severability; Entire Agreement. If any of the provisions of this Plan is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby; provided, that if any of the provisions of this Plan is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter hereof. Section 9.13 Expenses. All expenses incurred by the Committee and the Trustee in connection with administering this Plan and the Trust shall be paid by GS Inc. to the extent not paid from the cash dividends held in the Unallocated Stock Account. All taxes imposed on the Trust related to income credited to or attributable to Trust assets shall be paid from such assets and charged against the Stock Account to which the income is allocated as though it were payable directly to the Participant. Section 9.14 No Third Party Beneficiaries. Except as expressly provided herein, the Plan shall not confer on any person other than the Firm and any Participant any rights or remedies thereunder. -15- 16 Section 9.15 Participating Employers. Each subsidiary or affiliate of GS Inc. which employs a Participant shall adopt this Plan by executing Schedule A. Section 9.16 Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of GS Inc., each of its subsidiaries and affiliates that adopts the Plan and its and their successors and assigns. Section 9.17 Plan Headings. The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. Section 9.18 Construction. In the construction of this Plan, the singular shall include the plural, and vice versa, in all cases where such meanings would be appropriate. IN WITNESS WHEREOF, and as evidence of the adoption of this Plan effective as of __________, 1999 by GS Inc., it has caused the same to be signed by its duly authorized officer this _____ day of __________, 1999. THE GOLDMAN SACHS GROUP, INC. By:____________________________________ Name: Title: -16- 17 SCHEDULE A As evidenced by the duly authorized signature below, the undersigned entity hereby adopts and elects to participate in The Goldman Sachs Defined Contribution Plan, as such Plan may be amended from time to time, and appoints The Goldman Sachs Group, Inc. as its agent to do all things necessary to effect such participation. [Name of Entity] By:___________________________________ Name: Title: Authorized Person EX-10.17 15 LETTER AGREEMENT WITH MR. WEINBERG 1 EXHIBIT 10.17 The Goldman Sachs Group, L.P./85 Broad Street/New York, New York 10004 Tel: 212-902-1000 Goldman Sachs April 5, 1999 Mr. John L. Weinberg, 70 Field Point Circle, Greenwich, CT 06830. Dear John: The Board of Directors of The Goldman Sachs Group, Inc. (the "Company") is tremendously pleased that you have agreed to continue as Senior Chairman of Goldman Sachs (the Company, together with its affiliates and subsidiaries are sometimes referred to herein as the "Firm"). We expect to continue to draw upon your advice and talent. This letter is intended to memorialize our mutual understanding with respect to your senior advisory relationship with the Company. 1. Your responsibilities shall be to continue to service, in a senior capacity, the accounts and relationships of the Firm with which you have been or become involved and to lend such advice and counsel to the Company as it may from time to time request. You shall devote substantial time and attention to the business of the Firm and you shall not enter into any other business enterprise without the consent of the Board of Directors of the Company. It is understood that you shall not be required to perform services other than in a senior capacity and that you may arrange your daily affairs pursuant hereto as you deem 2 Mr. John L. Weinberg -2- appropriate consistent with the Firm's high standards of professional conduct. 2. The term of this agreement will be from the date of the Company's initial public offering through November 24, 2000, unless you or the Company elects to terminate this agreement sooner on 90 days' prior written notice; provided, however, that any termination by the Company will take effect immediately if the termination is for violation of law, breach of this agreement or violation of Goldman Sachs policies or procedures ("cause"). This agreement will also terminate if you die or become disabled. 3. Your fee shall be at an annual rate of $2,000,000 payable in semi-monthly installments (subject to any required withholding for taxes) and shall be pro rated for the portion of 1999 covered by this agreement. If you terminate this agreement or the Company terminates it for cause, you will be entitled to payment pro rated through the date of such termination. If the Company terminates this agreement other than for cause you will be entitled to payment through the end of the fiscal year in which the notice of termination is given. You will be entitled to continue to participate in the benefits plans of the Company in which you currently participate. The Company will reimburse you for all expenses and disbursements reasonably incurred by you in the performance of your duties hereunder. 4. For 12 months following termination of this agreement you will not, without the consent of the Board of Directors of the Company, engage directly or indirectly in any business which competes with the business of the Firm. 5. The Confidentiality Agreement you will execute as a Schedule I Limited Partner in The Goldman Sachs Group, L.P. ("Group") in connection with the Plan of Incorporation of Group (the "Confidentiality Agreement") will extend to confidential information obtained in connection with your services as a director and as Senior Chairman pursuant to this agreement. The 3 Mr. John L. Weinberg -3- provisions of Sections 2, 3, 4, 5 and 6 of the Confidentiality Agreement shall apply to any dispute under this agreement as if those sections were included in this agreement and referred to the covenants hereunder. 6. This agreement and the Confidentiality Agreement constitute the entire understanding between the Company and you relating to your relationship with the Firm and supersede and cancel all prior written and oral agreements and understandings with respect to the subject matter of this agreement. This agreement may be amended only by a subsequent written agreement of the parties, shall be binding upon and inure to the benefit of you and your heirs, executors, administrators and beneficiaries and the Company and its successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. If the foregoing is in accordance with your understanding, kindly confirm your acceptance and agreement by signing and returning the enclosed duplicate of this letter which will thereupon constitute an agreement between us. Very truly yours, The Goldman Sachs Group, Inc. By: /s/ Henry M. Paulson, Jr. -------------------------- Agreed to and accepted as of the date of this letter /s/ John L. Weinberg - -------------------------- John L. Weinberg EX-10.18 16 FORM OF GOLDMAN SACHS PARTNER COMPENSATION PLAN 1 EXHIBIT 10.18 Draft 4/26/99 THE GOLDMAN SACHS PARTNER COMPENSATION PLAN Section 1. PURPOSES. The purposes of the Goldman Sachs Partner Compensation Plan (the "Plan") are to attract, retain and motivate selected employees of The Goldman Sachs Group, Inc. ("GS Inc.") and its subsidiaries and affiliates (together with GS Inc., and their and its successors, the "Firm") in order to promote the Firm's long-term growth and profitability. Section 2. ADMINISTRATION. (a) Subject to Section 2(d), the Plan shall be administered by a committee (the "Committee") appointed by the Board of Directors of GS Inc. (the "Board") whose members shall serve at the pleasure of the Board. (b) The Committee shall have complete control over the administration of the Plan and shall have the authority in its sole and absolute discretion to (i) exercise all of the powers granted to it under the Plan, (ii) construe, interpret and implement the Plan and each Contract Period Schedule (hereinafter defined), (iii) prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations governing its own operations, (iv) make all determinations necessary or advisable in administering the Plan, (v) correct any defect, supply any omission and reconcile any inconsistency in the Plan and any Contract Period Schedule, and (vi) amend the Plan and any Contract Period Schedule to reflect changes in applicable law. (c) The determination of the Committee on all matters relating to the Plan or any amounts payable thereunder shall be final, binding and conclusive. The Committee may allocate among its members and delegate to any person who is not a member of the Committee any of its administrative responsibilities. (d) Notwithstanding anything to the contrary contained herein: (i) until the Board shall appoint the members of the Committee, the Plan shall be administered by the Board and (ii) the Board may, in its sole discretion, at any time and from time to time, resolve to administer the Plan. In either of the foregoing events, the Board shall have all of the authority and responsibility granted to the Committee herein. (e) No member of the Board or the Committee or any employee of the Firm shall be liable for any action or determination made in good faith with respect to the Plan or any amount payable thereunder. Each such person shall be indemnified and held harmless by the Firm against and from any loss, cost, liability, or expense that may be imposed upon or incurred by such person in connection with or resulting from any action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan or any Contract Period Schedule and against and from any and all amounts paid by such person, with GS Inc.'s approval, in settlement thereof, or paid by such person in satisfaction of any judgment in any such action, suit or proceeding against such person, provided that the Firm shall have the right, at its own expense, to assume and defend the same. The foregoing right of indemnification shall not be available to a person to the extent that a final judgment or other final adjudication binding upon such person establishes that the acts or omissions of such person giving rise to the indemnification claim resulted from such person's bad faith, fraud or willful criminal act or omission. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under GS Inc.'s Certificate of Incorporation 2 or Bylaws, as a matter of law, or otherwise, or any other power that GS Inc. may have to indemnify such persons or hold them harmless. SECTION 3. CONTRACT PERIOD. The Plan shall operate for successive periods (each a "Contract Period"). The first Contract Period shall commence on the date of consummation of the initial public offering of GS Inc. and shall terminate on November 24, 2000. Thereafter, each Contract Period shall include one or two fiscal years of GS Inc., as determined by the Committee. SECTION 4. PARTICIPATION; CONTRACT PERIOD SCHEDULE. (a) Prior to the commencement of each Contract Period, the Committee shall designate those individuals who shall participate in the Plan for that Contract Period (the "Participants"). The names of the Participants shall be set forth on a schedule (the "Contract Period Schedule") which shall be made available to all Participants. The Contract Period Schedule shall also set forth the duration of the relevant Contract Period and contain such other terms or information and such limitations on the Committee's authority or discretion under this Plan as are required by the Plan or permitted by the Plan and determined by the Committee. (b) Unless otherwise provided in the Contract Period Schedule, the Committee shall have the authority at any time during the Contract Period to add Participants to or remove Participants from the Plan for that Contract Period. The Committee shall amend the Contract Period Schedule to reflect an individual's addition to or removal from the Plan. SECTION 5. BASE SALARY. Unless otherwise determined by the Committee, for each Contract Period the annual base salary of each Participant shall be set forth in the Contract Period Schedule. A Participant's base salary shall be payable in cash semi-monthly or monthly in arrears, as determined by the Committee, in U.S. dollars or, if the Participant is located outside the United States, in U.S. dollars or local currency (as determined by the Committee) based upon such conversion rates as the Committee determines appropriate (and the payments made under this Plan may, at the Committee's discretion, be subject to tax equalization or similar policies). If a Participant's employment with the Firm terminates during a Contract Period such Participant's right to his or her base salary shall terminate on the date provided in such Participant's employment agreement (or, if the Participant does not have an employment agreement, on the date designated by the Committee). SECTION 6. DETERMINATION OF BONUS AMOUNTS. (a) At the end of each fiscal year of GS Inc., the Committee shall specify an amount (the "Bonus Pool") equal to the aggregate amount of bonus compensation payable by the Firm to Participants in respect of such fiscal year. In determining the Bonus Pool, the Committee shall take into account such measures of the Firm's financial performance as it deems appropriate including, but not limited to, the Firm's ratio of compensation and benefits to net revenues, earnings per share, -2- 3 return on average common equity, pre-tax income, pre-tax operating income, net revenues, net income, profit before taxes, book value per share, stock price and earnings available to common shareholders. The Committee shall be required to allocate the entire amount of the Bonus Pool to Participants. (b) Prior to the commencement of each Contract Period, the Committee shall allocate to each Participant a percentage interest in the Bonus Pool (the "Allocation Percentage"); provided that the sum of the Allocation Percentages shall not exceed 100%. Unless otherwise determined by the Committee, each Participant's Allocation Percentage shall be set forth in the Contract Period Schedule. Subject to Section 6(d) and the terms of the applicable Contract Period Schedule, a Participant's minimum bonus for each fiscal year in a Contract Period (the "Minimum Bonus") shall equal such Participant's Allocation Percentage multiplied by the amount of the Bonus Pool for the fiscal year. (c) If the sum of the Allocation Percentages does not equal 100%, the remaining portion of the Bonus Pool (the "Holdback Amount") shall be allocated to one or more of the Participants in such manner as the Committee determines in its sole discretion. Unless otherwise determined by the Committee, the allocation of the Holdback Amount (and any methodology therefor) shall not be disclosed to Participants. The Minimum Bonus plus any amount allocated to a Participant under this Section 6(c) shall constitute the Participant's bonus ("Bonus") for the fiscal year. (d) If a Participant's employment with the Firm terminates for any reason before the end of a fiscal year of GS Inc., unless otherwise provided in the Contract Period Schedule, the Committee shall have the discretion to determine whether (i) such Participant's Minimum Bonus shall be forfeited, (ii) such Participant's Minimum Bonus shall be reduced on a pro-rata basis to reflect the portion of such Fiscal Year the Participant was employed by the Firm, or (iii) to make such other arrangements as the Committee deems appropriate in connection with the termination of such Participant's employment. Unless otherwise provided in the Contract Period Schedule, any forfeited Minimum Bonus shall be reallocated to other Participants or added to the Holdback Amount as determined by the Committee. (e) If, pursuant to Section 4(b) and the Contract Period Schedule, the Committee adds Participants for a Contract Period, the Committee shall allocate an Allocation Percentage to each such additional Participant which, unless otherwise determined by the Committee, shall first reduce the Holdback Amount, if any, and shall thereafter proportionately dilute the Allocation Percentages of the other Participants. Unless otherwise determined by the Committee, the Committee shall disclose to each Participant the base salary and Allocation Percentage of any Participant added during a Contract Period. SECTION 7. PAYMENT OF BONUS AMOUNT; VOLUNTARY DEFERRAL. Unless otherwise provided in the Contract Period Schedule, each Participant's Bonus shall be payable by such Participant's Participating Employer (as defined in Section 8(k)), or in the case of a Participant employed by more than one Participating Employer, by each such employer as determined by the -3- 4 Committee, in cash and/or an equity-based award of equivalent value (as determined by the Committee) with the cash portion paid at such time as bonuses are generally paid by the Participating Employer(s) for the relevant fiscal year. The cash portion shall be payable to a Participant in U.S. dollars or, if the Participant is located outside the United States, in U.S. dollars or local currency (as determined by the Committee) based upon such conversion rates as the Committee determines appropriate (and the payments made under this Plan may, at the Committee's discretion, be subject to tax equalization or similar policies). Subject to approval by the Committee and to any requirements imposed by the Committee in connection with such approval, each Participant may be entitled to defer receipt, under the terms and conditions of any applicable deferred compensation plan of the Firm, of part or all of any payments otherwise due under this Plan. Any equity-based award shall be subject to such terms and conditions (including vesting requirements) as the Committee may determine. SECTION 8. GENERAL PROVISIONS. (a) AMENDMENT, TERMINATION, ETC. Unless otherwise provided in the Contract Period Schedule, (i) the Board reserves the right at any time and from time to time to modify, alter, amend, suspend, discontinue or terminate the Plan and any Contract Period Schedule in any respect whatsoever, including in any manner that adversely affects the rights of Participants, and (ii) the Committee may amend the Contract Period Schedule in any manner it determines. (b) NONASSIGNABILITY; DESIGNATION OF BENEFICIARIES. No rights of any Participant (or of any beneficiary pursuant to this Section 8(b)) under the Plan may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of (including through the use of any cash-settled instrument) (an "Assignment"), whether voluntarily or involuntarily, other than by will or by the laws of descent and distribution. Any Assignment in violation of the provisions of this Section 8(b) shall be void. A Participant may designate, in accordance with procedures established by the Committee, a beneficiary or beneficiaries to receive all or part of the amounts, if any, payable hereunder in the event of such Participant's death. A designation of a beneficiary may be replaced by a new designation or may be revoked by a Participant at any time in accordance with procedures established by the Committee. In the event of a Participant's death, any amounts payable under the Plan and any Contract Period Schedule with respect to which a designation of beneficiary has been made shall be paid in accordance with the Plan and the Contract Period Schedule to such designated beneficiary or beneficiaries. Any amounts payable upon death and not subject to such designation shall be distributed to such Participant's estate. If there is any question as to the legal right of any beneficiary to receive payment of amounts under the Plan and any Contract Period Schedule, the amounts in question may be paid to a Participant's estate, in which event the Firm shall have no further liability to anyone with respect to such amounts. A beneficiary or estate shall have no rights under the Plan or any Contract Period Schedule other than the right, subject to the immediately preceding sentence, to receive such amounts, if any, as may be payable under this Section 8(b), and all of the terms of this Plan and the Contract Period Schedule shall be binding upon any such beneficiary or estate. -4- 5 (c) PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in the Plan or any Contract Period Schedule shall confer upon any Participant the right to continue in the employ of the Firm for the Contract Period or thereafter or affect any right which the Firm may have to terminate such employment. (d) ARBITRATION. Any dispute, controversy or claim between the Firm and any Participant arising out of or relating to or concerning the provisions of the Plan or any Contract Period Schedule shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. ("NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by any Participant must first be submitted to the Committee in accordance with claim procedures determined by the Committee in its sole discretion. This Section is subject to the provisions of Section 8(e). (e) CHOICE OF FORUM. (1) THE FIRM AND EACH PARTICIPANT, AS A CONDITION TO SUCH PARTICIPANT'S PARTICIPATION IN THE PLAN, HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN OR ANY CONTRACT PERIOD SCHEDULE THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO THE PROVISIONS OF SECTION 8(d). This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and each Participant, as a condition to such Participant's participation in the Plan, acknowledge that the forum designated by this Section 8(e) has a reasonable relation to the Plan, the Contract Period Schedule and to the relationship between such Participant and the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of Sections 8(d) and 8(e). (2) The agreement by the Firm and each Participant as to forum is independent of the law that may be applied in the action, and the Firm and each Participant, as a condition to such Participant's participation in the Plan (i) agree to such forum even if the forum may under applicable law choose to apply non-forum law, (ii) hereby waive, to the fullest extent permitted by applicable law, any objection which the Firm or such Participant now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Section 8(e)(1), (iii) undertake not to commence any action arising out of or relating to or concerning this Plan or any Contract Period Schedule in any forum other than the forum described in this Section 8(e) and (iv) agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the Firm and each Participant. -5- 6 (3) Each Participant, as a condition to such Participant's participation in the Plan, hereby irrevocably appoints the General Counsel of GS Inc. as such Participant's agent for service of process in connection with any action or proceeding arising out of or relating to or concerning the Plan or any Contract Period Schedule which is not arbitrated pursuant to the provisions of Section 8(d), who shall promptly advise such Participant of any such service of process. (4) Each Participant hereby agrees, as a condition to such Participant's participation in the Plan, to keep confidential the existence of, and any information concerning, a dispute described in Sections 8(d) or 8(e), except that a Participant may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to such Participant's legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). (5) Each Participant recognizes and agrees that prior to being selected by the Committee to participate in the Plan such Participant has no rights hereunder. Accordingly, in consideration of a Participant's selection to participate in the Plan, each Participant expressly waives any right to contest the amount of any base salary or Bonus payable hereunder, the terms of the Plan or any Contract Period Schedule, the amount of the Bonus Pool, the Holdback Amount, such Participant's Allocation Percentage, any determination, action or omission hereunder by the Committee, GS Inc. or the Board, or any amendment to the Plan or Contract Period Schedule. By accepting the payment of base salary or Bonus, each Participant agrees to be bound by the terms of this Plan and any Contract Period Schedule. (f) GOVERNING LAW. ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN AND ANY CONTRACT PERIOD SCHEDULE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. (g) TAX WITHHOLDING. In connection with any payments to a Participant or other event under the Plan that gives rise to a federal or other governmental tax withholding obligation relating to the Plan (including, without limitation, FICA tax), (i) the Firm may deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to such Participant whether or not pursuant to the Plan or (ii) the Committee shall be entitled to require that such Participant remit cash (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Firm to satisfy such withholding obligation. (h) RIGHT OF OFFSET. The Firm shall have the right to offset, against the obligation to pay amounts to any Participant under the Plan, any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) such Participant then owes to the Firm and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. -6- 7 (i) SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions of this Plan or any Contract Period Schedule is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. Neither this Plan nor any Contract Period Schedule shall supersede any other agreement, written or oral, pertaining to the matters covered herein, except to the extent of any inconsistency between this Plan (or a Contract Period Schedule) and any prior agreement, in which case this Plan (and the Contract Period Schedule) shall prevail. (j) NO THIRD PARTY BENEFICIARIES. Except as expressly provided herein, neither the Plan nor any Contract Period Schedule shall confer on any person other than the Firm and any Participant any rights or remedies hereunder. (k) PARTICIPATING EMPLOYERS. Each subsidiary or affiliate of GS Inc. which employs a Participant shall adopt this Plan by executing Schedule A (a "Participating Employer"). Except for purposes of determining the amount of the Bonus Pool and the amount of each Participant's Bonus, this Plan shall be treated as a separate plan maintained by each Participating Employer and the obligation to pay the base salary and Bonus to each Participant shall be the sole liability of the Participating Employer(s) by which the Participant is employed and neither GS Inc. nor any other Participating Employer shall have any liability with respect to such amounts. (l) SUCCESSORS AND ASSIGNS. The terms of this Plan and each Contract Period Schedule shall be binding upon and inure to the benefit of GS Inc., each Participating Employer and their successors and assigns. (m) PLAN HEADINGS. The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. (n) CONSTRUCTION. In the construction of this Plan, the singular shall include the plural, and vice versa, in all cases where such meanings would be appropriate. -7- 8 IN WITNESS WHEREOF, and as evidence of the adoption of this Plan effective as of __________, 1999, by GS Inc., it has caused the same to be signed by its duly authorized officer this _________ day of ____________, 1999. THE GOLDMAN SACHS GROUP, INC. By:_______________________________ Name: Title: -8- 9 SCHEDULE A As evidenced by the duly authorized signature below, the undersigned entity hereby adopts and elects to participate in The Goldman Sachs Partner Compensation Plan, as such Plan may be amended from time to time, and appoints The Goldman Sachs Group, Inc. as its agent to do all things necessary to effect such participation. [Name of Entity] By:_______________________________ Name: Title: Authorized Person EX-10.19 17 FORM OF EMPLOYMENT AGREEMENT 1 EXHIBIT 10.19 Draft 4/14/99 THE GOLDMAN SACHS GROUP, INC. May ____, 1999 We are pleased that you will be continuing your employment as a Managing Director of The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), or one or more of its subsidiaries or affiliates (collectively with GS Inc., and its and their predecessors and successors, the "Firm"), and are writing to set forth the terms and conditions of such employment. Certain capitalized terms are defined in Section 2 hereof. 1. Employment You will be employed by GS Inc., or one or more of its subsidiaries or affiliates, subject to the terms and conditions of this Agreement for the period commencing on the date hereof and ending on November 24, 2000 (the "Initial Employment Period"). After the Initial Employment Period (unless otherwise agreed by you and the Firm in writing), there will be no set term of employment. You or the Firm may terminate your employment at any time during or after the Initial Employment Period for any reason, or for no reason, by giving not less than ninety (90) days' prior written notice of termination; provided, however, that the Firm may elect to place you on paid leave for all or any part of such 90-day period; and provided further that no advance notice need be given by the Firm to you in connection with a termination of your employment for Cause or on account of Extended Absence. During the Employment Period: (i) you will have such duties and responsibilities as the Firm may from time to time determine; (ii) you will devote your entire working time, labor, skill and energies to the business and affairs of the Firm; and (iii) you will be paid the base salary separately communicated to you and, so long as you are a participant in The Goldman Sachs Partner Compensation Plan, any bonuses payable under the Plan, or if you are not a participant in the Plan, such bonuses as the Firm may determine in its sole discretion. During the Employment Period, you will duly and accurately file all required income tax returns and, if requested to do so, will certify to that effect to the Firm annually, on a form specified by the Firm. 2. Certain Definitions As used herein, the following terms have the following meanings: "Cause" means (i) your breach of this Agreement, the Noncompetition Agreement, the Pledge Agreement, the Shareholders' Agreement or any other written agreement between you and the Firm, or (ii) your violation of any Firm policy (including in respect of hedging or confidential information) as in effect from time to time. -1- 2 "Date of Termination" means (i) if your employment is terminated by the Firm for Cause or on account of Extended Absence, the date of the Firm's delivery of written notice of termination, (ii) if your employment is terminated by the Firm other than for Cause or on account of Extended Absence, the date that is ninety (90) days after the Firm's delivery of written notice of termination, or (iii) if your employment is terminated by you, the date that is ninety (90) days after your delivery of written notice of termination, or such earlier date as may be determined by the Firm in its sole discretion. "Employment Period" means the period commencing on the date hereof and ending on your Date of Termination, and includes the Initial Employment Period. "Extended Absence" means your absence from employment for at least 180 days in any 12-month period as a result of your incapacity due to mental or physical illness, as determined by the Firm. "Noncompetition Agreement" means the Agreement Relating to Noncompetition and Other Covenants, dated as of the date hereof, between you and GS Inc., as in effect from time to time. "Pledge Agreement" means the Pledge Agreement, dated as of the date hereof, between you and GS Inc., attached as Exhibit A to the Noncompetition Agreement, as in effect from time to time. "Shareholders' Agreement" means the Shareholders' Agreement, dated as of the date hereof, among GS Inc. and the individuals listed on Appendix A thereto, as in effect from time to time. 3. Dispute Resolution Any dispute, controversy or claim between you and the Firm, arising out of or relating to or concerning the provisions of this Agreement, your employment with the Firm or otherwise concerning any rights, obligations or other aspects of your employment relationship in respect of the Firm, shall be finally resolved in accordance with the provisions of Sections 9, 10 and 11 of the Noncompetition Agreement. Without limiting the foregoing, you acknowledge that a violation on your part of this Agreement would cause irreparable damage to the Firm. Accordingly, you agree that the Firm will be entitled to injunctive relief for any actual or threatened violation of this Agreement in addition to any other remedies it may have. -2- 3 4. Governing Law THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 5. Miscellaneous This Agreement shall not supersede any other agreement, written or oral, pertaining to the matters covered herein, except to the extent of any inconsistency between this Agreement and any prior agreement, in which case this Agreement shall prevail. Notices hereunder shall be delivered to the Firm at its principal executive office directed to the attention of GS Inc.'s General Counsel, and to you at your last address appearing in the Firm's employment records. You may not, directly or indirectly (including by operation of law), assign your rights or obligations hereunder without the prior written consent of the Chief Executive Officer of GS Inc. or its successors, or such individual's designee, and any such assignment by you in violation of this Agreement shall be void. This Agreement shall be binding upon your permitted successors and assigns. Without impairing your obligations hereunder, GS Inc. may at any time and from time to time assign its rights and obligations hereunder to any of its subsidiaries or affiliates (and have such rights and obligations reassigned to it or to any other subsidiary or affiliate). This Agreement shall inure to the benefit of and be binding upon the Firm and its assigns. This Agreement may not be amended or modified other than by a written agreement executed by you and GS Inc. or its successors, nor may any provision hereof be waived other than by a writing executed by you or GS Inc. or its successors; provided, that any waiver, amendment or modification of any of the provisions of this Agreement shall not be effective against the Firm without the written consent of the Chief Executive Officer of GS Inc. or such individual's designee. If any provision of this Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. Except as expressly provided herein, this Agreement shall not confer on any person other than you and the Firm any rights or remedies hereunder. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. -3- 4 If the foregoing is in accordance with your understanding, kindly confirm your acceptance and agreement by signing and returning the enclosed duplicate of this letter which will thereupon constitute an agreement between you and GS Inc., on its behalf and on behalf of its subsidiaries and affiliates. Very truly yours, THE GOLDMAN SACHS GROUP, INC. (on its behalf, and on behalf of its subsidiaries and affiliates) By: _____________________________________ Agreed to and accepted as of the date of this letter By:________________________ EX-10.20 18 FORM OF AGREEMENT RELATING TO NONCOMPETITION 1 EXHIBIT 10.20 Draft 4/14/99 AGREEMENT RELATING TO NONCOMPETITION AND OTHER COVENANTS AGREEMENT, dated as of May _____, 1999 (this "Agreement"), by and between The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), on its behalf and on behalf of its subsidiaries and affiliates (collectively with GS Inc., and its and their predecessors and successors, the "Firm"), and the individual whose name appears at the end of this Agreement (the "Executive"). WHEREAS, prior to the completion of the transactions contemplated by the Plan of Incorporation (the "Plan") of The Goldman Sachs Group, L.P. ("Group"), Executive was a Schedule II Limited Partner of Group; and WHEREAS, as a Schedule II Limited Partner, Executive was subject to certain requirements relating to competition, confidentiality, solicitation and cooperation pursuant to the Memorandum of Agreement of Group; and WHEREAS, in connection with Executive's participation in the Plan, Executive has agreed to enter into an agreement with GS Inc., on its behalf and on behalf of its subsidiaries and affiliates, in respect of certain obligations, inter alia, to keep information concerning the Firm confidential, not to engage in competitive activities, not to solicit the Firm's clients or employees and to cooperate with the Firm in maintaining certain relationships following the termination of Executive's employment. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Executive and the Firm agree as follows: 1. Confidential Information. In the course of involvement in the Firm's activities or otherwise, Executive has obtained or may obtain confidential information concerning the Firm's businesses, strategies, operations, financial affairs, organizational and personnel matters (including information regarding any aspect of the Executive's tenure as a partner or an employee of the Firm or of the termination of such partnership or employment), policies, procedures and other non-public matters, or concerning those of third parties. Such information ("Confidential Information") may have been or be provided in written or electronic form or orally. In consideration of, and as a condition to, continued access to Confidential Information, and without prejudice to or limitation on any other confidentiality obligations imposed by agreement or by law, Executive hereby undertakes to use and protect Confidential Information in accordance with any restrictions placed on its use or disclosure. Without limiting the foregoing, except as authorized by the Firm or as required by law, Executive may not disclose or allow disclosure of any Confidential Information, or of any information derived therefrom, in whatever form, to any person unless such person is a director, officer, partner, employee, 2 attorney or agent of the Firm and, in Executive's reasonable good faith judgment, has a need to know the Confidential Information or information derived therefrom in furtherance of the business of the Firm. The foregoing obligations will survive, and remain binding and enforceable notwithstanding, any termination of Executive's employment and any settlement of the financial rights and obligations arising from Executive's employment. Without limiting the foregoing, the existence of, and any information concerning, any dispute between Executive and the Firm shall constitute Confidential Information except that Executive may disclose information concerning such dispute to the arbitrator or court that is considering such dispute, or to Executive's legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). 2. Noncompetition. (a) In view of Executive's importance to the Firm, Executive hereby agrees that the Firm would likely suffer significant harm from Executive's competing with the Firm during Executive's Employment Period (as defined in the employment agreement between Executive and GS Inc., dated the date hereof (the "Employment Agreement")) and for some period of time thereafter or, if Executive has separated from the Firm on or prior to the date of consummation of the initial public offering of the common stock of GS Inc. (the "IPO Date"), for some time after the IPO Date. Accordingly, Executive hereby agrees that Executive will not, without the written consent of GS Inc., during the Employment Period, if any, and for twelve months following the Date of Termination: (1) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise; or (2) associate (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity (i) which is similar or substantially related to any activity in which Executive was engaged, in whole or in part, at the Firm, (ii) for which Executive had direct or indirect managerial or supervisory responsibility at the Firm, or (iii) which calls for the application of the same or similar specialized knowledge or skills as those utilized by Executive in Executive's activities with the Firm, -2- 3 at any time during the one-year period immediately prior to the Date of Termination (or, in the case of an action taken during the Employment Period, during the one-year period immediately prior to such action), and, in any such case, irrespective of the purpose of the activity or whether the activity is or was in furtherance of advisory, agency, proprietary or fiduciary business of either the Firm or the Competitive Enterprise. (By way of example only, this provision precludes an "advisory" investment banker from joining a leveraged-buyout firm or a research analyst from becoming a proprietary trader or joining a hedge fund, in each case without the written consent of GS Inc.) (b) For purposes of this Agreement, a "Competitive Enterprise" is a business enterprise that (1) engages in any activity, or (2) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Firm is engaged. The activities covered by the previous sentence include, without limitation, financial services such as investment banking, public or private finance, lending, financial advisory services, private investing (for anyone other than Executive and members of Executive's family), merchant banking, asset or hedge fund management, insurance or reinsurance underwriting or brokerage, property management, or securities, futures, commodities, energy, derivatives or currency brokerage, sales, lending, custody, clearance, settlement or trading. (c) For purposes of this Agreement, "Date of Termination" means Executive's Date of Termination (as defined in the Employment Agreement) or, if the Executive is not a party to an Employment Agreement, the IPO Date. 3. Nonsolicitation of Clients. (a) Executive hereby agrees that during the Employment Period, if any, and for eighteen months following the Date of Termination, Executive will not, in any manner, directly or indirectly, (1) Solicit a Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Firm, or (2) interfere with or damage (or attempt to interfere with or damage) any relationship between the Firm and a Client. (b) For purposes of this Agreement, the term "Solicit" means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action. (c) For purposes of this Agreement, the term "Client" means any client or prospective client of the Firm to whom Executive provided services, or for whom -3- 4 Executive transacted business, or whose identity became known to Executive in connection with Executive's relationship with or employment by the Firm. 4. Nonsolicitation of Employees. Executive hereby agrees that during the Employment Period, if any, and for eighteen months following the Date of Termination, Executive will not, in any manner, directly or indirectly, Solicit any person who is an employee of the Firm to resign from the Firm or to apply for or accept employment with any Competitive Enterprise. 5. Transfer of Client Relationships. (a) During the Coverage Period, Executive hereby agrees to take all actions and do all such things as may be reasonably requested by the Firm from time to time to maintain for the Firm the business, goodwill, and business relationships with any of the Firm's Clients with whom Executive worked during the term of Executive's employment. (b) For purposes of this Agreement, the term "Coverage Period" means, (1) if Executive is a party to an Employment Agreement, the 90-day period beginning on the date on which notice of Executive's termination of employment is delivered to or by the Firm, or in the case of termination for Cause or on account of Extended Absence (each as defined in the Employment Agreement), the 90-day period beginning on the Date of Termination or (2) if Executive is not a party to an Employment Agreement, the 90-day period beginning on the IPO Date. 6. Prior Notice Required. Executive hereby agrees that prior to accepting employment with any other person or entity during the Employment Period, if any, or during the eighteen months following the Date of Termination, Executive will provide such prospective employer with written notice of the provisions of this Agreement, with a copy of such notice delivered simultaneously to the General Counsel of GS Inc. 7. Covenants Generally. (a) Executive's covenants as set forth in the preceding paragraphs of this Agreement are from time to time referred to herein as the "Covenants." If any of the Covenants is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such Covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining such Covenants shall not be affected thereby; provided, however, that if any of such Covenants is finally held to be invalid, illegal or unenforceable because it exceeds the maximum scope determined to be acceptable to permit such provision to be enforceable, such Covenant will be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. (b) Executive understands that the provisions of the Covenants may limit Executive's ability to earn a livelihood in a business similar to the business of the Firm. -4- 5 (c) Executive acknowledges that a violation on Executive's part of any of the Covenants would cause irreparable damage to the Firm. Accordingly, Executive agrees that the Firm will be entitled to injunctive relief for any actual or threatened violation of any of the Covenants in addition to any other remedies it may have. 8. Damages. (a) Executive acknowledges that Executive's compliance with the Covenants is an important factor to the continued success of the Firm's operations and its future prospects. Executive and GS Inc. agree that if at any time prior to the fifth anniversary of the date of this Agreement, Executive were to breach any of the Covenants set forth in Sections 2, 3 and 4 hereof, the damages to the Firm would be material, but that the amount of such damages would be uncertain and not readily ascertainable. Accordingly, Executive and GS Inc. agree that, if, prior to the fifth anniversary of the date of this Agreement, Executive breaches any of such Covenants, as determined by the Board of Directors of GS Inc. (the "Board") in its good faith judgment, GS Inc. will be entitled to receive immediately following such determination and written demand therefor, and Executive will make, a cash payment as and for liquidated damages (the "Liquidated Damages") as follows: (1) if, on April 12, 1999, Executive was a member of the Board and/or a management committee (as defined below) of the Firm (and whether or not such membership continues), the Liquidated Damages shall be $15,000,000; and (2) if, on April 12, 1999, Executive was not a member of either the Board or a management committee of the Firm (and whether or not Executive later has any such membership), the Liquidated Damages shall be $10,000,000. A "management committee" means each of the Management Committee and the Partnership Committee. The payment of any amount as liquidated damages will not be construed as a release or waiver by the Firm of the right to prevent the continuation of any such violation of such Covenants in equity or otherwise. In addition, Executive and GS Inc. agree that it would be too speculative to attempt to determine any amount of liquidated damages that would be applicable following the fifth anniversary of the date of this Agreement, and that any damages payable as a result of any breach following such date shall be determined without regard to this Section 8. (b) Executive and GS Inc. agree that the Liquidated Damages are reasonable in proportion to the probable damages likely to be sustained by the Firm if Executive breaches at any time prior to the fifth anniversary of this Agreement any of the Covenants set forth in Sections 2, 3 and 4 hereof, that the amount of actual damages to be sustained by the Firm in the event of such breach is incapable of precise estimation and that such cash payments are not intended to constitute a penalty or punitive damages for any purposes. -5- 6 (c) Executive acknowledges and agrees that Executive's payment obligations under this Section 8 will be full recourse obligations and will be secured pursuant to a Pledge Agreement, in substantially the form set forth as Exhibit A hereto (the "Pledge Agreement"). (d) Executive acknowledges and agrees that any cash payment of Liquidated Damages pursuant to this Section 8 shall be in addition to, and not in lieu of, any forfeitures of awards (required pursuant to the terms of any such awards) that may be granted to Executive in the future under one or more of the Firm's compensation and benefit plans. 9. Arbitration. Subject to the provisions of Sections 10 and 11 hereof, any dispute, controversy or claim between Executive and the Firm arising out of or relating to or concerning the provisions of this Agreement, the Pledge Agreement, any agreement between Executive and the Firm relating to or arising out of Executive's employment with the Firm or otherwise concerning any rights, obligations or other aspects of Executive's employment relationship in respect of the Firm ("Employment Related Matters"), shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. 10. Injunctive Relief; Submission to Jurisdiction. Notwithstanding the provisions of Section 9, and in addition to its right to submit any dispute or controversy to arbitration, the Firm may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the City of New York, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily, or permanently enforcing the provisions of the Covenants, the Employment Agreement or the Pledge Agreement, or to enforce an arbitration award, and, for the purposes of this Section 10, Executive (i) expressly consents to the application of Section 11 to any such action or proceeding, (ii) agrees that proof will not be required that monetary damages for breach of the provisions of the Covenants, the Employment Agreement or the Pledge Agreement would be difficult to calculate and that remedies at law would be inadequate and (iii) irrevocably appoints the General Counsel of GS Inc. as Executive's agent for service of process in connection with any such action or proceeding, who shall promptly advise Executive of any such service of process. 11. Choice of Forum. (a) EXECUTIVE AND THE FIRM HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT, THE EMPLOYMENT AGREEMENT, THE PLEDGE AGREEMENT, OR ANY EMPLOYMENT -6- 7 RELATED MATTERS THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO THE PROVISIONS OF SECTION 9 HEREOF. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. This also includes any suit, action, or proceeding arising out of or relating to any post-employment Employment Related Matters. Executive and the Firm acknowledge that the forum designated by this Section 11 has a reasonable relation to this Agreement, and to Executive's relationship to the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of Sections 9, 10 or 11. (b) The agreement of Executive and the Firm as to forum is independent of the law that may be applied in the action, and Executive and the Firm agree to such forum even if the forum may under applicable law choose to apply non-forum law. Executive and the Firm hereby waive, to the fullest extent permitted by applicable law, any objection which Executive or the Firm now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Section 11(a). Executive and the Firm undertake not to commence any action arising out of or relating to or concerning this Agreement in any forum other than a forum described in this Section 11. Executive and the Firm agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon Executive and the Firm. 12. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 13. Miscellaneous. (a) This Agreement shall not supersede any other agreement, written or oral, pertaining to the matters covered herein, except to the extent of any inconsistency between this Agreement and any prior agreement, in which case this Agreement shall prevail. (b) Notices hereunder shall be delivered to GS Inc. at its principal executive office directed to the attention of its General Counsel, and to Executive at Executive's last address appearing in the Firm's employment records. (c) This Agreement may not be amended or modified, other than by a written agreement executed by Executive and GS Inc. or its successors, nor may any provision hereof be waived other than by a writing executed by Executive or GS Inc. or its successors; provided, that any waiver, consent, amendment or modification of any of the provisions of this Agreement will not be effective against the Firm without the written consent of the Chief Executive Officer of GS Inc. or its successors, or such individual's -7- 8 designee. Executive may not, directly or indirectly (including by operation of law), assign Executive's rights or obligations hereunder without the prior written consent of the Chief Executive Officer of GS Inc. or its successors, or such individual's designee, and any such assignment by Executive in violation of this Agreement shall be void. This Agreement shall be binding upon Executive's permitted successors and assigns. Without impairing Executive's obligations hereunder, GS Inc. may at any time and from time to time assign its rights and obligations hereunder to any of its subsidiaries or affiliates (and have such rights and obligations reassigned to it or to any other subsidiary or affiliate). This Agreement shall be binding upon and inure to the benefit of the Firm and its assigns. (d) Without limiting the provisions of Section 7(a) hereof, if any provision of this Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. (e) Except as expressly provided herein, this Agreement shall not confer on any person other than the Firm and the Executive any rights or remedies hereunder. (f) The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. -8- 9 IN WITNESS WHEREOF, Executive and the Firm hereto have caused this Agreement to be executed and delivered on the date first above written. THE GOLDMAN SACHS GROUP, INC. (on its behalf, and on behalf of its subsidiaries and affiliates) By:________________________________ [Executive] By:________________________________ EX-10.21 19 FORM OF PLEDGE AGREEMENT 1 EXHIBIT 10.21 Draft 4/26/99 PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of May _____, 1999 (the "Agreement"), by and between The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), on its behalf and on behalf of its subsidiaries and affiliates (collectively with GS Inc., and its and their predecessors and successors, the "Firm"), and the individual whose name appears at the end of this Agreement ("Pledgor"). RECITALS A. Covenants. In connection with Pledgor's participation in the Plan of Incorporation (the "Plan") of The Goldman Sachs Group, L.P., Pledgor and GS Inc. have entered into an Agreement Relating to Noncompetition and Other Covenants (the "Noncompetition Agreement"), dated as of the date hereof, in respect of, inter alia, Pledgor's obligations (the "Obligations") to keep information concerning the Firm confidential, not to engage in competitive activities, not to solicit the Firm's clients or employees, and to cooperate with the Firm in maintaining certain relationships following the termination of Pledgor's employment. In addition, Pledgor has agreed under the Plan and the Noncompetition Agreement to certain provisions regarding arbitration, choice of law and choice of forum, injunctive relief and submission to jurisdiction with respect to the enforcement of the Obligations. B. The Pledge. Pursuant to the Noncompetition Agreement, Pledgor has agreed to pay a certain amount of liquidated damages (the "Liquidated Damages") to GS Inc. in respect of any breach by Pledgor of certain of the Obligations set forth in the Noncompetition Agreement. As security for the timely payment of the Liquidated Damages, Pledgor has agreed to pledge to the Firm shares (the "Pledged Shares") of common stock of GS Inc. (the "Common Stock"), or other collateral described below, all as set forth herein. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Pledge. (a) Unless otherwise requested by Pledgor pursuant to the last sentence of Section 1(b), as collateral security for the full and timely payment of Liquidated Damages, Pledgor hereby delivers, deposits, pledges, transfers and assigns to GS Inc., in form transferable by delivery, and creates for the benefit of GS Inc. a perfected first priority security interest in, Pledged Shares with a Fair Market Value (as defined in Section 1(d)) on the date hereof equal to the amount of Liquidated Damages (and all 2 certificates or other instruments or documents evidencing the Pledged Shares) and, except as set forth in Section 2(a), all proceeds thereof (together with any securities or property to be delivered to GS Inc. pursuant to Section 2(b) and, upon substitution or delivery in accordance with Section 1(b), any Substitute Collateral (as defined in Section 1(b)), "Pledged Securities"). Pledgor herewith delivers to GS Inc. appropriate undated security transfer powers duly executed in blank (or other documents deemed necessary or appropriate by GS Inc. to give GS Inc. control (as defined in the Uniform Commercial Code of the State of New York (the "UCC"))) (such transfer powers and other appropriate documents, the "Control Documents") in respect of Pledged Securities, and will deliver Control Documents for all Pledged Securities to be pledged hereunder from time to time. (b) During the term of this Agreement, Pledgor may substitute for Pledged Securities readily marketable direct obligations of the United States, any agency thereof, or any triple-A rated sovereign, shares of Common Stock, or other collateral acceptable to the Board of Directors of GS Inc. in its sole and absolute discretion (collateral other than Pledged Shares, the "Substitute Collateral") with a Fair Market Value on the date of substitution equal to or greater than the Fair Market Value on such date of the Pledged Securities to be released in exchange therefor. Upon such substitution, the Pledged Securities replaced by such Substitute Collateral shall be released from the pledge hereunder. If requested by Pledgor, Pledgor shall be permitted to deliver on the date hereof Substitute Collateral in lieu of shares of Common Stock. (c) If Pledgor is not prohibited from doing so by the terms of the Plan, the Shareholders' Agreement, dated as of the date hereof, among GS Inc. and the individuals listed on Appendix A thereto, as in effect from time to time (the "Shareholders' Agreement"), any other written agreement with GS Inc. or the Firm, or any law or regulation or Firm policy (collectively, the "Restrictions"), this Agreement shall not prohibit Pledgor from disposing of Pledged Shares; provided, that such disposition shall be made expressly subject to all of GS Inc.'s rights hereunder, that the provisions of this Agreement shall (as described in Section 1(a)) apply to all proceeds of such disposition, and that such disposition shall be permitted only if GS Inc. shall have determined that such disposition will not result in the loss for any period by GS Inc. of the perfection of its first priority security interest in such proceeds; provided, further, that the proceeds of such disposition are cash, Substitute Collateral, Tender or Exchange Offer Consideration or a combination thereof, with an aggregate Fair Market Value on the date of such disposition equal to or greater than the Fair Market Value on such date of the Pledged Shares so disposed. Pledgor shall give GS Inc. prior written notice of any proposed transaction under this Section 1(c). For purposes of this Agreement, "Tender or Exchange Offer Consideration" means the consideration issuable for Pledged Shares pursuant to any tender or exchange offer in which the Pledgor is not prohibited from participating by the Restrictions. -2- 3 (d) For purposes of this Agreement, the "Fair Market Value" of any Pledged Security means, as of any date (1) in the case of a Pledged Security that is a share of Common Stock, the average of the daily closing prices for a share of Common Stock on the principal securities exchange or market on which the Common Stock is traded for the 20 consecutive business days before the date in question (the "Average Closing Price"); provided, however, that the Fair Market Value of a share of Common Stock for purposes of determining the initial amount to be pledged as of the date of this Agreement shall be deemed to be the initial public offering price in the initial public offering by GS Inc. of its Common Stock; and provided, further, that in connection with any taking of ownership by GS Inc. of Pledged Securities under Section 3 hereof, the Average Closing Price shall be determined as the average of the daily closing prices for a share of Common Stock on the principal securities exchange or market on which the Common Stock is traded for the 20 consecutive business days before the date the Enforcement Notice (as hereafter defined) was given, and (2) otherwise, the fair market value thereof as determined in good faith by GS Inc. Any good faith determination by GS Inc. of the Fair Market Value of any Pledged Security will be binding on Pledgor. 2. Administration of Security. The following provisions shall govern the administration of Pledged Securities: (a) So long as no Payment Event (as defined below) has occurred and is continuing, Pledgor shall (subject to any restrictions imposed under the Shareholders' Agreement) be entitled to vote Pledged Securities and to exercise all of Pledgor's rights under the Shareholders' Agreement in respect of the Pledged Shares, and to receive and retain all regular quarterly cash dividends and distributions and, except as set forth in Section 2(b) below, other distributions thereon and to give consents, waivers and ratifications in respect thereof. As used herein, a "Payment Event" shall mean the failure by Pledgor to make any payment of Liquidated Damages upon demand by GS Inc. therefor as provided in the Noncompetition Agreement. (b) If Pledgor becomes entitled to receive, or receives, any certificate representing Pledged Securities (or other security that may succeed Pledged Securities or any security issued as a dividend or distribution in respect of Pledged Securities) in respect of any stock split, reverse stock split, stock dividend, spinoff, splitup, merger or other combination, exchange or distribution in connection with any reclassification, increase or reduction of capital, in each case, with respect to Pledged Securities, Pledgor agrees to accept the same as GS Inc.'s agent and to hold the same in trust on behalf of and for the benefit of GS Inc. and to deliver the same forthwith to GS Inc. in the exact form received, with the endorsement of Pledgor when deemed necessary or appropriate by GS Inc. of undated security transfer powers duly executed in blank, to be held by GS Inc., subject to the terms of this Agreement, as additional collateral security for Liquidated Damages. -3- 4 (c) Pledgor hereby agrees that GS Inc. is authorized to hold Pledged Securities through one or more custodians. GS Inc. and its agents (and its and their assigns) shall have no obligation in respect of Pledged Securities, except to hold and dispose of the same in accordance with the terms of this Agreement. In the event that Pledgor substitutes cash for Pledged Securities as provided in Section 1(b) or 1(c), GS Inc. shall determine in its sole discretion the manner in which such cash shall be invested during the term of this Agreement. (d) Pledgor agrees with GS Inc. that: (i) Pledgor will not, and will not purport to, grant or suffer liens or encumbrances against (excluding for such purpose the Shareholders' Agreement), or except as provided in Section 1(c), sell, transfer or dispose of, any Pledged Securities other than to or in favor of GS Inc.; (ii) GS Inc. is authorized, at any time and from time to time, to file financing statements and give notice to third parties regarding Pledged Securities without Pledgor's signature to the extent permitted by applicable law, to transfer all or any part of Pledged Securities to GS Inc.'s name or that of its nominee, and, subject to the provisions of Section 2(a), to exercise all rights as if the absolute owner thereof; and (iii) Pledgor has provided GS Inc. with Pledgor's true legal name and principal residence, and Pledgor will not change Pledgor's name without 30 days' prior written notice to GS Inc. (e) Subject to the earlier disposition and application of Pledged Securities pursuant to this Agreement following a Payment Event, Pledged Securities shall be released from the pledge hereunder, and the lien hereby created in such Pledged Securities shall simultaneously be released, upon the earliest to occur of (i) Pledgor's death, (ii) the expiration of the twenty-four (24) month period following Pledgor's Date of Termination (as defined in the Noncompetition Agreement), (iii) payment in cash or other satisfaction by Pledgor of all Liquidated Damages, or (iv) the fifth anniversary of the date hereof, and all remaining Pledged Securities shall be thereupon released from the pledge hereunder and this Agreement shall terminate. Notwithstanding the foregoing, no Pledged Securities shall be released from the pledge hereunder pursuant to this Section 2(e), if there are one or more pending disputes between Pledgor and GS Inc. as to the occurrence of a Payment Event or as to the right of GS Inc. or the Firm to exercise its remedies under this Agreement or the Noncompetition Agreement, including realization against Pledged Securities in accordance with Section 3 hereof, and this Agreement shall not terminate until the resolution of all such disputes. (f) GS Inc. shall immediately upon request by Pledgor execute and deliver to Pledgor such instruments, deeds, transfers, assurances and agreements, in form and substance as Pledgor shall reasonably request, including the withdrawal or termination of any financing statements and amendments thereto, or the filing, withdrawal, termination or amendment of any other document required under applicable law to evidence the termination of the security interest created hereunder with respect to any securities that are released from the pledge hereunder in accordance with the provisions of this Agreement. -4- 5 3. Remedies in Case of a Payment Event. If a Payment Event has occurred and is continuing, GS Inc. shall have the rights and remedies of a secured party under Article 9 of the UCC. To the extent required and permitted by applicable law, GS Inc. will give Pledgor notice of the time and place of any public sale or of the time after which any private sale or other disposition of Pledged Securities is to be made, by sending notice at least three days before the time of sale or disposition, which Pledgor hereby agrees is reasonable. GS Inc. need not give such notice if not required by the UCC. Pledgor acknowledges the possibility that the public sale of some or all Pledged Securities by GS Inc. may not be made without a then existing and effective registration statement under the Securities Act of 1933, as amended. Pledgor acknowledges and agrees with GS Inc. that GS Inc. has no affirmative obligation to prepare or keep effective any such registration statement and agrees that at any private sale Pledged Securities may be sold at a price that is less than the price which might have been obtained at a public sale or that is less than the aggregate outstanding amount of Liquidated Damages. For so long as Pledged Securities consist of securities of a type customarily sold in a recognized market or which are the subject of widely distributed standard price quotations, GS Inc. may, as its remedy hereunder, take ownership of such number of Pledged Securities as are necessary (based upon the Fair Market Value thereof) to satisfy the then unpaid portion of Liquidated Damages (without payment of any cash consideration) by giving written notice to Pledgor (the "Enforcement Notice"). Effective upon the giving of the Enforcement Notice, and without further action on the part of the parties to this Agreement, GS Inc. shall be deemed to have (1) taken ownership and disposed of the lesser of (A) all Pledged Securities or (B) such whole number of Pledged Securities as has a Fair Market Value at least equal to the then unpaid Liquidated Damages; and (2) received proceeds in the amount of the Fair Market Value of such Pledged Securities and applied such proceeds to the payment of any then unpaid Liquidated Damages. Any excess net proceeds from the deemed sale of such Pledged Securities will continue to be held as Pledged Securities under this Agreement until returned in accordance with Section 2(e). Nothing in this Agreement, however, shall require the Firm to take ownership of Pledged Securities in accordance with this Section 3 in order to satisfy Pledgor's obligation to pay Liquidated Damages. 4. Pledgor's Obligations Not Affected. Except as provided in Section 9(b), the obligations of Pledgor under this Agreement shall remain in full force and effect without regard to, and shall not be impaired or affected by (a) any subordination, amendment or modification of or addition or supplement to this Agreement, the Noncompetition Agreement, the Plan or any assignment or transfer thereof; (b) any exercise or non-exercise by GS Inc. of any right, remedy, power or privilege under or in respect of this Agreement, the Noncompetition Agreement, the Plan or any waiver of any such right, remedy, power or privilege; (c) any waiver, consent, extension, indulgence or other action or inaction in respect of this Agreement, the Noncompetition Agreement, the -5- 6 Plan or any assignment or transfer of any thereof; (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like, of GS Inc., whether or not Pledgor shall have notice or knowledge of any of the foregoing; (e) any substitution of collateral pursuant to Sections 1(b) or 1(c); or (f) any other act or omission to act or delay of any kind by Pledgor, GS Inc. or any other person or any other circumstance whatsoever which might, but for the provisions of this clause (f), constitute a legal and equitable discharge of Pledgor's obligations hereunder. 5. Attorneys-in-Fact. Each of GS Inc., and the General Counsel of GS Inc. from time to time, acting separately, are hereby appointed the attorneys-in-fact of Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that GS Inc. reasonably may deem necessary or advisable to accomplish the purposes hereof, which appointments as attorneys-in-fact are irrevocable as ones coupled with an interest. 6. Termination. Upon the earliest to occur of the events set forth in Section 2(e) hereof, this Agreement shall terminate and GS Inc. shall return to Pledgor the remaining Pledged Securities, except as otherwise provided in such Section. 7. Notices. All notices or other communications required or permitted to be given hereunder shall be delivered as provided in the Noncompetition Agreement. 8. No Third Party Beneficiaries. Except as expressly provided herein, this Agreement shall not confer on any person other than the Firm and Pledgor any rights or remedies hereunder. 9. Miscellaneous. (a) This Agreement and Section 8 of the Noncompetition Agreement contain the entire understanding and agreement between Pledgor and GS Inc. with respect to the matters expressly covered therein and supersede any other agreement, written or oral, pertaining to such matters. (b) This Agreement may not be amended or modified other than by a written agreement executed by Pledgor and GS Inc. or its successors, nor may any provision hereof be waived other than by a writing executed by Pledgor or GS Inc. or its successors; provided, that any waiver, amendment or modification of any of the provisions of this Agreement will not be effective against the Firm without the written consent of the Chief Executive Officer of GS Inc. or its successors, or such individual's designee. Pledgor may not, directly or indirectly (including by operation of law), assign Pledgor's rights or obligations hereunder without the prior written consent of the Chief Executive Officer of GS Inc. or its successors, or such individual's designee, and any -6- 7 such assignment by Pledgor in violation of this Agreement shall be void. This Agreement shall be binding upon Pledgor's permitted successors and assigns. Without impairing Pledgor's obligations hereunder, GS Inc. may at any time and from time to time assign its rights and obligations hereunder to any of its subsidiaries or affiliates (and have such rights and obligations reassigned to it or to any other subsidiary or affiliate). This Agreement shall be binding upon and inure to the benefit of the Firm and its assigns. (c) If any provision of this Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. (d) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, AND SHALL BE SUBJECT TO THE PROVISIONS OF SECTIONS 9, 10 AND 11 OF THE NONCOMPETITION AGREEMENT. (e) The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered on the date first above written. THE GOLDMAN SACHS GROUP, INC. By:________________________________ [PLEDGOR] By:________________________________ EX-10.22 20 FORM OF AWARD AGREEMENT (FORMULA RSUS) 1 EXHIBIT 10.22 DRAFT 4/26/99 THE GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN 1999 FORMULA RSU AWARD This Award Agreement sets forth the terms and conditions of an Award of restricted stock units ("RSUs") granted to you under The Goldman Sachs 1999 Stock Incentive Plan (the "Plan"). 1. The Plan. This Award is made pursuant to the Plan, the terms of which are incorporated in this Award Agreement. Capitalized terms used in this Award Agreement which are not defined in this Award Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the Plan. 2. Award. The number of RSUs subject to this Award is set forth in a statement separately delivered to you. An RSU constitutes an unfunded and unsecured promise of GS Inc. to deliver (or cause to be delivered) to you, subject to the terms of this Award Agreement, a share of Common Stock (the "Share") (or cash equal to the Fair Market Value thereof) on a Delivery Date as provided herein. Until such delivery, you have only the rights of a general unsecured creditor and no rights as a shareholder of GS Inc. THIS AWARD IS SUBJECT TO ALL TERMS AND PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE ARBITRATION AND CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 15. BY OPENING THE CUSTODY ACCOUNT REFERRED TO IN PARAGRAPH 3(a), YOU WILL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT. 3. Delivery. (a) In General. Except as provided below in this Paragraph 3 and in Paragraphs 4, 6, 9 and 10, Shares shall be delivered in equal installments (subject to rounding in the discretion of the Committee to avoid the delivery of fractional Shares) on each Delivery Date. The Firm may deliver cash in lieu of all or any portion of the Shares otherwise deliverable on each such Delivery Date. Unless otherwise determined by the Committee, or as otherwise provided in this Award Agreement, delivery of Shares shall be effected by book-entry credit to a custody account (the "Custody Account") maintained by you with The Chase Manhattan Bank or such successor custodian as may be designated by GS Inc. No delivery of Shares shall be made unless you have timely established the Custody Account. You shall be the beneficial owner of any Shares properly credited to the Custody Account. You shall have no right to any dividend or distribution with respect to such Shares if the record date for such dividend or distribution is prior to the date the Custody Account is properly credited with such Shares. (b) Death. Notwithstanding any other provision of this Award Agreement, if you die prior to the last Delivery Date, and provided your rights in respect of any outstanding RSUs have not previously terminated, the Shares (or cash in lieu of all or any portion thereof) corresponding to your outstanding RSUs shall be delivered as soon as practicable thereafter to your designated beneficiary (or, if none, your estate). -1- 2 DRAFT 4/26/99 4. Termination of RSUs and Non-Delivery Upon Certain Other Events. (a) Unless the Committee determines otherwise, and except as provided in Paragraph 6, your rights in respect of any outstanding RSUs shall immediately terminate and no Shares (or cash) shall be delivered in respect of such RSUs (i) if (A) prior to the relevant Delivery Date, your Employment with the Firm is terminated for Cause, (B) you engage in conduct specified in Paragraph 4(b), or (C) you fail to provide the representations and certifications required under Paragraph 4(c) or (ii) at the time specified in Paragraph 4(d). (b) You will have engaged in conduct specified in this Paragraph 4(b) if, as determined by the Committee, at any time prior to the relevant Delivery Date: (i) any of the events that constitute Cause has occurred; or (ii) in the event you are categorized by the Firm as an exempt employee (or the equivalent outside the United States) on the relevant Delivery Date or were so characterized on the date of termination of your Employment, you (A) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise, or (B) associate (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity (1) which is similar or substantially related to any activity in which you were engaged, in whole or in part, at the Firm, (2) for which you had direct or indirect managerial or supervisory responsibility at the Firm or (3) which calls for the application of the same or similar specialized knowledge or skills as those utilized by you in your activities with the Firm, at any time during the one-year period immediately prior to termination of your Employment (or, in the case of an action taken prior to termination of your Employment, during the one-year period immediately prior to such action), and, in any such case, irrespective of the purpose of the activity or whether the activity is or was in furtherance of advisory, agency, proprietary or fiduciary business of either the Firm or the Competitive Enterprise. (By way of example only, this provision would preclude an "advisory" investment banker from joining a leveraged-buyout firm, a research analyst from becoming a proprietary trader or joining a hedge fund, or an information systems professional from joining a management or other consulting firm and providing information technology consulting services or advice to any Competitive Enterprise.); or (iii) in the event you are categorized by the Firm as an exempt employee (or the equivalent outside the United States) on the relevant Delivery Date or were so characterized on the date of termination of your Employment, you in any manner, directly or indirectly, (A) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Firm or (B) interfere with or damage (or attempt to interfere with or damage) any relationship between the Firm and any such Client or (C) Solicit any person who is an employee of the Firm to resign from the Firm or to apply for or accept employment with any Competitive Enterprise; or (iv) you attempt to have any dispute under this Award Agreement resolved in any manner that is not provided for by Paragraph 15. -2- 3 DRAFT 4/26/99 (c) You must certify to GS Inc., in accordance with procedures established by the Committee, with respect to each relevant Delivery Date that you have complied, and as of the relevant Delivery Date will have complied, with all the terms and conditions of this Award Agreement. By accepting the delivery of Shares (or cash) under this Award Agreement, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this Award Agreement. (d) Unless the Committee determines otherwise, if the Delivery Date in respect of any outstanding RSUs occurs, and Shares (or cash) with respect to such RSUs would be deliverable under the terms and conditions of this Award Agreement, except that you have not complied with the conditions or your obligations under Paragraphs 3(a) and 4(c), all of your rights with respect to such RSUs shall terminate, and no Shares (or cash) shall be delivered, upon the expiration of the fiscal year of GS Inc. in which such Delivery Date occurs. 5. Repayment. If, following the delivery of Shares (or cash) with respect to any Delivery Date, the Committee determines that all terms and conditions of this Award Agreement in respect of such delivery were not satisfied, the Firm shall be entitled to receive, and you shall be obligated to pay the Firm immediately upon demand therefor, the Fair Market Value of the Shares (determined as of the relevant Delivery Date) and the amount of cash (to the extent that cash was delivered in lieu of Shares) that were delivered with respect to such Delivery Date and without reduction for any Shares (or cash delivered in lieu of all or any portion thereof) applied to satisfy withholding tax or other obligations in respect of such Shares (or cash). 6. Change in Control. Notwithstanding anything to the contrary in this Award Agreement, in the event a Change in Control shall occur and within 18 months thereafter the Firm terminates your Employment without Cause or you terminate Employment with the Firm for Good Reason, all Shares underlying outstanding RSUs with respect to which your rights have not terminated (or the Fair Market Value of such Shares in cash) shall be delivered. 7. Dividend Equivalents. Prior to the delivery of Shares (or cash in lieu thereof) pursuant to this Award Agreement, at or after the time of distribution of any regular cash dividend paid by GS Inc. in respect of the Common Stock, you shall be entitled to receive an amount in cash (less applicable withholding) equal to such regular dividend payment that would have been made in respect of the Shares not yet delivered, as if the Shares had been actually delivered; provided, that no payment in respect of RSUs shall be made if, prior to the time such payment is due, your rights with respect to such RSUs have previously terminated under this Agreement. 8. Non-transferability; Beneficiary Designation. Except as may otherwise be provided by the Committee, the limitations set forth in Section 3.4 of the Plan shall apply. Any assignment (as defined in Section 3.4 of the Plan) in violation of the provisions of this Paragraph 8 shall be void. You may designate, in accordance with procedures established by the Committee, a beneficiary or beneficiaries to receive all or part of the amounts to be paid under this Award Agreement in the event of your death. A designation of a beneficiary may be replaced by a new designation or may be revoked by you at any time in accordance with procedures established by the Committee. If you die without having properly designated a -3- 4 DRAFT 4/26/99 beneficiary, any amounts payable upon your death shall be distributed to your estate. If there is any question as to the legal right of any beneficiary to receive payment of amounts under this Award Agreement, the amounts in question may be paid to your estate, in which event the Firm shall have no further liability to anyone with respect to such amounts. A beneficiary or estate shall have no rights under this Award Agreement other than the right, subject to the immediately preceding sentence, to receive such amounts, if any, as may be payable under this Paragraph 8. 9. Withholding, Consents and Legends. (a) The delivery of Shares is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.2 of the Plan, provided that the Committee may determine not to apply the minimum withholding rate specified in Section 3.2.2 of the Plan). (b) Your rights in respect of the RSUs are conditioned on the receipt to the full satisfaction of the Committee of any required consents (as defined in Section 3.3 of the Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting (i) to the Firm's supplying to any third party recordkeeper of the Plan such personal information as the Committee deems advisable to administer the Plan and (ii) to deductions from your wages, or other arrangement satisfactory to the Committee, to reimburse the Firm for advances made on your behalf to satisfy certain withholding and other tax obligations in connection with this Award). (c) If you are or become a Managing Director, your rights in respect of the RSUs are conditioned on your becoming a party to any shareholders' agreement to which other similarly situated employees of the Firm are a party. (d) GS Inc. may affix to Certificates representing Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with GS Inc.). GS Inc. may advise the transfer agent to place a stop order against any legended Shares. 10. Right of Offset. GS Inc. (and any of its affiliates and subsidiaries) shall have the right to offset against the obligation to deliver Shares (or cash) under this Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) you then owe to the Firm and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. 11. No Rights to Continued Employment. Nothing in this Award Agreement or the Plan shall be construed as giving you any right to continued Employment by the Firm or affect any right which the Firm may have to terminate or alter the terms and conditions of your Employment. 12. Successors and Assigns of GS Inc. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of GS Inc. and its successors and assigns. -4- 5 DRAFT 4/26/99 13. Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive. 14. Amendment. The Committee reserves the right at any time to amend the terms and conditions set forth in this Award Agreement, and the Board may amend the Plan in any respect; provided that, notwithstanding the foregoing and Sections 1.3.2(f), 1.3.2(g) and 3.1 of the Plan, no such amendment shall materially adversely affect your rights and obligations under this Award Agreement without your consent (or the consent of your beneficiary or estate, if such consent is obtained after your death), except that the Committee reserves the right to accelerate the delivery of the Shares and in its discretion provide that such Shares may not be transferable until the relevant Delivery Dates (and that in respect of such Shares you may remain subject to the repayment obligations of Paragraph 5 in the circumstances under which the Shares would not have been delivered pursuant to Section 4). Any amendment of this Award Agreement shall be in writing signed by the Chief Executive Officer of GS Inc. or his or her designee. 15. Arbitration; Choice of Forum. (a) Any dispute, controversy or claim between the Firm and you, arising out of or relating to or concerning the Plan or this Award Agreement, shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by you must first be submitted to the Committee in accordance with claims procedures determined by the Committee. This paragraph is subject to the provisions of clauses (b) and (c) below. (b) THE FIRM AND YOU HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN OR THIS AWARD AGREEMENT THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO PARAGRAPH 15(a) OF THIS AWARD AGREEMENT. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and you acknowledge that the forum designated by this Paragraph 15(b) has a reasonable relation to the Plan, this Award Agreement, and to your relationship with the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Paragraph 15. (c) The agreement by you and the Firm as to forum is independent of the law that may be applied in the action, and you and the Firm agree to such forum even if the forum may under applicable law choose to apply non-forum law. You and the Firm hereby waive, to the fullest extent permitted by applicable law, any objection which you or the Firm now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Paragraph 15(b). You and the Firm undertake not to commence any action arising out of or relating to or concerning this Award Agreement in any forum other than a forum described in this Paragraph 15. You and the Firm agree that, to the fullest extent permitted by applicable law, a final and non-appealable -5- 6 DRAFT 4/26/99 judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon you and the Firm. (d) You irrevocably appoint the General Counsel of GS Inc. as your agent for service of process in connection with any action or proceeding arising out of or relating to or concerning this Award Agreement which is not arbitrated pursuant to the provisions of Paragraph 15(a), who shall promptly advise you of any such service of process. (e) You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Paragraph 15, except that you may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). (f) You recognize and agree that prior to the grant of this Award you have no right to any benefits hereunder. Accordingly, in consideration of the receipt of this Award, you expressly waive any right to contest the amount of this Award, terms of this Award Agreement, any determination, action or omission hereunder or under the Plan by the Committee, GS Inc. or the Board, or any amendment to the Plan or this Award Agreement (other than an amendment to which your consent is expressly required by Paragraph 14). 16. Governing Law. THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 17. Headings. The headings in this Award Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. IN WITNESS WHEREOF, GS Inc. has caused this Award Agreement to be duly executed and delivered as of __________, 1999. THE GOLDMAN SACHS GROUP, INC. By: ____________________________ -6- 7 DRAFT 4/26/99 GLOSSARY OF TERMS Solely for purposes of the 1999 Formula RSU Award Agreement granted under the Goldman Sachs 1999 Stock Incentive Plan (the "Plan"), the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable Award Agreement or the Plan. "CAUSE" means (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) your willful failure to perform your duties to the Firm; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which GS Inc. or any of its subsidiaries or affiliates is a member; (v) your violation of any Firm policy concerning hedging or confidential or proprietary information, or your material violation of any other Firm policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Firm; or (vii) your engaging in any conduct detrimental to the Firm. The determination as to whether "Cause" has occurred shall be made by the Committee in its sole discretion. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any Award Agreement of the existence or occurrence of any of the events, acts or omissions constituting "Cause". "CHANGE IN CONTROL" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving GS Inc. (a "Reorganization") or sale or other disposition of all or substantially all of GS Inc.'s assets to an entity that is not an affiliate of GS Inc. (a "Sale"), that in each case requires the approval of GS Inc.'s stockholders under the law of GS Inc.'s jurisdiction of organization, whether for such Reorganization or Sale (or the issuance of securities of GS Inc. in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (i) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (A) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of GS Inc. in a Sale (in either case, the "Surviving Entity"), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, as such Rule is in effect on the date of adoption of the Plan) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by GS Inc.'s securities (the "GS Inc. 8 DRAFT 4/26/99 Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such GS Inc. Securities were converted pursuant to such Reorganization or Sale) or (ii) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale, individuals (the "Incumbent Directors") who either (1) were members of the Board on the date of the Award or (2) became directors subsequent to the date of the Award and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of GS Inc.'s proxy statement in which such persons are named as a nominee for director). "CLIENT" means any client or prospective client of the Firm to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or employment by the Firm. "COMPETITIVE ENTERPRISE" means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Firm is engaged. The activities covered by the previous sentence include, without limitation, financial services such as investment banking, public or private finance, lending, financial advisory services, private investing (for anyone other than you and members of your family), merchant banking, asset or hedge fund management, insurance or reinsurance underwriting or brokerage, property management, or securities, futures, commodities, energy, derivatives or currency brokerage, sales, lending, custody, clearance, settlement or trading. "DELIVERY DATE" means the first day of each Window Period that begins on or immediately follows each of the first, second and third anniversaries of the consummation of the initial public offering of Shares. "GOOD REASON" means (i) as determined by the Committee, a materially adverse alteration in the your position or in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control, or (ii) the Firm's requiring your principal place of Employment to be located more than seventy-five (75) miles from the location where you are principally Employed at the time of the Change in Control (except for required travel on the Firm's business to an extent substantially consistent with your customary business travel obligations in the ordinary course of business prior to the Change in Control). "SOLICIT" means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action. "WINDOW PERIOD" means a period designated by the Committee during which employees of the Firm generally are permitted to purchase or sell Shares. -2- EX-10.23 21 FORM OF AWARD AGREEMENT (DISCRETIONARY RSUS) 1 EXHIBIT 10.23 DRAFT 4/26/99 THE GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN 1999 DISCRETIONARY RSU AWARD This Award Agreement sets forth the terms and conditions of an Award of restricted stock units ("RSUs") granted to you under The Goldman Sachs 1999 Stock Incentive Plan (the "Plan"). 1. The Plan. This Award is made pursuant to the Plan, the terms of which are incorporated in this Award Agreement. Capitalized terms used in this Award Agreement which are not defined in this Award Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the Plan. 2. Award. The number of RSUs subject to this Award is set forth in a statement separately delivered to you. An RSU constitutes an unfunded and unsecured promise of GS Inc. to deliver (or cause to be delivered) to you, subject to the terms of this Award Agreement, a share of Common Stock (the "Share") (or cash equal to the Fair Market Value thereof) on a Vesting Date as provided herein. Until such delivery, you have only the rights of a general unsecured creditor and no rights as a shareholder of GS Inc. THIS AWARD IS SUBJECT TO ALL TERMS AND PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE ARBITRATION AND CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 16. BY OPENING THE CUSTODY ACCOUNT REFERRED TO IN PARAGRAPH 3(a), YOU WILL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT. 3. Vesting and Delivery. (a) In General. Except as provided below in this Paragraph 3 and in Paragraphs 4, 6, 7, 10 and 11, you shall vest in the RSUs and Shares shall be delivered in equal installments (subject to rounding in the discretion of the Committee to avoid the delivery of fractional Shares) on each Vesting Date. The Firm may deliver cash in lieu of all or any portion of the Shares otherwise deliverable on each such Vesting Date. Unless otherwise determined by the Committee, or as otherwise provided in this Award Agreement, delivery of Shares shall be effected by book-entry credit to a custody account (the "Custody Account") maintained by you with The Chase Manhattan Bank or such successor custodian as may be designated by GS Inc. No delivery of Shares shall be made unless you have timely established the Custody Account. You shall be the beneficial owner of any Shares properly credited to the Custody Account. You shall have no right to any dividend or distribution with respect to such Shares if the record date for such dividend or distribution is prior to the date the Custody Account is properly credited with such Shares. Notwithstanding the foregoing, if a Vesting Date occurs at a time when you are considered by GS Inc. to be one of its "covered employees" within the meaning of Section 162(m) of the Code, then, unless the Committee determines otherwise, delivery of Shares (or cash) in respect of such Vesting Date shall automatically be deferred until the first day of the first Window Period after you have ceased to be such a covered employee. 2 DRAFT 4/26/99 (b) Death. Notwithstanding any other provision of this Award Agreement, if you die prior to the last Vesting Date, and provided your rights in respect of any outstanding RSUs have not previously terminated, the Shares (or cash in lieu of all or any portion thereof) corresponding to your outstanding RSUs shall be delivered as soon as practicable thereafter to your designated beneficiary (or, if none, your estate). 4. Termination of RSUs and Non-Delivery of Shares. (a) Unless the Committee determines otherwise, and except as provided in Paragraphs 6 and 7, your rights in respect of any outstanding RSUs shall immediately terminate and no Shares (or cash) shall be delivered in respect of such RSUs, if: (i) at any time prior to the relevant Vesting Date: (A) your Employment with the Firm is terminated for any reason, or you are otherwise no longer actively employed with the Firm (except as provided in Paragraphs 3(b) or 6); or (B) any of the events that constitute Cause has occurred; or (C) you attempt to have any dispute under this Award Agreement resolved in any manner that is not provided for by Paragraph 16; or (ii) you fail to certify to GS Inc., in accordance with procedures established by the Committee, with respect to each relevant Vesting Date that you have complied, or the Committee determines that you in fact have failed as of the relevant Vesting Date to comply, with all the terms and conditions of this Award Agreement. By accepting the delivery of Shares (or cash) under this Award Agreement, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this Award Agreement. (b) Unless the Committee determines otherwise, if the Vesting Date in respect of any outstanding RSUs occurs, and Shares (or cash) with respect to such RSUs would be deliverable under the terms and conditions of this Award Agreement, except that you have not complied with the conditions or your obligations under Paragraphs 3(a) and 4(a)(ii), all of your rights with respect to such RSUs shall terminate, and no Shares (or cash) shall be delivered, upon the expiration of the fiscal year of GS Inc. in which such Vesting Date occurs. 5. Repayment. If, following the delivery of Shares (or cash) with respect to any Vesting Date, the Committee determines that all terms and conditions of this Award Agreement in respect of such delivery were not satisfied, the Firm shall be entitled to receive, and you shall be obligated to pay the Firm immediately upon demand therefor, the Fair Market Value of the Shares (determined as of the relevant Vesting Date) and the amount of cash (to the extent that cash was delivered in lieu of Shares) that were delivered with respect to such Vesting -2- 3 DRAFT 4/26/99 Date and without reduction for any Shares (or cash delivered in lieu of all or any portion thereof) applied to satisfy withholding tax or other obligations in respect of such Shares (or cash). 6. Extended Absence and Retirement. (a) Notwithstanding any other provision of this Award Agreement, if your Employment with the Firm is terminated by reason of Extended Absence or Retirement, and provided your rights with respect to any outstanding RSUs have not previously terminated, the condition set forth in Paragraph 4(a)(i)(A) shall be waived but all other conditions of this Award Agreement shall continue to apply. (b) Without limiting the application of Paragraphs 4(a)(i)(B) and (C), Paragraph 4(a)(ii) and Paragraph 4(b), unless the Committee determines otherwise, your rights in respect of any outstanding RSUs shall immediately terminate and no Shares (or cash) shall be delivered in respect of such RSUs if, following the termination of your Employment with the Firm by reason of Extended Absence or Retirement: (i) you (A) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise, or (B) associate (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity (1) which is similar or substantially related to any activity in which you were engaged, in whole or in part, at the Firm, (2) for which you had direct or indirect managerial or supervisory responsibility at the Firm or (3) which calls for the application of the same or similar specialized knowledge or skills as those utilized by you in your activities with the Firm, at any time during the one-year period immediately prior to termination of your Employment (or, in the case of an action taken prior to termination of your Employment, during the one-year period immediately prior to such action), and, in any such case, irrespective of the purpose of the activity or whether the activity is or was in furtherance of advisory, agency, proprietary or fiduciary business of either the Firm or the Competitive Enterprise. (By way of example only, this provision would preclude an "advisory" investment banker from joining a leveraged-buyout firm, a research analyst from becoming a proprietary trader or joining a hedge fund, or an information systems professional from joining a management or other consulting firm and providing information technology consulting services or advice to any Competitive Enterprise.); or (ii) you in any manner, directly or indirectly, (A) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Firm or (B) interfere with or damage (or attempt to interfere with or damage) any relationship between the Firm and any such Client or (C) Solicit any person who is an employee of the Firm to resign from the Firm or to apply for or accept employment with any Competitive Enterprise. 7. Change in Control. Notwithstanding anything to the contrary in this Award Agreement, in the event a Change in Control shall occur and within 18 months thereafter the Firm terminates your Employment without Cause or you terminate Employment with the -3- 4 DRAFT 4/26/99 Firm for Good Reason, any outstanding RSUs with respect to which your rights have not terminated shall vest and all Shares (or the Fair Market Value thereof in cash) shall be delivered. 8. Dividend Equivalents. Prior to the delivery of Shares (or cash in lieu thereof) pursuant to this Award Agreement, at or after the time of distribution of any regular cash dividend paid by GS Inc. in respect of the Common Stock, you shall be entitled to receive an amount in cash (less applicable withholding) equal to such regular cash dividend payment that would have been made in respect of the Shares not yet delivered, as if the Shares had been actually delivered; provided, that no payment in respect of RSUs shall be made if, prior to the time such payment is due, your rights with respect to such RSUs have previously terminated under this Agreement. 9. Non-transferability; Beneficiary Designation. Except as may otherwise be provided by the Committee, the limitations set forth in Section 3.4 of the Plan shall apply. Any assignment (as defined in Section 3.4 of the Plan) in violation of the provisions of this Paragraph 9 shall be void. You may designate, in accordance with procedures established by the Committee, a beneficiary or beneficiaries to receive all or part of the amounts to be paid under this Award Agreement in the event of your death. A designation of a beneficiary may be replaced by a new designation or may be revoked by you at any time in accordance with procedures established by the Committee. If you die without having properly designated a beneficiary, any amounts payable upon your death shall be distributed to your estate. If there is any question as to the legal right of any beneficiary to receive payment of amounts under this Award Agreement, the amounts in question may be paid to your estate, in which event the Firm shall have no further liability to anyone with respect to such amounts. A beneficiary or estate shall have no rights under this Award Agreement other than the right, subject to the immediately preceding sentence, to receive such amounts, if any, as may be payable under this Paragraph 9. 10. Withholding, Consents and Legends. (a) The delivery of Shares is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.2 of the Plan, provided that the Committee may determine not to apply the minimum withholding rate specified in Section 3.2.2 of the Plan). (b) Your rights in respect of the RSUs are conditioned on the receipt to the full satisfaction of the Committee of any required consents (as defined in Section 3.3 of the Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting (i) to the Firm's supplying to any third party recordkeeper of the Plan such personal information as the Committee deems advisable to administer the Plan and (ii) to deductions from your wages, or other arrangements satisfactory to the Committee, to reimburse the Firm for advances made on your behalf to satisfy certain withholding and other tax obligations in connection with this Award). -4- 5 DRAFT 4/26/99 (c) If you are or become a Managing Director, your rights in respect of the RSUs are conditioned on your becoming a party to any shareholders' agreement to which other similarly situated employees of the Firm are a party. (d) GS Inc. may affix to Certificates representing Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with GS Inc.). GS Inc. may advise the transfer agent to place a stop order against any legended Shares. 11. Right of Offset. GS Inc. (and any of its affiliates or subsidiaries) shall have the right to offset against the obligation to deliver Shares (or cash) under this Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) you then owe to the Firm and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. 12. No Rights to Continued Employment. Nothing in this Award Agreement or the Plan shall be construed as giving you any right to continued Employment by the Firm or affect any right which the Firm may have to terminate or alter the terms and conditions of your Employment. 13. Successors and Assigns of GS Inc. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of GS Inc. and its successors and assigns. 14. Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive. 15. Amendment. The Committee reserves the right at any time to amend the terms and conditions set forth in this Award Agreement, and the Board may amend the Plan in any respect; provided that, notwithstanding the foregoing and Sections 1.3.2(f), 1.3.2(g) and Section 3.1 of the Plan, no such amendment shall materially adversely affect your rights and obligations under this Award Agreement without your consent (or the consent of your beneficiary or estate, if such consent is obtained after your death), except that the Committee reserves the right to accelerate the vesting and delivery of the Shares and in its discretion provide that such Shares may not be transferable until the relevant Vesting Dates (and that in respect of such Shares you may remain subject to the repayment obligations of Paragraph 5 in the circumstances under which the Shares would not have been delivered pursuant to Section 4 or 6). Any amendment of this Award Agreement shall be in writing signed by the Chief Executive Officer of GS Inc. or his or her designee. -5- 6 DRAFT 4/26/99 16. Arbitration; Choice of Forum. (a) Any dispute, controversy or claim between the Firm and you, arising out of or relating to or concerning the Plan or this Award Agreement, shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by you must first be submitted to the Committee in accordance with claims procedures determined by the Committee. This paragraph is subject to the provisions of clauses (b) and (c) below. (b) THE FIRM AND YOU HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN OR THIS AWARD AGREEMENT THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO PARAGRAPH 16(a) OF THIS AWARD AGREEMENT. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and you acknowledge that the forum designated by this Paragraph 16(b) has a reasonable relation to the Plan, this Award Agreement, and to your relationship with the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Paragraph 16. (c) The agreement by you and the Firm as to forum is independent of the law that may be applied in the action, and you and the Firm agree to such forum even if the forum may under applicable law choose to apply non-forum law. You and the Firm hereby waive, to the fullest extent permitted by applicable law, any objection which you or the Firm now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Paragraph 16(b). You and the Firm undertake not to commence any action arising out of or relating to or concerning this Award Agreement in any forum other than a forum described in this Paragraph 16. You and the Firm agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon you and the Firm. (d) You irrevocably appoint the General Counsel of GS Inc. as your agent for service of process in connection with any action or proceeding arising out of or relating to or concerning this Award Agreement which is not arbitrated pursuant to the provisions of Paragraph 16(a), who shall promptly advise you of any such service of process. (e) You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Paragraph 16, except that you may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). -6- 7 DRAFT 4/26/99 (f) You recognize and agree that prior to the grant of this Award you have no right to any benefits hereunder. Accordingly, in consideration of the receipt of this Award, you expressly waive any right to contest the amount of this Award, terms of this Award Agreement, any determination, action or omission hereunder or under the Plan by the Committee, GS Inc. or the Board, or any amendment to the Plan or this Award Agreement (other than an amendment to which your consent is expressly required by Paragraph 15). 17. Governing Law. THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 18. Headings. The headings in this Award Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. IN WITNESS WHEREOF, GS Inc. has caused this Award Agreement to be duly executed and delivered as of __________, 1999. THE GOLDMAN SACHS GROUP, INC. By: ____________________________ -7- 8 DRAFT 4/26/99 GLOSSARY OF TERMS Solely for purposes of the 1999 Discretionary RSU Award Agreement and the 1999 Discretionary Option Award Agreement, granted under the Goldman Sachs 1999 Stock Incentive Plan (the "Plan"), the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable Award Agreement or the Plan. "CAUSE" means (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) your willful or grossly negligent failure to perform your duties to the Firm; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which GS Inc. or any of its subsidiaries or affiliates is a member; (v) your violation of any Firm policy concerning hedging or confidential or proprietary information, or your material violation of any other Firm policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Firm; or (vii) your engaging in any conduct detrimental to the Firm. The determination as to whether "Cause" has occurred shall be made by the Committee in its sole discretion. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any Award Agreement of the existence or occurrence of any of the events, acts or omissions constituting "Cause". "CHANGE IN CONTROL" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving GS Inc. (a "Reorganization") or sale or other disposition of all or substantially all of GS Inc.'s assets to an entity that is not an affiliate of GS Inc. (a "Sale"), that in each case requires the approval of GS Inc.'s stockholders under the law of GS Inc.'s jurisdiction of organization, whether for such Reorganization or Sale (or the issuance of securities of GS Inc. in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (i) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (A) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of GS Inc. in a Sale (in either case, the "Surviving Entity"), or (B) if applicable, the ultimate parent entity that directly or 9 DRAFT 4/26/99 indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, as such Rule is in effect on the date of the adoption of the Plan) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by GS Inc.'s securities (the "GS Inc. Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such GS Inc. Securities were converted pursuant to such Reorganization or Sale) or (ii) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale, individuals (the "Incumbent Directors") who either (1) were members of the Board on the date of the Award or (2) became directors subsequent to the date of the Award and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of GS Inc.'s proxy statement in which such persons are named as a nominee for director). "CLIENT" means any client or prospective client of the Firm to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or employment by the Firm. "COMPETITIVE ENTERPRISE" means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Firm is engaged. The activities covered by the previous sentence include, without limitation, financial services such as investment banking, public or private finance, lending, financial advisory services, private investing (for anyone other than you and members of your family), merchant banking, asset or hedge fund management, insurance or reinsurance underwriting or brokerage, property management, or securities, futures, commodities, energy, derivatives or currency brokerage, sales, lending, custody, clearance, settlement or trading. "EXTENDED ABSENCE" means you are unable to perform for six continuous months, due to illness, injury or pregnancy-related complications, substantially all the essential duties of your occupation, as determined by the Committee. "GOOD REASON" means (i) as determined by the Committee, a materially adverse alteration in the your position or in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control, or (ii) the Firm's requiring your principal place of Employment to be located more than seventy-five (75) miles from the location where you are principally Employed at the time of the Change in Control (except for required travel on the Firm's business to an extent substantially -2- 10 DRAFT 4/26/99 consistent with your customary business travel obligations in the ordinary course of business prior to the Change in Control). "RETIREMENT" means termination of your Employment on or after the date on which (i) you have attained age 55 with 5 years of service with the Firm, or (ii) the sum of (I) your age and (II) 1.5 times your years of service with the Firm, is equal to or greater than 80. "SOLICIT" means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action. "VESTING DATE" means the first day of each Window Period that begins on or immediately follows each of the third, fourth and fifth anniversaries of the consummation of the initial public offering of Shares. "WINDOW PERIOD" means a period designated by the Committee during which employees of the Firm generally are permitted to purchase or sell Shares. -3- EX-10.24 22 FORM OF OPTION AGREEMENT (DISCRETIONARY OPTIONS) 1 EXHIBIT 10.24 DRAFT 4/26/99 THE GOLDMAN SACHS 1999 STOCK INCENTIVE PLAN 1999 DISCRETIONARY OPTION AWARD This Award Agreement sets forth the terms and conditions of an Award granted to you under The Goldman Sachs 1999 Stock Incentive Plan (the "Plan"), of options ("Options") to purchase shares of Common Stock ("Shares"). 1. The Plan. This Award is made pursuant to the Plan, the terms of which are incorporated in this Award Agreement. Capitalized terms used in this Award Agreement which are not defined in this Award Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the Plan. 2. Award. A statement separately delivered to you sets forth (i) the date of grant of the Options (the "Date of Grant"), (ii) the number of Shares underlying the Options, and (iii) the exercise price of each Option (the "Exercise Price"). Until the Shares are delivered to you pursuant to Paragraph 6, you have no rights as a shareholder of GS Inc. THIS AWARD IS SUBJECT TO ALL TERMS AND PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE ARBITRATION AND CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 15. BY OPENING THE CUSTODY ACCOUNT REFERRED TO IN PARAGRAPH 6, YOU WILL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT. 3. Expiration Date. Notwithstanding anything to the contrary in this Award Agreement, the Options shall expire and no longer be exercisable on the tenth anniversary of the Date of Grant (the "Expiration Date"), subject to earlier termination as provided in this Award Agreement, or otherwise in accordance with the Plan. 4. Vesting. (a) In General. Except as provided below in Paragraphs 4(b) and 4(c), the Options shall vest in equal installments (subject to rounding in the discretion of the Committee to avoid the vesting of fractional options) on each Vesting Date. (b) Death. Notwithstanding any other provision of this Award Agreement, if you die prior to the last Vesting Date, and provided your rights in respect of the outstanding Options have not previously terminated, any Options that have not vested shall immediately vest. (c) Termination of Options Upon Certain Events. Unless the Committee determines otherwise, and except as provided in Paragraph 5(f), your rights in respect of any outstanding unvested Options shall immediately terminate if: (i) at any time prior to the relevant Vesting Date: 2 DRAFT 4/26/99 (A) your Employment with the Firm is terminated for any reason, or you are otherwise no longer actively employed with the Firm (except as provided in Paragraphs 4(b) or 4(d)); or (B) any of the items that constitute Cause have occurred; or (C) you attempt to have any dispute under this Award Agreement resolved in any manner that is not provided for by Paragraph 15; or (ii) you fail to certify to GS Inc., in accordance with procedures established by the Committee, with respect to each relevant Vesting Date that you have complied, or the Committee determines that you in fact have failed as of the relevant Vesting Date to comply, with all the terms and conditions of this Award Agreement. (d) Extended Absence and Retirement. (i) If your Employment with the Firm is terminated by reason of Extended Absence or Retirement, and provided your rights with respect to any outstanding unvested Options have not previously terminated, the condition set forth in Paragraph 4(c)(i)(A) shall be waived but all other conditions of this Award Agreement shall continue to apply. (ii) Without limiting the application of Paragraphs 4(c)(i)(B) and (C) and Paragraph 4(c)(ii), unless the Committee determines otherwise, your rights in respect of any outstanding unvested Options shall immediately terminate if, following the termination of your Employment with the Firm by reason of Extended Absence or Retirement: (A) you (1) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise, or (2) associate (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise and in connection with such association engage in, or directly or indirectly manage or supervise personnel engaged in, any activity (x) which is similar or substantially related to any activity in which you were engaged, in whole or in part, at the Firm, (y) for which you had direct or indirect managerial or supervisory responsibility at the Firm or (z) which calls for the application of the same or similar specialized knowledge or skills as those utilized by you in your activities with the Firm, at any time during the one-year period immediately prior to termination of your Employment (or, in the case of an action taken prior to termination of your Employment, during the one-year period immediately prior to such action), and, in any such case, irrespective of the purpose of the activity or whether the activity is or was in furtherance of advisory, agency, proprietary or fiduciary business of either the Firm or the Competitive Enterprise. (By way of example only, this provision would preclude an "advisory" investment banker from joining a leveraged-buyout firm, a research analyst from becoming a proprietary trader or joining a hedge fund, or an information systems professional from joining a management or other consulting firm and providing information technology consulting services or advice to any Competitive Enterprise.); or -2- 3 DRAFT 4/26/99 (B) you in any manner, directly or indirectly, (1) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Firm or (2) interfere with or damage (or attempt to interfere with or damage) any relationship between the Firm and any such Client or (3) Solicit any person who is an employee of the Firm to resign from the Firm or to apply for or accept employment with any Competitive Enterprise. 5. Exercisability of Vested Options. (a) Options that are not vested may not be exercised. Vested Options may be exercised in accordance with procedures established by the Committee. The Committee may from time to time prescribe periods during which the vested Options shall not be exercisable. (b) Unless the Committee determines otherwise, and except as provided in Paragraph 5(f), any outstanding vested Options shall cease to be exercisable, and your rights in respect of such Options shall immediately terminate, if prior to the exercise of such Options: (i) any of the events specified in Paragraph 4(c)(i)(B) or (C), or Paragraph 4(d)(ii)(A) or (B), have occurred; or (ii) you fail to certify to GS Inc., in accordance with procedures established by the Committee, with respect to each Option exercise date that you have complied, or the Committee determines that you in fact have failed as of such Option exercise date to comply, with all the terms and conditions of this Award Agreement. By accepting the delivery of Shares upon exercise of any Options, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this Award Agreement. (c) Death. If you die, provided your rights in respect of the vested Options have not previously terminated, any outstanding vested Options shall be exercisable by your designated beneficiary, or, if none, the persons determined by the Committee in accordance with Paragraph 8, for a period of one year following the date of your death, but in no event later than the Expiration Date, and shall thereafter terminate. (d) Extended Absence and Retirement. If your Employment with the Firm is terminated by reason of Extended Absence or Retirement, and provided your rights in respect of any outstanding Options have not previously terminated, then the Options, to the extent such Options are or become vested, shall be exercisable (subject to the satisfaction of all terms and conditions of this Award Agreement, including Paragraph 5(b)) until the later of (i) the expiration of the one-year period following the last Vesting Date, or (ii) the expiration of the one-year period following the date of your termination of Employment, but in no event later than the Expiration Date, and shall thereafter terminate. (e) Other Terminations. Except as provided in Paragraph 5(f), upon the termination of your Employment for any reason other than death, Cause, Extended Absence or Retirement, any vested Options shall remain exercisable (subject to the satisfaction of all terms and conditions of this Award Agreement, including Paragraph 5(b)) for 90 days following such termination of Employment (or -3- 4 DRAFT 4/26/99 if you die within such 90-day period, for one year from your date of death), but in no event later than the Expiration Date, and shall thereafter terminate. (f) Change in Control. Notwithstanding anything to the contrary in this Award Agreement, in the event a Change in Control shall occur and within 18 months thereafter the Firm terminates your Employment without Cause or you terminate Employment with the Firm for Good Reason, any unvested Options with respect to which your rights have not terminated shall vest and all unexercised outstanding Options shall be exercisable for a period of one year following such termination of Employment, but in no event later than the Expiration Date, and shall thereafter terminate. 6. Delivery. Unless otherwise determined by the Committee, or as otherwise provided in this Award Agreement, and except as provided in Paragraphs 9 and 10, upon receipt of payment of the Exercise Price for Shares subject to Options, delivery of Shares shall be effected by book-entry credit to a custody account (the "Custody Account") maintained by you with The Chase Manhattan Bank or such successor custodian as may be designated by GS Inc. No delivery of Shares shall be made unless you have timely established the Custody Account. You shall be the beneficial owner of any Shares properly credited to the Custody Account. You shall have no right to any dividend or distribution with respect to such Shares if the record date for such dividend or distribution is prior to the date the Custody Account is properly credited with such Shares. The Firm may deliver cash in lieu of all or any portion of the Shares otherwise deliverable in accordance with this Paragraph 6. 7. Repayment. If, following the exercise of any Options, the Committee determines that all terms and conditions of this Award Agreement in respect of such exercise were not satisfied, the Firm shall be entitled to receive, and you shall be obligated to pay the Firm immediately upon demand therefor, an amount equal to the excess of the Fair Market Value (determined at the time of exercise) of the Shares that were delivered in respect of such exercised Options over the Exercise Price paid therefor and without reduction for any Shares applied to satisfy withholding tax or other obligations in respect of such Shares. 8. Non-transferability; Beneficiary Designation. Except as may otherwise be provided by the Committee, the limitations set forth in Section 3.4 of the Plan shall apply. Any assignment (as defined in Section 3.4 of the Plan) in violation of the provisions of this Paragraph 8 shall be void. You may designate, in accordance with procedures established by the Committee, a beneficiary or beneficiaries to receive all or part of the amounts to be paid under this Award Agreement in the event of your death. A designation of a beneficiary may be replaced by a new designation or may be revoked by you at any time in accordance with procedures established by the Committee. In the event of your death, such beneficiary or, if no designation of beneficiary has been made, the legal representative of your estate, or those persons succeeding to the rights of such legal representative, may exercise, in accordance with the terms of this Award Agreement, any outstanding Options which are vested (including those which have become vested under Paragraph 4(b)), exercisable and have not expired or otherwise terminated. The determination by the Committee of the persons entitled to exercise any Options following your death shall be binding and conclusive on all persons. A beneficiary or estate shall have no rights under this Award Agreement other than the right, subject to the immediately preceding sentence, to exercise Options in accordance with this Paragraph 8. -4- 5 DRAFT 4/26/99 9. Withholding, Consents and Legends. (a) The delivery of Shares upon exercise of Options is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.2 of the Plan, provided that the Committee may determine not to apply the minimum withholding rate specified in Section 3.2.2 of the Plan). (b) Your rights in respect of the Options are conditioned on the receipt to the full satisfaction of the Committee of any required consents (as defined in Section 3.3 of the Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting (i) to the Firm's supplying to any third party recordkeeper of the Plan such personal information as the Committee deems advisable to administer the Plan and (ii) to deductions from your wages, or other arrangements satisfactory to the Committee, to reimburse the Firm for advances made on your behalf to satisfy certain withholding and other tax obligations in connection with this Award). (c) If you are or become a Managing Director, your rights in respect of the Options are conditioned on your becoming a party to any shareholders' agreement to which other similarly situated employees of the Firm are a party. (d) GS Inc. may affix to Certificates representing Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with GS Inc.). GS Inc. may advise the transfer agent to place a stop order against any legended Shares. 10. Right of Offset. GS Inc. (and any of its affiliates or subsidiaries) shall have the right to offset against the obligation to deliver Shares (or cash) under this Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) you then owe to the Firm and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. 11. No Rights to Continued Employment. Nothing in this Award Agreement or the Plan shall be construed as giving you any right to continued Employment by the Firm or affect any right which the Firm may have to terminate or alter the terms and conditions of your Employment. 12. Successors and Assigns of GS Inc. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of GS Inc. and its successors and assigns. 13. Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive. 14. Amendment. The Committee reserves the right at any time to amend the terms and conditions set forth in this Award Agreement, and the Board may amend the Plan in any respect; -5- 6 DRAFT 4/26/99 provided that, notwithstanding the foregoing and Sections 1.3.2(f), 1.3.2(g) and Section 3.1 of the Plan, no such amendment shall materially adversely affect your rights and obligations under this Award Agreement without your consent (or the consent of your beneficiary or estate, if applicable), except that the Committee reserves the right to accelerate the vesting of the Options and in its discretion provide that Shares acquired pursuant to the exercise of Options may not be transferable until the relevant Vesting Dates (and that in respect of such Shares you may remain subject to the repayment obligations of Paragraph 7 in the circumstances under which the Option would not have vested or become exercisable pursuant to Sections 4 or 5). Any amendment of this Award Agreement shall be in writing signed by the Chief Executive Officer of GS Inc. or his or her designee. 15. Arbitration; Choice of Forum. (a) Any dispute, controversy or claim between the Firm and you, arising out of or relating to or concerning the Plan or this Award Agreement, shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by you must first be submitted to the Committee in accordance with claims procedures determined by the Committee. This paragraph is subject to the provisions of clauses (b) and (c) below. (b) THE FIRM AND YOU HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN OR THIS AWARD AGREEMENT THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO PARAGRAPH 15(a) OF THIS AWARD AGREEMENT. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and you acknowledge that the forum designated by this Paragraph 15(b) has a reasonable relation to the Plan, this Award Agreement, and to your relationship with the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Paragraph 15. (c) The agreement by you and the Firm as to forum is independent of the law that may be applied in the action, and you and the Firm agree to such forum even if the forum may under applicable law choose to apply non-forum law. You and the Firm hereby waive, to the fullest extent permitted by applicable law, any objection which you or the Firm now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Paragraph 15(b). You and the Firm undertake not to commence any action arising out of or relating to or concerning this Award Agreement in any forum other than a forum described in this Paragraph 15. You and the Firm agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon you and the Firm. (d) You irrevocably appoint the General Counsel of GS Inc. as your agent for service of process in connection with any action or proceeding arising out of or relating to or concerning -6- 7 DRAFT 4/26/99 this Award Agreement which is not arbitrated pursuant to the provisions of Paragraph 15(a), who shall promptly advise you of any such service of process. (e) You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Paragraph 15, except that you may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute). (f) You recognize and agree that prior to the grant of this Award you have no right to any benefits hereunder. Accordingly, in consideration of the receipt of this Award, you expressly waive any right to contest the amount of this Award, terms of this Award Agreement, any determination, action or omission hereunder or under the Plan by the Committee, GS Inc. or the Board, or any amendment to the Plan or this Award Agreement (other than an amendment to which your consent is expressly required by Paragraph 14). 16. Governing Law. THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 17. Headings. The headings in this Award Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof. IN WITNESS WHEREOF, GS Inc. has caused this Award Agreement to be duly executed and delivered as of __________, 1999. THE GOLDMAN SACHS GROUP, INC. By: ____________________________ -7- 8 DRAFT 4/26/99 GLOSSARY OF TERMS Solely for purposes of the 1999 Discretionary RSU Award Agreement and the 1999 Discretionary Option Award Agreement, granted under the Goldman Sachs 1999 Stock Incentive Plan (the "Plan"), the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable Award Agreement or the Plan. "CAUSE" means (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) your willful or grossly negligent failure to perform your duties to the Firm; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which GS Inc. or any of its subsidiaries or affiliates is a member; (v) your violation of any Firm policy concerning hedging or confidential or proprietary information, or your material violation of any other Firm policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Firm; or (vii) your engaging in any conduct detrimental to the Firm. The determination as to whether "Cause" has occurred shall be made by the Committee in its sole discretion. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any Award Agreement of the existence or occurrence of any of the events, acts or omissions constituting "Cause". "CHANGE IN CONTROL" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving GS Inc. (a "Reorganization") or sale or other disposition of all or substantially all of GS Inc.'s assets to an entity that is not an affiliate of GS Inc. (a "Sale"), that in each case requires the approval of GS Inc.'s stockholders under the law of GS Inc.'s jurisdiction of organization, whether for such Reorganization or Sale (or the issuance of securities of GS Inc. in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (i) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (A) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of GS Inc. in a Sale (in either case, the "Surviving Entity"), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, as such Rule is in effect on the date of the adoption of the Plan) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by GS Inc.'s securities (the "GS Inc. 9 DRAFT 4/26/99 Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such GS Inc. Securities were converted pursuant to such Reorganization or Sale) or (ii) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale, individuals (the "Incumbent Directors") who either (1) were members of the Board on the date of the Award or (2) became directors subsequent to the date of the Award and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of GS Inc.'s proxy statement in which such persons are named as a nominee for director). "CLIENT" means any client or prospective client of the Firm to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or employment by the Firm. "COMPETITIVE ENTERPRISE" means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Firm is engaged. The activities covered by the previous sentence include, without limitation, financial services such as investment banking, public or private finance, lending, financial advisory services, private investing (for anyone other than you and members of your family), merchant banking, asset or hedge fund management, insurance or reinsurance underwriting or brokerage, property management, or securities, futures, commodities, energy, derivatives or currency brokerage, sales, lending, custody, clearance, settlement or trading. "EXTENDED ABSENCE" means you are unable to perform for six continuous months, due to illness, injury or pregnancy-related complications, substantially all the essential duties of your occupation, as determined by the Committee. "GOOD REASON" means (i) as determined by the Committee, a materially adverse alteration in the your position or in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control, or (ii) the Firm's requiring your principal place of Employment to be located more than seventy-five (75) miles from the location where you are principally Employed at the time of the Change in Control (except for required travel on the Firm's business to an extent substantially consistent with your customary business travel obligations in the ordinary course of business prior to the Change in Control). "RETIREMENT" means termination of your Employment on or after the date on which (i) you have attained age 55 with 5 years of service with the Firm, or (ii) the sum of (I) your age and (II) 1.5 times your years of service with the Firm, is equal to or greater than 80. -2- 10 DRAFT 4/26/99 "SOLICIT" means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action. "VESTING DATE" means the first day of each Window Period that begins on or immediately follows each of the third, fourth and fifth anniversaries of the consummation of the initial public offering of Shares. "WINDOW PERIOD" means a period designated by the Committee during which employees of the Firm generally are permitted to purchase or sell Shares. -3- EX-10.25 23 FORM OF TAX IDEMNIFICATION AGREEMENT 1 Exhibit 10.25 TAX INDEMNIFICATION AGREEMENT, dated as of May __, 1999, among The Goldman Sachs Group, Inc. (the "Company"), the Schedule I and Schedule II Limited Partners (each as defined in the Memorandum of Agreement) and other former partners of The Goldman Sachs Group, L.P. (the "Partnership") or an Affiliate identified on the signature page hereof (each such former partner, a "CAS Indemnitee"), Sumitomo Bank Capital Markets, Inc. ("SBCM"), and Kamehameha Activities Association ("KAA") (such Schedule I Limited Partners, Schedule II Limited Partners, CAS Indemnitees, SBCM, and KAA, collectively, the "Indemnitees"). WHEREAS, each of the Indemnitees is currently or was formerly a partner of the Partnership or one or more of its Affiliates; NOW, THEREFORE, the parties agree as follows: 1. Definitions. (a) "Affiliate" means Stone Street Contract Partners, any entity that at any time prior to the date hereof was consolidated with the Partnership or Goldman, Sachs & Co. for financial reporting purposes, and any other entity specified by the Company, in its sole discretion. (b) "Covered Period" means, with respect to an Indemnitee, any taxable year of the Indemnitee for which, as of the date hereof, a taxing authority is not precluded by the applicable statute of limitations from assessing a liability for Tax with respect to a Partnership Item. (c) "Increased Taxes" means, with respect to each Indemnitee, an amount, determined by the Company in its sole discretion, equal to the excess of (i) the excess of Taxes payable by the Indemnitee in respect of Partnership Items for all Covered Periods over the Taxes in respect of Partnership Items shown as payable on Returns for all such periods as originally filed (or as amended prior to the date hereof) over (ii) the amount of any Tax benefits (including deductions, credits or refunds) estimated by the Company, in its sole discretion, to be available to such Indemnitee in any period as a result of the increase in Taxes described in clause (i) of this definition; provided, however, that, unless otherwise determined by the Company, in its sole discretion, any adjustments arising from (I) the Internal Revenue Service examination of the Returns of the Partnership (including the Returns of its Affiliates) for its 1991, 1992 and 1993 taxable years and any resulting correlative adjustments, whether in the same or other periods (including state and local tax adjustments), (II) an Indemnitee's individual circumstances and (III) correlative adjustments resulting from Returns as originally filed, shall not be taken into account in determining Increased Taxes. (d) "Memorandum of Agreement" means the Memorandum of Agreement of the Partnership, amended and restated as of November 28, 1998. 2 (e) "Partnership Item" means, with respect to an Indemnitee, any item of income, gain, loss, deduction, credit or credit recapture directly relating to any activity of the Partnership or any Affiliate and required to be reflected in a Return filed by the Partnership or any Affiliate, but only if (i) the item is required to be reflected in a U.S. federal, state or local or other Return filed by such Indemnitee or (ii) such Indemnitee is required to make a Tax payment to any taxing authority in respect of such item. (f) "Plan of Incorporation" means the Plan of Incorporation proposed in March 1999 by the general partner of the Partnership and approved by the Schedule II Limited Partners having 51% of the interests in the profits of the Partnership, as amended from time to time. (g) "Return" means any report, information statement or return relating to, or required to be filed in connection with, any Tax. (h) "Tax" means any tax, including any interest, penalty or addition to tax, imposed by any U.S. federal, state, local or other government, or any agency or political subdivision thereof. (i) "Tax Rate" means, with respect to U.S. citizens and resident individuals, 35% or such other rate as the Company shall determine in its sole discretion as being the effective rate at which a plurality of the Indemnitees who are U.S. citizen and resident individuals will be subject to U.S. federal, state and local income tax on the amounts paid by the Company pursuant to this Agreement. The same Tax Rate shall apply to all such Indemnitees. The Company shall determine, in its sole discretion, the Tax Rate applicable to other Indemnitees, based on an estimation of the effective rate at which the Indemnitee will be subject to income tax on the amounts paid by the Company pursuant to this Agreement. (j) "Trigger Amount" means with respect to an Indemnitee the amount specified by the Company in writing to such Indemnitee. 2. Indemnity Obligation. (a) The Company hereby agrees to indemnify each Indemnitee against and to pay to, or on behalf of, each Indemnitee an amount equal to such Indemnitee's Increased Taxes. (b) If the Company determines, in its sole discretion, that the initial determination of Increased Taxes was incorrect (whether by reason of a subsequent examination by a Taxing authority or otherwise), the Company shall make an additional payment to the Indemnitee or the Indemnitee shall make a payment to the Company equal to the difference between (i) the payment previously made pursuant to Section 2(a) hereof and (ii) the payment that would have been made had such original determination been correct. If more than one -2- 3 payment is to be made pursuant to this Section 2(b), the later payments shall take into account the effect of any prior payments. (c) After the Company has made payments (as adjusted pursuant to Section 2(b) hereof) to, or on behalf of, an Indemnitee in respect of Increased Taxes that equal the Trigger Amount for such Indemnitee, any payments made by the Company pursuant to this Agreement in respect of any additional Increased Taxes shall equal the product of (i) such additional Increased Taxes and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the Tax Rate. (d) Notwithstanding anything to the contrary contained herein, the Company shall be permitted, but not required, to advance the full amount of Taxes immediately payable by an Indemnitee in circumstances in which the Increased Taxes are less than the initial Tax payment (e.g. because the Tax payment gives rise to a tax benefit in the same or subsequent years). The Company shall be permitted, if it so elects, to charge interest on any advance made pursuant to this Section 2(d) at the applicable U.S. federal rate described in Section 7872(f)(2)(B) of the Internal Revenue Code. 3. Procedural Matters. (a) Any Indemnitee who was a Schedule II Limited Partner on January 1, 1999 hereby agrees to permit the Company's internal tax department (or, if the Company elects, the Company's designee) to prepare and file such Indemnitee's personal income tax Returns (including any amended Returns) for all Covered Periods. The Indemnitee shall, if requested by the Company, pay to the Company the reasonable costs (including allocable internal costs) of preparing such Returns. Nothing in this Agreement shall require the Company to prepare personal income tax Returns for any Indemnitee. (b) The Company (or its designee) shall, at the Company's expense, represent the Partnership, each Affiliate and each Indemnitee in any examination of (or other proceeding relating to) the Partnership's or Affiliate's Returns for all taxable years and, in the case of an Indemnitee, in any examination of (or other proceeding relating to) the Indemnitee's Returns for any Covered Period to the extent the examination relates to a Partnership Item with respect to which the Company is required to indemnify the Indemnitee. Each Indemnitee shall, to the extent reasonably requested, promptly cooperate with the Company (or its designee) in such matters including, without limitation, by providing a duly executed Internal Revenue Service Form 2848 (or successor form) or similar form applicable for state, local or other Tax purposes. (c) To the extent permitted by law, the Company may make all Tax payments required to be made pursuant to this Agreement directly to the relevant taxing authority on behalf of the Indemnitee. To the extent the Company does not elect to make such Tax payments directly to the taxing authority, the Company shall either make any required payments to the Indemnitee or deliver to the Indemnitee a check made out in the amount of the required payments -3- 4 payable to the applicable taxing authority, in either case within thirty (30) days of receiving notice that the Indemnitee has paid Increased Taxes. (d) To the extent permitted by law, each Indemnitee shall direct the relevant taxing authority to pay any refund in respect of Taxes for any Covered Period directly to the Company and these refunds shall be credited against the Indemnitee's obligation to make payments to the Company under Sections 2(b), 2(d) and 3(e) (or returned to the Indemnitee if the Indemnitee does not owe any amounts to the Company). The Indemnitee shall notify the Company within thirty (30) days of the receipt by such Indemnitee of a refund of Taxes in respect of any Partnership Item for any Covered Period. (e) Any Indemnitee will forfeit any right to receive any payments under this Tax Indemnification Agreement (and promptly refund to the Company any amounts previously paid by the Company to, or on behalf of, such Indemnitee under this Agreement) if such Indemnitee (i) takes any action independent of the Tax Matters Partner (as defined in Section 6231(a)(7) of the Internal Revenue Code) or the Company on any examination or other proceeding in respect of the Partnership's or any Affiliate's Returns, (ii) takes any position in any Return or other Tax filing inconsistent with the position taken by the Partnership, the Company or any Affiliate, (iii) fails to cooperate fully with the Company or the Tax Matters Partner in pursuing any contest or other proceeding in respect of Taxes or fails to permit the Company or the Tax Matters Partner to file amended returns on behalf of such Indemnitee, if so requested by the Company, (iv) fails to provide the Company or its designee upon request with a duly executed Internal Revenue Service Form 2848 (or successor form) or similar form applicable for state, local or other Tax purposes or (v) fails to notify the Company of the receipt of a refund of Taxes as required by Section 3(d) hereof. (f) Each Indemnitee agrees to promptly and timely file Returns which are required to be filed by such Indemnitee and which include any Partnership Item, and to timely pay the Taxes shown as due on such Returns. To the extent permitted by law, each Indemnitee agrees to report any item on such Returns, and to take positions in any other Tax filings, in a manner consistent with the positions taken by the Partnership, the Company or an Affiliate. 4. Character of Payment. Any payments made by the Company pursuant to this Agreement to an Indemnitee other than a CAS Indemnitee who is not participating in the Plan of Incorporation shall be treated as additional payments made by the Company to the Indemnitee pursuant to the Plan of Incorporation. Any payments made by the Company pursuant to this Agreement to a CAS Indemnitee who is not participating in the Plan of Incorporation shall be treated as additional payments made by the Company to the CAS Indemnitee. 5. Determinations. The Company shall make all determinations necessary to administer this Agreement including, without limitation, determinations of (i) eligibility for payment, (ii) the amount of any payment to be made by the Company and (iii) the amount of any -4- 5 refund to be paid to the Company by an Indemnitee. Any such determinations by the Company shall, absent manifest error, be final, binding and conclusive on the Indemnitee. 6. Arbitration. (a) Without diminishing the finality and conclusive effect of any determination by the Company of any matter under this Agreement which is provided herein to be determined by the Company, and subject to the provisions of paragraphs (b) and (c) below, any dispute, controversy or claim arising out of or relating to or concerning the provisions of this Agreement shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. (b) Notwithstanding the provisions of Section 6(a), and in addition to its right to submit any dispute or controversy to arbitration, the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the City of New York, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily, or permanently enforcing the provisions of this Agreement, or to enforce an arbitration award, and, for the purposes of this Section 6(b), each Indemnitee (i) expressly consents to the application of Section 6(c) to any such action or proceeding, (ii) agrees that proof will not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate and (iii) irrevocably appoints the General Counsel of GS Inc. as the Indemnitee's agent for service of process in connection with any such action or proceeding, who shall promptly advise the Indemnitee of any such service of process. (c) (i) THE INDEMNITEE AND THE COMPANY HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO SECTION 6(a) HEREOF. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Indemnitee and the Company acknowledge that the forum designated by this Section 6(c) has a reasonable relation to this Agreement, and to the Indemnitee's relationship to the Company. Notwithstanding the foregoing, nothing herein shall preclude the Company from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Section 6. (ii) The agreement of the Indemnitee and the Company as to forum is independent of the law that may be applied in the action, and the Indemnitee and the Company agree to such forum even if the forum may under applicable law choose to apply non-forum law. The Indemnitee and the Company hereby waive, to the fullest extent permitted by applicable law, any objection which the Indemnitee or the Company now or hereafter may have to personal -5- 6 jurisdiction or to the laying of venue of any such suit, action or proceeding brought in any court referred to in Section 6(c)(i). The Indemnitee and the Company undertake not to commence any action arising out of or relating to or concerning this Agreement in any forum other than a forum described in this Section 6(c). The Indemnitee and the Company agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action, or proceeding in any such court shall be conclusive and binding upon the Indemnitee and the Company. 7. Notices. Any notice under this Agreement shall be in writing and shall be deemed to have been given upon the delivery or mailing thereof, as the case may be, if delivered personally or sent by certified mail, return receipt requested, postage prepaid, to the following address: Notice to the Company: The Goldman Sachs Group, Inc. 85 Broad Street New York, New York 10004 Attn.: Director of Taxation Notice to an Indemnitee: At the last address appearing on the Company's business records. 8. Indemnitee Addresses. Each Indemnitee hereby agrees to provide prompt notice to the Company of any change in the address and telephone and telecopy numbers of such Indemnitee. 9. Entire Agreement. This Agreement represents the entire understanding between the Company and each Indemnitee with respect to the subject matter hereof and supersedes all prior negotiations among the parties hereto with respect to such subject matter. 10. Amendments. The Company will be permitted to amend this Agreement in any respect, so long as such amendment does not materially adversely affect the amount which an Indemnitee is entitled to receive from the Company pursuant to this Agreement. 11. Miscellaneous. (a) This Agreement shall inure solely to the benefit of GS Inc. and its successors and assigns and the Indemnitees and their respective heirs, executors, administrators and successors, and no other person shall acquire or have any right under or by virtue of this Agreement. (b) THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. -6- 7 (c) If any provision of this Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. (d) With respect to KAA, such Indemnitee's Increased Taxes shall include Increased Taxes of Royal Hawaiian Shopping Center, Inc. attributable to periods during which Royal Hawaiian Shopping Center, Inc. was a partner in the Partnership. With respect to an Indemnitee that is treated as a partnership or other flow-through entity for United States tax purposes, such Indemnitee's Increased Taxes shall, to the extent determined by the Company in its sole discretion, include Taxes payable by direct or indirect holders of interests in such Indemnitee, and the other provisions of this Agreement shall apply, where relevant, to such direct or indirect holders of interests in the Indemnitee. -7- 8 In witness whereof, the Company and each Indemnitee have executed this Agreement as of the day and year first above written. THE GOLDMAN SACHS GROUP, INC. By:__________________________________ Name: Title: SUMITOMO BANK CAPITAL MARKETS, INC. By:__________________________________ Name: Title: KAMEHAMEHA ACTIVITIES ASSOCIATION By:__________________________________ Name: Title: SCHEDULE I LIMITED PARTNERS: [Names of partners] -8- 9 SCHEDULE II LIMITED PARTNERS: [Names of partners] -16- 10 FORMER PARTNERS: [Names of partners] -21- EX-10.26 24 FORM OF SHAREHOLDERS' AGREEMENT 1 EXHIBIT 10.26 SHAREHOLDERS' AGREEMENT This Shareholders' Agreement (this "Agreement"), among The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), and the Covered Persons listed on Appendix A hereto, as such Appendix A may be amended from time to time pursuant to the provisions hereof. WITNESSETH: WHEREAS, the Covered Persons are beneficial owners of shares of Common Stock, par value $0.01 per share, of GS Inc. (the "Common Stock"). WHEREAS, the Covered Persons desire to address herein certain relationships among themselves with respect to the voting and disposition of their shares of Common Stock and various other matters and desire to give to the Shareholders' Committee (hereinafter defined) the power to enforce their agreements with respect thereto. NOW, THEREFORE, in consideration of the premises and of the mutual agreements, covenants and provisions herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND OTHER MATTERS Section 1.1 Definitions. The following words and phrases as used herein shall have the following meanings, except as otherwise expressly provided or unless the context otherwise requires: (a) A Covered Person "acquires" Covered Shares when such Covered Person first acquires beneficial ownership over such Covered Shares. (b) This "Agreement" shall have the meaning ascribed to such term in the Recitals. (c) A "beneficial owner" of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose, or to direct the disposition of, such security, but for purposes of this Agreement a person shall not be deemed a beneficial owner of 2 (A) Common Stock solely by virtue of the application of Exchange Act Rule 13d-3(d) or Exchange Act Rule 13d-5 as in effect on the date hereof (B) Common Stock solely by virtue of the possession of the legal right to vote securities under applicable state or other law (such as by proxy or power of attorney) or (C) Common Stock held of record by a "private foundation" subject to the requirements of Section 509 of the Code. "Beneficially own" and "beneficial ownership" shall have correlative meanings. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the applicable rulings and regulations thereunder. (e) "Common Stock" shall have the meaning ascribed to such term in the Recitals. (f) "Company" shall mean GS Inc., together with its Subsidiaries. (g) "Continuing Provisions" shall have the meaning ascribed to such term in Section 7.1(b). (h) "Covered Persons" shall mean those persons from time to time listed on Appendix A hereto, and all persons who may become parties to this Agreement and whose name is required to be listed on Appendix A hereto, in each case in accordance with the terms hereof. (i) A Covered Person's "Covered Shares" shall mean any shares of Common Stock acquired from the Company by such Covered Person and beneficially owned by such Covered Person at the time in question, but shall not include (i) Common Stock beneficially owned as a result of (A) an acquisition, directly or indirectly, from the Company in an underwritten public offering or (B) conversion of securities convertible into Common Stock, where beneficial ownership of the convertible securities was acquired in a transaction described in clause (A) above, (ii) Excluded Shares (as defined in the Plan of Incorporation), (iii) any other Common Stock excluded from the definition of Covered Shares by action of the Board of Directors of GS Inc. prior to the IPO Date or (iv) any other Common Stock acquired under a deferred compensation or employee benefit plan and excluded from the definition of Covered Shares by action of the Board of Directors of GS Inc. and the Shareholders' Committee after the IPO Date. "Covered Shares" shall also include the securities that are defined to be "Covered Shares" in Section 6.4. -2- 3 (j) The term "employee" shall mean any person employed by the Company who receives compensation, other than a person receiving compensation in the nature of a consulting fee, a pension or a retainer. (k) "Employee Covered Person" shall mean a Covered Person who is an employee of the Company at the time in question. (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended to date and as further amended from time to time. (m) A reference to an "Exchange Act Rule" shall mean such rule or regulation of the Securities and Exchange Commission under the Exchange Act, as in effect from time to time or as replaced by a successor rule thereto. (n) "General Transfer Restrictions" shall have the meaning ascribed to such term in Section 2.2 hereof. (o) "GS Inc." shall have the meaning ascribed to such term in the Recitals. (p) "IPO Date" shall mean the closing date of the initial public offering of the Common Stock. (q) "Permitted Basket Transaction" shall mean the purchase or sale of, or the establishment of a long or short position in, a basket or index of securities (or of a derivative financial instrument with respect to a basket or index of securities) that includes securities of GS Inc., in each case if such purchase, sale or establishment is permitted under the Company's policy on hedging with respect to securities of GS Inc. as announced from time to time. (r) A "person" shall include, as applicable, any individual, estate, trust, corporation, partnership, limited liability company, unlimited liability company, foundation, association or other entity. (s) "Plan of Incorporation" shall mean the plan for the incorporation and reorganization of the business of The Goldman Sachs Group, L.P. approved by the Schedule II Limited Partners thereof on March 8, 1999, as amended from time to time. (t) "PLP Transfer Restrictions" shall have the meaning ascribed to such term in Section 2.1 hereof. -3- 4 (u) "Preliminary Vote" shall have the meaning ascribed to such term in Section 4.1 hereof. (v) "Restricted Person" shall mean any person that is not (i) a Covered Person or (ii) a director, officer or employee of the Company acting in such person's capacity as a director, officer or employee; provided, however, that for purposes of Section 6.1(c) only, the term "Restricted Person" shall not include Sumitomo Bank Capital Markets, Inc. and/or Kamehameha Activities Association to the extent that either or both of such parties are included in such group solely by virtue of their being parties to Voting Agreements, each dated as of May [__], 1999, with GS Inc., as amended from time to time. (w) "Shareholders' Committee" shall mean the body constituted to administer the terms and provisions of this Agreement pursuant to Article V hereof. (x) "Sole Beneficial Owner" shall mean a person who is the beneficial owner of Covered Shares, who does not share beneficial ownership of such Covered Shares with any other person (other than pursuant to this Agreement or applicable community property laws) and who is the only person (other than pursuant to applicable community property laws) with a direct economic interest in the Covered Shares. An economic interest of the Company as pledgee shall be disregarded for this purpose. (y) "Subsidiary" shall mean any person in which GS Inc. owns, directly or indirectly, a majority of the equity economic or voting ownership interest. (z) "The Goldman Sachs Defined Contribution Plan" shall mean The Goldman Sachs Defined Contribution Plan adopted by the Board of Directors of GS Inc. on May [__], 1999, as amended or supplemented from time to time, and any successors to such Plan. (aa) "Transfer" shall mean any sale, transfer, pledge, hypothecation or other disposition, whether direct or indirect, whether or not for value, and shall include any disposition of the economic or other risks of ownership of Common Stock, including short sales of securities of GS Inc., option transactions (whether physical or cash settled) with respect to securities of GS Inc., use of equity or other derivative financial instruments relating to securities of GS Inc. and other hedging arrangements with respect to securities of GS Inc., in each such case other than Permitted Basket Transactions. Notwithstanding the foregoing, bona fide pledges of Common Stock approved by GS Inc. and foreclosures pursuant thereto shall not constitute Transfers within the meaning of this definition. -4- 5 (ab) "Transfer Restrictions" shall mean the General Transfer Restrictions and the PLP Transfer Restrictions. (ac) "vote" shall include actions taken or proposed to be taken by written consent. (ad) "Voted Covered Shares" shall have the meaning ascribed to such term in Section 4.2(a). (ae) "Voting Interests" shall have the meaning ascribed to such term in Section 4.1 hereof. Section 1.2 Gender. For the purposes of this Agreement, the words "he," "his" or "himself" shall be interpreted to include the masculine, feminine and corporate, other entity or trust form. ARTICLE II LIMITATIONS ON TRANSFER OF SHARES Section 2.1 General. Each Covered Person agrees that such Covered Person shall not Transfer any Covered Shares beneficially owned by such Covered Person, except in accordance with all of the following: (a) the terms of this Agreement, (b) the restrictions on transferability of Common Stock contained in the Plan of Incorporation (the "PLP Transfer Restrictions"), if applicable, and (c) the terms of any other contract or agreement with the Company or other undertaking by which such Covered Person is bound and to which such Covered Shares are subject. Section 2.2 General Transfer Restrictions. Each Covered Person agrees that for so long as such Covered Person is an Employee Covered Person such Covered Person shall at all times be the Sole Beneficial Owner of at least that number of Covered Shares which equals 25% of the aggregate number of Covered Shares (a) beneficially owned by such Covered Person at the time such Covered Person became a Covered Person and (b) beneficial ownership of which is acquired by such Covered Person thereafter, with no reduction in such aggregate number for Covered Shares disposed of by such Covered Person (the "General Transfer Restrictions"). For purposes of this Section 2.2 only, Covered Shares held by the trust underlying The Goldman Sachs Defined Contribution Plan and allocated to a Covered Person shall not be deemed to be beneficially owned by such Covered Person until such Covered Shares are distributed to such Covered Person in accordance with the terms of The Goldman Sachs Defined Contribution Plan. For purposes of this Section 2.2 only, when a delivery of Covered Shares is made by GS Inc. or by the trustee of the trust underlying The Goldman Sachs -5- 6 Defined Contribution Plan to a Covered Person net of Covered Shares to be withheld for tax purposes or to be paid for the receipt of such delivered Covered Shares, the recipient of such delivered number of Covered Shares shall be treated as if such Covered Person acquired the total (gross) number of Covered Shares to be delivered before giving effect to any such withholding or payment. Section 2.3 Compliance with Certain Restrictions. (a) Each Covered Person agrees that, with respect to all Common Stock beneficially owned by such Covered Person, such Covered Person shall comply with the restrictions on transfer imposed by Section 6(e) of the Underwriting Agreement, dated as of May [__], 1999, among GS Inc. and the several underwriters named therein, whether or not said Section refers to such Covered Person by name. (b) Each Employee Covered Person agrees that, with respect to all Common Stock beneficially owned by such Employee Covered Person, and each Covered Person who is not an Employee Covered Person agrees that, with respect to all Covered Shares beneficially owned by such Covered Person which could not then be Transferred without contravening the PLP Transfer Restrictions, at the request of GS Inc. such Covered Person shall comply with any future restrictions on transfer imposed by or with the consent of GS Inc. from time to time in connection with any future offerings of securities of GS Inc., whether by GS Inc. or by any securityholder of GS Inc. and whether or not such restrictions on transfer refer to such Covered Person by name. (c) Each Employee Covered Person agrees that, with respect to all Common Stock beneficially owned by such Employee Covered Person, such Employee Covered Person will comply with any restrictions imposed by the Company from time to time to enable the Company or any party to an agreement with the Company to account for a business combination by the pooling of interests method. Section 2.4 Holding of Covered Shares in Custody and in Nominee Name; Legend on Certificates; Entry of Stop Transfer Orders. (a) Each Covered Person understands and agrees that all Covered Shares beneficially owned by each Employee Covered Person and all Covered Shares which could not then be Transferred without contravening the PLP Transfer Restrictions beneficially owned by each Covered Person who is not an Employee Covered Person (in each case other than Covered Shares held of record by a trustee in a compensation or benefit plan administered by the Company and other -6- 7 Covered Shares that have been pledged to the Company to secure the performance of such Covered Person's obligations under any agreement with the Company) shall be registered in the name of a nominee for such Covered Person and shall be held in the custody of a custodian until otherwise determined by the Shareholders' Committee or the Board of Directors of GS Inc. or until such time as such Covered Shares are released pursuant to Section 2.4(e) or Section 2.4(f) hereof (whichever occurs first), and each Covered Person agrees to assign, endorse and register for transfer into such nominee name or deliver to such custodian any such Covered Shares which are not so registered or so held, as the case may be. The form of the custody agreement and the identity of the custodian and nominee must be satisfactory in form and substance to the Shareholders' Committee and GS Inc. (b) Whenever the nominee holder shall receive any dividend or other distribution upon any Covered Shares other than in Covered Shares, the Shareholders' Committee will give or cause to be given notice or direction to the applicable nominee and/or custodian referred to in paragraph (a) to permit the prompt distribution of such dividend or distribution to the beneficial owner of such Covered Shares, net of any tax withholding amounts required to be withheld by the nominee, unless the distribution of such dividend or distribution is restricted by the terms of another agreement between the Covered Person and the Company known to the Shareholders' Committee. (c) Each Covered Person understands and agrees that any outstanding certificate representing Covered Shares beneficially owned by an Employee Covered Person or representing Covered Shares which could not then be Transferred without contravening the PLP Transfer Restrictions beneficially owned by a Covered Person who is not an Employee Covered Person, and any agreement or other instrument evidencing restricted stock units, options or other rights to receive or acquire Covered Shares beneficially owned by such Covered Person, may bear a legend noted conspicuously on each such certificate, agreement or other instrument reading substantially as follows: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF EITHER OR BOTH OF A SHAREHOLDERS' AGREEMENT AMONG THE GOLDMAN SACHS GROUP, INC. ("GS INC.") AND THE PERSONS NAMED THEREIN AND A PLAN OF INCORPORATION OF THE GOLDMAN SACHS GROUP, L.P., COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF GS INC. AND WHICH, AMONG OTHER MATTERS, PLACE RESTRICTIONS ON THE DISPOSITION AND VOTING OF SUCH SECURITIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE -7- 8 SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED, PARTICIPATED, HYPOTHECATED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE THEREWITH." (d) Each Covered Person agrees and consents to the entry of stop transfer orders against the transfer of Covered Shares subject to Transfer Restrictions except in compliance with this Agreement. (e) The Shareholders' Committee shall develop procedures for releasing all Covered Shares of each Covered Person who is not an Employee Covered Person which could then be Transferred without contravening any Transfer Restrictions to or at the direction of such Covered Person free and clear of all restrictions and legends described in this Section 2.4. (f) The Shareholders' Committee shall also develop procedures for releasing (free and clear of all restrictions and legends described in this Section 2.4) a specified number of Covered Shares of an Employee Covered Person upon the request of any Covered Person and to or at the direction of such Employee Covered Person, provided that such request is accompanied by a certificate of such requesting Covered Person (i) indicating such requesting Covered Person's intention to Transfer promptly such specified number of Covered Shares and (ii) establishing that such specified number of Covered Shares are then permitted to be Transferred without contravening any Transfer Restrictions (which evidence must be satisfactory to the Shareholders' Committee). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARTIES Each Covered Person severally represents and warrants for himself that: (a) Such Covered Person has (and with respect to Covered Shares to be acquired, will have) good, valid and marketable title to the Covered Shares, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement, the Plan of Incorporation or another agreement with the Company by which such Covered Person is bound and to which the Covered Shares are subject; and (b) (if the Covered Person is other than a natural person, with respect to subsections (i) through (x), and if the Covered Person is a natural person, with respect to subsections (iv) through (x) only): (i) such Covered Person is duly organized and validly existing in good standing under the laws of the jurisdiction -8- 9 of such Covered Person's formation; (ii) such Covered Person has full right, power and authority to enter into and perform this Agreement; (iii) the execution and delivery of this Agreement and the performance of the transactions contemplated herein have been duly authorized, and no further proceedings on the part of such Covered Person are necessary to authorize the execution, delivery and performance of this Agreement; and this Agreement has been duly executed by such Covered Person; (iv) the person signing this Agreement on behalf of such Covered Person has been duly authorized by such Covered Person to do so; (v) this Agreement constitutes the legal, valid and binding obligation of such Covered Person, enforceable against such Covered Person in accordance with its terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles); (vi) neither the execution and delivery of this Agreement by such Covered Person nor the consummation of the transactions contemplated herein conflicts with or results in a breach of any of the terms, conditions or provisions of any agreement or instrument to which such Covered Person is a party or by which the assets of such Covered Person are bound (including without limitation the organizational documents of such Covered Person, if such Covered Person is other than a natural person), or constitutes a default under any of the foregoing, or violates any law or regulation; (vii) such Covered Person has obtained all authorizations, consents, approvals and clearances of all courts, governmental agencies and authorities, and any other person, if any (including the spouse of such Covered Person with respect to the interest of such spouse in the Covered Shares of such Covered Person if the consent of such spouse is required), required to permit such Covered Person to enter into this Agreement and to consummate the transactions contemplated herein; (viii) there are no actions, suits or proceedings pending, or, to the knowledge of such Covered Person, threatened against or affecting such Covered Person or such Covered Person's assets in any court or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which, if adversely determined, would impair the ability of such Covered Person to perform this Agreement; (ix) the performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality to which such Covered Person is subject; and (x) no statement, representation or warranty made by such Covered Person in this Agreement, nor any information provided by such Covered Person for inclusion in a report filed pursuant to Section 6.3 hereof or in a registration statement filed by GS Inc. contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements, representations or warranties contained herein or information provided therein not misleading. -9- 10 ARTICLE IV VOTING AGREEMENT Section 4.1 Preliminary Vote of Covered Persons. Prior to any vote of the stockholders of GS Inc. there shall be a separate, preliminary vote, on each matter upon which a stockholder vote is proposed to be taken (each, a "Preliminary Vote"), of the Covered Shares beneficially owned by (a) through December 31, 2000, all Covered Persons, and (b) on and after January 1, 2001, the Employee Covered Persons (including in both clause (a) and (b) and for the purpose of this Article IV shares of Common Stock held by the trust underlying The Goldman Sachs Defined Contribution Plan and allocated to Covered Persons (in the case of clause (a)) and Employee Covered Persons (in the case of clause (b)) who are participants therein) (such Covered Shares at any such time, the "Voting Interests"). The Preliminary Vote shall be conducted pursuant to procedures established by the Shareholders' Committee. Section 4.2 Voting of the Voting Interests. (a) Other than in elections of directors, every Covered Share beneficially owned by an Employee Covered Person, every Covered Share which could not then be Transferred without contravening the PLP Transfer Restrictions beneficially owned by any Covered Person who is not an Employee Covered Person and every Covered Share held by the trust underlying The Goldman Sachs Defined Contribution Plan and allocated to a Covered Person (collectively, the "Voted Covered Shares") shall be voted in accordance with the vote of the majority of the votes cast on the matter in question by the Voting Interests in the Preliminary Vote. (b) In elections of directors, every Voted Covered Share shall be voted in favor of the election of those persons, equal in number to the number of such positions to be filled, receiving the highest numbers of votes cast by the Voting Interests in the Preliminary Vote. Section 4.3 Irrevocable Proxy and Power of Attorney. (a) By his signature hereto, each Covered Person hereby gives the Shareholders' Committee, with full power of substitution and resubstitution, an irrevocable proxy to vote or otherwise act with respect to all of the Covered Person's Voted Covered Shares, as fully, to the same extent and with the same effect as such Covered Person might or could do under any applicable laws or regulations governing the rights and powers of stockholders of a Delaware corporation and (i) directs that such proxy shall be voted in connection with such -10- 11 matters as are the subject of a Preliminary Vote as provided in this Agreement -- in accordance with such Preliminary Vote, (ii) authorizes the holder of such proxy to vote on such other matters as may come before a meeting of stockholders of GS Inc. or any adjournment thereof and as are related, directly or indirectly, to the matter which was the subject of the Preliminary Vote -- as the aforementioned persons see fit in their discretion but in a manner consistent with the Preliminary Vote, and (iii) authorizes the holder of such proxy to vote on such other matters as may come before a meeting of stockholders of GS Inc. or any adjournment thereof (including matters related to adjournment thereof) -- as the aforementioned persons see fit in their discretion but not to cast any vote under this clause (iii) which is inconsistent with the Preliminary Vote or which would achieve an outcome that would frustrate the intent of the Preliminary Vote. Each such Covered Person hereby affirms that this proxy is given as a term of this Agreement and as such is coupled with an interest and is irrevocable. It is further understood and agreed by each such Covered Person that this proxy may be exercised by the aforementioned persons with respect to all Voted Covered Shares of such Covered Person for the period beginning on the date hereof and ending on the date this Agreement shall have been terminated pursuant to Section 7.1(a) hereof. (b) By his signature hereto, each Covered Person appoints the Shareholders' Committee, with full power of substitution and resubstitution, his true and lawful attorney-in-fact to direct, in accordance with the provisions of this Article IV, the voting of any Voted Covered Shares held of record by any other person but beneficially owned by such Covered Person (including Voted Covered Shares held by the trust underlying The Goldman Sachs Defined Contribution Plan and allocated to such Covered Person), granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such attorney or attorneys may deem necessary, advisable or appropriate to carry out fully the intent of Section 4.2 and Section 4.3(a) as such Covered Person might or could do personally, hereby ratifying and confirming all acts and things that such attorney or attorneys may do or cause to be done by virtue of this power of attorney. It is understood and agreed by each such Covered Person that this appointment, empowerment and authorization may be exercised by the aforementioned persons with respect to all Voted Covered Shares of such Covered Person, and held of record by another person, for the period beginning on the date hereof and ending on the date this Agreement shall have been terminated pursuant to Section 7.1(a) hereof. -11- 12 ARTICLE V SHAREHOLDERS' COMMITTEE Section 5.1 Constituency. The Shareholders' Committee shall at any time consist of each of those individuals who are both Employee Covered Persons and members of the Board of Directors of GS Inc. and who agree to serve as members of the Shareholders' Committee. Section 5.2 Additional Members. If there are less than three individuals who are both Employee Covered Persons and members of the Board of Directors of GS Inc. and who agree to serve as members of the Shareholders' Committee, the Shareholders' Committee shall consist of each such individual plus such additional individuals who are Employee Covered Persons and who are selected pursuant to procedures established by the Shareholders' Committee as shall assure a Shareholders' Committee of not less than three members who are Employee Covered Persons. Section 5.3 Determinations of and Actions by the Shareholders' Committee. (a) All determinations necessary or advisable under this Agreement (including determinations of beneficial ownership) shall be made by the Shareholders' Committee, whose determinations shall be final and binding. The Shareholders' Committee's determinations under this Agreement and the Plan of Incorporation and actions (including waivers) hereunder and thereunder need not be uniform and may be made selectively among Covered Persons (whether or not such Covered Persons are similarly situated). (b) Each Covered Person recognizes and agrees that the members of the Shareholders' Committee in acting hereunder shall at all times be acting in their individual capacities and not as directors or officers of the Company and in so acting or failing to act shall not have any fiduciary duties to the Covered Persons as a member of the Shareholders' Committee by virtue of the fact that one or more of such members may also be serving as a director or officer of the Company or otherwise. (c) The Shareholders' Committee shall act through a majority vote of its members and such actions may be taken in person at a meeting or by a written instrument signed by all of the members. Section 5.4 Certain Obligations of the Shareholders' Committee. The Shareholders' Committee shall be obligated (a) to attend as proxy, or cause a person designated by it and acting as lawful proxy to attend as proxy, each meeting of the -12- 13 stockholders of GS Inc. and to vote or to cause such designee to vote the Covered Shares over which it has the power to vote in accordance with the results of the Preliminary Vote as set forth in Section 4.2, and (b) to develop procedures governing Preliminary Votes and other votes and actions to be taken pursuant to this Agreement. ARTICLE VI OTHER AGREEMENTS OF THE PARTIES Section 6.1 Standstill Provisions. Each Covered Person agrees that such Covered Person shall not, directly or indirectly, alone or in concert with any other person, (a) make, or in any way participate in, any "solicitation" of "proxies" (as such terms are defined in Exchange Act Rule 14a-1) relating to any securities of the Company to or with any Restricted Person; (b) deposit any Covered Shares in a voting trust or subject any Covered Shares to any voting agreement or arrangement that includes as a party any Restricted Person; (c) form, join or in any way participate in a group (as contemplated by Exchange Act Rule 13d-5(b)) with respect to any securities of the Company (or any securities the ownership of which would make the owner thereof a beneficial owner of securities of the Company (for this purpose as determined by Exchange Act Rule 13d-3 and Exchange Act Rule 13d-5)) that includes as a party any Restricted Person; (d) make any announcement subject to Exchange Act Rule 14a-1(l)(2)(iv) to any Restricted Person; (e) initiate or propose any "shareholder proposal" subject to Exchange Act Rule 14a-8; (f) together with any Restricted Person, make any offer or proposal to acquire any securities or assets of GS Inc. or any of its Subsidiaries or solicit or propose to effect or negotiate any form of business combination, restructuring, recapitalization or other extraordinary transaction involving, or any change in control of, GS Inc., its Subsidiaries or any of their respective securities or assets; (g) together with any Restricted Person, seek the removal of any directors or a change in the composition or size of the board of directors of GS Inc.; (h) together with any Restricted Person, in any way participate in a call for any special meeting of the stockholders of GS Inc.; or (i) assist, advise or encourage any person with respect to, or seek to do, any of the foregoing. Section 6.2 Expenses. (a) GS Inc. shall be responsible for all expenses of the members of the Shareholders' Committee incurred in the operation and administration of this Agreement, including expenses of proxy solicitation for and tabulation of the Preliminary Vote, expenses incurred in preparing appropriate filings and correspondence with the Securities and Exchange Commission, lawyers', accountants', agents', consultants', experts', investment banking and other professionals' fees, expenses incurred in enforcing the provisions of this Agreement, expenses incurred in maintaining any necessary or appropriate books and records relating to this -13- 14 Agreement and expenses incurred in the preparation of amendments to and waivers of provisions of this Agreement. (b) Each Covered Person shall be responsible for all expenses of such Covered Person incurred in connection with the compliance by such Covered Person with his obligations under this Agreement, including expenses incurred by the Shareholders' Committee or GS Inc. in enforcing the provisions of this Agreement relating to such obligations. Section 6.3 Filing of Schedule 13D or 13G. (a) In the event that a Covered Person is required to file a report of beneficial ownership on Schedule 13D or 13G with respect to the Covered Shares beneficially owned by him (for this purpose as determined by Exchange Act Rule 13d-3 and Exchange Act Rule 13d-5), such Covered Person agrees that, unless otherwise directed by the Shareholders' Committee, such Covered Person will not file a separate such report, but will file a report together with the other Covered Persons, containing the information required by the Exchange Act, and such Covered Person understands and agrees that such report shall be filed on his behalf by the Shareholders' Committee or any member thereof. Such Covered Person shall cooperate fully with the other Covered Persons and the Shareholders' Committee to achieve the timely filing of any such report and any amendments thereto as may be required, and such Covered Person agrees that any information concerning such Covered Person which such Covered Person furnishes in connection with the preparation and filing of such report will be complete and accurate. (b) By his signature hereto, each Covered Person appoints the Shareholders' Committee and each member thereof, with full power of substitution and resubstitution, his true and lawful attorney-in-fact to execute such reports and any and all amendments thereto and to file such reports with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such attorney or attorneys may deem necessary, advisable or appropriate to carry out fully the intent of this Section 6.3 as such Covered Person might or could do personally, hereby ratifying and confirming all acts and things that such attorney or attorneys may do or cause to be done by virtue of this power of attorney. Each Covered Person hereby further designates such attorneys as such Covered Person's agents authorized to receive notices and communications with respect to such reports and any amendments thereto. It is understood and agreed by each such Covered Person that this appointment, empowerment and authorization may be -14- 15 exercised by the aforementioned persons for the period beginning on the date hereof and ending on the date such Covered Person is no longer subject to the provisions of this Agreement (and shall extend thereafter for such time as is required to reflect that such Covered Person is no longer a party to this Agreement). Section 6.4 Adjustment upon Changes in Capitalization; Adjustments upon Changes of Control; Representatives, Successors and Assigns. (a) In the event of any change in the outstanding Common Stock by reason of stock dividends, stock splits, reverse stock splits, spin-offs, split-ups, recapitalizations, combinations, exchanges of shares and the like, the term "Covered Shares" shall refer to and include the securities received or resulting therefrom, but only to the extent such securities are received in exchange for or in respect of Covered Shares. Upon the occurrence of any event described in the immediately preceding sentence, the Shareholders' Committee shall make such adjustments to or interpretations of the restrictions of Section 2.2 (and, if it so determines, any other provisions hereof) as it shall deem necessary or desirable to carry out the intent of such provision(s). If the Shareholders' Committee deems it desirable, any such adjustments may take effect from the record date, the "when issued trading date", the "ex dividend date" or another appropriate date. (b) In the event of any business combination, restructuring, recapitalization or other extraordinary transaction involving GS Inc., its Subsidiaries or any of their respective securities or assets as a result of which the Covered Persons shall hold voting securities of a person other than GS Inc., the Covered Persons agree that this Agreement shall also continue in full force and effect with respect to such voting securities of such other person formerly representing or distributed in respect of Covered Shares of GS Inc., and the terms "Covered Shares," "Common Stock" and "Voting Interests," and "GS Inc." and "Company," shall refer to such voting securities formerly representing or distributed in respect of Covered Shares of GS Inc. and such person, respectively. Upon the occurrence of any event described in the immediately preceding sentence, the Shareholders' Committee shall make such adjustments to or interpretations of the restrictions of Section 2.2 (and, if it so determines, any other provisions hereof) as it shall deem necessary or desirable to carry out the intent of such provision(s). If the Shareholders' Committee deems it desirable, any such adjustments may take effect from the record date or another appropriate date. (c) This Agreement shall be binding upon and inure to the benefit of the respective legatees, legal representatives, successors and assigns of the Covered Persons (and GS Inc. in the event of a transaction described in Section 6.4(b) -15- 16 hereof); provided, however, that a Covered Person may not assign this Agreement or any of his rights or obligations hereunder without the prior written consent of GS Inc., and any assignment without such consent by a Covered Person shall be void; and provided further that no assignment of this Agreement by GS Inc. or to a successor of GS Inc. (by operation of law or otherwise) shall be valid unless such assignment is made to a person which succeeds to the business of GS Inc. substantially as an entirety. Section 6.5 Further Assurances. Each Covered Person agrees to execute such additional documents and take such further action as may be reasonably necessary to effect the provisions of this Agreement. ARTICLE VII MISCELLANEOUS Section 7.1 Term of the Agreement; Termination of Certain Provisions. (a) The term of this Agreement shall continue until the first to occur of January 1, 2050 and such time as this Agreement is terminated by the affirmative vote of not less than 66 2/3% of the outstanding Voting Interests. If this Agreement is terminated prior to the expiration or termination of the restrictions on transfer referred to in Section 2.3(a), such restrictions on transfer shall continue to apply in accordance with the provisions of Section 6(e) of the Underwriting Agreement referred to in Section 2.3(a) unless waived or terminated as provided in said Underwriting Agreement. If this Agreement is terminated prior to the expiration or termination of the PLP Transfer Restrictions, the PLP Transfer Restrictions shall continue to apply in accordance with the provisions of the Plan of Incorporation unless waived or terminated as provided in the Plan of Incorporation. (b) Unless this Agreement is theretofore terminated pursuant to Section 7.1(a) hereof, any Covered Person who ceases to be an employee for any reason other than death shall no longer be bound by the provisions of Section 2.2 and Section 6.1 hereof (unless such Covered Person is subject to the PLP Transfer Restrictions in which case Section 6.1 shall continue to apply until December 31, 2000) but shall be bound by all other provisions of this Agreement until such time as such Covered Person holds all Covered Shares free from PLP Transfer Restrictions. Thereafter, such Covered Person shall no longer be bound by the provisions of this Agreement (other than Sections 5.3, 6.2, 6.3, 6.5, 7.4, 7.5, 7.6, 7.8, 7.10 and 7.11 (the "Continuing Provisions")), and such Covered Person's name shall be removed from Appendix A to this Agreement. -16- 17 (c) Unless this Agreement is theretofore terminated pursuant to Section 7.1(a) hereof, the estate of any Covered Person who ceases to be an employee by reason of death or any Covered Person who ceases to be an employee for any reason other than death and who subsequently dies shall from and after the date of such death be bound only by the restrictions on transfer imposed by Section 2.3(a) hereof and the Continuing Provisions; and upon the expiration of the restrictions in Section 2.3(a), the estate of such Covered Person shall no longer be bound by the provisions of this Agreement (other than the Continuing Provisions), and such Covered Person's name shall be removed from Appendix A to this Agreement. Section 7.2 Amendments. (a) Except as provided in this Section 7.2, provisions of this Agreement may be amended only by the affirmative vote of a majority of the outstanding Voting Interests. (b) This Section 7.2(b), Section 7.1(a) and Section 7.3(a)(i) may be amended only by the affirmative vote of 66 2/3% of the outstanding Voting Interests. Any amendment of any other provision of this Agreement that would have the effect, in connection with a tender or exchange offer by any person other than the Company as to which the Board of Directors of GS Inc. is recommending rejection, of permitting Transfers which would not be permitted by the terms of this Agreement as theretofore in effect shall also require the affirmative vote of 66 2/3% of the outstanding Voting Interests. (c) This Section 7.2(c), Article V, Section 7.3(b) and any other provision the amendment (or addition) of which has the effect of materially changing the rights or obligations of the Shareholders' Committee hereunder may be amended (or added) either (i) with the approval of the Shareholders' Committee and the affirmative vote of a majority of the Voting Interests or (ii) by the affirmative vote of 66 2/3% of the outstanding Voting Interests. (d) In addition to any other vote or approval that may be required under this Section 7.2, any amendment to the General Transfer Restrictions that would make such General Transfer Restrictions materially more onerous to a Covered Person will not be enforceable against that Covered Person unless that Covered Person has consented to such amendment. (e) In addition to any other vote or approval that may be required under this Section 7.2, any amendment of this Agreement that has the effect of changing the obligations of GS Inc. hereunder to make such obligations materially more onerous to GS Inc. shall require the approval of GS Inc. -17- 18 (f) In addition to any other vote or approval that may be required under this Section 7.2, any amendment that has the effect of amending the provisions of Section 2.3(a), 2.3(b) or 2.3(c) shall require the approval of GS Inc. (g) Each Covered Person understands that it is intended that each managing director of the Company will be a Covered Person under this Agreement or will become a Covered Person upon his appointment to such position, and each Covered Person further understands that from time to time certain other persons may become Covered Persons and certain Covered Persons will cease to be bound by the provisions of this Agreement pursuant to the terms hereof. Accordingly, this Agreement may be amended by action of the Shareholders' Committee from time to time and without the approval of any other person, but solely for the purposes of (i) adding to Appendix A such persons as shall be made party to this Agreement pursuant to the terms hereof or shall (A) be appointed managing directors of the Company and (B) execute a counterpart of the signature page of this Agreement, such addition to be effective as of the time of such action or appointment and (ii) removing from Appendix A such persons as shall cease to be bound by the provisions of this Agreement pursuant to Sections 7.1(b) or (c) hereof, which additions and removals shall be given effect from time to time by appropriate changes to Appendix A. Section 7.3 Waivers. The Transfer Restrictions and the other provisions of this Agreement may be waived only as provided in this Section 7.3. (a) The holders of the outstanding Voting Interests may waive the Transfer Restrictions and the other provisions of this Agreement without the consent of any other person as follows: (i) The Transfer Restrictions may be waived, in connection with any tender or exchange offer by any person other than the Company as to which the Board of Directors of GS Inc. is recommending rejection at the time of such waiver, only by the affirmative vote of 66 2/3% of the outstanding Voting Interests; (ii) The Transfer Restrictions may be waived, in connection with any tender or exchange offer by any person other than the Company as to which the Board of Directors of GS Inc. is recommending acceptance or is not making any recommendation with respect to acceptance at the time of such waiver, only by the affirmative vote of a majority of the outstanding Voting Interests; -18- 19 (iii) The Transfer Restrictions may be waived, in connection with any tender or exchange offer by the Company, by the affirmative vote of a majority of the outstanding Voting Interests; (iv) In all circumstances other than those set forth in Section 7.3(a)(i), (ii) and (iii), the provisions of this Agreement may be waived only by the affirmative vote of a majority of the outstanding Voting Interests; provided, however, that the holders of the outstanding Voting Interests may not waive the provisions of this Agreement in the circumstances set forth in Section 7.3(b); and (v) In addition to any other action that may be required under this Section 7.3(a), any waiver that has the effect of waiving the provisions of Section 2.3(a), 2.3(b) or 2.3(c) shall require the approval of GS Inc. (b) The Shareholders' Committee may waive the Transfer Restrictions and the other provisions of this Agreement without the consent of any other person as follows: (i) The Shareholders' Committee may waive the Transfer Restrictions and the other provisions of this Agreement to permit: (A) Covered Persons to participate as sellers in underwritten public offerings of, and stock repurchase programs and tender offers by GS Inc. for, Common Stock; (B) Transfers of Covered Shares to organizations described in Section 501(c)(3) of the Code, including gifts to "private foundations" subject to the requirements of Section 509 of the Code; (C) Transfers of Covered Shares held in employee benefit plans of the Company either generally or in particular situations; and (D) particular Covered Persons or all Covered Persons to Transfer Covered Shares in particular situations (such as Transfers to family members, partnerships or trusts), but not generally (provided that in each of (A) through (D), waivers of the restrictions imposed by Section 2.3(a), 2.3(b) and 2.3(c) shall also require the prior written consent of GS Inc.); (ii) The Shareholders' Committee may waive the PLP Transfer Restrictions in all circumstances other than in connection with -19- 20 a tender or exchange offer by any person other than the Company; and (iii) The Shareholders' Committee may waive any or all of the Transfer Restrictions and the other provisions of this Agreement with respect to Covered Shares owned by a person at the time the person becomes a managing director of the Company or acquired by the person in connection with such person's becoming a managing director of the Company; provided that such person was not an employee of the Company prior to the granting of such waiver by the Shareholders' Committee. (c) GS Inc. agrees that the PLP Transfer Restrictions shall be deemed to be waived under the Plan of Incorporation if they are waived as provided in this Agreement. (d) In connection with any waiver granted under this Agreement, the Shareholders' Committee or the holders of the percentage of Voting Interests required for the waiver, as the case may be, may impose such conditions as they determine on the granting of such waivers. (e) The failure of the Company or the Shareholders' Committee at any time or times to require performance of any provision of this Agreement shall in no manner affect the rights at a later time to enforce the same. No waiver by the Company or the Shareholders' Committee of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach or the breach of any other term of this Agreement. Section 7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Section 7.5 Resolution of Disputes. (a) The Shareholders' Committee shall have the sole and exclusive power to enforce the provisions of this Agreement. The Shareholders' Committee may in its sole discretion request GS Inc. to conduct such enforcement, and GS Inc. agrees to conduct such enforcement as requested and directed by the Shareholders' Committee. -20- 21 (b) Without diminishing the finality and conclusive effect of any determination by the Shareholders' Committee of any matter under this Agreement which is provided herein to be determined or proposed by the Shareholders' Committee (and subject to the provisions of paragraphs (c) and (d) hereof), any dispute, controversy or claim arising out of or relating to or concerning the provisions of this Agreement shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. ("NYSE"), or if the NYSE declines to arbitrate the matter, the American Arbitration Association ("AAA") in accordance with the commercial arbitration rules of the AAA. (c) Notwithstanding the provisions of paragraph (b), and in addition to its right to submit any dispute or controversy to arbitration, the Shareholders' Committee may bring, or may cause GS Inc. to bring, on behalf of the Shareholders' Committee or on behalf of one or more Covered Persons, an action or special proceeding in a state or federal court of competent jurisdiction sitting in the State of Delaware, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily or permanently enforcing the provisions of this Agreement and, for the purposes of this paragraph (c), each Covered Person (i) expressly consents to the application of paragraph (d) to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate and (iii) irrevocably appoints each General Counsel of GS Inc., c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 as such Covered Person's agent for service of process in connection with any such action or proceeding, who shall promptly advise such Covered Person of any such service of process. (d) (i) EACH COVERED PERSON HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE ARBITRATED ACCORDING TO THE PROVISIONS OF PARAGRAPH (b) HEREOF. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The parties acknowledge that the forum designated by this paragraph (d) has a reasonable relation to this Agreement, and to the parties' relationship with one another. Notwithstanding the foregoing, nothing herein shall preclude the Shareholders' Committee or GS Inc. from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Section 7.5. -21- 22 (ii) The agreement of the parties as to forum is independent of the law that may be applied in the action, and they each agree to such forum even if the forum may under applicable law choose to apply non-forum law. The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding brought in any court referred to in paragraph (d)(i). The parties undertake not to commence any action arising out of or relating to or concerning this Agreement in any forum other than a forum described in paragraph (d)(i). The parties agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the parties. Section 7.6 Relationship of Parties. The terms of this Agreement are intended not to create a separate entity for U.S. federal income tax purposes, and nothing in this Agreement shall be read to create any partnership, joint venture or separate entity among the parties or to create any trust or other fiduciary relationship between them. Section 7.7 Notices. (a) Any communication, demand or notice to be given hereunder will be duly given (and shall be deemed to be received) when delivered in writing by hand or first class mail or by telecopy to a party at its address as indicated below: If to a Covered Person, c/o The Goldman Sachs Group, Inc. 85 Broad Street New York, New York 10004 Telecopy: (212) 902-3876 Attention: General Counsel; If to the Shareholders' Committee, at Shareholders' Committee under the Shareholders' Agreement, dated May [__], 1999 c/o The Goldman Sachs Group, Inc. 85 Broad Street New York, New York 10004 Telecopy: (212) 902-3876 Attention: General Counsel; and -22- 23 If to GS Inc., at The Goldman Sachs Group, Inc. 85 Broad Street New York, New York 10004 Telecopy: (212) 902-3876 Attention: General Counsel. GS Inc. shall be responsible for notifying each Covered Person of the receipt of a communication, demand or notice under this Agreement relevant to such Covered Person at the address of such Covered Person then in the records of GS Inc. (and each Covered Person shall notify GS Inc. of any change in such address for communications, demands and notices). (b) Unless otherwise provided to the contrary herein, any notice which is required to be given in writing pursuant to the terms of this Agreement may be given by telecopy. Section 7.8 Severability. If any provision of this Agreement is finally held to be invalid, illegal or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. Section 7.9 Right to Determine Tender Confidentially. In connection with any tender or exchange offer for all or any portion of the outstanding Common Stock, subject to compliance with all applicable restrictions on Transfer in this Agreement, the Plan of Incorporation or any other agreement with GS Inc., each Covered Person will have the right to determine confidentially whether such Covered Person's Covered Shares will be tendered in such tender or exchange offer. Section 7.10 No Third-Party Rights. Nothing expressed or referred to in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. Section 7.11 Section Headings. The headings of sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. -23- 24 Section 7.12 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. -24- 25 IN WITNESS WHEREOF, the parties hereto have duly executed or caused to be duly executed this Agreement as of the dates indicated. THE GOLDMAN SACHS GROUP, INC. By_________________________________ Name: Title: Dated : May [__], 1999 [Signature Page 1 and Signature Page 2 Follow] 26 Signature Page 1 to Shareholders' Agreement Bradley I. Abelow Paul M. Achleitner Jonathan R. Aisbitt Andrew M. Alper Armen A. Avanessians David M. Baum Ron E. Beller Milton R. Berlinski Lloyd C. Blankfein David W. Blood Peter L. Briger, Jr. Richard J. Bronks Lawrence R. Buchalter Michael J. Carr Christopher J. Carrera Mary Ann Casati Andrew A. Chisholm Zachariah Cobrinik Abby Joseph Cohen Gary D. Cohn Christopher A. Cole Carlos A. Cordeiro Henry Cornell E. Gerald Corrigan Jon S. Corzine Claudio Costamagna Frank L. Coulson, Jr. Randolph L. Cowen Philip M. Darivoff Timothy D. Dattels Gavyn Davies David A. Dechman Paul C. Deighton Robert V. Delaney Joseph Della Rosa Alexander C. Dibelius John O. Downing Connie K. Duckworth C. Steven Duncker Gordon E. Dyal Glenn P. Earle 27 Signature Page 1 to Shareholders' Agreement (cont.) Paul S. Efron J. Michael Evans W. Mark Evans Pieter Maarten Feenstra Lawton W. Fitt David B. Ford Edward C. Forst Christopher G. French Richard A. Friedman Joseph D. Gatto Peter C. Gerhard Nomi P. Ghez Joseph H. Gleberman Richard J. Gnodde Jeffrey B. Goldenberg Jacob D. Goldfield Amy O. Goodfriend Andrew M. Gordon Geoffrey T. Grant Eric P. Grubman Joseph D. Gutman Robert S. Harrison Thomas J. Healey Sylvain M. Hefes David B. Heller Steven M. Heller David L. Henle Mary C. Henry Robert E. Higgins M. Roch Hillenbrand Jacquelyn M. Hoffman-Zehner Robert J. Hurst Francis J. Ingrassia Timothy J. Ingrassia Reuben Jeffery III Stefan J. Jentzsch Chansoo Joung Ann F. Kaplan Barry A. Kaplan Robert S. Kaplan Scott B. Kapnick 28 Signature Page 1 to Shareholders' Agreement (cont.) Erland S. Karlsson Robert J. Katz Kevin W. Kennedy Peter D. Kiernan III Douglas W. Kimmelman Bradford C. Koenig Jonathan L. Kolatch Peter S. Kraus David G. Lambert Thomas D. Lasersohn Anthony D. Lauto Matthew G. L'Heureux Lawrence H. Linden Robert Litterman Robert H. Litzenberger Jonathan M. Lopatin Michael R. Lynch Peter G.C. Mallinson Ronald G. Marks Eff W. Martin David J. Mastrocola John P. McNulty E. Scott Mead Sanjeev K. Mehra T. Willem Mesdag Eric M. Mindich Steven T. Mnuchin Masanori Mochida Karsten N. Moller Thomas K. Montag Wayne L. Moore Robert B. Morris III Michael P. Mortara Sharmin Mossavar-Rahmani Edward A. Mule Philip D. Murphy Thomas S. Murphy, Jr. Avi M. Nash Daniel M. Neidich Kipp M. Nelson Robin Neustein 29 Signature Page 1 to Shareholders' Agreement (cont.) Suzanne M. Nora Johnson Michael E. Novogratz Alok Oberoi Terence J. O'Neill Timothy J. O'Neill Donald C. Opatrny, Jr. Robert J. O'Shea Greg M. Ostroff Terence M. O'Toole Robert J. Pace Gregory K. Palm Henry M. Paulson, Jr. Scott M. Pinkus Timothy C. Plaut Wiet H. Pot John J. Powers Michael A. Price Scott S. Prince Stephen D. Quinn Michael G. Rantz Girish V. Reddy Arthur J. Reimers III James P. Riley, Jr. Simon M. Robertson J. David Rogers Emmanuel Roman Ralph F. Rosenberg Stuart M. Rothenberg Michael S. Rubinoff Richard M. Ruzika John C. Ryan Michael D. Ryan Richard A. Sapp Joseph Sassoon Tsutomu Sato Muneer A. Satter Jonathan S. Savitz Peter Savitz Howard B. Schiller Antoine Schwartz Eric S. Schwartz 30 Signature Page 1 to Shareholders' Agreement (cont.) Mark Schwartz Charles B. Seelig, Jr. Steven M. Shafran Richard S. Sharp James M. Sheridan Richard G. Sherlund Michael S. Sherwood Howard A. Silverstein Dinakar Singh Christian J. Siva-Jothy Cody J. Smith Jonathan S. Sobel Marc A. Spilker Daniel W. Stanton Esta E. Stecher Fredric E. Steck Robert K. Steel Hsueh J. Sung Peter D. Sutherland Gene T. Sykes Mark R. Tercek Donald F. Textor John A. Thain John L. Thornton John R. Tormondsen Leslie C. Tortora John L. Townsend III Byron D. Trott Robert B. Tudor III Thomas E. Tuft Malcolm B. Turnbull John E. Urban Lee G. Vance David A. Viniar Barry S. Volpert George H. Walker Thomas B. Walker III Patrick J. Ward John S. Weinberg Peter A. Weinberg George W. Wellde, Jr. 31 Signature Page 1 to Shareholders' Agreement (cont.) Anthony G. Williams Gary W. Williams Kendrick R. Wilson III Jon Winkelried Steven J. Wisch Richard E. Witten Tracy R. Wolstencroft Yasuyo Yamazaki Danny O. Yee Michael J. Zamkow Yoel Zaoui Gregory H. Zehner Jide J. Zeitlin Joseph R. Zimmel Barry L. Zubrow Mark A. Zurack By:_________________________ Name: Title: Attorney-in-Fact Dated: May [__], 1999 32 Signature Page 2 to Shareholders' Agreement ____________________________ Name: Dated: May [__], 1999 33 APPENDIX A PARTIES TO THE SHAREHOLDERS' AGREEMENT NAME Bradley I. Abelow Peter C. Aberg Paul M. Achleitner Jonathan R. Aisbitt Elliot M. Alchek Andrew M. Alper Philippe J. Altuzarra Kazutaka P. Arai David M. Atkinson Mitchel J. August Armen A. Avanessians John S. Barakat Barbara J. Basser-Bigio David M. Baum Robert A. Beckwitt Jonathan A. Beinner Ron E. Beller Tarek M. Ben Halim Jaime I. Bergel Todd L. Bergman Milton R. Berlinski Andrew S. Berman Frances R. Bermanzohn Jeffrey J. Bernstein Robert A. Berry Jean-Luc Biamonti James J. Birch Lloyd C. Blankfein David W. Blood David R. Boles David A. Bolotsky Charles W.A. Bott Charles C. Bradford III Benjamin S. Bram Thomas C. Brasco Peter L. Briger Jr. 34 APPENDIX A (CONT.) Craig W. Broderick Richard J. Bronks Charles K. Brown Vern J. Brownell Peter D. Brundage Lawrence R. Buchalter Steven M. Bunson Timothy B. Bunting Calvert C. Burkhart Michael S. Burton George H. Butcher III Lawrence V. Calcano John D. Campbell Richard M. Campbell-Breeden Anthony H. Carpet Michael J.Carr Christopher J. Carrera Virginia E. Carter Calvin R. Carver, Jr. Mary Ann Casati Chris Casciato Douglas W. Caterfino Michael J. Certo Varkki P. Chacko David K. Chang Thomas P. Chang Sacha A. Chiaramonte Andrew A. Chisholm Robert J. Christie Peter T. Cirenza Kent A. Clark Zachariah Cobrinik Abby Joseph Cohen Gary D. Cohn Christopher A. Cole Timothy J. Cole Laura C. Conigliaro Frank T. Connor Donna L. Conti Edith W. Cooper Philip A. Cooper John W. Copeland Carlos A. Cordeiro 35 APPENDIX A (CONT.) Henry Cornell E. Gerald Corrigan Jon S. Corzine Claudio Costamagna Frank L. Coulson, Jr. Randolph L. Cowen Neil D. Crowder John P. Curtin Jr. John W. Curtis Stephen C. Daffron John S. Daly Philip M. Darivoff Matthew S. Darnall Timothy D. Dattels Gavyn Davies David A. Dechman Paul C. Deighton Juan A. Del Rivero Robert V. Delaney Joseph Della Rosa Emanuel Derman Andrew C. Devenport Stephen D. Dias Alexander C. Dibelius Simon P. Dingemans Sandra D'Italia Paula A. Dominick Noel B. Donohoe Jana Doty Robert G. Doumar, Jr. John O. Downing Michael B. Dubno Connie K. Duckworth William C. Dudley Matthieu B. Duncan C. Steven Duncker Christopher N. Dunn Karlo J. Duvnjak Jay S. Dweck Gordon E. Dyal Isabelle Ealet Glenn P. Earle Paul S. Efron 36 APPENDIX A (CONT.) Herbert E. Ehlers Alexander S. Ehrlich John E. Eisenberg Glenn D. Engel Michael P. Esposito George C. Estey Mark D. Ettenger J. Michael Evans W. Mark Evans Charles P. Eve Paul D. Farrell Elizabeth C. Fascitelli Pieter Maarten Feenstra Steven M. Feldman Laurie R. Ferber Robert P. Fisher, Jr. Lawton W. Fitt Stephen C. Fitzgerald David N. Fleischer Jeffrey S. Flug David B. Ford Eric O. Fornell Edward C. Forst Oliver L. Frankel Matthew T. Fremont-Smith Christopher G. French Richard A. Friedman C. Douglas Fuge Joseph D. Gatto Emmanuel Gavaudan Eduardo B. Gentil Peter C. Gerhard Nomi P. Ghez H. John Gilbertson, Jr. Alan R. Gillespie Joseph H. Gleberman Richard J. Gnodde Jeffrey B. Goldenberg Jacob D. Goldfield Amy O. Goodfriend Jay S. Goodgold Andrew M. Gordon Robert D. Gottlieb 37 APPENDIX A (CONT.) Geoffrey T. Grant William M. Grathwohl David J. Greenwald Louis S. Greig Christopher Grigg Douglas C. Grip Eric P. Grubman Celeste A. Guth Joseph D. Gutman Erol Hakanoglu Roger C. Harper Charles T. Harris III Robert S. Harrison Shelley A. Hartman Nobumichi Hattori Stephen J. Hay Walter H. Haydock Isabelle Hayen Thomas J. Healey John P. Heanue Robert C. Heathcote Sylvain M. Hefes David B. Heller Steven M. Heller R. Douglas Henderson David L. Henle Mary C. Henry Robert E. Higgins M. Roch Hillenbrand Maykin Ho Timothy E. Hodgson Jacquelyn M. Hoffman-Zehner Christopher G. Hogg Gregory T. Hoogkamp Robert D. Hormats Robert G. Hottensen, Jr. James A. Hudis Terry P. Hughes Bimaljit S. Hundal Robert J. Hurst Francis J. Ingrassia Timothy J. Ingrassia Masahiro Iwano 38 APPENDIX A (CONT.) William L. Jacob III Mark M. Jacobs Richard I. Jaffee Reuben Jeffery III Stefan J. Jentzsch Dan H. Jester Daniel J. Jick Robert H. Jolliffe Robert C. Jones Reginald L. Jones III Chansoo Joung Andrew J. Kaiser Donald G. Kane II Ann F. Kaplan Barry A. Kaplan David A. Kaplan Jason S. Kaplan Robert S. Kaplan Scott B. Kapnick Erland S. Karlsson Carolyn F. Katz Robert J. Katz Sofia Katzap Haruo Kawamura Tetsuya Kawano Sion P. Kearsey R. Mark Keating John L. Kelly Kevin M. Kelly Kevin W. Kennedy Peter D. Kiernan III James T. Kiernan, Jr. Sun Bae Kim Douglas W. Kimmelman Colin E. King Robert C. King, Jr. Adrian P. Kingshott Ewan M. Kirk Michael K. Klingher Craig A. Kloner Bradford C. Koenig Mark J. Kogan Jonathan L. Kolatch 39 APPENDIX A (CONT.) David J. Kostin Koji Kotaka Peter S. Kraus Christoph M. Ladanyi David G. Lambert Pierre F. Lapeyre Jr. Bruce M. Larson Thomas D. Lasersohn Anthony D. Lauto Susan R. Leadem Andrew D. Learoyd Donald C. Lee Kenneth H. M. Leet Paulo C. Leme Hughes B. Lepic Alan B. Levande Thomas B. Lewis, Jr. Mark E. Leydecker Matthew G. L'Heureux Aaron D. Liberman Gwen R. Libstag Stephen C. Lichtenauer Roger A. Liddell Richard J. Lieb Mitchell J. Lieberman Josephine Linden Lawrence H. Linden Robert Litterman Robert H. Litzenberger David J. Lockwood Jonathan M. Lopatin Francisco Lopez-Balboa Victor M. Lopez-Balboa Antigone Loudiadis C. Richard Lucy Michael C. Luethke Michael R. Lynch Shogo Maeda John A. Mahoney Sean O. Mahoney Jun Makihara Russell E. Makowsky Peter G.C. Mallinson 40 APPENDIX A (CONT.) Charles G. R. Manby Barry A. Mannis Richard J. Markowitz Ronald G. Marks Robert J. Markwick Eff W. Martin Jacques Martin John J. Masterson David J. Mastrocola Kathy M. Matsui Tadanori Matsumura Heinz Thomas Mayer Richard X. McArdle Theresa E. McCabe Joseph M. McConnell Mark E. McGoldrick Stephen J. McGuinness John C. McIntire John W. McMahon Geraldine F. McManus Audrey A. McNiff Anne Welsh McNulty John P. McNulty E. Scott Mead David M. Meerschwam Sanjeev K. Mehra Richard W. Meister Amos Meron T. Willem Mesdag Kenneth A. Miller Therese L. Miller James E. Milligan Eric M. Mindich Peter A. Mindnich Edward S. Misrahi Steven T. Mnuchin Kurt C. Mobley Masanori Mochida Karsten N. Moller Thomas K. Montag Wayne L. Moore Yukihiro Moroe Robert B. Morris III 41 APPENDIX A (CONT.) Michael P. Mortara Matthias R. Mosler Jeffrey M. Moslow Sharmin Mossavar-Rahmani Ian Mukherjee Edward A. Mule' Donald J. Mulvihill Patrick E. Mulvihill Richard A. Murley Philip D. Murphy Thomas S. Murphy, Jr. Gaetano J. Muzio Michiya Nagai Kiyotaka Nakamura Avi M. Nash Trevor Nash Warwick M. Negus Daniel M. Neidich Kipp M. Nelson Robin Neustein Duncan L. Niederauer Suzanne M. Nora Johnson Christopher K. Norton Michael E. Novogratz Jay S. Nydick Alok Oberoi Jinsuk T. Oh John C. O'Hara Terence J. O'Neill Timothy J. O'Neill Richard T. Ong Ronald M. Ongaro Donald C. Opatrny, Jr. Daniel B. O'Rourke Robert J. O'Shea Greg M. Ostroff Terence M. O'Toole Robert J. Pace Robert N. Packer Gregory K. Palm Mukesh K. Parekh Melissa B. Patrusky Henry M. Paulson, Jr. 42 APPENDIX A (CONT.) Alberto M. Piedra Jr. Stephen R. Pierce Philip J. Pifer Scott M. Pinkus Timothy C. Plaut Andrea Ponti Wiet H. Pot Michael J. Poulter John J. Powers Michael A. Price Scott S. Prince Stephen D. Quinn John J. Rafter Dioscoro-Roy I. Ramos Charlotte P. Ransom Michael G. Rantz Joseph Ravitch Girish V. Reddy Arthur J. Reimers Anthony John Reizenstein James P. Riley, Jr. Simon M. Robertson J. David Rogers John F.W. Rogers Emmanuel Roman Pamela P. Root Ralph F. Rosenberg Jacob D. Rosengarten Stuart M. Rothenberg Michael S. Rubinoff Paul M. Russo Richard M. Ruzika John C. Ryan Michael D. Ryan J. Michael Sanders Allen Sangines-Krause Richard A. Sapp Joseph Sassoon Tsutomu Sato Muneer A. Satter Jonathan S. Savitz Peter Savitz P. Sheridan Schechner 43 APPENDIX A (CONT.) Gary B. Schermerhorn Mitchell I. Scherzer Howard B. Schiller Antoine Schwartz Eric S. Schwartz Mark Schwartz Steven M. Scopellite David J. Scudellari Charles B. Seelig, Jr. Steven M. Shafran Richard S. Sharp John P. Shaughnessy Robert J. Shea, Jr. James M. Sheridan Richard G. Sherlund Michael S. Sherwood Howard A. Silverstein Richard P. Simon Victor R. Simone, Jr. Dinakar Singh Ravi Sinha Allen W. Sinsheimer Edward M. Siskind Christian J. Siva-Jothy Mark F. Slaughter Cody J Smith Michael M. Smith Sarah E. Smith Randolph C. Snook Jonathan S. Sobel Judah C. Sommer Theodore T. Sotir Marc A. Spilker Daniel W. Stanton Esta E. Stecher Fredric E. Steck Robert K. Steel Robert S. Stellato Raymond S. Stolz Steven H. Strongin Andrew J. Stuart Patrick Sullivan Hsueh J. Sung 44 APPENDIX A (CONT.) George M. Suspanic Peter D. Sutherland Gene T. Sykes Gary A. Syman John H. Taylor Robert E. Taylor Greg W. Tebbe Mark R. Tercek Donald F. Textor John A. Thain John L. Thornton Daisuke Toki John R. Tormondsen Leslie C. Tortora John L. Townsend, III Mark J. Tracey Byron D. Trott Michael A. Troy Robert B. Tudor III Thomas E. Tuft Barry S. Turkanis Malcolm B. Turnbull Harkanwar Uberoi Kaysie P. Uniacke John E. Urban Hugo H. Van Vredenburch Lee G. Vance John J. Vaske Oksana Vayner-Ryklin David A. Viniar Barry S. Volpert George H. Walker Thomas B. Walker III Nicholas J. Walsh David R. Walton Hsueh-Ming Wang Patrick J. Ward Haruko Watanuki Edward F. Watts Jr. David M. Weil John S. Weinberg Peter A. Weinberg Mark S. Weiss 45 APPENDIX A (CONT.) George W. Wellde, Jr. Bradley W. Wendt Peter S. Wheeler Barbara A. White A. Carver Wickman Susan A. Willetts Anthony G. Williams Gary W. Williams Todd A. Williams Kendrick R. Wilson III Jon Winkelried Steven J. Wisch Richard E. Witten Tracy R. Wolstencroft Zi Wang Xu Tetsufumi Yamakawa Yasuyo Yamazaki Danny O. Yee Jaime E. Yordan W. Thomas York Jr. Michael J. Zamkow Paolo Zannoni Yoel Zaoui Gregory H. Zehner Jide J. Zeitlin Joan H. Zief Joseph R. Zimmel James P. Ziperski Barry L. Zubrow Mark A. Zurack EX-10.27 25 INSTRUMENT OF INDEMNIFICATION 1 Exhibit 10.27 Draft of April 26, 1999 INSTRUMENT OF INDEMNIFICATION WHEREAS, The Goldman Sachs Group, Inc. ("GS Inc.") desires that (a) each Schedule I Limited Partner, each Schedule II Limited Partner (each as defined in the Memorandum of Agreement as hereinafter defined) and certain former partners of The Goldman Sachs Group, L.P. ("GS Group"), Goldman, Sachs & Co., J. Aron and Company and affiliates thereof, who or which have accepted or consented to and are participating in the Plan of Incorporation (the "Plan") proposed by the General Partner of GS Group and approved at a meeting on March 8, 1999 by the Schedule II Limited Partners having 51% or more in interest in the profits of GS Group pursuant to Article I, Section 14 of the Memorandum of Agreement, amended and restated as of November 28, 1998, as amended (the "Memorandum of Agreement"), (b) other former partners of GS Group or Goldman, Sachs & Co. and certain other persons or entities who or which have executed and delivered to GS Group an Acceptance Document and Power of Attorney for Persons Entitled to Capital Awaiting Settlement (each such former partner or other person or entity, a "CAS Indemnitee"), (c) Sumitomo Bank Capital Markets Inc. ("SBCM") and (d) Kamehameha Activities Association ("KAA") (such Schedule I Limited Partners, Schedule II Limited Partners, former partners, CAS Indemnitees, SBCM and KAA, herein collectively, the "Indemnitees") be indemnified as provided herein; 2 WHEREAS, GS Inc. desires to assume the obligations of such Indemnitees as are parties to the Indemnification Agreement, dated as of November 30, 1996, among the signatories thereto (the "Indemnification Agreement"), under the Indemnification Agreement; WHEREAS, GS Inc. has determined that it is desirable and in its best interest to indemnify the Indemnitees and assume the obligations thereof under the Indemnification Agreement as an inducement to the approval of the Plan and for other good and valid consideration. This Instrument witnesseth 1. GS Inc. hereby indemnifies, to the full extent provided by law, each Indemnitee, each director, officer and trustee thereof, each person who was formerly such a director, officer or trustee, and the estate of any such person (each, an "Indemnified Person") in the event such Indemnified Person is made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such Indemnitee or its predecessor in interest was a general or limited partner, stockholder, member, director, officer, employee or agent of GS Group, Goldman, Sachs & Co., J. Aron and Company or any Affiliate or Subsidiary thereof (each as defined in the Memorandum of Agreement) or is serving or served at the request of any of such persons as a general or limited partner, stockholder, member, director, officer, employee or agent of another partnership, corporation, limited -2- 3 liability company, joint venture, trust or other enterprise; provided that no indemnification or reimbursement shall be made to an Indemnified Person in respect of conduct that is or was a breach of the Memorandum of Agreement or to the extent that a final judgment or other final adjudication binding upon the Indemnified Person establishes that the acts or omissions of such Indemnified Person resulted from such Indemnified Person's bad faith, fraud or willful criminal act or omission; and provided, further, no indemnification or reimbursement shall be made in respect of indebtedness incurred by an Indemnified Person in his, her or its individual capacity to GS Group, GS Inc., Goldman, Sachs & Co., J. Aron and Company or any Affiliate or Subsidiary (each as defined in the Memorandum of Agreement) or in respect of any guarantee by an Indemnified Person in such capacity of debt owed to any such person. GS Inc. agrees promptly to reimburse upon the incurrence thereof the reasonable expenses, including attorneys fees, of any Indemnified Person incurred in defending or investigating any action, suit or proceeding, or any alleged action, suit or proceeding, provided that such Indemnitee shall repay such expenses if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified hereunder by GS Inc. An Indemnified Person shall be entitled to indemnification hereunder of its expenses in a proceeding to enforce its rights under this Instrument if the Indemnified Person is successful (in whole or in part) in such proceeding. The foregoing indemnity shall extend to any Liabilities (as -3- 4 defined in the Memorandum of Agreement) for which an Indemnified Person may be liable or to which an Indemnified Person may be subject. Notwithstanding any other provision in this Instrument, the foregoing indemnity shall not extend to any taxes imposed on, or with respect to, the gross or net income of any Indemnified Person regardless of whether such income is derived from the activities of GS Group, Goldman, Sachs & Co., J. Aron and Company or any of their affiliates except to the extent such taxes are imposed in respect of payments otherwise made pursuant to this Instrument, in which case such Indemnified Person's Losses shall include an amount not greater than the net taxes payable (taking into account any deductions or other tax benefits available to the Indemnified Person as a result of the expense or loss in respect of which such payment is made). 2. (a) GS Inc. shall not have any liability to indemnify under Section 1 unless it receives prompt notice from the Indemnified Person seeking such indemnification of the initiation or threat known to the Indemnified Person of an action, suit or proceeding as to which indemnification is sought. (b) In case any action, suit or proceeding for which indemnification is available under Section 1 shall be brought against any such Indemnified Person and such Indemnified Person notifies GS Inc. of the commencement thereof, GS Inc. may seek to participate therein and, to the extent that GS Inc. shall wish, to assume the defense thereof. GS Inc. shall not be responsible for or be required to pay the fees and expenses of more than one counsel representing all -4- 5 Indemnified Persons, GS Inc. and its predecessors or affiliates in defending such action, suit or proceeding (in addition to a single firm of local counsel). In addition, the Indemnified Persons shall be entitled to employ one separate counsel for such Indemnitees in such action, suit or proceeding at the expense of GS Inc. if such Indemnitees reasonably conclude that if they did not there would be a conflict of interest between GS Inc. (and its predecessors or affiliates) and such Indemnified Person. (c) GS Inc. shall not be liable hereunder for amounts paid in settlement of any action or claim effected without GS Inc.'s prior written consent, which shall not be unreasonably withheld. 3. GS Inc. hereby assumes the obligations as an Indemnifying Party (as defined in the Indemnification Agreement) of each Indemnitee who is a signatory of the Indemnification Agreement, as though GS Inc. were such Indemnifying Party. 4. (a) GS Inc. shall, to the extent practicable, make any payments, whether of damages, claims, liabilities, costs or expenses, required to be made by an Indemnified Person as a result of an action, suit or proceeding as to which GS Inc. has indemnified hereunder directly to the party to which the Indemnified Person would otherwise make a payment. (b) Any payments otherwise required to be made by GS Inc. hereunder shall be offset by any and all amounts received by an Indemnified Person from -5- 6 any other indemnitor or under one or more liability insurance policies maintained by an indemnitor or otherwise and shall not be duplicative of any other payments received by an Indemnified Person from GS Inc. in respect of the matter giving rise to the indemnity hereunder. The rights of an Indemnified Person hereunder shall not affect or be affected in any way by the rights of an Indemnified Person under any other agreement, arrangement, resolution or instrument providing indemnification or expense advancement or reimbursement, other than through the elimination of any right to duplicative payments as provided in the immediately preceding sentence. Without limiting the foregoing, the rights of any Indemnified Person under the resolution of the Executive Committee of GS L.P., adopted on May 12, 1997 (the "Resolution") shall remain in full force and effect insofar as an Indemnified Person has any rights thereunder with respect to the acts, omissions and status of such person through the date of this Instrument. The execution and delivery of this Instrument shall constitute notice, effective as of the date of this Instrument, that the Resolution is rescinded insofar as it relates to the acts, omissions and status of such person after the date of this Instrument. When an Indemnified Person is entitled to indemnification, expense advancement or reimbursement under this Instrument and any other agreement, arrangement, resolution or instrument of GS Inc. or The Goldman Sachs Group, L.P., the Indemnified Person may choose to pursue its rights under one or more, but less than all, of such applicable agreements, arrangements, resolutions or instruments, -6- 7 in which case such Indemnified Person need only comply with the standards and procedures of the agreements, arrangements, resolutions or instruments under which it chooses to pursue its rights. 5. GS Inc. on its own behalf and on behalf of Goldman, Sachs & Co., J. Aron and Company and each Affiliate and Subsidiary, hereby irrevocably releases each Indemnified Person from any and all causes of action, suits, damages, claims and demands whatsoever, whether at law or in equity, which GS Inc. may have as successor to GS Group arising out of an Indemnitee's partnership or other interest in GS Group and/or its Affiliates and Subsidiaries or arising out of the conduct of such Indemnitee as a general or limited partner, stockholder, member, director, officer or employee thereof engaged in the conduct of the business thereof; provided that this release shall not extend to conduct that a final judgment or other final adjudication binding upon the Indemnitee determines resulted from such Indemnified Person's bad faith, fraud or willful criminal act or omission; and provided, further, that this release shall not extend to representations or warranties made or agreements entered into by an Indemnitee in connection with the Plan, to conduct that is or was a breach of the Memorandum of Agreement or to indebtedness incurred by an Indemnified Person in his, her or its individual capacity to GS Group, GS Inc., Goldman, Sachs & Co., J. Aron and Company or any Affiliate or Subsidiary or to any claims that may be made by any such person for payment or reimbursement if and to the extent any such person -7- 8 shall have performed under any guarantee of indebtedness incurred by an Indemnified Person in such capacity. 6. This Instrument shall inure solely to the benefit of the Indemnified Persons, and their respective heirs, executors, administrators and successors, and no other person shall acquire or have any right under or by virtue of this Instrument. 7. GS Inc. expressly reserves the right to make all determinations under this Instrument, including determinations as to whether an Indemnitee has accepted the Plan, and all such determinations by GS Inc. shall be final and binding upon all parties hereto and beneficiaries hereof. 8. THIS INSTRUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. ANY DISPUTES ARISING HEREUNDER SHALL BE GOVERNED BY THE PROVISIONS OF SECTION 16. "OTHER - ARBITRATION" OF THE PLAN. 9. This Instrument is coupled with an interest and shall be irrevocable by GS Inc., its successors and assigns. -8- 9 In witness thereof, The Goldman Sachs Group, Inc. by its duly authorized officer has executed and delivered this Instrument in New York, New York this ____ day of May 1999. The Goldman Sachs Group, Inc. By: _______________________________ -9- EX-10.28 26 FORM OF INDEMNIFICATION AGREEMENT 1 Exhibit 10.28 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into as of the ____ day of May 1999, by and between The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc.") and each of the Indemnitees listed on the signature pages to this agreement (each, an "Indemnitee", and collectively, the "Indemnitees") as such signature pages may be amended and supplemented from time to time. WITNESSETH WHEREAS, GS Inc. has become party to a plan for the incorporation of the business of The Goldman Sachs Group, L.P. ("GS Group") and the related reorganization of the business of GS Group, which plan was approved by The Goldman Sachs Corporation ("GS Corp.") in its capacity as general partner of GS Group and by the Schedule II Limited Partners of GS Group in March 1999 (such plan of incorporation together with all exhibits thereto as it or they may be amended from time to time, the "Plan of Incorporation"); WHEREAS, as part of the Plan of Incorporation, GS Inc. has filed and proposes to file registration statements (the "Registration Statements") with the Securities and Exchange Commission for the public offering and sale of shares of its common stock (including shares issuable in connection with employee benefit plans) and debt securities (including medium-term notes); 2 WHEREAS, GS Inc. has requested and will request certain of the Indemnitees to execute the Registration Statements in the capacity or capacities listed and to be listed in such Registration Statements; and WHEREAS, each Indemnitee is one or more of the following: (i) an officer or director of GS Inc., (ii) an officer or director of GS Corp., (iii) a person requested or authorized by the board of directors of GS Inc. or GS Corp. to take actions on behalf of GS Group, GS Inc. or GS Corp. in connection with the Registration Statements or the Plan of Incorporation or (iv) a member of the Management Committee or Partnership Committee of GS Inc. or the former Executive Committee of GS Group. NOW, therefore, in consideration of each Indemnitee's acting and agreeing to act in the capacities referred to above, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. General. GS Inc. (A) will indemnify and hold harmless each Indemnitee against any Losses (as hereinafter defined), joint or several, to which such Indemnitee may become subject, under the Securities Act of 1933, as amended (the "Act") or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statements or any related Rule 462(b) Registration Statements or any preliminary prospectus or prospectus comprising a part thereof, or any amendment or supplement thereto, or arise out of or are based upon the omission or -2- 3 alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that GS Inc. shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission relating to such Indemnitee made in any preliminary prospectus, any registration statement or any prospectus or any amendment or supplement in reliance upon and in conformity with written information relating to such Indemnitee furnished to GS Inc. by such Indemnitee expressly for use therein; and (B) will indemnify and hold harmless each Indemnitee against any Losses (or actions in respect thereof) which otherwise arise out of or are based upon or asserted against such Indemnitee in connection with such Indemnitee's acting in the capacities referred to above in connection with the transactions contemplated by the Plan of Incorporation, except to the extent any such Losses referred to in this clause (B) arise out of or are based upon the type of conduct for which (x) a director would not be exempt from liability or (y) the indemnification of a director would be limited in respect of such Losses, in the case of (x) and (y), within the meaning of Article Twelfth of the Amended and Restated Certificate of Incorporation of GS Inc. or Section 102(b)(7) of the Delaware General Corporation Law (whether or not such Indemnitee is a director). Notwithstanding the foregoing provisions of this Section 1, GS Inc. and each Indemnitee agree that insofar as indemnification for liabilities arising under the Act may be permitted under this Agreement to an Indemnitee who is a director, officer or -3- 4 controlling person of GS Inc., in the event that a claim for indemnification against such liabilities is made by such an Indemnitee (other than the payment by GS Inc. of expenses incurred or paid by such Indemnitee in the successful defense of any action, suit or proceeding) in connection with a Registration Statement, GS Inc. will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and GS Inc. and such Indemnitee will be governed by the final adjudication of such question. 2. Losses. As used in this Agreement, the term "Losses" shall include, without limitation, damages, losses, claims, judgments, liabilities, fines, penalties, excise taxes, settlements, and costs, attorneys' fees, accountants' fees, and disbursements and costs of attachment or similar bonds, investigation costs, defense preparation costs, costs of preparing for and presenting evidence or testimony, and any expenses of establishing a right to indemnification under this Agreement. The term "Losses" shall not include taxes except to the extent taxes are imposed in respect of payments otherwise made pursuant to this Agreement, in which case such Indemnitee's Losses shall include an amount not greater than the net taxes payable (taking into account any deductions or other tax benefits available to such Indemnitee as a result of the Losses in respect of which such payment is made). 3. Enforcement. Subject to the provisions of the second paragraph of Section 1 hereof, if a claim or request by an Indemnitee under this Agreement is not paid -4- 5 by GS Inc. or on its behalf, within thirty (30) days after a written claim or request has been received by GS Inc. and, if applicable, the affirmation in Section 5 hereof has been received by GS Inc., such Indemnitee may at any time thereafter commence an arbitration proceeding in accordance with Section 9 hereof against GS Inc. to recover the unpaid amount of the claim or request and, if successful in whole or in part, such Indemnitee shall be entitled to be paid also the expenses of prosecuting such proceeding. It shall be a defense to any such proceeding (other than a proceeding commenced to enforce a claim for expenses incurred in defending any actual or threatened proceeding in advance of its final disposition where the required affirmation and undertaking, if any is required, have been tendered to GS Inc.) that such Indemnitee has not met the standards of conduct for GS Inc. to indemnify such Indemnitee herein for the amount claimed, but the burden of proving such defense shall be on GS Inc. Neither the failure of GS Inc. (including its Board of Directors, legal counsel or shareholders) to have made a determination prior to the commencement of such proceeding that indemnification of such Indemnitee is proper in the circumstances because such Indemnitee has met the applicable standard of conduct set forth herein, nor an actual determination by GS Inc. (including its Board of Directors, legal counsel or shareholders) that such Indemnitee has not met such applicable standard of conduct, shall be a defense to the proceeding or create a presumption that such Indemnitee has not met the applicable standard of conduct. 4. Partial Indemnification. If an Indemnitee is entitled under any provision of this Agreement to indemnification by GS Inc. for some or a portion of any -5- 6 Losses, but not for the total amount thereof, GS Inc. shall nevertheless indemnify such Indemnitee for the portion of such Losses to which such Indemnitee is entitled. 5. Expenses. Expenses incurred by an Indemnitee in connection with any proceeding shall be paid by GS Inc. upon request of such Indemnitee that GS Inc. pay such expenses, but only upon receipt by GS Inc. of (i) a written affirmation of such Indemnitee's good faith belief that the applicable standard of conduct necessary for indemnification by GS Inc. has been met, (ii) a written undertaking by or on behalf of such Indemnitee to reimburse GS Inc. for expenses if and to the extent that it is ultimately determined that the applicable standard of conduct has not been met and (iii) satisfactory evidence of the amount of such expenses. 6. Notice of Claim. Each Indemnitee shall promptly notify GS Inc. in writing of any claim against such Indemnitee for which indemnification will or could be sought under this Agreement. In addition, each Indemnitee shall give GS Inc. such information and cooperation as it may reasonably require and as shall be within such Indemnitee's power and at such times and places as are not unduly burdensome for such Indemnitee. 7. Defense of Claim. With respect to any proceeding as to which an Indemnitee notifies GS Inc. of the commencement thereof: (a) GS Inc. will be entitled to participate at its own expense; (b) subject to Section 7(c) hereof, GS Inc. shall not, in connection with any proceeding or related proceedings in the same -6- 7 jurisdiction against any Indemnitee and any other Indemnitees, be liable to such Indemnitee and such other Indemnitees for the fees and expenses of more than one separate law firm (in addition to a single firm of local counsel); (c) except as otherwise provided below, to the extent that it may wish, GS Inc. will be entitled to assume the defense thereof, with counsel reasonably satisfactory to such Indemnitee, which in GS Inc.'s sole discretion may be regular counsel to GS Inc. and may be counsel to other Indemnitees. The Indemnitees also shall have the right to employ one separate counsel for such Indemnitees in such action, suit or proceeding if such Indemnitees reasonably conclude that if they did not there would be a conflict of interest between GS Inc. and such Indemnitees, and under such circumstances the fees and expenses of such counsel shall be paid by GS Inc.; and (d) GS Inc. shall not be liable to indemnify an Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without GS Inc.'s written consent. GS Inc. shall not settle any action or claim in any manner which would impose any cost or limitation on an Indemnitee without such Indemnitee's written consent. Neither GS Inc. nor an Indemnitee will unreasonably withhold or delay its consent to any proposed settlement. -7- 8 8. Non-exclusivity. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Agreement shall not be exclusive of or affected in any way by any other right which an Indemnitee may have or hereafter may acquire under any statute, certificate of incorporation, by-laws, agreement, arrangement, resolution or instrument providing indemnification or expense payment, except that any payments otherwise required to be made by GS Inc. hereunder shall be offset by any and all amounts received by an Indemnitee from any other indemnitor or under one or more liability insurance policies maintained by an indemnitor or otherwise and shall not be duplicative of any other payments received by an Indemnitee from GS Inc. in respect of the matter giving rise to the indemnity hereunder. When an Indemnitee is entitled to indemnification, expense advancement or reimbursement under this Instrument and any other agreement, arrangement, resolution or instrument of GS Inc. or The Goldman Sachs Group, L.P., the Indemnitee may choose to pursue its rights under one or more, but less than all, of such applicable agreements, arrangements, resolutions or instruments, in which case such Indemnitee need only comply with the standards and procedures of the agreements, arrangements, resolutions or instruments under which it chooses to pursue its rights. Without limiting the foregoing, the rights of any indemnified person under the resolution of the Executive Committee of GS Group, adopted on May 12, 1997 (the "Resolution") shall remain in full force and effect insofar as an indemnified person has any rights thereunder with respect to the acts, omissions and status of such person -8- 9 through the date of this Agreement. The execution and delivery of this Instrument shall constitute notice, effective as of the date of this Instrument, that the Resolution is rescinded insofar as it relates to the acts, omissions and status of such person after the date of this Instrument. 9. Arbitration. (a) Subject to the provisions of the second paragraph of Section 1 and Section 9(b) hereof, any dispute, controversy or claim between an Indemnitee and GS Inc. arising out of or relating to or concerning the provisions of this Agreement shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. ("NYSE") or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the "AAA") in accordance with the commercial arbitration rules of the AAA. (b) Notwithstanding the provision of Section 9(a) and in addition to its right to submit any dispute or controversy to arbitration, GS Inc. may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the State of Delaware, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily or permanently enforcing the provisions of this Agreement or to enforce an arbitration award, and, for the purposes of this Section 9(b), each Indemnitee (i) expressly consents to the application of Section 9(c) hereof to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to -9- 10 calculate and that remedies at law would be inadequate and (iii) irrevocably appoints each General Counsel of GS Inc., c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 as such Indemnitee's agent for service of process in connection with any such action or proceeding, who shall promptly advise such Indemnitee of any such service of process. (c) (i) EACH INDEMNITEE HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE ARBITRATED ACCORDING TO THE PROVISIONS OF SECTION 9(a) HEREOF. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The parties acknowledge that the forum designated by this Section 9(c) has a reasonable relation to this Agreement, and to the parties' relationship with one another. Notwithstanding the foregoing, nothing herein shall preclude GS Inc. from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Section 9. (ii) The agreement of an Indemnitee as to forum is independent of the law that may be applied in the action, and each Indemnitee agrees to this forum even if the forum may under applicable law choose to apply non-forum law. Each Indemnitee hereby waives, to the fullest extent permitted by applicable law, any objection which such Indemnitee now or hereafter may have to personal -10- 11 jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Section 9(c)(i). The parties undertake not to commence any action arising out of or relating to this Agreement in any forum other than the forum described in this Section 9(c). The parties agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the parties. 10. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by merger or consolidation), heirs, executors and administrators. 11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 12. Amendment. Each party understands that from time to time certain other persons may become Indemnitees and certain Indemnitees will cease to be Indemnitees to the extent provided in this Section 12. Accordingly, this Agreement may be amended by action of GS Inc. from time to time to add additional Indemnitees, without the approval of any other person other than such proposed Indemnitees, each of whom shall execute a counterpart of the signature page of this Agreement. This Agreement may also be amended by action of GS Inc. and without the approval of any -11- 12 other person to remove an Indemnitee; provided that such amendment shall not be effective unless GS Inc. has provided 30 days prior written notice to the Indemnitee and, in any event, such amendment shall not affect any rights of such Indemnitee to be indemnified in respect of Losses associated with the acts, omissions or status of such Indemnitee through the effective date of such termination (including the right to subsequent indemnification and expense advancement and reimbursement relating to such acts, omissions or status). 13. Waiver of Breach. The failure or delay of a party at any time to require performance by any other party of any provision of this Agreement, even if known, shall not affect the right of such party to require performance of that provision or to exercise any right, power, or remedy hereunder, and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right, power, or remedy under this Agreement. No notice to or demand on any party in any case shall, of itself, entitle such party to other or further notice or demand in similar or other circumstances. 14. Severability. GS Inc. and each Indemnitee agree that the agreements and provisions contained in this Agreement are severable and divisible, that each such agreement and provision does not depend upon any other provision or agreement for its enforceability, and that each such agreement and provision set forth herein constitutes an enforceable obligation between GS Inc. and such Indemnitee. -12- 13 Consequently, GS Inc. and each Indemnitee hereto agrees that neither the invalidity nor the unenforceability of any provision of this Agreement shall affect the other provisions hereof, and this Agreement shall remain in full force and effect and be construed in all respects as if such invalid or unenforceable provision were omitted. 15. No Presumption. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that an Indemnitee did not meet the applicable standard of conduct for indemnification under this Agreement. 16. Notices. Any communication, demand or notice to be given hereunder will be duly given when delivered in writing by hand or first class mail to GS Inc. at its principal executive office or to an Indemnitee at its last address appearing in the business records of GS Inc. (or to such other addresses as a party may designate by written notice to GS Inc.). 17. No Assignments. No Indemnitee may assign its rights or obligations under this Agreement without the prior written consent of GS Inc. 18. No Third Party Rights. Nothing expressed or referred to in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the parties to this Agreement and their successors and permitted assigns. -13- 14 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first written above. THE GOLDMAN SACHS GROUP, INC. By:______________________________ -14- 15 INDEMNITEES: -15- EX-10.29 27 SUBSCRIPTION AGREEMENT 1 Exhibit 10.29 SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT, dated as of April 24, 1992 ("Agreement"), among the Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii ("KS/BE"), Pauahi Holdings Corporation, a Hawaii corporation ("Knight's Parent") and Royal Hawaiian Shopping Center, Inc., a corporation organized under the laws of Hawaii and an indirect wholly-owned subsidiary of KS/BE ("Knight"), on the one hand, and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of the State of Delaware (the "Partnership"), on the other hand. The parties agree as follows: 1. Definitions. Capitalized terms used in this Agreement which are defined in the Knight Partnership Provisions referred to in Section 2 below have the respective meanings set forth in such Knight Partnership Provisions. For purposes of this Agreement, "subsidiary" includes any partnership the controlling general partner of which is the Partnership or any subsidiary thereof or the general partners of the Partnership (including a subsidiary by virtue of this definition). 2. Subscription and Sale. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 4 and 5 below, KS/BE, Knight's Parent, Knight and the Partnership agree as follows: on the Closing Date (as defined in Section 3(a) below), Knight shall purchase from the Partnership for a purchase price (the "Purchase Price") of Two Hundred and Fifty Million Dollars (U.S. $250,000,000) a Part J limited partnership interest in the Partnership with Part J Actual 2 Capital equal to $250 million, such limited partnership interest (the "Partnership Interest") to have the terms and conditions set forth in Article VI to the Memorandum of Agreement referred to in Section 3(b) below (such terms and conditions being referred to herein as the "Knight Partnership Provisions"), and the Partnership shall sell the Partnership Interest to Knight. The Partnership Interest is subject to adjustment following the Closing Date as set forth in the KS/BE Partnership Provisions. 3. Closing and Closing Date. (a) The consummation of the purchase and sale of the Partnership Interest shall be effective as of the date hereof (the "Closing"). The date for execution and delivery of the agreements or other instruments referred to in this Section 3 (unless previously executed and delivered) and for delivery of the Purchase Price (the "Closing Date") will occur on April 24, 1992 or on such other date thereafter as may be contemplated by Section 11 hereof as the Partnership shall elect upon not less than two business days' prior notice, given orally or in writing, to KS/BE (unless KS/BE consents, orally or in writing, to waiver of or shorter notice). (b) Knight shall, on or prior to the Closing Date, execute and deliver a Memorandum of Agreement of the Partnership, including Article VI, amended and restated as of November 30, 1990, as further amended as of October 14, 1991, November 26, 1991 and April 24, 1992 and effective as of the Closing (the "Memorandum of Agreement"). (c) On the Closing Date, Knight shall deliver the Purchase Price in immediately available funds to the Partnership by wire transfer to an account in New York city designated by the Partnership. -2- 3 (d) On the Closing Date, each of KS/BE and Knight's Parent shall execute and deliver to the Partnership the irrevocable proxy provided for in Section 10(c) hereof. On the Closing Date, Knight shall execute and deliver to the Partnership its irrevocable proxy/power-of-attorney and proxy provided for in Sections 9(c) and 10(c) hereof, respectively. (e) On the Closing Date, the Partnership and Knight shall execute and deliver the Registration Rights Agreement appearing as Annex 5 hereto (the "Registration Rights Agreement"). 4. Conditions to Knight's Obligations. Knight's obligation to purchase the Partnership Interest is subject to, in its discretion, the satisfaction in all material respects of the condition that the Partnership shall have performed on or prior to the Closing Date all its obligations hereunder to be performed on or prior to the Closing Date, and the satisfaction in all material respects as of the Closing Date of the following additional conditions: (i) any inaccuracy as of the Closing Date in the Partnership's representations and warranties set forth in Sections 6(d) and 6(e) hereof would not have or result in a material adverse impact on the business or financial condition of KS/BE and its subsidiaries taken as a whole and would not adversely affect the Partnership Interest; (ii) since the date of this Agreement to and including the Closing Date, the consummation of such transactions shall not have become prohibited under the laws of the United States to which KS/BE or its subsidiaries are subject; and (iii) Sullivan & Cromwell, counsel to the Partnership, shall have delivered their written opinion, dated the Closing Date, to KS/BE, Knight's Parent and Knight to the effect set forth in Annex 1 hereto. -3- 4 5. Conditions to the Partnership's Obligation. The Partnership's obligation to sell the Partnership Interest is subject to, in the Partnership's discretion, the satisfaction in all material respects as of the Closing Date of the following conditions: (i) any inaccuracy as of the Closing Date in the representations and warranties set forth in Sections 7(a) and 7(b) hereof would not have or result in the imposition of limitations or restrictions on the business or operations of the Partnership or its subsidiaries which are unacceptable to the Partnership and would not adversely affect the Partnership Interest (from the Partnership's viewpoint); (ii) since the date of this Agreement to and including the Closing Date, the consummation of such transactions shall not have become prohibited under the laws of the United States to which the Partnership is subject; and (iii) Nathan T.K. Aipa, Esq., counsel to KS/BE, Knight's Parent and Knight, shall have delivered his written opinion, dated the Closing Date, to the Partnership to the effect of Annex 2 hereto. 6. Representations, Warranties and Agreements of the Partnership. The Partnership represents, warrants and agrees as of the date hereof that: (a) Good Standing. The Partnership is a partnership formed and validly existing under the Revised Uniform Limited Partnership Act of the State of Delaware and has all requisite power and authority under such law to own its property and to carry on its business as now being conducted. Goldman, Sachs & Co. is a partnership formed and validly existing under the Partnership Law of the State of New York and has all requisite power and authority under such law to own its property and to carry on its business as now being conducted. (b) Qualification. With such exceptions as do not in the aggregate materially adversely affect their respective businesses, the Partnership and Goldman, Sachs & Co. have all permits, licenses and approvals necessary to carry on their respective businesses as presently conducted -4- 5 as required by law or the rules of the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and each other association, corporation or governmental agency having appropriate authority. (c) Stock Exchange Membership, etc. Goldman, Sachs & Co. is a member organization in good standing of the New York Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. (d) Regulatory Approvals. No filings, notifications, consents, approvals, authorizations or orders are required to be made with or secured from governmental or regulatory or judicial authorities by the Partnership (or any subsidiary thereof) in order to consummate the transactions contemplated by Section 2 hereof. (e) Power and Authority. The Partnership has full power and authority to enter into this Agreement and the Registration Rights Agreement, to sell the Partnership Interest and to perform the other obligations provided for herein and in the Registration Rights Agreement, all of which have been duly authorized by all proper and necessary action. (f) Binding Agreements. This Agreement constitutes, and when executed and delivered in accordance herewith the Registration Rights Agreement will constitute, a valid and binding agreement of the Partnership. When executed and delivered by Knight, the Memorandum of Agreement will constitute a valid and binding agreement of the other partners continuing as partners of the Partnership as of the Closing. (g) Litigation. As of the date of this Agreement, there are no proceedings or investigations pending or, so far as the Partnership knows, threatened before any court, arbitrator or governmental or administrative authority, instrumentality or agency which, in any one case or in the aggregate, could reasonably be expected to have a material adverse effect on the business, operations, properties, assets, or condition, financial or otherwise, of the Partnership and its subsidiaries, taken as a whole, or which could affect the execution, delivery and performance of this Agreement, the Registration Rights Agreement or the Memorandum of Agreement. (h) Legality. As of the date of this Agreement, the consummation of the purchase and sale of the Partnership Interest are not prohibited under the laws of the United -5- 6 States to which the Partnership or its subsidiaries are subject. (i) No Conflicts. There is no order or judgment and no provision of any mortgage, indenture, contract or agreement binding on the Partnership or affecting its property which would conflict with or prevent the execution, delivery or performance of this Agreement, the Registration Rights Agreement or the Memorandum of Agreement (including Article VI thereof), and no consents or waivers of parties to any such mortgage, indenture, contract or agreement (including the Memorandum of Agreement) are required for the Partnership's execution, delivery or performance of this Agreement, the Registration Rights Agreement or the Memorandum of Agreement (including Article VI thereof), other than those which have been obtained. (j) Financial Statements. The Partnership has furnished to KS/BE and Knight consolidated statements of financial condition of the Partnership as of November 29, 1991 and as of the end of each of the two preceding fiscal years, and consolidated statements of income and changes in partnership capital for the three fiscal years then ended, certified by Coopers & Lybrand, together with a consolidated statement of income for the fiscal quarter ended February 28, 1992. All such financial statements are complete and correct, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as may be specified therein, and present fairly the consolidated financial condition of the Partnership as of the respective dates specified therein, and the consolidated results of the operations of the Partnership for the periods specified therein. As of the date hereof, there has been no material adverse change since November 29, 1991 involving the business, prospects or financial condition of the Partnership. (k) Profit Plans. For the purposes of Section 12(B) of the Goldman Sachs Profit Participation Plans and Similar Plans, no general partner of the Partnership constitutes a "Protected Partner" of the Partnership. (l) SBCM. All material terms of SBCM's investment in the Partnership and Goldman, Sachs & Co. are as set forth in (i) the Memorandum of Agreement (as amended through the date hereof), (ii) the Amended and Restated Memorandum of Agreement of Goldman, Sachs & Co., (iii) the Amended and Restated Subscription Agreement, dated as of March 28, 1989, among The Sumitomo Bank Limited, SBCM, Goldman, Sachs & Co. and the Partnership, and (iv) the -6- 7 Letter Agreement, dated as of December 6, 1991, between SBCM and the Partnership. 7. Representations, Warranties and Agreements of KS/BE, Knight's Parent and Knight. KS/BE, Knight's Parent and Knight each represents, warrants and agrees as of the date hereof that: (a) Regulatory Approvals. There are no filings, notifications, consents, approvals, authorizations or orders which KS/BE, Knight's Parent or Knight (or any of their respective subsidiaries) is required to make with or secure from governmental, regulatory or judicial authorities in order to consummate the transactions contemplated by Section 2 hereof. (b) Power and Authority. Each of KS/BE, Knight's Parent and Knight has full power and authority to enter into this Agreement; Knight has full power and authority to purchase the Partnership Interest, to enter into the Registration Rights Agreement and to grant the irrevocable proxy/power-of-attorney and proxy referred to in Sections 9(c) and 10(c) hereof, respectively; KS/BE and Knight's Parent each have full power and authority to grant the irrevocable proxy referred to in Section 10(c) hereof; and each of KS/BE, Knight's Parent and Knight has full power and authority to perform the obligations provided for herein and, in the case of Knight, in the Registration Rights Agreement, all of which have been duly authorized by all proper and necessary corporate or other action. (c) Binding Agreements. This Agreement constitutes a valid and binding agreement of KS/BE, Knight's Parent and Knight. Each proxy and proxy/power-of-attorney delivered pursuant to this Agreement, whether by KS/BE, Knight's Parent or Knight, shall be valid and binding, shall be irrevocable and shall not be terminable by operation of law, dissolution or bankruptcy of KS/BE, Knight's Parent or Knight or for any other reason (provided, however, that upon a transfer permitted by this Agreement by KS/BE, Knight's Parent or Knight of shares or other securities that are the subject of such proxy or proxy/power-of-attorney to a third party, such proxy or proxy/power-of-attorney shall terminate with respect to the shares or securities that are so transferred). Each such irrevocable proxy and proxy/power-of-attorney shall be enforceable according to its terms. When executed and delivered by Knight, the Memorandum of Agreement and the Registration Rights Agreement will each constitute a valid and binding agreement of Knight. -7- 8 (d) Litigation. As of the date of this Agreement, there are no proceedings or investigations pending or, so far as each of KS/BE, Knight's Parent and Knight knows, threatened before any court, arbitrator or governmental or administrative authority, instrumentality or agency which could affect the execution, delivery and performance of this Agreement, the Registration Rights Agreement or the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof by KS/BE, Knight's Parent or Knight, as applicable. (e) Legality. As of the date of this Agreement, the consummation of the purchase and sale of the Partnership Interest, and the granting of the proxy/power of attorney and proxy referred to in Section 9(c) and 10(c) hereof, are not prohibited under the laws of the United States to which KS/BE, Knight's Parent or Knight or their subsidiaries are subject. (f) No Conflicts. There is no order or judgment, no provision of the certificate of incorporation of Knight or Knight's Parent or the constituent documents of KS/BE and no provision of any mortgage, indenture, contract or agreement binding on KS/BE, Knight's Parent or Knight or affecting their property which would conflict with or prevent the execution, delivery or performance of this Agreement or the Registration Rights Agreement, or the granting of the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof, and no consents or waivers of parties to any such mortgage, indenture, contract or agreement are required for KS/BE'S, Knight's Parent's or Knight's execution, delivery or performance of this Agreement or the Registration Rights Agreement, or the granting of the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof. (g) 1940 Act. Knight is not, and will not as a result of the consummation of the transactions contemplated hereby and by the Knight Partnership Provisions become, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended, and each of KS/BE, Knight's Parent and Knight covenant and agree to operate the business of Knight or any successor or assignee of Knight permitted by Section 15 hereof and Section 12 of the Knight Partnership Provisions so as not to cause Knight or any such entity, as applicable, to become an "investment company" at any time during the term hereof. -8- 9 8. Certain Agreements. (a) The Tax Matters Partner referred to in paragraph 11(g) of Article I of the Memorandum of Agreement shall periodically notify and consult with Knight during any administrative or judicial proceeding with respect to the determination of the taxable income of the Partnership. Notwithstanding the foregoing, the Tax Matters Partner shall have complete control of such administrative or judicial proceeding and, to the extent permitted by the Internal Revenue Code and other applicable laws, Knight agrees to file all tax returns consistently with the Partnership and to waive its rights to participate in any administrative or judicial proceeding with respect to the determination of the Partnership's taxable income. (b) Upon request of Knight, the Partnership shall consider taking actions to reduce Knight's tax liabilities; provided, however, the Partnership need not consider actions which would in the Partnership's sole judgment in any way adversely affect the Partnership, any general partner or any other limited partner. (c) Upon Knight's request, the Partnership shall provide Knight with (i) schedules showing the determination of the capital accounts of Knight's Partnership Interest and its Actual and Imputed Share (and the Partnership shall make appropriate persons available to provide Knight an explanation of, and to discuss with Knight the contents of, such schedules), (ii) annual audited consolidated financial statements of Goldman, Sachs & Co., and (iii) interim quarterly consolidated statements of income of the Partnership, as available. (d) The Partnership agrees that, in the event KS/BE, Knight's Parent or Knight incurs any expenses or liabilities as a result of the operation of Section 9 of -9- 10 either Article III or Article V or the last paragraph of paragraph 6 of Article I of the Memorandum of Agreement (other than liabilities expressly assumed by KS/BE, Knight's Parent or Knight pursuant to such provisions), the Partnership will indemnify and hold harmless KS/BE, Knight's Parent and Knight, as the case may be, against all such expenses (including reasonable fees and disbursements of counsel). (e) Notwithstanding any provision of the Memorandum of Agreement, (i) none of KS/BE, Knight's Parent or Knight shall, as a result of the entering into this Agreement, the Knight Partnership Provisions or the Registration Rights Agreement, or the consummation of the transactions contemplated hereby or thereby, be prevented from competing, directly or indirectly, with the Partnership, or any Firm or any Successor Partnership or Successor Business, (ii) KS/BE, Knight's Parent and Knight each hereby authorize the Management Committee of the Partnership to implement any Plan adopted and approved in accordance with paragraph 15 of Article I of the Memorandum of Agreement, and each irrevocably waives for itself and its successors and assigns any right to contest the terms of any Plan adopted in accordance with said paragraph 15, whether on grounds of unequal or disparate treatment, inconsistency or conflict with the terms and provisions of the Memorandum of Agreement, unfairness or any other reason, provided, in each case, that such Plan is not inconsistent with Section 5 or 6(c), as the case may be, of the Knight Partnership Provisions, and (iii) Knight shall be entitled to give notices under the Memorandum of Agreement in the manner provided in this Agreement in respect of notices required under the Memorandum of Agreement to be given to the Partnership. -10- 11 9. Absence of Control or Controlling Influence; Absence of Restrictions; Proxy/Power-of-Attorney. (a) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby or otherwise, KS/BE, Knight's Parent and Knight each agree that it does not have, and that it will not exercise or attempt to exercise and will prevent any successor thereof or any direct or indirect subsidiary thereof from exercising or attempting to exercise, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby, any requirement of law or otherwise, any control or controlling influence over the management, policies or affairs of the Partnership, the Company, any successor or successors to the Partnership or the Company (other than a successor pursuant to Section 6(c) of the Knight Partnership Provisions) or any direct or indirect subsidiary of the Partnership, the Company or any such successor (each such entity being referred to in this Section 9 as a "Goldman Entity"). The foregoing agreement shall extend, without limitation, to: (i) the management of any Goldman Entity; (ii) the business affairs of any Goldman Entity; (iii) the financial, accounting or tax affairs of any Goldman Entity; (iv) any matters relating to partnership interests in or securities of a Goldman Entity, including, without limitation, the admission, withdrawal or retirement of general or limited partners or the election or retirement of managing directors or the issuance, payment, redemption or repurchase of debt or equity securities; (v) partner, managing director and employee affairs, including, without limitation, the hiring and termination of employees, partner, managing director and employee compensation, partner, managing director and employee benefit arrangements and partner, managing director and employee retirement arrange- -11- 12 ments; and (vi) acquisitions by a Goldman Entity of all or part of any other entity, dispositions by a Goldman Entity of all or any part of a Goldman Entity, combination by a Goldman Entity with any other entity, incorporation of all or any part of a Goldman Entity, or liquidation of all or any part of the business of a Goldman Entity, it being understood that the foregoing shall not constitute a waiver by KS/BE, Knight's Parent or Knight of any terms or provisions of this Agreement or of the Knight Partnership Provisions or the Incidental Partnership Provisions, and that, in any event, Knight shall be treated equally in relation to the general partners and SBCM according to Knight's Actual Share. (b) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby or otherwise, each of KS/BE, Knight's Parent and Knight agrees that there are not, and that it will not impose or attempt to impose and will prevent any successor thereof or any direct or indirect subsidiary thereof from imposing or attempting to impose, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby, or any requirement of law or otherwise, any restrictions on matters relating to the capital of any Goldman Entity. The foregoing agreement shall extend, without limitation, to: (i) capital levels of, or increases to or withdrawals from capital of, any Goldman Entity; (ii) the interest (or other return) paid on the capital of limited partners (other than Knight) or, subject to the Partnership's agreement pursuant to Section 6(a) of the Knight Partnership Provisions, of general partners of any Goldman Entity; or (iii) the issuance or retirement of (w) general partnership interests or limited partnership interests (other than Knight's limited partnership interest) of any -12- 13 Goldman Entity, or the capital stock held by managing directors or others of any Goldman Entity, (x) debt securities of any Goldman Entity, whether senior or subordinated, short- or long-term, secured or unsecured, other than debt securities held by KS/BE, Knight's Parent or Knight, (y) equity securities of any Goldman Entity or (z) options or warrants to acquire any securities of any Goldman Entity, it being understood that the foregoing shall not constitute a waiver by KS/BE, Knight's Parent or Knight of any terms or provisions of this Agreement or of the Knight Partnership Provisions or the Incidental Partnership Provisions, and that, in any event, Knight shall be treated equally in relation to the general partners and SBCM according to Knight's Actual Share. (c) On the Closing Date, Knight shall deliver to the Partnership its irrevocable proxy/power-of-attorney in the form set forth in Annex 3 hereto. Knight agrees, to the extent (if any) that such irrevocable proxy/power-of-attorney is not enforceable under law, to provide its consent to any of the matters set forth therein and/or to execute any of the amendments, documents or other instruments referred to therein promptly following written demand by the Partnership. 10. Agreements in the Event of Incorporation of the Partnership. (a) Investment Representations; Non-Transferability. Knight represents that its acquisition hereby or from time to time hereafter of any Securities (as defined below) of the Company or any other Goldman Entity pursuant to this Agreement or the Memorandum of Agreement is or shall be for investment purposes. Except as provided in Section 10(b) below or as contemplated by Section 15(d) below or Section 5(f) of Article VI of the Memorandum of -13- 14 Agreement, each of Knight, Knight's Parent and KS/BE agrees that it shall not sell, transfer, exchange, make any assignment of (including an assignment for the benefit of Knight's, Knight's Parent's or KS/BE'S creditors or a transfer to a trustee) or receive for the benefit of Knight's, Knight's Parent's or KS/BE's creditors, give away, pledge, hypothecate or otherwise dispose of any Securities hereby or from time to time hereafter acquired by it, nor shall Knight, Knight's Parent or KS/BE enter into any agreement as a result of which any person or entity will or could obtain any interest in such Securities. For purposes of this Agreement, "Securities" shall refer to (i) any common stock issuable to Knight in exchange for its Part J Actual Capital (including any common stock which may be issued in exchange therefor pursuant to Annex 7 hereof, "Common Stock"), and any preferred stock issuable to Knight in exchange for its Part K Interest, in each case as contemplated by the Knight Partnership Provisions, and any subscription rights for such common stock or preferred stock granted hereto or thereto, (ii) any other securities issuable to Knight pursuant to Section 5 of the Knight Partnership Provisions and (iii) any other securities of the Company or any other Goldman Entity issuable to Knight pursuant to this Agreement or the Knight Partnership Provisions. Any Securities issued shall be issued in registered form and, other than any Common Stock when disposed of to the public, shall bear a legend in substantially the following form or such other form as KS/BE and the Partnership (or the Company) may agree: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ARE SUBJECT TO THE PROVISIONS OF A SUBSCRIPTION AGREEMENT, DATED AS OF APRIL 24, 1992, AMONG ROYAL HAWAIIAN SHOPPING CENTER, INC., PAUAHI HOLDINGS CORPORATION, THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP AND THE GOLDMAN SACHS -14- 15 GROUP, L.P. NO HOLDER OF THIS CERTIFICATE OTHER THAN KNIGHT SHALL BE ENTITLED TO ANY RIGHTS HEREUNDER AND, IF HELD BY ANY SUCH HOLDER, THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY SHALL BE VOID AND BE DEEMED CANCELLED. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION." (b) Disposition of Securities. (i) Knight shall have the rights set forth in this Section 10(b) to dispose from time to time of the Common Stock issuable to it pursuant to the Knight Partnership Provisions and Annex 7 hereto. (ii) Except as otherwise provided in (iv) below or in Section 2(c) of the Registration Rights Agreement, Knight may dispose of Common Stock only after the date when the Company shall have become a public company by the initial registration by the Company of its common stock under the Securities Act of 1933 (the "1933 Act"). Any such disposition may be made only (x) by means of a widely-dispersed underwritten public offering in conformity with regulatory requirements and guidelines applicable to KS/BE, Knight's Parent and Knight and (y) pursuant to the exercise of Knight's demand right or piggy-back rights as set forth in the Registration Rights Agreement attached as Annex 5 hereto (which sets forth procedures for public offerings whether or not registered under the 1933 Act). The successor to the broker-dealer business of the Partnership (hereinafter referred to as the "Company Broker-Dealer") shall be the book-running managing underwriter of the underwriting syndicate. (iii) In connection with any disposition of securities of the Company by the Company, Knight, the -15- 16 Company's managing directors or otherwise, Knight agrees that it shall be subject to the same customary limitations on sales following consummation of such disposition as managing directors of the Company agree to with the underwriters of such securities and that it will execute and deliver any agreement to such effect required by such underwriters. (iv) In addition to the demand right and piggy-back rights granted pursuant to Section 10(b) (ii) hereof and the Registration Rights Agreement, Knight shall be entitled, from and after the fifth anniversary of the initial public offering by the Company of its common stock, to sell its Common Stock in the manner and amounts permitted by Rule 144(e) under the 1933 Act, or any similar successor provision, provided, that in the case of any such sale the Company shall have received an opinion of counsel to Knight acceptable to it that such sale may be made without registration under the 1933 Act. (c) Proxy and Voting Agreement. (i) On the Closing Date, KS/BE, Knight's Parent and Knight shall each deliver to the Partnership its irrevocable proxy in the form set forth in Annexes 4(a) and (b) hereto, respectively. KS/BE, Knight's Parent and Knight each further agree, to the extent (if any) that such irrevocable proxy is not enforceable under law, to vote any securities of the Company or any subsidiary of the Company held by it (whether acquired pursuant to this Agreement or otherwise) in the manner provided in such proxy. KS/BE further agrees to cause any direct or indirect subsidiary thereof (other than Knight's Parent or Knight) to vote any securities of the Company or any subsidiary thereof that may be -16- 17 acquired by such subsidiary of KS/BE in the manner provided in KS/BE's foregoing proxy. (ii) Knight understands that time is of the essence in a public offering, and if, in connection with any recapitalization in connection with a public offering, the Company wishes for any reason to modify the terms of Knight's securities, Knight agrees to consider (without any obligation to consent to) such modifications according to any reasonable time schedule prescribed by the Company. 11. Delay in Closing Date; Adjustments. In the event the Closing Date does not occur on or before April 24, 1992, the Closing Date shall be automatically extended, subject to Section 13 below, until the date when the conditions thereto are satisfied (or waived) and up to five business days thereafter, within which five business days the Closing Date shall occur. In the event of such extension, the parties shall mutually agree upon such adjustments to the terms hereof as shall be necessary or appropriate and shall use best efforts to have the Closing Date occur as soon as possible. 12. Confidentiality. (a) Each party will keep confidential any and all information furnished to it by another party or its representatives in connection with the transactions contemplated by this Agreement, the Memorandum of Agreement and the other agreements referred to herein, except to the extent any such information is generally available to the public (other than as a result of a disclosure by such party or its representatives), and the parties will instruct their respective partners, directors, officers, employees and other representatives having access to such information of such obligation -17- 18 of confidentiality. If this Agreement is terminated pursuant to Section 13(a) hereof, each party will return to the other all copies of material containing information disclosed to such party by the other. At the time this Agreement is terminated pursuant to Section 13(b) hereof or at the time immediately following an initial public offering registered under the 1933 Act by the Company, the parties hereto shall return to each other copies of materials previously disclosed to the other through such time as the parties shall agree at such time. (b) Without limitation of the foregoing, KS/BE, Knight's Parent and Knight each hereby specifically covenants and agrees that it shall not, in the course of making or securing filings, notifications, consents, approvals, authorizations or orders with governmental or administrative agencies or bodies or courts for any reason following the date of this Agreement, disclose to any person at any time any information (financial or other) concerning the Partnership which is not publicly disclosed, unless the Partnership otherwise consents or unless pursuant to a court or administrative order or procedure. (c) The parties agree that they will advise and confer with each other prior to the issuance of any report, statement, press release or other written statement identifying the other party or relating to the transactions contemplated by this Agreement, the Memorandum of Agreement and the other agreements referred to herein and the implementation hereof and thereof. No report, statement, press release or other written statement shall be disseminated publicly or delivered to any other person without the specific, written consent of the other party, which consent may not be unreasonably withheld, provided, however, that either party may deliver written statements to -18- 19 administrative agencies or bodies or courts or trademark commissions, and provided further, however, that the Partnership and KS/BE may mutually agree upon guidelines for routine disclosures (i.e., references to the other in stockholder reports, brochures or other documents describing their respective businesses, etc.) pursuant to which the disclosures covered by such guidelines may be made without specific or prior approval. 13. Termination. This Agreement shall terminate: (a) if the Closing Date does not occur on or before July 31, 1992 for any reason; (b) on the date of payment of the distribution with respect to the final year of a Withdrawal Period; or (c) on the date of disposition by Knight or cancellation of the Securities set forth in clause (i), and, if such are equity securities or exercisable, convertible or otherwise exchangeable in any manner into equity securities, (ii) or (iii) of Section 10(a) hereof; provided, however, that (i) the agreements set forth in Sections 12, 14 and 15(b) (as such relates to Sections 12 and 14) hereof shall continue indefinitely and (ii) the agreements set forth in Section 10(c) shall continue for a period of five years from the date of the final disposition or cancellation of all Securities set forth in (c) above. 14. Governing Law; Arbitration. (a) This Agreement is being entered into and is intended to be performed in the State of New York and will -19- 20 be construed and enforced in accordance with and governed by the laws of the State of New York. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Agreement and each of the Annexes hereto shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne equally by the parties hereto. All other costs, including counsel and witness fees, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State and any other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 15. Ownership of Knight; KS/BE Agreement with Respect to Knight; Assignment. (a) KS/BE, Knight's Parent and Knight each agrees that Knight, and any assignee of Knight pursuant to Section 15(d) below (other than KS/BE), will remain a wholly- -20- 21 owned subsidiary of KS/BE or of another wholly-owned subsidiary of KS/BE. Except as provided in Section 15(d) below and Section 12 of the Knight Partnership Provisions, none of KS/BE, Knight's Parent or Knight shall (i) have any right to sell, transfer, exchange, make any assignment of (including in assignment for the benefit of Knight's or KS/BE's creditors or a transfer to a trustee) or receive for the benefit of Knight's or KS/BE's creditors, give away, pledge, hypothecate, or otherwise to dispose of any of Knight's interest in the Partnership or in the profits or assets thereof, or KS/BE's interest, direct or indirect, in Knight, or (ii) have the right to enter into any agreement as a result of which any person or entity will or could obtain any interest in the Partnership or the Partnership Interest, or KS/BE's interest, direct or indirect, in Knight. (b) KS/BE, Knight's Parent and Knight each agrees that (i) the equity securities of Knight and Knight's Parent shall at all times during the term hereof be owned, directly or indirectly, by KS/BE, (ii) any securities of Knight or Knight's Parent other than common equity securities shall be either (x) non-recourse to Knight or Knight's Parent, or (y) guaranteed by, or otherwise entitled to the credit support of, KS/BE, and (iii) Knight's interest in the Partnership will not be used, directly or indirectly, as a means of obtaining financing for KS/BE or any of its direct or indirect subsidiaries, and no representations specifically regarding the Partnership or the performance of the Partnership Interest, nor any information regarding the Partnership or the Partnership Interest which is subject to Section 12(a) hereof, shall be provided in connection with any such financing. -21- 22 (c) KS/BE agrees that it shall cause Knight to perform all the obligations of Knight contained in this Agreement, the Memorandum of Agreement and the other agreements contemplated hereby and thereby. (d) Each of KS/BE, Knight's Parent and (except as provided in the next sentence) Knight may not assign this Agreement or any of the other agreements contemplated hereby or by the Memorandum of Agreement to any party. With the consent of the Partnership (which shall not be unreasonably withheld), Knight or Knight's Parent may assign this Agreement to KS/BE or another directly or indirectly wholly-owned subsidiary of KS/BE organized under the laws of any United States jurisdiction, provided that KS/BE or such subsidiary shall execute and deliver such amendments to, or documents or instruments of assumption of, this Agreement, the Memorandum of Agreement and the other agreements contemplated hereby and thereby (including the irrevocable proxies and proxy/power-of-attorney) as are required by the Partnership so as to become a party thereto successor to Knight or Knight's Parent, as the case may be, with all rights and obligations provided herein and therein. Such assignment shall release the assignor from its obligations hereunder. Any assignment made in violation of this provision shall be null and void. 16. Survival of Agreement; Further Assurances. (a) All terms and provisions of this Agreement shall survive execution and delivery of this Agreement, the Closing Date and any investigation made at any time by any party or on its behalf until terminated pursuant to Section 13 hereof; provided, however, that the representations and warranties of the Partnership contained in Section 6 and of KS/BE and Knight contained in Section 7 shall terminate on December 31, 1993. -22- 23 (b) Each of KS/BE, Knight and the Partnership agrees that, in the event any of the consents, approvals, authorizations or orders secured in order to consummate the transactions contemplated hereby are threatened to be modified or revoked, each shall use its best efforts to prevent such modification or revocation. 17. Registered Address; Notices. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to KS/BE, Knight's Parent or Knight, at The Trustees of the Kamehameha Schools/Bernice Pauahi Bishop Estate, P.O. Box 3466, 567 South King Street, Suite 200, Honolulu, Hawaii 96801, Attention: Nathan T.K. Aipa, General Counsel, or at such other address as KS/BE, Knight's Parent or Knight shall furnish to the Partnership in writing, or (b) if to the Partnership, at 85 Broad Street, New York, New York 10004, Attention: Robert J. Katz, General Counsel, or at such other address as the Partnership shall have furnished to KS/BE, Knight's Parent or Knight in writing. 18. Miscellaneous. (a) For purposes of Clause (i) of the definition of "General Partners' Capital" set forth in the Knight Partnership Provisions, those certain investments made by the Partnership and Affiliates prior to November 29, 1991 are set forth in Annex 8 hereto. (b) Annex 9 hereto contains a schedule setting forth certain calculations in respect of Knight's Actual Share. (c) This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective -23- 24 successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership contained in this Agreement shall be had against any current or future partner of the Partnership. This Agreement embodies the entire agreement and understanding between KS/BE, Knight and the Partnership and supersedes all prior agreements and understandings relating to the subject matter hereof, whether written or oral. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -24- 25 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP By: /s/ Henry H. Peters APPROVED AS TO FORM ------------------------------- CONTENTS & AUTHORIZATION Henry H. Peters TRUSTEE /s/ [ILLEGIBLE] By: /s/ William S. Richardson - ---------------------- ------------------------------- LEGAL DEPARTMENT William S. Richardson TRUSTEE By: /s/ Matsuo Takabuki ------------------------------- Matsuo Takabuki TRUSTEE ROYAL HAWAIIAN SHOPPING CENTER, INC. By: /s/ [ILLEGIBLE] ------------------------------- Title: PRESIDENT By: /s/ [ILLEGIBLE] ------------------------------- Title: TREASURER PAUAHI HOLDINGS CORPORATION By: /s/ [ILLEGIBLE] ------------------------------- Title: PRESIDENT By: /s/ [ILLEGIBLE] ------------------------------- Title: Vice PRESIDENT THE GOLDMAN SACHS GROUP, L.P. By: /s/ [ILLEGIBLE] ------------------------------- Title: Partner -25- 26 Annex 5 to Subscription Agreement REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of April 24, 1992 (the "Agreement"), between Royal Hawaiian Shopping Center, Inc. ("Knight"), a Hawaii corporation and an indirect wholly-owned subsidiary of The Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii ("KS/BE"), and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of Delaware (the "Partnership"). WHEREAS, pursuant to a Subscription Agreement, dated as of April 24, 1992, among KS/BE, Knight's Parent, Knight and the Partnership (the "Subscription Agreement"), Knight is purchasing as of the date hereof a limited partnership interest in the Partnership, as described in the Subscription Agreement and in the "Knight Partnership Provisions" referred to in Section 2 of the Subscription Agreement (the "Knight Partnership Provisions"); and WHEREAS, pursuant to Section 10(b) of the Subscription Agreement, the Partnership has granted Knight certain registration rights with respect to securities of the Partnership's corporate successor (the "Company") in the event the Partnership incorporates and registers its common stock under the Securities Act of 1933 (the "1933 Act"); THEREFORE, the parties agree as follows: 1. Definitions. The terms used in this Agreement which are defined in the Subscription Agreement or in the Knight Partnership Provisions have the respective meanings set forth therein. 2. Piggy-Back Registration Rights. (a) (i) Following the initial U.S. registered public offering of the Company's common stock, in the event the Company intends (x) to file a registration statement under the 1933 Act with respect to an offering of its securities or to publicly offer its securities outside the United States and (y) to offer managing directors of the 27 Company rights to include up to a specified maximum aggregate number of additional shares of common stock owned by them in such registration statement or foreign offering, the Company shall provide Knight with notice of such intention no less than 20 business days prior to such filing or to the commencement of such foreign offering. Knight is hereby granted rights to participate with the Company's managing directors in such registration statement or foreign offering on a pro rata basis with the managing directors. In the event Knight elects to have Common Stock registered (or, in the case of a foreign offering, offered) on its behalf, Knight may have registered (or offered) such percentage of the maximum number of shares of Common Stock to be registered (or offered) on behalf of Knight, SBCM and the managing directors as equals the percentage obtained by dividing (x) the number of shares of Common Stock sought to be registered (or offered) at such time by Knight on its behalf, by (y) the sum of such number of shares and the aggregate number of shares of the Company's common stock sought to be registered (or offered) at such time by SBCM and by the managing directors on their behalf. (ii) Knight may elect to exercise the foregoing rights by giving written notice (an "Election Notice") of its election to participate and the number of shares of Common Stock of its desired participation to the Company within 10 business days of receipt by Knight of the foregoing notice from the Company. On receipt of Knight's election to participate, the Company shall either include such shares of Common Stock on behalf of Knight in the registration statement or foreign offering or, within 10 business days of receipt by the Company of Knight's notice, deliver written notice (a "Purchase Notice") to Knight specifying either that the Company elects or that the Company is affording its managing directors the right to -2- 28 elect (with or without the Company) to purchase all or a portion of the shares otherwise to be registered or offered on behalf of Knight in lieu of including them in the registration statement or foreign offering. In the event the Company provides in its Purchase Notice that it will offer purchase rights to its managing directors in all or any portion of the shares the subject of Knight's Election Notice, the Company shall have a period of ten business days from the delivery of the Purchase Notice within which to determine and notify Knight by a subsequent written notice (the "MD Purchase Notice") as to the number of shares to be purchased by the managing directors and the Company. Thereafter, the Company shall be obligated to purchase (together, if applicable, with the managing directors specified in any MD Purchase Notice) the shares the subject of such Purchase Notice or MD Purchase Notice, as the case may be, from Knight on or prior to the consummation of the registered or foreign public offering. The purchase price applicable to such purchase shall be the initial public offering price of the shares actually sold pursuant to the registration statement or foreign offering, less the applicable gross underwriting discount. (If such registered or foreign public offering is not consummated, however, the Company and/or the managing directors shall not be required to purchase any shares from Knight pursuant to this paragraph.) (iii) In the event the Company does not deliver a Purchase Notice and intends to proceed with a registered or foreign public offering including Common Stock on behalf of Knight, and in the event Knight does not provide the Company in writing with the information concerning Knight required to be included in the registration statement or offering circular on or prior to five business days prior to the date of the Company's intended filing of the registration -3- 29 statement or commencement of the offering, the Company need not include shares on behalf of Knight in the registration statement or foreign offering. (b) In the event the Company includes Common Stock in a registration statement or foreign offering on behalf of Knight pursuant to this Section 2, the Company may file said registration statement with the Securities Exchange Commission (if applicable) and offer the Common Stock to the public in the manner and according to the time schedule chosen by the Company in its sole discretion, including, without limitation, the choice of representatives, underwriters, the form of underwriting agreement, the United States jurisdictions in which the securities shall be registered or qualified, etc., provided, however, that the underwriting agreement as it relates to Knight and the reimbursement of expenses, indemnification and contribution provided by the Company to the underwriters with respect to Common Stock sold on behalf of Knight shall, except as otherwise provided in this Section 2(b), be in such form as the Company Broker-Dealer customarily uses at the time of such offering with clients with regard to such type of secondary offering of equity securities (the "Standard Form"), provided (i) the representations and warranties and agreements of the Company and the opinions of counsels for the Company contained in the Standard Form shall be appropriately modified so as to be not more burdensome to the Company than the representations and warranties and the opinions delivered in connection with the Company's initial public offering, (ii) the expenses of such registration and offering shall be borne by the parties as set forth in this Section 2(b), (iii) the representations and warranties, agreements and opinions of counsel made or deliverable on behalf of Knight as selling stockholder to the underwriters under the Standard Form may have such -4- 30 modifications thereto as the Company Broker-Dealer and Knight shall negotiate in good faith at the time of such offering and (iv) in consideration and as part of the purchases and sales and other transactions contemplated by the Subscription Agreement, the Company (and not Knight) shall provide reimbursement of expenses, indemnification and contribution to the underwriters and their controlling persons as set forth in the Standard Form. In addition, any disposition of Common Stock on behalf of Knight must be in a widely-dispersed public offering and in conformity with regulatory requirements and guidelines applicable to KS/BE and Knight. The Partnership and Knight further agree that Knight shall pay the expenses of the Company in connection with an offering pursuant to this Section 2 on a pro rata basis with the managing directors, the Company and any other party participating in such registration statement or offering (i.e., pro rata on the basis of the aggregate initial public offering price of Common Stock included on Knight's, the managing directors', the Company's and any such party's behalf in said registration statement or foreign offering). Knight shall also pay all its own expenses in connection therewith. (c) In the event managing directors of the Company are afforded piggy-back registration rights in the initial public offering of the Company's common stock, Knight shall have the right to participate in such registration statement on a pro rata basis with such managing directors as specified in this Section 2, provided that Knight must deliver written notice of the exercise of its rights within 10 business days of notification by the Company, which notification by the Company need not precede the filing of the registration statement by more than 20 business days. -5- 31 3. Demand Right. (a) (i) In the event that Knight has not had the opportunity to exercise and sell shares pursuant to the piggy-back registration rights granted to it pursuant to Section 2 hereof and Section 10(b) of the Subscription Agreement (other than as a result of the exercise by the Company or its managing directors of their respective purchase rights under Section 2(a)(ii) hereof) prior to the fifth anniversary of the initial U.S. registered public offering by the Company of its common stock, it shall have the right, at any time during the term hereof after such fifth anniversary, to exercise the demand right referred to in Section 10(b)(ii) of the Subscription Agreement by providing written notice (a "Disposition Notice") to the Company of its intention to exercise such demand right and specifying the number of shares of Common Stock sought to be disposed of and whether Knight desires that the offering be made in the United States and/or outside the United States. (ii) On receipt of a Disposition Notice, the Company may indicate, by written notice (a "Delay Notice") delivered to Knight within ten business days of receipt by the Company of the Disposition Notice, that Knight may not dispose of any Common Stock during a period of up to 90 days (as specified in the Delay Notice) following the Company's receipt of the Disposition Notice if, in the judgment of the Company in its sole discretion, such disposition would interfere with a public offering of the Company's securities to be made by the Company (within or outside the United States) during such specified period, and Knight shall have no right to proceed with the proposed distribution during such period (although Knight may otherwise be afforded piggy-back rights to participate in such public offering pursuant to Section 2 hereof). -6- 32 (iii) In the event the Company does not proceed with the filing of a registration statement under the 1933 Act with respect to such a public offering or otherwise commence a public offering outside the United States within the period specified in the Delay Notice, Knight shall be entitled to deliver another Disposition Notice at the end of the specified period if Knight still desires to effect a disposition, and the Company shall have no further right to deliver a Delay Notice with respect to such intended distribution unless Knight has not made such distribution (other than due to the fault of the Company) within 90 days of delivery to the Company of the second Disposition Notice. (b) Following receipt of a Disposition Notice, if the Company does not deliver a Delay Notice, the Company may deliver a Purchase Notice or an MD Purchase Notice in the manner set forth in Section 2(a)(ii) hereof, and the Company, or the managing directors and the Company, as the case may be, shall have a period of ten business days following delivery of the Purchase Notice or MD Purchase Notice (as applicable) to consummate the purchase of the shares therein specified. In the event the Company specifies pursuant to the Purchase Notice or the MD Purchase Notice (as applicable) that only a portion of the shares the subject of the Disposition Notice are to be purchased, the Company shall be obligated to proceed at such time with the disposition in a widely dispersed public offering of the portion of the shares not specified to be purchased. The purchase price applicable to any purchase of shares of Common Stock pursuant to this paragraph (b) shall be the average closing price for the 20 trading days prior to the date of the Disposition Notice, less an amount equal to the gross underwriting discount that would be applicable to a widespread United States public offering on the date of the Purchase Notice with respect to such shares as justified in -7- 33 a written statement delivered by the Company and the Company Broker-Dealer to Knight. (c) In the event the Company registers Common Stock of Knight under the 1933 Act pursuant to the exercise of Knight's demand right as set forth in Section 10(b) of the Subscription Agreement and this Section 3 (in an offering within or outside the United States), the following procedures and agreements shall govern: (i) The Company will use its best efforts to prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to the Common Stock as promptly as practicable after the date on which the Company became obligated pursuant to Sections 3(a) or (b) above to participate in a public offering; provided, however, the Company need not file such registration statement until it has received in writing from Knight the information required to be provided by Knight for inclusion in the registration statement. Unless Knight and the Company otherwise agree, the Company will use its best efforts to cause the registration statement to become effective as promptly as practicable following the date on which the registration statement is filed with the Commission. (ii) Following the effective date of the registration statement, the Company will prepare and file with the Commission such amendments or supplements to the registration statement (or to the prospectus forming a part thereof) as may be required pursuant to the underwriting agreement referred to below. (iii) The Company shall take such action as Knight or the representatives of the underwriters of the offering (the "Representatives") shall request to -8- 34 qualify the Common Stock to be disposed of for offering and sale under the securities laws of such United States jurisdictions as the Representatives may reasonably request and to comply with such laws so as to permit continuance of sales and dealings therein for such period as may be required pursuant to the underwriting agreement referred to below; provided, however, in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (d) In connection with any such offering the Company, Knight and the Representatives shall enter into a Standard Form underwriting agreement as provided in Section 2(b) above, except that Knight shall pay all expenses of the Company and Knight in connection with such offering, including the following: (i) the fees, disbursements and expenses of the Company's counsel(s) (United States and foreign) and accountants in connection with the registration of the Common Stock to be disposed of under the 1933 Act and all other expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to the underwriters and dealers; (ii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s), any Blue Sky or Legal Investment memoranda, any selling agreements and any other documents in connection with the offering, sale or delivery of the Common Stock to be disposed of; (iii) all expenses in connection with the qualification of the Common Stock to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in -9- 35 connection with such qualification and in connection with any Blue Sky and Legal Investment surveys; (iv) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Common Stock to be disposed of; (v) all costs and expenses of the underwriters which would otherwise be reimbursed or paid for by the Company; and (vi) all costs and expenses incident to the performance of Knight's obligations in connection with the offering, including (x) any fees and expenses of counsel(s) for Knight, (y) the fees and expenses of any attorney-in-fact or custodian for Knight or any depositary and (z) all expenses and taxes (domestic and foreign) incident to the sale and delivery by Knight to the underwriters of the Common Stock to be disposed of. The Company shall pay the costs and charges of any transfer agent or registrar and the cost of preparing certificates for shares of Common Stock to be disposed of. 4. Reimbursement of Expenses, Indemnification and Contribution. (a) The Company will indemnify and hold harmless Knight against any losses, claims, damages or liabilities to which Knight may be subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any amendment or supplement thereto, or arise out of or are based upon (i) in connection with an offering registered under the 1933 Act, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) in connection with -10- 36 an offering not registered under the 1933 Act, the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse Knight from time to time upon request for any legal or other expenses reasonably incurred by Knight in connection with investigating or defending any such action or claim; provided, however, that the Company shall not be liable to Knight in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by Knight for use therein. (b) Knight and KS/BE will, jointly and severally, indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or an amendment or supplement thereto, or arise out of or are based upon (i) in connection with an offering registered under the 1933 Act, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) in connection with an offering not registered under the 1933 Act, the omission or alleged omission to state therein a material fact necessary -11- 37 in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim; provided, however, that Knight and KS/BE shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any such amendment or supplement other than in reliance upon and in conformity with written information furnished to the Company by Knight expressly for use therein. (c) Promptly after receipt by an indemnified party under paragraph (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such paragraph, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to the indemnified party otherwise than under such paragraph. In case any such action shall be brought against the indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably acceptable to the indemnified party (which may include Sullivan & Cromwell), and, after notice from the indemnifying party to the indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to the indemnified party under such -12- 38 paragraph for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the indemnified party, in connection with the defense thereof other than reasonable costs of investigation; provided, however, that, in the event such indemnified party shall have reasonably concluded that there are defenses available to it which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action as it relates to such defenses on behalf of such indemnified party and the fees and expenses of separate counsel relating to such defenses for such indemnified party shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for the reasonable fees and expenses of more than one local counsel in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances and one national counsel coordinating all such actions. (d) If the indemnification provided for in this Section 4 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect not only (i) the relative benefits received by the Company on the one hand and Knight and KS/BE on the other from the offering of Common Stock on behalf of Knight but also (ii) the relative fault of the Company on the one hand and Knight and KS/BE on the other in connection with the statements or omissions which resulted in such losses, -13- 39 claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Knight and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The partnership and Knight agree that it would not be just and equitable if contributions pursuant to this paragraph (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this paragraph (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this paragraph (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company, Knight and KS/BE under this Section 4 shall be in addition to any liability which the Company, Knight and KS/BE may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company or Knight or KS/BE, respectively, within the meaning of the 1933 Act (including, as to Knight, Knight's Parent and KS/BE) and to their respective officers, directors and Trustees. -14- 40 5. Governing Law; Arbitration. (a) This Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Agreement shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne equally by the parties hereto. All other costs, including counsel and witness fees, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State or other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. -15- 41 6. Assignment; Assumption. (a) Knight may not assign this Agreement to any party, other than (i) to KS/BE or Knight's Parent, or (ii) otherwise in connection with an assignment duly approved by the partnership pursuant to Section 15(d) of the Subscription Agreement. Any assignment made in violation of this Section 6 shall be null and void. (b) In the event the Partnership or the Company sells or transfers its business to or otherwise combines with any person and Knight receives securities of such person in an exchange subject to Section 6(c) of the Knight Partnership Provisions, the Partnership (and the Company) and Knight agree that the Partnership's (or the Company's) remaining obligations (if any) under this Agreement shall be assumed, as a term of such sale, transfer or combination, by such other person on terms consistent to the fullest extent practicable with the terms hereof. 7. Registered Address; Notices. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to KS/BE, Knight's Parent or Knight, at The Kamehameha Schools/Bernice Pauahi Bishop Estate, P.O. Box 3466, 567 South King Street, Suite 200, Honolulu, Hawaii 96801, Attention: Nathan T.K. Aipa, Esq., General Counsel, or at such other address as Knight shall furnish to the Partnership in writing, or (b) if to the Partnership, at 85 Broad Street, New York, New York 10004, Attention: Robert J. Katz, General Counsel, or at such other address as the Partnership shall have furnished to Knight in writing. -16- 42 8. Miscellaneous. This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership contained in this Agreement shall be had against any current or future general partner of the Partnership. This Agreement shall terminate upon the disposition by Knight of all shares of its Common Stock, other than Sections 4 and 5 hereof, which shall survive any such disposition. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -17- 43 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. ROYAL HAWAIIAN SHOPPING CENTER, INC. By: ------------------------------------ Title: By: ------------------------------------ Title: THE GOLDMAN SACHS GROUP, L.P. By: ------------------------------------ -18- EX-10.30 28 SUBSCRIPTION AGREEMENT 1 Exhibit 10.30 SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT, dated as of November 21, 1994 ("Agreement"), among the Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii ("KS/BE"), Pauahi Holdings Corporation, a Hawaii corporation ("Knight's Parent"), and Royal Hawaiian Shopping Center, Inc., a corporation organized under the laws of Hawaii and an indirect wholly-owned subsidiary of KS/BE ("Knight"), on the one hand, and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of the State of Delaware (the "Partnership"), on the other hand. The parties agree as follows: 1. Definitions. Capitalized terms used in this Agreement which are defined in the Knight Partnership Provisions referred to in Section 2 below have the respective meanings set forth in such Knight Partnership Provisions. For purposes of this Agreement, "subsidiary" includes any partnership the controlling general partner of which is the Partnership or any subsidiary thereof or the general partners of the Partnership (including a subsidiary by virtue of this definition). 2. Subscription and Sale. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 4 and 5 below, KS/BE, Knight's Parent, Knight and the Partnership agree as follows: on the Closing Date (as defined in Section 3(a) below), Knight shall purchase from the Partnership for a purchase price (the "Purchase Price") of Two Hundred Fifty Million Dollars (U.S. $250,000,000) a Part P limited partnership interest in the Partnership with Part P Actual 2 Capital equal to $250 million, such limited partnership interest (the "Partnership Interest") to have the terms and conditions set forth in Article VII to the Memorandum of Agreement referred to in Section 3(b) below (such terms and conditions being referred to herein as the "Knight Partnership Provisions"), and the Partnership shall sell the Partnership Interest to Knight. The Partnership Interest is subject to adjustment following the Closing Date as set forth in the Knight Partnership Provisions. 3. Closing and Closing Date. (a) The consummation of the purchase and sale of the Partnership Interest shall be effective as of the date hereof (the "Closing"). The date for execution and delivery of the agreements or other instruments referred to in this Section 3 (unless previously executed and delivered) and for delivery of the Purchase Price (the "Closing Date") will occur on November 21, 1994 or on such other date thereafter as may be contemplated by Section 11 hereof as the Partnership shall elect upon not less than two business days' prior notice, given orally or in writing, to KS/BE (unless KS/BE consents, orally or in writing, to waiver of or shorter notice). (b) Knight shall, on or prior to the Closing Date, execute and deliver a Memorandum of Agreement of the Partnership, including Article VII, amended and restated as of November 27, 1992, as further amended through November 26, 1993 and as further amended and effective as of the Closing (the "Memorandum of Agreement"). (c) On the Closing Date, Knight shall deliver the Purchase Price in immediately available funds to the Partnership by wire transfer to an account in New York City designated by the Partnership. -2- 3 (d) On the Closing Date, each of KS/BE and Knight's Parent shall execute and deliver to the Partnership the irrevocable proxy provided for in Section 10(c) hereof. On the Closing Date, Knight shall execute and deliver to the Partnership its irrevocable proxy/power-of-attorney and proxy provided for in Sections 9(c) and 10(c) hereof, respectively. (e) On the Closing Date, the Partnership and Knight shall execute and deliver Amendment No. 1 (the "Amendment to the Registration Rights Agreement") to the Registration Rights Agreement appearing as Annex 5 hereto (as so amended, the "Registration Rights Agreement"). 4. Conditions to Knight's Obligations. Knight's obligation to purchase the Partnership Interest is subject to, in its discretion, the satisfaction in all material respects of the condition that the Partnership shall have performed on or prior to the Closing Date all its obligations hereunder to be performed on or prior to the Closing Date, and the satisfaction in all material respects as of the Closing Date of the following additional conditions: (i) any inaccuracy as of the Closing Date in the Partnership's representations and warranties set forth in Sections 6(d) and 6(e) hereof would not have or result in a material adverse impact on the business or financial condition of KS/BE and its subsidiaries taken as a whole and would not adversely affect the Partnership Interest; (ii) since the date of this Agreement to and including the Closing Date, the consummation of such transactions shall not have become prohibited under the laws of the United States to which KS/BE or its subsidiaries are subject; and (iii) Sullivan & Cromwell, counsel to the Partnership, shall have delivered their written opinion, dated the Closing Date, to KS/BE, Knight's Parent and Knight to the effect set forth in Annex 1 hereto. -3- 4 5. Conditions to the Partnership's Obligation. The Partnership's obligation to sell the Partnership Interest is subject to, in the Partnership's discretion, the satisfaction in all material respects as of the Closing Date of the following conditions: (i) any inaccuracy as of the Closing Date in the representations and warranties set forth in Sections 7(a) and 7(b) hereof would not have or result in the imposition of limitations or restrictions on the business or operations of the Partnership or its subsidiaries which are unacceptable to the Partnership and would not adversely affect the Partnership Interest (from the Partnership's viewpoint); (ii) since the date of this Agreement to and including the Closing Date, the consummation of such transactions shall not have become prohibited under the laws of the United States to which the Partnership is subject; and (iii) Nathan T.K. Aipa, Esq., counsel to KS/BE, Knight's Parent and Knight, shall have delivered his written opinion, dated the Closing Date, to the Partnership to the effect of Annex 2 hereto. 6. Representations, Warranties and Agreements of the Partnership. The Partnership represents, warrants and agrees as of the date hereof that: (a) Good Standing. The Partnership is a partnership formed and validly existing under the Revised Uniform Limited Partnership Act of the State of Delaware and has all requisite power and authority under such law to own its property and to carry on its business as now being conducted. Goldman, Sachs & Co. is a partnership formed and validly existing under the Partnership Law of the State of New York and has all requisite power and authority under such law to own its property and to carry on its business as now being conducted. (b) Qualification. With such exceptions as do not in the aggregate materially adversely affect their respective businesses, the Partnership and Goldman, Sachs & Co. have all permits, licenses and approvals necessary to -4- 5 carry on their respective businesses as presently conducted as required by law or the rules of the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and each other association, corporation or governmental agency having appropriate authority. (c) Stock Exchange Membership, etc. Goldman, Sachs & Co. is a member organization in good standing of the New York Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. (d) Regulatory Approvals. No filings, notifications, consents, approvals, authorizations or orders are required to be made with or secured from governmental or regulatory or judicial authorities by the Partnership (or any subsidiary thereof) in order to consummate the transactions contemplated by Section 2 hereof. (e) Power and Authority. The Partnership has full power and authority to enter into this Agreement and the Amendment to the Registration Rights Agreement, to sell the Partnership Interest and to perform the other obligations provided for herein and in the Amendment to the Registration Rights Agreement, all of which have been duly authorized by all proper and necessary action. (f) Binding Agreements. This Agreement constitutes, and when executed and delivered in accordance herewith the Amendment to the Registration Rights Agreement will constitute, a valid and binding agreement of the Partnership. When executed and delivered by Knight, the Memorandum of Agreement will constitute a valid and binding agreement of the other partners continuing as partners of the Partnership as of the Closing. (g) Litigation. As of the date of this Agreement, there are no proceedings or investigations pending or, so far as the Partnership knows, threatened before any court, arbitrator or governmental or administrative authority, instrumentality or agency which, in any one case or in the aggregate, could reasonably be expected to have a material adverse effect on the business, operations, properties, assets, or condition, financial or otherwise, of the Partnership and its subsidiaries, taken as a whole, or which could affect the execution, delivery and performance of this Agreement, the Amendment to the Registration Rights Agreement or the Memorandum of Agreement. (h) Legality. As of the date of this Agreement, the consummation of the purchase and sale of the Partnership Interest are not prohibited under the laws of the United -5- 6 States to which the Partnership or its subsidiaries are subject. (i) No Conflicts. There is no order or judgment and no provision of any mortgage, indenture, contract or agreement binding on the Partnership or affecting its property which would conflict with or prevent the execution, delivery or performance of this Agreement, the Amendment to the Registration Rights Agreement or the Memorandum of Agreement (including Article VII thereof), and no consents or waivers of parties to any such mortgage, indenture, contract or agreement (including the Memorandum of Agreement) are required for the Partnership's execution, delivery or performance of this Agreement, the Amendment to the Registration Rights Agreement or the Memorandum of Agreement (including Article VII thereof), other than those which have been obtained. (j) Financial Statements. The Partnership has furnished to KS/BE and Knight consolidated statements of financial condition of the Partnership as of November 26, 1993 and as of the end of each of the two preceding fiscal years, and consolidated statements of income and changes in partnership capital for the three fiscal years then ended, certified by Coopers & Lybrand, together with a consolidated statement of income for the nine-month fiscal period ended August 26, 1994. All such financial statements are complete and correct, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as may be specified therein, and present fairly the consolidated financial condition of the Partnership as of the respective dates specified therein, and the consolidated results of the operations of the Partnership for the periods specified therein. As of the date hereof, there has been no material adverse change since August 26, 1994 involving the business, prospects or financial condition of the Partnership. (k) Profit Plans. For the purposes of Section 12(b) of the Goldman Sachs Profit Participation Plans and Similar Plans, no general partner of the Partnership constitutes a "Protected Partner" of the Partnership. (l) SBCM. All material terms of the investment of Sumitomo Bank Capital Markets, Inc. ("SBCM") in the Partnership and Goldman, Sachs & Co. are as set forth in (i) the Memorandum of Agreement (as amended through the date hereof), (ii) the Amended and Restated Memorandum of Agreement of Goldman, Sachs & Co., (iii) the Amended and Restated Subscription Agreement, dated as of March 28, 1989, among The Sumitomo Bank Limited, SBCM, Goldman, Sachs & Co. -6- 7 and the Partnership, and (iv) the Letter Agreement, dated as of December 6, 1991, between SBCM and the Partnership. 7. Representations, Warranties and Agreements of KS/BE, Knight's Parent and Knight. KS/BE, Knight's Parent and Knight each represents, warrants and agrees as of the date hereof that: (a) Regulatory Approvals. There are no filings, notifications, consents, approvals, authorizations or orders which KS/BE, Knight's Parent or Knight (or any of their respective subsidiaries) is required to make with or secure from governmental, regulatory or judicial authorities in order to consummate the transactions contemplated by Section 2 hereof. (b) Power and Authority. Each of KS/BE, Knight's Parent and Knight has full power and authority to enter into this Agreement; Knight has full power and authority to purchase the Partnership Interest, to enter into the Amendment to the Registration Rights Agreement and to grant the irrevocable proxy/power-of-attorney and proxy referred to in Sections 9(c) and 10(c) hereof, respectively; KS/BE and Knight's Parent each have full power and authority to grant the irrevocable proxy referred to in Section 10(c) hereof; and each of KS/BE, Knight's Parent and Knight has full power and authority to perform the obligations provided for herein and, in the case of Knight, in the Amendment to the Registration Rights Agreement, all of which have been duly authorized by all proper and necessary corporate or other action. (c) Binding Agreements. This Agreement constitutes a valid and binding agreement of KS/BE, Knight's Parent and Knight. Each proxy and proxy/power-of-attorney delivered pursuant to this Agreement, whether by KS/BE, Knight's Parent or Knight, shall be valid and binding, shall be irrevocable and shall not be terminable by operation of law, dissolution or bankruptcy of KS/BE, Knight's Parent or Knight or for any other reason (provided, however, that upon a transfer permitted by this Agreement by KS/BE, Knight's Parent or Knight of shares or other securities that are the subject of such proxy or proxy/power-of-attorney to a third party, such proxy or proxy/power-of-attorney shall terminate with respect to the shares or securities that are so transferred). Each such irrevocable proxy and proxy/power-of-attorney shall be enforceable according to its terms. When executed and delivered by Knight, the Memorandum of Agreement and the Amendment to the Registration Rights Agreement -7- 8 will each constitute a valid and binding agreement of Knight. (d) Litigation. As of the date of this Agreement, there are no proceedings or investigations pending or, so far as each of KS/BE, Knight's Parent and Knight knows, threatened before any court, arbitrator or governmental or administrative authority, instrumentality or agency which could affect the execution, delivery and performance of this Agreement, the Amendment to the Registration Rights Agreement or the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof by KS/BE, Knight's Parent or Knight, as applicable. (e) Legality. As of the date of this Agreement, the consummation of the purchase and sale of the Partnership Interest, and the granting of the proxy/power of attorney and proxy referred to in Section 9(c) and 10(c) hereof, are not prohibited under the laws of the United States to which KS/BE, Knight's Parent or Knight or their subsidiaries are subject. (f) No Conflicts. There is no order or judgment, no provision of the certificate of incorporation of Knight or Knight's Parent or the constituent documents of KS/BE and no provision of any mortgage, indenture, contract or agreement binding on KS/BE, Knight's Parent or Knight or affecting their property which would conflict with or prevent the execution, delivery or performance of this Agreement or the Amendment to the Registration Rights Agreement, or the granting of the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof, and no consents or waivers of parties to any such mortgage, indenture, contract or agreement are required for KS/BE's, Knight's Parent's or Knight's execution, delivery or performance of this Agreement or the Amendment to the Registration Rights Agreement, or the granting of the proxy/power of attorney and proxy referred to in Sections 9(c) and 10(c) hereof. (g) 1940 Act. Knight is not, and will not as a result of the consummation of the transactions contemplated hereby and by the Knight Partnership Provisions become, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended, and each of KS/BE, Knight's Parent and Knight covenant and agree to operate the business of Knight or any successor or assignee of Knight permitted by Section 15 hereof and Section 12 of the Knight Partnership Provisions so as not to cause Knight or any such entity, as applicable, to become an "investment company" at any time during the term hereof. -8- 9 8. Certain Agreements. (a) The Tax Matters Partner referred to in paragraph 11(g) of Article I of the Memorandum of Agreement shall periodically notify and consult with Knight during any administrative or judicial proceeding with respect to the determination of the taxable income of the Partnership. Notwithstanding the foregoing, the Tax Matters Partner shall have complete control of such administrative or judicial proceeding and, to the extent permitted by the Internal Revenue Code and other applicable laws, Knight agrees to file all tax returns consistently with the Partnership and to waive its rights to participate in any administrative or judicial proceeding with respect to the determination of the Partnership's taxable income. (b) Upon request of Knight, the Partnership shall consider taking actions to reduce Knight's tax liabilities; provided, however, the Partnership need not consider actions which would in the Partnership's sole judgment in any way adversely affect the Partnership, any general partner or any other limited partner. (c) Upon Knight's request, the Partnership shall provide Knight with (i) schedules showing the determination of the capital accounts of Knight's Partnership Interest and its Actual and Imputed Share (and the Partnership shall make appropriate persons available to provide Knight an explanation of, and to discuss with Knight the contents of, such schedules), (ii) annual audited consolidated financial statements of Goldman, Sachs & Co., and (iii) interim quarterly consolidated statements of income of the Partnership, as available. (d) The Partnership agrees that, in the event KS/BE, Knight's Parent or Knight incurs any expenses or liabilities as a result of the operation of Section 9 of -9- 10 either Article III or Article V or the last paragraph of paragraph 6 of Article I of the Memorandum of Agreement (other than liabilities expressly assumed by KS/BE, Knight's Parent or Knight pursuant to such provisions), the Partnership will indemnify and hold harmless KS/BE, Knight's Parent and Knight, as the case may be, against all such expenses (including reasonable fees and disbursements of counsel). (e) Notwithstanding any provision of the Memorandum of Agreement, (i) none of KS/BE, Knight's Parent or Knight shall, as a result of the entering into this Agreement, the Knight Partnership Provisions or the Amendment to the Registration Rights Agreement, or the consummation of the transactions contemplated hereby or thereby, be prevented from competing, directly or indirectly, with the Partnership, or any Firm or any Successor Partnership or Successor Business (as each such term is defined in the Memorandum of Agreement), (ii) KS/BE, Knight's Parent and Knight each hereby authorize the Management Committee of the Partnership to implement any Plan adopted and approved in accordance with paragraph 15 of Article I of the Memorandum of Agreement, and each irrevocably waives for itself and its successors and assigns any right to contest the terms of any Plan adopted in accordance with said paragraph 15, whether on grounds of unequal or disparate treatment, inconsistency or conflict with the terms and provisions of the Memorandum of Agreement, unfairness or any other reason, provided, in each case, that such Plan is not inconsistent with Section 5 or 6(c), as the case may be, of the Knight Partnership Provisions, and (iii) Knight shall be entitled to give notices under the Memorandum of Agreement in the manner provided in this Agreement in respect of notices required -10- 11 under the Memorandum of Agreement to be given to the Partnership. 9. Absence of Control or Controlling Influence; Absence of Restrictions; Proxy/Power-of-Attorney. (a) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby or otherwise, KS/BE, Knight's Parent and Knight each agree that it does not have, and that it will not exercise or attempt to exercise and will prevent any successor thereof or any direct or indirect subsidiary thereof from exercising or attempting to exercise, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby, any requirement of law or otherwise, any control or controlling influence over the management, policies or affairs of the Partnership, the Company, any successor or successors to the Partnership or the Company (other than a successor pursuant to Section 6(c) of the Knight Partnership Provisions) or any direct or indirect subsidiary of the Partnership, the Company or any such successor (each such entity being referred to in this Section 9 as a "Goldman Entity"). The foregoing agreement shall extend, without limitation, to: (i) the management of any Goldman Entity; (ii) the business affairs of any Goldman Entity; (iii) the financial, accounting or tax affairs of any Goldman Entity; (iv) any matters relating to partnership interests in or securities of a Goldman Entity, including, without limitation, the admission, withdrawal or retirement of general or limited partners or the election or retirement of managing directors or the issuance, payment, redemption or repurchase of debt or equity securities; (v) partner, managing director and employee affairs, including, without limitation, the hiring and termination of employees, part- -11- 12 ner, managing director and employee compensation, partner, managing director and employee benefit arrangements and partner, managing director and employee retirement arrangements; and (vi) acquisitions by a Goldman Entity of all or part of any other entity, dispositions by a Goldman Entity of all or any part of a Goldman Entity, combination by a Goldman Entity with any other entity, incorporation of all or any part of a Goldman Entity, or liquidation of all or any part of the business of a Goldman Entity, it being understood that the foregoing shall not constitute a waiver by KS/BE, Knight's Parent or Knight of any terms or provisions of this Agreement or of the Knight Partnership Provisions or the Incidental Partnership Provisions, and that, in any event, Knight shall be treated equally with respect to its Part P Interest in relation to the general partners and SBCM according to Knight's Part P Actual Share. (b) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby or otherwise, each of KS/BE, Knight's Parent and Knight agrees that there are not, and that it will not impose or attempt to impose and will prevent any successor thereof or any direct or indirect subsidiary thereof from imposing or attempting to impose, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, any other agreements contemplated hereby, or any requirement of law or otherwise, any restrictions on matters relating to the capital of any Goldman Entity. The foregoing agreement shall extend, without limitation, to: (i) capital levels of, or increases to or withdrawals from capital of, any Goldman Entity; (ii) the interest (or other return) paid on the capital of limited partners (other than Knight) or, subject to Section 6(a) of Article VI of the Memorandum of Agreement and the Partnership's agreement pursuant to Section 6(a) of the Knight -12- 13 Partnership Provisions, of general partners of any Goldman Entity; or (iii) the issuance or retirement of (w) general partnership interests or limited partnership interests (other than Knight's limited partnership interests) of any Goldman Entity, or the capital stock held by managing directors or others of any Goldman Entity, (x) debt securities of any Goldman Entity, whether senior or subordinated, short-or long-term, secured or unsecured, other than debt securities held by KS/BE, Knight's Parent or Knight, (y) equity securities of any Goldman Entity or (z) options or warrants to acquire any securities of any Goldman Entity, it being understood that the foregoing shall not constitute a waiver by KS/BE, Knight's Parent or Knight of any terms or provisions of this Agreement or of the Knight Partnership Provisions or the Incidental Partnership Provisions, and that, in any event, Knight shall be treated equally with respect to its Part P Interest in relation to the general partners and SBCM according to Knight's Part P Actual Share. (c) On the Closing Date, Knight shall deliver to the Partnership its irrevocable proxy/power-of-attorney in the form set forth in Annex 3 hereto. Knight agrees, to the extent (if any) that such irrevocable proxy/power-of-attorney is not enforceable under law, to provide its consent to any of the matters set forth therein and/or to execute any of the amendments, documents or other instruments referred to therein promptly following written demand by the Partnership. 10. Agreements in the Event of Incorporation of the Partnership. (a) Investment Representations; Non-Transferability. Knight represents that its acquisition hereby or from time to time hereafter of any Securities (as defined below) of the Company or any other Goldman Entity pursuant to this -13- 14 Agreement or the Memorandum of Agreement is or shall be for investment purposes. Except as provided in Section 10(b) below or in Section 10(b) of the Subscription Agreement, dated as of April 24, 1992, among KS/BE, Knight's Parent, Knight and the Partnership (the "1992 Subscription Agreement"), or as contemplated by Section 15(d) below, by Section 15(d) of the 1992 Subscription Agreement, by Section 5(f) of Article VI of the Memorandum of Agreement or by Section 5(f) of the Knight Partnership Provisions, each of Knight, Knight's Parent and KS/BE agrees that it shall not sell, transfer, exchange, make any assignment of (including an assignment for the benefit of Knight's, Knight's Parent's or KS/BE's creditors or a transfer to a trustee) or receive for the benefit of Knight's, Knight's Parent's or KS/BE's creditors, give away, pledge, hypothecate or otherwise dispose of any Securities hereby or from time to time hereafter acquired by it, nor shall Knight, Knight's Parent or KS/BE enter into any agreement as a result of which any person or entity will or could obtain any interest in such Securities. For purposes of this Agreement, "Securities" shall refer to (i) any common stock issuable to Knight in exchange for its Part P Actual Capital, and any preferred stock issuable to Knight in exchange for its Part Q Interest, in each case as contemplated by the Knight Partnership Provisions and any subscription rights for such common stock or preferred stock granted pursuant hereto or thereto, (ii) any common stock issuable to Knight in exchange for its Part J Actual Capital (together with any common stock issuable to Knight in exchange for its Part P Actual Capital, any common stock which may be issued in exchange therefor pursuant to Annex 7 hereof and any common stock which may be issued in exchange for common stock issuable in exchange for Knight's Part J Actual Capital pursuant to Annex 7 of the 1992 Subscription -14- 15 Agreement, "Common Stock"), and any preferred stock issuable to Knight in exchange for its Part K Interest, in each case as contemplated by Article VI of the Memorandum of Agreement and any subscription rights for such common stock or preferred stock granted thereto, (iii) any other securities issuable to Knight pursuant to Section 5 of Article VI of the Memorandum of Agreement and Section 5 of the Knight Partnership Provisions and (iv) any other securities of the Company or any other Goldman Entity issuable to Knight pursuant to this Agreement, the 1992 Subscription Agreement, Article VI of the Memorandum of Agreement or the Knight Partnership Provisions. Any Securities issued shall be issued in registered form and, other than any Common Stock when disposed of to the public, shall bear a legend in substantially the following form or such other form as KS/BE and the Partnership (or the Company) may agree: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ARE SUBJECT TO THE PROVISIONS OF EITHER A SUBSCRIPTION AGREEMENT, DATED AS OF APRIL 24, 1992, OR A SUBSCRIPTION AGREEMENT, DATED AS OF NOVEMBER 21, 1994, AMONG ROYAL HAWAIIAN SHOPPING CENTER, INC., PAUAHI HOLDINGS CORPORATION, THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP AND THE GOLDMAN SACHS GROUP, L.P. NO HOLDER OF THIS CERTIFICATE OTHER THAN KNIGHT SHALL BE ENTITLED TO ANY RIGHTS HEREUNDER AND, IF HELD BY ANY SUCH HOLDER, THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY SHALL BE VOID AND BE DEEMED CANCELLED. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION." (b) Disposition of Securities. (i) Knight shall have the rights set forth in this Section 10(b) to dispose from time to time of the Common Stock issuable to it pursuant to the Knight -15- 16 Partnership Provisions and Annex 7 hereto. Section 10(b) of the 1992 Subscription Agreement sets forth the rights of Knight to dispose from time to time of the Common Stock issuable to it pursuant to Article VI of the Memorandum of Agreement and Annex 7 to the 1992 Subscription Agreement. (ii) Except as otherwise provided in (iv) below or in Section 2(c) of the Registration Rights Agreement, as amended, Knight may dispose of Common Stock only after the date when the Company shall have become a public company by the initial registration by the Company of its common stock under the Securities Act of 1933 (the "1933 Act"). Any such disposition may be made only (x) by means of a widely-dispersed underwritten public offering in conformity with regulatory requirements and guidelines applicable to KS/BE, Knight's Parent and Knight and (y) pursuant to the exercise of Knight's demand right or piggy-back rights as set forth in the Registration Rights Agreement, as amended (which sets forth procedures for public offerings whether or not registered under the 1933 Act). The successor to the broker-dealer business of the Partnership (hereinafter referred to as the "Company Broker-Dealer") shall be the book-running managing underwriter of the underwriting syndicate. (iii) In connection with any disposition of securities of the Company by the Company, Knight, the Company's managing directors or otherwise, Knight agrees that it shall be subject to the same customary limitations on sales following consummation of such disposition as managing directors of the Company agree to with the underwriters of such securities and that it -16- 17 will execute and deliver any agreement to such effect required by such underwriters. (iv) In addition to the demand right and piggy-back rights granted pursuant to Section 10(b)(ii) hereof and the Registration Rights Agreement, as amended, Knight shall be entitled, from and after the fifth anniversary of the initial public offering by the Company of its common stock, to sell its Common Stock in the manner and amounts permitted by Rule 144(e) under the 1933 Act, or any similar successor provision, provided, that in the case of any such sale the Company shall have received an opinion of counsel to Knight acceptable to it that such sale may be made without registration under the 1933 Act. (c) Proxy and Voting Agreement. (i) On the Closing Date, KS/BE, Knight's Parent and Knight shall each deliver to the Partnership its irrevocable proxy in the form set forth in Annexes 4(a) and (b) hereto, respectively. KS/BE, Knight's Parent and Knight each further agree, to the extent (if any) that such irrevocable proxy is not enforceable under law, to vote any securities of the Company or any subsidiary of the Company held by it (whether acquired pursuant to this Agreement or otherwise) in the manner provided in such proxy. KS/BE further agrees to cause any direct or indirect subsidiary thereof (other than Knight's Parent or Knight) to vote any securities of the Company or any subsidiary thereof that may be acquired by such subsidiary of KS/BE in the manner provided in KS/BE's foregoing proxy. (ii) Knight understands that time is of the essence in a public offering, and if, in connection with any recapitalization in connection with a public -17- 18 offering, the Company wishes for any reason to modify the terms of Knight's securities, Knight agrees to consider (without any obligation to consent to) such modifications according to any reasonable time schedule prescribed by the Company. 11. Delay in Closing Date; Adjustments. In the event the Closing Date does not occur on or before November 21, 1994, the Closing Date shall be automatically extended, subject to Section 13 below, until the date when the conditions thereto are satisfied (or waived) and up to five business days thereafter, within which five business days the Closing Date shall occur. In the event of such extension, the parties shall mutually agree upon such adjustments to the terms hereof as shall be necessary or appropriate and shall use best efforts to have the Closing Date occur as soon as possible. 12. Confidentiality. (a) Each party will keep confidential any and all information furnished to it by another party or its representatives in connection with the transactions contemplated by this Agreement, the Memorandum of Agreement and the other agreements referred to herein, except to the extent any such information is generally available to the public (other than as a result of a disclosure by such party or its representatives), and the parties will instruct their respective partners, directors, officers, employees and other representatives having access to such information of such obligation of confidentiality. If this Agreement is terminated pursuant to Section 13(a) hereof, each party will return to the other all copies of material containing information disclosed to such party by the other. At the time this Agreement is terminated pursuant to Section 13(b) hereof or at the time immediately following an initial public offering -18- 19 registered under the 1933 Act by the Company, the parties hereto shall return to each other copies of materials previously disclosed to the other through such time as the parties shall agree at such time. (b) Without limitation of the foregoing, KS/BE, Knight's Parent and Knight each hereby specifically covenants and agrees that it shall not, in the course of making or securing filings, notifications, consents, approvals, authorizations or orders with governmental or administrative agencies or bodies or courts for any reason following the date of this Agreement, disclose to any person at any time any information (financial or other) concerning the Partnership which is not publicly disclosed, unless the Partnership otherwise consents or unless pursuant to a court or administrative order or procedure. (c) The parties agree that they will advise and confer with each other prior to the issuance of any report, statement, press release or other written statement identifying the other party or relating to the transactions contemplated by this Agreement, the Memorandum of Agreement and the other agreements referred to herein and the implementation hereof and thereof. No report, statement, press release or other written statement shall be disseminated publicly or delivered to any other person without the specific, written consent of the other party, which consent may not be unreasonably withheld, provided, however, that either party may deliver written statements to administrative agencies or bodies or courts or trademark commissions, and provided further, however, that the Partnership and KS/BE may mutually agree upon guidelines for routine disclosures (i.e., references to the other in stockholder reports, brochures or other documents describing their respective businesses, etc.) pursuant to which the -19- 20 disclosures covered by such guidelines may be made without specific or prior approval. 13. Termination. This Agreement shall terminate: (a) if the Closing Date does not occur on or before February 24, 1995 for any reason; (b) on the date of payment of the distribution with respect to the final year of a Withdrawal Period; or (c) on the date of disposition by Knight or cancellation of the Securities set forth in clause (i) or (ii), and, if such are equity securities or exercisable, convertible or otherwise exchangeable in any manner into equity securities, (iii) or (iv) of Section 10(a) hereof; provided, however, that (i) the agreements set forth in Sections 12, 14 and 15(b) (as such relates to Sections 12 and 14) hereof shall continue indefinitely and (ii) the agreements set forth in Section 10(c) shall continue for a period of five years from the date of the final disposition or cancellation of all Securities set forth in (c) above. 14. Governing Law; Arbitration. (a) This Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Agreement and each of the Annexes hereto shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") -20- 21 in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne equally by the parties hereto. All other costs, including counsel and witness fees, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State and any other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 15. Ownership of Knight; KS/BE Agreement with Respect to Knight; Assignment. (a) KS/BE, Knight's Parent and Knight each agrees that Knight, and any assignee of Knight pursuant to Section 15(d) below (other than KS/BE), will remain a wholly-owned subsidiary of KS/BE or of another wholly-owned subsidiary of KS/BE. Except as provided in Section 15(d) below, Section 15(d) of the 1992 Subscription Agreement, Section 12 of Article VI of the Memorandum of Agreement and Section 12 of the Knight Partnership Provisions, none of KS/BE, Knight's Parent or Knight shall (i) have any right to sell, transfer, exchange, make any assignment of (including in assignment for the benefit of Knight's or KS/BE's -21- 22 creditors or a transfer to a trustee) or receive for the benefit of Knight's or KS/BE's creditors, give away, pledge, hypothecate, or otherwise to dispose of any of Knight's interest in the Partnership or in the profits or assets thereof, or KS/BE's interest, direct or indirect, in Knight, or (ii) have the right to enter into any agreement as a result of which any person or entity will or could obtain any interest in the Partnership or the Partnership Interest, or KS/BE's interest, direct or indirect, in Knight. (b) KS/BE, Knight's Parent and Knight each agrees that (i) the equity securities of Knight and Knight's Parent shall at all times during the term hereof be owned, directly or indirectly, by KS/BE, (ii) any securities of Knight or Knight's Parent other than common equity securities shall be either (x) non-recourse to Knight or Knight's Parent, or (y) guaranteed by, or otherwise entitled to the credit support of, KS/BE, and (iii) Knight's interest in the Partnership will not be used, directly or indirectly, as a means of obtaining financing for KS/BE or any of its direct or indirect subsidiaries, and no representations specifically regarding the Partnership or the performance of the Partnership Interest, nor any information regarding the Partnership or the Partnership Interest which is subject to Section 12(a) hereof, shall be provided in connection with any such financing. (c) KS/BE agrees that it shall cause Knight to perform all the obligations of Knight contained in this Agreement, the Memorandum of Agreement and the other agreements contemplated hereby and thereby. (d) Each of KS/BE, Knight's Parent and (except as provided in the next sentence) Knight may not assign this Agreement or any of the other agreements contemplated hereby or by the Memorandum of Agreement to any party. With the -22- 23 consent of the Partnership (which shall not be unreasonably withheld), Knight or Knight's Parent may assign this Agreement to KS/BE or another directly or indirectly wholly-owned subsidiary of KS/BE organized under the laws of any United States jurisdiction, provided that KS/BE or such subsidiary shall execute and deliver such amendments to, or documents or instruments of assumption of, this Agreement, the Memorandum of Agreement and the other agreements contemplated hereby and thereby (including the irrevocable proxies and proxy/power-of-attorney) as are required by the Partnership so as to become a party thereto successor to Knight or Knight's Parent, as the case may be, with all rights and obligations provided herein and therein. Such assignment shall release the assignor from its obligations hereunder. Any assignment made in violation of this provision shall be null and void. 16. Survival of Agreement; Further Assurances. (a) All terms and provisions of this Agreement shall survive execution and delivery of this Agreement, the Closing Date and any investigation made at any time by any party or on its behalf until terminated pursuant to Section 13 hereof; provided, however, that the representations and warranties of the Partnership contained in Section 6 and of KS/BE and Knight contained in Section 7 shall terminate on June 30, 1996. (b) Each of KS/BE, Knight and the Partnership agrees that, in the event any of the consents, approvals, authorizations or orders secured in order to consummate the transactions contemplated hereby are threatened to be modified or revoked, each shall use its best efforts to prevent such modification or revocation. -23- 24 17. Registered Address; Notices. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to KS/BE, Knight's Parent or Knight, at The Trustees of the Kamehameha Schools/Bernice Pauahi Bishop Estate, P.O. Box 3466, 567 South King Street, Suite 200, Honolulu, Hawaii 96801, Attention: Nathan T.K. Aipa, General Counsel, or at such other address as KS/BE, Knight's Parent or Knight shall furnish to the Partnership in writing, or (b) if to the Partnership, at 85 Broad Street, New York, New York 10004, Attention: Robert J. Katz, General Counsel, or at such other address as the Partnership shall have furnished to KS/BE, Knight's Parent or Knight in writing. 18. Miscellaneous. (a) For purposes of Clause (i) of the definition of "General Partners' Capital" set forth in the Knight Partnership Provisions, those certain investments made by the Partnership and Affiliates (A) on or prior to November 26, 1993 are set forth in Annex 8 hereto and (B) after November 26, 1993 and on or prior to November 25, 1994 will be set forth in a schedule to be prepared by the Partnership that will be furnished to Knight on or before March 17, 1995. (b) Annex 9 hereto contains a schedule setting forth the manner of determining certain calculations in respect of Knight's Actual Share. (c) This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership contained in this Agreement shall be had against any current or future -24- 25 partner of the Partnership. This Agreement, together with the 1992 Subscription Agreement, embodies the entire agreement and understanding between KS/BE, Knight and the Partnership and supersedes all prior agreements and understandings relating to the subject matter hereof, whether written or oral. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -25- 26 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP By: /s/ Lakelani Lindsey ---------------------------------------- By: /s/ Myron B. Thompson ---------------------------------------- [ILLEGIBLE] By: /s/ [ILLEGIBLE] -------------------- ---------------------------------------- Legal Group ROYAL HAWAIIAN SHOPPING CENTER, INC. By: /s/ Richard [ILLEGIBLE] ---------------------------------------- Title: President By: /s/ [ILLEGIBLE] ---------------------------------------- Title: Vice President - Finance PAUAHI HOLDINGS CORPORATION By: /s/ Richard [ILLEGIBLE] ---------------------------------------- Title: President By: /s/ [ILLEGIBLE] ---------------------------------------- Title: Treasurer THE GOLDMAN SACHS GROUP, L.P. By: ---------------------------------------- Title: -26- 27 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP By:_________________________________________ By:_________________________________________ By:_________________________________________ ROYAL HAWAIIAN SHOPPING CENTER, INC. By:_________________________________________ Title: By:_________________________________________ Title: PAUAHI HOLDINGS CORPORATION By:_________________________________________ Title: By:_________________________________________ Title: THE GOLDMAN SACHS GROUP, L.P. By: /s/ [ILLEGIBLE] ---------------------------------------- Title: -26- 28 Annex 5 to Subscription Agreement AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT, dated as of November 21, 1994 (the "Amendment"), between Royal Hawaiian Shopping Center, Inc. ("Knight"), a Hawaii corporation and an indirect wholly-owned subsidiary of The Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii ("KS/BE"), and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of Delaware (the "Partnership"). WHEREAS, pursuant to a Subscription Agreement, dated as of April 24, 1992, among KS/BE, Pauahi Holdings Corporation, a Hawaii corporation ("Knight's Parent"), Knight and the Partnership (the "1992 Subscription Agreement"), Knight purchased a limited partnership interest in the Partnership, as described in the 1992 Subscription Agreement and in Article VI of the Memorandum of Agreement amended and restated as of November 27, 1992, as further amended through November 26, 1993 and as of the date hereof, referred to in Section 2 of the 1992 Subscription Agreement (the "1992 Knight Partnership Provisions"); WHEREAS, pursuant to Section 10(b) of the 1992 Subscription Agreement, the Partnership granted Knight certain registration rights with respect to securities of the Partnership's corporate successor (the "Company") in the event the Partnership incorporates and registers its common stock under the Securities Act of 1933 (the "Act" or the "1933 Act"); WHEREAS, Knight and the Partnership entered into a Registration Rights Agreement, dated as of April 24, 1992, between Knight and the Partnership (the "Registration Rights Agreement") relating to certain registration rights with respect to securities of the Company in the event the Partnership incorporates and registers its common stock under the 1933 Act; WHEREAS, pursuant to a Subscription Agreement, dated as of November 21, 1994, among KS/BE, Knight's Parent, Knight and the Partnership (the "1994 Subscription Agreement"), Knight is purchasing as of the date hereof a limited partnership interest in the Partnership, as described in the 1994 Subscription Agreement and in the "Knight Partnership Provisions" referred to in Section 2 of 29 the 1994 Subscription Agreement (the "1994 Knight Partnership Provisions"); WHEREAS, pursuant to Section 10(b) of the 1994 Subscription Agreement, the Partnership has granted Knight certain registration rights with respect to securities of the Company in the event the Partnership incorporates and registers its common stock under the 1933 Act; and WHEREAS, Knight and the Partnership have agreed to amend the Registration Rights Agreement to provide for the certain registration rights granted to Knight in the 1994 Subscription Agreement; THEREFORE, the parties agree as follows: 1. Amendment to Section 1. Section 1 of the Registration Rights Agreement, entitled "Definitions" shall be deleted in its entirety and the following shall be substituted therefor: "1. Definitions. As used in this Agreement, "1992 Subscription Agreement" shall mean the Subscription Agreement, dated as of April 24, 1992, among KS/BE, Knight's Parent, Knight and the Partnership; "1994 Subscription Agreement" shall mean the Subscription Agreement, dated as of November 21, 1994, among KS/BE, Knight's Parent, Knight and the Partnership; "Common Stock" shall mean any common stock of the Company issuable to Knight in exchange for its Part J Actual Capital or its Part P Actual Capital; and the "Act" shall mean the Securities Act of 1933, as amended. The terms used in this Agreement which are defined in the 1992 Subscription Agreement or in the "Knight Partnership Provisions" referred to in Section 2 of the 1992 Subscription Agreement have the respective meanings set forth therein. Any reference herein to the "Subscription Agreement" shall be deemed -2- 30 to refer to the 1992 Subscription Agreement and the 1994 Subscription Agreement, collectively, and any reference herein to "Knight Partnership Provisions" shall be deemed to refer to the Knight Partnership Provisions referred to in Section 2 of the 1992 Subscription Agreement and the Knight Partnership Provisions referred to in Section 2 of the 1994 Subscription Agreement, collectively." 2. Governing Law. ------------- This Amendment is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. 3. Miscellaneous. ------------- This Amendment will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership contained in this Amendment shall be had against any current or future general partner of the Partnership. The headings in this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -3- 31 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. ROYAL HAWAIIAN SHOPPING CENTER, INC. By:______________________________________ Title: By:______________________________________ Title: THE GOLDMAN SACHS, L.P. By:______________________________________ -4- EX-10.31 29 LETTER AGREEMENT 1 Exhibit 10.31 March 15, 1999 Wally Chin Kamehameha Activities Association 567 South King Street, Suite 301 Honolulu, HI 96813 Dear Mr. Chin: This letter (this "Letter Agreement") sets forth the agreement among Kamehameha Activities Association ("KAA" or "Knight") and The Goldman Sachs Group, L.P. ("GS Group") with respect to certain matters, including matters relating to the Plan of Incorporation (the "Plan") approved by the Schedule II Limited Partners of GS Group in March 1999 pursuant to Paragraph 14 of Article I of the Memorandum of Agreement of GS Group, as amended and restated November 28, 1998 (the "GS Group Partnership Agreement"). Set forth as Exhibit 1 hereto is a true and complete copy of the Plan, in the form submitted to the Schedule II Limited Partners of GS Group, together with all exhibits referred to therein. Reference is made to the GS Group Partnership Agreement and to (i) the Subscription Agreement, dated as of April 24, 1992 (the "1992 Subscription Agreement"), among The Trustees of the Estate of Bernice Pauahi Bishop (the "Bishop Estate"), Pauahi Holdings Corporation ("Knight's Parent") and Royal Hawaiian Shopping Center, Inc. ("RHSC"), which has transferred all its interests in GS Group to KAA pursuant to an Assumption Agreement (the "Assumption Agreement") dated as of July 15, 1998 between KAA and RHSC for the benefit of GS Group, and GS Group, (ii) the Subscription Agreement, dated as of November 21, 1994 (the "1994 Subscription Agreement" and, collectively with the 1992 Subscription Agreement, the "Subscription Agreements"), among the Bishop Estate, Knight's Parent and RHSC and GS Group, and (iii) the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of April 24, 1992, between RHSC and GS Group, as amended by Amendment No. 1 thereto dated November 24, 1994. KAA has assumed all of RHSC's rights and obligations under the Subscription Agreements and the Registration Rights Agreement pursuant to the Assumption Agreement. Capitalized terms used herein, but not otherwise defined herein, shall have the meanings ascribed thereto in the Subscription Agreements or the GS Partnership Agreement, as applicable. This Letter Agreement shall be a modification of and an amendment 2 Kamehameha Activities Association March 15, 1999 Page 2 to the Subscription Agreements and the Registration Rights Agreement to the extent set forth herein. The parties hereby agree as follows: 1. Adjustment to Part J Actual Capital and Part P Actual Capital; Other Distributions. Upon calculation of any adjustment to KAA's Part J Interest as of November 28, 1998 pursuant to Article VI, Section 3(c) of the GS Group Partnership Agreement and KAA's Part P Interest as of November 28, 1998 pursuant to Article VII, Section 3(c) of the GS Group Partnership Agreement, the parties agree that the aggregate adjustment pursuant to each such applicable Section 3(c)(iii) or (iv) shall be made by a distribution of cash to KAA (if the adjustments contemplated by clause (iii) are applicable in the aggregate) or by KAA contributing additional capital to GS Group (if the adjustments contemplated by clause (iv) are applicable in the aggregate), in each case in accordance with the GS Group Partnership Agreement, and that Knight's Part J Actual Share and Knight's Part P Actual Share will not be adjusted. Pursuant to the existing capital withdrawal policy for Schedule II Limited Partners of GS Group ("PLPs"), each PLP has been permitted to make a withdrawal from his or her capital account. It is hereby agreed that KAA shall be permitted, in accordance with Paragraph 14 of Article I of the GS Group Partnership Agreement, to make a capital withdrawal, in the amount of $29,026,979, which, to the extent that KAA is required to contribute additional capital to GS Group pursuant to the first paragraph of this Section 1, shall be netted against such capital contribution by KAA. 2. Common Stock to be Sold by KAA. KAA agrees that, if requested by The Goldman Sachs Group, Inc. ("GS Inc."), KAA shall sell 9,000,000 shares of Common Stock, $.01 par value, of GS Inc. ("Common Stock") in a secondary offering as a part of the initial public offering ("IPO") of GS Inc. KAA agrees (a) to sell such shares at the initial public offering price established by GS Inc. and the underwriters in the IPO, and (b) to cooperate fully in the registration and offering of such shares, including, without limitation, (1) furnishing any information relating to KAA or its affiliates necessary or advisable in the applicable registration statement and (2) executing an underwriting agreement, all on the same terms and conditions as are applicable to piggy-back registrations pursuant to Section 2(b) of the Registration Rights Agreement. 3 Kamehameha Activities Association March 15, 1999 Page 3 3. Hedging Restrictions. To the extent that securities of GS Inc. are subject to the limitations on disposition (otherwise than by the consent of GS Inc.) set forth in Section 4(a) hereof and in addition to the transfer restrictions set forth in the Subscription Agreements, as amended, KAA agrees that it and each of its affiliates will comply with the hedging restrictions of GS Inc. applicable to its managing directors set forth on Annex A hereto; provided, that if GS Inc. relaxes such hedging restrictions, such relaxation shall apply to KAA and its affiliates and, provided, further, that such hedging restrictions shall not apply to investment funds managed by persons unaffiliated with KAA in which KAA has an interest. 4. Dispositions of Securities. (a) The provisions of Section 10(b)(iv) of each of the Subscription Agreements shall be replaced with the following: "In addition to the other restrictions on transfer included in this Agreement, Knight agrees as follows: (1) Other than as provided in Section 2 of the letter agreement (the "Letter Agreement"), dated as of March 15, 1999, among Knight and GS Group, and Section 10(b)(ii)(4) hereof, no securities of the Company may be disposed of by Knight, whether pursuant to exercise of demand rights or piggy-back rights, and no Disposition Notice may be given, earlier than the first anniversary of the date of the closing of the initial public offering of the Company (the "IPO Date"). (2) Subsequent to the first anniversary of the IPO Date and prior to the third anniversary of the IPO Date, Knight shall be permitted to dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following the first and second anniversaries of the IPO Date, shares of Common Stock constituting in the aggregate up to 20% of the aggregate number of shares of Common Stock that Knight received under the Plan of Incorporation of the Partnership (the "Knight Original Block"); provided, however, that Knight, with the consent of the Company, which shall not be unreasonably withheld, may subsequent to the first anniversary of the IPO Date and prior 4 Kamehameha Activities Association March 15, 1999 Page 4 to the third anniversary of the IPO Date dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following the first and second anniversaries of the IPO Date, shares of Common Stock constituting in the aggregate up to an additional number of shares of Common Stock equal to (a) 13 1/3% of the Knight Original Block less (b) the number of shares of Common Stock disposed of pursuant to Section 10(b)(iv)(4) hereof in such 12-month period. (3) Subsequent to the third anniversary of the IPO Date, Knight may dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following such anniversary shares of Common Stock constituting in the aggregate up to 33 1/3% of the Knight Original Block. (4) To the extent that the former Schedule II Limited Partners of the Partnership who are managing directors immediately following the IPO ("PMDs") sell shares of GS Inc. Common Stock in a secondary offering in an amount which in any one-year period following the IPO Date represents, in the aggregate, for all of such PMDs a greater percentage of the total Common Stock issued to such PMDs in connection with the Plan ("PMD Shares") than the applicable percentage specified for such one-year period in paragraph (1) (i.e., 0%), (2) (i.e., 20%) or (3) (i.e., 33 1/3%) above, Knight will be permitted in such one year period to dispose of up to such number of additional shares of Common Stock as would increase the permitted sales by Knight in such one year period to such higher percentage; provided, that, the restrictions on transfer set forth in this Section 10(d)(iv) shall no longer be applicable following a Change of Control (as defined below) and any such disposition may thereafter be made by Knight without regard to any such restrictions. For purposes of this Section 10(d)(iv), "Change of Control" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company (a "Reorganization") or sale or other disposition of all or 5 Kamehameha Activities Association March 15, 1999 Page 5 substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale") that in each case requires the approval of the Company's stockholders under the law of the Company's jurisdiction of organization, whether for such Reorganization or Sale (or the issuance of securities of the Company in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (A) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (x) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of the Company in a Sale (in either case, the "Surviving Entity"), or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended as of the date hereof) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by the Company's securities (the "Company Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Securities were converted pursuant to such Reorganization or Sale) or (B) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the approval of the execution of the initial agreement providing for such Reorganization or Sale by the Board of Directors of the Company, individuals (the "Incumbent Directors") who either (1) were members of the Board of Directors of the Company on the IPO Date or (2) became directors subsequent to the IPO Date and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such persons are named as a nominee for director)." (b) KAA shall be permitted to deliver not more than 10 Disposition Notices under the Subscription Agreements and shall not have the right to deliver more than two Disposition Notices under the 6 Kamehameha Activities Association March 15, 1999 Page 6 Subscription Agreements and the Registration Rights Agreement in each 12-month period following the IPO Date. (c) Notwithstanding the foregoing restrictions on transferability of securities of GS Inc. and delivery of Disposition Notices, KAA shall have the right at any time to make a request of GS Inc. that KAA be permitted to dispose of shares of Common Stock. GS Inc. agrees that any such request will be given full consideration, taking into account such factors the Board of Directors of GS Inc. believes relevant, provided that KAA acknowledges and agrees that whether or not to grant any such request shall be at the sole discretion of GS Inc. 5. Share Repurchases; Tender and Exchange Offers. If and to the extent that GS Inc. makes a general offer to repurchase PMD Shares from PMDs, GS Inc. shall permit KAA to participate as a seller in such transaction on a pro rata basis with the PMDs and on the same terms and conditions as apply to the PMDs. Notwithstanding anything in this Letter Agreement, the GS Group Partnership Agreement, the Subscription Agreements or the Registration Rights Agreement to the contrary, KAA may tender its shares of Common Stock of GS Inc. in any tender or exchange offer if the Board of Directors of GS Inc. is recommending acceptance of the tender or exchange offer or is not making any recommendation with respect to acceptance. Any shares of Common Stock purchased from KAA pursuant to this Section 5 shall reduce the number of shares that may be disposed of by KAA in the relevant 12-month period pursuant to Section 4 above. 6. Voting Agreement. KAA agrees that, at the request of GS Inc., it will execute and deliver prior to the IPO Date the Voting Agreement attached hereto as Annex B. The parties hereby agree that the proxies that have been previously granted by KAA, Knight's Parent and the Bishop Estate pursuant to the Subscription Agreements will be terminated and cancelled upon the occurrence of (i) the consummation of the IPO and (ii) the execution and delivery of the Voting Agreement attached hereto as Annex B. 7. Representations and Warranties. KAA hereby makes, and shall be deemed to have remade on the IPO Date, each of the representations and warranties set forth in Annex C attached hereto and 7 Kamehameha Activities Association March 15, 1999 Page 7 agrees that counsel to GS Group may rely thereon in rendering an opinion to GS Group as to tax matters. 8. Certain Tax Matters. Notwithstanding that the Plan may not be consummated at the end of the fiscal year (as defined in the GS Group Partnership Agreement) of GS Group, KAA shall receive a distribution with respect to taxes on a pro rata basis with the United States PLPs and on the same terms and conditions as apply to PLPs in accordance with Article VI, Section 4 and Article VII, Section 4 of the GS Group Partnership Agreement; provided, that any such distribution shall be made net of interest at eight per cent per annum on KAA's Part J Actual Capital and Part P Actual Capital to the IPO Date. 9. Stock Options. Each of the GS Group and GS Inc. represents and warrants to KAA that the Plan does not provide for the issuance of, and neither the GS Group nor GS Inc. has determined that GS Inc. will issue, stock options for shares of Common Stock to either the General Partner or some or all of the PLPs the issuance of which would require the prior consultation of GS Group and KAA pursuant to Article VI, Section 5(b)(i) and Article VII, Section 5(b)(i) of the GS Group Partnership Agreement. 10. KAA to be a Party to Plan; Amendments to the Plan. By its execution of this Letter Agreement, KAA accepts the Plan and agrees to become a party to the Plan. GS Group agrees to amend the Plan to (a) add this Letter Agreement as an Exhibit to the Plan and provide that this Letter Agreement may not be amended without the consent of KAA and (b) provide that, notwithstanding the right of the general partner of GS Group to amend the Plan in any respect prior to the consummation of the Plan, an amendment to the Plan shall not be binding on KAA if such amendment (i) effects a modification to the Plan that makes the Plan, as so modified, inconsistent with Section 5 of Article VI and Section 5 of Article II of the GS Group Partnership Agreement (which provide for terms upon which a plan for the incorporation of the business of GS Group may be adopted without the consent of KAA), without the consent of KAA or (ii) effects a modification to Section 11 (Release and Indemnification Arrangements) or Section 16 (Other - Release) that (A) materially and adversely affects KAA's rights under the Plan and (B) is not of general applicability to all parties who are subject to the Section modified. GS 8 Kamehameha Activities Association March 15, 1999 Page 8 Group agrees to furnish KAA with notice and copies of any amendment to the Plan as promptly as practicable after its adoption. 11. Termination. This Letter Agreement shall terminate upon the mutual written consent of the parties to such termination. In addition, this Letter Agreement shall be terminable by any party if (a) the IPO shall not have previously been consummated by December 31, 1999 or (b) the Plan is abandoned by the general partner of GS Group pursuant to its terms. 12. Agreements Otherwise Unimpaired. Except as expressly provided in this Letter Agreement and the Plan of Incorporation, the Subscription Agreements, the Registration Rights Agreement and any other agreements between or among the parties to this Letter Agreement shall not be modified, impaired or affected. 13. Successors and Assigns. This Letter Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to GS Group, GS Inc.). 14. Governing Law. This Letter Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. 15. Counterparts. This Letter Agreement may be executed simultaneously in several counterparts, each of which is an original, but all of which together shall constitute one instrument. 9 Please indicate your agreement to the terms of this letter by signing in the space provided below. THE GOLDMAN SACHS GROUP, L.P. By The Goldman Sachs Corporation By: /s/ David Viniar ------------------------------ Accepted and Agreed to as of the date first above written: KAMEHAMEHA ACTIVITIES ASSOCIATION By: /s/ Wallace Chin ------------------------------ President 10 Annex B Voting Agreement, dated as of ___________ __, 1999 (the "Voting Agreement"), by and among [ ], on the one hand, and The Trustees of the Estate of Bernice Pauahi Bishop, a private educational charitable trust organized under the laws of the State of Hawaii (the "Bishop Estate") and Kamehameha Activities Association, a Hawaii non-profit corporation ("Knight"), on the other hand. WHEREAS, pursuant to the Subscription Agreement, dated as of April 24, 1992 (the "1992 Subscription Agreement"), among the Bishop Estate, Pauahi Holdings Corporation, a Hawaii corporation ("Knight's Parent"), and Royal Hawaiian Shopping Center, Inc., a Hawaii corporation ("RHSC"), on the one hand, and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of Delaware (the "Partnership"), on the other, the Bishop Estate, Knight's Parent and RHSC each delivered to the Partnership its irrevocable proxy, dated April 24, 1992, in the form of Annexes 4(a) and 4(b) to the 1992 Subscription Agreement (the "1992 Proxies"); WHEREAS, pursuant to the Subscription Agreement, dated as of November 21, 1994 (the "1994 Subscription Agreement" and, collectively with the 1992 Subscription Agreement, as amended by the letter agreement, dated March 15, 1999 of which this Voting Agreement is Annex B, the "Subscription Agreements"), among the Bishop Estate, Knight's Parent and RHSC, on the one hand, and the Partnership, on the other, the Bishop Estate, Knight's Parent and RHSC each delivered to the Partnership its irrevocable proxy, dated November 21, 1994, in the form of Annexes 4(a) and 4(b) to the 1994 Subscription Agreement (the "1994 Proxies" and, collectively with the 1992 Proxies, the "Proxies"); WHEREAS, on July 15, 1998, RHSC was merged with and into Knight's Parent and Knight's Parent assumed all of the rights and obligations of RHSC, including RHSC's obligations under the Subscription Agreements, the Proxies and the Memorandum of Agreement (defined below); WHEREAS, on July 15, 1998, through a series of transfers and mergers, Knight's Parent was merged with and into its successor and Knight, pursuant to the Assumption Agreement, dated as of July 15, 1998, between Knight and RHSC for the benefit of the Partnership, Knight assumed all of the rights and obligations of RHSC and Knight's Parent under the Subscription Agreements, the Proxies and the Memorandum of Agreement and agreed to be bound thereby; B-1 11 WHEREAS, pursuant to a Plan of Incorporation adopted pursuant to Article I, Section 14 of the Partnership's Amended and Restated Memorandum of Agreement, dated as of November 28, 1998 (the "Memorandum of Agreement"), The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc."), will succeed to the business of the Partnership and, in connection therewith and pursuant to the terms of the Knight Partnership Provisions of (and as defined in) the Memorandum of Agreement and the Subscription Agreements, GS Inc. will issue securities to Knight; WHEREAS, the Securities are subject to the Proxies and GS Inc. is willing to terminate the Proxies in consideration of the agreements and undertakings of the Bishop Estate and Knight contained herein; [ ], the Bishop Estate and Knight hereby agree as follows: 1. The Partnership and GS Inc., as successor to the Partnership, issuer of the securities and beneficiary of the Proxies, release each of the Bishop Estate and Knight from its Proxy. 2. Each of the Bishop Estate and Knight agree, during the period of limited duration specified below, to vote any and all securities of GS Inc. or of any subsidiary of GS Inc. which have any voting rights, general or special (herein collectively referred to as "Securities"), and which the Bishop Estate or Knight may from time to time hold of record or beneficially own, and agree to cause any direct or indirect subsidiary of the Bishop Estate to vote any securities of GS Inc. or any subsidiary thereof that may be acquired by such subsidiary of the Bishop Estate, at any meeting of stockholders of GS Inc. or any such subsidiary (as the case may be), and to provide written consent on behalf of the Bishop Estate, Knight or any such subsidiary as to any matter as to which written consent is sought from the owners of any Securities, in each case (x) with respect to Securities of GS Inc., in the same manner as the majority of the shares of common stock held by the managing directors of GS Inc. shall be voted or consented in the vote of the stockholders of GS Inc. and (y) in the case of Securities of a subsidiary of GS Inc., in the same manner as the shares of common stock held by the immediate parent of such subsidiary shall be voted or consented. Notwithstanding the foregoing, however, this agreement shall not extend to the approval of any change or modification in (i) the Registration Rights Agreement, the Subscription Agreements or this Agreement or (ii) the material terms of any Securities held by the Bishop Estate or Knight. For purposes of this Voting Agreement, the exchange, conversion or other transfer of Securities or any other securities by or on behalf of the Bishop Estate, Knight or any direct or indirect subsidiary of the Bishop Estate or Knight for other B-2 12 securities of GS Inc. (or any successor or assign thereof) pursuant to and in accordance with the Subscription Agreements and/or the Knight Partnership Provisions shall not be considered a change in the material terms of Securities held by the Bishop Estate or Knight. 3. For purposes of this Voting Agreement, "Securities" includes, without limitation, any securities which have voting rights, general or special of GS Inc. or any subsidiary thereof issued to Knight pursuant to the Subscription Agreements or the "Knight Partnership Provisions" referred to in the Subscription Agreements. The provisions of this Agreement shall apply to Securities of any successor or assign of GS Inc. (except an acquirer of the business of GS Inc. as referred to in Section 6(c) of the Knight Partnership Provisions) on the terms set forth therein. 4. This Voting Agreement shall terminate on the date of the final disposition by the Bishop Estate and Knight of any and all Securities referred to in Section 13(c) of the Subscription Agreements or the cancellation thereof. 5. To the extent (if any) the Bishop Estate and Knight would retain under law, regardless of the agreements in paragraph 2 hereof, any residual rights inconsistent with paragraph 2 hereof, each of the Bishop Estate and Knight, in consideration of the release by the Partnership and GS Inc. of each of the Bishop Estate and Knight from its Proxy, and as agreed with (and relied on by) the Partnership and GS Inc., hereby specifically and expressly (i) waives such rights, (ii) agrees never to exercise such rights and (iii) agrees never to claim, as a complaint or a defense, or otherwise assert that this Voting Agreement is not valid or enforceable. 6. The invalidity or unenforceability of any provisions of this Voting Agreement shall not affect the validity or enforceability of any other provision. To the extent (if any) any provision hereof is deemed invalid or unenforceable by its scope but may be made valid or enforceable by limitations thereon, the undersigned intend that this Voting Agreement shall be valid and enforceable to the fullest extent permitted by law. 7. (a) THIS VOTING AGREEMENT SHALL BE GOVERNED BY AND WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Voting Agreement shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission B-3 13 on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State and any other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 8. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to the Bishop Estate or Knight, at Kamehameha Activities Association, 567 South King Street, Suite 150, Honolulu, Hawaii 96813, Attention: President, or at such other address as Knight shall furnish to GS Inc. in writing, or (b) if to the Partnership or GS Inc., at 85 Broad Street, New York, New York 10004, Attention: General Counsel, or at such other address as GS Inc. shall furnish to the Bishop Estate or Knight in writing. 9. This Voting Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, that this Voting Agreement shall not be binding upon a transferee of Securities that is not affiliated with the Bishop Estate or Knight who acquired such Securities in a disposition which is permitted under the Subscription Agreements. This Voting Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. B-4 14 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date above written. THE TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP By:_________________________________________________ By:_________________________________________________ By:_________________________________________________ KAMEHAMEHA ACTIVITIES ASSOCIATION By:_________________________________________________ By:_________________________________________________ [ ] By:_________________________________________________ [ ] By:_________________________________________________ B-5 EX-10.32 30 AMENDED & RESTATED SUBSCRIPTION AGREEMENT 1 Exhibit 10.32 AMENDED AND RESTATED SUBSCRIPTION AGREEMENT AMENDED AND RESTATED SUBSCRIPTION AGREEMENT, dated as of March 28, 1989 ("Agreement"), among THE SUMITOMO BANK, LIMITED, a corporation organized under the laws of Japan ("Sumitomo"), and SUMITOMO BANK CAPITAL MARKETS, INC., a Delaware corporation and a wholly-owned subsidiary of Sumitomo ("SBCM"), on the one hand, and GOLDMAN, SACHS & CO., a limited partnership organized under the laws of New York ("GSNY"), and THE GOLDMAN SACHS GROUP, L.P., a limited partnership organized under the laws of Delaware (the "Partnership"), on the other hand. WHEREAS, Sumitomo, SBCM and GSNY have entered into a Subscription Agreement, dated as of November 28, 1986 (the "Old Agreement"), pursuant to which SBCM became a limited partner of GSNY and holds a Part E Interest and may from time to time hold a Part F Interest (each as defined in the Memorandum of Agreement among the general and limited partners of GSNY, dated as of November 28, 1986, as amended as of November 27, 1987, July 11, 1988 and November 25, 1988 and as restated as of November 25, 1988 (the "Old Memorandum of Agreement"); and WHEREAS, in order to (a) delete certain provisions of the Old Memorandum of Agreement that, because of passage of time, are no longer relevant, (b) reflect the admission of senior limited partners to the Partnership and (c) reflect a restructuring of the form of the partnership established under the Old Memorandum of Agreement as hereinafter described, SBCM and the other parties becoming partners of the Partnership or GSNY, as the case may be, have agreed to execute and deliver (i) an amended and restated Memorandum of Agreement of the Partnership, dated as of March 28, 1989 (the "Memorandum of Agreement"), and (ii) an amended and restated Memorandum of Agreement of GSNY, dated as of March 28, 1989 (the "GSNY Memorandum of Agreement"), as appropriate; and WHEREAS, GSNY has represented to SBCM that the provisions of the Memorandum of Agreement and the GSNY Memorandum of Agreement will not adversely affect SBCM's rights and obligations as set forth in the Old Memorandum of Agreement or any other transactions entered into by the Partnership or its affiliates and Sumitomo or its affiliates on an arm's length basis in the ordinary course of their respective businesses; and WHEREAS, at the Effective Time (as defined in Section 2(a) below) the Partnership will become a general partner of GSNY with a 99% interest in the net profits and losses of GSNY; and WHEREAS, the parties hereto desire that SBCM contribute 99% of each of its Part E Interest and its Part F Interest, if any, to the Partnership in exchange for a Part E Interest, and the right to hold, from time to time under certain circumstances, a Part F Interest, in the Partnership, all as set forth in Article II of the Memorandum of Agreement (the "Bank Partnership Provisions"), SBCM thereby becoming as of the Effective Time a limited partner in both the Partnership and in GSNY with an aggregate capital account and an aggregate interest in the net profits and losses of GSNY (directly and indirectly as a partner of the Partnership) identical to that existing immediately prior thereto; and WHEREAS, the parties desire that the provisions of the Old Agreement be applied to SBCM's interests in the Partnership and GSNY so as to effectuate the- original intent of Sumitomo, SBCM and GSNY as expressed in the Old Agreement, and the parties desire to make certain amendments to those provisions in order to achieve that purpose; NOW, THEREFORE, the parties agree as follows: 1. Definitions. Capitalized terms used in this Agreement which are defined in the Bank Partnership Provisions have the meanings set forth in the Bank Partnership Provisions. Capitalized terms used in this Agreement which are defined in paragraph 1 of Article I of the Memorandum of Agreement have the meanings set forth therein. For purposes of this Agreement, "subsidiary" includes any partnership the controlling general partner of which is the Partnership or any subsidiary thereof (including a subsidiary by virtue of this definition). 1 2 2. Contribution of Partnership Interests. (a) SBCM shall, at or prior to the time specified by the Management Committee of GSNY as the Effective Time pursuant to Article I, paragraph 1 of the Memorandum of Agreement, and the other persons becoming partners of the Partnership or GSNY, as the case may be, as of the Effective Time shall, at or prior to the Effective Time or as soon as practicable thereafter, execute and deliver the Memorandum of Agreement and the GSNY Memorandum of Agreement, as appropriate. (b) At or prior to the Effective Time, Sumitomo shall execute and deliver to the Partnership its irrevocable proxy provided for in Section 10(e) hereof. At or prior to the Effective Time, SBCM shall execute and deliver to the Partnership its irrevocable proxies/powers-of-attorney and proxy provided for in Sections 9(e) and 10(e) hereof, respectively. (c) At or prior to the Effective Time, the Partnership, GSNY and SBCM shall execute and deliver the Amended and Restated Registration Rights Agreement which is the subject of Section 10(d)(ii) hereof (the "Amended and Restated Registration Rights Agreement"). 3. Certain Agreements of the Partnership. (a) The Partnership agrees that, in the event Sumitomo or SBCM incurs any expenses or liabilities as a result of the operation of Section 9 of Article III or the last paragraph of paragraph 6 of Article I of the Memorandum of Agreement (other than liabilities expressly assumed by Sumitomo and SBCM pursuant to such provisions), the Partnership will indemnify and hold harmless Sumitomo or SBCM, as the case may be, against all such expenses (including reasonable fees and disbursements of counsel). (b) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement or any other agreements contemplated hereby or otherwise, the Partnership agrees that it will not amend the last sentence of the second paragraph of paragraph 14 of Article I of the GSNY Memorandum of Agreement without the consent of SBCM. 4. [Deleted] 5. [Deleted] 6. Representations and Warranties and Agreements of the Partnership and GSNY. The Partnership and GSNY represents and warrants and agrees as of the date hereof that: (a) No filings, notifications, consents, approvals, authorizations or orders are required to be made or secured from governmental or regulatory authorities by the Partnership, GSNY or any subsidiary of GSNY in order to consummate the transactions contemplated by Section 2 hereof, except in all cases for those that have been made or secured. (b) Each of the Partnership and GSNY has full power and authority to enter into this Agreement. Each of the Partnership and GSNY has full power and authority to perform the other obligations provided for herein and in the Amended and Restated Registration Rights Agreement, all of which have been duly authorized by all proper and necessary action. 7. Representations and Warranties and Agreements of Sumitomo and SBCM. Sumitomo and SBCM each represents and warrants and agrees as of the date hereof that: (a) No filings, notifications, consents, approvals, authorizations or orders are required to be made or secured from governmental or regulatory authorities by Sumitomo or SBCM (or any of their subsidiaries) in order to consummate the transactions contemplated by Section 2 hereof, except in all cases for those that have been made or secured. Each of Sumitomo and SBCM agrees to use its best efforts to prevent any revocation or modification of any of the consents, approvals, authorizations or orders obtained pursuant to this paragraph or listed on Annex 1 hereto; provided, however, neither Sumitomo nor SBCM shall be required to take any action to prevent such revocation or modification 2 3 which would have or result in the imposition of limitations or restrictions on the business or operations of Sumitomo or its subsidiaries which are unacceptable to Sumitomo or which would adversely affect the Partnership Interests. (b) SBCM's interest in GSNY is owned by SBCM free and clear of any mortgage, lien, pledge, charge or security interest and, at the Effective Time, that portion of such interest being contributed to the Partnership will be so contributed free and clear of any mortgage, lien, pledge, charge or security interest. (c) Each of Sumitomo and SBCM has full power and authority to enter into this Agreement; SBCM has full power and authority to enter into the Amended and Restated Registration Rights Agreement and to grant the irrevocable proxy and proxies/powers-of-attorney the subject of Sections 9(e) and 10(e) hereof, respectively; Sumitomo has full power and authority to grant the irrevocable proxy the subject of Section 10(e) hereof; and each of Sumitomo and SBCM has full power and authority to perform the obligations provided for herein and, in the case of SBCM, in the Amended and Restated Registration Rights Agreement, all of which have been duly authorized by all proper and necessary corporate action. 8. Delivery of Financial Statements; Interests in Certain Affiliates; Certain Tax Agreements. (a) The Partnership shall deliver the financial statements required under Section 3(c) of the Bank Partnership Provisions for each fiscal year as to which SBCM has a Partnership Interest and the unaudited quarterly financial statements during such years to SBCM promptly upon issuance thereof. At the time of delivery to SBCM of the audited financial statements with respect to the fiscal year ending November 28, 1986, GSNY delivered a written specification to SBCM of the items constituting the capital used to carry certain investments which is to be deducted in determining General Partners' Capital. Upon SBCM's request, the Partnership shall provide SBCM with schedules showing the determination of the capital accounts of SBCM's Partnership Interests and SBCM's Actual Share and SBCM's Imputed Share, and the Partnership shall make appropriate persons available to provide SBCM an explanation of, and to discuss with SBCM the contents of, such schedules. (b) The Tax Matters Partner referred to in paragraph 11(g) of Article I of the Memorandum of Agreement shall periodically notify and consult with SBCM during any administrative or judicial proceeding with respect to the determination of the taxable income of the Partnership or of any Affiliate that is a partnership. Notwithstanding the foregoing, the Tax Matters Partner shall have complete control of such administrative or judicial proceeding. (c) Upon request of SBCM, the Partnership shall consider taking actions to reduce SBCM's tax liabilities; provided, however, the Partnership need not consider actions which would in the Partnership's sole judgment in any way adversely affect the Partnership, any general partner or any other limited partner. 9. Absence of Control or Controlling Influence; Absence of Restrictions; Proxy/Power-of-Attorney. (a) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement, any other agreements contemplated hereby or otherwise, Sumitomo and SBCM each agree that it does not have, and that it will not exercise or attempt to exercise and will prevent any successor thereof or any direct or indirect subsidiary thereof from exercising or attempting to exercise, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement, any other agreements contemplated hereby, any requirement of law or otherwise, any control or controlling influence over the management, policies or affairs of the Partnership, the Company, any successor or successors to the Partnership or the Company (other than a successor pursuant to Section 6(c) of the Bank Partnership Provisions) or any direct or indirect subsidiary of the Partnership, the Company or any such successor (each such entity being referred to in this Section 9 as a "Goldman Entity"). The foregoing agreement shall extend, without limitation, to: 3 4 (i) the management of any Goldman Entity; (ii) the business affairs of any Goldman Entity; (iii) the financial, accounting or tax affairs of any Goldman Entity; (iv) subject to the Partnership's agreement under Section 9(d) hereof, any matters relating to partnership interests in or securities of a Goldman Entity, including, without limitation, the admission, withdrawal or retirement of general or limited partners or the election or retirement of managing directors or the issuance, payment, redemption or repurchase of debt or equity securities; (v) partner, managing director, and employee affairs, including, without limitation, the hiring and termination of employees, partner, managing director and employee compensation, partner, managing director and employee benefit arrangements and partner, managing director and employee retirement arrangements; and (vi) acquisitions by a Goldman Entity of all or part of any other entity, dispositions by a Goldman Entity of all or any part of a Goldman Entity, combination by a Goldman Entity with any other entity, incorporation of all or any part of a Goldman Entity or liquidation of all or any part of the business of a Goldman Entity, it being understood that the foregoing shall not constitute a waiver by Sumitomo or SBCM of any terms or provisions of this Agreement or of the Bank Partnership Provisions or the Incidental Partnership Provisions and that, in any event, SBCM shall be treated equally in relation to the general partners according to SBCM's Actual Share. (b) Notwithstanding any provisions of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement or any other agreements contemplated hereby or otherwise, Sumitomo and SBCM each agrees that there are not, and that it will not impose or attempt to impose and will prevent any successor thereof or any direct or indirect subsidiary thereof from imposing or attempting to impose, by any action or omission to act, by virtue of any provision of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement, any other agreements contemplated hereby, or any requirement of law or otherwise, any restrictions on matters relating to the capital of any Goldman Entity. The foregoing agreement shall extend, without limitation, to: (i) capital levels of, or increases to or withdrawals from capital of, any Goldman Entity; (ii) the interest (or other return) paid on the capital of limited partners (other than SBCM) or, subject to the Partnership's agreement pursuant to Section 6(a) of the Bank Partnership Provisions, of general partners of any Goldman Entity, or, subject to the dividend rights provided in Schedule II hereto, the dividends (or other return) payable to managing directors or others; or (iii) the issuance or retirement of (w) general partnership interests or, subject to the Partnership's agreement under Section 9(d) hereof, limited partnership interests (other than SBCM's limited partnership interests) of any Goldman Entity, or the capital stock held by managing directors or others of any Goldman Entity, (x) debt securities of any Goldman Entity, whether senior or subordinated, short- or long-term, secured or unsecured, other than debt securities held by Sumitomo or SBCM, (y) subject to the Partnership's agreement under Section 9(d) hereof, equity securities of any Goldman Entity or (z) options or warrants to acquire any securities of any Goldman Entity, it being understood that the foregoing shall not constitute a waiver by Sumitomo or SBCM of any terms or provisions of this Agreement or of the Bank Partnership Provisions or the Incidental Partnership Provisions and that, in any event, SBCM shall be treated equally in relation to the general partners according to SBCM's Actual Share. (c) In the event the Board of Governors of the Federal Reserve System (the "Board of Governors") finds that SBCM and Sumitomo have the power to exercise a controlling influence over the Partnership or GSNY, SBCM and Sumitomo agree immediately to take all necessary actions to remove, terminate, prevent and/or prohibit the actions or other circumstances which are the cause of the finding of the Board of Governors. In the event the Board of Governors finds that such corrective actions on the part of SBCM and Sumitomo have failed to terminate SBCM's and Sumitomo's power to exercise a controlling influence over the Partnership or GSNY, as the case may be, SBCM and Sumitomo agree immediately to take such further and successive corrective actions as remain necessary. If corrective actions cannot be taken, all of SBCM's Partnership Interests shall be terminated and promptly repaid. (d) The Partnership agrees that, without the consent of Sumitomo, a Goldman Entity or Affiliate in partnership form may not admit as a partner, and a Goldman Entity or Affiliate in corporate form may not admit as an equity investor, any Japanese bank other than Sumitomo; provided, however, that such restriction shall not apply to securities of the Company purchased on the open market or issued by the Company in connection with the acquisition by the Company of another entity in which a Japanese bank has an interest. 4 5 (e) At the Effective Time, SBCM shall deliver to the Partnership its irrevocable proxy/power-of-attorney in the form set forth in Annex 3-A hereto and shall deliver to GSNY its irrevocable proxy/power-of-attorney in the form set forth in Annex 3-B hereto. SBCM agrees, to the extent (if any) that either of such irrevocable proxies/powers-of-attorney is not enforceable under law, to provide its consent to any of the matters set forth therein and/or to execute any of the amendments, documents or other instruments referred to therein promptly following written demand by the Partnership or GSNY, as the case may be. 10. Agreements in the Event of Incorporation of the Partnership. (a) Certain Adjustments and Exchanges. Pursuant to Sections 5(a) and (b) of the Bank Partnership Provisions, the Partnership and SBCM will be required to exchange certain of SBCM's interests in the Partnership for securities of the Company upon its incorporation. With respect to exchanges or conversions of certain securities of the Company for other securities of the Company (exchanges of Partnership Interests for securities of the Company being effected through the Bank Partnership Provisions), the Partnership and SBCM agree as follows: (i) In the event of an incorporation of the Partnership pursuant to Section 5(a) and a subsequent public offering of securities of the Company governed by Section 5(c) of the Bank Partnership Provisions, SBCM shall present all shares of Preferred Stock (having the terms set forth in Schedule I hereto) for cancellation, and the Company (or any successor) shall issue and deliver to SBCM in exchange therefor such shares of Common Stock (having the terms set forth in Schedule II hereto) and/or of Preferred Stock (having the terms set forth in Schedule III hereto) as SBCM shall elect pursuant to Section 5(c) of the Bank Partnership Provisions. (ii) In the event of a distribution to the public of shares of Public Preferred Stock (as defined in Schedule III hereto) or Public Common Stock (as defined in Schedule II hereto) pursuant to Section 10(d) hereof, prior to the sale of such Public Preferred Stock or Public Common Stock to the public SBCM shall present the shares of Preferred Stock or Common Stock held by it, as the case may be, to the Company for cancellation and, upon consummation of such sale, the Company shall issue and deliver to transferees of SBCM, on a share-for-share basis, such shares of Public Preferred Stock or Public Common Stock (which shares shall be free of any proxies theretofore granted pursuant to Section 10(e) hereof). (iii) In the event of an incorporation of the Partnership pursuant to Section 5(b) of the Bank Partnership Provisions and an exchange by SBCM of preferred stock for alternative preferred stock as set forth under "Special Sumitomo Provisions" in Schedule III hereto, SBCM shall present the shares of preferred stock to be exchanged by it to the Company for cancellation and the Company shall issue and deliver to SBCM, on a share-for-share basis, such shares of the new preferred stock as are required thereby. (b) Notwithstanding any other provision of this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement or any other agreements contemplated hereby or otherwise, Sumitomo may not, whether by virtue of conversion of limited partnership interests pursuant to the Bank Partnership Provisions, by any other exchange of securities required or permitted pursuant to the Bank Partnership Provisions or this Agreement, by open market purchases or otherwise, acquire or beneficially own, directly or indirectly, (i) such number of any class of shares of capital stock of the Company as would entitle Sumitomo to exercise, directly or indirectly, in excess of 4.9% of the voting power which may be exercised by the holders of all shares of capital stock of the Company entitled to vote generally for the election of directors, (ii) such number of shares of any class of voting stock of the Company as would entitle Sumitomo to exercise, directly or indirectly, in excess of 4.9% of the voting power of that class of stock or (iii) such number of shares of common stock which, when added with any Additional Shares, would exceed 24.9% of the sum of the outstanding common stock of the Company plus such Additional Shares, or represent, in the hands of a transferee upon a disposition permitted pursuant to Section 10(d) below, more than 24.9% of the sum of the number of outstanding voting common stock plus Additional Shares. In the event the operation of any provision of this Agreement, the Memorandum of Agreement or the GSNY Memorandum of Agreement would otherwise cause Sumitomo to acquire or receive, directly or 5 6 indirectly, shares in violation of the limitations set forth in the preceding sentence, (x) Sumitomo shall not, directly or indirectly, acquire or otherwise receive such number of shares as would cause such violation and (y) the Company shall not be required to issue or cause or register the transfer of any such shares and, in lieu thereof, at the option of Sumitomo either (I) the issuance or transfer of such shares shall be delayed until such time as such shall not be prohibited or (II) unless Sumitomo has, directly or indirectly, acquired or received shares otherwise than pursuant to operation of any provision of this Agreement, the Memorandum of Agreement or the GSNY Memorandum of Agreement, SBCM may receive, provided such is permitted under applicable law, subordinated debt convertible into such shares with such terms as SBCM and the Partnership may agree. In the event Sumitomo beneficially owns, directly or indirectly, shares of common stock which, when added with any Additional Shares, would exceed 24.9% of the sum of the outstanding common stock of the Company plus such Additional Shares, Sumitomo may not, following a sale by Sumitomo, directly or indirectly, of shares of common stock which would have the effect of reducing Sumitomo's beneficial ownership of shares of common stock and Additional Shares to below the 24.9% limitation, convert, directly or indirectly, any securities which are convertible into Additional Shares until such time as Sumitomo's beneficial ownership of such Additional Shares would not cause Sumitomo's beneficial ownership to exceed the 24.9% limitation assuming Sumitomo continued to hold, directly or indirectly, the shares of common stock so disposed of. (c) Investment Representations; Non-Transferability. SBCM represents that its acquisition hereby or from time to time hereafter of any Securities (as defined below) of the Company or any other Goldman Entity pursuant to this Agreement, the Memorandum of Agreement or the GSNY Memorandum of Agreement is or shall be for investment purposes. Except as provided in Section 10(d) below or as contemplated by Section 15(c) below, SBCM agrees that it shall not sell, transfer, exchange, make any assignment of (including an assignment for the benefit of SBCM's or Sumitomo's creditors or a transfer to a trustee) or receive for the benefit of SBCM's or Sumitomo's creditors, give away, pledge, hypothecate or otherwise dispose of any Securities hereby or from time to time hereafter acquired by it, nor shall SBCM enter into any agreement as a result of which any person or entity will or could obtain any interest in such Securities. For purposes of this Agreement, "Securities" shall refer to (i) any Preferred Stock set forth in Schedule I hereto, any Preferred Stock issuable to SBCM as set forth in Schedule III hereto (including any Option I, II, or III Preferred Stock referred to therein), any Common Stock issuable to SBCM as set forth in Schedule II hereto and any subscription right for such Common Stock granted pursuant hereto, (ii) any Public Preferred Stock as defined in Schedule III hereto and any Public Common Stock as defined in Schedule II hereto, (iii) any other securities issuable to SBCM pursuant to Section 5 of the Bank Partnership Provisions and (iv) any other securities of the Company or any other Goldman Entity issuable to SBCM pursuant to this Agreement or the Bank Partnership Provisions. Any Securities issued shall be issued in registered form and, other than the securities referred to in clause (ii) of the definition of Securities when disposed of to the public, shall bear a legend in substantially the following form or such other form as Sumitomo and the Partnership (or the Company) may agree: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ARE SUBJECT TO THE PROVISIONS OF AN AMENDED AND RESTATED SUBSCRIPTION AGREEMENT, DATED AS OF MARCH 28, 1989, BETWEEN THE SUMITOMO BANK, LIMITED, SUMITOMO BANK CAPITAL MARKETS, INC., GOLDMAN, SACHS & CO. AND THE GOLDMAN SACHS GROUP, L.P. NO HOLDER OF THIS CERTIFICATE OTHER THAN SUMITOMO BANK CAPITAL MARKETS, INC. SHALL BE ENTITLED TO ANY RIGHTS HEREUNDER AND, IF HELD BY ANY SUCH HOLDER, THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY SHALL BE VOID AND BE DEEMED CANCELLED. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR ANY SECURITIES LAWS OF JAPAN." (d) Disposition of Securities. (i) SBCM shall have the rights set forth in this Section 10(d) to dispose from time to time of shares of the Common Stock issuable to it as set forth in Schedule II hereto or the Preferred Stock issuable to it as set forth in Schedule III hereto (the "Disposable Securities"). (ii) Except as provided in paragraph (vi) below, SBCM may dispose of Disposable Securities only after the Company shall have become a public company by registering Public Common Stock under the 6 7 Securities Act of 1933 ("1933 Act"). Disposition may be made only (x) by means of a widely-dispersed underwritten public offering in conformity with regulatory requirements and guidelines applicable to Sumitomo and SBCM and (y) pursuant to the exercise of SBCM's demand rights or piggy-back rights as set forth in the Amended and Restated Registration Rights Agreement attached as Annex 4 hereto (which sets forth procedures for public offerings whether or not registered under the 1933 Act). The successor to the broker-dealer business of GSNY (hereinafter referred to as the "Company Broker-Dealer") shall be the book-running managing underwriter of the underwriting syndicate, and, except with respect to offerings in which SBCM is participating merely pursuant to the exercise of piggy-back rights, SBCM may select up to three additional co-managing underwriters (which shall be the only additional co-managing underwriters), each of which must be reasonably acceptable to the Company. Unless the Company otherwise consents (and subject to the further limitations on disposition set forth in Section 2 of the Amended and Restated Registration Rights Agreement and that may be imposed pursuant to Section 10(d)(vii) below), SBCM may not dispose of, whether pursuant to exercise of demand rights or piggy-back rights, (x) in any fiscal year following the year in which the Company so becomes a public company, shares constituting or convertible into 33-1/3% or more of the shares of the Common Stock which SBCM received (or could have elected to receive) at the time the Company became a public company (the "Annual Share Limit") or (y) in the remainder of the fiscal year in which the Company becomes a public company, shares constituting or convertible into the pro rata portion of the Annual Share Limit applicable so such remainder of the year; provided, however, in the event the Company permits managing directors of the Company in the aggregate to dispose to the public in any fiscal year of in excess of 33-1/3% of the shares of the Common Stock received by the managing directors at the time the Company became a public company, SBCM may be permitted in such fiscal year to dispose of shares constituting or convertible into such percentage of the shares of the Common Stock which SBCM received (or could have elected to receive) at the time the Company became a public company as equals the corresponding percentage permitted so be disposed of in the aggregate by the managing directors in such fiscal year. (iii) In the event SBCM desires to exercise its demand rights (as referred to in the Amended and Restated Registration Rights Agreement) to dispose of any Disposable Securities, it shall provide written notice (a "Disposition Notice") of such intention to the Company specifying the class and number of shares sought to be disposed of and whether SBCM desires that the offering be made in the United States and/or outside the United States. On receipt of a Disposition Notice, the Company may indicate, by written notice (a "Delay Notice") delivered to SBCM within ten business days of receipt by the Company of the Disposition Notice, that SBCM may not dispose of any Disposable Securities during a period of up to 90 days (as specified in the Delay Notice) following the Company's receipt of the Disposition Notice if, in the judgment of the Company in its sole discretion, such disposition would interfere with a public offering of the Company's securities to be made by the Company (within or outside the United States) during such specified period, and SBCM shall have no right to proceed with the proposed distribution during such period (although SBCM may otherwise be afforded piggy-back rights to participate in such public offering pursuant to the Amended and Restated Registration Rights Agreement). In the event the Company does not proceed with the filing of a registration statement under the 1933 Act with respect to such a public offering or otherwise commence a public offering outside the United States within the period specified in the Delay Notice, SBCM shall be entitled to deliver another Disposition Notice at the end of the specified period if SBCM still desires to effect a disposition, and the Company shall have no further right to deliver a Delay Notice with respect to such intended distribution unless SBCM has not made such distribution (other than due to the fault of the Company) within 90 days of delivery to the Company of the second Disposition Notice. (iv) Following receipt of a Disposition Notice, if the Company does not deliver a Delay Notice the Company may, in addition, by written notice (a "Purchase Notice") delivered to SBCM within ten business days of receipt by the Company of the Disposition Notice, provide that, in lieu of a disposition of Disposable Securities in a widely dispersed public offering, the Company will exercise its right to repurchase from SBCM all or a specified number of the Disposable Securities the subject of the Disposition Notice or, alternatively, that the Company will notify the managing directors of the Company that each of them, with or without the Company (as the case may be), has the right to purchase all or any portion of such Disposable Securities. In the event that the Company provides in the Purchase Notice that it intends 7 8 to purchase all or a specified portion of the Disposable Securities the subject of the Disposition Notice, the Company shall purchase the shares so specified within ten business days of delivery of the Purchase Notice to SBCM. In the event the Company provides in the Purchase Notice that is will offer purchase rights to its managing directors for all or any portion of the Disposable Securities the subject of the Disposition Notice, the Company shall have a period of ten business days from the delivery of the Purchase Notice within which to determine and notify SBCM by a subsequent written notice (the "MD Purchase Notice") as to the number of shares to be purchased by the managing directors and the Company, and the managing directors and the Company shall have a further period of ten business days following delivery of the MD Purchase Notice to consummate the purchase of the shares so specified. In the event the Company specifies pursuant to the Purchase Notice or the MD Purchase Notice (as applicable) that only a portion of the shares the subject of the Disposition Notice are to be purchased, the Company shall be obligated to proceed at such time with the disposition in a widely dispersed public offering of the portion of the shares not specified to be purchased. The purchase price applicable to any purchase of shares of Common Stock pursuant to this paragraph (iv) shall be the average closing price for the 20 trading days prior to the date of the Disposition Notice, less an amount equal to the gross underwriting discount that would be applicable to a United States public offering pursuant to paragraph (ii) above on the date of the Purchase Notice with respect to such shares as justified in a written statement delivered by the Company and the Company Broker-Dealer to SBCM. The purchase price for shares of Preferred Stock shall be as agreed by the parties; if she parties cannot agree, the purchase price (less the applicable underwriting discount) shall be determined by an investment banking firm satisfactory to the Company and SBCM. (v) In the event the Company does not deliver a Delay Notice or a Repurchase Notice or is otherwise required to participate in an offering pursuant to exercise of SBCM's demand rights (as referred to in the Amended and Restated Registration Rights Agreement) as set forth above, the Company shall use best efforts to permit SBCM to effect a widely dispersed public offering of the securities into which the Disposable Securities are exchangeable pursuant to Section 10(a) hereof (i.e., the Public Common Stock or the Public Preferred Stock), and SBCM agrees to deliver its Disposable Securities being disposed of to the Company as the time of commencement of the offering of such securities (and, with respect to any Public Common Stock so delivered, the Company shall remove the restrictive legend upon sale). As further set forth in the Amended and Restated Registration Rights Agreement, unless Rule 144 (or any successor rule thereto) under the 1933 Act is amended or otherwise interpreted by the staff of the Securities and Exchange Commission to provide for a shorter holding period, during the first two years following the Closing Date any disposition of Disposable Securities in an offering within the United States pursuant to exercise of SBCM's demand rights shall be registered under the 1933 Act. The Company shall determine in its sole discretion whether or not any disposition within the United States following such two-year period (or any shorter period so permitted) or any disposition outside the United States at any time shall be registered under the 1933 Act; provided however, in the event that SBCM provides an opinion reasonably acceptable to the Company of Cravath, Swaine & Moore or another counsel reasonably acceptable to the Company that such registration is required, the Company shall effect such registration in any event. (vi) In the event the Partnership or the Company affords persons who will become or are managing directors of the Company piggy-back rights with respect to registered public offerings of Public Common Stock of the Company (including in the Company's initial public offering) or with respect to offerings of Public Common Stock of the Company made outside the United States, the Company shall also afford such rights to SBCM pursuant to the Amended and Restated Registration Rights Agreement on a pro rata basis with such managing directors. (vii) In connection with any disposition of securities of the Company by the Company, SBCM, the Company's managing directors or otherwise, SBCM agrees that it shall be subject to the same customary limitations on sales following consummation of such disposition as managing directors of the Company agree to with the underwriters of such securities and that it will execute and deliver any agreement to such effect required by such underwriters. (e) Proxy and Voting Agreement. (i) At the Effective Time, Sumitomo and SBCM shall each deliver to the Partnership its irrevocable proxy in the form set forth in Annexes 5(a) and 5(b) hereto, respectively. Sumitomo and SBCM each further agree, to the extent (if any) that such irrevocable proxy is 8 9 not enforceable under law, to vote any securities of the Company or any subsidiary of the Company held by it (whether acquired pursuant to this Agreement or otherwise) in the manner provided in such proxy. Sumitomo further agrees to cause any direct or indirect subsidiary thereof (other than SBCM) to vote any securities of the Company or any subsidiary thereof that may be acquired by such subsidiary of Sumitomo in the manner provided in Sumitomo's foregoing proxy. (ii) SBCM understands that time is of the essence in a public offering, and if, in connection with any recapitalization in connection with a public offering, the Company wishes for any reason to modify the terms of SBCM's securities, SBCM agrees to consider (without any obligation to consent to) such modifications according to any reasonable time schedule prescribed by the Company. (f) Indemnification with Respect to Exchanges of Sumitomo Preferred Stock. (i) If either the Company or any of its shareholders shall pay, or be required to pay, any Federal, foreign, state, county or local taxes (including, without limitation, any Federal, foreign, state, county or local income taxes) (hereinafter "Taxes") as a result of an exchange (an "Exchange") by SBCM (or any assignee or transferee) of SBCM's Preferred Stock for SBCM's Option I Preferred Stock, SBCM's Option II Preferred Stock or SBCM's Option III Preferred Stock pursuant to clause (iii) under the caption "Special Sumitomo Provisions" contained in Schedule III hereto, SBCM and Sumitomo jointly and severally agree to pay to the Company and/or to its shareholders an amount equal, after deduction for all Taxes required to be paid with respect to such payment (taking into account any available deductions or credits to the Company or its shareholders resulting from payments being indemnified against), to all Taxes, interest, penalties and additions to tax paid, or required to be paid (excluding any interest, penalties or additions to tax resulting from any failure by a person otherwise entitled to this indemnity to file returns that are timely), by the Company and/or such shareholders as a result of any Exchange. (ii) If the Company shall pay, or be required to pay, any Taxes as a result of a payment to its shareholders pursuant to Section 10(f)(i) hereof, SBCM and Sumitomo jointly and severally agree to pay to the Company an amount equal, after deduction for all Taxes required to be paid with respect to such payment (taking into account any available deductions or credits to the Company or its shareholders resulting from payments being indemnified against), to all Taxes, interest, penalties and additions to tax paid, or required to be paid, by the Company as a result of the payment to the shareholders pursuant to Section 10(f)(i) hereof (excluding any interest, penalties or additions to tax resulting from any failure by the Company to file returns that are timely). (iii) All payments required to be made pursuant to this Section 10(f) shall be paid on the earliest of (I) ten business days after notice of the filing of a return by the Company or any shareholder showing the Taxes for which SBCM is required to make the payment, (II) the payment by the Company or any shareholder of such Taxes, or (III) the receipt by the Company or any of its shareholders of a Revenue Agent's Report indicating that such Taxes are payable. (iv) The Company shall file tax and information returns consistent with any Favorable Tax Advice (as defined in Schedule III hereto) received with respect to an Exchange unless the Company determines that there has been a change in facts or in law subsequent to the receipt of the Favorable Tax Advice. Neither SBCM nor Sumitomo shall be required to make any payment pursuant to this Section 10(f) to a shareholder if such shareholder has filed tax returns which are not consistent with information returns provided by the Company in reliance upon the Favorable Tax Advice. (v) The Company shall not make any payments to a taxing authority which would entitle it, or file any returns which (if shareholders filed consistently) would entitle its shareholders, to receive payments from Sumitomo or SBCM without providing 15 days' notice to SBCM. The Company shall cooperate in good faith (including cooperation in appropriate contests under the Company's sole control) in attempting to eliminate or minimize Sumitomo's or SBCM's payment obligations under this Section 10(f). 9 10 11. [Deleted] 12. Confidentiality. (a) Each party will keep confidential any and all information furnished to it by the other party or its representatives in connection with the transactions contemplated by this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement and the other agreements referred to herein, except to the extent any such information may be generally available to the public (other than as a result of a disclosure by such party or its representatives), and the parties will instruct their respective partners, directors, officers, employees and other representatives having access to such information of such obligation of confidentiality. At the time this Agreement is terminated pursuant to Section 13(a) hereof or at the time immediately following an initial public offering registered under the 1933 Act by the Company, the parties hereto shall return to each other copies of materials previously disclosed to the other through such time as the parties shall agree at such time. (b) Without limitation of the foregoing, Sumitomo and SBCM each hereby specifically covenants and agrees that it shall not, in the course of making or securing filings, notifications, consents, approvals, authorizations or orders with governmental or administrative agencies or bodies or courts for any reason following the date of this Agreement, disclose to any person at any time any information (financial or other) concerning any Firm which is not publicly disclosed, unless the Partnership otherwise consents (which consent may not be unreasonably withheld) or unless pursuant to a court or administrative order. (c) The parties agree that they will advise and confer with each other prior to the issuance of any report, statement, press release or other written statement identifying the other party or relating to the transactions contemplated by this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement and the other agreements referred to herein and the implementation hereof and thereof. No report, statement, press release or other written statement shall be disseminated publicly or delivered to any other person without the specific, written consent of the other party, which consent may not be unreasonably withheld, provided that either party may deliver written statements to regulatory agencies or trademark commissions, and provided further, however, that the Partnership and Sumitomo may mutually agree upon guidelines for routine disclosures (i.e., references to the other in stockholder reports, brochures or other documents describing their respective businesses, etc.) pursuant to which the disclosures covered by such guidelines may be made without specific or prior approval. 13. Termination. This Agreement shall terminate: (a) on the date of payment of the distribution with respect to the final year of a Withdrawal Period; or (b) on the date of disposition by SBCM or cancellation of all the Securities set forth in clauses (i), (ii) (as it relates to shares of Public Common Stock or Public Preferred Stock acquired by SBCM in an exchange pursuant to Schedules II or Ill hereto) and, if such are equity securities or exercisable, convertible or otherwise exchangeable in any manner into equity securities, (iii) or (iv) of the definition of Securities in Section 10(c) hereof; provided, however, that (i) the agreements set forth in Sections 12, 14 and 15(b) (as such relates to Sections 12 and 14) hereof shall continue indefinitely, (ii) the agreements set forth in Section 10(e) shall continue for a period of five years from the date of the final disposition or cancellation of all Securities set forth in (b) above and (iii) the agreements set forth in Section 10(f) shall continue until the expiration of the statute of limitations, as extended, with respect to the imposition or assessment of Taxes for which payments by Sumitomo and SBCM would be required by Section 10(f)(i) and 10(f)(ii). 14. Governing Law; Arbitration. (a) This Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. 10 11 (b) Any dispute, controversy or claim arising out of or relating to provisions of this Agreement and each of the Annexes hereto shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne equally by the parties hereto. All other costs, including counsel and witness fees, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State and any other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 15. Ownership of SBCM; Sumitomo Agreement with Respect to SBCM; Assignment. (a) Sumitomo and SBCM each agrees that SBCM will remain a wholly-owned subsidiary of Sumitomo or of another wholly-owned subsidiary of Sumitomo. (b) Sumitomo agrees that it shall cause SBCM to perform all the obligations of SBCM contained in this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement and the other agreements contemplated hereby and thereby. (c) Each of Sumitomo and, except as provided in the next sentence, SBCM may not assign this Agreement or any of the other agreements contemplated hereby or by the Memorandum of Agreement or the GSNY Memorandum of Agreement to any party. With the consent of the Partnership (which shall not be unreasonably withheld), SBCM may assign this Agreement to Sumitomo or another directly or indirectly wholly-owned subsidiary of Sumitomo organized under the laws of any United States jurisdiction, provided that Sumitomo or such subsidiary shall execute and deliver such amendments to, or documents or instruments of assumption of, this Agreement, the Memorandum of Agreement, the GSNY Memorandum of Agreement and the other agreements contemplated hereby and thereby (including the irrevocable proxies and proxy/power-of-attorney) as are required by the Partnership so as to become a party thereto successor to SBCM, with all rights and obligations provided herein and therein. Such assignment shall release SBCM from its obligations hereunder. 16. Survival of Agreement; Further Assurances. (a) All terms and provisions of this Agreement shall survive execution and delivery of this Agreement, the Effective Time and any investigation made at any time by any party or on its behalf until terminated pursuant to Section 13 hereof; provided, however, that the representations and warranties of the Partnership contained in Section 6 and of Sumitomo and SBCM contained in Section 7 (other than the agreement to use best efforts to prevent the revocation or modification of consents, approvals, authorizations or orders contained in Section 7(a)) shall terminate on September 30, 1989. (b) Each of Sumitomo, SBCM and the Partnership agrees that, in the event any of the consents, approvals, authorizations or orders secured in order to consummate the transactions contemplated hereby are threatened to be modified or revoked, each shall use its best efforts to prevent such modification or revocation. 17. Registered Address; Notices. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to Sumitomo or SBCM, at Sumitomo Bank Capital Markets, Inc., One World Trade Center (95th Floor), New York, New York 10048, Attention: President, or at such other address as SBCM shall furnish to the Partnership in writing, or (b) if to the Partnership or GSNY, at 11 12 85 Broad Street, New York, New York 10004, Attention: Robert A. Friedman, or at such other address as the Partnership shall have furnished to Sumitomo or SBCM in writing. 18. Miscellaneous. This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership or GSNY contained in this Agreement shall be had against any current or future general partner of the Partnership or GSNY. This Agreement embodies the entire agreement and understanding between Sumitomo, SBCM, GSNY and the Partnership and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date above written. THE SUMITOMO BANK, LIMITED By:/s/ --------------------------------------- SUMITOMO BANK CAPITAL MARKETS, INC. By:/s/ --------------------------------------- GOLDMAN, SACHS & CO. By:/s/ --------------------------------------- THE GOLDMAN SACHS GROUP, L.P. By:/s/ --------------------------------------- 12 13 Annex 4 to Subscription Agreement AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of March 28, 1989 (the "Agreement"), between Sumitomo Bank Capital Markets, Inc. ("SBCM"), a Delaware corporation and a wholly-owned subsidiary of The Sumitomo Bank, Limited, a Japanese corporation ("Sumitomo"), Goldman, Sachs & Co., a limited partnership organized under the laws of New York ("GSNY"), and The Goldman Sachs Group, L.P., a limited partnership organized under the laws of Delaware (the "Partnership"). WHEREAS, pursuant to an Amended and Restated Subscription Agreement, dated as of March 28, 1989, among Sumitomo, SBCM, GSNY and the Partnership (the "Subscription Agreement"), SBCM holds and may hold certain limited partnership interests in the Partnership described in the Subscription Agreement and in the "Bank Partnership Provisions" referred to in the Subscription Agreement (the "Bank Partnership Provisions"); and WHEREAS, pursuant to Section 10(d) of the Subscription Agreement, the Partnership has granted SBCM certain registration rights with respect to securities of the Partnership's corporate successor (the "Company") in the event the Partnership incorporates and registers its common stock under the Securities Act of 1933 (the "1933 Act"); THEREFORE, the parties agree as follows: I. Definitions Terms used in this Agreement which are defined in the Subscription Agreement or in the Bank Partnership Provisions have the meanings set forth therein. 2. Demand Rights; Piggy-Back Rights; Registered and Unregistered Public Offerings (a) Subject to the additional limitations on disposition set forth in Section 10(d)(ii) of the Subscription Agreement and any additional conditions imposed pursuant to Section 10(d)(vii) of the Subscription Agreement, SBCM shall have the right to deliver 10 Disposition Notices to the Company with respect to Disposable Securities during the ten-year period commencing on the date which is 90 days after the date on which the Company consummates the initial public offering of its Public Common Stock; provided, however, SBCM shall not have the right to deliver more than two Disposition Notices in any one fiscal year; and provided further, however, such aggregate and fiscal year limitations shall each be reduced by the number of registrations in which SBCM elects to participate during such ten-year or fiscal year period, respectively, pursuant to Section 2(b) below. For purposes of the foregoing, a Disposition Notice delivered to the Company pursuant to Section 10(d)(iii) of the Subscription Agreement following expiration, without the filing of a registration statement or the commencement of a public offering outside the United States, of the period set forth in a previously delivered Delay Notice shall not be deemed to constitute a new Disposition Notice within the foregoing limitations. In the event the Company is required pursuant to Section 10(d)(v) of the Subscription Agreement to participate in a public offering, the Company shall use its best efforts as set forth herein to permit SBCM promptly to effect a widely dispersed public offering within or outside the United States (or simultaneously in both, in any case as specified by SBCM) of the securities into which the Disposable Securities are exchangeable pursuant to Section 10(a) of the Subscription Agreement (i.e., the Public Common Stock or the Public Preferred Stock defined in Schedules II and III to the Subscription Agreement, herein collectively referred to as the "Public Securities"). During the first two years following the Closing Date under the Subscription Agreement, any such disposition of Public Securities on behalf of SBCM in an offering within the United States shall be registered under the 1933 Act unless Rule 144 thereunder is amended or otherwise interpreted by the staff of the Securities and Exchange Commission (the 1 14 "Commission") to provide for a shorter holding period. The Company shall determine in its sole discretion whether or not any disposition within the United States following such two-year period (or any shorter period so permitted) or any disposition outside the United States at any time shall be registered under the 1933 Act; provided, however, in the event that SBCM provides the Company with an opinion reasonably acceptable to the Company of Cravath, Swaine & Moore or another counsel reasonably acceptable to the Company that such registration is required, the Company shall effect such registration in any event. (b) In the event the Company intends to offer its managing directors rights to include shares of Public Common Stock into which they may exchange shares of common stock owned by them in a registration statement to be filed under the 1933 Act or in an offering to be made outside the United States, the Company, subject to the limitations on dispositions by SBCM set forth in Section 10(d)(ii) and that may be imposed pursuant to Section 10(d)(vii) of the Subscription Agreement, shall offer SBCM similar rights in the manner set forth in Section 5 below. 3. Demand Rights: Registered Offerings (a) In the event the Company registers Public Securities under the 1933 Act pursuant to Section 2(a) above (in an offering within or outside the United States), the following procedures and agreements shall govern: (i) The Company will use its best efforts to prepare and file with the Commission a registration statement with respect to the Public Securities into which the Disposable Securities to be disposed of are exchangeable as promptly as practicable after the date (the "Commitment Date") on which the Company became obligated pursuant to Sections 10(d) (iii) or (iv) of the Subscription Agreement to participate in a public offering; provided, however, the Company need not file such registration statement until it has received in writing from SBCM the information required to be provided by SBCM for inclusion in the registration statement. Unless SBCM and the Company otherwise agree, the Company will use its best efforts to cause the registration statement to become effective as promptly as practicable following the date on which the registration statement is filed with the Commission. (ii) Following the effective date of the registration statement, the Company will prepare and file with the Commission such amendments or supplements to the registration statement (or to the prospectus forming a part thereof) as may be required pursuant to the underwriting agreement referred to below. (iii) The Company shall take such action as SBCM or the representatives of the underwriters of the offering (the "Representatives") shall request to qualify the Public Securities to be disposed of for offering and sale under the securities laws of such United States jurisdictions as the Representatives may reasonably request and to comply with such laws so as to permit continuance of sales and dealings therein for such period as may be required pursuant to the underwriting agreement referred to below; provided, however, in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (b) In connection with any such offering the Company, SBCM and the Representatives shall enter into an underwriting agreement with respect to such distribution in such form as the Company Broker-Dealer customarily uses at the time of such offering with clients with regard to such type of secondary offering of equity securities (the "Standard Form"), provided (i) the representations and warranties and agreements of the Company and the opinions of counsels for the Company contained in the Standard Form shall be appropriately modified so as to be not more burdensome to the Company than the representations and warranties and the opinions delivered in connection with the Company's initial public offering, (ii) the expenses of such registration and offering shall be borne by the parties as set forth in Section 3(c) below, (iii) in consideration and as part of the purchases and sales and other transactions contemplated by the Subscription Agreement, the Company (and not SBCM) shall provide reimbursement of expenses, indemnification and contribution to the underwriters and their controlling persons as set forth in the Standard Form and (iv) the representations and warranties, agreements and opinions of 2 15 counsel made or deliverable on behalf of SBCM as selling stockholder to the underwriters under the Standard Form may have such modifications thereto as the Company Broker-Dealer and SBCM shall negotiate in good faith at the time of such offering. (c) The Partnership and SBCM agree that SBCM shall pay all expenses of the Company and SBCM in connection with an offering pursuant to this Section 3, including the following: (i) the fees, disbursements and expenses of the Company's counsel(s) (United States and foreign) and accountants in connection with the registration of the Public Securities to be disposed of under the 1933 Act and all other expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to the underwriters and dealers; (ii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s), any Blue Sky or Legal Investment memoranda, any selling agreements and any other documents in connection with the offering, sale or delivery of the Public Securities to be disposed of; (iii) all expenses in connection with the qualification of the Public Securities to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any Blue Sky and Legal Investment surveys; (iv) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Public Securities to be disposed of; (v) all costs and expenses of the underwriters which otherwise would be reimbursed or paid for by the Company; and (vi) all costs and expenses incident to the performance of SBCM's obligations in connection with the offering, including (x) any fees and expenses of counsel(s) for SBCM, (y) the fees and expenses of any attorney-in-fact or custodian for SBCM or any depositary and (z) all expenses and taxes (domestic and foreign) incident to the sale and delivery by SBCM to the underwriters of the Public Securities to be disposed of. The Company shall pay the costs and charges of any transfer agent or registrar and the cost of preparing certificates for shares of Public Common Stock to be disposed of and, if the Company has previously issued Public Preferred Stock otherwise than in connection with a disposition by SBCM of preferred stock, of any Public Preferred Stock offered hereby; in the event the Company has not issued Public Preferred Stock other than in connection with a disposition by SBCM, SBCM shall pay the costs of preparing certificates therefor. 4. Demand Rights: Non-Registered Offerings (a) In the event SBCM is entitled to proceed with an offering (within or outside the United States) which is not registered under the 1933 Act pursuant to Section 2(a) above, the following procedures and agreements shall govern: (i) If and to the extent the Company deems it necessary in order to achieve a widely dispersed public offering, the Company will use its best efforts to prepare a final offering circular (and, if necessary, a preliminary offering circular) with respect to the Public Securities into which the Disposable Securities to be disposed of are exchangeable as promptly as practicable after the Commitment Date (and, if a preliminary offering circular is used, to prepare a final offering circular thereafter). Any such preliminary and final offering circulars shall be in such form as the Company, SBCM and the Representatives agree, and may be in a form which includes or incorporates by reference filings of the Company under the Securities Exchange Act of 1934. (ii) The Company shall take such actions at the request of SBCM or the Representatives as may be required under Section 3(a)(iii) above to qualify the Public Securities to be disposed of for offering and sale under securities laws of United States jurisdictions. (b) In the event an offering circular is prepared pursuant to Section 4(a)(i) above, the Company, SBCM and the Representatives shall enter into an indemnification agreement with respect to such distribution providing for reimbursement of expenses, indemnification and contribution by the Company to the underwriters on the terms set forth in the form of underwriting agreement required pursuant to Section 3(b) above, with such modifications thereto as are required or appropriate given that the offering is not registered under the 1933 Act. In addition, with respect to offerings outside the United States, the Company, SBCM and the Representatives shall agree upon such additional terms to the indemnification agreement relating to foreign laws (including opinions thereon) as are necessary and appropriate. 3 16 (c) The Partnership and SBCM agree that SBCM shall pay all expenses of the Company and SBCM in connection with an offering pursuant to this Section 4 in the same manner as set forth in Section 3 above. 5. Piggy-Back Registration Rights (a) Following the initial public offering of the Public Common Stock, in the event the Company intends (x) to file a registration statement under the 1933 Act with respect to an offering of its securities or to publicly offer its securities outside the United States and (y) to offer managing directors of the Company rights to include up to a specified maximum aggregate number of additional shares of Public Common Stock into which they may exchange shares of common stock owned by them in such registration statement or foreign offering, the Company shall provide SBCM with notice of such intention no less than 20 business days prior to such filing or to the commencement of such foreign offering. SBCM is hereby granted rights to participate with the managing directors in such registration statement or foreign offering on a pro rata basis with the managing directors. In the event SBCM elects to have Public Common Stock registered (or, in the case of a foreign offering, offered) on its behalf, SBCM may have registered (or offered) such percentage of the maximum number of shares of Public Common Stock to be registered (or offered) on behalf of SBCM and the managing directors as equals the percentage obtained by dividing (x) the number of shares of Public Common Stock sought to be registered (or offered) at such time by SBCM on its behalf by (y) the sum of such number of shares and the aggregate number of shares of Public Common Stock sought to be registered (or offered) at such time by the managing directors on their behalf. In the event SBCM elects to have Public Preferred Stock registered (or offered) on its behalf, SBCM shall specify the number of shares of Public Common Stock it otherwise would have sought to have registered (or offered) on its behalf, and SBCM may have registered (or offered) such number of shares of Public Preferred Stock as would have an aggregate initial public offering price (estimated at the time of the initial filing of the registration statement (or at the commencement of the offering) and adjusted at the time of pricing) equal to the aggregate initial public offering price of the shares of Public Common Stock which SBCM could have had registered (or offered) on its behalf pursuant to the foregoing sentence. SBCM may elect to exercise the foregoing rights by giving written notice of its election to participate and the class and number of shares of its desired participation to the Company within 10 business days of receipt by SBCM of the foregoing notice from the Company. On receipt of SBCM's election to participate, the Company shall either include shares of Public Securities on behalf of SBCM in the registration statement or foreign offering or, within 10 business days of receipt by the Company of SBCM's notice, deliver a Purchase Notice to SBCM in the same manner as set forth in Section 10(d)(iv) of the Subscription Agreement specifying either that the Company elects or that the Company is affording its managing directors the right to elect to purchase all or a portion of the shares otherwise to be registered on behalf of SBCM in lieu of including them in the registration statement or foreign offering. In the event the Company delivers such a Purchase Notice, the Company shall be obligated, if applicable, to deliver a subsequent MD Purchase Notice in the manner and in the period set forth in said Section 10(d)(iv), and to purchase (together, if applicable, with the managing directors) the shares the subject of such Purchase Notice or MD Purchase Notice from SBCM on or prior to the consummation of the registered or foreign public offering. (If such registered or foreign public offering is not consummated, the Company and/or the managing directors shall not be required to purchase any shares from SBCM pursuant to this paragraph.) If the shares to be disposed of by SBCM are exchangeable into a class of securities registered in the registration statement or offered in the foreign offering, the purchase price applicable to such purchase shall be the initial public offering price of the shares actually sold pursuant to the registration statement or foreign offering (less the gross underwriting discount) and, if the securities to be sold by SBCM are not exchangeable into a class of securities registered pursuant to the registration statement or offered in the foreign offering, such purchase price shall be the price which would be applicable pursuant to said Section 10(d)(iv) treating the date of the commencement of the public offering as the "date of the Disposition Notice" within the meaning of said section. In the event the Company does not deliver a Purchase Notice and intends to proceed with a registered or foreign public offering including Public Securities on behalf of SBCM, and in the event SBCM does not provide the Company in writing with the information concerning SBCM required to be included in the registration statement or offering circular on or prior to five business days prior to the date of the Company's intended filing of the registration statement or commencement of the offering, the Company need not include shares on behalf of SBCM in the registration statement or foreign offering. 4 17 (b) In the event the Company includes Public Securities in the registration statement or foreign offering on behalf of SBCM pursuant to this Section 5, the Company may file said registration statement with the Commission (if applicable) and offer the Public Securities to the public in the manner and according to the time schedule chosen by the Company in its sole discretion, including, without limitation, the choice of Representatives, underwriters, the form of underwriting agreement, the United States jurisdictions in which the securities shall be registered or qualified, etc., provided, however, that the underwriting agreement as it relates to SBCM and the reimbursement of expenses, indemnification and contribution provided by the Company to the underwriters with respect to Public Securities sold on behalf of SBCM shall be in substantially the form referred to in Section 3(b) above except as otherwise provided in this Section 5(b) (and provided further, however, that disposition of Public Securities on behalf of SBCM must be in a widely-dispersed public offering and in conformity with regulatory requirements and guidelines applicable to Sumitomo and SBCM). The Partnership and SBCM agree that SBCM shall pay the expenses of the Company in connection with an offering pursuant to this Section 5 on a pro rata basis with the managing directors and the Company (pro rata on the basis of the aggregate initial public offering price of Public Securities included on SBCM's, the managing directors' and the Company's behalf in said registration statement or foreign offering). SBCM shall also pay all its own expenses in connection therewith. (c) In the event managing directors of the Company are afforded piggy-back registration rights in the initial public offering of the Public Common Stock pursuant to Section 10(d)(vi) of the Subscription Agreement, SBCM shall have the right to participate in such registration statement as specified in this Section 5, provided that SBCM must deliver written notice of the exercise of its rights within 10 business days of notification by the Company, which notification by the Company need not precede the filing of the registration statement by more than 20 business days. 6. Reimbursement of Expenses, Indemnification and Contribution (a) The Company will indemnify and hold harmless SBCM against any losses, claims, damages or liabilities to which SBCM may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any amendment or supplement thereto, or arise out of or are based upon (i) in connection with an offering registered under the 1933 Act, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) in connection with an offering not registered under the 1933 Act, the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse SBCM from time to time upon request for any legal or other expenses reasonably incurred by SBCM in connection with investigating or defending any such action or claim; provided, however, that the Company shall not be liable to SBCM in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by SBCM for use therein. (b) SBCM will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any amendment or supplement thereto, or arise out of or are based upon (i) in connection with an offering registered under the 1933 Act, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) in connection with an offering not registered under the 1933 Act, the omission or alleged omission to state therein a material fact 5 18 necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim; provided, however, that SBCM shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus or final prospectus, any registration statement, any offering circular (or other offering document) or any such amendment or supplement other than in reliance upon and in conformity with written information furnished to the Company by SBCM expressly for use therein. (c) Promptly after receipt by an indemnified party under paragraph (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such paragraph, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to the indemnified party otherwise than under such paragraph. In case any such action shall be brought against the indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably acceptable to the indemnified party (which may include Sullivan & Cromwell), and, after notice from the indemnifying party to the indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to the indemnified party under such paragraph for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the indemnified party, in connection with the defense thereof other than reasonable costs of investigation; provided, however, that, in the event such indemnified party shall have reasonably concluded that there are defenses available to it which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action as it relates to such defenses on behalf of such indemnified party and the fees and expenses of separate counsel relating to such defenses for such indemnified party shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for the reasonable fees and expenses of more than one local counsel in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances and one national counsel coordinating all such actions. (d) If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect not only (i) the relative benefits received by the Company on the one hand and SBCM on the other from the offering of the Public Securities on behalf of SBCM but also (ii) the relative fault of the Company on the one hand and SBCM on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or SBCM and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Partnership and SBCM agree that it would not be just and equitable if contributions pursuant to this paragraph (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this paragraph (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this paragraph (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 6 19 (e) The obligations of the Company and SBCM under this Section 6 shall be in addition to any liability which the Company and SBCM may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company or SBCM, respectively, within the meaning of the 1933 Act (including, as to SBCM, Sumitomo) and to their respective officers and directors. 7. Governing Law; Arbitration (a) This Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Agreement shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne equally by the parties hereto. All other costs, including counsel and witness fees, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State or other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 8. Assignment; Assumption (a) SBCM may not assign this Agreement to any party except as provided in the next sentence. SBCM may assign this Agreement to Sumitomo or another directly or indirectly wholly-owned subsidiary of Sumitomo organized under the laws of any United States jurisdiction in connection with an assignment duly approved by the Partnership pursuant to Section 15(c) of the Subscription Agreement. (b) In the event the Partnership or the Company sells or transfers its business to or otherwise combines with any person and SBCM receives securities of such person in an exchange subject to Section 6(c) of the Bank Partnership Provisions, the Partnership (and the Company) and SBCM agree that the Partnership's (or the Company's) remaining obligations (if any) under this Agreement shall be assumed, as a term of such sale, transfer or combination, by such other person on terms consistent to the fullest extent practicable with the terms hereof. 9. Registered Address; Notices All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to SBCM, at One World Trade Center (95th Floor), New York, New York 10048, or at such other address as SBCM shall furnish to the Partnership in writing, or (b) if to the Partnership, at 85 Broad Street, New York, New York 10004, Attention: Robert A. Friedman, or at such other address as the Partnership shall have furnished to SBCM in writing. 10. Miscellaneous This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to the Partnership, the Company). No recourse under or upon any obligation of the Partnership contained in this Agreement shall be had against any current or future general partner of the Partnership. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 7 20 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date above written. SUMITOMO BANK CAPITAL MARKETS, INC. By: --------------------------------------- GOLDMAN, SACHS & CO. By: --------------------------------------- THE GOLDMAN SACHS GROUP, L.P. By: --------------------------------------- 8 EX-10.33 31 LETTER AGREEMENT 1 Exhibit 10.33 March 15, 1999 Mr. Akira Kondoh Managing Director The Sumitomo Bank, Ltd. 3-2, Marunouchi 1-chome Chiyoda-ku, Tokyo 100-8201 Mr. Ryuzo Kodama Director Head of Americas Division The Sumitomo Bank, Limited 277 Park Avenue New York, NY 10172 Dear Mr. Kondoh and Mr. Kodama: This letter (this "Letter Agreement") sets forth the agreement among The Sumitomo Bank, Limited ("Sumitomo"), Sumitomo Bank Capital Markets, Inc. ("SBCM") and The Goldman Sachs Group, L.P. ("GS Group") with respect to certain matters, including matters relating to the Plan of Incorporation (the "Plan") approved by the Schedule II Limited Partners of GS Group in March 1999 pursuant to Paragraph 14 of Article I of the Memorandum of Agreement of GS Group, as amended and restated November 28, 1998 (the "GS Group Partnership Agreement"). Set forth as Exhibit 1 hereto is a true and complete copy of the Plan, in the form submitted to the Schedule II Limited Partners of GS Group, together with all exhibits referred to therein. Reference is made to the GS Group Partnership Agreement and to (i) the Amended and Restated Subscription Agreement, dated as of March 28, 1989 (the "Subscription Agreement"), among Sumitomo, SBCM (together with Sumitomo, the "Sumitomo Group"), Goldman, Sachs & Co. ("GS&Co.") and GS Group and (ii) the Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement"), dated as of March 28, 1989, among Sumitomo, SBCM, GS&Co. and GS Group. Capitalized terms used herein, but not otherwise defined herein, shall have the meanings ascribed thereto in the Subscription Agreement or the GS Group Partnership Agreement, as applicable. This Letter Agreement shall be a modification of and an amendment to the Subscription Agreement and the Registration Rights Agreement to the extent set forth herein. 2 The Sumitomo Bank, Ltd. March 15, 1999 Page 2 The parties hereby agree as follows: 1. Securities to be Issued to SBCM. SBCM hereby elects pursuant to Paragraph 5 of Article II of the GS Group Partnership Agreement to receive solely common stock of The Goldman Sachs Group, Inc. ("GS Inc." or the "Company") in connection with the Plan. The GS Inc. common stock to be issued to SBCM pursuant to Paragraph 5 of Article II of the GS Group Partnership Agreement will be comprised of (a) Common Stock, $.01 par value, identical to, and the same class as, the common stock to be issued and sold by GS Inc. as a primary issuance of not less than $1 billion in the initial public offering (the "IPO") of GS Inc. pursuant to the Form S-1 Registration Statement of GS Inc. to be filed with the Securities and Exchange Commission ("Common Stock"), and (b) Nonvoting Common Stock of GS Inc. which is convertible into Common Stock on a share-for-share basis pursuant to the terms and subject to the conditions of the conversion provisions set forth in Annex A hereto and which is identical in all respects (other than with respect to voting rights) to the Common Stock (e.g., each share of Nonvoting Common Stock shall be entitled to receive the same consideration (except for differences in voting rights of securities) in any merger or other business combination as each share of Common Stock) ("Nonvoting Common Stock"). The number of shares of Common Stock initially issued to SBCM will be limited to a number of shares of Common Stock such that SBCM shall not hold more than 4.9% of the outstanding shares of Common Stock on the date of the closing of the IPO (the "IPO Date"), after giving effect to any disposition of shares of Common Stock by SBCM pursuant to Section 3 hereof. The remaining securities to which SBCM is entitled will be issued to SBCM in the form of Nonvoting Common Stock. 2. Adjustment to Part E Actual Capital; Other Distributions. Upon calculation of any adjustment to SBCM's Part E Interest as of November 28, 1998 pursuant to Article II, Section 3(c) of the GS Group Partnership Agreement, the parties agree that any adjustment pursuant to Section 3(c)(iii) or (iv) shall be made by a distribution of cash to SBCM (if clause (iii) is applicable) or by SBCM contributing additional capital to GS Group (if clause (iv) is applicable), in each case in accordance with the GS Group Partnership Agreement, and that SBCM's Actual Share will not be adjusted. 3 The Sumitomo Bank, Ltd. March 15, 1999 Page 3 Pursuant to the existing capital withdrawal policy for Schedule II Limited Partners of GS Group ("PLPs"), each PLP has been permitted to make a withdrawal from his or her capital account. It is hereby agreed that SBCM shall be permitted, in accordance with Paragraph 14 of the Article I of the GS Group Partnership Agreement, to make a capital withdrawal, in the amount of $35,483,639, which, to the extent that SBCM is required to contribute additional capital to GS Group pursuant to the first paragraph of this Section 2, shall be netted against such capital contribution by SBCM. 3. Common Stock to be Sold by SBCM. SBCM agrees that, if requested by GS Inc., SBCM shall sell 9,000,000 shares of Common Stock in a secondary offering as a part of the IPO. SBCM agrees (a) that it shall use its best reasonable efforts to persuade the Board of Governors of the Federal Reserve System (the "FRB") not to object with respect to SBCM's receipt and sale of shares of Common Stock to be sold as part of the IPO pursuant to this Section 3, (b) to sell such shares at the initial public offering price established by GS Inc. and the underwriters in the IPO, and (c) to cooperate fully in the registration and offering of such shares, including, without limitation, (1) furnishing any information relating to the Sumitomo Group necessary or advisable in the applicable registration statement and (2) executing an underwriting agreement, all on the same terms and conditions as are applicable to piggy-back registrations pursuant to Section 5(b) of the Registration Rights Agreement. GS Inc. will not request SBCM to sell shares of Common Stock pursuant to this Section 3 unless SBCM will hold no more than 4.9 percent of the Common Stock on the close of business on the IPO Date. If the FRB objects to SBCM selling Common Stock in the secondary offering, SBCM will not be obligated to acquire any Common Stock that would result in SBCM holding in excess of 4.9% of the Common Stock at any time and SBCM will receive all shares to which it is entitled, in addition to 4.9% of the Common Stock, in the form of Nonvoting Common Stock; provided that SBCM shall neither sell any of the Nonvoting Common Stock pursuant to this Section 3 nor convert any of the Nonvoting Common Stock and sell the Common Stock received in respect thereof. 4. Hedging Restrictions. To the extent that securities of GS Inc. are subject to the limitations on disposition (otherwise than by the consent of GS Inc.) set forth in Section 5(a) hereof, and in addition to the transfer restrictions set forth in the Subscription Agreement, as amended, 4 The Sumitomo Bank, Ltd. March 15, 1999 Page 4 Sumitomo and SBCM each agrees that it will comply with the hedging restrictions of GS Inc. applicable to its managing directors set forth on Annex B hereto; provided, that (i) such restrictions shall not apply to the Sumitomo Group's asset management activities for unaffiliated parties and (ii) if GS Inc. relaxes such hedging restrictions, such relaxation shall apply to the Sumitomo Group. 5. Dispositions of Securities. (a) The provisions of the fourth sentence of Section 10(d)(ii) of the Subscription Agreement shall be replaced with the following: "In addition to the other restrictions on transfer included in this Agreement, Sumitomo and SBCM each agree as follows: (1) Other than as provided in Section 3 of the letter agreement (the "Letter Agreement"), dated as of March 15, 1999, among Sumitomo, SBCM, GS&Co. and GS Group and Section 10(d)(iv) hereof, no securities of the Company may be disposed of by SBCM, whether pursuant to exercise of demand rights or piggy-back rights, and no Disposition Notice may be given, earlier than the first anniversary of the date of the closing of the initial public offering of the Company (the "IPO Date"). (2) Subsequent to the first anniversary of the IPO Date and prior to the third anniversary of the IPO Date, SBCM shall be permitted to dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following the first and second anniversaries of the IPO Date, shares of Common Stock constituting in the aggregate up to 20% of the aggregate number of shares of Common Stock and Nonvoting Common Stock (as defined in the Letter Agreement) that SBCM received under Section 1 of the Letter Agreement (the "SBCM Original Block"); provided, however, that SBCM, with the consent of the Company, which shall not be unreasonably withheld, may subsequent to the first anniversary of the IPO Date and prior to the third anniversary of the IPO Date dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following the first and 5 The Sumitomo Bank, Ltd. March 15, 1999 Page 5 second anniversaries of the IPO Date, shares of Common Stock constituting in the aggregate up to an additional number of shares of Common Stock equal to (a) 13 1/3% of the SBCM Original Block less (b) the number of shares of Common Stock disposed of pursuant to Section 10(d)(ii)(4) hereof in such 12-month period. (3) Subsequent to the third anniversary of the IPO Date, SBCM may dispose of, whether pursuant to the exercise of demand rights or piggy-back rights, in each 12-month period following such anniversary Common Stock constituting in the aggregate up to 33 1/3% of the SBCM Original Block. (4) To the extent that the former Schedule II Limited Partners of the Partnership who are managing directors immediately following the IPO ("PMDs") sell shares of Common Stock in a secondary offering in an amount which in any one-year period following the IPO Date represents, in the aggregate, for all of such PMDs a greater percentage of the total Common Stock issued to such PMDs in connection with the Plan ("PMD Shares") than the applicable percentage specified for such one year period in paragraph (1) (i.e., 0%), (2) (i.e., 20%) or (3) (i.e., 33 1/3%) above, SBCM will be permitted in such one year period to dispose of up to such number of additional shares of Common Stock as would increase the permitted sales by SBCM in such one-year period to such higher percentage; provided, that, the restrictions on transfer set forth in this Section 10(d)(ii) shall no longer be applicable following a Change of Control (as defined below) and any such disposition may thereafter be made by SBCM without regard to any such restrictions. For purposes of this Section 10(d)(ii), "Change of Control" means the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company (a "Reorganization") or sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale") that in each case requires the approval of the Company's stockholders under the law of the Company's jurisdiction 6 The Sumitomo Bank, Ltd. March 15, 1999 Page 6 of organization, whether for such Reorganization or Sale (or the issuance of securities of the Company in such Reorganization or Sale), unless immediately following such Reorganization or Sale, either: (A) at least 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (x) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of the Company in a Sale (in either case, the "Surviving Entity"), or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended as of the date hereof) of 50% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the "Parent Entity"), is represented by the Company's securities (the "Company Securities") that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Securities were converted pursuant to such Reorganization or Sale) or (B) at least 50% of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity ) following the consummation of the Reorganization or Sale were, at the time of the approval of the execution of the initial agreement providing for such Reorganization or Sale by the Board of Directors of the Company, individuals (the "Incumbent Directors") who either (1) were members of the Board of Directors of the Company on the IPO Date or (2) became directors subsequent to the IPO Date and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such persons are named as a nominee for director)." (b) Notwithstanding the foregoing restrictions on transferability of securities of GS Inc. and delivery of Disposition Notices, SBCM shall have the right at any time to make a request of GS Inc. that SBCM be permitted to dispose of shares of Common Stock. GS Inc. agrees that any such request will be given full consideration, taking into account such factors the Board of Directors of GS Inc. believes relevant, provided that SBCM 7 The Sumitomo Bank, Ltd. March 15, 1999 Page 7 acknowledges and agrees that whether or not to grant any such request shall be at the sole discretion of GS Inc. 6. Share Repurchases; Tender and Exchange Offers. If and to the extent that GS Inc. makes a general offer to repurchase PMD Shares from PMDs, GS Inc. shall permit SBCM to participate as a seller in such transaction on a pro rata basis with the PMDs and on the same terms and conditions as apply to the PMDs. Notwithstanding anything in this Letter Agreement, the GS Group Partnership Agreement, the Subscription Agreement or the Registration Rights Agreement to the contrary, SBCM may tender its shares of Common Stock and Nonvoting Common Stock (which shall be converted into shares of Common Stock) of GS Inc. in any tender or exchange offer if the Board of Directors of GS Inc. is recommending acceptance of the tender or exchange offer or is not making any recommendation with respect to acceptance. Any shares of Common Stock or Nonvoting Common Stock purchased from SBCM pursuant to this Section 6 shall reduce the number of shares that may be disposed of by SBCM in the relevant 12-month period pursuant to Section 5 above. 7. Voting Agreement. Sumitomo and SBCM agree that, at the request of GS Inc., they will execute and deliver prior to the IPO Date the Voting Agreement attached hereto as Annex C. The parties hereby agree that the proxies that have been previously granted by Sumitomo and SBCM pursuant to the Subscription Agreement will be terminated and cancelled upon the occurrence of (i) the consummation of the IPO and (ii) the execution and delivery of the Voting Agreement attached hereto as Annex C. 8. Representations and Warranties. Sumitomo and SBCM hereby make, and shall be deemed to have remade on the IPO Date, each of the representations and warranties set forth in Annex D attached hereto and agree that counsel to GS Group may rely thereon in rendering an opinion to GS Group as to tax matters. 9. Certain Tax Matters. Notwithstanding that the Plan may not be consummated at the end of the fiscal year (as defined in the GS Group Partnership Agreement) of GS Group, SBCM shall receive a distribution with respect to taxes on a pro rata basis with the United States PLPs and on the same terms and conditions as apply to PLPs in accordance with 8 The Sumitomo Bank, Ltd. March 15, 1999 Page 8 Article II, Section 4 of the GS Group Partnership Agreement; provided, that any such distribution shall be made net of interest at eight per cent per annum on SBCM's Part E Actual Capital. 10. Stock Options. Each of the GS Group and GS Inc. represents and warrants to SBCM that the Plan does not provide for the issuance of, and neither the GS Group nor GS Inc. has determined that GS Inc. will issue, stock options for shares of Common Stock to either the General Partner or some or all of the PLPs the issuance of which would require the prior consultation of GS Group and SBCM pursuant to Article II, Section 5(b)(i) of the GS Group Partnership Agreement. 11. Admission of Partners and Equity Investors. Section 9(d) of the Subscription Agreement is hereby deleted in its entirety. 12. SBCM to be a Party to Plan; Amendments to the Plan. By its execution of this Letter Agreement, SBCM accepts the Plan and agrees to become a party to the Plan. GS Group agrees to amend the Plan to (a) add this Letter Agreement as an Exhibit to the Plan and provide that this Letter Agreement may not be amended without the consent of SBCM and (b) provide that, notwithstanding the right of the general partner of GS Group to amend the Plan in any respect prior to the consummation of the Plan, an amendment to the Plan shall not be binding on SBCM if such amendment (i) effects a modification to the Plan that makes the Plan, as so modified, inconsistent with Section 5 of Article II of the GS Group Partnership Agreement (which provides for terms upon which a plan for the incorporation of the business of GS Group may be adopted without the consent of SBCM), without obtaining the consent of SBCM or (ii) effects a modification to Section 11 (Release and Indemnification Arrangements) or Section 16 (Other - Release) that (A) materially and adversely effects SBCM's rights under the Plan and (B) is not of general applicability to all parties who are subject to the Section modified. GS Group agrees to furnish SBCM with notice and copies of any amendment to the Plan as promptly as practicable after its adoption. 13. Termination. This Letter Agreement shall terminate upon the mutual written consent of the parties to such termination. In addition, this Letter Agreement shall be terminable by any party if (a) the IPO shall not have previously been consummated by December 31, 1999 or (b) the Plan is abandoned by the general partner of GS Group pursuant to its terms. 9 The Sumitomo Bank, Ltd. March 15, 1999 Page 9 14. Agreements Otherwise Unimpaired. Except as expressly provided in this Letter Agreement and the Plan of Incorporation, the Subscription Agreement, the Registration Rights Agreement and any other agreements between or among the parties to this Letter Agreement shall not be modified, impaired or affected. 15. Successors and Assigns. This Letter Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto (including, with respect to GS Group, GS Inc.). 16. Governing Law. This Letter Agreement is being entered into and is intended to be performed in the State of New York and will be construed and enforced in accordance with and governed by the laws of the State of New York. 17. Counterparts. This Letter Agreement may be executed simultaneously in several counterparts, each of which is an original, but all of which together shall constitute one instrument. Please indicate your agreement to the terms of this letter by signing in the space provided below. THE GOLDMAN SACHS GROUP, L.P. By The Goldman Sachs Corporation By: /s/ David Viniar ---------------------------------- GOLDMAN SACHS & CO. By Goldman, Sachs & Co. LLC By: /s/ David Viniar ----------------------------------- 10 The Sumitomo Bank, Ltd. March 15, 1999 Page 10 Accepted and Agreed to as of the date first above written: THE SUMITOMO BANK, LIMITED By: /s/ Ryuzo Kodana ------------------------------------------ Director and Head of the Americas Division SUMITOMO BANK CAPITAL MARKETS, INC. By: /s/ Natsuo Okada ------------------------------------------ President 11 Annex C Voting Agreement, dated as of ___________ __, 1999 (the "Voting Agreement"), by and among [ ], on the one hand, and The Sumitomo Bank, Limited, a corporation organized under the laws of Japan ("Sumitomo") and Sumitomo Bank Capital Markets, Inc., a Delaware corporation and a wholly-owned subsidiary of Sumitomo ("SBCM"), on the other hand. WHEREAS, pursuant to the Amended and Restated Subscription Agreement, dated as of March 28, 1989 (as amended by the letter agreement, dated March 15, 1999 of which this Voting Agreement is Annex C, the "Subscription Agreement"), among Sumitomo and SBCM, on the one hand, and Goldman, Sachs & Co., a New York limited partnership ("GSNY"), and The Goldman Sachs Group, L.P., a Delaware limited partnership (the "Partnership"), on the other, Sumitomo and SBCM each delivered to the Partnership its irrevocable proxy, dated March 28, 1989, in the form of Annexes 5(a) and 5(b) to the Subscription Agreement (the "Proxies"); WHEREAS, pursuant to a Plan of Incorporation adopted pursuant to Article I, Section 14 of the Amended and Restated Memorandum of Agreement, dated as of November 28, 1998 (the "Memorandum of Agreement") of the Partnership, The Goldman Sachs Group, Inc., a Delaware corporation ("GS Inc.") will succeed to the business of the Partnership and, in connection therewith and pursuant to the terms of the Bank Partnership Provisions of (and as defined in) the Memorandum of Agreement and the Subscription Agreement, GS Inc. will issue securities to SBCM; WHEREAS, the Securities are subject to the Proxies and GS Inc. is willing to terminate the Proxies in consideration of the agreements and undertakings of Sumitomo and SBCM contained herein; [ ], Sumitomo and SBCM hereby agree as follows: 1. The Partnership, GSNY and GS Inc., as successor to the Partnership, issuer of the securities and beneficiary of the Proxies, release each of Sumitomo and SBCM from its Proxy. 2. Each of Sumitomo and SBCM agree, during the period of limited duration specified below, to vote any and all securities of GS Inc. or of any subsidiary of GS Inc. which have any voting rights, general or special (herein collectively referred to as "Securities"), and which Sumitomo or SBCM may from time to time hold of record or beneficially own, and agree B-1 12 to cause any direct or indirect subsidiary of Sumitomo to vote any securities of GS Inc. or any subsidiary thereof that may be acquired by such subsidiary of Sumitomo, at any meeting of stockholders of GS Inc. or any such subsidiary (as the case may be), and to provide written consent on behalf of Sumitomo, SBCM or any such subsidiary as to any matter as to which written consent is sought from the owners of any Securities, in each case (x) with respect to Securities of GS Inc., in the same manner as the majority of the shares of common stock held by the managing directors of GS Inc. shall be voted or consented in the vote of the stockholders of GS Inc. and (y) in the case of Securities of a subsidiary of GS Inc., in the same manner as the shares of common stock held by the immediate parent of such subsidiary shall be voted or consented. Notwithstanding the foregoing, however, this agreement shall not extend to the approval of any change or modification in (i) the Registration Rights Agreement, the Subscription Agreement or this Agreement or (ii) the material terms of any Securities held by Sumitomo and SBCM. For purposes of this Voting Agreement, the exchange, conversion or other transfer of Securities or any other securities by or on behalf of Sumitomo, SBCM or any direct or indirect subsidiary of Sumitomo for other securities of GS Inc. (or any successor or assign thereof) pursuant to and in accordance with the Subscription Agreement and/or the Bank Partnership Provisions (including, but not limited to, pursuant to Schedules I, II and III to the Subscription Agreement or Section 5 of the Bank Partnership Provisions) shall not be considered a change in the material terms of Securities held by Sumitomo or SBCM. 3. For purposes of this Voting Agreement, "Securities" includes, without limitation, (i) the Public Preferred Stock defined in Schedule III to the Subscription Agreement and the Public Common Stock defined in Schedule II to the Subscription Agreement and (ii) any other securities (which have voting rights, general or special) of GS Inc. or any subsidiary thereof issued to SBCM pursuant to the Subscription Agreement or the "Bank Partnership Provisions" referred to in the Subscription Agreement. The provisions of this Agreement shall apply to Securities of any successor or assign of GS Inc. (except an acquirer of the business of GS Inc. as referred to in Section 6(c) of the Bank Partnership Provisions) on the terms set forth therein. 4. This Voting Agreement shall terminate on the date of the final disposition by Sumitomo and SBCM of any and all Securities referred to in Section 13(b) of the Subscription Agreement or the cancellation thereof. 5. To the extent (if any) Sumitomo and SBCM would retain under law, regardless of the agreements in paragraph 2 hereof, any residual B-2 13 rights inconsistent with paragraph 2 hereof, each of Sumitomo and SBCM, in consideration of the release by the Partnership, GSNY and GS Inc. of each of Sumitomo and SBCM from its Proxy, and as agreed with (and relied on by) the Partnership, GSNY and GS Inc., hereby specifically and expressly (i) waives such rights, (ii) agrees never to exercise such rights and (iii) agrees never to claim, as a complaint or a defense, or otherwise assert that this Voting Agreement is not valid or enforceable. 6. The invalidity or unenforceability of any provisions of this Voting Agreement shall not affect the validity or enforceability of any other provision. To the extent (if any) any provision hereof is deemed invalid or unenforceable by its scope but may be made valid or enforceable by limitations thereon, the undersigned intend that this Voting Agreement shall be valid and enforceable to the fullest extent permitted by law. 7. (a) THIS VOTING AGREEMENT SHALL BE GOVERNED BY AND WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. (b) Any dispute, controversy or claim arising out of or relating to provisions of this Voting Agreement shall be finally settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") in effect on the date of this Agreement. The number of arbitrators shall be three and the Administering Authority shall be the American Arbitration Association. The tribunal shall adopt rules of procedure supplementary to the rules of UNCITRAL as it deems equitable under the circumstances. All direct costs of an arbitration proceeding under this Section, including fees and expenses of arbitration, shall be borne by the party incurring them. The place of arbitration shall be The City of New York. The arbitration shall be conducted in the English language. An award rendered by all or a majority of the arbitrators shall be final and binding, and judgment may be entered upon it in any court having jurisdiction. In no event shall this subsection be construed as conferring upon any court authority or jurisdiction to inquire into or review such award on its merits. The parties agree to exclude any right of application or appeal to the Federal, New York State and any other courts in connection with any question of law or fact arising in the course of the arbitration or with respect to any award made. 8. All notices and other communications hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, addressed (a) if to Sumitomo or SBCM, at Sumitomo Bank Capital Markets, Inc., 277 Park Avenue, New York, New York 10172, Attention: President, or at such other address as SBCM shall furnish to GS Inc. in writing, or (b) if to B-3 14 the Partnership, GSNY or GS Inc., at 85 Broad Street, New York, New York 10004, Attention: General Counsel, or at such other address as GS Inc. shall furnish to Sumitomo or SBCM in writing. 9. This Voting Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, that this Voting Agreement shall not be binding upon a transferee of Securities that is not affiliated with Sumitomo who acquired such Securities in a disposition which is permitted under the Subscription Agreement. This Voting Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. B-4 15 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date above written. THE SUMITOMO BANK, LIMITED By:_________________________________________________ SUMITOMO BANK CAPITAL MARKETS, INC. By:_________________________________________________ [ ] By:_________________________________________________ [ ] By:_________________________________________________ [ ] By:_________________________________________________ B-5 EX-10.34 32 LEASE, DATED SEPTEMBER 24, 1992 1 Exhibit 10.34 DATED 24 September 1992 LDT PARTNERS - to - GOLDMAN SACHS INTERNATIONAL LIMITED ------------------------------------- COUNTERPART/ LEASE - of - Peterborough Court, 133 Fleet Street, and Daniel House, 140 Fleet Street, London EC4 ------------------------------------- TERM COMMENCES : 25th March 1991 EXPIRES : 24th March 2016 ------------------------------------- LINKLATERS & PAINES, (GNR) Barrington House, 59-67 Gresham Street, London EC2V 7JA. 2 INDEX Clause Page - ------ ---- 1. DEFINITIONS .......................................................... 1 2. DEMISE AND RENTS ..................................................... 7 3. TENANT'S COVENANTS ................................................... 8 (1) Rent ........................................................... 8 (2) Interest on overdue moneys ..................................... 8 (3) Outgoings ...................................................... 8 (4) Utilities ...................................................... 9 (5) Common facilities .............................................. 9 (6) Repairs ........................................................ 9 (7) Plant and Machinery ............................................ 10 (8) Exterior decoration ............................................ 10 (9) Interior decoration ............................................ 11 (10) Cleaning ....................................................... 11 (11) Permit entry ................................................... 11 (12) Notices to repair .............................................. 11 (13) Dangerous Substances and Insurances ............................ 12 (14) Overloading floor and services ................................. 13 (15) Conduits ....................................................... 13 (16) Disposal of refuse ............................................. 14 (17) User ........................................................... 14 (18) Signs .......................................................... 15 (19) Alterations .................................................... 16 (20) Assignments .................................................... 17 (21) Type A Underlettings ........................................... 18 (22) Type B Underlettings ........................................... 20 (23) Sharing ........................................................ 23 (24) Registration ................................................... 25 (25) Collection of rents ............................................ 25 (26) Management ..................................................... 25 (27) Easements ...................................................... 26 (28) Landlord's costs ............................................... 26 (29) Statutory requirements ......................................... 27 (30) Planning ....................................................... 28 (31) Defects and indemnity .......................................... 29 (32) Reletting notices .............................................. 30 (33) Applications for consent ....................................... 30 (34) Freehold covenants ............................................. 30 (35) Breaches by underlessees ....................................... 30 (36) Yielding up .................................................... 30 (37) VAT ............................................................ 31 (38) Reimbursement of VAT ........................................... 32 (39) VAT election ................................................... 32 (i) 3 4. LANDLORD'S COVENANTS ................................................ 32 (1) Quiet enjoyment ................................................. 32 (2) Insurance ....................................................... 33 (3) VAT ............................................................. 35 5. PROVISOS ............................................................ 35 (1) Forfeiture ...................................................... 35 (2) Ascertainment of Rent ........................................... 37 (3) Underlease of Type B Premises to associates ..................... 37 (4) Assignments ..................................................... 38 (5) Deemed assignments .............................................. 39 (6) Covenants relating to adjoining property ........................ 41 (7) Cesser of rent .................................................. 41 (8) Effect of waiver ................................................ 41 (9) Notices ......................................................... 42 FIRST SCHEDULE - The Demised Premises ..................................... 42 SECOND SCHEDULE - Documents which affect or relate to the Demised Premises ......................................... 43 THIRD SCHEDULE - Rent ..................................................... 44 Part I -- Definitions ................................ 44 II -- Ascertainment of the Rent and balancing payments ................................... 55 III -- Payments on account ........................ 58 IV -- Bank accounts .............................. 60 V -- Facilities for verification ................ 61 VI -- Expert determination ....................... 62 VII -- Review of the Type A Rent .................. 62 VIII -- Redesignation of Type A Premises on underletting ............................ 67 IX -- Redesignation of Type B Premises on occupation by Landlord .................. 70 FOURTH SCHEDULE - The Guarantor's Covenants ................................ 73 ANNEXURES - Plans - Approved Form of Underlease - Rent Review Specification - Review Form of Lease (ii) 4 [GRAPHIC OMITTED] THIS LEASE made the 24th day of September One thousand nine hundred and ninety-two BETWEEN LDT PARTNERS of 85 Broad Street New York, New York 10004 (hereinafter called "the Landlord") of the one part and GOLDMAN SACHS INTERNATIONAL LIMITED whose registered office is at Peterborough Court 133 Fleet Street London EC4 (hereinafter called "the Tenant") of the other part W I T N E S S E T H as follows:- 1. DEFINITIONS IN this Lease unless there be something in the subject or context inconsistent therewith:- 1. (1) (a) Where there are two or more persons included in the expression "the Tenant" covenants contained in this Lease which are expressed to be made by the Tenant shall be deemed to be made by such persons jointly and severally; 1. (1) (b) Any reference to an Act of Parliament shall include any modification extension or re-enactment thereof for the time being in force and shall also include all instruments orders plans regulations permissions and directions for the time being made issued or given thereunder or deriving validity therefrom; 1. (1) (c) (i) Any two companies shall be taken to be members of a group if and only if one is the subsidiary of the other or both are subsidiaries of a third company; 1. (1) (c) (ii) Any company corporation or partnership shall be taken to be "associated" with another if and only if one is a subsidiary or affiliate of another or both are subsidiaries or affiliates of a third company corporation or partnership; 1. (1) (c) (iii) In determining whether any company is a subsidiary of another company the word subsidiary bears the meaning assigned to it -1- 5 by Section 736 of the Companies Act 1985 as originally enacted; 1. (1) (c) (iv) In determining whether any corporation (which shall be construed in accordance with Section 740 of the Companies Act 1985 as originally enacted) is a subsidiary of another corporation or of a company or whether any company is a subsidiary of a corporation the word subsidiary bears the meaning assigned to it by Section 736 of the Companies Act 1985 as originally enacted but modified only so that 'company' includes 'corporation' for this purpose; 1. (1) (c) (v) A partnership (which shall be construed as including a partnership under the laws of the United Kingdom or elsewhere) shall be taken to be a subsidiary of another partnership or of a company or corporation if that other partnership or company or corporation is entitled to more than one half of the assets or more than one half of the income of the first mentioned partnership; 1. (1) (c) (vi) A company or corporation shall be deemed to be a subsidiary of a partnership if that partnership controls the composition of the board of directors of the company or corporation or holds more than half in nominal value of the issued equity share capital of the company or corporation; 1. (1) (c) (vii) An "affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under common control with such specified person (for the purposes of this paragraph 'control' (including 'control by' or under 'common control with') shall mean the power to direct management and policies directly or indirectly whether through the ownership of voting securities or equity interests by contract or otherwise); 1. (1) (d) Any covenant by the Tenant not to do any act or thing shall include an obligation not to permit allow or suffer such act or thing to be done; -2- 6 1. (1) (e) The titles or headings appearing in this Lease are for reference only and shall not affect the construction hereof; 1. (1) (f) Any reference to Value Added Tax shall include any tax of a similar nature that may be substituted for or levied in addition to it; 1. (2) The following expressions shall have the meanings hereinafter mentioned (that is to say):- 1. (2) (a) "the Landlord" shall include the person for the time being entitled to the reversion immediately expectant on the determination of the Term: 1. (2) (b) (i) "the Tenant" shall include its successors in title and in the case of an individual shall include his personal representatives; 1. (2) (b) (ii) "the Guarantor" means the person or persons from time to time guaranteeing the obligations of the Tenant hereunder and in the case of an individual shall include his personal representatives Provided that for the purposes of Clause 5(1)(d)(e) and (f) hereof the expression shall mean only the guarantor(s) of the Tenant in whom this Lease is vested from time to time and not of any other Tenant who shall have assigned its interest hereunder; and where there are two or more persons included in the expression "the Tenant" or "the Guarantor" such expression shall include each of such persons: 1. (2) (c) "the Term" means the term of years hereby granted and includes any period of holding over or any extension or continuation whether by statute or common law; 1. (2) (d) "this Lease" means this lease and any document supplemental hereto or collateral herewith or entered into pursuant to or in accordance with the terms hereof; -3- 7 1. (2) (e) "Adjoining Property" means any land and/or buildings adjoining or neighbouring the Demised Premises; 1. (2) (f) "the Demised Premises" means the land and premises described in the First Schedule hereto and each and every part thereof together with the appurtenances thereto and the buildings thereon and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor and shall also include all landlord's fixtures and fittings from time to time in and about the same including but not limited to all lifts lift shafts and lift machinery escalators all boilers central heating and air conditioning plant all electrical and mechanical plant machinery equipment and apparatus and water and sanitary apparatus; 1. (2) (g) "Peterborough Court" means the part of the Demised Premises shown for the purpose of identification only edged green on the location plan marked "A" annexed hereto together with the appurtenances thereto and the courtyard and building thereon known as Peterborough Court 133 Fleet Street London E.C.4 and each and every part thereof and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor; 1. (2) (h) "Daniel House" means the part of the Demised Premises shown for the purpose of identification only edged blue on the location plan marked "A" annexed hereto together with the appurtenances thereto and the building thereon known as Daniel House 140 Fleet Street London E.C.4 and each and every part thereof and all additions alterations and improvements thereto and reinstatements thereof or buildings substituted therefor; 1. (2) (i) "Buildings" means Peterborough Court and Daniel House; 1. (2) (j) "Type A Premises" means Peterborough Court excluding the parts thereof shown for identification edged red (and at basement level coloured blue and green) on Drawing Nos. A1O1 A102 A104 A107 A108 A109 and A118 marked "B" annexed hereto; -4- 8 1. (2) (k) "Type B Premises" means the whole of Daniel House and the parts of Peterborough Court shown for identification edged red (and at basement level coloured blue and green) on Drawing Nos A101 A102 A104 A107 A108 A109 and A118 marked "B" annexed hereto; 1. (2) (1) "Management Premises" means the parts of the Demised Premises shown for identification coloured purple on Drawing Nos A102 and A104 annexed hereto used in connection with the provision of management services for the Demised Premises or any part thereof; 1. (2) (m) "Lettable Unit" means any unit of accommodation other than the Management Premises forming part of the Demised Premises designed or adapted for separate occupation or letting from time to time; 1. (2) (n) "Approved Form of Underlease" means the standard form annexed hereto in relation to the Type B Premises in Peterborough Court and the same form in relation to parts of Daniel House with such amendments as the Tenant may propose from time to time and which shall be approved by the Landlord (such approval not to be unreasonably withheld); 1. (2) (o) "Related Company" means any company within the same group of companies as the Tenant as specified in Clause 1(1)(c)(i); 1. (2) (p) "the Insured Risks" means risks in respect of loss or damage by fire lightning explosion earthquake aircraft (other than hostile aircraft) and other aerial devices or articles dropped therefrom impact by vehicles or animals riot and civil commotion storm tempest flood bursting or overflowing of water tanks apparatus or pipes subsidence malicious damage and such other risks or insurance as may from time to time reasonably be required by the Landlord or reasonably be required by the Tenant in the interests of good estate management subject to such exclusions and limitations as may be usual in the London insurance market and imposed by the Insurers; 1. (2) (q) "the Loss of Rent" means the loss of the aggregate of the Type A Rent and the rents from time to time reserved or in the Landlord's -5- 9 reasonable estimation likely to be reserved by underleases of all Lettable Units in the Type B Premises for five years (and subject to the same being available on reasonable terms in the London insurance market for an additional two years) or such longer period as may reasonably be required by the Landlord or the Tenant having regard to the likely period required for reinstatement in the event of either partial or total destruction in an amount which would take into account potential increases in rent in accordance with the rent review provisions contained in this Lease and any underlease of Type B Premises and any Value Added Tax properly chargeable in respect thereof; 1. (2) (r) "the Full Cost of Reinstatement" shall mean all costs (including the cost of shoring up demolition and site clearance architects' surveyors' and other professional fees) and Value Added Tax which would be likely to be incurred in rebuilding or reinstatement in accordance with the requirements of this Lease at the time when such rebuilding or reinstatement is likely to take place having regard to all relevant factors including any increases in building costs expected or anticipated to take place at any time up to the date of completion of the rebuilding or reinstatement and shall be the amount properly specified by the Landlord or such greater amount as shall reasonably and properly be required by the Tenant; 1. (2) (s) "the Insurers" means the insurance office or underwriters with whom the insurance cover referred to in Clause 4(2) hereof is effected; 1. (2) (t) "Net Internal Area" means Net Internal Area as defined in the Code of Measuring Practice published by The Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers (Third Edition January 1990) as modified or superseded from time to time; 1. (2) (u) "Type A Rent" has the meaning ascribed to it in paragraph (P) of Part I of the Third Schedule hereto; -6- 10 1. (2) (v) "the Rent Review Specification" means the Base Fitting-Out Specification together with the Base Building Specification and the Schedule of Agreed Additions to and Omissions from the Base Building Contract annexed hereto detailing the standard and extent of the premises to be assumed on a review of the Type A Rent; 1. (2) (w) "the Planning Acts" means Town and Country Planning Act 1990; Planning (Listed Buildings and Conservation Areas) Act 1990: Planning (Hazardous Substances) Act 1990; and Planning (Consequential Provisions) Act 1990; 1. (2) (x) "the Prescribed Rate" means a rate of interest being four per centum per annum over the base rate from time to time of Barclays Bank PLC or over such other rate as may from time to time replace the same or over such other comparable rate as the Landlord may from time to time reasonably require; 1. (2) (y) "Business Day" means any day from Monday to Friday (inclusive) other than Good Friday Christmas Day and bank and public holidays. 2. DEMISE AND RENTS THE Landlord HEREBY DEMISES unto the Tenant ALL THAT the Demised Premises TO HOLD the same SUBJECT to the provisions contained or referred to in the documents referred to in the Second Schedule hereto (in so far as the same are still subsisting and capable of being enforced and affect the Demised Premises but not further or otherwise) unto the Tenant on and from the Twenty-fifth day of March One thousand nine hundred and ninety-one for a TERM of years expiring on the Twenty-fourth day of March Two thousand and sixteen YIELDING AND PAYING thereof or during the Term and in proportion for any less time than a year:- FIRST the rent calculated payable and subject to review as provided in the Third Schedule hereto; and -7- 11 SECONDLY by way of additional rent all sums which the Landlord may from time to time properly pay in respect of insurance of the Loss of Rent and in respect of the insurance of the Demised Premises against loss or damage by the Insured Risks and the other matters referred to in Clause 4(2) such sums to be payable on demand; and THIRDLY by way of additional rent all sums which the Tenant shall become liable to pay pursuant to Clause 3(2) such sums to be payable on demand. 3. TENANT'S COVENANTS THE Tenant to the intent that the obligations hereby created shall continue throughout the Term HEREBY COVENANTS with the Landlord as follows:- 3. (1) Rent To pay the rent hereinbefore reserved at the times and in the manner aforesaid; 3. (2) Interest on overdue moneys If any sum payable by the Tenant under this Lease shall not be paid on the due date in the case of the rent first hereinbefore reserved) or shall not be paid on the date seven Business Days following demand or (if later) the ascertainment thereof (in the case of other sums) to pay on demand to the Landlord as additional rent interest thereon at the Prescribed Rate from the date when the same became due until payment thereof (as well after as before any judgment); 3. (3) Outgoings To bear pay and discharge all existing and future rates taxes duties charges assessments impositions and outgoings whatsoever (whether parliamentary parochial local or otherwise and whether or not of a capital or non-recurring nature) which now are or may at any time hereafter during the Term be charged levied assessed or imposed upon the Demised Premises or upon the owner or occupier in respect thereof other than:- -8- 12 (a) any tax assessed on the Landlord in respect of any rent received by the Landlord under this Lease (unless the statute imposing such tax shall prescribe or intend that the tax is to be payable by the Tenant); and (b) any tax payable only as a direct result of the grant of this Lease or any dealing by the Landlord with its reversionary interest in the Demised Premises; (c) any Value Added Tax (but without prejudice to Clause 3(37); 3. (4) Utilities To pay to the suppliers of and to indemnify the Landlord against all charges for water electricity gas all types of telephonic communication and other services used on or in relation to the Demised Premises (including without limitation all charges for meters and all standing charges); 3. (5) Common facilities To pay on demand a fair and reasonable contribution (to be properly determined by the Landlord) towards the cost and expense of constructing repairing rebuilding renewing lighting cleansing and maintaining all walls and fences and sewers and drains gutters water courses and external pipes and other things the use of which is common to or capable of being used in common with the Demised Premises and other premises; 3. (6) (a) Repairs To repair and to put and keep in good and substantial repair and condition the Demised Premises and as and when necessary to replace any of the landlord's fixtures and fittings which be or become beyond repair with new ones which are similar in type and quality (damage by the Insured Risks excepted save to the extent that payment of the insurance monies shall be withheld by reason of any act neglect or default of the Tenant or any undertenant or any person under its or their control); 3. (6) (b) As often as shall be necessary in order to comply with the covenant contained in sub-clause (a) of this Clause 3(6) to rebuild reinstate or replace the Demised Premises or any part or parts thereof (damage by any of the Insured Risks excepted in each case save to the -9- 13 extent that payment of any insurance be refused in whole or in part by reason of or arising out of any neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control) 3. (6) (c) To keep all parts of the Demised Premises which are not built upon in a good and clean condition adequately surfaced and free from weeds and all landscaped areas properly cultivated and maintained and all trees (if any) preserved; 3. (7) Plant and machinery To keep all plant machinery apparatus and equipment in the Demised Premises properly maintained and in good working order and condition and for that purpose:- (a) to employ reputable contractors to inspect maintain and service the same regularly; (b) to renew or replace all working and other parts as and when necessary; (c) to use all reasonable endeavours to ensure by directions to the Tenant's staff and otherwise, that such plant and machinery is properly operated; 3. (8) Exterior decoration As often as may be necessary and in any event not less frequently than once in every third year of the Term and also during the last year thereof (howsoever the same may be determined) properly to prepare and thereafter in a good and workmanlike manner to decorate all exterior parts of the Demised Premises as are usually or ought to be decorated to restore point and make good all exterior brickwork stucco concrete and stonework where necessary and to clean and treat all exterior metal and cladding as appropriate using in all cases good quality suitable materials carrying out such works in accordance with any instructions of the manufacturers of the products used in a colour or finish which if different from the existing shall be previously approved in writing by the Landlord; -10- 14 3. (9) Interior decoration As often as may be necessary and in any event not less frequently than once in every fifth year during the Term and also during the last year thereof (howsoever the same may be determined) properly to prepare and decorate the interior of the Demised Premises throughout in a good and workmanlike manner in accordance with any instructions of the manufacturers of the products used such decoration and treatment in the last year of the Term to be executed in such colours and with such materials as the Landlord may reasonably approve; 3. (10) Cleaning To keep the exterior and the interior of the Demised Premises properly cleaned and tidy and clear of all rubbish and at least once in every month to clean or procure the cleaning of both sides of all windows and window frames in the Demised Premises; 3. (11) Permit entry To permit the Landlord and all persons authorised by the Landlord at all times on giving reasonable prior written notice (except in emergency) to the Tenant to enter the Demised Premises for the purpose of ascertaining that the covenants and conditions of this Lease have been observed and performed to view the state of repair and condition thereof and to take a schedule of the landlord's fixtures and of any dilapidations and to exercise the rights herein excepted and reserved Provided That the Landlord shall procure that the person entering shall cause as little damage and inconvenience to the Tenant and/or other occupiers as reasonably practicable and shall make good any physical damage caused thereby; 3. (12) Notices to repair To remedy all breaches and repair all defects of which notice in writing shall be given to the Tenant by the Landlord and for which the Tenant is liable hereunder and to commence the same as soon as reasonably practicable after receipt of such notice (or sooner if requisite) and thereafter diligently to proceed with and complete the same as soon as reasonably practicable and if the Tenant shall fail to comply with any such notice it shall be lawful (but not obligatory) for the Landlord (without prejudice to the right of re-entry hereinafter contained) to enter the Demised Premises to make good the -11- 15 same at the cost of the Tenant which cost (together with all Solicitors' and Surveyors' charges and other expenses which may be properly incurred by the Landlord in connection therewith) shall be repaid by the Tenant to the Landlord on demand and in default of payment the same shall be recoverable as rent in arrear; 3. (13) (a) Dangerous Substances and Insurances Not to bring into the Demised Premises or to place or store or permit to remain therein any article or thing which is or may become dangerous offensive combustible inflammable radioactive or explosive and not to carry on or do thereon any hazardous trade or act in consequence of which the Landlord would be likely to be prevented from insuring the Demised Premises at the ordinary rate of premium or whereby any insurance effected in respect thereof of which details have been supplied to the Tenant would be likely to be vitiated or prejudiced and not without the written consent of the Landlord (which shall not be unreasonably withheld if the Tenant pays any additional premium) to do anything whereby any additional premium becomes payable for the insurance of the Demised Premises; 3. (13) (b) In the event of the Demised Premises or any part thereof being destroyed or damaged by any peril or risk whatsoever to give notice thereof to the Landlord as soon as such destruction or damage shall come to the notice of the Tenant; 3. (13) (c) To comply with all the proper requirements (and recommendations failure to comply with which would be likely to vitiate or prejudice any insurance on usual terms effected in respect of the Demised Premises) of the Insurers relating to the Demised Premises; 3. (13) (d) Not to effect any insurance relating to the Demised Premises which would have the effect of causing the Insurers to refuse to make payment of any claim in full; 3. (13) (e) If the Tenant shall become entitled to the benefit of any insurance on the Demised Premises which causes the Insurers to refuse to make payment of any claim of the Landlord in full then (to the extent -12- 16 that the claim shall not be so met) the Tenant shall apply all moneys received by virtue of such insurance in making good the loss or damage in respect of which the same shall have been received; 3. (13) (f) The Tenant shall notify the Landlord in writing at the time of the installation thereof of the full reinstatement cost of any fixtures and fittings installed at any time by the Tenant and which may be or become landlord's fixtures and fittings for the purpose of enabling the Landlord to effect adequate insurance cover for the same; 3. (13) (g) In the event of the Demised Premises or any part thereof being destroyed or damaged by any of the Insured Risks and the insurance money under any insurance against the same effected thereon by the Landlord being wholly or partly irrecoverable by reason solely or in part by any act or default of the Tenant or any person deriving title under the Tenant or their respective servants agents licensees or invitees then and in every such case the Tenant will forthwith pay to the Landlord the whole or (as the case may require) a fair proportion of the irrecoverable insurance moneys; 3. (14) (a) Overloading floors and services Not to overload the floors of the Demised Premises or suspend any excessive weight from the roofs ceilings walls stanchions or structure of the Demised Premises and not to overload any supplies in or serving the Demised Premises; 3. (14) (b) Not to do anything which may subject the Demised Premises to any strain beyond that which they are designed to bear with due margin for safety; 3. (14) (c) To observe the weight limits prescribed for all lifts in the Demised Premises; 3. (15) Conduits Not to discharge into any conducting media in the Demised Premises any oil or grease or any noxious or deleterious effluent or substance whatsoever which may cause an obstruction or might be or become a source of danger or which might injure the conducting media or -13- 17 the drainage system of the Demised Premises or any adjoining property; 3. (16) Disposal of refuse Not to deposit on any part of the Demised Premises any trade empties rubbish or refuse of any kind other than in proper receptacles and not to burn any rubbish or refuse on the Demised Premises; 3. (17) (a) User Not to carry on upon or use the Demised Premises for any noisy noisome offensive or dangerous trade manufacture business or occupation nor for any illegal or immoral purpose nor to do on the Demised Premises any act or thing whatsoever which constitutes a nuisance or causes damage (other than as a result of competition from any business carried on at the Demised Premises) to the prejudice of the Landlord or the owners or occupiers of any adjoining or neighbouring premises or any of them or which may be injurious to the character of the Demised Premises; 3. (17) (b) Not to hold on the Demised Premises any sale by auction or public exhibition or public show or spectacle or political meetings or gambling or to use the Demised Premises as a Post Office an Employment Exchange an office of the Department of Health or the Department of Social Security at which the general public call without appointment a staff or other employment agency a betting shop turf accountant's or bookmaker's office an undertaker a travel ticket or estate agency Provided always that this covenant shall not operate to prevent the provision of an executive selection service; 3. (17) (c) Without prejudice to the provisions of paragraphs (a) and (b) of this sub-clause not to use the parts of the Demised Premises shown coloured orange on Drawings Nos A104 A118 and AC/02 annexed hereto otherwise than for such retail or restaurant or wine bar or office use as shall be approved by the Landlord nor to use the remainder of the Demised Premises otherwise than as offices with storage and other accommodation ancillary to such office use; and -14- 18 3. (17) (d) The Tenant hereby acknowledges and admits that notwithstanding the foregoing provisions the Landlord does not thereby or in any other way give or make nor has given or made at any other time any representation or warranty that any such use is or will be or will remain a permitted use within the provisions of the Planning Acts nor shall any consent in writing which the Landlord may hereafter give to any change of use be taken as including any such representation or warranty and that notwithstanding that any such use as aforesaid is not a permitted use within such provisions as aforesaid the Tenant shall remain fully bound and liable to the Landlord in respect of the obligations undertaken by the Tenant by virtue of this Lease without any compensation recompense or relief of any kind whatsoever; 3. (18) Signs Not to erect or display on the exterior of the Demised Premises or in the windows thereof so as to be visible from the exterior any pole flag aerial advertisement poster notice or other sign without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed) except non-illuminated signs business names and business logos of a size style character and design which is in keeping with the character and appearance of the Buildings together from time to time with suitable letting boards in connection with a campaign to assign or underlet all or part of the Demised Premises in such positions as shall previously have been approved by the Landlord (such approval not to be unreasonably withheld or delayed) Provided that:- 3. (18) (a) the Tenant shall have the right to re-name the Buildings to alternative names (including ones featuring the name of the Tenant or underlessees); 3. (18) (b) the Tenant may use the flag poles on the Fleet Street elevation of Daniel House and display from them suitable flags; Subject in every case to compliance by the Tenant with all relevant regulations in respect thereof statutory or otherwise; -15- 19 3. (19) (a) Alterations Not to erect any new building or new structure on the Demised Premises or any part thereof nor to alter add to or change the height elevation or external architectural or decorative design or appearance of the Demised Premises nor to merge the Demised Premises with any adjoining property; 3. (19) (b) Not to alter divide cut maim injure or remove any of the principal or load-bearing walls floors beams or columns of the Demised Premises nor to make any other alteration or additions of a structural nature to the Demised Premises Provided that the Tenant may with the consent of the Landlord (which shall not be unreasonably withheld or delayed) make openings through the floor slabs dividing the floors of the Demised Premises or fix to any part of the Demised Premises or affix additional beams if there is a need for local strengthening or make minor alterations to the walls floors or columns and openings in the beams of the Demised Premises where the same do not:- 3. (19) (b) (i) adversely affect the structural stability of the Demised Premises or of either of the Buildings; or 3. (19) (b) (ii) affect the exterior (including the appearance) of the Demised Premises; or 3. (19) (b) (iii) materially and adversely affect the usage or functioning of the mechanical electrical sanitary heating ventilating life safety air-conditioning or other service systems within the Demised Premises; or 3. (19) (b) (iv) materially and adversely affect the use and enjoyment of the Type B Premises; 3. (19) (c) Not to make any material alterations or additions to the Landlord's plant and machinery or any Landlord's fixtures or to any of the conducting media in the Demised Premises without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); -16- 20 3. (19) (d) Not (save as mentioned in sub-clause 3(19)(e)) to make any alterations or additions of a non-structural nature to the Demised Premises without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); 3. (19) (e) The Tenant may without obtaining the prior consent of the Landlord erect modify and remove internal demountable partitioning Provided That:- 3. (19) (e) (i) such partitioning does not materially adversely affect the efficient working of the service systems within the Demised Premises; and 3. (19) (e) (ii) such partitioning does not obstruct or block up the windows of the Demised Premises; and 3. (19) (e) (iii) such partitioning does not violate any law or any regulation or requirement of any competent authority; 3. (19) (f) The Landlord may as a condition of giving any consent required under this Clause 3(19) require the Tenant to enter into such covenants with the Landlord as the Landlord shall reasonably require regarding the execution of any such works and an absolute covenant that the Tenant will immediately prior to the end or sooner determination of the Term to the extent that the Landlord so requests remove (without cost to the Landlord) such alterations (or such part thereof as the Landlord shall specify in its request to the Tenant) and reinstate the Demised Premises to the condition they were in prior to the execution of such alterations; 3. (20) (a) Assignments Save as hereinafter provided not to assign mortgage charge grant any security interest over underlet part with possession or share the occupation of the whole or any part of the Demised Premises -17- 21 3. (20) (b) Not to assign the whole of the Demised Premises without on each occasion procuring:- 3. (20) (b) (i) that any intended assignee shall covenant direct with the Landlord that during the residue of the Term then subsisting the said assignee will pay the rents reserved by and will observe and perform the covenants and conditions on the part of the Tenant contained in this Lease; 3. (20) (b) (ii) that if the Landlord shall reasonably require such persons as the Landlord may reasonably approve shall act as guarantors for any intended assignee and shall covenant with the Landlord (jointly and severally if more than one) as a primary obligation in the terms set out in the Fourth Schedule (mutatis mutandis) or in such other terms as the Landlord may from time to time reasonably and properly specify; 3. (20) (c) Subject to complying with the provisions of Clause 3(20)(b) the Tenant shall be permitted to assign the Demised Premises as a whole with the prior written consent of the Landlord which shall not be unreasonably withheld or delayed; 3. (21) (a) Type A Underlettings Not to underlet or agree to underlet the whole or any part of the Type A Premises at a fine or premium or at a rent which is less than the open market rental value of the premises to be demised (taking into account such rent free periods as reflect market practice at the time of the underletting or as may otherwise have been approved by the Landlord) nor to permit the reduction of rent paid or payable by any underlessee thereof; 3. (21) (b) Not to underlet agree to underlet nor share nor part with the possession or occupation of the whole or any part of the Type A Premises without on each occasion procuring:- 3. (21) (b) (i) that any intended underlessee shall covenant with the Landlord as from the date of the underlease to observe and perform the covenants and conditions herein contained (other than as to payment of -18- 22 rents and as contained in Clause 3(21)(22)(25)(26) and (39) hereof and the Third Schedule hereto or (in the case of underlettings not exceeding five years excluding Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954) to observe and perform the covenants and conditions contained in the Approved Form of Underlease; 3. (21) (b) (ii) that in any permitted mediate or immediate underlease the rent shall be payable no more than one quarter in advance and shall be subject to review in an upward direction only at such times and in such manner as to coincide with the rent review provided for under this Lease in relation to the Type A Rent; 3. (21) (b) (iii) that the Type A Premises shall at no time be in the occupation of more than 20 separate occupiers Provided that the following persons in occupation in accordance with Clause 3(23) hereof shall for the purpose of this sub-clause be treated as one:- (aa) the Tenant and Related Companies and any associated company corporation or partnership of the Tenant; (bb) any permitted undertenant and companies which are members of the same group as such permitted undertenant and any associated company corporation or partnership of such permitted undertenant; (cc) where this Lease or any underlease is held as a partnership asset but the Tenant or any permitted undertenant comprises some only of the members of a partnership:- (A) all members of such partnership; and (B) any associated company corporation or partnership of such partnership; 3. (21) (b) (iv) that no underletting (other than of the Management Premises) within the ground and upper floor levels of the Type A Premises shall comprise less than 5,000 square feet of Net Internal Area on any level; -19- 23 3. (21) (b) (v) that no part or parts of the storage areas within the basement levels B1 to B3 inclusive nor any car parking spaces within the Type A Premises shall be underlet otherwise than as part of an underlease of part or parts of the Type A Premises at ground and upper floor levels; 3. (21) (b) (vi) that in the case of any underletting including part only of any floor level of the Type A Premises at ground floor level or above prior to the completion of any underlease and the occupation by any undertenant or proposed undertenant of the premises to be demised thereby (or any part thereof) an Order be obtained from the Court authorising the exclusion of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in respect of such underlease (a declaration to that effect being contained therein) and that a certified copy of such Order (together with a certified copy of the form of underlease which accompanied the application therefor) be supplied to the Landlord and no such underlease shall be completed or occupation allowed before such Order has been obtained and produced to the Landlord; 3. (21) (c) Subject to compliance in all respects with Clauses 3 (21)(a) and (b) the Tenant shall be permitted to underlet the Type A Premises as a whole or a permitted part or parts thereof with the prior written consent of the Landlord which shall not be unreasonably withheld or delayed; 3. (22) (a) Type B Underlettings Not to underlet or agree to underlet the Type B Premises or any part or parts thereof; 3. (22) (b) If the Landlord shall permit the Tenant to underlet the Type B Premises or any part or parts thereof then the Tenant shall do so in accordance with the directions of the Landlord from time to time and so as to maximize the income of the Type B Premises and to exploit the Type B Premises in accordance with the principles of good estate management:- 3. (22) (b) (i) the proposed term of the underlease and the proposed undertenant shall previously be approved by the Landlord; -20- 24 3. (22) (b) (ii) details of the plans and specifications of all fitting out works by or for and on behalf of any intended undertenant shall be supplied by the Tenant to and approved by the Landlord such approval to be subject to the provisions of Clause 3(19); 3. (22) (b) (iii) the rent (at the date of the underlease or agreement for underlease) payable for the premises to be underlet shall be not less than the open market rental value then reasonably obtainable therefor without taking a fine or premium; 3. (22) (b) (iv) each underlease shall contain provisions requiring the rent thereby reserved to be reviewed in an upwards only direction to the open market rental value of the premises underlet no less frequently than at the expiration of each period of five years of the term thereby granted or on such other review periods as shall be approved by the Landlord; 3. (22) (b) (v) no floor of the Type B Premises in Peterborough Court shall at any time be in the occupation of more than four persons and no floor in Daniel House shall at any time be in the occupation of more than one person Provided as set out in Clause 3(21)(b)(iii) and no underlease of any part of Daniel House (other than the retail shop unit and the office premises on the ground floor) shall comprise or include part only of a floor; 3. (22) (b) (vi) no storage space or car parking spaces within the Type B Premises shall be underlet or occupied otherwise than as part of an underlease of any part or parts of the office or retail space in the Type B Premises; 3. (22) (b) (vii) the underlease shall be on full repairing and insuring terms secured by means of service charges where appropriate; and 3. (22) (b) (viii) the underlease shall otherwise be in the Approved Form of Underlease; -21- 25 3. (22) (b) (ix) each underlessee shall be a respectable and responsible person whose obligations shall (if reasonably required by the Landlord) be guaranteed by a guarantor of sufficient financial standing; 3. (22) (b) (x) in the case of any permitted underletting comprising part only of any floor level of the Type B Premises at ground floor level or above (but without prejudice to the provisions of Clause 3(22)(b)(v)) prior to the completion of any underlease and the occupation by any undertenant or proposed undertenant of the premises to be demised thereby (or any part thereof) an Order be obtained from the Court authorising the exclusion of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in respect of such underlease (a declaration to that effect being contained therein) and that a certified copy of such Order (together with a certified copy of the form of underlease which accompanied the application therefor) be supplied to the Landlord and no such underlease shall be completed or occupation allowed before such Order has been obtained and produced to the Landlord; 3. (22) (c) Notwithstanding anything herein contained not to create nor knowingly permit the creation of any interest derived out of the Term howsoever remote or inferior upon the payment of a fine or premium or at a rent less than the open market rental value reasonably obtainable at the time of such creation (without taking a fine or premium) for the premises thereby demised and not to create nor knowingly permit the creation of any such derivative interest as aforesaid save by instrument in writing containing such absolute prohibition as aforesaid on the part of the underlessee and those that may derive title under such underlease; 3. (22) (d) Not without the prior consent of the Landlord to include in any underlease of the whole or any part of the Type B Premises or any agreement therefor any provision for (nor otherwise agree with any undertenant) any rent free period or reduced rent period or abatement of rent (except cesser of rent during any period covered by any loss of rent insurance effected by the Tenant); -22- 26 3. (22) (e) Not to agree or arrange or permit or suffer to be agreed or arranged any commutation in whole or part of any rent reserved and made payable under any underlease or sub-underlease at any time relating to the Type B Premises or any part thereof whether for any consideration or not; 3. (22) (f) Not to accept a surrender of any underlease or tenancy at any time relating to the Type B Premises or any part thereof nor waive any rights annexed or incident to the reversion to any underlease thereof; 3. (22) (g) In the event of any undertenant of Type B Premises committing any breach of the covenants conditions or provisions contained in an underlease promptly to take and institute such steps and proceedings (including proceedings for forfeiture of such underlease) as shall be appropriate for the recovery of arrears of rent or other monies due and the remedying of such breach and to enforce all orders or judgments of any Court obtained or obtainable as a result of such proceedings; 3. (22) (h) Not without the prior consent of the Landlord to negotiate or agree any rent on any review or revision of rent with any underlessee of Type B Premises; 3. (22) (i) To give all notices and to do all such other acts and things as shall be necessary to ensure that the rents receivable by the Tenant in respect of the Type B Premises or any part thereof shall be not less than the open market rental value thereof as between a willing landlord and a willing tenant under the terms of the relevant underlease; 3. (22) (j) Not to agree with any undertenant or occupier of the Type B Premises or any part thereof any variations of the terms of such underletting or occupation; 3. (23)(a) Sharing Save as aforesaid not to part with possession of the whole or part only of the Demised Premises Provided that any of the persons referred to in Clause 3(23)(b) may occupy or share occupation of -23- 27 any part of the Demised Premises on condition that:- 3. (23) (a) (i) such occupation or sharing of occupation does not create any relationship of landlord and tenant between the Tenant or the permitted undertenant (as the case may be) and such occupier; and 3. (23) (a) (ii) such occupation or sharing of occupation shall not continue after the date upon which the said occupier ceases to be a member of the same group of companies as or an associate of the Tenant or the permitted undertenant (as the case may be); and 3. (23) (a) (iii) the Landlord is notified of such sharing and the identity of those sharing occupation with the Tenant and/or any permitted undertenant; 3. (23) (b) The following are the persons who may occupy or share occupation in accordance with Clause 3(23)(a) hereof:- 3. (23) (b) (i) Related Companies and any associated company corporation or partnership of the Tenant; 3. (23) (b) (ii) Companies which are members of the same group as such permitted undertenant or sub-undertenant and any associated company corporation or partnership of such permitted undertenant or sub-undertenant; 3. (23) (b) (iii) Where this Lease or any underlease or sub-underlease is held as a partnership asset but the Tenant or any permitted undertenant or sub-undertenant comprises some only of the members of a partnership:- (A) all members of such partnership; and (B) any associated company corporation or partnership of such partnership; -24- 28 3. (24) (a) Registration Within twenty-one days after the date of any assignment of this Lease or the grant of any underlease of the Demised Premises or any assignment of such an underlease or the execution of any mortgage or charge (other than a floating charge) affecting this Lease or any transfer of any such mortgage or charge or any devolution of the Term or of any such underlease as aforesaid by assent or operation of law or any surrender or variation of any such underlease to give written notice and to deliver a certified copy to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same and to pay or cause to be paid to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty pounds for the registration thereof; 3. (24) (b) Within twenty-one days after the creation of any floating charge affecting this Lease to give written notice to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with details of the chargee(s) and within twenty-one days after the crystallization of any floating charge to give written notice to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with a certified copy of the instrument creating the floating charge and details of the circumstances of crystallization and to pay to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty Pounds for the registration thereof; 3. (25) Collection of rents To use all reasonable endeavours to ensure that all rents and payments for services due to the Tenant in respect of the Type B Premises are collected regularly and in accordance with the principles of good estate management; 3. (26) Management At all times during the Term to manage or procure the management of the Demised Premises in a good and efficient manner in accordance with the principles of good estate management and the Tenant shall first obtain the consent in writing of the Landlord to the identity and terms of appointment of any person (other than Goldman Sachs Property Management Limited company registration number 2432555) whom the Tenant -25- 29 proposes to employ or otherwise engage either directly or indirectly as a property manager in relation to the Demised Premises or any part or parts thereof; 3. (27) Easements Not by building or otherwise to stop up or darken any window or light in the Demised Premises nor permit any new wayleave easement right privilege or encroachment to be made or acquired into against or upon the Demised Premises and in case any such easement right privilege or encroachment shall be made or attempted to be made to give immediate notice thereof to the Landlord and to permit the Landlord and its agents to enter the Demised Premises for the purpose of ascertaining the nature of any such easement right privilege or encroachment and to adopt such means as may be reasonably necessary for preventing any such encroachment or the acquisition of any such easement right privilege or encroachment; 3. (28) Landlord's costs To pay to the Landlord on demand all costs charges and expenses (including but without prejudice to the generality of the foregoing Solicitors' costs Counsels' Architects' and Surveyors' and other professional fees and commission payable to a bailiff) properly (and in the case of sub-clause (d) of this Clause) reasonably incurred by the Landlord:- 3. (28) (a) incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 and/or in or in reasonable contemplation of any proceedings under Section 146 or 147 of the said Act (whether or not any right of re-entry or forfeiture has been waived by the Landlord or a notice served under the said Section 146 is complied with by the Tenant or the Tenant has been relieved under the provisions of the said Act and notwithstanding forfeiture is avoided otherwise than by relief granted by the court) and to keep the Landlord fully indemnified against all costs charges expenses claims and demands whatsoever in respect of the said proceedings and the preparation and service of the said notice; -26- 30 3. (28) (b) incidental to or in reasonable contemplation of the preparation and service of a Schedule of Dilapidations at any time during or within six months after the expiration or earlier determination of the Term but relating in all cases only to wants of repair arising not later than the expiration or sooner determination of the Term; 3. (28) (c) in connection with or in procuring the remedying of any breach of covenant on the part of the Tenant or any person deriving title under the Tenant contained in this Lease; 3. (28) (d) in relation to any application for consent required or made necessary by this Lease (such costs to include reasonable management fees and expenses) whether or not the same is granted (except in cases where the Landlord is obliged not unreasonably to withhold consent and the withholding of consent is held to be unreasonable) or the application be withdrawn; 3. (29) (a) Statutory requirements At all times and from time to time and at its own expense to execute all works as are or may under or in pursuance of any Act of Parliament already or hereafter to be passed be directed or required to be done or executed upon or in respect of the Demised Premises or the Tenant's user thereof whether by the owner and/or the Landlord and/or the Tenant thereof or any person deriving title thereunder and to comply with all notices relating to the Demised Premises which are served by the public local or statutory authority and not to do on the Demised Premises any act or thing whereby the Landlord will become liable to pay any penalty imposed or to bear the whole or any part of any expenses incurred under any such Act as aforesaid; 3. (29) (b) Without prejudice to the foregoing at all times during the Term at the Tenant's expense to comply with all requirements from time to time of the appropriate authority in relation to means of escape from the Demised Premises in case of fire or other emergency and at the expense of the Tenant to keep the Demised Premises sufficiently supplied and equipped with fire fighting and extinguishing apparatus and appliances of a type suitable in all respects to the type of user of or business or -27- 31 trade carried on upon the Demised Premises such apparatus and appliances to be open to inspection and to be adequately maintained and also not to obstruct the access to or means of working such apparatus and appliances by its operations at or connected with the Demised Premises; 3. (29) (c) To comply with the requirements and regulations of the respective supply authorities in relation to the use of water electricity gas all types of telephonic communication and other services at the Demised Premises; 3. (30) Planning In relation to the Planning Acts:- 3. (30) (a) At all times during the Term to comply in all respects with the Planning Acts; 3. (30) (b) Not to apply for nor implement any planning permission in respect of the Demised Premises (save as necessary to comply with Clause 3(36)) unless the application and permission shall have been approved by the Landlord (whose approval shall not be unreasonably withheld or delayed where under the other relevant provisions of this Lease the consent of the Landlord is not required or cannot be unreasonably withheld or delayed); 3. (30) (c) Unless the Landlord shall otherwise direct to carry out before the expiration or determination of the Term (howsoever the same may be determined) any works stipulated to be carried out to the Demised Premises by a date subsequent to such expiration or sooner determination as a condition of any planning permission which may have been granted to and commenced to have been implemented by the Tenant; 3. (30) (d) If called upon so to do to produce to the Landlord all plans documents and other evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of this Clause have been complied with; -28- 32 3. (30) (e) Not without the consent of the Landlord (which shall not be unreasonably withheld or delayed) to enter into any agreement under Section 106 of the Town and Country Planning Act 1990 relating to the Demised Premises; 3. (30) (f) Not without the consent of the Landlord to serve any notice under Part VI of the Town and Country Planning Act 1990 in respect of the Demised Premises; 3. (30) (g) Within fourteen (14) days of receipt of the same (or sooner if requisite having regard to the requirements of the notice or order in question or the time limits stated therein) to produce to the Landlord a true copy and any further particulars required by the Landlord of any notice or order or proposal for the same given to the Tenant and relevant to the Demised Premises or the occupier thereof by any government department or local or public authority and without delay to take all necessary steps to comply with the notice or order so far as the same is the responsibility of the Tenant and at the request of the Landlord to make (at a cost which shall be borne by the Landlord and the Tenant equally) or join with the Landlord in making (at the cost of the Tenant) such proper objection or representation against or in respect of any such notice order or proposal as the Landlord shall reasonably deem expedient; 3. (31) Defects and indemnity To inform the Landlord immediately upon the same coming to the Tenant's attention in writing of any defect in the Demised Premises which would be likely to give rise to a duty imposed by common law or statute on the Landlord in favour of the Tenant or any other person and to indemnify the Landlord in respect of all actions proceedings costs claims and demands which might be made by any tenant occupier adjoining owner or any other person whatsoever or any competent authority which may be incurred by reason of:- 3. (31) (a) any use of the Demised Premises or any defect in the Demised Premises or in the execution or existence of any alterations or additions to the Demised Premises for which the Tenant is responsible hereunder; -29- 33 3. (31) (b) any breach by the Tenant or by any person deriving title under the Tenant of any covenant on the part of the Tenant or any condition contained in this Lease; 3. (32) Reletting Notices To permit the Landlord at all reasonable times during the last six (6) months of the Term to enter upon the Demised Premises and affix and retain without interference upon any suitable parts of the Demised Premises (but not so as materially to affect the access of light and air to the Demised Premises) notices for reletting the same and not to remove or obscure the said notices and to permit all persons with the written authority of the Landlord to view the Demised Premises at all reasonable hours in the daytime upon prior appointment having been made; 3. (33) Applications for consent Upon making an application for any consent or approval which is required under this Lease the Tenant shall disclose to the Landlord such information as the Landlord may reasonably require; 3. (34) Freehold covenants By way of indemnity only to observe and perform the agreements covenants and stipulations contained or referred to in the documents referred to in the Second Schedule hereto so far as any of the same are still subsisting and capable of taking effect and relate to the Demised Premises; 3. (35) Breaches by underlessees In the event of a breach non-performance or non-observance of any of the covenants conditions agreements and provisions contained or referred to in this Lease by any underlessee or other person deriving title under the Tenant forthwith upon discovering the same to take and institute (without expense to the Landlord) all appropriate steps and proceedings to remedy such breach non-performance or non-observance; 3. (36) (a) Yielding up At the expiration or sooner determination of the Term (howsoever the same be determined) to yield up to the Landlord the Demised Premises in such condition as shall be in accordance with the -30- 34 covenants on the part of the Tenant contained in this Lease; 3. (36) (b) Without prejudice to the provisions of paragraph (a) above immediately prior to the expiration or sooner determination of the Term at the cost of the Tenant:- 3. (36) (b) (i) to remove from the Demised Premises any moulding sign writing or painting of the name or business of the Tenant or occupiers and all tenant's fixtures fittings furniture and effects (including any demountable partitioning) and to make good all damage caused to the Demised Premises by such removal; 3. (36) (b) (ii) to the extent that the Landlord so requests to remove such parts of the Demised Premises and such fixtures and fittings therein to carry out such works and to renew replace or install such items as are necessary to put the Demised Premises in no lower standard of condition than shall accord with the description thereof in the Rent Review Specification (or such part thereof as the Landlord shall specify in its request to the Tenant); 3. (36) (b) (iii) for the avoidance of doubt and without prejudice to the generality of the foregoing the Landlord shall be entitled in making any such request to require the Tenant to remove or (as the case may be) add to and put back the Demised Premises without the "Additions" but with the "Omissions" (save where the contrary is specified) in the Schedule of Agreed Additions to and Omissions from the Base Building Contract included in the Rent Review Specification; 3. (37) (a) VAT Except where Clause 3(37)(b) applies to pay to the Landlord by way of additional rent any Value Added Tax at the rate for the time being in force properly chargeable in respect of any rent or other payment made by or other supplies provided to the Tenant under the terms of or in connection with this Lease and in every case where the Tenant covenants to pay an amount of money under this Lease such amount shall be regarded as being exclusive of all Value Added Tax which may from time to time be legally payable thereon; -31- 35 3. (37) (b) If any supplies made by the Landlord to the Tenant under or in connection with this Lease are subject to Value Added Tax by reason of an election to waive exemption under Schedule 6A of the Value Added Tax Act 1983 other than an election made in the circumstances specified in Clause 4(3)(b) but would not be subject to Value Added Tax if such an election had not been made any payment or other consideration covenanted to be provided by the Tenant under this Lease for such supplies shall be regarded as inclusive of all Value Added Tax which may be legally payable thereon; 3. (37) (c) For the avoidance of doubt supplies made by the Landlord in connection with this Lease which are subject to Value Added Tax by reason of an election made in the circumstances specified in Clause 4(3)(b) shall be subject to the provisions of Clause 3(37)(a) and shall be exclusive of Value Added Tax; 3. (38) Reimbursement of VAT In every case where the Tenant has agreed to reimburse the Landlord in respect of any payment made by the Landlord under the terms of or in connection with this Lease that the Tenant shall also reimburse any Value Added Tax paid by the Landlord on such payment save to the extent to which the same is recoverable by the Landlord as input tax; 3. (39) VAT election Not without the consent of the Landlord to make an election to waive exemption from Value Added Tax in relation to the Demised Premises or any part thereof under paragraph 2 of Schedule 6A to the Value Added Tax Act 1983 unless the Landlord or a relevant associate (as defined by paragraph 3(8) of the said Schedule 6(A) has made an election to waive exemption from Value Added Tax in relation to the Demised Premises or the Tenant is obliged by law to make such an election. 4. LANDLORD'S COVENANTS THE Landlord HEREBY COVENANTS with the Tenant as follows:- 4. (1) Quiet enjoyment That the Tenant paying the rents hereby reserved and performing and observing the covenants and agreements on the -32- 36 part of the Tenant hereinbefore contained shall and may peaceably hold and enjoy the Demised Premises during the Term without any interruption by the Landlord or any person rightfully claiming through under or in trust for it; 4. (2) Insurance That the Landlord will:- 4. (2) (a) At all times during the Term (save to the extent that such insurance shall be vitiated in whole or in part by any act neglect default or omission of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) insure and keep insured (i) the Demised Premises (except items in the nature of tenant's and trade fixtures and fittings installed by the Tenant and other tenants and occupiers of the Demised Premises) in such insurance office or with such underwriters of repute and through such agency as the Landlord may from time to time reasonably decide (the interests of the Tenant and others having an interest in the Demised Premises being noted on the policy) at reasonably competitive rates against loss or damage by the Insured Risks in the Full Cost of Reinstatement thereof; (ii) the Loss of Rent; (iii) explosion of any engineering plant and machinery to the extent that the same is not covered under sub-paragraph (i) above; and (iv) property owners public liability and such other insurances as the Landlord may from time to time deem necessary to effect; 4. (2) (b) (i) If reasonably required by the Tenant produce to the Tenant sufficient details of the terms of the policy or policies of such insurance and evidence of the fact that the policy or policies is or are subsisting and in effect; and 4. (2) (b) (ii) If and so long as the same can be procured at reasonable cost in the London insurance market to procure that the -33- 37 Insurers shall waive their rights of subrogation against the Tenant and underlessees and that the policy shall be written on terms such that it would not be vitiated by the act or omission beyond the control of the insured; 4. (2) (c) In case of destruction of or damage to the Demised Premises (except as aforesaid) by any of the Insured Risks then (save to the extent that payment of the insurance moneys shall be refused in whole or in part by reason of or arising out of any act neglect or default of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) with all reasonable speed subject to obtaining all necessary planning consents and all other necessary licences approvals and consents (which the Landlord will use all reasonable endeavours to obtain) and subject to the necessary labour and materials being and remaining available the Landlord shall cause all moneys received in respect of the insurance referred to in Clause 4(2)(a)(i) to be paid out in the rebuilding and reinstatement of the same substantially as prior to any such destruction or damage and make good any deficiency in the insurance moneys from its own funds Provided that:- 4. (2) (c) (i) any liability of the Landlord hereunder to rebuild and reinstate shall be deemed to have been satisfied if the Landlord provides accommodation substantially as convenient and (so far as the Landlord is able) in approximately the same location as but not necessarily identical to that previously existing; 4. (2) (c) (ii) if during the last ten years of the Term the Demised Premises shall be so destroyed or damaged by any of the Insured Risks as to render the Demised Premises unfit for occupation and use the Landlord or the Tenant may determine this Lease by giving to the other not less than four months' notice in writing in that behalf and upon the expiration of such notice the Term shall determine without prejudice to any rights or remedies of the Landlord or the Tenant in respect of any antecedent breach of any of the covenants or conditions contained in this Lease; 4. (2) (c) (iii) if the Term is determined pursuant to Clause 4 (2)(c)(ii) hereof the Landlord shall retain absolutely out of the -34- 38 monies payable by virtue of any such insurance a sum equal to the Full Cost of Reinstatement of the works comprised in the Rent Review Specification (less a sum equal to any deficiency in the insurance moneys for which the Landlord is liable hereunder) and the balance of such monies shall be paid to and retained by the Tenant and all proceeds of the loss of rent insurance shall be paid to and retained absolutely by the Landlord; 4. (3) (a) VAT That save as provided in sub-clause (b) of this Clause no election will be made during the Term which would render liable to Value Added Tax any supplies made by the Landlord to the Tenant under this Lease; 4. (3) (b) Such an election as is referred to in paragraph (a) hereof may be made at any time when such an election is required by law to be made; 4. (3) (c) That the Landlord will not convey or assign the reversion to the Demised Premises or grant any concurrent lease thereof without procuring that the person acquiring the reversion or being granted such lease enters into a direct covenant with the Tenant to observe and perform the covenants in sub-clauses (a) and (b) of this Clause. 5. PROVISOS 5. (1) Forfeiture 5. (1) (a) IF the rents hereby reserved or any part thereof shall at any time be in arrear for fourteen days after the same shall have become due (whether formally demanded or not); or 5. (1) (b) If there shall be any breach non-performance or non-observance of any of the covenants and conditions on the part of the Tenant contained in this Lease; or 5. (1) (c) If the Tenant shall suffer any distress or other execution to be levied on the Demised Premises or any part thereof or any contents therein; or -35- 39 5. (1) (d) If the Tenant and/or the Guarantor (if any) (being a body corporate) has a winding-up petition or petition for an administration order presented against it or passes a winding-up resolution (other than in connection with a members' voluntary winding-up for the purposes of an amalgamation or reconstruction which has the prior written approval of the Landlord) or calls a meeting of its creditors for the purposes of considering a resolution that it be wound up voluntarily or resolves to present its own winding-up petition or is wound up (whether in England or elsewhere) or the directors or shareholders of the Tenant or the Guarantor resolve to present a petition for an administration order in respect of the Tenant or the Guarantor (as the case may be) or an Administrative Receiver or a Receiver and Manager is appointed in respect of the property or any part thereof of the Tenant or the Guarantor; or 5. (1) (e) If the Tenant and/or the Guarantor (if any) (being a body corporate) calls or a nominee calls on its behalf a meeting of its creditors or any of them or makes an application to the Court under Section 425 of the Companies Act 1985 or submits to its creditors or any of them a proposal pursuant to Part I of the Insolvency Act 1986 or enters into any arrangement scheme compromise moratorium or composition with its creditors or any of them (whether pursuant to Part I of the Insolvency Act 1986 or otherwise); or 5. (1) (f) If the Tenant and/or the Guarantor (if any) (being an individual or if more than one individual then any one of them) makes an application to the Court for an interim order under Part VIII of the Insolvency Act 1986 or convenes a meeting of his creditors or any of them or enters into any arrangement scheme compromise moratorium or composition with his creditors or any of them (whether pursuant to Part VIII of the Insolvency Act 1986 or otherwise) or has a bankruptcy petition presented against him or is adjudged bankrupt (whether in England or elsewhere); or 5. (1) (g) If the Tenant is struck off the Register of Companies or is dissolved or (being a corporation or company incorporated outside Great Britain) is dissolved or ceases to exist under the laws of the -36- 40 country or state of its incorporation; or 5. (1) (h) If the Tenant being a company is deemed unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986 or if the Tenant being an individual appears to be unable to pay his debts within the meaning of Section 268 of the Insolvency Act 1986; then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter into and upon the Demised Premises or any part thereof in the name of the whole and to have again repossess and enjoy the Demised Premises as in their former estate and thereupon the Term shall absolutely cease and determine but without prejudice to any rights or remedies of the Landlord or the Tenant in respect of any antecedent breach of any of the covenants or conditions contained in this Lease; 5. (2) Ascertainment of Rent It is hereby agreed and declared that the provisions of the Third Schedule shall have effect in relation to the ascertainment and payment of the rent hereunder and connected matters; 5. (3) (a) Underleases of Type B Premises to associates The provisions of this Clause apply in any case where any underlease of the whole or any part or parts of the Type B Premises is granted to or is during any period held by a Related Company or any other associated company corporation or partnership of the Tenant or (where this Lease is held as a partnership asset but the Tenant comprises some only of the members of a partnership) any member(s) of such partnership or any associated company corporation or partnership of such partnership; 5. (3) (b) The Landlord (notwithstanding the grant hereof) shall in substitution for the Tenant have the conduct of:- 5. (3) (b) (i) the negotiation and settlement of the terms of the grant of any underlease or the renewal of any underlease; 5. (3) (b) (ii) the procedures for and conduct of any review of rent arising under any underlease; -37- 41 5. (3) (b) (iii) the variation or waiver of the terms of any underlease; 5. (3) (b) (iv) the surrender of any underlease or any part; 5. (3) (b) (v) the consideration of any application for or the grant of any permission consent or approval under the terms of any underlease or the exercise of any discretion vested in the Landlord by the underlease; 5. (3) (b) (vi) the settlement of any sum due under any underlease; 5. (3) (b) (vii) any other matter arising under or pursuant to the provisions of Clause 3(22) hereof; 5. (3) (c) The Tenant hereby undertakes with and to the Landlord that it will execute all documents and do such acts matters and things to give effect to the provisions of this Clause and on the default of the Tenant the Landlord shall have power of attorney to exercise the powers herein set out as agent for the Tenant and for such purpose the Tenant (by way of security) hereby irrevocably appoints the Landlord and any officers of the Landlord severally to be its attorney and in its name and on its behalf to execute and complete any documents or deeds and to do all such acts and things as may be required for the exercise of such power and the Tenant covenants to ratify any such deed document act or thing and all transactions which the attorney may lawfully execute and do; 5. (3) (d) All expenditure reasonably and properly paid by the Landlord shall be treated as a Receipt for the purposes of the Third Schedule hereto; 5. (4) Assignments The Landlord will upon or as soon as practicable after any assignment of this Lease by Goldman Sachs International Limited in accordance with Clause 3(20) to an assignee who in the opinion of a prudent institutional landlord would be considered of good and sufficient financial standing execute and deliver to Goldman Sachs International -38- 42 Limited a full release from liability for any breach of covenant or condition under this Lease occurring after the date of such assignment (but without prejudice to any liability in respect of breaches occurring before that date and to any future liability of the person who is for the time being the Tenant under this Lease); 5. (5) (a) Deemed assignments The provisions of this Clause 5(5) shall apply for so long only as Goldman Sachs International Limited ("GSIL") or any Related Company or any company corporation or partnership associated with Goldman Sachs & Co is the Tenant under this Lease; 5. (5) (b) In this clause 5(5) the expression "the Tenant" shall mean (as the case may be) GSIL or such other company corporation or partnership referred to in paragraph (a) above as is from time to time the Tenant under this Lease the expressions "associated" and "control" shall have the meanings ascribed to them in Clause 1(1)(c) of this Lease and the expression "Net Worth" shall mean:- (i) (in the case of GSIL or other company) the aggregate amount in pounds sterling of the amounts paid up or credited as paid up on the issued share capital of the Tenant and its capital and revenue reserves (including any share premium account capital redemption reserve fund and any credit balance on its profit and loss account) less the aggregate amount in pounds sterling of any debit balance on its profit and loss account any amounts shown in its accounts in respect of deferred taxation and any amounts shown in its accounts in respect of intangible assets; (ii) (in the case of a partnership) the sum of the capital accounts of the general partners of the partnership the capital contributions of the limited partners realised and unrealised undistributed profits (net of applicable tax reserves) and the aggregate principal amount of any outstanding indebtedness that is expressly subordinated to other indebtedness for borrowed money; -39- 43 (iii) (in the case of a corporation) the sum of shareholders' equity of the corporation plus the aggregate principal amount of any outstanding indebtedness that is expressly subordinated to other indebtedness for borrowed money; 5. (5) (c) The amalgamation or merger of the Tenant or any transfer issue or division of any share capital of the Tenant or any transfer of the assets of the Tenant or of any Related Company or of any company corporation or partnership associated with Goldman Sachs & Co which in any such case results in a change of control of the Tenant and in the Tenant ceasing to be associated with Goldman Sachs & Co shall be deemed to be an assignment of this Lease (a "Deemed Assignment"); 5. (5) (d) The Landlord's prior written approval shall be required for a Deemed Assignment where the Net Worth of the Tenant or of the Tenant and the company corporation or partnership which would become or is entitled to the control of the Tenant in either case following any Deemed Assignment is materially less than the Net Worth of the Tenant immediately prior to the Deemed Assignment such that the Tenant would not be acceptable to a reasonable and prudent institutional landlord as a tenant of the whole of the Demised Premises if the Demised Premises were then being re-let on the terms of this Lease and if such prior written approval is not obtained the Deemed Assignment shall constitute a breach of the covenant on the part of the Tenant contained in Clause 3(20); 5. (5) (e) The transfer of shares in the Tenant for the purposes of this Clause 5(5) shall not include (i) the sale of shares (other than those unlawful activities prescribed by the Companies' Securities (Insider Dealing) Act 1985) which sale is effected through any recognised stock exchange or over the counter market or (ii) the sale of shares in connection with a public offer of the Tenant; 5. (5) (f) In determining whether the Net Worth of the Tenant following a Deemed Assignment is materially less than the Net Worth of the Tenant immediately prior to the Deemed Assignment regard shall be had to any previous or subsequent transaction or series of transactions which -40- 44 (taken as a whole) are connected with the Deemed Assignment; 5. (5) (g) The Tenant shall make available to the Landlord and its representatives upon request for inspection at all reasonable times such information or records as may be necessary in order to ascertain whether or not there has been a change of control of the Tenant; 5. (6) Covenants relating to adjoining property Nothing contained in or implied by this Lease shall give the Tenant the benefit of or the right to enforce or to prevent the release or modification of any covenant agreement or condition entered into by any tenant of the Landlord in respect of any property not comprised in this Lease; 5. (7) Cesser of Rent In case the Type A Premises or any part thereof or the means of access thereto shall at any time during the Term be so damaged or destroyed by any of the Insured Risks as to render the Type A Premises unfit or inaccessible for occupation and use in accordance with the terms and provisions of this Lease then (save to the extent that the insurance money payable under any policy of insurance effected or caused to be effected by the Landlord shall be wholly or partially irrecoverable by reason solely or in part of any act or default of the Tenant or any person deriving title under the Tenant or any of its servants agents licensees or invitees) the Type A Rent or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Type A Premises or the relevant part thereof shall again be rendered fit and accessible for occupation and use or until the loss of rent insurance effected by the Landlord in respect of the Type A Rent shall be exhausted (whichever shall first occur) and any dispute with reference to this proviso shall be referred to arbitration in accordance with the Arbitration Acts 1950 and 1979; 5. (8) Effect of Waiver Each of the Tenant's covenants shall remain in full force both at law and in equity notwithstanding that the Landlord shall have waived or released temporarily such covenant -41- 45 5. (9) (a) Notices The provisions of Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 shall apply to the giving and service of all notices and documents under or in connection with this Lease except that Section 196 shall be deemed to be amended by the deletion of the final words of Section 196(4) "... and that service be delivered" and the substitution of the words: "... and that service shall be deemed to be made on the third Business Day after the registered letter has been posted"; 5. (9) (b) Any notice or document shall also be sufficiently served if sent by telex to the party to be served and such service shall be deemed to be made on the day of transmission if transmitted before four p.m. on a Business Day but otherwise on the next following Business Day; 5. (9) (c) For so long as LDT Partners shall be the Landlord hereunder all notices served by the Tenant on the Landlord shall also be copied to Goldman Sachs & Co at 85 Broad Street New York New York 10004 (for the attention of P. Sheridan Schechner) and to Meiji Mutual Life Insurance Company at 1-1 Marunouchi 2-Chome Chiyoda-Ku Tokyo (for the attention of K. Shimoyakawa) and to the United Kingdom agents of the Landlord from time to time notified to the Tenant; I N W I T N E S S whereof the parties have duly executed this Lease as a deed the day and year first before written. THE FIRST SCHEDULE The Demised Premises The land and buildings known as Peterborough Court 133 Fleet Street and Daniel House 140 Fleet Street London EC4 as registered at H.M. Land Registry under Title Numbers NGL495895 and NGL495896 shown for the purpose of identification only edged blue and green on the location plan marked "A" annexed. -42- 46 SITE PLAN [FLOOR PLAN OMITTED] 47 GENERAL ARRANGEMENT GROUND FLOOR [FLOOR PLAN OMITTED] AC/02 48 LEVEL B-3 PLAN PLANT [FLOOR PLAN OMITTED] A-101 49 LEVEL B-2 PLAN COMPUTER ROOM [FLOOR PLAN OMITTED] A-102 50 GROUND LEVEL PLAN OFFICE [FLOOR PLAN OMITTED] A-104 51 LEVEL 3 PLAN DEALING EXPANSION [FLOOR PLAN OMITTED] A-107 52 LEVEL 4 PLAN OFFICE [FLOOR PLAN OMITTED] A-108 53 LEVEL 5 PLAN OFFICE [FLOOR PLAN OMITTED] A-109 54 MEZZANINE PLANS [FLOOR PLAN OMITTED] A-118 55 THE SECOND SCHEDULE Documents which affect or relate to the Demised Premises
Date Document Parties - ---- -------- ------- The entries in the property and charges registers of Title Nos. NGL495895 and NGL495896 as at 30 July 1990 31.8.1989 Deed MEPC plc (1) Town Investments Limited (2) LDT Partners (3) 24.11.1989 Agreement LDT Partners (1) Astonwade Properties Limited (2) Wheatland Limited (3) 02.02.1990 Licence Guardian Assurance plc JC No.3 (UK) Limited Fleet Street Square Management Limited and Fleet Street Financing Limited (1) Express Newspapers plc (2) LDT Partners (3) Taylor Woodrow Construction Limited (4) 31.5.1990 Agreement LDT Partners (1) Allied Breweries Limited (2) Guildford Holdings Limited (3)
-43- 56 05.07.1990 Agreement LDT Partners (1) Ye Olde Cheshire Cheese (2) 02.05.1991 Licence LDT Partners (1) Caisse National de Credit Agricole (2) Barclays Bank PLC (3) 02.10.1991 Sub-station Licence LDT Partners (1) Goldman Sachs (Peterborough Court) International Limited (2) London Electricity plc (3) LDT Partners (1) 08.05.1992 Sub-station Licence Goldman Sachs International (Daniel House) Limited (2) Caisse National de Credit Agricole (3) London Electricity plc (4)
THE THIRD SCHEDULE Rent PART I Definitions In this Lease the following expressions shall have the following meanings:- (A) "Account Day" shall mean the 24th day of March in each year of the Term; -44- 57 (B) "Accounting Year" shall mean as appropriate (i) the period from and including the date hereof and ending on the next succeeding Account Day and (ii) each intervening period of twelve calendar months ending on an Account Day; and (iii) the period from the Account Day preceding the expiration or sooner determination of the Term and ending on such expiration or sooner determination (C) "Additional Rent Payment Days" shall mean the tenth Business Day after each Quarter Day; (D) "Quarter Days" shall mean the 25th March the 24th June 29th September and 25th December in each year; (E) "Quarterly Period" shall mean as appropriate (i) the period from and including the date hereof and ending on the next succeeding Quarter Day (ii) each intervening quarterly period ending on a Quarter Day and (iii) the period from the Quarter Day preceding the expiration or sooner determination of the Term and ending on such expiration or sooner determination; and (F) "Occupation Lease" shall mean any lease underlease agreement for underlease occupation agreement or licence or other arrangement whatsoever for the use enjoyment or occupation of the Type B Premises or of any part or parts thereof; (G) "Receipts" shall mean the gross aggregate of all sums of money (whether of a capital or income nature) received or derived by or on behalf of the Tenant in respect of or from its interest under this Lease in the Type B Premises or any part or parts thereof including (but not limited to) the following:- (a) gross rents licence fees and other moneys received by or on behalf of the Tenant from or in respect of every Occupation Lease any insurance proceeds in respect of loss of rent and consequential loss (if any) and all rental which would have been received by or on behalf of the Tenant from every such -45- 58 Occupation Lease but for an assignment mortgage or charge of or other divestment of the right to receive such income or any part thereof or but for a mortgage or charge of the Demised Premises or any part or parts thereof; (b) all gross sums received by or on behalf of the Tenant by way of payment of premiums for insurances or payment for services provided for in or upon the Type B Premises by the Tenant or payment for the costs and expenses of observing and performing its obligations under this Lease; (c) all consideration for or in respect of the grant waiver release variation or surrender of any obligations contained in any Occupation Lease or any other licence easement right liberty privilege or any other covenant or other obligations relating to the Type B Premises (d) an amount equal to any expenditure paid by the Landlord under Clause 5(3) hereof and any other expenditure reasonably and properly paid by the Landlord in discharge of its obligations under this Lease; (e) any other consideration (whether in the nature of income or capital) and any interest thereon received in respect of the Type B Premises; (f) compensation damages expenses and costs awarded by a court arbitrator expert or other person or body exercising a judicial or quasi judicial function against any person (other than the Tenant) in respect of any breach of covenant in any Occupation Lease agreement for Occupation Lease or other permitted agreement for the use or occupation of the Type B Premises or any part thereof or in respect of anything done or omitted or permitted by any such person (other than the Tenant) relating to the Type B Premises or any part thereof and any moneys in compromise or settlement of any actual or proposed or -46- 59 threatened proceedings or claim in respect of such breach or thing; (g) the proceeds of realising any security (whether or not a legal or equitable charge) for or guarantee of any of the above mentioned items; (h) consideration (including forfeited deposits) in relation to any option or pre-emption rights granted by or pursuant to any Occupation Lease; (i) consideration for or in respect of the grant by the Tenant of any licence concession agreement or other agreement not constituting a sub-demise including but not limited to payments and fees for advertising panels or stations kiosks vending machines and car parking; (j) mesne profits and damages for trespass; (k) interim payments under Order 29 Rule 18 of the Rules of the Supreme Court (or any Rule amending or replacing the same) and damages for breach of covenant or other obligation; (l) interest or sums equivalent to interest (whether payable by contract or by virtue of the Judgments Act 1838 the Law Reform (Miscellaneous Provisions) Act 1934 the Arbitration Acts 1950 to 1979 or otherwise howsoever) on any of the foregoing items including interest on late payment of rent and interest on increased rent following a rent review which is agreed or determined after the review date; (m) interest on sums held in respect of reserves for future expenditure or any sinking fund or in respect of depreciation or amortisation of expenditure in respect of plant machinery or other landlord's fixtures or fittings (save only to the extent (if any) that such interest is held on trust to pay or credit the same to tenants under Occupation Leases); -47- 60 (n) distributions in the liquidation bankruptcy or insolvency of any company or individual in respect of claims founded on any entitlement or alleged entitlement to any of the foregoing items; (o) any payment by any tenant under an Occupation Lease on account of or in reimbursement of or otherwise for or in respect of any other items of Receipts to the extent that it is not included in any of the foregoing (p) any sum deducted or deductible from any of the above mentioned items by way of defence counterclaim or set off against the Tenant and arising in relation otherwise than to the Type B Premises or any part thereof or the terms of any Occupation Lease agreement for Occupation Lease or other permitted agreement for the use and occupation of the Type B Premises or part thereof; (q) all Value Added Tax deducted as a Permitted Deduction to the extent that it is recovered by the Tenant from or paid to the Tenant by H.M. Customs and Excise or other Government Department or to the extent that the Tenant is allowed credit for the same against sums otherwise payable to HM Customs and Excise or other Government Department; (r) all amounts received by the Tenant by way of reimbursement of Value Added Tax on any payment made by the Tenant under or in connection with any Occupation Lease; (s) any item included as a Permitted Deduction to the extent that it is subsequently recovered by the Tenant; BUT EXCLUDING the following:- (1) any sums accruing to the Tenant arising on a transfer assignment mortgage surrender or other disposal (other than a subletting) of the Tenant's interest under this Lease; -48- 61 (2) any sums received as rent or notional rent in respect of the Management Premises; (3) any contribution to sinking fund or reserve fund for future expenditure on the Demised Premises; (4) Value Added Tax received by the Tenant in respect of any rent licence fee or other payment made or other consideration provided to the Tenant under or in connection with any Occupation Lease; PROVIDED THAT: (i) no Receipt counted under one head shall be counted to that extent under another; (ii) if any sum receivable by the Tenant in respect of any year and falling within the definition of Receipts has not actually been received by the Tenant in that year notwithstanding the use by the Tenant of all reasonable endeavours (including if appropriate the commencement and diligent prosecution of legal proceedings) to obtain payment thereof the amount not so received shall not be brought into account in calculating the Receipts for that particular year but if any such sum is subsequently received by the Tenant in whole or in part the amount received shall form part of the Receipts in respect of the year in which the same is received; (H) "Permitted Deductions" shall mean expenditure properly incurred by the Tenant in respect of the following matters to the extent only that such expenditure (i) is consistent with the Tenant's obligations under this Lease and (ii) is not such as would have arisen but for any negligent act or omission on the part of the Tenant:- (a) all reasonable and proper costs and expenses properly paid by the Tenant in observing and performing its obligations under -49- 62 this Lease (other than the payment of any rents reserved hereby and interest on late payment thereof and damages and costs awarded as a result of any breach by the Tenant of the obligations in this Lease) and (in its capacity as landlord) under any Occupation Lease and any other reasonable and proper costs as are properly paid by the Tenant in respect of the provision of the services and expenses set out in Part II of the Sixth Schedule to the Approved Form of Underlease; (b) the actual costs of all insurance premiums reasonably paid by the Tenant in respect of the Demised Premises or for loss of rent and other costs paid by the Tenant in relation to the valuation for insurance purposes of the Demised Premises (provided such valuations occur no more frequently than once in every year); (c) payments made by the Tenant for the grant variation surrender or determination (in accordance with this Lease) of any Occupation Lease agreement for Occupation Lease or other permitted agreement for the use or occupation of the Type B Premises or any part or parts thereof; (d) all reasonable fees costs and expenses paid by the Tenant relating to the underletting of the Type B Premises or any part thereof throughout the Term or the renewal by the Tenant of any Occupation Lease (including but not limited to promotional and advertising expenses and independent letting agents' fees and unrecovered legal costs and disbursements but excluding initial letting costs to the extent that the same are incurred in respect of the period from the date hereof to the end of the Accounting Year ending in 1996) agreeing a new rent receivable by the Tenant on any rent review under any such Occupation Lease obtaining payment of any sums receivable by the Tenant from any Occupation Lease and enforcement by the Tenant of any tenant's or licensee's covenant or obligation in any Occupation Lease; -50- 63 (e) compensation paid with the approval of the Landlord (which shall not be unreasonably withheld or delayed) by the Tenant pursuant to the Landlord and Tenant Act 1927 in respect of improvements made by any undertenant to any part of the Type B Premises (or incurred in carrying out improvements for any undertenant pursuant to notices served under the said Act in order to avoid the said obligation to pay compensation) or pursuant to the Landlord and Tenant Act 1954 Part II in respect of the termination without renewal of any Occupation Lease; (f) any proper management fee actually charged to the Tenant for the management and administration of the Demised Premises (including any management fee by a Related Company) save to the extent that:- (i) it exceeds a fair and reasonable management fee which would be payable on the open market as between parties acting at arm's length and in good faith; and (ii) if any Related Company is an undertenant of any Type B Premises it has not contributed under its underlease thereof proportionately and fairly to the management fee having regard to the extent of its possession or use and enjoyment (as the case may be) of the Type B Premises or any part; (g) all sums paid with the consent of the Landlord in connection with defending or preserving title to the Demised Premises and any appurtenances thereof; (h) any other proper costs outgoings or expenses of whatsoever nature paid by the Tenant which shall be for the joint benefit of the Landlord and the Tenant incurred with the consent of the Landlord (which shall not be unreasonably withheld or delayed); -51- 64 (i) interest at a reasonable commercial rate and other reasonable finance charges on moneys reasonably and properly borrowed with the consent of the Landlord (which consent shall not be unreasonably withheld) by the Tenant in order to meet the costs of its obligations under this Lease; (j) the legal and other costs of obtaining and the granting of any approval of the Landlord required by the Tenant under this Lease if the Tenant shall be unable to recover such costs from any underlessee but only to the extent that any such costs are incurred as a result of conduct of the Landlord which is held to be unreasonable; (k) Value Added Tax paid by the Tenant on the foregoing items; (l) any item previously included as a Receipt to the extent that it is for any proper reason repaid by the Tenant; (m) all sums paid by the Tenant in its capacity as underlessee of the retail premises in Daniel House by way of service charge and payment of insurance premiums in respect of such retail premises in Daniel House; BUT EXCLUDING the following:- (1) the rents payable hereunder; (2) any taxes (other than Value Added Tax) payable by any party; (3) expenditure or disbursements paid in connection with the grant of this Lease or any assignment of the Demised Premises for the residue of the Term; (4) any costs to the extent that they are met from any sinking fund or reserve fund for future expenditure on the Demised Premises; -52- 65 (5) costs and expenses paid by the Tenant in observing and performing its obligations under these presents recoverable under a policy or policies of insurance of which the proceeds shall not constitute Receipts (or which would have been recoverable under a policy or policies of insurance but for such policy or policies being rendered void or voidable in whole or in part by the Tenant its servants or agents); (6) any compensation payable under Part II of the Landlord and Tenant Act 1954 in circumstances where in consequence of the determination of the relevant tenancy the Tenant or a Related Company occupies the whole or part of the premises demised thereby; (7) any of the said sums which would otherwise be a Permitted Deduction to the extent that it is incurred or increased as a result of a breach non-observance or non-performance of an obligation of the Tenant under this Lease save where such default was with the prior written approval of the Landlord; (8) the costs (including court fees and solicitors surveyors and agents fees) incurred by the Tenant in pursuing or defending (as the case may be) any claim or proceedings brought against the Tenant by the Landlord or by the Tenant against the Landlord whether in a court or by arbitration or otherwise in respect of an alleged or proven breach of this Lease; PROVIDED ALWAYS that:- (i) any such sums referred to in items (a) to (1) of this definition paid in relation to the Demised Premises as a whole -53- 66 shall be included in the Permitted Deductions only as to forty decimal point three one per centum (40.31%)(as varied from time to time in accordance with Parts VIII and IX of this Schedule); (ii) the cost of the services and expenses set out in Part II of the Sixth Schedule to the Approved Form of Underlease shall be included as to a fair proportion in respect of the Type B Premises taking into account the use made of and the benefit received from the Services specified therein and to be calculated by reference to metering or similar means of direct allocation where reasonably practicable (and for the avoidance of doubt different proportions may be applied to the various Services) and any other such sums paid exclusively in relation to Peterborough Court as a whole shall be included in the Permitted Deductions only as to thirty two decimal point one four per centum (32.14%) (as varied from time to time in accordance with Parts VIII and IX of this Schedule); (iii) no such sums paid exclusively in relation to the Type A Premises shall be included in the Permitted Deductions; (iv) no Permitted Deduction counted under one head shall be counted to that extent under another; (J) "Net Income" shall mean for any Accounting Year the amount by which the Receipts for that year shall exceed the Permitted Deductions for that year; (K) "Quarterly Net Income" shall mean for any Quarterly Period the amount by which the Receipts for that Period shall exceed the Permitted Deductions for that Period; (L) "Net Deficiency" shall mean for any Accounting Year the amount by which the Permitted Deductions for that year shall exceed the Receipts for that Year; -54- 67 (M) "Quarterly Net Deficiency" shall mean for any Quarterly Period the amount by which the Permitted Deductions for that Period shall exceed the Receipts for that Period; (N) "Tenant's Statement" shall mean the statement to be delivered in respect of each Quarterly Period under paragraph 1 of Part III of this Schedule; (O) "Accountant's Statement" shall mean the certified statement to be delivered in respect of each Accounting Period under paragraph 2 of Part II of this Schedule; (P) "Type A Rent" shall mean TEN MILLION FIVE HUNDRED AND THIRTY THOUSAND ONE HUNDRED AND NINETY-FOUR POUNDS ((pounds)10,530,194) per annum (subject to increase in accordance with Part VII of this Schedule). PART II Ascertainment of the Rent and balancing payments 1. The rent payable by the Tenant for each Accounting Year shall be either (a) the aggregate of the Type A Rent and the Net Income during the relevant Accounting Year OR (b) (if Receipts fall short of Permitted Deductions for the relevant Accounting Year) the amount of the Type A Rent less the Net Deficiency during the relevant Accounting Year Provided that for each of the Accounting Years ending on the 24th March 1992 1993 1994 1995 and 1996 the rent shall be the annual sum of NINE MILLION THREE HUNDRED AND SEVENTY-FIVE THOUSAND POUNDS ((pounds)9,375,000) if greater than the sum calculated in accordance with paragraph (a) or (b) above (as the case may be) such rent to be payable in the manner set out below. 2. As soon as practicable and in any event not later than three months after the end of each Accounting Year the Tenant shall deliver to the -55- 68 Landlord a written statement ("the Accountant's Statement") certified by an accountant previously approved in writing by the Landlord (such approval not to be unreasonably withheld) being a member of the Institute of Chartered Accountants in England and Wales and being a member of a leading firm of Chartered Accountants qualified to act as an auditor of a registered company under the Companies Act 1989 ("an Accountant") giving full details of the Receipts and the Permitted Deductions received and paid during such Accounting Year and stating (a) the Net Income or the Net Deficiency (as the case may be) for such Accounting Year (b) the amounts paid on account thereof under paragraph 2 of Part III of this Schedule (including any amount other than interest set off under paragraph 6 of that Part) and (c) the balance due from the Tenant to the Landlord or due from the Landlord to the Tenant (as the case may be) in accordance with paragraph 1 of this Part of this Schedule. 3. If the Accountant's Statement shall state a balance due from the Tenant to the Landlord the Tenant shall when delivering the Accountant's Statement to the Landlord (subject as hereinafter provided) pay to the Landlord an amount equal to that balance together with the interest earned on such balance in the Deposit Account for the period from the end of the Accounting Year in question to the date of payment Provided Always that if at the time such payment is to be paid any moneys shall be due from the Landlord to the Tenant under this Lease the balance shall be reduced by such sum due in full or partial discharge of the moneys so due from the Landlord as the case may be. 4. If the Accountant's Statement shall state a balance due from the Landlord to the Tenant at the Landlord's option either the Landlord shall (subject as hereinafter provided) within ten Business Days of receipt of the Accountant's Statement by the Landlord pay to the Tenant an amount equal to that balance or the amount of such balance shall be carried forward and credited (together with an amount equivalent to interest thereon at a rate four per centum below the Prescribed Rate from the date of the Accountant's Statement until the date credited) against subsequent payments due from the Tenant hereunder or at the end of the Term paid (together with an amount equivalent to interest as aforesaid until the -56- 69 date of payment) to the Tenant Provided Always that if at the time such balance is due to be made any moneys shall be due from the Tenant to the Landlord under this Lease the balance shall be reduced by such sum due in full or partial discharge of the moneys so due from the Tenant as the case may be. 5. Interest at the Prescribed Rate shall be payable on the amount of any balance payable by the Tenant under paragraph 3 above if payment is not made on delivery of the Accountant's Statement from the date of the Accountant's Statement to the date of actual payment on the amount of any balance payable or by the Landlord under paragraph 4 above if payment is not made within ten Business Days after the receipt of the Accountant's Statement by the Landlord from the date of such receipt until the date of actual payment. 6. Nothing contained in this Part of this Schedule shall prejudice the rights of either party against the other for failure to pay any amounts as and when they become due and payable. 7. No objection shall be taken to the inclusion in an Accounting Year of any amount which constituted a Receipt or Permitted Deduction for a previous Accounting Year but which was not taken into account in the Accountant's Statement for such previous Accounting Year. 8. In making payment under paragraph 3 or 4 above the paying party may set off any unpaid sum due from the other party under those paragraphs or paragraph 2 of Part III of this Schedule and interest thereon at the appropriate rate (without prejudice to any other rights in respect thereof) but payments under the said paragraph 3 or 4 shall otherwise be made clear of all deductions save as required by law. 9. For the avoidance of doubt the provisions of this Schedule shall continue to apply notwithstanding the expiration or sooner determination of the Term but only in respect of the period down to such expiration or sooner determination the rent payable during the Accounting Year in question being apportioned (if appropriate) on a daily basis. -57- 70 PART III Payments on account 1. As soon as practicable and in any event not later than ten Business Days after the end of each Quarterly Period the Tenant shall deliver to the Landlord a statement ("the Tenant's Statement") containing a fair summary of the Receipts and the Permitted Deductions receivable and actually received and paid during such Quarterly Period and stating the Quarterly Net Income or the Quarterly Net Deficiency as the case may be for such Quarterly Period and giving details of any amount taken into account under paragraph 5 of this Part of this Schedule. 2. Pending the ascertainment of the rent in respect of any Accounting Year:- (a) the Tenant shall pay the Type A Rent to the Landlord quarterly in advance on the Quarter Days; (b) the Tenant shall pay to the Landlord from the Current Account (as hereinafter defined) on each Additional Rent Payment Day an amount equal to any Quarterly Net Income for the preceding Quarterly Period together with the interest earned on the Deposit Account (as hereinafter defined) since the preceding Additional Rent Payment Day; (c) at the Landlord's option either (i) the amount of any Quarterly Net Deficiency shall be carried forward and credited (together with an amount equivalent to interest thereon at a rate four per centum below the Prescribed Rate from the date of the Tenant's Statement until the date credited) against subsequent payments due from the Tenant hereunder or at the end of the Term paid (together with an amount equivalent to interest as aforesaid until the end of the Term) to the Tenant; or (ii) the Landlord shall within ten Business Days of receipt of the Tenant's Statement by the Landlord pay to the Tenant an -58- 71 amount equal to the Quarterly Net Deficiency for the preceding Quarterly Period; (d) if the amounts due to the Landlord under paragraphs 2(a) and (b) on or before the successive Quarter Days in the Accounting Years ending in 1992 1993 1994 1995 or 1996 are less than the amounts set out below the Tenant shall on the relevant Quarter Day pay to the Landlord the amount of the shortfall (and the amount of moneys which would otherwise be due to the Landlord under paragraph 2(a) or (b) in respect of the same Accounting Year shall be reduced by the amount of such shortfall):- 25 March - (pounds)2,343,750 24 June - (pounds)4,687,500 29 September - (pounds)7,031,250 25 December - (pounds)9,375,000 3. (a) The first payment of Type A Rent in respect of the period from the date hereof to the next following Quarter Day shall be made on the date hereof. (b) The first payment of Quarterly Net Income or Quarterly Net Deficiency (as the case may be) shall be in respect of the Quarterly Period commencing on the date hereof. 4. Interest at the Prescribed Rate shall be payable on the amount of any sum due under paragraph 2(c) above if payment is not made within fifteen Business Days after the due date until the date of actual payment. 5. If it comes to the notice of the Tenant or the Landlord that any Receipt or Permitted Deduction which should have been included in an earlier Tenant's Statement was omitted (and if for a preceding Accounting Year was not taken into account in the Accountant's Statement relating thereto) then the omitted item shall be deemed to constitute a Receipt or a Permitted Deduction for the Quarterly Period in which the omission comes to the notice of the Tenant or the Landlord and shall be detailed in the Tenant's Statement relating thereto and in the Accountant's -59- 72 Statement for the Accounting Year in which the omission comes to the notice of the Tenant or the Landlord. 6. In making payment under paragraph 2 above the paying party may set off any unpaid sum due from the other party under that paragraph or paragraph 3 or 4 of Part II of this Schedule and interest thereon at the appropriate rate (without prejudice to any other rights in respect thereof) but payments under the said paragraph 2 shall otherwise be clear of all deductions save as required by law. PART IV Bank accounts 1. During the Term the Tenant shall procure that all Receipts are paid into an account (hereinafter called "the Current Account") in the joint names of the Tenant and the Landlord but (as the Landlord hereby agrees and shall instruct) (for so long as the Tenant remains solvent and has not materially defaulted in the payment of any rent due hereunder and is not materially in default under any other provision of this Lease in respect of which the Landlord shall have served a notice under Section 146 of the Law of Property Act 1925) requiring only the Tenant's signature as authority for any dealing other than a dealing in excess of (pounds)100,000 (which shall require the signatures of both the Tenant and the Landlord) with a London Clearing Bank or such other bank or financial institution in the United Kingdom as may from time to time be approved in writing by the Landlord (such approval not to be unreasonably withheld). 2. Except to the extent that any such items are pursuant to an obligation imposed on the Tenant by any Underlease paid from any reserve fund referred to in this Schedule the Tenant shall pay (or if already paid reimburse) the Permitted Deductions for any Accounting Year incurred by the Tenant or the Landlord from the Current Account to the extent of any credit balances thereon. -60- 73 3. Pending the distribution of the credit balances on the Current Account to the Landlord by way of rent all credit balances on the Current Account exceeding the amount reasonably and properly required for Permitted Deductions which fall to be paid in the relevant Quarterly Period shall be transferred without delay for full value on the date of transfer into a deposit account ("the Deposit Account") which the Tenant shall identify following an appropriate review and consultation between the parties before the commencement of each Accounting year as bearing the highest rate of interest reasonably obtainable in the joint names of the Tenant and the Landlord and requiring both parties' signatures as authority for any dealing at the same bank or financial institution as that which holds the Current Account or such other bank or financial institution in the United Kingdom as may from time to time be approved in writing by the Landlord (such approval not to be unreasonably withheld) or invested in any other manner which the Landlord shall in its absolute discretion approve until the next following Additional Rent Payment Day when the amount standing to the credit of the Deposit Account (including all interest earned thereon) shall be transferred for full value on that day to the Current Account. 4. The Current Account shall not be caused or permitted to become overdrawn without the prior written authority of both the Landlord and the Tenant. PART V Facilities for Verification The Tenant shall afford to the Landlord all reasonable facilities and information for verification of all receipts payments calculations estimates and expenditure referred to in this Schedule by production of books accounts vouchers receipts counterpart Occupation Leases and other deeds and documents and shall afford to the Landlord access at all reasonable times to all such documents as are reasonably necessary to ascertain the Rent and the Net Income and the Landlord shall be entitled to require from the Tenant such information and explanation as the -61- 74 Landlord shall reasonably deem necessary for that purpose and shall be entitled (at its own expense) to copy all such documents and other information PART VI Expert determination Any dispute or difference arising under this Schedule (other than a question of law and other than under Part VII of this Schedule) shall be referred to expert determination and the provisions of paragraph 3 of Part VII of this Schedule shall apply (mutatis mutandis) save that in all cases the expert shall be an Accountant being a senior member of a leading firm of Chartered Accountants and if the parties are unable to agree upon who should be appointed he shall be appointed by or on behalf of the President for the time being of the Institute of Chartered Accountants in England and Wales and save that the person appointed shall act as an expert not as an arbitrator. PART VII Review of the Type A Rent 1. Definitions In this Part of this Schedule the following expressions have the following meanings:- 1. (A) "Completed Premises" means the Demised Premises on the assumptions (if not facts) that:- (a) the Demised Premises had been constructed and completed by the Landlord in accordance with the Rent Review Specification (but for the avoidance of doubt disregarding the "Additions" and "Omissions" set out in the Schedule of Agreed Additions to and Omissions from the Base Building Contract included in the Rent Review Specification) immediately prior to the date of this Lease; -62- 75 (b) all mechanical and electrical plant and machinery comprised in the Rent Review Specification (but for the avoidance of doubt disregarding the "Additions" and "Omissions" set out in the Schedule of Agreed Additions to and Omissions from the Base Building Contract included in the Rent Review Specification) had been tested and commissioned and the air-conditioning system therein had been balanced tested and commissioned; (c) all improvements or other alterations to the Demised Premises or any part thereof carried out by or on behalf of the Tenant or Goldman Sachs Property Management Limited or any sub-tenant or other lawful occupier before or after the date of this Lease had not been so carried out (other than such of the works referred to in sub-paragraph (a) above as have been carried out by any of them) and that all tenant's fixtures have been removed and all damage caused to the Demised Premises in so doing had been made good; and (d) the seventh floor of Peterborough Court contains 102 square feet of usable office space more than it actually contains; 1 (B) "Review Unit" means each of the following parts of the Completed Premises to the extent that it is included within the Type A Premises (having regard to the operation of Parts VIII and IX of this Schedule) at the relevant Review Date:- (i) the Type A Premises as at the date hereof; (ii) the third and fourth floor and part B3 and B2 levels of Peterborough Court shown edged red and at basement level coloured blue on Drawing Nos A101 A102 A107 and A108 marked "B" annexed hereto; (iii) the fifth floor and part B3 and B2 levels of Peterborough Court shown edged red and at basement level coloured green on Drawing Nos A101 A102 and A109 marked "B" annexed hereto; -63- 76 (iv) Daniel House; 1. (C) "Review Unit Rental Value" means the Rack Rental Market Value (as defined in the Review Form of Lease subject however to the proviso contained in this paragraph) of the relevant Review Unit at the relevant Review Date as if:- (1) the Review Form of Lease had been granted on the date hereof for a term of years on and from 25th March 1991 expiring on 24th March 2016; (2) the Review Unit had comprised the Premises demised by the Review Form of Lease; PROVIDED THAT in ascertaining such Rack Rental Market Value the following shall be additionally disregarded:- (a) all or any part of the rent free period originally granted to the Tenant hereunder on the grant of this Lease; (b) the amount of the rent first hereby reserved; (c) any effect on rental value of the fact that the Tenant or any sub-tenant had or their predecessors in title have been in occupation of all or any part of the Demised Premises; (d) any goodwill attached to all or any part of the Demised Premises by reason of the business then carried on at the Demised Premises by the Tenant or any sub-tenant or any of their predecessors in title; (e) any improvement or other alteration to the Completed Premises or any part thereof carried out by the Tenant or Goldman Sachs Property Management Limited or any sub-tenant or their predecessors in title or other lawful -64- 77 occupier before or during the Term (other than such of the works comprised in the Completed Premises as have been carried out by any of them); (f) any effect on rent of any of the obligations and covenants of the Tenant under this Lease in relation to the Type B Premises. 1. (D) "Review Form of Lease" means the form of lease so entitled annexed hereto; 1. (E) "the Revised Rent" means the aggregate of the Review Unit Rental Values of all of the Review Units at the relevant Review Date. 2. Review With effect from the 25th day of March in the years 1996 2001 2006 and 2011 (each a "Review Date") the Type A Rent shall be such an amount as shall be the greater of (a) the yearly amount of the Type A Rent immediately before such Review Date and (b) the Revised Rent agreed or determined in accordance with the following provisions of this Part of this Schedule. 3. (a) Determination For the purposes of this paragraph 3 "Surveyor" shall mean a Chartered Surveyor of at least ten years' standing and established experience in letting premises in the City of London and Central London of a similar nature and size to the Demised Premises who shall be agreed upon by the parties hereto or in the event of failure so to agree to be nominated by or on behalf of the President for the time being of The Royal Institution of Chartered Surveyors upon the application of either party and who shall act as an arbitrator in accordance with the Arbitration Acts 1950 to 1979. 3. (b) If the Landlord and the Tenant shall not agree on the amount of any Rack Rental Market Value or the Revised Rent by the relevant Review Date then at the election of the Landlord or the Tenant the amount thereof shall be determined by the Surveyor PROVIDED THAT any reference to a Surveyor shall not prevent the Landlord and the Tenant from agreeing -65- 78 any Rack Rental Market Value or the Revised Rent at any time and from withdrawing the reference to the Surveyor subject to payment of the Surveyor's proper charges up to the date of withdrawal. 3. (c) If the Surveyor shall die or become unwilling or unable to act before giving his determination the Rack Rental Market Value and the Revised Rent shall be decided by a further Surveyor and the process shall be repeated as often as necessary until a determination is made. 4. Upwards only In no event shall the Type A Rent after any Review Date be less than the Type A Rent immediately before such Review Date. 5. (a) Payment after Review Date In the event that by any Review Date the amount of the Revised Rent has not been agreed between the parties hereto or determined as aforesaid then in respect of the period of time (hereinafter called "the Interval") beginning with such Review Date and ending on the quarter day immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid (which date is hereinafter called "the Late Payment Date") the Tenant shall continue to pay to the Landlord in manner hereinbefore provided the Type A Rent at the yearly rate thereof payable immediately before the relevant Review Date. 5. (b) On the Late Payment Date there shall be due as a debt payable by the Tenant to the Landlord (without any requirement for any demand therefor by the Landlord) as arrears of rent an amount equal to the shortfall between the amount which would have been payable on each quarter day had the Revised Rent been determined by the relevant Review Date and the amount payable by virtue of paragraph 5(a) above during the Interval apportioned on a daily basis in respect of the Interval together with interest at a rate four per centum below the Prescribed Rate on the amount of such shortfall on and from the quarter day upon which each instalment thereof would have been due had the Revised Rent been agreed before the relevant Review Date. -66- 79 6. Statutory restrictions If at any Review Date the Landlord shall be obliged to comply with any Act of Parliament dealing with the control of rent and which shall restrict or modify the Landlord's right to revise the Type A Rent in accordance with the terms of this Lease or which shall restrict the right of the Landlord to demand or accept payment of the full amount of the Type A Rent then the Landlord shall on each occasion that any such enactment is removed relaxed or modified be entitled on giving notice in writing to the Tenant expiring after the date of each such removal relaxation or modification to specify such date as an intermediate review date (hereinafter called "the Intermediate Review Date") and the Type A Rent from an Intermediate Review Date to the next succeeding Review Date or Intermediate Review Date (whichever shall first occur) shall be determined in like manner as the rent payable from each Review Date as hereinbefore provided. 7. Memorandum As soon as the amount of Type A Rent payable after each Review Date has been agreed or ascertained in accordance with the terms hereof (and if required by the Landlord so to do) the parties hereto (including any guarantor) will at the expense of the Tenant forthwith sign a memorandum thereof specifying the yearly amount of the Revised Rent. 8. Time of the essence Time shall not be of the essence for the purposes of this Part of this Schedule. PART VIII Redesignation of Type A Premises on underletting 1 The Tenant may in connection with any application to the Landlord for consent to underlet the whole or part of the Type A Premises on terms which satisfy the criteria set out in paragraph 2 below give notice in writing to the Landlord of its wish that with effect from the completion of the underletting the premises underlet ("the Underlet Premises") shall be deemed for all the purposes of this Lease to have been excluded from -67- 80 the definition of "Type A Premises" and included within the definition of "Type B Premises" herein; 2 The criteria which a proposed underletting must satisfy for the purposes of paragraph 1 above are:- (a) the premises to be underlet must comprise the whole of the Type A Premises or any complete floor or floors of the Type A Premises at ground floor level or above (but not part only of any such floor or floors); (b) the rent under the proposed underlease must not be less than the rent then payable in respect of the Type A Premises or (in the case of an underletting of a complete floor or floors) pro rata on a Net Internal Area basis; (c) any proposed undertenant of the premises to be underlet must be acceptable to the Landlord whose acceptance shall not be unreasonably withheld or delayed in the case of an undertenant who in the opinion of a prudent institutional landlord would be acceptable having regard inter alia to the effect of paragraph 1 above and of the following paragraphs of this Part of this Schedule; (d) the Tenant shall remain liable for all of its obligations hereunder in respect of the premises to be underlet (other than the obligations to pay the due proportion of the Type A Rent in respect thereof ascertained in accordance with paragraph 5 or 6 below); (e) the proposed underletting must otherwise be in accordance with the provisions of Clause 3(22); 3 On and from the date of completion of an underletting permitted by and complying with the terms of paragraph 2 above in relation to which the Tenant shall have given written notice to the Landlord pursuant to paragraph 1 above (the date of completion of such underletting being -68- 81 hereinafter referred to as "the Underletting Date") the deeming provisions referred to in paragraph 1 above shall take effect. 4 On and with effect from the Underletting Date the percentage figures specified in provisos (i) and (ii) to the definition of "Permitted Deductions" in Part I of this Schedule shall be increased as follows:- (a) the percentage from time to time applicable under proviso (i) shall be increased by:- D x 100 - E (b) the percentage from time to time applicable under proviso (ii) shall be increased by:- D x 100 - F where D is the Net Internal Area of the Underlet Premises; E is the Net Internal Area of the Demised Premises; F is the Net Internal Area of Peterborough Court 5 (a) On and from the Underletting Date the Type A Rent shall be decreased in accordance with the following formula:- X = Y + Z where X is the amount of the decrease Y is the Net Internal Area of the Underlet Premises at ground floor level and above multiplied by the amount of the Type A Rent per -69- 82 square foot applicable to the respective floors thereof. Z is the Net Internal Area of the Underlet Premises at basement level multiplied by the amount of the Type A Rent per square foot applicable to the respective floors thereof (b) For the purposes of paragraph 5(a) above the Type A Rent means the yearly amount of rent per square foot applied in relation to the relevant floor in calculating the Type A Rent upon the latest review of rent hereunder or (if there shall have been no review of rent hereunder) upon the grant of this Lease. (c) Provided that if any such Type A Rent was not calculated by reference to separate amounts per square foot for the respective floors the Type A Rent shall be decreased by that proportion which the Net Internal Area of the Underlet Premises bears to the Net Internal Area of the Type A Premises as a whole immediately before the Underletting Date. 6 As soon as the amount of Type A Rent payable after the Underletting Date has been agreed or ascertained in accordance with paragraph 5 above the parties hereto (including any guarantor) will forthwith sign a memorandum thereof specifying the yearly amount. PART IX Redesignation of Type B Premises on occupation by Tenant 1 In this Part of this Schedule a "Conversion Unit" means:- (a) the part of the Type B Premises as at the date hereof shown edged red and at basement level coloured green on Drawing Nos A101 -70- 83 A102 and A109 marked "B" annexed hereto (being the fifth floor and storage area allocated thereto); (b) the part of the Type B Premises as at the date hereof shown edged red and at basement level coloured blue on Drawing Nos A101 A102 A107 and A108 marked "B" annexed hereto (being the third and fourth floors and storage area allocated thereto) or the third or fourth floor level thereof together with an appropriate part of such storage area first approved in writing by the Landlord (whose approval shall not be unreasonably withheld); (c) the whole of each area redesignated as Type B Premises pursuant to part VIII of this Schedule or any complete floor thereof at ground floor level or above together with an appropriate part of the storage area included in the relevant redesignation first approved in writing by the Landlord (whose approval shall not be unreasonably withheld); (d) the whole of Daniel House; 2 The Tenant shall notify the Landlord of its intention to occupy or to permit a Related Company to occupy a Conversion Unit and shall further notify the Landlord forthwith upon commencement of any such occupation. 3 If at any time the Tenant or (otherwise than pursuant to an underlease dealt with under the provisions of Clause 5(3) hereof) any Related Company shall occupy the whole or any part of a Conversion Unit then from and including the date on which such occupation commences ("the Occupation Date") the relevant Conversion Unit shall for the remainder of the Term (but subject to Part VIII of this Schedule) be deemed for all the purposes of this Lease to have been excluded from the definition of "Type B Premises" and included within the definition of "Type A Premises". 4 On and from the Occupation Date the percentage figures specified in provisos (i) and (ii) to the definition of "Permitted Deductions" in Part I of this Schedule shall be decreased as follows:- -71- 84 (a) the percentage from time to time applicable under proviso (i) shall be decreased by:- D x 100 - E (b) the percentage from time to time applicable under proviso (ii) shall be decreased by:- D x 100 - F where D is the Net Internal Area of the Conversion Unit; E is the Net Internal Area of the Demised Premises; F is the Net Internal Area of the Peterborough Court 5 (a) On and from the Occupation Date the Type A Rent shall be increased in accordance with the following formula:- X = Y + Z where X is the amount of the increase Y is the Net Internal Area of the Conversion Unit at ground floor level and above multiplied by the amount of the then current Type A Rent per square foot applicable to the ground floor level and above. Z is the Net Internal Area of the Conversion Unit at basement level multiplied by the amount of the then current Type A Rent per square foot applicable to the basement level -72- 85 (b) Provided that if any such Type A Rent was not calculated by reference to separate amounts per square foot for the respective floors the Type A Rent shall be increased by that proportion which the Net Internal Area of the Underlet Premises bears to the Net Internal Area of the Type A Premises as a whole immediately before the Occupation Date. 6 Neither the Tenant nor (otherwise than pursuant to an underlease dealt with under the provisions of Clause 5(3) hereof) any Related Company shall go into occupation of any storage area of the Type B Premises save where such storage area is part of a Conversion Unit. 7 As soon as the amount of Type A Rent payable after the Underletting Date has been agreed or ascertained in accordance with paragraph 5 above the parties hereto (including any guarantor) will forthwith sign a memorandum thereof specifying the yearly amount thereof. THE FOURTH SCHEDULE Covenants by the Guarantor 1. Covenant and Indemnity by the Guarantor The Guarantor hereby covenants with the Landlord as a primary obligation that the Tenant or the Guarantor shall at all times during the Term (including any continuation or renewal of this Lease) duly perform and observe all the covenants on the part of the Tenant contained in this Lease including the payment of the rents and all other sums payable under this Lease in the manner and at the times herein specified. 2. Waiver by Guarantor The Guarantor hereby waives any right to require the Landlord to proceed against the Tenant or to pursue any other remedy whatsoever which may be available to the Landlord before proceeding against the Guarantor. -73- 86 3. Postponement of claims by Guarantor against Tenant The Guarantor hereby further covenants with the Landlord that the Guarantor shall not claim in any liquidation bankruptcy composition or arrangement of the Tenant in competition with the Landlord and shall remit to the Landlord the proceeds of all judgments and all distributions it may receive from any liquidator trustee in bankruptcy or supervisor of the Tenant and shall hold for the benefit of the Landlord all security and rights the Guarantor may have over assets of the Tenant whilst any liabilities of the Tenant or the Guarantor to the Landlord remain outstanding. 4. Postponement of participation by Guarantor in security The Guarantor shall not be entitled to participate in any security held by the Landlord in respect of the Tenant's obligations to the Landlord under this Lease or to stand in the place of the Landlord in respect of any such security until all the obligations of the Tenant or the Guarantor to the Landlord under this Lease have been performed or discharged. 5. No release of Guarantor None of the following or any combination thereof shall release determine discharge or in any way lessen or affect the liability of the Guarantor as principal debtor under this Lease or otherwise prejudice or affect the right of the Landlord to recover from the Guarantor to the full extent of this guarantee:- (a) any neglect delay or forbearance of the Landlord in endeavouring to obtain payment of the rents or the amounts required to be paid by the Tenant or in enforcing the performance or observance of any of the obligations of the Tenant under this Lease; (b) any refusal by the Landlord to accept rent tendered by or on behalf of the Tenant at a time when the Landlord was entitled (or -74- 87 would after service of a notice under Section 146 of the Law of Property Act 1925 have been entitled) to re-enter the Demised Premises; (c) any extension of time given by the Landlord to the Tenant; (d) any variation of the terms of this Lease (including any reviews of the rent payable under this Lease) or the transfer of the Landlord's reversion or the assignment of this Lease; (e) any change in the constitution structure or powers of either the Tenant the Guarantor or the Landlord or the liquidation administration or bankruptcy (as the case may be) of either the Tenant or the Guarantor; (f) any legal limitation or any immunity disability or incapacity of the Tenant (whether or not known to the Landlord) or the fact that any dealings with the Landlord by the Tenant may be outside or in excess of the powers of the Tenant; (g) any other act omission matter or thing whatsoever whereby but for this provision the Guarantor would be exonerated either wholly or in part (other than a release under seal given by the Landlord). 6. Disclaimer or forfeiture of Lease (a) The Guarantor hereby further covenants with the Landlord that:- (i) if a liquidator or trustee in bankruptcy shall disclaim or surrender this Lease; or (ii) if this Lease shall be forfeited; or (iii) if the Tenant shall cease to exist -75- 88 THEN the Guarantor shall if the Landlord by notice in writing given to the Guarantor within three (3) months after such disclaimer or other event so requires accept from and execute and deliver to the Landlord a counterpart of a new lease of the Demised Premises for a term commencing on the date of the disclaimer or other event and continuing for the residue then remaining unexpired of the Term such new lease to be at the cost of the Guarantor and to be at the same rents and subject to the same covenants conditions and provisions as are contained in this Lease. (b) If the Landlord shall not require the Guarantor to take a new Lease the Guarantor shall upon demand pay to the Landlord a sum equal to the rents and other sums that would have been payable under this Lease but for the disclaimer or other event in respect of the period from and including the date of such disclaimer or other event until the expiration of three (3) months therefrom or until the Landlord shall have granted a Lease of the Demised Premises to a third party (whichever shall first occur). 7. Benefit of guarantee This guarantee shall enure for the benefit of the successors and assigns of the Landlord under this Lease without the necessity for any assignment thereof. [SEAL OMITTED] ON COUNTERPART THE COMMON SEAL of GOLDMAN SACHS INTERNATIONAL LIMITED was hereunto affixed in the presence of: Director /s/ [ILLEGIBLE] Secretary /s/ [ILLEGIBLE] -76- 89 APPROVED FORM OF UNDERLEASE 90 [APPROVED FORM OF UNDERLEASE] DATED 19 --------------------------------------- GOLDMAN SACHS INTERNATIONAL LIMITED - and - GOLDMAN SACHS PROPERTY MANAGEMENT LIMITED - to - [ ] ------------------------------------ U N D E R L E A S E -- of -- premises on the [ ] and [ ] floors and part basement levels [ ] and [ ] Peterborough Court, 133 Fleet Street, London EC4 ------------------------------------ TERM COMMENCES : 19 EXPIRES : 21st March 2016 ------------------------------------ Note: This form to be read as modified mutatis mutandis for use in relation to Daniel House LINKLATERS & PAINES, (RGF) Barrington House, 59-67 Gresham Street, London EC2V 7JA. 91 I N D E X Clause Page ----- 1. DEFINITIONS ..................................................... 1 2. DEMISE AND RENTS ................................................ 9 3. TENANT'S COVENANTS .............................................. 11 (1) Rent ....................................................... 11 (2) Interest on overdue moneys ................................. 11 (3) Outgoings .................................................. 11 (4) Utilities .................................................. 12 (5) Repair ..................................................... 12 (6) Plant and Machinery ........................................ 13 (7) Decoration ................................................. 13 (8) Cleaning ................................................... 13 (9) Permit entry ............................................... 14 (10) Notices to repair .......................................... 14 (11) Dangerous Substances and Insurances., ...................... 14 (12) Overloading floors and services ............................ 16 (13) Conduits ................................................... 16 (14) Disposal of refuse ......................................... 17 (15) Not to cause obstruction ................................... 17 (16) User ....................................................... 17 (17) Regulations ................................................ 18 (18) Signs ...................................................... 18 (19) Alteration ................................................. 18 (20) Alienation ................................................. 21 (21) Registration ............................................... 24 (22) Easements .................................................. 25 (23) Landlord's costs ........................................... 25 (24) Statutory requirements ..................................... 26 (25) Planning ................................................... 28 (26) Notices affecting the Premises ............................. 28 (27) Defects and indemnity ...................................... 29 (28) Reletting notices .......................................... 29 (29) Applications for consent ................................... 29 (30) Observe covenants .......................................... 29 (31) Breaches by underlessees ................................... 30 (32) Yield up ................................................... 30 (33) VAT ....................................................... 31 (34) Reimbursement of VAT ....................................... 32 4.LANDLORD'S COVENANTS ................................................ 32 (1) Quiet enjoyment ............................................ 32 (2) Insurance .................................................. 32 (3) Superior Lease ............................................. 34 - (i) - 92 C1ause Page ----- 5. PROVISOS ........................................................ 35 (1) Forfeiture .................................................. 35 (2) Implied easements ........................................... 36 (3) Restrictions on adjoining property .......................... 37 (4) Variation of and liability for Services .................... 37 (5) Cesser of rent .............................................. 37 (6) Abandoned property .......................................... 38 (7) Notices ..................................................... 38 (8) Superior Lease .............................................. 39 6. SERVICES AND SERVICE CHARGE ..................................... 39 (1) Management Company's covenant ............................... 39 (2) Landlord's covenant ......................................... 39 (3) Services by Landlord ........................................ 39 (4) Service Charge .............................................. 40 FIRST SCHEDULE - The Premises ..................................... 41 SECOND SCHEDULE - Rights granted to the Tenant ..................... 42 THIRD SCHEDULE - Exceptions and reservations ...................... 44 FOURTH SCHEDULE I - The Superior Lease ............................... 46 II - Documents which affect or relate to the Premises ......................................... 46 FIFTH SCHEDULE - Review of rent First reserved .................... 47 SIXTH SCHEDULE - Service Charge ................................... 53 SEVENTH SCHEDULE - Guarantor's covenants ............................ 62 - (ii) - 93 T H I S U N D E R L E A S E made the day of One thousand nine hundred and BETWEEN GOLDMAN SACHS INTERNATIONAL LIMITED whose registered office is at Peterborough Court 133 Fleet Street London EC4 (hereinafter called "the Landlord") of the first part GOLDMAN SACHS PROPERTY MANAGEMENT LIMITED whose registered office is also at Peterborough Court aforesaid (hereinafter called "the Management Company") of the second part and [ ] (hereinafter called the Tenant") of the third part. W I T N E S S E T H as follows:- 1. DEFINITIONS IN this Underlease unless there be something in the subject or context inconsistent therewith:- 1. (1) (a) Where there are two or more persons included in the expression "the Tenant" covenants contained in this Underlease which are expressed to be made by the Tenant shall be deemed to be made by such persons jointly and severally; 1. (1) (b) Any reference to an Act of Parliament shall include any modification extension or re-enactment thereof for the time being in force and shall also include all instruments orders plans regulations permissions and directions for the time being made issued or given thereunder or deriving validity therefrom; 1. (1) (c) Any two companies shall be taken to be members of a group if and only if one is the subsidiary of the other or both are subsidiaries of a third company where subsidiary has the meaning assigned to it by Section 736 of the Companies Act 1985 as originally enacted; 1. (1) (d) Any covenant by the Tenant not to do any act or thing shall include an obligation not to permit allow or suffer such act or thing to be done; -1- 94 1. (1) (e) References to any right of the Landlord to have access to the Premises shall be construed as extending to the Superior Landlord and to all persons properly authorised by the Landlord and the Superior Landlord; 1. (1) (f) Whenever the consent or approval of the Landlord is required or requested in relation to this Underlease such provisions shall be construed as also requiring the consent or approval of the Superior Landlord where the same shall be required pursuant to the Superior Lease; 1. (1) (g) The titles or headings appearing in this Underlease are for reference only and shall not affect the construction hereof; 1. (1) (h) Any reference to Value Added Tax shall include any tax of a similar nature that may be substituted for or levied in addition to it; 1. (2) The following expressions shall have the meanings hereinafter mentioned (that is to say):- 1. (2) (a) "the Building" means the land shown for the purpose of identification only edged green on the location plan marked "A" annexed hereto together with the courtyard and building thereon known as Peterborough Court 133 Fleet Street London EC4 and each and every part thereof and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor; 1. (2) (b) "Business Day" means any day from Monday to Friday (inclusive) other than Good Friday Christmas Day and bank and public holidays; 1. (2) (c) "the Car Parking Spaces" means the car parking spaces in the Building which the Tenant is entitled to use from time to time pursuant to paragraph 2 of the Second Schedule; 1. (2) (d) "Common Parts" means:- -2- 95 1. (2) (d) (i) the main entrance hall through 133 Fleet Street; 1. (2) (d) (ii) the courtyard of Peterborough Court and the accessways linking the same to Fleet Street; 1. (2) (d) (iii) the galleries on the northern and eastern sides of the said courtyard and all other pedestrian entrances and lobbies linking them to Shoe Lane and Wine Office Court; 1. (2) (d) (iv) the main reception foyer and the escalators and stairs leading from it; 1. (2) (d) (v) the lift lobbies and all passenger and goods lifts (including firemen's and disabled lifts but excluding any within a Lettable Unit); 1. (2) (d) (vi) any lavatory and washroom facilities at ground floor and basement levels from time to time designated by the Landlord for common use; 1. (2) (d) (vii) the loading dock lorry berths refuse collection and/or compaction and other servicing areas the car parking areas all vehicle entrances accessways ramps and circulation areas; 1. (2) (d) (viii) all other entrances corridors passages stairs escalators landings balconies escape routes pavements landscaped or open areas within or serving the Building (excluding any within a Lettable Unit); 1. (2) (e) "Conduits" means all ducts shafts channels cisterns tanks radiators sewers drains watercourses gulleys gutters pipes wires cables meters valves and all other conducting media plant equipment and apparatus for the provision or supply of services serving the Building or any part thereof and where applicable serving in common any adjoining or neighbouring building or premises (other than any belonging to a relevant supply authority); -3- 96 1. (2) (f) "Daniel House" means the land shown for the purpose of identification only edged blue on the location plan marked "A" annexed hereto together with the building thereon comprising numbers 131-141 Fleet Street London EC4 and each and every part thereof and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor; 1. (2) (g) "the Full Cost of Reinstatement" shall mean all costs (including the cost of shoring up demolition and site clearance Architects' Surveyors' and other professional fees) and Value Added Tax which would be likely to be incurred in rebuilding or reinstatement in accordance with the requirements of this Underlease at the time when such rebuilding or reinstatement is likely to take place having regard to all relevant factors including any increases in building costs expected or anticipated to take place at any time up to the date of completion of the rebuilding or reinstatement and shall be properly determined by the Superior Landlord or the Landlord; 1. (2) (h) "the Insured Risks" means risks in respect of loss or damage by fire lightning explosion earthquake aircraft (other than hostile aircraft) and other aerial devices or articles dropped therefrom impact by vehicles or animals riot and civil commotion storm tempest flood bursting or overflowing of water tanks apparatus or pipes subsidence malicious damage and such other risks or insurance as may from time to time reasonably be required by the Superior Landlord or the Landlord subject to such exclusions and limitations as may be usual in the London insurance market and imposed by the Insurers; 1. (2) (i) "the Insurers" means the insurance office or underwriters of good repute with whom the insurance cover referred to in C1ause 4(2) hereof is effected; 1. (2) (j) "the Landlord" shall include the person for the time being entitled to the reversion immediately expectant on the determination of the Term; -4- 97 1. (2) (k) "the Landlord's Plant" means:- 1. (2) (k) (i) all escalators and passenger goods and emergency lifts; 1. (2) (k) (ii) the whole of the sprinkler system including sprinkler heads; 1. (2) (k) (iii) the whole of the fire alarm and detection systems (other than any stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (iv) the whole of the permanent fire fighting system (other than portable extinguishers in the Lettable Units); 1. (2) (k) (v) the whole of the chilled water system (other than any stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (vi) the whole of the perimeter heating system; 1. (2) (k) (vii) the whole of the Building Management System (other than any independent stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (viii) the central electrical supply system from mains supply up to and including the electrical riser busbars connecting to distribution boards to Lettable Units at each level; 1. (2) (k) (ix) the emergency standby generator and electrical system (but not any generator and/or uninterrupted power supply system serving exclusively the Lettable Units) up to and including riser busbars connecting to distribution boards to Lettable Units at each level; 1. (2) (k) (x) the air handling system limited at each level of office accommodation to air handling units at each such level and the electricity supply and control systems for the same and the air ducts -5- 98 leading from such air handling units to the point where such ducts enter the Lettable Units (other than any stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (xi) the closed circuit television and intruder alarm systems at all points of entry into the Building and other security systems to the Retained Areas; 1. (2) (k) (xii) the window cleaning/maintenance cradles carriages gantries and runways; 1. (2) (k) (xiii) all loading dock equipment; 1. (2) (k) (xiv) all mechanically or electrically operated doors barriers gates and shutters; 1. (2) (k) (xv) all refuse compactors and refuse disposal systems; 1. (2) (k) (xvi) all other plant machinery and equipment provided in connection with the provision of the Services; 1. (2) (k) (xvii) all other Conduits lying within the Building (up to and including the point of connection to but otherwise excluding Conduits exclusively serving Lettable Units); 1. (2) (1) "Landlord's Surveyors" means the surveyors or managing agents employed directly or indirectly by the Landlord (who may be an employee of the Landlord or a company within the same group of companies as the Landlord); 1. (2) (m) "Lettable Unit" means any unit of accommodation forming part of the Building which is designed or adapted for separate occupation or letting from time to time (excluding such elements as are excluded by paragraphs (i)-(v) of the First Schedule and excluding the Management Premises); -6- 99 1. (2) (n) "the Loss of Rent" means the loss of rent First and Fourthly reserved by this Underlease and for the time being payable hereunder for five years (and subject to the same being available on reasonable terms in the London insurance market for an additional two years) or such longer period as may reasonably be required by the Landlord having regard to the likely period required for reinstatement in the event of either partial or total destruction in an amount which would take into account the Superior Landlord's or the Landlord's reasonable estimate of the potential increases in rent in accordance with the rent review provisions hereinafter contained and any Value Added Tax properly chargeable in respect thereof; 1. (2) (o) "Management Premises" means the management premises and the mail and messenger room at B2 and ground floor levels of the Building shown edged purple on drawing numbers A102 and A104 annexed hereto; 1. (2) (p) "Net Internal Area" means Net Internal Area as defined in the Code of Measuring Practice published by The Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers (Third Edition January 1990) as modified or superseded from time to time; 1. (2) (q) "Office Hours" means the hours of eight a.m. to eight p.m. on Mondays to Fridays except in any case Good Friday Christmas Day and bank and public holidays; 1. (2) (r) "Permitted Letting Unit" means:- 1. (2) (r) (i) the whole of each floor level of the Premises 1. (2) (r) (ii) any part of a single floor level of the Premises comprising not less than five thousand square feet of Net Internal Area where such part is reasonably located having regard to the provision of lavatory and washroom facilities lifts services cores and other common parts to be used in connection therewith; -7- 100 together in each case with such part of the basement level of the Premises and the right to use such number of Car Parking Spaces as shall reasonably be required therewith; 1. (2) (s) "the Planning Acts" means the Town and Country Planning Act 1990; Planning (Listed Building and Conservation Areas) Act 1990; Planning (Hazardous Substances) Act 1990; and Planning (Consequential Provisions) Act 1990; 1. (2) (t) "the Premises" means the premises described in the First Schedule hereto and each and every part thereof together with all additions alterations and improvements thereto; 1. (2) (u) "the Prescribed Rate" means a rate of interest being four per centum per annum over the Base Rate from time to time of Barclays Bank PLC or over such other rate as may from time to time replace the same or over such other comparable rate as the Landlord may from time to time reasonably require; 1. (2) (v) "the Rent Review Specification" means the Base Fitting-Out Specification together with the Base Building Specification annexed hereto detailing the standard of the Premises to be assumed on a review of the rent first reserved hereby; 1. (2) (w) "Retained Areas" means the Common Parts all structural and exterior parts of the Building all boundary and party walls of the Building and all other parts of the Building save for the Lettable Units; 1. (2) (x) "Review Date" means the Twenty-fourth day of June in the years One thousand nine hundred and ninety six Two thousand and one Two thousand and six and Two thousand and eleven; 1. (2) (y) "the Services" means the services set out in Part II(A) of the Sixth Schedule hereto; 1. (2) (z) "the Service Charge" means the service charge as provided in the Sixth Schedule hereto; -8- 101 1. (2) (aa) "the Superior Landlord" means the person or persons for the time being entitled to the reversion immediately expectant on the determination of the Superior Lease; 1. (2) (bb) "the Superior Lease" means the lease referred to in Part I of the Fourth Schedule hereto being the lease under which the Landlord holds inter alia the Premises; 1. (2) (cc) (i) "the Tenant" shall include its successors in title and in the case of an individual shall include his personal representatives; 1. (2) (cc) (ii) "the Guarantor(s)" means the person(s) from time to time guaranteeing the obligations of the Tenant hereunder and in the case of an individual shall include his personal representatives Provided that for the purposes of C1ause 5(1)(c)(d) and (e) hereof the expression shall mean only the guarantor(s) of the Tenant in whom this Underlease is vested from time to time and not of any other Tenant who shall have assigned its interest hereunder; and where there are two or more persons included in the expression "the Tenant" or "the Guarantor" such expression shall include each of such persons; 1. (2) (dd) "the Term" means the term of years hereby granted together with any continuation thereof (whether under an Act of Parliament or by the Tenant holding over or for any other reason); 1. (2) (ee) "this Underlease" means this Underlease and any document supplemental hereto or collateral herewith or entered into pursuant to or in accordance with the terms hereof; 2. DEMISE AND RENTS THE Landlord HEREBY DEMISES unto the Tenant ALL THAT the Premises TOGETHER WITH the easements and other rights contained or referred to in -9- 102 the Second Schedule hereto EXCEPT AND RESERVING as mentioned in the Third Schedule hereto TO HOLD the same SUBJECT to the provisions contained or referred to in the documents referred to in Part II the Fourth Schedule hereto (in so far as the same are still subsisting and capable of being enforced and affect the Premises but not further or otherwise) unto the Tenant on and from the day of One thousand nine hundred and for a term of years expiring on the [ ] YIELDING AND PAYING therefor during the Term and in proportion for any less time than a year FIRST the clear YEARLY RENTS of [ ] POUNDS ((pounds)) to be paid in advance by equal quarterly payments on the usual quarter days (namely the Twenty-fifth day of March the Twenty-fourth day of June the Twenty-ninth day of September and the Twenty-fifth day of December) clear of all deductions whatsoever (except for deductions which the Tenant is by law bound to make) the first of such payments in respect of the period on and from the day of One thousand nine hundred and to the quarter day next following to be made on the day of One thousand nine hundred and ; SECONDLY by way of additional rent on demand the whole of the additional cost to the Landlord of providing any of the Services at the request of the Tenant outside Office Hours (or in the event of Services being provided outside Office Hours for the use of the Tenant and any other tenant(s) or occupier(s) of the Building a fair proportion thereof) as determined by the Landlord's Surveyors; THIRDLY by way of additional rent on demand all sums which the Landlord may from time to time properly pay in respect of insurance of the Loss of Rent and a fair proportion determined by the Landlord's Surveyors of the sums which the Landlord may from time to time pay in respect of insurance of the Building against loss or damage by the Insured Risks; -10- 103 FOURTHLY by way of additional rent the Service Charge payable to the Landlord pursuant to C1ause 6(4) hereof; FIFTHLY by way of additional rent on demand the moneys referred to in C1ause 3(2) hereof. 3. TENANT'S COVENANTS THE Tenant to the intent that the obligations hereby created shall continue throughout the Term HEREBY COVENANTS with the Landlord as follows:- 3. (1) Rent To pay the rents hereinbefore reserved at the times and in the manner aforesaid; 3. (2) Interest on overdue moneys If any sum payable by the Tenant under this Underlease shall not be paid on the due date to pay on demand to the Landlord interest thereon at the Prescribed Rate from the date when the same became due until payment thereof (as well after as before any judgment); 3. (3) Outgoings To bear pay and discharge all existing and future rates taxes duties charges assessments impositions and outgoings whatsoever (whether parliamentary parochial local or otherwise and whether or not of a capital or non-recurring nature) which now are or may at any time hereafter during the Term be charged levied assessed or imposed upon the Premises or the Car Parking Spaces or upon the owner or occupier in respect thereof other than:- 3. (3) (a) any tax assessed on the Landlord (other than Value Added Tax if applicable) in respect of any rent received by the Landlord under this Underlease (unless the statute imposing such tax shall prescribe or intend that the tax is payable by the Tenant); and 3. (3) (b) any tax payable only as a direct result of the grant of this Underlease or any dealing by the Landlord with its reversionary interest in the Premises; -11- 104 Provided that if any assessment is made in relation to the Premises or the Car Parking Spaces together with other premises or areas the Tenant shall pay to the Landlord a fair proportion thereof to be determined by the Landlord's Surveyors; 3. (4) Utilities To pay to the suppliers of and to indemnify the Landlord against all charges for water electricity gas all types of telephonic communication and other services used on or in relation to the Premises (including without limitation all charges for meters and all standing charges) Provided that if and in case the water electricity gas or other services shall be metered or charged jointly in respect of the Premises and other premises to pay to the Landlord on demand a fair proportion thereof to be determined by the Landlord's Surveyors; 3. (5) (a) To repair To repair and to put and keep the Premises and the Conduits to the extent that they serve exclusively the Premises (but excluding such of the Landlord's Plant as is within the Premises and the point of connection to Conduits serving also other premises) in good and substantial repair and condition and as and when necessary to replace any of the landlord's fixtures and fittings in the Premises which are or become beyond repair with new ones which are similar in type and quality (damage by the Insured Risks excepted in each case save to the extent that payment of any insurance moneys be refused in whole or in part by reason of or arising out of any act omission neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control); 3. (5) (b) As often as shall be necessary in order to comply with the covenant contained in sub-clause (a) of this C1ause 3(5) to rebuild reinstate or replace the Premises or any part or parts thereof (damage by any of the Insured Risks excepted in each case save to the extent that payment of any insurance be refused in whole or in part by reason of or arising out of any neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control); -12- 105 3. (6) (a) Plant and Machinery To keep all plant machinery apparatus and equipment in the Premises (excluding Landlord's Plant) properly maintained and in good working order and condition and for that purpose:- 3. (6) (a) (i) to employ reputable contractors to inspect maintain and service the same regularly; 3. (6) (a) (ii) to renew or replace all working and other parts as and when necessary; 3. (6) (a) (iii) to use all reasonable endeavours to ensure by directions to the Tenant's staff and otherwise that such plant and machinery is properly operated; 3. (6) (b) When reasonably required by the Landlord following any alterations to the electrical circuits by the Tenant to produce to the Landlord a certificate issued by an electrical contractor (who shall first be approved in writing by the Landlord (such approval not to be unreasonably withheld)) that the electrical circuits within the Premises comply in all respects with the regulations of the Institute of Electrical Engineers current when the electrical circuits were installed or other amended standards (approved by the Landlord such approval not to be unreasonably withheld) or recommended current codes of practice (approved by the Landlord such approval not to be unreasonably withheld); 3. (7) Decoration As often as may be necessary and in any event not less frequently than once in every fifth year during the Term but so as to comply with the requirements of the Superior Lease and also during the last year thereof (howsoever the same may be determined) properly to prepare and decorate the interior of the Premises throughout in a good and workmanlike manner in accordance with any instructions of the manufacturers of the products used and such decoration and treatment in the last year of the term to be executed in such colours and with such materials as the Landlord may reasonably approve; 3. (8) C1eaning To keep the interior of the Premises properly cleaned and tidy and clear of all rubbish and to clean at least once in every -13- 106 month the inside of the window panes and frames of the Premises and all glass (if any) in the entrance doors thereto; 3. (9) Permit entry To permit the Landlord and all persons authorised by the Landlord at all times on giving reasonable prior written notice (except in emergency) to the Tenant to enter the Premises for the purpose of ascertaining that the covenants and conditions of this Underlease have been observed and performed to view the state of repair and condition thereof and to take a schedule of the Landlord's fixtures and of any dilapidations and to exercise the rights herein excepted and reserved the persons entering causing as little damage and inconvenience to the Tenant and/or other occupiers as reasonably practicable and making good any damage caused to the Premises thereby; 3. (10) Notices to repair To remedy all breaches and repair all defects of which notice in writing shall be given to the Tenant by the Landlord and for which the Tenant is liable hereunder and to commence the same as soon as reasonably practicable after receipt of such notice (or sooner if requisite) and thereafter diligently to proceed with and complete the same within two calendar months and if the Tenant shall fail to comply with any such notice it shall be lawful (but not obligatory) for the Landlord (without prejudice to the right of re-entry hereinafter contained) to enter the Premises to make good the same at the cost of the Tenant which cost (together with all Solicitors' and Surveyors' charges and other expenses which may be properly incurred by the Landlord in connection therewith) shall be repaid by the Tenant to the Landlord on demand and in default of payment the same shall be recoverable as rent in arrear; 3. (11) (a) Dangerous Substances and Insurances Not to bring into the Premises or the Building or to place or store or permit to remain therein any article or thing which is or may become dangerous offensive combustible inflammable radioactive or explosive and not to carry on or do thereon any hazardous trade or act in consequence of which the Landlord would be likely to be prevented from insuring the Premises or the Building at the ordinary rate of premium or whereby any insurance -14- 107 effected in respect thereof of which details have been supplied to the Tenant would be likely to be vitiated or prejudiced and not without the written consent of the Landlord (which shall not be unreasonably withheld if the Tenant pays any additional premium) to do anything whereby any additional premium becomes payable for the insurance of the Premises or the Building; 3. (11) (b) In the event of the Premises or any part of the Building bounding the Premises or any part thereof being destroyed or damaged by any peril or risk whatsoever to give notice thereof to the Landlord as soon as such destruction or damage shall come to the notice of the Tenant; 3. (11) (c) To comply with all the proper requirements (and recommendations failure to comply with which would be likely to vitiate or prejudice any insurance on usual terms effected in respect of the Premises or the Building) of the Insurers relating to the Premises (save to the extent that the Landlord or the Management Company is obliged to comply with the same hereunder); 3. (11) (d) Not to effect any insurance relating to the Premises which would have the effect of causing the Insurers to refuse to make payment of any claim in full; 3. (11) (e) The Tenant shall notify the Landlord and the Superior Landlord in writing at the time of the installation thereof of the full reinstatement cost of any fixtures and fittings installed at any time by the Tenant and which may be or become landlord's fixtures and fittings for the purpose of enabling the Landlord or the Superior Landlord (as the case may be) to effect adequate insurance cover for the same; 3. (11) (f) If the Tenant shall become entitled to the benefit of any insurance on the Premises which causes the Insurers to refuse to make payment of any claim of the Landlord or the Superior Landlord in full then to the extent that the claim shall not be so met the Tenant shall apply all moneys received by virtue of such insurance in making good the loss or damage in respect of which the same shall have been received; -15- 108 3. (11) (g) In the event of the Premises or the Building or any part thereof being destroyed or damaged by any of the Insured Risks and the insurance money under any insurance against the same effected thereon by the Landlord being wholly or partly irrecoverable by reason solely or in part of any act or default of the Tenant or any person deriving title under the Tenant or their respective servants agents licensees or invitees then and in every such case the Tenant will forthwith pay to the Landlord the whole or (as the case may require) a fair proportion of the irrecoverable insurance moneys; 3. (12) (a) Overloading floors and services Not to overload the floors of the Premises or suspend any excessive weight from the ceilings walls stanchions or structure of the Premises or the Building and not to overload the electrical wiring or installation or any other services or any supplies in or serving the Premises; 3 (12) (b) Not to do anything which may subject the Premises or the Building to any strain beyond that which they are designed to bear with due margin for safety and in the event of alterations being carried out by the Tenant to pay to the Landlord on demand all costs reasonably incurred by the Landlord or the Superior Landlord in obtaining the opinion of a qualified structural engineer as to whether the structure of the Premises or the Building is being or is about to be overloaded by reason of any act neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control; 3 (12) (c) To observe the weight limits prescribed for all lifts in the Building with due margin for safety; 3 (13) Conduits Not to discharge into any Conduits in or serving the Premises any oil or grease or any noxious or deleterious effluent or substance whatsoever which may cause an obstruction or might be or become a source of danger or which might injure the Conduits or the drainage system of the Building or any adjoining property and not to do or omit any act or thing whereby the Landlord's Plant or any Conduits might be damaged; -16- 109 3 (14) Disposal of refuse Not to deposit on any part of the Premises any trade empties rubbish or refuse of any kind other than in proper receptacles and not to burn any rubbish or refuse on the Premises; 3. (15) (a) Not to cause obstructions Not to use the courtyard of Peterborough Court or the accessways linking the same to Fleet Street for any purpose whatsoever other than by private cars or taxis for the purpose of setting down and picking up passengers and in particular not to park or wait thereon; 3. (15) (b) Not to park load or unload any goods or materials on to or from vehicles save in the loading bay or any other parts of the Building as shall have been designated by the Landlord for such purpose and not to cause any other obstruction of the Common Parts; 3. (16) (a) User Not to hold on the Premises any sale by auction or public exhibition or public show or spectacle or political meetings or gambling; and 3. (16) (b) Not to carry on or use the Premises for any noisy noisome offensive or dangerous trade manufacture business or occupation nor for any illegal or immoral purpose nor to sleep on the Premises nor to use the Premises for residential purposes nor to do on the Premises any act or thing whatsoever which in the opinion of the Landlord may be or tend to become a nuisance damage disturbance or inconvenience to the prejudice of the Landlord or to the owners or occupiers of any adjoining or neighbouring premises or any of them or which may be injurious to the value tone amenity or character of the Premises; and 3. (16) (c) Not to use the Premises as a Post Office an Employment Exchange an office of the Department of Health or the Department of Social Security at which the general public call without appointment a staff or other employment agency a betting shop turf accountant's or bookmaker's office an undertaker a travel ticket or estate agency; and -17- 110 3. (16) (d) Without prejudice to the provisions of paragraphs (a) to (c) of this sub-clause not to use the Premises otherwise than as offices with storage and other accommodation ancillary to such office use; and 3. (16) (e) The Tenant hereby acknowledges and admits that notwithstanding the foregoing provisions the Landlord does not thereby or in any other way give or make nor has given or made at any other time any representation or warranty that any such use is or will be or will remain a permitted use within the provisions of the Planning Acts nor shall any consent in writing which the Landlord may hereafter give to any change of use be taken as including any such representation or warranty and that notwithstanding that any such use as aforesaid is not a permitted use within such provisions as aforesaid the Tenant shall remain fully bound and liable to the Landlord in respect of the obligations undertaken by the Tenant by virtue of this Underlease without any compensation recompense or relief of any kind whatsoever; 3. (17) Regulations To observe all rules and regulations for the proper management and security of the Building laid down by the Landlord or the Landlord's Surveyors from time to time and notified in writing to the Tenant including (without limitation) any such regulations controlling admission to the Building by means of a system of personal identity cards; 3. (18) Signs Not to erect or display in or upon any part of the Premises any pole flag aerial advertisement poster notice or other sign which shall be visible from the outside of the Premises or elsewhere in the Building except as permitted by paragraph 3 of the Second Schedule hereto without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); 3. (19) (a) Alterations Not to make any new aperture in any floor or ceiling slab or exterior wall of the Building or otherwise to alter divide cut maim injure or remove any of the principal or load-bearing walls floors beams or columns of the Building or other parts of the Building which bound the Premises nor to make any other alterations or -18- 111 additions of a structural nature to the Premises Provided that the Tenant may with the consent of the Landlord (which shall not be unreasonably withheld or delayed) make minor alterations to the walls floors or columns of the Building bounding the Premises where the same do not:- 3. (19) (a) (i) adversely affect the structural stability of the Building; or 3. (19) (a) (ii) affect the exterior (including the appearance) of the Building; or 3. (19) (a) (iii) materially and adversely affect the usage or functioning of the mechanical electrical sanitary heating ventilating life safety air-conditioning or other service systems within the Building; or 3. (19) (a) (iv) materially and adversely affect the use and enjoyment of the Premises; 3. (19) (b) Not to fix anything to any part of the Building bounding the Premises in such manner as to affect adversely the structure thereof or the functioning of any exterior walls doors door frames windows or window frames thereof; 3 (19) (c) (i) Not to make any alteration or addition to the Landlord's Plant or to lay any new Conduits outside the Premises other than in accordance with clause 3(19)(c)(ii) hereof; 3 (19) (c) (ii) Not to make any connection with the Landlord's Plant or to make any other material variation to the Conduits without the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); 3 (19) (c) (iii) Not to make any other alteration or addition to the Premises which would materially adversely affect the operation of the Landlord's Plant or unreasonably increase the demands thereon; -19- 112 3. (19) (d) Not (save as mentioned in sub-clause 3(19)(f) hereof) to make any alterations or additions of a non-structural nature to the Premises or to fix anything to any part of the Building bounding the Premises without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); 3.(19) (e) The Landlord may as a condition of giving any consent required under this C1ause 3(19) require the Tenant to enter into such covenants with the Landlord as the Landlord may reasonably require as regards the execution of any such works and an absolute covenant that the Tenant will immediately prior to the end or sooner determination of the Term to the extent that the Landlord so requests remove (without cost to the Landlord) such alterations (or such part thereof as the Landlord shall specify in its request to the Tenant) and reinstate the Premises and the Building to the condition they were in prior to the execution of such alterations; 3. (19) (f) Subject to C1ause 3(19)(c)the Tenant may without obtaining the prior consent of the Landlord erect modify and remove internal demountable partitioning Provided That:- 3. (19) (f) (i) such partitioning does not materially adversely affect the efficient working of the service systems within the Building; and 3. (19) (f) (ii) such partitioning does not obstruct or block up the windows of the Premises; and 3. (19) (f) (iii) such partitioning does not violate any law or any regulation or requirement of any competent authority; 3. (19) (g) In relation to any alterations or additions to the Premises which the Landlord would be obliged by C1ause 4(2) to insure once completed (whether or not the consent of the Landlord is required for such works) to give notice to the Landlord of the anticipated reinstatement cost thereof before commencement and also to notify the Landlord on completion of the same; -20- 113 3. (19) (h) In the event of the Tenant failing to observe C1ause 3(18) or (19) in any respect it shall be lawful (but not obligatory) for the Landlord (without prejudice to the right of re-entry hereinafter contained) to enter the Premises and remove any unauthorised alterations or additions or signs and execute such works as may be appropriate to restore the Building and the Premises to their former state at the cost of the Tenant which cost (together with all Solicitors' and Surveyors' charges and other expenses which may be properly incurred by the Landlord in connection therewith) shall be repaid by the Tenant to the Landlord on demand as a debt and on a full indemnity basis; 3. (20) (a) Alienation Not to assign mortgage charge or grant any security interest over part only of the Premises or (save as hereinafter provided) to share or part with the possession or occupation of the whole or part only of the Premises Provided that any company which is for the time being in the same group as the Tenant may occupy or share occupation of any part of the Premises which is not then sub-let by the Tenant on condition that:- 3. (20) (a) (i) such occupation or sharing of occupation does not create any relationship of landlord and tenant; and 3. (20) (a) (ii) such occupation or sharing of occupation shall not continue after the date upon which the occupying company ceases to be in the same group as the Tenant; 3. (20) (a) (iii) the Landlord is notified of such sharing and the identity of the company sharing occupation with the Tenant; 3. (20) (b) Not to underlet or agree to underlet the Premises or any part thereof at a fine or premium or at a rent which is less than the open market rental value of the premises to be demised nor to permit the reduction of rent paid or payable by any underlessee; 3. (20) (c) Not to assign the whole of the Premises without on each occasion procuring:- -21- 114 3. (20) (c) (i) that any intended assignee shall covenant direct with the Landlord and the Management Company (in respect of the respective obligations owed to them) that during the residue of the Term then subsisting the said assignee will pay the rent reserved by and will observe and perform the covenants and conditions on the part of the Tenant contained in this Underlease; 3. (20) (c) (ii) that if the Landlord shall reasonably so require the obligations of the assignee shall be guaranteed by a person or persons approved by the Landlord (whose approval shall not be unreasonably withheld) who shall covenant with the Landlord (jointly and severally if more than one) as a primary obligation in the terms set out in the Seventh Schedule hereto (mutatis mutandis) or such other terms as the Landlord shall from time to time reasonably specify; 3. (20) (d) Not to underlet or agree to underlet the whole of the Premises or any Permitted Letting Unit without on each occasion procuring:- 3. (20) (d) (i) that any intended underlessee shall covenant with the Landlord as from the date of the underlease either to observe and perform the covenants and conditions herein contained in so far as the same relate to the underlet premises (excluding the covenants to pay the rents hereinbefore reserved and the sums due to the Management Company or the Landlord under C1ause 6(4) hereof); 3. (20) (d) (ii) that in any permitted mediate or immediate underlease the rent shall be payable no more than one quarter in advance and shall be subject to review in an upward direction only at such times and in such manner as to coincide with the rent review provided for under this Underlease; 3. (20) (d) (iii) that in the case of a Permitted Letting Unit including part only of any single floor level of the Premises prior to the completion of any underlease and the occupation by any undertenant or proposed undertenant of the premises to be demised thereby (or any part thereof) an Order be obtained from the Court authorising the -22- 115 exclusion of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in respect of such underlease (a declaration to that effect being contained therein) and that a certified copy of such Order (together with a certified copy of the form of underlease which accompanied the application therefor) be supplied to the Landlord and no such underlease shall be completed or occupation allowed before such an order has been obtained and produced to the Landlord; 3. (20) (d) (iv) that any underlease including part only of any single floor level of the Premises shall contain an absolute prohibition against mortgaging charging underletting or parting with possession of part only of the premises to be demised thereby; 3. (20) (d) (v) that there shall at no time be more than five separate units of occupation within any single floor level of the Premises (including any part from time to time not underlet) and that none shall comprise less than five thousand square feet of Net Internal Area on either level Provided that the following persons in occupation in accordance with C1ause 3(20) hereof shall for the purpose of this sub-clause be treated as one:- 3. (20) (d) (v) (aa) the Tenant and any associated company or partnership of the Tenant; 3. (20) (d) (v) (bb) any permitted undertenant and any associated company corporation or partnership of such permitted undertenant; 3. (20) (d) (v) (cc) where this Underlease or any underlease is held as a partnership asset but the Tenant or any permitted undertenant comprises some only of the members of a partnership:- 3. (20) (d) (v) (cc) (A) all members of such partnership; and 3. (20) (d) (v) (cc) (B) any associated company or partnership of such partnership; -23- 116 3. (20) (e) Subject as aforesaid the Tenant shall be permitted to assign or underlet the Premises as a whole and to underlet any Permitted Letting Unit with the prior written consent of the Landlord which shall not be unreasonably withheld or delayed; 3. (20) (f) Not to vary the terms of any underlease of the Premises or any part thereof in a manner inconsistent with this Clause 3(20); 3. (20) (g) To procure in any permitted underlease that the rent is reviewed under such underlease in accordance with the terms thereof but not to agree any reviewed rent with the undertenant nor any rent payable on any renewal thereof pending determination of the rent payable hereunder with effect from the relevant Review Date without the prior written consent of the Landlord (such consent not to be unreasonably withheld) save where the rent under any underlease is determined by an independent valuer acting as an expert or arbitrator or by the Court; 3. (21) (a) Registration Within twenty-one days after the date of any assignment of this Underlease or the grant of any underlease of the Premises or any assignment of such an underlease or the execution of any mortgage or charge affecting this Underlease or any transfer of any such mortgage or charge or any devolution of the Term or of any such underlease as aforesaid by assent or operation of law or any surrender or variation of any such underlease to give written notice and to deliver a certified copy to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same (and including in the case of an assignment notice of the amount of any premium paid) and to pay or cause to be paid to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty pounds for the registration thereof; 3. (21) (b) Within twenty-one days after the creation of any floating charge affecting this Underlease to give written notice to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with details of the chargee(s) and within twenty-one days after the crystallisation of any floating charge to give written notice to the -24- 117 Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with a certified copy of the instrument creating the floating charge and details of the circumstances of crystallisation and to pay to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty Pounds for the registration thereof; 3. (22) (a) Easements Not by building or otherwise to stop up or darken any window or light in the Premises nor permit any new wayleave easement right privilege or encroachment to be made or acquired into against or upon the Premises and in case any such easement right privilege or encroachment shall be made or attempted to be made to give immediate notice thereof to the Landlord and to permit the Landlord and its agents to enter the Premises for the purpose of ascertaining the nature of any such easement right privilege or encroachment and at the request and cost of the Landlord to join the Landlord in adopting such means as may be reasonably necessary for preventing any such encroachment or the acquisition of any such easement right privilege or encroachment; 3. (22) (b) Not to give to any third party any acknowledgement that the Tenant enjoys the access of light to any of the windows or openings in the Premises by the consent of such third party nor to pay to such third party any sum of money nor to enter into any agreement with such third party for the purpose of inducing or binding such third party to abstain from obstructing the access of light to any windows or openings and in the event of any of the owners or occupiers of adjacent land or buildings doing or threatening to do anything which obstructs the access of light to any of the said windows or openings to notify the Landlord forthwith upon the same coming to the attention of the Tenant; 3. (23) Landlord's costs To pay to the Landlord on demand all costs charges and expenses (including but without prejudice to the generality of the foregoing Solicitors' costs Counsels' Architects' and Surveyors, and other professional fees and commission payable to a bailiff) incurred by the Landlord:- -25- 118 3. (23) (a) incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 and/or in or in contemplation of any proceedings under Section 146 or 147 of the said Act (whether or not any right of re-entry or forfeiture has been waived by the Landlord or a notice served under the said Section 146 is complied with by the Tenant or the Tenant has been relieved under the provisions of the said Act and notwithstanding forfeiture is avoided otherwise than by relief granted by the court) and to keep the Landlord fully indemnified against all costs charges expenses claims and demands whatsoever in respect of the said proceedings and the preparation and service of the said notice; 3. (23) (b) incidental to or in contemplation of the preparation and service of a Schedule of Dilapidations at any time during or within six months after the expiration or earlier determination of the Term but relating in all cases only to wants of repair arising not later than the expiration or earlier determination of the Term; 3. (23) (c) in connection with or in procuring the remedying of any breach of covenant on the part of the Tenant or any person deriving title under the Tenant contained in this Underlease; 3. (23) (d) in relation to any application for consent required or made necessary by this Underlease (such costs to include reasonable management fees and expenses) whether or not the same is granted (except in cases where the Landlord is obliged not unreasonably to withhold consent and the withholding of consent is held to be unreasonable) or the application is withdrawn; 3. (24) (a) Statutory requirements At all times and from time to time and at its own expense to execute all works as are or may under or in pursuance of any Act of Parliament already or hereafter to be passed be directed or required to be done or executed upon or in respect of the Premises or the Tenant's user thereof whether by the owner and/or the Landlord and/or the Tenant thereof or any person deriving title thereunder and to comply with all notices relating to the Premises which are served by the public local or statutory authority and not to do on -26- 119 the Premises any act or thing whereby the Landlord may become liable to pay any penalty imposed or to bear the whole or any part of any expenses incurred under any such Act as aforesaid; 3. (24) (b) Without prejudice to the foregoing at all times during the Term at the Tenant's expense to comply with all requirements from time to time of the appropriate authority in relation to means of escape from the Premises in case of fire or other emergency and at the expense of the Tenant to keep the Premises sufficiently supplied and equipped with fire fighting and extinguishing apparatus and appliances of a type suitable in all respects to the type of user of or business or trade carried on upon the Premises such apparatus and appliances to be open to inspection and to be adequately maintained and also not to obstruct the access to or means of working such apparatus and appliances by its operations at or connected with the Premises; 3. (24) (c) To comply with the requirements and regulations of the respective supply authorities in relation to the use of water electricity gas all types of telephonic communication and other services at the Premises; 3. (24) (d) Not to operate equipment connected to the Landlord's Plant otherwise than in accordance with the manufacturers' instructions which have been notified to the Tenant; 3. (24) (e) Within fourteen days of receipt of the same (or sooner if requisite having regard to the requirements of the notice or order in question or the time limits stated therein) to produce to the Landlord a true copy and any further particulars required by the Landlord of any notice or order or proposal for the same given to the Tenant and relevant to the Premises or the occupier thereof by any government department or local or public authority and without delay to take all necessary steps to comply with the notice or order so far as the same is the responsibility of the Tenant and at the request of the Landlord to make (at a cost which shall be borne by the Landlord and the Tenant equally) or join with the Landlord in making (at the cost of the Tenant) such -27- 120 proper objection or representation against or in respect of any such notice order or proposal as the Landlord shall reasonably deem expedient; 3. (25) Planning In relation to the Planning Acts:- 3. (25) (a) At all times during the Term to comply in all respects with the Planning Acts; 3. (25) (b) Not to apply for nor implement any planning permission in respect of the Premises unless the application and permission shall have been approved by the Landlord; 3. (25) (c) Unless the Landlord shall otherwise direct to carry out before the expiration or determination of the Term (howsoever the same may be determined) any works stipulated to be carried out to the Premises by a date subsequent to such expiration or sooner determination as a condition of any planning permission which may have been granted to and commenced to have been implemented by the Tenant; 3. (25) (d) If called upon so to do to produce to the Landlord all plans documents and other evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of this C1ause have been complied with; 3. (25) (e) Not without the consent of the Landlord to enter into any agreement under Section 106 of the Town and Country Planning Act 1990 relating to the Premises; 3. (25) (f) Not without the consent of the Landlord to serve any notice under Part VI of the Town and Country Planning Act 1990 in respect of the Premises; 3. (26) Notices affecting the Premises Upon the happening of any occurrence or upon the receipt of any notice order requisition direction or other thing which adversely affects the Landlord's interest in the Premises the Tenant shall forthwith at its own expense deliver full particulars or a copy thereof to the Landlord; -28- 121 3. (27) Defects and indemnity To inform the Landlord in writing immediately upon the same coming to the Tenant's attention of any defect in the Premises or in the parts of the Building which bound the Premises which would be likely to give rise to a duty imposed by common law or statute on the Landlord in favour of the Tenant or any other person and to indemnify the Landlord in respect of all actions proceedings costs claims and demands which might be made by any tenant occupier adjoining owner or any other person whatsoever or any competent authority which may be incurred by reason of:- 3. (27) (a) any use of the Premises or any defect in the Premises or in the execution or existence of any alterations or additions to the Premises for which the Tenant is responsible hereunder; 3. (27) (b) the use of cars or other vehicles in the Common Parts by the Tenant or any person deriving title under the Tenant or their respective servants agents licensees and invitees; 3. (27) (c) any breach by the Tenant or by any person deriving title under the Tenant of any covenant on the part of the Tenant or any condition contained in this Underlease; 3. (28) Reletting notices To permit the Landlord at all reasonable times during the last six months of the Term to enter upon the Premises and affix and retain without interference upon any suitable part of the Premises (but not so as materially to affect the access of light and air to the Premises) notices for reletting the same and not to remove or obscure the said notices and to permit all persons with the written authority of the Landlord to view the Premises at all reasonable hours in the daytime; 3. (29) Applications for consent Upon making an application for any consent or approval which is required under this Underlease the Tenant shall disclose to the Landlord such information as the Landlord may reasonably require; 3. (30) Observe covenants By way of indemnity only to observe and -29- 122 perform the agreements covenants and stipulations:- 3. (30) (a) on the part of the lessee contained in the Superior Lease (other than as to payment of rents and as contained in C1ause 3(1) (21) (22) (25) (26) and (39) thereof and the Third Schedule thereto); and 3. (30) (b) contained or referred to in the documents referred to in Part II of the Fourth Schedule hereto; so far as any of the same are still subsisting and capable of taking effect and relate to the Premises; 3. (31) Breaches by underlessees In the event of a breach non-performance or non-observance of any of the covenants conditions agreements and provisions contained or referred to in this Underlease by any underlessee or other person deriving title under the Tenant forthwith upon discovering the same to take and institute without expense to the Landlord all appropriate steps and proceedings to remedy such breach non-performance or non-observance; 3. (32) (a) Yielding up Immediately prior to the expiration or sooner determination of the Term at the cost of the Tenant:- 3. (32) (a) (i) to remove from the Premises any moulding sign writing or painting of the name or business of the Tenant or occupiers and all tenant's fixtures fittings furniture and effects (including any demountable partitioning) and to make good all damage caused by such removal; and 3. (32) (a) (ii) to the extent that the Landlord so requests to remove such parts of the Premises and such fixtures and fittings therein to carry out such works and to renew replace or install such items as are necessary to put the Premises in no lower standard of condition than shall accord with the description thereof in the Rent Review Specification (or such part of the Rent Review Specification as the Landlord shall specify in its request to the Tenant); and -30- 123 3. (32) (a) (iii) upon removal of any such tenant's fixtures and fittings or plant and equipment as are connected to or take supplies from any Conduits to seal off such Conduits so as not to interfere with the continued functioning of the remainder of the Conduits; 3. (32) (b) All removal works replacement and installation required under C1ause 3(32)(a) shall be carried out in a good and workmanlike manner in compliance with all (if any) requisite consents (which the Tenant shall first obtain) without causing any nuisance or disturbance to the Landlord or other the owners tenants and occupiers of the Building and reinstating the Premises and the Building to the satisfaction of the Landlord's Surveyors and the relevant supply authorities; 3. (32) (c) At the expiration or sooner determination of the Term (howsoever the same be determined) to yield up to the Landlord the Premises in such condition as shall be in accordance with the covenants on the part of the Tenant contained in this Underlease and in the event of the Tenant failing so to yield up the Premises to pay to the Landlord on demand by way of liquidated damages:- 3. (32) (c) (i) the cost of putting the Premises into the state of repair condition and decoration in which they should have been had the Tenant complied with the terms of this Underlease; 3. (32) (c) (ii) a sum equivalent to the rent at the rate payable at the expiration of the Term for such period as is reasonably necessary to put the Premises into the state of repair condition and decoration in which they should have been; 3. (32) (c) (iii) on an indemnity basis all costs and expenses (including Surveyors' and other professional fees) incurred by the Landlord in connection with the matters referred to in this sub-clause(c); 3. (33) VAT To pay to the Landlord by way of additional rent any Value Added Tax at the rate for the time being in force properly chargeable in -31- 124 respect of any rent or other payment made or other supplies provided to the Tenant under the terms of or in connection with this Underlease and in every case where the Tenant covenants to pay an amount of money under this Underlease such amount shall be regarded as being exclusive of all Value Added Tax which may from time to time be legally payable thereon; 3. (34) Reimbursement of VAT In every case where the Tenant has agreed to reimburse the Landlord in respect of any payment made by the Landlord under the terms of or in connection with this Underlease that the Tenant shall also reimburse any Value Added Tax properly paid by the Landlord on such payment save to the extent to which the same is reasonably recoverable by the Landlord as input tax. 4. LANDLORD'S COVENANTS THE Landlord HEREBY COVENANTS with the Tenant as follows:- 4. (1) Quiet enjoyment That the Tenant paying the rents hereby reserved and performing and observing the covenants and agreements on the part of the Tenant hereinbefore contained shall and may peaceably hold and enjoy the Premises during the Term without any interruption by the Landlord or any person rightfully claiming through under or in trust for it; 4. (2) Insurance That the Landlord will:- 4. (2) (a) At all times during the Term (save to the extent that such insurance shall be vitiated in whole or in part by any act neglect default or omission of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) insure or procure the insurance of the Building (except items in the nature of tenant's and trade fixtures and fittings installed by the Tenant and other tenants and occupiers of the Building) and the main entrance hall -32- 125 through 133 Fleet Street in such insurance office or with such underwriters and through such agency as the Landlord may from time to time decide against loss or damage by the Insured Risks in the Full Cost of Reinstatement thereof and the Loss of Rent; and 4. (2) (b) If reasonably required by the Tenant produce to the Tenant sufficient details of the policy or policies of such insurance and evidence of the fact that the policy or policies is or are subsisting and in effect; and 4. (2) (c) In case of destruction of or damage to the Building (except as aforesaid) or the main entrance hall through 133 Fleet Street by any of the Insured Risks then (save to the extent that payment of the insurance moneys shall be refused in whole or in part by reason of or arising out of any act neglect or default of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) with all reasonable speed subject to obtaining all necessary planning consents and all other necessary licences approvals and consents (which the Landlord shall use its reasonable endeavours to procure are obtained) and subject to the necessary labour and materials being and remaining available the Landlord shall cause all moneys received in respect of such insurance (other than in respect of rent and fees) to be paid out in the rebuilding and reinstatement of the same substantially as prior to any such destruction or damage and make up any deficiency in the insurance moneys from its own funds Provided that:- 4. (2) (c) (i) any liability of the Landlord hereunder to rebuild and reinstate shall so far as the Premises are concerned be deemed to have been satisfied if the Landlord provides accommodation substantially as convenient and (so far as the Landlord is able) in approximately the same location as but not necessarily identical to that previously existing and shall as regards the rest of the Building and/or the main entrance hall through 133 Fleet Street be deemed to have been satisfied if the Landlord rebuilds and reinstates the same to a standard reasonably equivalent to those parts which have been destroyed or damaged; -33- 126 4. (2) (c) (ii) if during the last five years of the Term the Premises or the essential means of access to the Premises shall be so destroyed or damaged by any of the Insured Risks as to render the Premises unfit for occupation and use the Landlord may determine this Underlease by giving to the Tenant not less than three months' notice in writing in that behalf and upon the expiration of such notice the Term shall determine without prejudice to any rights or remedies of the Landlord or the Tenant in respect of any antecedent breach of any of the covenants or conditions contained in this Underlease; 4. (2) (c) (iii) if the Term is determined pursuant to C1ause 4(2)(c)(ii) hereof the Landlord shall be absolutely entitled to retain the moneys payable by virtue of any such insurance; 4. (3) (a) Superior Lease To pay the rent reserved by the Superior Lease and to perform (in so far as the Tenant is not liable for any such performance under the covenants on its part contained in this Underlease other than in C1ause 3(30) hereof) all the lessee's covenants therein contained; 4. (3) (b) On the request of the Tenant to use all reasonable endeavours to enforce the covenants on the part of the lessor contained in the Superior Lease; 4. (3) (c) To use all reasonable endeavours to obtain the consent of any Superior Landlord required under the Superior Lease when:- 4. (3) (c) (i) the Tenant has applied for consent under this Underlease; 4. (3) (c) (ii) the Landlord gives that consent or could not reasonably refuse it or gives the consent subject to consent being obtained from any Superior Landlord; 4. (3) (c) (iii) consent is required under the Superior Lease; -34- 127 5. PROVISOS 5. (1) Forfeiture 5. (1) (a) If the rents hereby reserved or any part thereof shall at any time be in arrear for fourteen days after the same shall have become due (whether formally demanded or not); or 5. (1) (b) If there shall be any breach non-performance or non-observance of any of the covenants and conditions on the part of the Tenant contained in this Underlease; or 5. (1) (c) If the Tenant and/or the Guarantor (if any) (being a body corporate) has a winding-up petition or petition for an administration order presented against it or passes a winding-up resolution (other than in connection with a members' voluntary winding-up for the purposes of an amalgamation or reconstruction which has the prior written approval of the Landlord) or calls a meeting of its creditors for the purposes of considering a resolution that it be wound up voluntarily or resolves to present its own winding-up petition or is wound up (whether in England or elsewhere) or the directors or shareholders of the Tenant or the Guarantor resolve to present a petition for an administration order in respect of the Tenant or the Guarantor (as the case may be) or an Administrative Receiver or a Receiver or a Receiver and Manager is appointed in respect of the property or any part thereof of the Tenant or the Guarantor; or 5. (1) (d) If the Tenant and/or the Guarantor (if any) (being a body corporate) calls or a nominee calls on its behalf a meeting of its creditors or any of them or makes an application to the Court under Section 425 of the Companies Act 1985 or submits to its creditors and any of them a proposal pursuant to Part I of the Insolvency Act 1986 or enters into any arrangement scheme compromise moratorium or composition with its creditors or any of them (whether pursuant to Part I of the Insolvency Act 1986 or otherwise); or -35- 128 5. (1) (e) If the Tenant and/or the Guarantor (if any) (being an individual) makes an application to the Court for an interim order under Part VIII of the Insolvency Act 1986 or convenes a meeting of his creditors or any of them or enters into any arrangement scheme compromise moratorium or composition with his creditors or any of them (whether pursuant to Part VIII of the Insolvency Act 1986 or otherwise) or has a bankruptcy petition presented against him or is adjudged bankrupt (whether in England or elsewhere); or 5. (1) (f) If the Tenant is struck off the Register of Companies or is dissolved or (being a corporation or company incorporated outside Great Britain) is dissolved or ceases to exist under the laws of the country or state of its incorporation; or 5. (1) (g) If the Tenant being a company is unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986 or if the Tenant being an individual is unable to pay his debts within the meaning of Section 268 of the Insolvency Act 1986; then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter into and upon the Premises or any part thereof in the name of the whole and to have again repossess and enjoy the Premises as in their former estate and thereupon the Term shall absolutely cease and determine but without prejudice to any rights or remedies of the Landlord and the Tenant in respect of any antecedent breach of any of the covenants or conditions contained in this Underlease; 5. (2) Implied easements Neither the granting of this Underlease nor anything herein contained shall by virtue of Section 62 of the Law of Property Act 1925 or otherwise by implication of law or in any other way operate or be deemed to confer upon the Tenant any easement right or privilege whatsoever save as expressly hereby granted and any additional privileges in fact enjoyed from time to time shall be and be deemed to be by the consent of the Landlord only; -36- 129 5. (3) Restrictions on adjoining property Neither the granting of this Underlease nor anything herein contained or implied shall impose or be deemed to impose any restriction on the use of any land or premises not comprised in this Underlease or give the Tenant the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any purchaser from or by any lessee or occupier of the Landlord in respect of property not comprised in this Underlease or prevent or restrict in any way the development extension or alteration of any land or premises not comprised in this Underlease; 5. (4) (a) Variation of and liability for Services The Management Company or the Landlord may extend vary or make any alteration in the rendering of the Services or any of them from time to time if the Management Company or the Landlord (as the case may be) deems it desirable so to do for the more efficient conduct and management of the Building and for the general benefit of all occupiers thereof; 5. (4) (b) Notwithstanding anything contained in this Underlease neither the Management Company nor the Landlord shall be liable to the Tenant nor shall the Tenant have any claim against the Management Company or the Landlord in respect of any temporary interruption in any of the Services or any loss or damage in consequence thereof by reason of inspection testing maintenance servicing repair renewal or replacement of any Landlord's Plant or damage thereto or destruction thereof by any cause beyond the Management Company's or the Landlord's reasonable control or by reason of mechanical or other defect or breakdown or frost or other inclement conditions or shortage of fuel materials water or labour; 5. (5) Cesser of rent In case the Premises or any part thereof or the means of access thereto shall at any time during the Term be so damaged or destroyed by any of the Insured Risks as to render the Premises unfit or inaccessible for occupation and use in accordance with the terms and provisions of this Underlease then (save to the extent that the insurance money payable under any policy of insurance effected or caused to be -37- 130 effected by the Landlord shall be wholly or partially irrecoverable by reason solely or in part of any act or default of the Tenant or any person deriving title under the Tenant or any of its servants agents licensees or invitees) the rents first and fourthly hereinbefore reserved and for the time being payable hereunder or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Premises shall again be rendered fit and accessible for occupation and use or until the loss of rent insurance effected or caused to be effected by the Landlord shall be exhausted (whichever shall be the earlier) and any dispute with reference to this proviso shall be referred to arbitration in accordance with the Arbitration Acts 1950 and 1979; 5. (6) Abandoned property If at such time as the Tenant has vacated the Premises on the determination of the Term (either by effluxion of time or otherwise) any property of the Tenant shall remain in or on the Premises and the Tenant shall fail to remove the same within fourteen days after being requested by the Landlord so to do the Landlord may as agent of the Tenant (and the Landlord is hereby appointed by the Tenant to act in that behalf) dispose of such property by way of sale (unless the sale proceeds would be unlikely to meet the costs of selling) and shall then hold the proceeds of sale (if any) after deducting the proper costs and expenses of removal storage and sale incurred by it and any other moneys due from the Tenant to the Landlord to the order of the Tenant Provided always that if such proceeds of sale shall be insufficient to meet the costs and expenses as aforesaid the Tenant shall pay the amount of the deficiency on demand; 5. (7) (a) Notices The provisions of Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 shall apply to the giving and service of all notices and documents under or in connection with this Underlease except that Section 196 shall be deemed to be amended by the deletion of the final words of Section 196(4) "... and that service ... be delivered" and the substitution of the words: "... and that service shall be deemed to be made on the third Business Day after the registered letter has been posted"; -38- 131 5. (7) (b) Any notice or document shall also be sufficiently served if sent by facsimile transmission to the party to be served and such service shall be deemed to be made on the day of transmission if transmitted before four p.m. on a Business Day but otherwise on the next following Business Day; 5. (8) Superior Lease If there shall be any conflict between the terms of the Superior Lease and the terms of this Underlease then the terms of the Superior Lease shall pro tanto prevail; 6. SERVICES AND SERVICE CHARGE 6. (1) Management Company's covenant The Management Company hereby covenants with the Tenant and as a separate covenant with the Landlord that subject to the Tenant paying the moneys due under Clause 6(4) hereof the Management Company will use its reasonable endeavours to provide the Services (unless and until the Landlord assumes responsibility for providing the Services in accordance with Clause 6(3) hereof); 6. (2) Landlord's covenant The Landlord hereby covenants with the Tenant that subject to the Tenant paying the moneys due under Clause 6(4) hereof the Landlord will use its reasonable endeavours to provide the Services:- 6. (2) (a) in so far as the Management Company is in breach of its obligations under this Underlease to provide the Services or any of them; and 6. (2) (b) if the Landlord assumes responsibility for providing the Services in accordance with Clause 6(3) hereof; 6. (3) Services by Landlord The Landlord may assume responsibility for the provision of the Services at any time and if and when the Landlord does so the Landlord shall forthwith give written notice thereof to the Tenant; -39- 132 6. (4) (a) Service Charge The Tenant hereby covenants with the Management Company and as a separate covenant with the Landlord to pay the Service Charge in respect of any Financial Year during which the Management Company is responsible for providing the Services hereunder to the Management Company clear of all deductions (save for deductions which the Tenant is by law bound to make) at the times and in the manner set out in the Sixth Schedule hereto Provided always that if the Tenant shall not pay any sum in respect of Service Charge within ten Business Days after the due date for payment thereof the Landlord shall be entitled (but not obliged) to pay the same to the Management Company in which case the Tenant shall repay the same to the Landlord on demand; 6. (4) (b) The Tenant hereby covenants with the Landlord to pay the Service Charge Proportion of any Service Expenditure incurred by the Landlord pursuant to Clause 6(2)(a) hereof; 6. (4) (c) The Tenant hereby covenants with the Landlord to pay the Service Charge in respect of any Financial Year during which the Landlord is responsible for providing the Services hereunder (other than under Clause 6(2)(a) hereof) clear of all deductions at the times and in the manner set out in the Sixth Schedule hereto; 6. (4) (d) The definitions in Part I of the Sixth Schedule hereto shall apply for the purposes of this Clause 6. IN WITNESS whereof the parties hereto have duly executed this Underlease as a deed the day and year first before written. -40- 133 THE FIRST SCHEDULE The Premises Those premises on the [ ] and [ ] floors and basement levels [ ] and [ ] of the Building shown for the purpose of identification only edged red on the plans reference [ and ] annexed hereto (in this Schedule called "the said premises") including:- (a) All walls wholly within the said premises; (b) The plaster and surface finish of the structural columns within the said premises and of all walls separating the said premises from the Retained Areas; (c) One half (severed vertically) of all walls separating the said premises from other Lettable Units within the Building; (d) The airspace above the floor slab below the said premises and the raised floors and the floor covering; (e) The airspace below the floor slab above the said premises and all suspended ceilings and all lighting in the said premises; (f) All landlord's fixtures and fittings within the said premises; (g) All Conduits which lie within and exclusively serve the said premises; BUT EXCLUDING:- (i) all structural columns within the said premises (other than the plaster and surface finish thereof); (ii) all walls separating the said premises from the Retained Areas (other than the plaster and surface finish thereof); -41- 134 (iii) the exterior walls of the Building including the doors and door frames and window frames and window glass therein; (iv) the floor and ceiling slabs; (v) any part of the heating system serving the Building. THE SECOND SCHEDULE Rights granted to the Tenant 1. Subject to compliance with any reasonable applicable regulations laid down in writing by the Landlord from time to time for observance by occupiers of the Building generally the rights (in common with the Landlord and all other persons having the like rights):- (a) to pass and repass on foot only over and along the courtyard of the Building and the passageways linking the same to Fleet Street Shoe Lane and Wine Office Court the entrance halls foyers corridors lobbies and landings and the passenger lifts escalators and staircases of the Common Parts (other than the routes designated as fire escape routes only) leading to and from the Premises and the Car Parking Spaces; [(b) to pass on foot only over and along the fire escape corridors landings stairs and exits of the Building at any time between [ ] and [ ] floor levels and in case of emergency only (to the extent that rights are not granted by paragraph 1(a) of this Schedule) over other levels;] (c) to pass and repass with private motor vehicles over the vehicle entrances ramps and circulation areas of the Common Parts leading between Shoe Lane and the Car Parking Spaces; (d) to use the lorry berths in the Common Parts and the goods handling equipment in the lorry berths and loading bay for the -42- 135 purposes of delivery and collection of goods to and from the Premises together with the rights for lorries to pass and repass over the vehicle entrances and circulation areas leading between Shoe Lane and such lorry berths and the right to use the goods lifts and service corridors and stairs (but not the public areas) of the Common Parts to convey goods to and from the Premises PROVIDED THAT the Tenant shall not cause any vehicle to park in or otherwise obstruct such entrances and circulation areas or to remain in the lorry berths longer than is necessary for loading or unloading or cause any goods to be left in the goods reception or goods handling areas the goods lifts or service corridors longer than necessary; (e) to use the refuse collection areas and refuse compactors in the Common Parts; (f) to enter the Common Parts and other areas in the Building (upon prior appointment (which will not be unreasonably withheld) with the Landlord and any lessee of any other Lettable Unit (except in case of emergency)) for the purpose of complying with the covenants on the Tenant's part contained in this Underlease and for the purpose of exercising the rights enjoyed by the Tenant PROVIDED THAT the Tenant shall cause as little damage and inconvenience as reasonably possible and comply with all conditions imposed by the Landlord in relation to such entry and make good all damage caused in exercise of such right; (g) to use such lavatory and washroom facilities at ground floor and basement levels as the Landlord shall from time to time designate for common use. 2. The right to park [ ] private motor cars in the Car Parking Spaces shown edged purple on drawing No [ ] annexed hereto Provided Always that the Landlord shall have the right to designate alternative Car Parking Spaces in the Building in place of those shown on the said drawing which are reasonably accessible and no smaller than those shown on the said drawing. -43- 136 3. The right to display the name of the Tenant and its permitted underlessees of the Premises on a lessees' directory board in the main entrance hall from Fleet Street in such style and size as the Landlord shall from time to time reasonably prescribe. 4. The right (in common with the Landlord and all others having the like rights) of free passage and running of water soil gas electricity telephone heating fuel exhaust gases and other services to and from the Premises through the Conduits now or during the period of eighty years from the date hereof (which shall be the perpetuity period "the Perpetuity Period" applicable to this Underlease) in or under the Building or Daniel House PROVIDED THAT the Landlord may at any time during the Perpetuity Period alter the route of any such Conduits but adequate services to the Premises shall be maintained at all times. 5. The right of support and protection for the Premises from the other parts of the Building. THE THIRD SCHEDULE Exceptions and reservations In favour of the Landlord and all persons from time to time authorised by the Landlord and all others entitled thereto:- 1. The rights of free passage and running of water soil gas electricity telephone heating and other services through the Conduits now or during the Perpetuity Period passing through the Premises to and from other parts of the Building 2. The right upon reasonable prior notice (except in emergency) to enter or (during the Tenant's absence in emergency only) to break and enter the Premises:- (a) to inspect the Premises and prepare a schedule of any dilapidations or other breaches of covenants and conditions to -44- 137 be observed or performed by the Tenant under the terms of this Underlease; (b) to inspect cleanse maintain repair replace relay or connect to any Conduit; (c) to carry out work to any other part of the Building and any adjoining or neighbouring land or buildings; (d) to perform the obligations on the part of the Landlord and the Management Company contained in this Underlease; (e) for any purpose that in the opinion of the Landlord is necessary to enable it to comply with the covenants on its part contained in the Superior Lease (notwithstanding that the obligation to comply therewith may be imposed on the Tenant hereunder); and (f) for any purpose connected with the safety and management of the Building or other lawful purpose; the person or persons exercising such rights causing as little physical damage and inconvenience as reasonably possible and making good all physical damage caused in exercise of such rights; 3. The right from time to time to alter restrict close or divert any part of the Common Parts in connection with the carrying out of any works thereto or to any other part of the Building or Daniel House or any adjoining or neighbouring property or for any other purpose consistent with the proper management of the Building provided that reasonable means of access and delivery of goods to the Premises and means of escape from the Premises sufficient to comply with fire requirements remain available at all times; 4. The right to build rebuild or execute any works upon any adjoining or neighbouring land or buildings (including other parts -45- 138 of the Building) and to maintain scaffolding and cranes and other equipment thereon for such purposes in such manner as the Landlord or the person exercising such right shall see fit. THE FOURTH SCHEDULE PART I Particulars of the Superior Lease
Date Parties Term Premises - ---- ------- ---- -------- LDT Partners(1) From 25.03.1991 The Building the Landlord (2) to 24.03.2016 and Daniel House
PART II Documents which affect or relate to the Premises
Date Document Parties - ---- -------- ------- The property and charges registers of Title Nos. NGL495895 and NGL495896 as at 30 July 1990 31.08.1989 Deed MEPC plc (1) Town Investments Limited (2) LDT Partners (3) 24.11.1989 Agreement LDT Partners (1) Astonwade Properties Limited (2) Wheatland Limited (3) 02.02.1990 Licence Guardian Assurance plc JC No.3 (UK)
-46- 139 Limited Fleet Street Square Management Limited and Fleet Street Financing Limited (1) Express Newspapers plc (2) LDT Partners (3) Taylor Woodrow Construction Limited (4) 31.5.1990 Agreement LDT Partners (1) Allied Breweries Limited (2) Guildford Holdings Limited (3) 5.7.1990 Agreement LDT Partners (1) Ye Olde Cheshire Cheese (2)
THE FIFTH SCHEDULE Rent Review Review of rent FIRST reserved 1. Definitions In this Schedule the following expressions have the following meanings:- 1. (A) "Rack Rental Market Value" means the yearly rent at which the Premises as a whole might reasonably be expected to be let in the open market with vacant possession at the relevant Review Date by a willing -47- 140 landlord to a willing tenant and without any fine or premium for a term equal to the residue of the Term remaining unexpired on the relevant Review Date or fifteen years (if longer) commencing on the relevant Review Date and otherwise on the terms and conditions of this Underlease (other than the amount of rent but including these provisions for the review of rent); and (a) on the assumptions (if not facts) that:- (i) the Premises are fit and available for immediate occupation and use for the uses permitted by this Underlease or by any licence granted at the request of the Tenant pursuant hereto; (ii) any rent free period concessionary rent or other inducement whether by means of a capital payment or otherwise which it might be the practice in open market lettings for a landlord to give to an incoming tenant to facilitate the fitting-out of the Premises but not otherwise on the grant of a lease of the Premises at the relevant Review Date has been made and any such rent free period has expired prior to the relevant Review Date; (iii) no work has been carried out to the Premises whether before the commencement of or during the Term which has diminished the rental value of the Premises; (iv) if the Premises have been destroyed or damaged they have been fully rebuilt and reinstated; (v) the covenants on the part of the Tenant herein contained have been fully performed and observed; (b) but disregarding:- (i) any effect on the rental value of the Premises of the fact -48- 141 that the Tenant or any sub-tenant has or their predecessors in title or other lawful occupier have been in occupation of the Premises; (ii) any goodwill attached to the Premises by reason of the business then carried on at the Premises by the Tenant or any sub-tenant or any of their predecessors in title or other lawful occupier; (iii) any improvement or other alteration to the Premises or any part thereof carried out by the Tenant or any sub-tenant or their predecessors in title or other lawful occupier before or during the Term (other than such of the works comprised in the Premises as have been carried out by any of them); (iv) all or any part of any rent free period originally granted to the Tenant hereunder on the grant of this Underlease; (v) any rent free period concessionary or other inducement whether by means of a capital payment or otherwise which it might be the practice in open market lettings for a landlord to give to an incoming tenant to facilitate the fitting-out of the Premises but not otherwise on the grant of a lease of the Premises at the relevant Review Date; 1.(B) "the Revised Rent" means the Rack Rental Value of the Premises at the relevant Review Date. 2. Review With effect from each Review Date the FIRST yearly rent hereby reserved shall be such an amount as shall be the greater of (a) the yearly amount of the FIRST rent payable immediately before such Review Date by the Tenant to the Landlord and (b) the Revised Rent assessed in accordance with the following provisions of this Schedule. 3. (a) Determination For the purposes of this paragraph 3 "Surveyor" shall mean a Chartered Surveyor of recognised standing and having experience in letting and valuation of premises of a like kind and -49- 142 character to the Premises who shall be agreed upon by the parties hereto or in the event of failure so to agree to be nominated on the application of either party at any time after the relevant Review Date by or on behalf of the President for the time being of The Royal Institution of Chartered Surveyors and who shall act as an arbitrator in accordance with the Arbitration Acts 1950 to 1979. 3. (b) If the Landlord and the Tenant shall not agree on the amount of the Rack Rental Market Value by the relevant Review Date then at the election of the Landlord or the Tenant the amount thereof shall be decided by a Surveyor PROVIDED THAT any reference to a Surveyor shall not prevent the Landlord and the Tenant from agreeing the Revised Rent at any time and from withdrawing the reference to the Surveyor subject to payment of the Surveyor's proper charges up to the date of withdrawal. 3. (c) If the Surveyor shall die or becomes unwilling or unable to act before giving his determination the Rack Rental Market Value shall be decided by a further Surveyor and the process shall be repeated as often as necessary until a determination is made. 4. Upwards only In no event shall the FIRST rent payable by the Tenant after any Review Date be less than the FIRST rent payable by the Tenant immediately before such Review Date. 5. (a) Payment after Review Date In the event that by any Review Date the amount of the Revised Rent has not been agreed between the parties hereto or determined as aforesaid then in respect of the period of time (hereinafter called "the Interval") beginning with such Review Date and ending on the quarter day immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid (which date is hereinafter called "the Late Payment Date") the Tenant shall continue to pay to the Landlord in manner hereinbefore provided the FIRST rent at the yearly rate thereof payable immediately before the relevant Review Date. -50- 143 5. (b) Provided that on the Late Payment Date there shall be due as a debt payable by the Tenant to the Landlord (without any requirement for any demand therefor by the Landlord) an amount equal to the shortfall between the amount which would have been payable on each quarter day had the Revised Rent been determined by the relevant Review Date and the amount payable by virtue of paragraph 5(a) above during the Interval apportioned on a daily basis in respect of the Interval together with interest at four percent below the Prescribed Rate on the amount of such shortfall on and from the quarter day upon which each instalment thereof would have been due had the Revised Rent been agreed before the relevant Review Date. 6. Statutory restrictions If at any Review Date the Landlord shall be obliged to comply with any Act of Parliament dealing with the control of rent and which shall restrict or modify the Landlord's right to revise the FIRST rent in accordance with the terms of this Underlease or which shall restrict the right of the Landlord to demand or accept payment of the full amount of the FIRST rent from time to time payable under this Underlease then the Landlord shall on each occasion that any such enactment is removed relaxed or modified be entitled on giving notice in writing to the Tenant expiring after the date of each such removal relaxation or modification to specify such date as an intermediate review date (hereinafter called "the Intermediate Review Date") and the rent payable hereunder from an Intermediate Review Date to the next succeeding Review Date or Intermediate Review Date (whichever shall first occur) shall be determined in like manner as the rent payable from each Review Date as hereinbefore provided. 7. Memorandum As soon as the amount of FIRST rent payable after each Review Date has been agreed or ascertained in accordance with the terms hereof the Landlord and the Tenant will forthwith sign a memorandum thereof specifying the yearly amount of the Revised Rent. 8. Time not of essence Time shall not be of the essence for the purposes of this Schedule. -51- 144 THE SIXTH SCHEDULE Service Charge PART I 1. In this Schedule:- (i) "Financial Year" shall mean the year ending on 31 December or such other period of not less than six months or more than eighteen months as the Management Company or the Landlord may in its reasonable discretion from time to time determine as being that in respect of which the accounts of as the Management Company or the Landlord relating to the Building shall be made up PROVIDED THAT the Financial Year current on the date on which the Landlord assumes responsibility for the provision of the Services under Clause 6(3) hereof shall end on that date and the next Financial Year shall commence on the following day and end on the subsequent 31 December; (ii) "First Year" means the period from the day of One thousand nine hundred and to the end of the then current Financial Year; (iii) "Last Year" means the period to the determination of the Term from the end of the preceding Financial Year; (iv) "the Service Expenditure" means the total cost at market rates of the services and expenses mentioned in Part II of this Schedule taking account (inter alia) of disbursements of a periodically recurring nature (by regular or irregular periods) incurred before during or after the Term; (v) "the Service Charge Proportion" means a fair proportion to be determined from time to time by the Surveyors taking into account the use made of and the benefit received from the Services and to be calculated by reference to metering or similar means of direct allocation where reasonably practicable subject as mentioned in paragraph 3 of this Part of this Schedule and for the avoidance of -52- 145 doubt different Service Charge Proportions may be applied to the various Services; (vi) "the Surveyors" means in relation to any Financial Year before a Landlord's notice under Clause 6(3) hereof takes effect the Management Company's surveyors or managing agents (who may be an employee of the Management Company or a company within the same group of companies as the Management Company) and in relation to any Financial Year thereafter the Landlord's Surveyors. 2. (a) The Service Charge shall in relation to any full Financial Year during the Term be the Service Charge Proportion of the Service Expenditure in respect of such Financial Year. (b) The Service Charge shall in relation to the First Year and Last Year be such part of the Service Charge Proportion in respect of the relevant Financial Year as the Surveyors shall properly certify as being fair having regard to the length of the First Year or the Last Year (as the case may be) in relation to the relevant Financial Year. 3. The Landlord and the Management Company shall each have the right and duty to adjust the Service Charge Proportion to make fair allowances for differences in the services and facilities provided or supplied to or enjoyable by any Lettable Units; 4. (a) The Tenant shall pay the amount notified in writing to the Tenant by the Surveyors as being their reasonable estimate of the Service Charge for the First Year by equal instalments on the date of commencement of the First Year and the subsequent quarter days in the First Year. (b) The Tenant shall pay the amount notified in writing to the Tenant by the Surveyors as being their reasonable estimate of the Service Charge for each subsequent Financial Year on account by equal instalments on the usual quarter days Provided that:- -53- 146 (i) if the Tenant shall not have received notice of such estimate in respect of any Financial Year it shall on such quarter days pay an amount equal to the last quarterly payment on account in the preceding Financial Year and any requisite adjustment shall be made to the first quarterly payment after such notice is given; (ii) if the Surveyors shall notify the Tenant of any reasonable revision to their estimate of the Service Charge for any Financial Year after the Financial Year has begun the amount of such increase or decrease shall be added to or deducted from the instalments payable on the subsequent quarter days during such Financial Year equally; 5. (a) The amount of the Service Charge shall be ascertained by the Surveyors and certified by a certificate (hereinafter called "the Certificate") signed by the Surveyors acting as expert and not as arbitrator so soon after the end of each Financial Year as may be practicable. (b) A copy of the Certificate for a Financial Year shall be supplied to the Tenant without charge to the Tenant and the Tenant shall be entitled by appointment (which the Surveyors shall not unreasonably withhold) to inspect at the offices of the Surveyors (or as they may direct) the accounts relating to the Service Charge Expenditure and all relevant supporting vouchers and receipts. (c) The Certificate shall contain a summary of the Service Expenditure incurred by the Management Company or the Landlord (as the case may be) during the Financial Year to which it relates together with a summary of the relevant details and figures forming the basis of calculation of the Service Charge and the Certificate (or a copy thereof duly certified by the Surveyors) shall be conclusive evidence for the purposes hereof of the matters of fact which it purports to certify save for any manifest errors. (d) If the estimated Service Charge is less than the Service Charge so certified the Tenant shall within seven days of demand pay to the -54- 147 Management Company or the Landlord (as required under Clause 6(4) hereof) the difference between the estimated Service Charge and the Service Charge so certified. (e) If the estimated Service Charge is in excess of the Service Charge so certified the overpayment shall forthwith be refunded to the Tenant. (f) The provisions of this paragraph shall continue to apply notwithstanding the termination of the Term for the purpose of ascertaining whether there has been any underpayment or overpayment of Service Charge for the Last Year and any preceding Financial Year. (g) PROVIDED THAT to the extent that the Tenant shall have made payment to the Management Company in respect of the Service Charge Proportion of any Service Expenditure the Tenant shall not be obliged to make payment to the Landlord in respect of such Service Charge Proportion of such Service Expenditure. PART II (A) Services (1) Inspection maintenance and repair (including rebuilding reinstatement and replacement so far as necessary to comply with the covenants on the part of the lessee contained in the Superior Lease as at the date hereof) of the structure and exterior of the Building including (without limitation):- (a) the foundations and roofs; (b) all structural columns (other than the plaster and surface finish of such of the same as are within the Lettable Units); (c) all exterior walls including the doors and door frames and window frames and window glass therein; and -55- 148 (d) all floor and ceiling slabs; But excluding:- (i) all non-structural walls wholly within the Lettable Units; (ii) the plaster and surface finish within the Lettable Units of the structural columns and of the walls separating the Lettable Units from the Retained Areas; (iii) the suspended ceilings and the lighting therein and the screed on the floor slab and the floor covering in the Lettable Units. (2) Inspection maintenance repair (including rebuilding reinstatement and replacement so far as necessary to comply with the covenants on the part of the lessee contained in the Superior Lease as at the date hereof) of the Retained Areas (excluding the structure thereof and the Landlord's Plant therein). (3) Inspection maintenance servicing repair insurance and where appropriate decoration and (so far as necessary to comply with the covenants on the part of the lessee contained in the Superior Lease as at the date hereof) renewal and replacement of the Landlord's Plant. (4) Provision of heating cooling and ventilation to the Building through the Landlord's Plant sufficient to meet statutory requirements and otherwise as the Management Company or the Landlord considers appropriate. (5) Decoration and cleaning of the exterior of the Building and the external and internal Retained Areas (including in each case the windows thereof) as often as the Management Company or the Landlord considers appropriate. (6) Lighting the Retained Areas including at the discretion of the Management Company or the Landlord external lamps and floodlighting and decorative lighting. -56- 149 (7) Provision of security services (including security guards and electronic surveillance as the Management Company or the Landlord considers appropriate). (8) Provision of general reception facilities in the main lobby of the Building (but excluding reception facilities for individual occupiers) and furnishing and equipping such facilities and maintaining directory boards listing the tenants and permitted occupiers of the Building in such lobby and in the main entrance hall from Fleet Street. (9) Provision maintenance repair renewal and decoration of such seats benches sculptures displays flags flagpoles decorative or drinking fountains bins ashtrays public pay telephones clocks and other amenities as the Management Company or the Landlord shall at its discretion provide for the benefit of the tenants and occupiers of the Building generally and their visitors invitees and employees and the amenity of the Common Parts and the Building. (10) Provision of mail and messenger room facilities for the receipt of incoming letters and parcels. (11) Supplying cultivating maintaining replacing tending and keeping tidy such plants and decorative landscaping in and on the Common Parts and the exterior of the Building as the Management Company or the Landlord consider appropriate. (12) Disposal of refuse from the Building including compaction thereof. PART II (B) Expenses (1) The cost of supply of electricity gas oil or other fuel or energy supplies or power sources from time to time used in providing the Services. (2) All costs fees expenses and other outgoings in connection with:- -57- 150 (a) the employment or engagement of such independent contractors agents consultants professional advisers or other personnel as the Management Company or the Landlord considers necessary or desirable for the provision of the Services (including the cost of negotiating and entering into contracts with such persons); (b) the employment of staff for the mail and messenger room security guards receptionists and any others employed in connection with the provision of the Services including their wages salaries pensions and pension contributions and other emoluments statutory and other insurance health and welfare payments National Insurance and other payments required to be made by statute and benefits; (c) the provision of uniforms working and protective clothing tools appliances cleaning and other materials bins receptacles fixtures fittings and equipment properly required for use in connection with the provision of the Services. (3) All solicitors' surveyors' accountants' and other fees and disbursements properly incurred by the Management Company or the Landlord in connection with the administration and general management of the Services (but excluding the collection of rents) and the enforcement of any contract entered into by or on behalf of the Management Company or the Landlord with any third party in connection with the provision of the Services. (4) The fees and disbursements of the agents retained by the Landlord to manage the Services (but excluding the collection of rents and other management of the Landlord's interest in the Building) (or where the Management Company or the Landlord itself manages the Building amounts in lieu of and equivalent to such agents' fees and disbursements) including without limitation costs in respect of keeping records and accounts of the Services and the Service Expenditure and the preparation of all appropriate accounts statements and certificates in relation thereto but excluding costs in respect of the collection of rent. -58- 151 (5) The cost of the mail and messenger room the reception area the management suite the workshops and plant rooms and such other premises as the Management Company or the Landlord considers it necessary or desirable to provide in connection with the provision of the Services and the management of the Building from time to time including without limitation workshop and office accommodation for staff employed in relation thereto and fixtures fittings furniture and equipment therein the rent first reserved from time to time by the underlease whereunder the Management Company holds the Management Premises and notional rent in respect of any such reasonable additional or alternative premises within the Building owned by the Management Company or the Landlord and (if the Landlord shall have assumed responsibility for the provision of the Services and/or the underlease whereunder the Management Company holds the Management Premises shall have been terminated for whatever reason) in respect of the Management Premises equivalent to the open market rental value thereof assuming them to be available for use as storage space within the Building. (6) Any costs of leasing plant machinery or equipment used in connection with the provision of the Services. (7) The cost of any maintenance or service agreements or insurance contracts in respect of any of the plant machinery and equipment used in connection with the provision of the Services. (8) Premiums incurred by the Landlord in insuring against property owners' liability employers' liability and liability to third parties including members of the public and any other insurance properly maintained by the Management Company or the Landlord from time to time in respect of the Common Parts and the Building (save to the extent that the cost of such premiums is within the rent thirdly reserved hereby). (9) The cost of any contribution properly paid by the Management Company or the Landlord toward the cost of maintaining repairing (and where necessary to comply with the covenants on the part of the Lessee contained in the Superior Lease renewing or rebuilding) any roads ways -59- 152 pavements Conduits party walls party structures party fence walls and other conveniences serving the Building (whether or not used in common by any adjoining or neighbouring premises from time to time). (10) All existing or future taxes rates charges duties assessments impositions and outgoings of whatever nature in respect of the Retained Areas and any other premises referred to in paragraph (5) above including any charge by the local or other competent authority in respect of refuse collection but excluding any taxes imposed on the Management Company or the Landlord in respect of the grant of this Underlease any dealing by the Management Company or the Landlord with its interest therein or in any part thereof or the receipt of the rents hereby reserved. (11) Amounts properly paid as a contribution in respect of the main entrance hall through 133 Fleet Street toward the cost of cleaning the external stonework of the facade of Daniel House adjacent thereto. (12) The cost of taking all steps reasonably required in the interests of all occupiers of the Building for complying with or making representations against the incidence of any legislation or notice order or requirement thereunder concerning town planning compulsory purchase public health highways drainage or other matters relating or alleged to relate to or affecting the Common Parts or the Building. (13) The cost of establishing and maintaining financial reserves to meet the future costs (as from time to time reasonably estimated by the Surveyors) of providing the Services. (14) The payment of all Value Added Tax properly payable on any item of Service Expenditure (excluding this paragraph) save to the extent that the Management Company or the Landlord recovers the same from H.M. Customs and Excise. (15) The cost of providing such other services and facilities as the Management Company or the Landlord considers necessary or desirable for -60- 153 the benefit of the tenants and occupiers of the Building as a whole and in the interests of good estate management from time to time. THE SEVENTH SCHEDULE Guarantor's covenants 1 Covenant and Indemnity by the Guarantor The Guarantor hereby covenants with the Landlord and the Management Company each as a primary obligation that the Tenant or the Guarantor shall at all times during the Term (including any continuation or renewal of this Underlease) duly perform and observe all the covenants on the part of the Tenant contained in this Underlease including the payment of the rents and all other sums payable under this Underlease in the manner and at the times herein specified. 2 Guarantor jointly and severally liable with Tenant The Guarantor hereby further covenants with the Landlord and the Management Company that the Guarantor is jointly and severally liable with the Tenant (whether before or after any disclaimer by a liquidator or trustee in bankruptcy) for the fulfilment of all the obligations of the Tenant under this Underlease and agrees that the Landlord or the Management Company in the enforcement of its rights hereunder, may proceed against the Guarantor as if the Guarantor was named as the Tenant in this Underlease. 3. Waiver by Guarantor The Guarantor hereby waives any right to require the Landlord or the Management Company to proceed against the Tenant or to pursue any other remedy whatsoever which may be available to the Landlord or the Management Company before proceeding against the Guarantor. -61- 154 4. Postponement of claims by Guarantor against Tenant The Guarantor hereby further covenants with the Landlord and the Management Company that the Guarantor shall not claim in any liquidation bankruptcy composition or arrangement of the Tenant in competition with the Landlord or the Management Company and shall remit to the Landlord or the Management Company (as the case may be) the proceeds of all judgments and all distributions it may receive from any liquidator trustee in bankruptcy or supervisor of the Tenant and shall hold for the benefit of the Landlord and the Management Company all security and rights the Guarantor may have over assets of the Tenant whilst any liabilities of the Tenant or the Guarantor to the Landlord and the Management Company remain outstanding. 5. Postponement of participation by Guarantor in security The Guarantor shall not be entitled to participate in any security held by the Landlord or the Management Company in respect of the Tenant's obligations to the Landlord or the Management Company under this Underlease or to stand in the place of the Landlord or the Management Company in respect of any such security until all the obligations of the Tenant or the Guarantor to the Landlord and the Management Company under this Underlease have been performed or discharged. 6. No release of Guarantor None of the following or any combination thereof shall release determine discharge or in any way lessen or affect the liability of the Guarantor as principal debtor under this Underlease or otherwise prejudice or affect the right of the Landlord or the Management Company to recover from the Guarantor to the full extent of this guarantee:- (a) any neglect delay or forbearance of the Landlord or the Management Company in endeavouring to obtain payment of the rents or the amounts required to be paid by the Tenant or in enforcing the -62- 155 performance or observance of any of the obligations of the Tenant under this Underlease; (b) any refusal by the Landlord or the Management Company to accept rent tendered by or on behalf of the Tenant at a time when the Landlord was entitled (or would after service of a notice under Section 146 of the Law of Property Act 1925 have been entitled) to re-enter the Demised Premises; (c) any extension of time given by the Landlord or the Management Company to the Tenant; (d) any variation of the terms of this Underlease (including any reviews of the rent payable under this Underlease) or the transfer of the Landlord's reversion or the assignment of this Underlease; (e) any change in the constitution structure or powers of any of the Tenant the Guarantor the Landlord and the Management Company or the liquidation administration or bankruptcy (as the case may be) of either the Tenant or the Guarantor: (f) any legal limitation or any immunity disability or incapacity of the Tenant (whether or not known to the Landlord or the Management Company) or the fact that any dealings with the Landlord or the Management Company by the Tenant may be outside or in excess of the powers of the Tenant; (g) any other act omission matter or thing whatsoever whereby but for this provision the Guarantor would be exonerated either wholly or in part (other than a release under seal given by the Landlord or the Management Company). 7. Disclaimer or forfeiture of Underlease (a) The Guarantor hereby further covenants with the Landlord and the Management Company that:- -63- 156 (i) if a liquidator or trustee in bankruptcy shall disclaim or surrender this Underlease; or (ii) if this Underlease shall be forfeited; or (iii) if the Tenant shall cease to exist THEN the Guarantor shall, if the Landlord by notice in writing given to the Guarantor within three (3) months after such disclaimer or other event so requires accept from and execute and deliver to the Landlord a counterpart of a new underlease of the Demised Premises for a term commencing on the date of the disclaimer or other event and continuing for the residue then remaining unexpired of the Term such new underlease to be at the cost of the Guarantor and to be at the same rents and subject to the same covenants conditions and provisions as are contained in this Underlease. (b) If the Landlord shall not require the Guarantor to take a new underlease the Guarantor shall upon demand pay to the Landlord a sum equal to the rents and other sums that would have been payable under this Underlease but for the disclaimer or other event in respect of the period from and including the date of such disclaimer or other event until the expiration of three (3) months therefrom or until the Landlord shall have granted an underlease of the Demised Premises to a third party (whichever shall first occur). 8. Benefit of guarantee This guarantee shall enure for the benefit of the successors and assigns of the Landlord and the Management Company under this Underlease without the necessity for any assignment thereof. -64- 157 ON ORIGINAL THE COMMON SEAL of GOLDMAN SACHS ) INTERNATIONAL LIMITED was hereunto ) affixed in the presence of ) Director Secretary THE COMMON SEAL of GOLDMAN SACHS ) PROPERTY MANAGEMENT LIMITED was ) hereunto affixed in the ) presence of:- ) Director Secretary ON COUNTERPART THE COMMON SEAL of ) was ) hereunto affixed in the ) presence of:- ) Director Secretary -65- 158 RENT REVIEW SPECIFICATION 159 PETERBOROUGH COURT PROPOSED GSIL TENANCY RENT REVIEW (BASE FITTING OUT SPECIFICATION) 8 JUNE 1990 160 INTRODUCTION STANDARDS The following specification represents the basis of cost, and minimum standard acceptable to the Developer, for the works by tenant in finishing off the usable office areas, i.e. Lessee's Works carried out on behalf of the Developer. General standards applicable to the Base Building specification (see pages 5 and 6) shall apply again here. FINISHES Suspended Ceilings The suspended ceiling system is to be fully accessible and would be comprised of white polyester powder coated perforated pressed metal tiles fixed into a suspension system with Sound absorbent mineral wool padding above. The suspension grid to be suitable for partitioning on a 1500 x 1500 module. On office floors the minimum ceiling height shall be 2.6 m (8 ft 6 in). The ceiling specification will be developed to achieve the sound rating of NC 35 (from noise sources within the building) in offices with the exception of within 3 m from the on-floor plantrooms where NC-38 shall apply. It will act as a plenum void for the extraction of smoke from any floor in the event of fire. Light fittings are to be independently supported from the soffit of the slab above. The attached drawing showing notional ceiling layout is the basis on which the tenant is to plan his ceiling and light fittings. The abutment of suspended ceiling and external wall is formed by a perimeter strip of suspended drylining installed in the Shell and Core Phase. The area of ceiling between cores forming lift lobbies will be painted suspended drylining construction with recessed lighting and is to be capable of relamping from below. An access panel to the lift motor room must be allowed for in this Peterborough Court Rent Review 8 June 1990 Page 2 161 ceiling at 10th floor level. The ceiling void is to act as a return air plenum for the variable volume air conditioning system. Due to its use for smoke extraction, no plenum barriers are to be installed. FLOOR FINISHES Fully accessible raised access flooring will be provided in office areas. Enclosed lobbies adjacent to fire stairs and fire lifts are screeded. The shell and core contract will leave the main lift lobby area on each floor at 80 mm below the general FFL to allow choice of finish to be applied commensurate with a high quality office development. Developer finish in these areas will be concrete screed. Good quality carpet tiles will be laid to all office areas and upper lift lobbies. The floor system comprises a cementitious core with galvanized sheet steel bonded to all faces supported on adjustable jacks at 600 mm centres. The floor system is 150 mm deep (overall inclusive of floor tile) on typical office floors and 300 mm deep (overall inclusive of floor tile) on office floors at 1st, 2nd, 3rd and 6th. The floor should meet the medium duty specification of the PSA standards. All necessary plenum barriers, fire breaks and closure details around the perimeter and columns would need to be provided during installation of the access floor. GENERAL DECORATIONS Vinyl wall covering on dry lining will be provided on core walls and internal and external columns and other exposed walls in net office areas. The inner dry wall surface of the curtain walling system is to receive a paint finish. Floor skirtings of 100 mm PVC are to be provided throughout. Peterborough Court Rent Review 8 June 1990 Page 3 162 SERVICES Sprinkler Installation Sprinklers and associated pipework protecting the usable office areas are extended from the 2 No. sprinkler valves per floor left in the base building. Sprinkler heads to be of the recessed and concealed type. The building has been approved without ceiling void sprinkler heads. The Tenant must not install combustible material within this void. Connection is required to the sprinkler distribution system of the sprinkler branches left at the perimeter stairs on typical floors. Sprinklers within Base Building toilet accommodation will require to be connected to the tenant's sprinkler system. MECHANICAL SERVICES Variable air conditioning system consists of the following: - Thermostats for control of VAV boxes within usable office area. - Variable air volume air conditioning supply air ductwork within the usable office areas extending from the main ring ducts left by the Developer to the VAV units. Interior VAV boxes will be either fan-assisted, series-flow or throttling type, with DDC controls compatible with the base building system controls. - Perimeter VAV units for background heating provided by the Developer will be connected to the tenants air supply ductwork and diffusers in the perimeter margin. They will be of the fan assisted, series-flow type, with hot water heating coil and DDC thermostat compatible with the base building system controls. A VAV air conditioning system will be installed by the tenants on behalf of the Developer, based on a cooling load (lighting and power) throughout the building of 5 watts/ft(2). All VAV boxes are to be pressure independent and will have an overall installed noise rating less than or equal to NC-35. All thermostats are master controllers and are linked to the BMS system. Peterborough Court Rent Review 8 June 1990 Page 4 163 When perimeter VAV boxes are added, heating coils must also be provided with the VAV boxes. The density of VAV boxes should be no less than 1 per 100 m2 with one provided per 9 m length of external wall plus one in each corner exposure. Any new systems proposed by the tenant shall be designed to the following criteria taken from the Base Building specification: DESIGN CRITERIA The building conditioning systems shall be capable of maintaining the following environmental standards: i) Air Conditioned Areas (Base Building) Winter Outside temperature: - 4(degrees)C (24.8(degrees)F) Inside conditions: 20(degrees)C (68(degrees)F) +/- 1.5(degrees)C (controls will be capable of +/- 0.5(degrees)C) The winter humidification will be provided to maintain relative humidity levels between 40% and 50%. Summer Outside design conditions: 28(degrees)C (82.8(degrees)F) DB, 20(degrees)C (68(degrees)F) WB Inside conditions: 22(degrees)C (71 .6(degrees)F) +/- 1.5(degrees)C (controls will be capable of +/- 0.5(degrees)C) Relative humidity: 40% - 60% Note:The above criteria applies to office space and main reception areas. ii) Non Air Conditioned Areas (Base Building) The following spaces will have less stringent inside temperature requirements and are as follows: Peterborough Court Rent Review 8 June 1990 Page 5 164 Lift motor rooms Winter 19(degrees)C (66(degrees)F) Summer 32(degrees)C (90(degrees)F) DB Toilet areas Winter 20(degrees)C (68(degrees)F) Summer ventilation only Plant rooms and Winter: frost protection only truck dock area Summer: ventilation only iii) Ventilation Rates Outdoor air quantities will be introduced as follows: Office floors G and 4-10 1.3 1/s per m(2) inclusive 12.5 1/s per person Office floors 1, 2 and 3 2.00 1/s per m(2) 15.0 1/s per person Kitchen extract riser 1 kitchen extract riser is provided (shared by floors 3-6 with a total potential rating of 15,000 cfm inclusive) Commercial/public spaces: As offices Garage/Toilet Areas 6 air changes per hour minimum iv) Load Densities (Heat Rejection Rate) for cooling Capacity will be included in the air handling, chilled water, refrigeration and condenser water/cooling tower systems for the following load densities: Typical Office Floors: Lighting 21.5 watts per m(2) (2 watts/ft(2)) Peterborough Court Rent Review 8 June 1990 Page 6 165 Equipment 32.3 watts per m(2) (3 watts/ft(2)) Cooling medium availability exists on floors 1, 2 and 3 to serve the following possible loads: Lighting 21.5 watts per m(2) Power 108 watts per m(2) v) Occupancy Criteria Typical Office Areas 1 person per 9.6 m(2) (100 ft(2)) Floors 1, 2 and 3 1 person per 7.5 m(2) (80 ft(2)) vi) Acoustic Criteria Typical Offices: NC-35 (except within 3 m of on floor plantrooms where NC-38 shall apply). Toilets, Public Areas, Retail and Circulation Space: NC-40 Thermal Insulation Thermal insulation with vapour barrier will be provided to the variable air volume, air conditioning supply, air ductwork and all other chilled services within the building up to the VAV boxes. All insulation material should be sealed or otherwise stabilized to prevent migration of fibre particles into the return air ceiling plenum and building. No CFC containing materials for insulation purposes are to be used. Peterborough Court Rent Review 8 June 1990 Page 7 166 Electrical Installation Lighting distribution service is comprised of all trunking, conduit, wiring control switching and tenant distribution boards located in electrical rooms at each floor level. Typical light fittings to be provided would be 1200 mm by 300 mm parabolic-type return air handling fixtures. The fittings shall be provided with low brightness louvres of a minimum 75 mm depth and high frequency ballasts. Layout of fixtures shall provide 500 lux maintained lighting level at the work surface. (Note that the notional ceiling layout is purely diagrammatic in this respect and that tenants would require to carry out checks on their own ceiling layouts in this respect.) Emergency lighting is to be connected to the Base Building standby generator back up. The tenant must make use of the 0.25 watts/ft(2) of emergency power allocated for his use from the statutory standby generators for emergency lighting. Tenant light fittings should be supplied with three core flexible cable connection and 3 pin plug for attachment to plug-in ceiling roses above the suspended ceiling. Tenants must provide junction boxes around the perimeter of their layouts to allow for wiring of individual switches for lighting. Telephones Tenants shall make their own applications to British Telecom and Mercury for external lines. Within the building, tenants shall connect from the MDF room at B2 level and direct cables on agreed routes to tenant risers. Equipment and Fitting Out Statutory Signs Internal signs are provided to exits, hosereels, etc., as necessary to comply with Statutory/Local Authority requirements. Tenants shall extend the provision of such statutory signs where required by their internal layout to comply with local authority requirements. Peterborough Court Rent Review 8 June 1990 Page 8 167 Security Tenants are to fit security hardware consistent with the conduit provisions installed in advance by the developer. Fire Alarms All devices shall be identical in manufacture and model to those used in base building, including smoke detectors, heat detectors, voice communication speakers, manual call points and remote indicators, compatible and integrated with the Base Building system. Commissioning The Base Building systems will be commissioned prior to Practical Completion of the Base Building works other than those items dependent upon tenant fitting out works. This includes the chiller plant and main air handling plants, boilers, cooling towers and controls. The tenant will need to provide by-pass piping on each of his floors for his heating pipe loop during his installation of additional perimeter VAV boxes. The tenant shall also be responsible for commissioning all of his VAV boxes, heating loop and coils, ductwork, auxiliary heating/cooling equipment and controls for his equipment. Peterborough Court Rent Review 8 June 1990 Page 9 168 PETERBOROUGH COURT FLEET STREET Base Building Specification 8 JUNE 1990 169 PROFESSIONAL TEAM Architects: Kohn Pederson Fox Associates 111 W. 57th Street New York, NY 10019 in association with: EPR Partnership 21 Douglas Street London SW1P 4PE Consulting Engineers: Ove Arup & Parmers 13 Fitzroy Street London W1P 6BQ Consulting Mechanical & Flack & Kurtz Electrical Engineers: 475 5th Avenue New York, NY 10017 Project Managers & Trench Farrow & Partners Cost Consultants 32 Chapter Street London SW1 in association with: Gardiner & Theobald 49 Bedford Square London WC1 Specification - 8.6.90 Page 2 170 CONTENTS Page PURPOSE ...................................................................... 5 GENERAL PROVISIONS AND SPECIFICATIONS ........................................ 5 GENERAL DESCRIPTION OF THE BUILDING .......................................... 7 STRUCTURE ....................................................................10 EXTERNAL WALLS ...............................................................12 ROOFS ........................................................................13 PARTITION WALLS ..............................................................14 SUSPENDED CEILINGS ...........................................................14 FLOOR FINISHES ...............................................................14 INTERNAL DOORS, FRAMES AND IRONMONGERY .......................................15 SHUTTER AND FIRE DOORS .......................................................15 BALUSTRADES AND HANDRAILS ....................................................15 INTERNAL GALLERY SCREEN ......................................................16 REFUSE DISPOSAL ..............................................................16 CLADDING CLEANING SYSTEM .....................................................16 SPECIFIC AREAS AND FACILITIES ................................................17 Specification - 8.6.90 Page 3 171 CLEANER'S CUPBOARD ...........................................................21 PLANT ROOMS ..................................................................22 BASEMENT STORAGE .............................................................22 CAR PARK .....................................................................23 SECURITY AND MANAGEMENT ENGINEERING STAFF.....................................23 FRAME ROOM ...................................................................24 SECURITY SYSTEM ..............................................................24 EXTERNAL WORKS ...............................................................24 LIFT CAR INTERIORS ...........................................................24 ESCALATOR ....................................................................30 ELECTRICAL ENGINEERING SERVICES ..............................................31 MECHANICAL AND SANITARY SERVICES .............................................36 PUBLIC HEALTH, DOMESTIC WATER AND GAS SERVICES ...............................45 FIRE PROTECTION SYSTEMS ......................................................48 Specification - 8.6.90 Page 4 172 PURPOSE The purpose of this document is to define the scope and quality of the base building works to be carried out by the developer. GENERAL PROVISIONS AND SPECIFICATION The works described herein are to be carried out in accordance with the detailed drawings and specifications prepared by the architects and other consultants. They are also to be carried out in accordance with the works contractor's shop drawings and specifications comprising the works contractor's tender documents. British Standards The developer's works are to comply with current British Standards or British Standard Codes of Practice and all statutory regulations and conditions applicable to the works. Agrements Certificates Where possible materials or processes with Agrements Certificates will be used. Deleterious Materials The use of deleterious materials will not be permitted. Deleterious materials mean: (a) high alumina cement in structural elements; (b) wood wool slab as permanent shuttering; (c) calcium chloride in admixtures for use in reinforced concrete; (d) aggregates for use in reinforced concrete which do not comply with the requirements of British Standard 882 (1983) and aggregates for use in concrete which do not comply with the relevant provisions of British Standard 8110 (1985); Specification - 8.6.90 Page 5 173 (e) asbestos or asbestos-based products; (f) other materials which at the time of specification are generally known to be not in accordance with good building practice. Environmental Performance The building envelope will be thermally insulated with all necessary vapour barriers in accordance with the current building regulations. The windows, spandrel panels and walls are designed to achieve acoustic attenuation of 37 db. Specification - 8.6.90 Page 6 174 GENERAL DESCRIPTION OF THE BUILDING Location The site is north of Fleet Street behind the partially retained former Daily Telegraph office buildings and bounded by Shoe Lane, Wine Office Court North and Wine Office Court West. Access Pedestrian access will be available from Wine Office Court West, Shoe Lane and via a covered way through No. 133 Fleet Street. Vehicular access will be confined to Shoe Lane except for a taxi drop off facility in the courtyard behind the Daily Telegraph building. This courtyard is accessed through the re-use of the existing van ways on to Fleet Street. The servicing of the building shall be accessed from Shoe Lane. Emergency access for fire tenders is along the full length of Wine Office Court North and Shoe Lane. The Building The rear of the existing Telegraph office buildings has been demolished back to the line that is the rear elevation of the Fleet Street frontage wing of Telegraph House. No. 131 Fleet Street has been demolished and will be rebuilt as an infill structure to Fleet Street. The new building, on the land released by demolition, with basements accommodated on three levels, including a car park accessed from Shoe Lane and ground plus 10 floors providing general office space plus specific areas for financial trading. The following table indicates the target gross and nett areas of each floor. Specification - 8.6.90 Page 7 175
Gross Sq.Ft. Nett Sq.Ft. ------------ ----------- Basement B-3 37450 11595 Basement B-2 35315 24660 Basement B-1 34520 12300 Plus 32 No. car parking spaces (occupying 10,980 sq ft) Ground Floor 47510 22678 (Excludes: gallery, entrances, upper and lower lobbies) General Mezzanines 4900 2565 Level 1 41170 34190 2 41170 34190 3 41090 34075 4 40230 33315 5 33030 26715 6 27470 21735 7 26780 21140 8 26780 21140 9 26780 21140 10 22500 12980 (420 sq ft. allowed in the gross calculation for toilet construction) 11 --- --- 12 3970 --- ================================================================================ TOTAL 490665 334418
Specification - 8.6.90 Page 8 176 The building will be served from one central lift core approached from an entrance hall by escalator. The core will provide a total of 8 high speed lifts serving ground floor and all upper floors with a more limited service to basement areas. Disabled access is provided to the lift lobby via a dedicated disabled lift. The structure and cladding will allow for offices to be divided generally on a module of 1500 mm. The office areas will be finished on a shell and core basis giving the tenant (subject to landlord's consent where required) flexibility to plan and finish the space to his requirements. The individual plant areas will be fully equipped and connections available for tenants' air conditioning units, electrical fittings, etc., and a contribution will be made by the developer to reflect the standards required in the Notional Fitting Out Specification. A glazed gallery at ground level will link the entrances from Fleet Street, Shoe Lane and Wine Office Court West providing a central cloistered area focused on private use associated with the office accommodation. An independent retail area comprising ground and mezzanine fronting on to Shoe Lane, will be provided as a shell. Valved and capped chilled water and hot water supplies are available for connection by the retail tenant at the ground or mezzanine level for their air conditioning (or heating) equipment. Some ducted air supplies are also available for connection. The electrical distribution board has supplies available for this unit capable of handling up to 20w/ft2 of power consumption in the retail space. Telephone services would be available from the main MDF rooms on B2 level. (Retail Unit) No provisions have been made for gas, drainage, domestic water supply, sprinklers or hosereels. (Retail Unit) Windows and doors to Shoe Lane will be installed by the developer to match the remainder of the facade. (Retail Unit) The building, subject to detailed tenant design, provides for an internal clear dimension from finished floor level to underside of ceiling level of 2.6 m (8 ft 6 in) for typical office space and levels of 3.05 m (10 ft) for floors 1,2 and 3 and 2.9m (9 ft 6in) on the 6th floor. Specification - 8.6.90 Page 9 177 Floor to floor and Slab elevation heights as follows:
Level Structural Slab Finish Floor Structural Slab ----- --------------- ------------ Slab to Slab ------------ B-3 Plant/Storage 3,200 3,300 3,350 B-2 Storage 6,550 Varies 3,850 B-l Parking Storage 10,400 10,450 4,450 G Gallery 11,920 12,000 -- L Lobby/Ground 14,850 15,000 5.330 1 Office 20,180 20,480 4,770 2 Office 24,950 25,250 4,770 3 Office 29,720 30,020 4,770 4 Office 34,490 34,640 4,140 5 Office 38,630 38,780 4,140 6 Office 42,770 43,070 4,640 7 Office 47,410 47,560 4,140 8 Office 51,550 51,700 4,140 9 Office 55,690 55,840 4,140 10 Office/Plant 59,830 59,910 4,415 12 Cooling Towers 69,030 69,160 N/A R Top of Vault Roof 70,420 N/A N/A
STRUCTURE Enabling Works The site contained a wide variety of buildings, dating from late 19th century and early 20th century to very recent infill blocks, with a mixture of foundations, ranging from shallow pads and strips to massive and deep underpinned retaining walls, infilled basements and print machine pits and bases. The buildings forming the printing works have been demolished under a first phase contract. Enabling works included the demolition of all superstructures to the rear of the Fleet Street buildings, as a second phase demolition, and removal of most existing foundations. Temporary works requirements during demolition included stabilisation of all perimeter, and some internal retaining walls, and bracing of the front (remaining) section of Mersey House. Some archaeological investigations were required by the Museum of London during and after the removal of ground obstructions. Their role was to maintain a 'watching brief' which involved minimal interference. Foundations All necessary soil tests and ground investigations pertinent to the design of the foundations were carried out prior to site commencement. The new building is founded on piles in the London Clay, to control settlement and superstructure distortion. Some areas have a ground-bearing basement slab with piles, notably at the perimeter of the site to reduce soil movements affecting neighbouring Specification - 8.6.90 Page 10 178 properties. A heave space is provided in the design except in ground bearing slab areas. The entire slab has provision for groundwater drainage using the heave space. Basements Basements are designed on three levels over the north part of the site, one in the south. A secant pile retaining wall has been installed on east and west boundaries through a hardcore berm and topped with a reinforced concrete ground beam to ground level. Drained cavity wall construction is employed for the whole perimeter. The lowest basement floors (B2 and B3) will be of reinforced concrete construction. Ground floor and B1 level will be of reinforced concrete slab placed on steel beams. Fire proofing will be provided to the beams in accordance with the District Surveyor and building regulation requirements. All basements will be water resistant and walls will comprise of inner blockwork skin with a cavity to enable flexibility for fixings by the tenant. Allowances have been made in the basement structure for all incoming services, drainage, earthing and lightning protection pits. The Superstructure The superstructure will comprise steel floor beams and steel colums, with a lightweight concrete topping slab on metal deck formwork, acting compositely with the beams. In typical long-span areas, both primary and secondary beams will be 610 mm series UB, with shallower beams in core areas. Service runs will pass below, not through, beams. In a few isolated instances a load transfer will require deeper beams with service penetrations. Columns will generally be standard UC sections, except that some heavily-loaded colums, at lower storeys of the building, will be fabricated from plate. Lateral stability and stiffness against sway forces is provided by the reinforced concrete walls to the perimeter cores and the reinforced concrete walls surrounding the lift shafts of the central core. The column grid allows a (generally) 13.5 m clear span zone surrounding the central core. Beyond this, twin columns step back at 4.5 m spacing to provide the means for several setbacks in the facade above. The perimeter structure will be set inside the wall insulation and vapour barrier, so that concrete encasement for corrosion protection will not be required. The floor slabs are designed to accommodate the following loads. Typical office floors - 4 KN/m(2) + 1 KN/m(2) extra for lightweight partitions (80 PSF + 20 PSF) Office floors (Levels 1,2,3) - 4 KN/m(2) + 1 KN/m(2) (80 PSF + 20 PSF) Specification - 8.6.90 Page 11 179 Loading dock - 12 KN/m(2) (250 PSF) Mechanical Plant rooms - 7.5 KN/m(2) (155 PSF) + Service hanging loads on slabs over. Public areas at ground level - 5 KN/m(2) (100 PSF) Parking area - 3 KN/m(2) (60 PSF) An area north of the core has been designed to take a load of 7.5 KN/m(2) which caters for any future technical support or archive requirement. Allowance has been made for loadings resulting from external cladding maintenance and window washing systems. Perimeter steel fire escape staircases are constructed within slipformed concrete walls. Staircase design is based upon a maximum occupancy of 320 persons for ground floor and on each of levels 5 to 10 inclusive; levels 1 to 4 have a maximum occupation of 480 persons on each floor. These occupancy figures have been agreed with the building control officer. Fire Protection Structural steel members will be protected using concrete encasing to columns at levels below the ground and lightweight dry casing or mineral fibre spray to column and beam elements above ground level. Fire separation is provided between areas of different uses and as required by statute. EXTERNAL WALLS The ground floor storey shall be clad in hand set granite providing a base up to the first floor and incorporating double-glazed stainless steel framed windows, aluminium grilles and architectural metalwork. The backing wall will be insitu concrete. All fixings shall be non-ferrous in accordance with the District Surveyor's requirements. From the first floor upwards cladding will be a high quality curtain walling system using a pre-finished and pre-glazed rain screen panel system. Primary weather sealing of all cladding is to be based on a combination of EPDM seal technology and high performance silicone/polysulphide or urethane seals. The design life of the curtain wall is to be 60 years assuming it is regularly maintained. Double glazing will be of hermetically sealed units comprising 10 mm outer pane and 12 mm air space and a 6 mm inner pane. Double glazed spandral glass units will have a ceramic frite on the 4th surface. The curtain walling will incorporate within its depth the insulation capable of exceeding the current regulations with an integral vapour barrier and an integral dry wall finish to the internal face. The system will be designed to meet or exceed current building regulations and the District Surveyor's Specification - 8.6.90 Page 12 180 requirements in respect of fire breaking out of the building and radiant heat from adjacent buildings should they be subject to fire. The entire curtain wall is designed to comply with ASTM static water penetration test of 719 Pascales. The curtain walling will be coated with a high performance paint finish on aluminium alloys and incorporate external granite panels fastened with concealed non-ferrous fixings. Windows will be fitted as integral units within the curtain wall and shall incorporate a thermal break as necessary. The principal variations and types of external fabrics are as follows: 1. Typical floors above level 4 comprise individual windows set in stone faced panels. 2. A faceted glass faced wall will address the courtyard at levels 6-9. 3. Large windows extending from levels 1-4 with stone piers and glass spandrel panels between them. 4. A glass wall with individual panes set in a strongly expressed rectangular grid of frames forming the gallery wall and turret around the courtyard inset with double doors with entrance canopies at ground level. 5. Individual stones set on reinforced concrete backing wall to the stair towers. 6. Curved stainless steel clad roof over the 10th floor dining and plant facilities. 7. Hand set granite base up to first floor incorporating windows, grilles and architectural metals. ROOFS The structure for the various roofs or terraces created by the steps back on plan will be as for the general floors but laid to falls to roof outlets. The perimeter condition of the roofs will include the provision of support/guide rails for the window cleaning cradles. Roof construction generally will be 50 mm Roofmate under concrete paving slabs on a Terrain filter sheet on 25 mm of asphalt. The roof over the 10th floor office and plant facilities will comprise curved stainless steel facing on a composite construction. Roof plant room equipment will be isolated from structure born vibration. Space and structural loadings will be available for the future installation of a satellite dish of 1 tonne with acceptable oscillation transference. The roof space will allow for additional tenant future plant such as kitchen extract plant (area allocated 5 m(2) at high level). All plant rooms and routes to cleaning cradle maintenance points at roof level will be provided with paved access routes 1 metre wide. 150 mm minimum high skirtings and upstands will be provided where required at roof edges and around plant rooms. The roofing system has an insulation value in accordance with the current building regulations. Specification - 8.6.90 Page 13 181 PARTITION WALLS Generally below ground slab level all non-loadbearing partition walls will be formed in 140 or 190 mm medium weight blockwork, or where required for specific services and fixings, in 220 mm brickwork. Block walls will be provided above ground around the main entrance lobby as a back-up wall for the granite, around the central core (toilets, plantrooms) and at the interior penthouse plant level. Other partitions will generally be formed of dry wall construction. All lift shafts, and service risers not formed in structural reinforced concrete will be constructed in "shaftwall" consisting of 2 hour fire rated dry construction. The walls surrounding any communication staircases adjacent to the central core will be constructed in dry wall. Roof plantroom walls shall be constructed in concrete block. SUSPENDED CEILINGS A 475mm plasterboard margin with integral blind box will be provided at the perimeter of tenant office areas adjacent to the curtain walling. Painted dry lining or similar suspended ceilings will be provided at the fireman lift lobbies and in stair lobbies. Access where required will be provided in suspended ceilings in all common areas. Metal ceilings will be provided in the lobby areas to toilets. Toilet finishes - suspended plasterboard with skim coat, painted emulsion finish. Painted drylined soffits to staircases. Entrance lobbies and semi-circular reception hall to have aluminium leaf applied finish on plasterboard. Gallery ceilings shall have painted plasterboard set out on a concealed grid to suit the overall design. Blinds shall be 35mm blade venetian type to all windows. FLOOR FINISHES The following floor finishes are provided in locations as follows: Office areas, lift lobbies on the - Floated concrete to office floors electrical rooms, receive tenant finishes telephone rooms Loading bay - Water resistant sealed concrete laid to falls to drainage. Specification -8.6.90 Page 14 182 Car parking area, lift motor rooms, - Water resistant sealed concrete storage areas, plant and fan rooms, BT and LEB incoming service rooms and staircases (Ground floor common areas and toilets are defined separately.) INTERNAL DOORS, FRAMES AND IRONMONGERY All doors to be solid timber core with a natural Anigre veneer and matching hardwood lippings. All hardwood doors and frames shall be sealed with one coat of catalysed vinyl sealer at works prior to delivery. Final finish on site. Doors within circulation routes will incorporate vision panels. Where steel doors are required to meet the fire rating of the building regulations, they shall be factory primed, galvanised steel and shall be degreased and washed and etched and primed to receive finish coat prior to site delivery. Plant and duct access doors shall be 1 hour fire rated where necessary and shall be of the same construction as internal office area doors. However where both faces are within plant areas they shall be paint finished. Ironmongery shall be of lacquered stainless steel supplied by Elite Architectural Ironmongery to office areas and aluminium to plantspaces. All locks shall be suited to suit landlord and multi tenants' facilities. SHUTTER AND FIRE DOORS Roller shutters will be provided to the loading bay and fire resisting shutters to the basement and car park levels as required by statute. All fire resistant roller shutters will be fitted with fuseable links to self-close in the event of fire and be fitted with gears for operation by hand. A security barrier to the car park ramp will also be provided, capable of electronic control. It will also have the capability of being operable by a card feeder control. A safety mechanism will be designed to prevent the barrier closing on the roof of vehicles. Minimum headroom clearance of shutters and fire doors to the car park shall be 2100 mm. BALUSTRADES AND HANDRAILS Handrails and balustrading will be provided with painted steel finish. 2 undercoats, 1 gloss coat. Roof and plant access ladders and staircases will be provided as necessary in Specification - 8.6.90 Page 15 183 painted galvanised steel. Guards and crash rails to the car park will also be provided in galvanised steel as required. External handrails to match cladding finish as an integral installation are provided to all roof terraces to provide safety for maintenance access. INTERNAL GALLERY SCREEN Between the entrance gallery connecting with three principal entrance points and the office accommodation, a screen wall will be erected. The lower levels of this will be predominantly profiled in granite and hardwood panels and above will be a dry wall construction with glazed openings from offices on first and second floor levels overlooking the gallery. The screen's construction incorporating fire resisting elements plus drencher sprinklers at glazed portions has been agreed with the District Surveyor. REFUSE DISPOSAL A storage area formed in the truck dock will be provided with two compaction and container units connected to the necessary power supplies. An area within the truck dock will be set aside as a refuse collection point servicing the buildings fronting Fleet Street. CLADDING CLEANING SYSTEM Provision for cleaning all windows and general external maintenance will be via a system of roof/parapet mounted trolleys. All track fixings to the structure shall be of stainless steel. Electrical points and water standpoint supplies will be installed at various roof levels at convenient locations for the use of operatives using the systems. The maximum distance between electrical points will be 40 m and water will be provided to outlets to an agreed layout. Equipment for staircases shall be independent cradles for each location. The equipment will be designed to carry one operative in a cradle. All movement and operations of the system shall be capable of being controlled from the cradle by the operative. The curved screen on the south elevation shall be provided with a cradle rail at 10th floor level. The courtyard glazing will be accessed by Specification - 8.6.90 Page 16 184 cradle from its own roof level gantry. Cradles and their suspension systems shall be designed to minimise the possibility of damage to the building fabric. Materials and finishes of the exposed equipment will be designed to withstand corrosion and deterioration and special protection will be provided where there is any possibility for electrolytic action occurring due to dissimilar metals coming in contact with each other. SPECIFIC AREAS AND FACILITIES Toilets Toilet accommodation will be constructed within concrete blockwork enclosures which shall be constructed and rendered internally to suit wall and floor tiling tolerances. The quantity of sanitary fixings provided is generally based on an occupancy level of 110 square feet per person on any one floor and to be in the ratio of male to female 60:60. The above calculations include the provisions for disabled persons which are provided in accordance with statutory requirements. In addition to toilet facilities described, an additional soil stack and water supply/fire protection is provided at each core in a position which enables extra provision for the extension of toilet facilities in the future. The internal finishes scheduled to be installed in the toilets are as follows: Floors and Walls Ceramic tiles: Manufacturer Silex SPA 36041 Alte Vlcenza Italy UK Distributor Ceramique International The Porticos 386 Kings Road London, 5W3 Floors: Floor and 150 mm skirting Quadro 50 x 50 mat mosaic GK 585 (2) 'Granito' Walls: Quadro 50 x 50 mat Ref 510 (1) Ceilings Suspended plasterboard with skim coat painted emulsion finish. Specification - 8.6.90 Page 17 185 Sanitary Ware Manufacturer Caradon Twyfords Ltd Cliffe Vale Shelton New Road Stoke on Trent ST4 7AL W.C. Olympian wall hung W.C. suite - white vitreous china Ref. No. 11059 Urinal Clifton bowl urinal - white vitreous china Ref. No. 13001 WHO (Screens between urinals shall be provided in white vitreous china to match) Basin Aria recessed washbasin (white vitreous china) Ref. No. 14038 WHO Disabled basin 'Sola' white vitreous china No. 14053 WHO wash basin No. 54099 CPO supply fitting 1/2" with swivel nozzle 4 and divided flow Disabled grab/support rails and mirror - all grab rails and support bars to be brushed stainless steel Taps (or equivalent) Manufacturer Speakman S.3040 Heronton Speakman Comm II 8" spread lav. fitting } 4" wrist shape handles/chrome } plated indexes/concentric nozzle base } or equivalent (gooseneck depth 5 3/8" } } Sprout 25/090 brushed chrome } 2 controls 550 brushed chrome } Specification - 8.6.90 Page 18 186 Hygiene systems Manufacturer Franke Ltd CH-4663 Aarburg Switzerland UK Agent Saville Stainless Ltd P0 Box 74 Altrincham WA14 3RP Toilet paper holder Ref. FHS 036 Wall hung - brushed stainless steel Sanitary towel dis- Franke FHS 02.3 posal container (Women only) Surface mounted brushed stainless steel Towel disposal Manufacturer F C Frost Ltd Bankside Works Benfield Way Braintree, Essex Towel disposal Purpose designed (brushed stainless steel on slide tray) Towel dispenser/mirror/vanity light Purpose designed and integral with the vanity unit by specialist Brushed stainless steel unit with acid etched glass vanity light, untinted mirror and paper towel dispenser made to design specification Cubicle Doors Purpose made by specialist joinery contractor 16G brushed stainless steel on ply door with rib detail Cubicle partitions 16G brushed stainless steel on ply core with rib detail supported on stainless steel brackets Specification - 8.6.90 Page 19 187 Counter top Manufacturer Claude La Croix & Fils Granit Ltee, Megantic-Compton Cte, Quebec, Canada, GOY 1MO. Counter top and front 20 mm Atlantic Black Granite Partition 50 mm Atlantic Black Granite supported on stainless steel brackets Services provisions for the disabled include grab rails. Ventilation ductwork and grilles within the units will be connected to the main base building riser ducts. Sprinkler heads with related pipework for future connection to tenants' installation will be installed where in a remote position to the base building riser installation. Entrance Hall Gallery and Main Lobbies Main Entrance Lobby: North of gallery; lower ground level. Walls: Granite with stainless steel doors and cast glass panels. Wall adjacent to escalator wood panelled Ceiling: Aluminium leaf on plaster; continuous perimeter stainless steel and glass light fixture Floors: Terrazzo (2 colours) including base and skirting mouldings Other Metal, stone and glass security desk and building reception and directory. Lift and escalator lobby: Upper ground level Walls: Wood veneer and granite with stainless steel mouldings, drywall above and decorative glass Ceiling: Continuous metal ceiling complete with sprinkler heads and lighting Floor: Terrazzo (2 colours) including base and skirting mouldings Specification - 8.6.90 Page 20 188 Gallery Walls: Granite and wood veneer up to first floor. Decorative acid etched glass panels set in aluminium frames. Painted drywall with glazed openings between Ceiling: Applied finish to plasterboard with integral lighting and air grilles Floor: Terrazzo (2 colours) including base and skirting mouldings Other Granite and wood veneer seating between piers Custom made light fittings and air grilles to piers Fleet Street and Shoe Lane Entrance and Wine Office Court West Entrance Walls: Granite with metal trim. Ceiling: Applied finish to plasterboard. Floors: Terrazzo (2 colours) including base and skirting mouldings Other Stainless steel custom made light fittings and handrails CLEANER'S CUPBOARD Walls Painted drylining with the addition of wall tiling splash back. Floors Screeded and tiled as toilet lobbies. Ceilings Suspended drylined ceiling painted. Specifcation - 8.6.90 Page 21 189 Fixtures Belfast sink with tiled splash back. Cleaner's storage cupboard. PLANT ROOMS Walls 3 coats of emulsion on fair face blockwork/brickwork, or drylined board to roof plant areas. Floors Asphalt to water tank areas in bund walls. Bull float concrete generally with surface hardener to corridors. Ceilings Underside of slab over painted. Electrical fittings Surface mounted conduit and luminaires. Doors Painted finish where both sides are in plant areas. BASEMENT STORAGE Walls New storage areas painted 3 coats of emulsion on fairfaced blockwork, with applied vapour check to external walls. Specification - 8.6.90 Page 22 190 Floors Bull floated concrete. Ceilings Underside of slab over painted. Electrical Fittings Surface mounted conduit and luminaires. CAR PARK Walls Fairfaced blockwork. Floor Concrete slab laid to falls with surface hardener. Ceiling Underside of ground floor slab painted. SECURITY AND MANAGEMENT ENGINEERING STAFF A management and security office is located adjacent to the loading bay with direct viewing and surveillance of the main bay area and car park ramp. A CCTV camera system will be provided to cover all entrances, the loading dock and arriving cars. Control monitors will be incorporated in the central control room. An engineer's office will be provided at basement level which will be adjacent to a building management services control room. The basement will also house a maintenance workshop room. Toilets for maintenance staff shall be provided as a separate facility. Specification - 8.6.90 Page 23 191 FRAME ROOM Main frame rooms will be provided for incoming services by British Telecom and Mercury. SECURITY SYSTEM The provision for a fully comprehensive security system shall be installed for local installation by tenants, based upon recommendations by specialist consultants. CCTV monitoring shall be provided at all main access points. EXTERNAL WORKS Courtyard This comprises a stone paved yard for pedestrian and taxi access around which the entrance gallery is arranged. The west wall to this courtyard will be erected as a screen to the Cheshire Cheese as a free standing wall clad in stone and metal to reflect the new building's cladding system. Individual feature lighting will also be provided in the courtyard and at the canopied taxi drop-off point. Wine Office Court West and North New paving for all surrounding footpaths to the new development will be provided and agreed with the City Engineer. There will be a formation of trellis work in stainless steel to the north-west as an extension of the base of handset stone and upon which landscape planting such as ivy will be encouraged to grow. Planting and special light fittings will also be a feature of the external works. Shoe Lane Two new vehicle cross-overs will be formed and paved in accordance with the requirements of the City Planning and Highways Department. LIFT CAR INTERIORS PL 1 to 8 The passenger car sides shall be constructed of sheet steel to receive decorative panels by a specialist contractor. The panels shall be manufactured of particle board with all surfaces finished in toned Anigre wood veneer. The reveals shall be fitted with solid mahogany stained to match veneer. The vertical mahogany spaces shall Specification - 8.6.90 Page 24 192 be inlaid with stainless steel strips. FL 1 to 3 and SL 1 and HL 1 16 swg formed stainless steel panels from floor to canopy with reinforcing to prevent sagging and deflection. Panels shall be bolted together with lock washers. Prior to bolting, joints shall receive a sealant bead which shall not be visible after bolts. Doors Door panels shall be faced as follows: PL 1 to 8 and HL 1 Decorative stainless sheet steel fitted with stainless steel edge channels shall be used at ground floor level to the passenger lifts. Upper floors shall be primed only to receive decor by tenant's contractors. FL 1 to 3 and SL 1 Stainless steel with satin finish. Base PL 1 to 8 and HL 1 Granite base. Concealed vent slots above the base to allow the proper amount of air to infiltrate the cab based on the capacity of the exhaust fan. FL 1 to 3 and HL 1 100mm high stainless steel with vent slots. Front Return Panels, Entrance Post and Headers: PL 1 to 8 and HL 1 The front return panels shall be manufactured of particle board with all surfaces finished in toned Anigre wood veneer. The reveals shall be fitted with solid mahogany. The entrance posts and header shall be constructed of stainless steel with No. 4 finish. Specification - 8.6.90 Page 25 193 Flooring PL 1 to 8 and HL 1 Recess platform to receive carpet flooring with black granite border, separated by 5mm wide stainless steel strip. FL 1 to 3 and SL 1 6mm thick aluminium checkered plate. Ceilings and Lighting PL 1 to 8 and HL 1 Frosted plexiglass ceiling panels with stainless steel frame and spline. Four (4) incandescent down lights and FCLV batten luminaries. The luminaries shall be as follows: Down Lights - Manufactured by ERCO, Model No. 83006. Batten Luminaries - Single tube units as manufactured by Thorn EMI Lighting. FL 1 to 3 and SL 1 The ceiling panels shall be constructed of sheet steel and painted. Fluorescent luminaries. There shall be not less than two fluorescent tube in parallel so that the car is not in compelte darkness due to a single lamp failure. The illuminance level shall be designed to provide normal lighting of at least 50 lux on the vertical pane of the car control panel. If, after a predetermined time, no calls are registered, the lift car lighting shall be automatically switched off. On responding to a hail call, the lift car lighting shall be turned on again. There will be emergency lighting. Handrail PL 1 to 8 HL 1 30mm diameter stainless steel handrail with matching mounting hardware. The handrail shall be located at rear of the cab and shall have three points of attachment. Specification - 8.6.90 Page 26 194 Pad Hooks and Protective Pads All lifts shall be provided with a set of protective pads which covers sides, rear and front panels. Stainless steel studs for FL 1 to 3 and SL 1. Use stainless steel "S" hooks hanging from the stainless steel header channel on PL 1 to 8 and HL 1. Engraving Special markings, "No Smoking" sign and the capacity of the elevator shall be directly engraved to the car operating panels. Accessory Equipment Each and every cab shall be constructed to accommodate all accessory equipment, including door operators, hangers, interlocks and possibly CCTV. Passenger Lifts Specification The central core shall have a bank of 8 passenger lifts serving all floors above ground, providing an average waiting interval service of less than 25 seconds and a handling capacity of 15% providing the latest technology in lift design. The following is a Schedule of Information in respect of the passenger lifts: - Lift number - PL 1 to PL 8 - Quantity - 8 - Lift use - Passenger - Capacity (kg) - 1800 - Speed (m/x) - 2.5m/sec - Machine type - Geared Traction - Operation - (Eight (8) car) Microprocessor based group supervisory system - Travel (mm) - PL 2 to PL 7: 44960 PL 1 and PL 8: 53410 - Dispatch terminal - Ground floor - Levels served - PL 2 to PL 7: 11 @ G, 1 to 10 PL 1 and PL 8: 13 @ B2, B1, G, 1 to 10 - Machine location - Overhead - Openings Front - All - Car-lift shaft door (size) - 1200 mm W x 2600 mm H - Car-lift shaft door (type) - single speed center opening - Lift shaft sill (ground floor) - Nickel silver - Lift shaft sill (typ floor) - Extruded aluminium - Lift entrance material (ground floor) - Stainless steel - Lift entrance material (typ floor) - Painted furniture steel - Counterweight safety - PL 2 to PL 7 only Specification - 8.6.90 Page 27 195 - Self-levelling (two way) - Voltage/Hertz - 415; 50 - Phase - 3 - Wires - 4 - Platform size (mm) (W D) 2430 x 1850 - Ceiling height (mm) 2850 - Sills - Extruded metal alloy - Stand-by power - Auto-return - Lighting - incandescent and flourescent Goods Lift Specification The following specification applies to the single goods lift provided in the central core. - Lift Number - SL 1 - Lift use - Service - Capacity (kg) - 2500 - Speed (m/s) - 1.6 - Machine type - Geared Traction - Operation - Duplex Selective Collective with Attendant Service - Travel (mm)- 56710 - Dispatch terminal - Ground Floor - Levels served - 14 @ B3, B2, B1, LD, 1 to 10 - Machine location - overhead - Openings Front - All - Car-lift shaft door (size) - 1300 mm W x 2600 mm H - Car-lift shaft door (type) - two (2) speed side sliding - Lift shaft sill (ground flr) - Extruded nickel silver - Lift shaft sill (typ flr) - Extruded nickel silver - Lift entrance material (ground flr) - Painted furniture steel - Lift entrance material (typ flr) - Painted furniture steel - Self-levelling (two way) - Voltage/hertz - 415; 50 - Phase - 3 - Wires - 4 - Platform size (mm) - (W D) 1900 x 2990 - Ceiling height (mm) - 2900 - car height 3000 OA - Ceiling access hatch - Pads and hooks - Floor covering - Fire retardant rubber - Wall material - Brushed Stainless steel - Car door material - Brushed Stainless steel - Ceiling material - Painted furniture steel - Lighting - Fluorescent Specification - 8.6.90 Page 28 196 - Telephone cabinet and wiring - Stand-by power - Auto-return Fire Fighting Lifts Specification There will be three fire fighting lifts on the perimeter cores and their specification is as follows: - Lift number - FL 1 to FL 3 - Quantity - three - Lift use - Fire Fighting Lifts - Capacity (kg) - 630 - Speed (m/s) - 1.0 - Machine type - Geared traction - Operation - Simplex selective collective with fire fighter controls - Travel (mm) - 56710 - Dispatch terminal - Lower level ground floor (LLG) - Levels served - 14 @ B2, B1, G, 1 to l0, B3 - Machine location - Overhead - Openings Front - All - Car-lift shaft door (size) - 800 mm W x 2100 mm H - Car-lift shaft door (type) - single speed center opening - Lift shaft sill (typ flr) - Extruded aluminium - Lift shaft sill (typ flr) - Extruded aluminium - Lift entrance material (ground flr) - Painted furniture steel - Lift entrance material (typ flr) - Painted furniture steel - Self-levelling (two way) - Voltage/Hertz - 415; 50 - Phase - 3 - Wires - 4 - Platform size (mm) - (W D) 1200 x 1660 - Ceiling height (mm) - 2300 - Ceiling access hatch - Pads and hooks - Floor covering - Fire retardant rubber - Wall material - Brushed stainless steel - Car door material - Brushed stainless steel - Ceiling material - Brushed stainless steel - Lighting - fluorescent - Stand-by power - Auto-return Specification - 8.6.90 Page 29 197 Lift for the Disabled The specification for this lift is as follows: - Lift number - HL 1 - Quantity - one - Lift use - Passenger/Disabled Use - Capacity (kg) - 800 - Speed (m/s) - 0.5 - Machine type - Holeless hydraulic - Operation - Simplex Selective Collective - Travel (mm) - 4600 - Dispatch terminal - Lower level ground floor (LLG) - Levels served - 2, LLG, G - Machine location - Level B1 - Openings Front - LLG - Car-lift shaft door (size) - 800 mm W x 2600 mm H - Car-lift shaft door (type) - single speed center opening - Lift shaft sill (typ flr) - Extruded aluminium - Lift shaft sill (typ flr) - Extruded aluminium - Lift entrance material (ground flr) - Stainless steel - Lift entrance material (typ flr) - Stainless steel - Self-levelling (two way) - Voltage/Hertz - 415; 50 - Phase - 3 - Wires - 4 - Platform size (mm) - (W D) 1450 x 1800 - Ceiling height (mm) - 2300 - Sills - Extruded aluminium - Ceiling access hatch - Auto-return - Lighting - incandescent ESCALATOR An up and a down escalator have been provided in the main entrance foyer serving the lower ground and ground floor levels. The following is a specification of the escalator: - Escalator number - ESC 1 and 2 - Floors served - lower level ground (LLG) and ground floor (G) - Vertical rise (mm) - 3000 with a 30 degree incline - Step width (mm) - 1000 - Balustrade material - brushed stainless steel - Step finish - Cast aluminium - Balustrade skirting - Stainless steel with satin finish - Landing cover plate (top) - terrazzo - Landing cover plate (bottom) - terrazzo Specification - 8.6.90 Page 30 198 ELECTRICAL ENGINEERING SERVICES General The electrical engineering services shall comply with the regulations and requirements of the Institution of Electrical Engineers, the Chartered Institute of Building Services Engineers and in all respects with the national and local statutory authority regulations, the Building Regulations as adopted by the City of London and in particular section 20 requirements, the London Electricity Board Regulations and British Standards. Design Criteria Base Building i) Office floors at ground and 4th to 10th floors inclusive - lighting 21.5 watts per m(2) (2 watts/ft(2)). Miscellaneous small equipment 32.3 watts per m(2) (3 watts/ft(2)). ii) Car park - lighting 10.75 watts per m2 (1 watt/ft(2)). Miscellaneous small equipment 5.38 watts per m(2) (0.5 watt/ft(2)). iii) Mechanical plant spaces - lighting 21.5 watts per m(2) (2 watts/ft(2)). Miscellaneous small equipment 10.75 watts per m(2) (1 watt/ft(2)). iv) Electrical capacity for floor by floor air handling equipment on office floors as well as other HVAC equipment is not included in the above electrical design criteria. Capacity for these systems would be in addition to the above indicated quantities. Capacity also exists for the installation by tenants of additional HVAC equipment on floors 1, 2 and 3 above the Base Building provision. v) An additional 16.125 watts per m(2) (1.5 watts/ft(2)) of capacity over the entire building floor area is available at the transformers for distribution to areas where required. vi) Office floors at 1st, 2nd and 3rd floors inclusive - lighting 21.5 watts per m(2) (2 watts/ft(2)). Miscellaneous small equipment 108 watts per m(2) (10 watts/ft(2)). Electrical Services Electrical services will be provided at 11 Kv, 3 Phase, 50 hertz from multiple feeders by the London Electricity Board (LEB) entering the building at Shoe Lane. The feeders will be sized such that upon the loss of one feeder, the remaining feeders will be capable of handling the entire building load. Electric consumption will be metered at high voltage under the Maximum Demand Rate Tariff. Primary service switchgear will consist of multiple 11 Kv service circuit breakers and Specification - 8.6.90 Page 31 199 bus sectionalising breaker. Each service breaker will feed a lineup of primary circuit breakers which feed double-ended unit substations consisting of dry type cast resin transformers and low voltage distribution switchgear. Each transformer will be provided with fan cooling such that the loss of one transformer will not compromise the load the unit substation can carry. Minimum clearance around equipment will be: In front switchgear 1000mm Behind switchgear 750mm Between equipment 750mm Operating aisles 1500mm Ceiling vertical clearance 450mm The estimated electrical demand load of the building is 7500 KVA. Electrical Distribution Incoming power will be transformed from 11 Kv, 3 Phase, 3 wire to 415/240 volt 3 Phase distribution. Mechanical equipment (motors) will be supplied at 415 volts 3 Phase, 3 Wire whereas motor starters, lighting and small power distribution panels will be supplied with 415/240 volts, 3 Phase, 4 Wire feeders. All power will be at 50 Hz. All distribution boards shall contain miniature circuit breakers. Minimum of 25% of circuits in the board shall be left spare for future use having taken fitting out into account. Base Building Vertical distribution to the typical office floors will be via rising busbars for lighting and small power loads and floor by floor mechanical plant. Armoured cable in free-air tied to cable racks will be utilized for loads such as penthouse motor control centres, lift distribution, etc. Emergency/Standby Power The building will be provided with emergency/standby generating plant of the heavy duty diesel type rated for prime power. They will be provided with heat exchangers (cooling will be by cooling towers located at the roof) and will be complete with voltage sensing and control to provide automatic startup on loss of normal power. A complete diesel oil supply and storage system operation will be provided for the system. Adequate ventilation for combustion air and heat rejection will be provided. A total of two 1200KW/1500KVA generator sets will be provided under the Base Building Contract to cater for statutory supplies, and additional space for four generators will be provided. Access facilities within structure exist for the later installation of generators or any other Specification - 8.6.90 Page 32 200 major items of plant. Provision for flues, generator cooling, ventilation and oil storage has been allowed for a total of six generators. A block wall conforming to a 4hr fire rating will be constructed at B3 level between the Goldman Sachs generator room and the other tenant's generator room to include all fire protection provisions. Costs to be met by the Developer. Base Building The emergency power distribution system will handle the basic life safety functions of the entire building, including escape lighting, car park extract, sewage ejection equipment, emergency lighting, wet riser, hosereel and sprinkler pumps, fire alarm and detection system, code required ventilation, code required lifts per bank of lifts, fireman's lifts, etc. Upon loss of utility power, the emergency system loads will be priority loads transferred to the generating plant. Life Safety A complete life safety system shall be installed to comply with the Fire Officer's Civil Defense Authority's and Local District Surveyor's requirements and the requirements of BS5839 Part 1 and BS3116 Part 4. It shall be a zoned, annunciated, selective signal, automatic and manual fire alarm and control system; to monitor automatic and manual alarm initiating devices, as well as supervisory devices such as sprinkler valves, tamper switches, sprinkler pump status, wet riser pump status, hosereel pump status, and emergency generator status. Smoke detectors shall be as per code requirements such as in return air plenums and unattended areas, i.e. telephone rooms, electric cupboards, storage rooms, mechanical rooms and lift machine rooms. A supervised, selective, automatic one way emergency voice alarm system shall be included for use by the fire officer in evacuating the building. The operation of the system will be such that in the event of the activation of a manual or automatic alarm, a two stage alarm situation will result. The areas in which the call has been made will be indicated as the first stage, i.e. continuous bells and evacuation should commence. In other areas, the second stage alarm will sound, (pulsing bells) and the appointed fire marshalls for the areas will investigate the situation. A central fire command station at the central security control room with operating controls, alarm and status indicators, for the alarm and one-way systems shall be included. A printer shall be provided as an integral part of the central fire command station and shall be capable of operation on the system standby batteries in the case of power failure. It shall provide an English language record of all events within the system, including time and date of occurrence as well as a description of the event and location. The remote annunciator shall provide an individual LED alarm indication for each initiating circuit as well as an audible and visual system trouble indication. A mimic diagram shall be provided showing the building in correct orientation indicating the location of fire zones and the various entrances. Drill and location signal silence Specification - 8.6.90 Page 33 201 switches shall also be provided at the remote annunciator. The Fire Command Centre will be directly accessible from the outside via an escape corridor and will be contained with a 2 hour fire rated room. Standby batteries shall be provided which will be capable of operating the fire alarm system in a normal mode of operation for a period of six hours plus thirty minutes of operation of the system at full alarm. The entire system can be integrated with the Building Management System as described in this section. A fire alarm remote indicator panel with a mimic diagram shall be located at the Shoe Lane entrance to the building. Telecommunications Two duct banks shall be provided, from the property line to the main distribution frame rooms (MDF) of British Telecom and Mercury Communications. For high reliability, two physically separate service entrances will be provided with separate feeds to the MDF rooms. The telephone switch room shall be located adjacent to the main distribution frame rooms. Two riser cupboards of internal area 2.2 m(2) each (riser opening in floor 1.2 m(2)) for routing of tenant cables shall be provided on each floor. Lighting Lighting will be provided in all public areas of the project including lobbies, circulation spaces, public toilets, and exterior building lighting. All common areas and external lighting will be controlled by a Landlord panel separately metered. Lighting to upper lift lobbies is not part of Base Building. Public area exterior lighting shall be controlled by the Building Management System. Ground floor public areas will have purpose made architectural light fittings. Levels of illuminance and fixture types shall be as follows:- Typical office floors - maintained minimum lighting level of 500 lux at the working plane - fluorescent parabolic for tenant fit out Reception/Lobbies - 200 lux - incandescent Car park - 50 lux - fluorescent Mechanical spaces - 200 lux - industrial fluorescent Stairwells - 200 lux wall mounted fluorescent Water closets (toilets) - 200 lux - fluorescent Specification - 8.6.90 Page 34 202 Stores - 250 lux Telephone apparatus - 350 lux Escape lighting will be provided in accordance with British Standards BS5266 Part 1-3, 1975. Escape lighting will be supplied by the emergency generator upon loss of utility power and will be provided in designated egress corridors, stairwells, open areas with undefined escape routes, (entrance foyers, car parks, open plan offices, etc.), switchgear rooms, transformer vaults, emergency generator rooms, control and plantrooms, etc. Control Energy Conservation Control energy conservation will be achieved by: 1. Control boxes (micro-computer based). 2. Relay boxes. 3. Illuminated switches. Lightning Protection A lightning protection system will be provided in accordance with the British Standard BS6651, 1985. Earthing (grounding) An earthing (grounding) system will be provided in accordance with the British Standard Code of Practice CP1O13, 1965. Security The specification for the Security System has been designed by Schiff & Associates. The provision in the Base Building is restricted to the conduiting necessary to suit that design. The conduiting conditions will permit the security system to be installed by tenants in "layers" of security depending upon the sensitivity of the areas concerned. In addition, conduiting is allowed to all doors leading to tenancy inter-connecting stairs where movement sensors and card control devices could be installed by tenants. Conduiting is also provided to the main reception desk to permit the system to be monitored on a 24 hour basis if necessary. The entrance to the car park also has provision of conduiting for card control devices. Closed Circuit TV monitors are provided to the most sensitive areas and Specification - 8.6.90 Page 35 203 entrance for remote surveillance. Check in systems for security guards are provided to ensure regular surveillance. Speciality Wiring Wiring will be provided for special systems such as window cleaning equipment and facilities at various roof levels all in accordance with British Standards. Retail Unit Shall have its own separate metered electrical supply and shall be left for the tenant to make its connection. Car Park/Loading Deck Shall have a vehicle barrier controlled by security and the loading deck areas shall have electrically operated shutters. Metering Services shall be installed to suit separate meters for common areas and tenant areas. Floors 3 through 6 as a group shall have the facility for separate metering. Separate electric meters are to be provided to tenant services in addition to the current base building requirements. MECHANICAL AND SANITARY SERVICES Air Conditioning, Ventilation, Heating, Refrigeration and Associated Systems General The heating, ventilation and air conditioning systems shall comply with the requirements of the Chartered Institute of Building Services Engineers Guide and in all respects with the national and local statutory authority regulations, the Building Regulations as adopted by the City of London and in particular section 20 requirements, and British Standards. Valved connections to all base building risers will be provided to enable tenant installation of services without interruption to the base building systems. Costs to be met by the Developer. Design Criteria The building conditioning systems shall be capable of maintaining the following environmental standards: Specification - 8.6.90 Page 36 204 i) Air Conditioned Areas (Base Building) Winter Outside temperature: - 4(degree)C (24.8(degree)F) Inside conditions: 20(degree)C (68(degree)F) +/- 1.5(degree)C (controls will be capable of +/- 0.5(degree)C) The winter humidification will be provided to maintain relative humidity levels between 40% and 50%. Summer Outside design conditions: 28(degree)C (82.8(degree)F) DB, 20(degree)C (68(degree)F) WB Inside conditions: 22(degree)C (71.6(degree)F) +/- 1.5(degree)C (controls will be capable of +/- 0.5(degree)C) Relative humidity: 40%-60% Note: The above criteria applies to office space and main reception areas. ii) Non Air Conditioned Areas (Base Building) The following spaces will have less stringent inside temperature requirements and are as follows: Lift motor rooms Winter 19(degree)C (66(degree)F) Summer 32(degree)C (90(degree)F) DB Toilet areas Winter 20(degree)C (68(degree)F) Summer ventilation only Plant rooms and Winter: frost protection only truck dock area Summer: ventilation only iii) Ventilation Rates Outdoor air quantities will be introduced as follows: Offices 1.3 1/s per m(2) 12.5 1/s per person Office floors 1, 2 and 3 2.00 1/s per m(2) 15.0 1/s per person Specification - 8.6.90 Page 37 205 Kitchen extract riser 1 kitchen extract riser is provided for the benefit of floors 3 to 6 inclusive with an overall potential rating of 15,000 cfm Commercial/public spaces As offices Garage/Toilet Areas 6 air changes per hour minimum iv) Load Densities (Heat Rejection Rate) for cooling Capacity will be included in the air handling, chilled water, refrigeration and condenser water/cooling tower systems for the following load densities: Typical Office Floors: Lighting 21.5 watts per m(2) (2 watts/ft(2)) Equipment 32.3 warts per m(2) (3 watts/ft(2)) Cooling medium availability exists on floors 1, 2 and 3 to serve the following possible loads: Lighting 21.5 watts per m(2) Power 108 watts per m(2) v) Occupancy Criteria Typical Office Areas 1 person per 9.6 m(2) (100 ft(2)) Floors 1, 2 and 3 1 person per 7.5 m(2) (80 ft(2)) vi) Acoustic Criteria Typical Offices: NC-35 (except within 3 m of on floor plantrooms where NC-38 shall apply). Toilets, Public Areas, Retail and Circulation Space: NC-40 Chilled Water System Specification - 8.6.90 Page 38 206 The building will have an independent chilled water plant located in B-3 level functioning with closed circuit evaporative cooling towers located in a roof top enclosure. The Base Building refrigeration plant (chillers, pumps and associated plant) shall comprise two 650 ton (2220 Kw) units. The Base Building cooling towers shall be sized to match the heat rejection from the refrigeration plant. Two towers shall be provided for the Base Building refrigeration plant. The space and piping arrangements in the refrigeration plant, will be planned for ready addition of future units to accommodate load growth associated with tenants' additional cooling requirements, up to a nominal 650 tons capacity. Chilled water and condenser water risers will be sized with capacity greater than the initial connected load. Capped and valved connections will be provided at every floor level for future expansion. A Uvex U.V. system will be employed in the cooling towers to reduce the risk of Legionella bacteria developing. Generator Cooling System The standby generator cooling system shall comprise pumps, pipework, distribution pipework risers and open-cell cooling towers. One cooling tower, pump and heat exchanger are for standby duty. Heating System Heating shall be provided by a boiler plant comprising two units with standby capacity of gas-fired hot water boilers with associated pumps and auxiliaries located in the B-3 level plant room. Hot water will be circulated throughout the building to the individual heating elements appropriately designed for each of their individual applications. Heating on the typical office floors will be accomplished through perimeter fan power VAV terminal units with integral LPHW heating coils. Hot water will also be distributed to special heating devices at the various entrance points to the building, and to perimeter radiation outlets in the gallery, and the south facade of the 10th floor. Air Conditioning Systems - General Office Access i) Typical office floors shall be serviced by on floor packaged air handling units, distributed one per floor. Each air handling unit shall be of the medium pressure variable air volume type comprising filters, cooling coils, fans, sound attenuators and anti-vibration devices, and all electronic controls, and starting devices. Outside air for fresh air ventilation shall be supplied from roof level via medium pressure vertical ductwork systems, with ductwork connections to each air Specification - 8.6.90 Page 39 207 handling unit plantroom. Outside air shall be provided by an air handling unit located within the 10th floor plantroom which shall comprise filters, hot water heating coils, fans, sound attenuators and anti-vibration devices, and all electronic controls and motor starting devices. Humidification will be provided in each air handling unit plantroom. Return air shall be drawn from the conditioned space via attenuated transfer ducts. The air handling unit plantroom enclosure shall serve as a mixing plenum. Conditioned air shall be distributed through medium pressure connections extended into the office areas and terminated at the plantroom wall. The tenant fit out works installed under the base building works shall include a medium pressure primary ductwork loop installed within the designated ceiling void areas. A deduction from the landlord's fit out allowance will be made in this respect. Future connections to VAV terminals and secondary ductwork distribution including grilles and diffusers shall be provided by each tenant. The perimeter margin diffuser is provided under the base building contract for all floors. ii) Lift Motor Rooms These will be provided with low pressure, constant volume, recirculating air conditioning units located within the elevator machine room, maintaining the maximum temperature allowable in that space. The units shall consist of filters, cooling coils, motor starters, supply fans, vibration isolators and temperature controls. Ventilation Systems i) Toilet Access There will be a central toilet exhaust system complete with a toilet make-up system. Vertical exhaust and make-up systems shall be provided serving the toilets on each floor with fans located in the level 10 mechanical room. ii) Plant Room Ventilation Ventilation and exhaust systems will be provided for switchgear and transformer rooms, mechanical rooms, and particularly for the emergency generator rooms where significant air quantities will be required. Ventilation provisions will be made to Landlord's maintenance workshops, the Engineer's Office and Security Office. iii) Kitchen Exhaust (space provisions only) Specification - 8.6.90 Page 40 208 A route for a kitchen exhaust system will be provided in the Base Building Contract. System capacity will be appropriate for conformance with codes and good practice, including makeup air and life safety. Parking Garage and Truck Dock Ventilation Complete independent systems comprising of vaneaxial supply and exhaust fans, sound attenuators, duct distribution, motors, motor starters, air outlets and controls will be provided to serve the underground parking levels and the truck dock areas. The system shall supply 100% outside air and exhaust through outlets carefully integrated with the lower levels and ground level design of the building. Within the car park, the extract ductwork will be arranged to exhaust from both high and low level. A carbon monoxide (CO) monitoring alarm system shall be provided for these areas. Fans shall be fire rated for operation at 600(degree)C. Building Management System (BMS) A microprocessor based direct digital control building management systems will be provided to monitor, control and optimize the operation of all the building services systems, and it will be of the distributed intelligence type. The central control console shall function as the primary means of overall system control and monitoring and shall comprise: Central Processing Unit (CPU) Logging and alarm receive only printer Desk mounted hardwired telephone handset for communication with the life safety system One 40M Byte Winchester hard disk One 1.44M Byte floppy disk Audio tone generator to activate on reception of an alarm The CRT is to be displayed in colour. DDC's (Direct Digital Control) shall be provided for every other local plant room and each mechanical equipment room to control systems in that room only. Each DDC shall control a maximum of two air conditioning systems. Where this arrangement cannot be implemented a separate DDC shall be provided for each system. Each DDC shall include integral power supplies, communication channels, clocks and analog and digital input and output modules and a self-charging battery capable of supporting all memory, clock functions and DDC database and operating programs within the control unit for four hours in event of power failure or power interruption. Each DDC shall have the capability on a stand alone basis at the DDC control unit itself to display status, set points and analog valves, adjust controller variables, start/stop Specification - 8.6.90 Page 41 209 motors and open/close valves and dampers, display system alarm conditions and acknowledge alarms. Each DDC shall have resident all the necessary control software algorithms to permit any control modes in any combination to meet the needs of the application. Each DDC shall have the ability to be locally interrogated by an operator by either: a) The DDC control unit integral display and control unit. b) A separate hand held plug in display and control unit (at least two to be made available). The entire BMS including the wiring system shall offer immunity to EM1 and RF1 radiated noise (eg walkie-talkies with a 3 metre radius of a closed DDC enclosure). The BMS shall be linked to 300 landlord plant outstations. The BMS shall be of an 'open protocol' type to allow connection to and interface with compatible systems installed as part of future fit out works. It shall have the facility to provide lighting control. The system shall have the capacity of starting and stopping all of the compartment air handling systems as well as the miscellaneous air conditioning systems throughout the building. The status of all this equipment will also be reported. Life Safety A smoke control system will be provided throughout the building consistent with the Fire Officer's requirements. The system will include smoke evacuation for office floors, loading dock and public areas as well as stair pressurization throughout. Smoke evacuation for typical office floors will be accomplished by using a system of dedicated smoke extract fans and chambers reversing the office fresh air supply ducts to act as exhaust ducts. Additional smoke evacuation systems with complete redundancy will be provided for public areas and the loading dock as well as below ground spaces. Major Plant Items i) Refrigeration Machines Refrigeration machines shall be electrically driven semi-hemetic centrifugal machines including condenser, evaporator, compressor, motor, purge system, control panel, starter and isolators. ii) Cooling Towers Specification - 8.6.90 Page 42 210 Cooling towers shall be of the closed circuit, forced draft type complete with fans, motors, spray pumps and vibration isolation, completely factory fabricated. iii) Pumps Chilled and condenser water and heating pumps shall be horizontally split case pumps, single stage, double suction. Pumps shall be completely non-overloading over the full range of the pump curve. iv) Fan Assisted VAV Boxes Perimeter VAV boxes shall be provided under the base building works to offset the building fabric heat losses. VAV boxes shall be of the electrically powered pressure independent type complete with a full time operating fan section and with a LPHW heating coil and all necessary automatic controls. The system shall be installed to suit a 1500mm partition module. v) Air Handling Units Factory fabricated air handling units shall be acoustically rated, and comprise of fans, filters, variable volume control, cooling coils, insulated galvanized double skinned sheet metal casing, vibration isolators, sound attenuators, dampers and automatic controls. Heating coils and humidification are provided on office floor air handling units. vi) Air Filters Air conditioning system filters shall be rated to Eurovent 45 (80-85% efficient) bag type with 50mm panel type with metal frame. All filters shall be provided with draft gauges. vii) Water Filters Water filters for the condenser water systems will be comprised of UVEX ultra violet filters with integral sand filter and automatic timed backwash cycle, differential pressure sensors, and alarms. Water filters for hot water heating and chilled water systems shall be of the in-line, self-cleaning type. viii) Boilers Low pressure hot water boilers shall be packaged gas fire tube boilers with built-in forced draft system. Boilers shall be complete with burner, computerized burner controls, draft fan, draft controls, boiler water circulating pump, air compressor, gas booster, and other components assembled into a fully factory fire tested unit. ix) Boiler and Generator Flues Specification - 8.6.90 Page 43 211 Boiler and generator flues shall be of internally stainless steel insulated double-wall construction, comprising prefabricated sections complete with all fittings, access doors, drawing connectors and other required accessories. x) Fans Centrifugal fans shall be V-belt drive, non-over-loading aerofoil section fans. Vaneaxial fans shall be variable pitch, direct drive, DDC operation. Fans for smoke extract duty shall be rated for operation at 300(degree)C. Fans for smoke extract duty in the car park and truck dock shall be rated for operation at 600(degree)C. Vibration Isolation A complete system of vibration isolation and sound attenuation shall be provided for all mechanical equipment including fans, chillers, cooling towers, pumps and emergency generator. Pumps and fans shall be mounted on adequate inertia blocks. All piping guides, anchors, and supports shall be isolated from building structure. All piping within 15m of rotating equipment shall be mounted on spring hangers. Sound attenuators shall be provided downstream of all low velocity supply fans, upstream on all return and exhaust systems, or as required to maintain specific noise levels. As an alternative, purpose-made attenuators may be provided. Variable air volume boxes shall be adequately treated for radiated and generated noise so as to maintain space NR levels. Air conditioning supply and return fans shall be provided with attenuators both upstream and downstream of the fan section. Automatic Temperature Controls A complete system of electronic controls shall be provided for all plant systems. Plant systems shall be interlinked with the building BMS for remote monitoring control. Building Controls On office floors measures shall be taken to ensure that all base building controls are contained within central plantrooms leaving ceiling and floor voids free. Specification - 8.6.90 Page 44 212 PUBLIC HEALTH, DOMESTIC WATER AND GAS SERVICES General The public health systems shall comply with the requirements of the Building Regulations and Public Health Acts, in particular those aspects applicable within the City of London. The systems shall also conform to the requirements and design recommendations of the Institution of Public Health Engineers, the Institute of Plumbing. The domestic water systems shall comply with the requirements of Thames Water Authority. The gas distribution systems shall comply with the requirements of British Gas. All systems shall comply with the relevant British Standards. Scope Sanitary drain and vent systems serving all sanitary appliances. Provisions for future tenant drinking fountains have been provided at every office floor. Drainage provision is made for one tenant kitchen on any floor between ground and level 10 inclusive. (But this shall exclude kitchenettes/tearooms which can be installed at the rate of two per floor throughout the building, provided that they use separate stacks at each level.) Surface water collection system. Water disposal from pits and lobbies to fire lifts. Water disposal of groundwater entering the building basements including the Wine Office Court West chamber. Domestic cold water system. Domestic hot water system. Gas distribution system. Petrol interceptor and car park drainage. Buildings utility services including water, gas, sanitary sewer and surface water sewer. Specification - 8.6.90 Page 45 213 Sanitary Drain and Vent System A complete system of sanitary drains and vent piping shall be connected to all plumbing fixtures, mechanical equipment and floor drains. The system will be a gravity system discharging to the foul sewer system. Sanitary drains below the street level shall be collected and discharged by sewage ejectors. The ejectors shall be on emergency standby power. A system of rising wet columns and vent stacks shall be provided with capped connections at each floor level to facilitate the future addition of tenants' facilities, e.g. vending area, additional executive toilets, etc. Surface Water Collection System Roof drains and area drains shall be collected in a rainwater pipe system conveying runoff to the combined local authority sewer via gravity. Surface water below the street level shall be collected and discharged by sump pumps. This shall include water collected in the cavity construction around all secant walls. The sump pumps shall be on emergency standby power. Domestic and Drinking Water System The incoming water service shall be metered and will be extended to feed a storage tank in the lowest level of the building. The storage tank will be of the two compartment design to allow for routine maintenance of the tank, without interruption of service to the building. A packaged, Triplex pumping unit shall be provided to take suction from the storage tanks and deliver water to all water using fixtures and equipment. The pumps shall be on emergency standby power. Permanently charged hydro-pneumatic tanks shall be provided in the mechanical penthouse of the building, and interconnected with the pump discharge, to supply water during periods of low flow and prevent excessive pump cycling. Capped and valved domestic and drinking water connections shall be provided at each floor level for future tenants' use. Water System Hot water shall be produced by local pressurised electric water heaters, located within the cleaners' cupboard. The units shall serve the floor they are located on and pipework shall be trace heated on all deadlegs in excess of statutory requirements. Specification - 8.6.90 Page 46 214 The system shall be designed to deliver 50(degree)C (122(degree)F) water to all fixtures requiring hot water. Gas Systems A metered gas service shall be brought into the building and extended to the boiler plant. Where run through non serviced areas of the building the gas main shall be contained in a ventilated fire proofed enclosure. No gas supply will be provided or permitted to tenant areas for kitchen or other use. Major Plant Items i) Domestic Water Pumps Domestic water service pumps shall be of the packaged type complete with pressurisation vessels, controls and all necessary motor starters and contactors. The packaged set will include a running standby pump. ii) Water Storage Tank The domestic tank shall be of internally flanged glass reinforced plastic (GRP) construction, double compartment, with access manholes, ladders, steel drainage and flanged piping connections. The house tank shall contain the necessary float switches to accomplish: pump on, pump off for each pump, high water alarm, low water alarm. The water storage tank will be suitable for drinking water. iii) Sewage Ejectors Sewage ejector shall be of duplex design for installation in wet pit. Installation shall include pumps, motors, starters, mercury float switches pump controller, high water alarm, cover plate and frame, access opening, vent, discharge piping, check valves, gate valves and all accessories to make installation complete. iv) Sump Pumps Sump pumps shall be of the duplex design for installation in wet pit. Installation shall include pumps, motors, starters, mercury float switches pump controller, high water alarm, cover plate and frame access opening, discharge piping, check valves, gate valves and all accessories to make installation complete. Specification - 8.6.90 Page 47 215 v) Sanitary Fittings Sanitary fittings shall be provided with all required traps, supports, stops, supply pipes, trim and all necessary accessories to make the installation complete. All sanitary fittings shall be white vitreous china. Wash basins shall be self riming for installation in countertops. (Further description under architectural section - toilets). Urinals shall be wall hung with high-level cisterns located within service ducts. All exposed piping shall be chrome plated. Disabled toilets shall be fitted with grab-rails. FIRE PROTECTION SYSTEMS General The fire protection systems shall comply with the requirements of the City of London District Surveyor, the London Fire and Civil Defence Authority (LFCDA) and with the relevant sections of the Fire Officers Committee Rules (Loss Prevention Council), British Standards Codes of Practice and the Thames Water Authority. Scope of Works (Base Building) Sprinkler System (including pumps and suction tanks) Wet Riser System ( " " " " ) Hosereel System ( " " " " ) Water Supplies Water from the town's mains shall be brought into the building to serve the sprinkler system, hosereel system and wet riser system. Sprinkler System The entire building shall be protected with an automatic sprinkler system. A packaged sprinkler pump set comprising one jockey, one duty and one standby shall be provided Specification - 8.6.90 Page 48 216 and shall draw water from a separate 50 m(3) cold water suction GRP tank. A two-zone high (levels 3-10) and low (levels B3-level 2) wet riser sprinkler system shall serve all areas not exposed to external weather conditions. A sprinkler zone ring assembly shall be provided at every floor level to control and limit the number of sprinkler heads allowable to conform to District Surveyor requirements. The sprinkler valves per floor will be provided under the Base Building for tenants to connect their sprinkler distribution systems. A dry/wet alternative sprinkler protection system shall cover the car park and loading bay area. A network of pipework and risers shall be distributed to the ceiling sprinkler heads located and positioned to conform to statutory approval. The piping and all components shall be rated for the maximum system pressure. The entire installation shall be electrically supervised by the fire alarm system. The sprinkler pumps shall be provided with a standby power supply from diesel generators via the essential supplies distribution board. Wet Riser System Wet rising mains shall be provided in each fire shaft to serve landing valves at each level for fire brigade use. A wet riser pump installation complete with jockey pump shall draw water from the 90 cu metre concrete suction tank and pump into the rising mains. The pump installation shall be electrically supervised by the fire alarm system. The wet rising main pumps shall be provided with a standby power supply from the diesel generator via the essential supplies distribution board. Hosereel System First aid hosereels shall be provided in accordance with the requirements sited adjacent to means of escape and/or on escape corridor routes. The maximum hose length shall be 30 metres. The hosereel system shall be provided with a storage cistern of 1,125 litres with duplicate electric pumps to provide 2 bar at the highest hosereel. The storage cistern shall be fed via 50mm connection from the fire water supply fed by the town's mains. The hosereel pumps shall be provided with a standby power supply from the diesel generator via the essential supplies distribution board. Specification - 8.6.90 Page 49 217 Halon Systems Halon 1301 total flooding systems shall be provided in the transformer rooms. Halon 1301 systems shall have a nominal concentration of 5% V/V. The Halon system shall be complete with a detection system consisting of control panels, detectors within all areas and voids, and shall interface with the main building fire alarm system. Special Systems Areas subject to freezing shall be provided with pipework trace heated and lagged. Sprinkler and Wet Rising Main Pumps Fire pumps shall conform to the requirements of the FOC Rules and the relevant British Standard. Fire pumps shall be witnessed tested prior to dispatch to site. Electrically driven fire pumps shall be fed directly from the essential electrical supplies distribution board. Sprinkler Heads Sprinkler heads shall be of the concealed (flush) type in base building finished areas and conventional sprinklers (either upright or pendant) in areas without ceilings. Sprinklers shall be 15 mm nominal discharge orifice and colours and finishes to concealing plates shall be as selected and approved by the architect to match ceiling colours and textures. Valve Supervisory Switches (Tamper Switch) Tamper switches shall be provided on all control valves. Alarm signals shall register on sprinkler alarm panel. Water Flow Indicators Water flow indicators shall be of a type with `FOC' approval or listing, Potter type VSRD or Notifier type WFD. Specification - 8.6.90 Page 50 218 Commissioning The developer will, prior to Practical Completion, undertake testing and commissioning of the base building works services installations. Signs Identification shall be provided on all pipework in accordance with BS1710. Identification signs to a standard design shall be attached to all valves, drains, test connections, etc. Identification signs to a standard acceptable to the LFCDA shall be attached to all valve cupboards sprinkler chambers and rooms, etc. Specification - 8.6.90 Page 51 219 PETERBOROUGH COURT - PROPOSED GSIL TENANCY SCHEDULE OF AGREED ADDITIONS TO AND OMISSIONS FROM THE BASE BUILDING CONTRACT ADDITIONS The following list of items are to form part of the Base Building Contract installed by the developer with all increased costs to be met by GSIL, and are to be disregarded at rent review. Structural 1. A mezzanine floor (known as level 11 mezzanine) will be constructed for GSIL under the Base Building Contract and shall consist of a concrete slab on profiled metal decking supported on additional steel beams back to main building columns. All access stairs, partitioning, services and other fitting out at this level shall be by the tenant. 2. 2 No. accommodation staircases serving ground level to level 2 inclusive and level 6 to level 10 inclusive, respectively, and referred to as staircases 5 and 6 respectively shall be installed under the Base Building Contract. Modifications of main ring ductwork to allow positioning of stairs shall also be included. 3. An additional staircase from upper lift lobby level at the ground floor to the proposed B1 level cafeteria shall be constructed by base building. 4. At B3 level, structural modifications to the suspended B3 slab shall be made to incorporate recesses to receive tenant's security vaults, plus revisions to blockwork and the provision of metal security doors to corridors in the immediate vicinity. 5. Level 10 slab height will be adjusted to provide for an overall floor system depth of 80 mm. This area will be finished by the tenant with screed and marble topping or equivelant. Reinstatement to the "Base Fitting Out Specification" will exclude the requirement to 1 220 provide an overall floor system depth of 150 mm. 6. Construction of upstands around all openings in the level 3 floor slab as flood protection to the level 2 trading floor. 7. One combined voice and data communication riser cupboard of 2.2 m(2) (internal area) each (riser opening in floor 1.2 m(2)) for routing of GSIL cables shall be provided on each floor vertically aligned. In addition, one 3 m(2) (riser opening in floor 2.4 m(2)) cupboard shall be provided from level B1 to level 2 for GSIL for routing of technology support cables. All cupboards will be designed for access into the raised floor for distribution throughout the floor area. 8. Provision of blockwork bund wall and concrete stair at tenant's UPS room. 9. Lift lobby screed alterations to align with core walls to suit tenant's details. Architectural 1. At basement levels block partitions will be erected by base building to tenant layout and shall allow for revisions in base building walls to door sizes and the substitution of 1 1/2 leaf size doors in lieu of single doors, again to suit tenant layout. Some additional doors will also be provided in base building partitions. 2. Aluminium window extrusion extensions and spandrel beam bracketry to suit tenant dry lining to exterior curtain walling will be included as part of the Base Building Contract. 3. Duranar finish to the internal surfaces of level 10 windows. 4. Base building toilet accommodation will be expanded in size on the B2 level to suit GSIL requirements. 5. Construction in blockwork of fan rooms on levels 1 and 2 for tenant auxiliary fans and at B1 level fan room. 2 221 6. Upgrade visual quality of terrace paving at level 10. Lifts 1. GSIL as principal tenant will have the facility to dedicate a lift from ground level to level 10, by installation of remote over-ride equipment. 2. For the purposes of the GSIL security vaults at level B3, GSIL will have the facility to isolate the freight elevator at periods of maximum security, by installation of a manual over-ride. Mechanical 1. Design criteria Telecommunications rooms, computer suites and other sensitive electronic plant areas for GSIL shall be designed to maintain an all year round condition of 22(degree)C +/-1(degree)C, 50% RH +/-5%. All additional mechanical equipment to achieve these criteria shall be provided as part of the fit out works (Goldman Sachs's tenancy) extended with the base building to levels 1 and 2. Ventilation Rates Outdoor air quantities will be introduced as follows: Offices/base building: 1.3 1/s per m(2) 12.5 1/s per person Trading/dealing rooms: 2.0 1/s per m(2) (GSIL enhancement 15.0 1/s per person provided under Base Building Contract) 3 222 GSIL kitchen/dining Enabling facility provided for 2 cfm/ft(2) areas: (GSIL enhancement provided under Base Building Contract) Load densities/heat rejection rate for cooling: Typical office floors (base building) Lighting 21.5 watts per m(2) (2 watts per ft(2)) Equipment 32.3 watts per m(2) (3 watts per ft(2)) Designated trading floors (GSIL enhancement provided under base building) Lighting 21.5 watts per m(2) (2 watts per ft(2)) Equipment 108 watts per m(2) (10 watts per ft(2)) Other cooling (tenant enhancement provided under base building) 850 kw chiller water capacity shall be provided to serve GSIL's equipment and telecommunication rooms. Occupancy Criteria Office areas 1 person per 9.6 m(2) (100 ft(2)) Designated trading floors (GSIL enhancement) 1 person per 7.5 (80 ft(2)) Acoustic Criteria Typical offices: NC35 (except within 3 m of on-floor fan rooms where NC38 shall apply) 4 223 Trading (dealing) NC40 areas: Toilets, public NC40 areas, retail & circulation spaces: The base building refrigeration plant (chillers, pumps & associated plant) shall comprise 2 No. 650 tonne (2220 kw) units. A third 650 tonne (2290 kw) unit shall be provided for the Goldman Sachs's tenant fit out works as part of the base building works. The base building cooling towers shall be sized to match the heat rejection from the refrigeration plant. Two towers shall be provided for the base building refrigeration plant and a third provided for the Goldman Sachs's tenant fit out chiller. Trading/dealing floors (Goldman Sachs tenant fit out works) These areas will be served by the same air handling system serving the typical floors. However, they will also have supplemental compartmental fan units in addition to the air supplied from the core and shell systems to meet the increased load. The supplemental air handling systems will consist of packaged, medium pressure, variable air volume supply systems. Each will consist of filters, cooling coils, fans, sound attenuators and shall be supported on appropriate vibration isolation devices. Additional outside air ventilation rate will be supplied directly to match the high occupancy levels. Humidification will be added in the fan room. These air handling systems with their corresponding refrigeration capacity will be connected to a standby power system. The supplemental fan units will be inter-connected to the main base building systems with a normally closed duct link to provide backup in case of the failure of either fan system. UPS battery room exhaust (GSIL enhancement) A separate system of exhausts, connected to standby power will be provided for these areas in accordance with Code and Goldman Sachs's requirements. 5 224 Halon Systems 1. Halon 1301 total flooding systems shall be provided for the following locations: a) Transformer rooms b) UPS room for GSIL c) B2 computer area for GSIL A separate halon exhaust system, connected to standby power, will be provided to those areas using halon or fire suppression (eg telecommunications equipment areas, UPS computer rooms, etc.). The halon exhaust system ductwork shall comprise a medium pressure ductwork installed in the base building works. The plant and extension of ductwork to the areas served shall form part of the fit out works. Electrical 1. Design Criteria Tenant enhancements (i) Levels 1 and 2 miscellaneous small equipment 75.4 w/m(2) (7 w/ft(2)) (ii) Levels 1 and 2 equipment and telecommunications areas 850 kw (iii) Kitchen - equipment power 150 kw (iv) Electrical capacity for floor by floor air handling equipment for enhancement of each VAV systems on dealing/trading floors and telecommunication areas. Capacity for these systems would be in addition to the above indicated quantities. Rising busbars for UPS power to communications rooms and trading support rooms on the trading floors will be installed under the Base Building Contract. 6 225 The rising busbars, vertical risers and distribution panels will be accommodated within two electric cupboards in the core areas, each approximately 6.25 m(2) (67 ft(2)) in size. On dealing (trading) floors, additional tenant electric cupboards will be provided for housing distribution panel boards under the tenant fit out design. Feeders will be routed from the core electric cupboards to these satellite cupboards within the accessible ceiling on that floor under the tenant fit out design. For tenant fit out, horizontal distribution on typical floors will be under a raised floor for small power equipment and telecommunication needs. The distribution for lighting will be above the hung ceiling. Standby Power Three 1200 kw/1500 KVA generator sets will be provided under the base building contract at GSIL's cost. Provision will be made in the synchronising switchgear for expansion for an additional generator for GSIL's use at GSIL's cost. The GSIL tenant standby power distribution system has provision to handle 30% of their office area lighting and small power, 60% of the dealing (trading) floors, lighting and small power, dealing (trading) support and telecommunications equipment, and their attendant mechanical systems. The emergency generator distribution system will be provided with load shedding capabilities. A UPS system with 15 minute battery capacity for the support of dealing (trading) and telecommunications equipment will be inter-connected with the standby generator system. The UPS load will be fed from a 500 KVA system comprised of four 250 KVA UPS modules parallelled. The number of modules will be such that the loss of a single module will not compromise operation at full load. Capacity in the bus bars will be capable of supporting one additional 250 KVA module. The cost of the tenant's generators plus a share of the associated costs (eg cooling towers/flues, etc.) plus the total cost of the 7 226 costs (eg cooling towers/flues, etc.) plus the total cost of the synchronisation switchgear shall be charged to GSIL. All electrical and associated works related to the tenant's UPS installation shall also be paid by the tenant. Power supplies, BWIC, etc., relating to tenant equipment will be charged to GSIL. M&E General 1. Co-ordination and modification costs of M&E works (including works in progress) to suit fit out design development and installation shall be charged to GSIL. 2. Specialist testing, commissioning, record drawings, O&M manuals, etc., associated with certain tenant installations shall also be charged to GSIL. Building Management System 1. Tenant's BMS controls integral with but additional to base building systems shall be installed under the Base Building Contract. Communications 1. All works by base building associated with the tenant's communication system shall be charged to GSIL. OMISSIONS FROM THE BASE BUILDING CONTRACT The following list of items are to be excluded from the Base Building Contract installed by the Developer but nevertheless the same shall be taken into account at rent review as though installed: 1. Proposed base building toilet facilities on level 10 will be omitted from the Base Building Contract to be constructed as part of the fit out works as appropriate. 2. At level 10 on the south elevation base building blinds have been 8 227 install "Mecho Shades" in preference to the base building specification. 3. At B2 level, one corridor has been modified in terms of lighting and sprinkler provision to suit tenant ceiling proposals. 4. The finishes (with the exception of terrazzo flooring) and joinery work within the base building messenger room will be installed as part of the fit out contract. 5. Preaction sprinklers for the BT/Mercury intake rooms on the B2 level shall be installed by the tenant, GSIL on behalf of the developer. BVD/JRN 29 June 1990 9 228 REVIEW FORM OF LEASE 229 [REVIEW FORM OF LEASE] DATED 19 ---------------------------------- [ ] - and - [ ] - to - [ ] ---------------------------------- LEASE - of - premises on floors [ ] to [ ] and part basement levels [ ] and [ ] Peterborough Court, 133 Fleet Street, London EC4 ---------------------------------- TERM COMMENCES : 25th March 1991 EXPIRES : 24th March 2016 ---------------------------------- Note: This form to be read as modified mutatis mutandis for use in relation to Review Unit (iv) (Daniel House). LINKLATERS & PAINES, (RGF) Barrington House, 59-67 Gresham Street, London EC2V 7JA. 230 INDEX Clause Page - ------ ---- 1. DEFINITIONS ................................................ 1 2. DEMISE AND RENTS ........................................... 10 3. TENANT'S COVENANTS ......................................... 11 (1) Rent .................................................. 11 (2) Interest on overdue moneys ............................ 11 (3) Outgoings ............................................. 12 (4) Utilities ............................................. 12 (5) Repair ................................................ 13 (6) Plant and Machinery ................................... 13 (7) Decoration ............................................ 14 (8) Cleaning .............................................. 14 (9) Permit entry .......................................... 14 (10) Notices to repair ..................................... 15 (11) Dangerous Substances and insurances ................... 15 (12) Overloading floors and services ....................... 16 (13) Conduits .............................................. 17 (14) Disposal of refuse .................................... 17 (15) Not to cause obstructions ............................. 17 (16) User .................................................. 18 (17) Regulations ........................................... 19 (18) Signs ................................................. 19 (19) Alterations ........................................... 19 (20) Alienation ............................................ 22 (21) Registration .......................................... 25 (22) Easements ............................................. 26 (23) Landlord's costs ...................................... 27 (24) Statutory requirements ................................ 28 (25) Planning .............................................. 29 (26) Notices affecting the Premises ........................ 30 (27) Defects and indemnity ................................. 30 (28) Reletting notices ..................................... 31 (29) Applications for consent .............................. 31 (30) Observe covenants ..................................... 31 (31) Breaches by underlessees .............................. 31 (32) Yielding up ........................................... 32 (33) VAT ................................................... 33 (34) Reimbursement of VAT .................................. 33 4. LANDLORD'S COVENANTS ....................................... 34 (1) Quiet enjoyment ....................................... 34 (2) Insurance ............................................. 34 (3) VAT ................................................... 36 (i) 231 Clause Page - ------ ---- 5. PROVISOS ................................................... 37 (1) Forfeiture ............................................ 37 (2) Implied easements ..................................... 38 (3) Restrictions on adjoining property .................... 39 (4) Variation of and liability for Services ............... 39 (5) Cesser of rent ........................................ 39 (6) Abandoned property .................................... 40 (7) Notices ............................................... 40 6. SERVICES AND SERVICE CHARGE ................................ 41 (1) Management Company's covenant ......................... 41 (2) Landlord's covenant ................................... 41 (3) Services by Landlord .................................. 42 (4) Service Charge ........................................ 42 FIRST SCHEDULE - The Premises ............................. 43 SECOND SCHEDULE - Rights granted to the Tenant ............. 44 THIRD SCHEDULE - Exceptions and reservations .............. 48 FOURTH SCHEDULE - Documents which affect or relate to the Premises ................................. 50 FIFTH SCHEDULE - Review of rent FIRST reserved ............ 51 SIXTH SCHEDULE - Service Charge ........................... 55 SEVENTH SCHEDULE - Guarantor's covenants .................... 65 (ii) 232 T H I S L E A S E made the day of One thousand nine hundred and BETWEEN [ ] (hereinafter called "the Landlord") of the first part [ ] (hereinafter called "the Management Company") of the second part and [ ] (hereinafter called "the Tenant") of the third part. W I T N E S S E T H as follows:- 1. DEFINITIONS IN this Lease unless there be something in the subject or context inconsistent therewith:- 1. (1) (a) Where there are two or more persons included in the expression "the Tenant" covenants contained in this Lease which are expressed to be made by the Tenant shall be deemed to be made by such persons jointly and severally; 1. (1) (b) Any reference to an Act of Parliament shall include any modification extension or re-enactment thereof for the time being in force and shall also include all instruments orders plans regulations permissions and directions for the time being made issued or given thereunder or deriving validity therefrom; 1. (1) (c) (i) Any two companies shall be taken to be members of a group if and only if one is the subsidiary of the other or both are subsidiaries of a third company; 1. (1) (c) (ii) Any company corporation or partnership shall be taken to be "associated" with another if and only if one is a subsidiary of another or both are subsidiaries of a third company or partnership; 1. (1) (c) (iii) In determining whether any company is a subsidiary of another company the word subsidiary bears the meaning assigned to it -1- 233 by Section 736 of the Companies Act 1985 as originally enacted; 1. (1) (c) (iv) A partnership (which shall be construed as including a partnership under the laws of the United Kingdom or elsewhere) shall be taken to be a subsidiary of another partnership or of a company if that other partnership or company is entitled to more than one half of the assets or more than one half of the income of the first mentioned partnership; 1. (1) (c) (v) A company shall be deemed to be a subsidiary of a partnership if that partnership controls the composition of the board of directors of the company or holds more than half in nominal value of the issued equity share capital of the company; 1. (1) (d) Any covenant by the Tenant not to do any act or thing shall include an obligation not to permit allow or suffer such act or thing to be done; 1. (1) (e) References to any right of the Landlord to have access to the Premises shall be construed as extending to the Superior Landlord and to all persons properly authorised by the Landlord and the Superior Landlord; 1. (1) (f) Whenever the consent or approval of the Landlord is required or requested in relation to this Lease such provisions shall be construed as also requiring the consent or approval of the Superior Landlord where the same shall be required pursuant to the Superior Lease; 1. (1) (g) The titles or headings appearing in this Lease are for reference only and shall not affect the construction hereof; 1. (1) (h) Any reference to Value Added Tax shall include any tax of a similar nature that may be substituted for or levied in addition to it; 1. (2) The following expressions shall have the meanings hereinafter mentioned (that is to say):- -2- 234 1. (2) (a) "the Building" means the land shown for the purpose of identification only edged green on the location plan marked "A" annexed hereto together with the courtyard and building thereon known as Peterborough Court 133 Fleet Street London EC4 and each and every part thereof and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor; 1. (2) (b) "Business Day" means any day from Monday to Friday (inclusive) other than Good Friday Christmas Day and bank and public holidays; 1. (2) (c) "the Car Parking Spaces" means the car parking spaces in the Building which the Tenant is entitled to use from time to time pursuant to paragraph 2 of the Second Schedule; 1. (2) (d) "Common Parts" means:- 1. (2) (d) (i) the main entrance hall through 133 Fleet Street; 1. (2) (d) (ii) the courtyard of Peterborough Court and the accessways linking the same to Fleet Street; 1. (2) (d) (iii) the galleries on the northern and eastern sides of the said courtyard and all other pedestrian entrances and lobbies linking them to Shoe Lane and Wine Office Court; 1. (2) (d) (iv) the main reception foyer and the escalators and stairs leading from it; 1. (2) (d) (v) the lift lobbies and all passenger and goods lifts (including firemen's and disabled lifts but excluding any within a Lettable Unit); 1. (2) (d) (vi) any lavatory and washroom facilities at ground floor and basement levels from time to time designated by the Landlord for common use; -3- 235 1. (2) (d) (vii) the loading dock lorry berths refuse collection and/or compaction and other servicing areas the car parking areas all vehicle entrances accessways ramps and circulation areas; 1. (2) (d) (viii) all other entrances corridors passages stairs escalators landings balconies escape routes pavements landscaped or open areas within or serving the Building (excluding any within a Lettable Unit); 1. (2) (e) "Conduits" means all ducts shafts channels cisterns tanks radiators sewers drains watercourses gulleys gutters pipes wires cables meters valves and all other conducting media plant equipment and apparatus for the provision or supply of services serving the Building or any part thereof and where applicable serving in common any adjoining or neighbouring building or premises (other than any belonging to a relevant supply authority); 1. (2) (f) "Daniel House" means the land shown for the purpose of identification only edged blue on the location plan marked "A" annexed hereto together with the building thereon comprising numbers 131-141 Fleet Street London EC4 and each and every part thereof and all additions alterations and improvements thereto or reinstatements thereof or buildings substituted therefor; 1. (2) (g) "the Full Cost of Reinstatement" shall mean all costs (including the cost of shoring up demolition and site clearance Architects' Surveyors' and other professional fees) and Value Added Tax which would be likely to be incurred in rebuilding or reinstatement in accordance with the requirements of this Lease at the time when such rebuilding or reinstatement is likely to take place having regard to all relevant factors including any increases in building costs expected or anticipated to take place at any time up to the date of completion of the rebuilding or reinstatement and shall be properly determined by the Superior Landlord or the Landlord; -4- 236 1. (2) (h) "the Insured Risks" means risks in respect of loss or damage by fire lightning explosion earthquake aircraft (other than hostile aircraft) and other aerial devices or articles dropped therefrom impact by vehicles or animals riot and civil commotion storm tempest flood bursting or overflowing of water tanks apparatus or pipes subsidence malicious damage and such other risks or insurance as may from time to time reasonably be required by the Superior Landlord or the Landlord subject to such exclusions and limitations as may be usual in the London insurance market and imposed by the Insurers; 1. (2) (i) "the Insurers" means the insurance office or underwriters of good repute with whom the insurance cover referred to in Clause 4(2) hereof is effected; 1. (2) (j) "the Landlord" shall include the person for the time being entitled to the reversion immediately expectant on the determination of the Term; 1. (2) (k) "the Landlord's Plant" means:- 1. (2) (k) (i) all escalators and passenger goods and emergency lifts; 1. (2) (k) (ii) the whole of the sprinkler system including sprinkler heads; 1. (2) (k) (iii) the whole of the fire alarm and detection systems (other than any stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (iv) the whole of the permanent fire fighting system (other than portable extinguishers in the Lettable Units); 1. (2) (k) (v) the whole of the chilled water system (other than any stand alone system additionally installed by tenants or other occupiers); -5- 237 1. (2) (k) (vi) the whole of the perimeter heating system; 1. (2) (k) (vii) the whole of the Building Management System (other than any independent stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (viii) the central electrical supply system from mains supply up to and including the electrical riser busbars connecting to distribution boards to Lettable Units at each level; 1. (2) (k) (ix) the emergency standby generator and electrical system (but not any generator and/or uninterrupted power supply system serving exclusively the Lettable Units) up to and including riser busbars connecting to distribution boards to Lettable Units at each level; 1. (2) (k) (x) the air handling system limited at each level of office accommodation to air handling units at each such level and the electricity supply and control systems for the same and the air ducts leading from such air handling units to the point where such ducts enter the Lettable Units (other than any stand alone system additionally installed by tenants or other occupiers); 1. (2) (k) (xi) the closed circuit television and intruder alarm systems at all points of entry into the Building and other security systems to the Retained Areas; 1. (2) (k) (xii) the window cleaning/maintenance cradles carriages gantries and runways; 1. (2) (k) (xiii) all loading dock equipment; 1. (2) (k) (xiv) all mechanically or electrically operated doors barriers gates and shutters; 1. (2) (k) (xv) all refuse compactors and refuse disposal systems; -6- 238 1. (2) (k) (xvi) all other plant machinery and equipment provided in connection with the provision of the Services; 1. (2) (k) (xvii) all other Conduits lying within the Building (up to and including the point of connection to but otherwise excluding Conduits exclusively serving Lettable Units); 1. (2) (1) "Landlord's Surveyors" means the surveyors or managing agents employed directly or indirectly by the Landlord (who shall be an independent firm of surveyors if the Landlord itself or any associated company corporation or partnership of the Landlord occupies any part of the Building but in other circumstances may be an employee of the Landlord or a company within the same group of companies as the Landlord); 1. (2) (m) "Lettable Unit" means any unit of accommodation forming part of the Building which is designed or adapted for separate occupation or letting from time to time (excluding such elements as are excluded by paragraphs (i)-(v) of the First Schedule and excluding the Management Premises); 1. (2) (n) "the Loss of Rent" means the loss of rent First and Fourthly reserved by this Lease and for the time being payable hereunder for five years (and subject to the same being available on reasonable terms in the London insurance market for an additional two years) or such longer period as may reasonably be required by the Landlord having regard to the likely period required for reinstatement in the event of either partial or total destruction in an amount which would take into account the Superior Landlord's or the Landlord's reasonable estimate of the potential increases in rent in accordance with the rent review provisions hereinafter contained and any Value Added Tax properly chargeable in respect thereof; 1. (2) (o) "Management Premises" means the management premises and the mail and messenger room at B2 and ground floor levels of the Building shown edged purple on drawing numbers A102 and A104 annexed hereto; -7- 239 1. (2) (p) "Net Internal Area" means Net Internal Area as defined in the Code of Measuring Practice published by The Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers (Third Edition January 1990) as modified or superseded from time to time; 1. (2) (q) "Office Hours" means the hours of eight a.m. to eight p.m. on Mondays to Fridays except in any case Good Friday Christmas Day and bank and public holidays; 1. (2) (r) "Permitted Letting Unit" means:- 1. (2) (r) (i) the whole of each floor of the Premises; 1. (2) (r) (ii) any part of each floor of the Premises comprising not less than five thousand square feet of Net Internal Area which is reasonably located having regard to the provision of lavatory and washroom facilities lifts services cores and other common parts to be used in connection therewith; together in each case with such part of the basement level of the Premises and the right to use such number of Car Parking Spaces as shall reasonably be required therewith; 1. (2) (s) "the Planning Acts" means the Town and Country Planning Act 1990; Planning (Listed Buildings and Conservation Areas) Act 1990; Planning (Hazardous Substances) Act 1990; and Planning (Consequential Provisions) Act 1990; 1. (2) (t) "the Premises" means the premises described in the First Schedule hereto and each and every part thereof together with all additions alterations and improvements thereto; 1. (2) (u) "the Prescribed Rate" means a rate of interest being four per centum per annum over the Base Rate from time to time of Barclays Bank PLC or over such other rate as may from time to time replace the -8- 240 same or over such other comparable rate as the Landlord may from time to time reasonably require; 1. (2) (v) "the Rent Review Specification" means the Base Fitting-Out Specification together with the Base Building Specification and the Schedule of Agreed Additions to and Omissions from the Base Building Contract annexed hereto detailing the standard of the Premises to be assumed on a review of the rent first reserved hereby; 1. (2) (w) "Retained Areas" means the Common Parts all structural and exterior parts of the Building all boundary and party walls of the Building and all other parts of the Building save for the Lettable Units; 1. (2) (x) "Review Date" means the Twenty-fifth day of March in the years One thousand nine hundred and ninety six Two thousand and one Two thousand and six and Two thousand and eleven; 1. (2) (y) "the Services" means the services set out in Part II(A) of the Sixth Schedule hereto; 1. (2) (z) "the Service Charge" means the service charge as provided in the Sixth Schedule hereto; 1. (2) (aa) (i) "the Tenant" shall include its successors in title and in the case of an individual shall include his personal representatives; 1. (2) (aa) (ii) "the Guarantor(s)" means the person(s) from time to time guaranteeing the obligations of the Tenant hereunder and in the case of an individual shall include his personal representatives Provided that for the purposes of Clause 5(1)(c)(d) and (e) hereof the expression shall mean only the guarantor(s) of the Tenant in whom this Lease is vested from time to time and not of any other Tenant who shall have assigned its interest hereunder; -9- 241 and where there are two or more persons included in the expression "the Tenant" or "the Guarantor" such expression shall include each of such persons: 1. (2) (bb) "the Term" means the term of years hereby granted together with any continuation thereof (whether under an Act of Parliament or by the Tenant holding over or for any other reason); 1. (2) (cc) "this Lease" means this Lease and any document supplemental hereto or collateral herewith or entered into pursuant to or in accordance with the terms hereof; 2. DEMISE AND RENTS THE Landlord HEREBY DEMISES unto the Tenant ALL THAT the Premises TOGETHER WITH the easements and other rights contained or referred to in the Second Schedule hereto EXCEPT AND RESERVING as mentioned in the Third Schedule hereto TO HOLD the same SUBJECT to the provisions contained or referred to in the documents referred to in Part II the Fourth Schedule hereto (in so far as the same are still subsisting and capable of being enforced and affect the Premises but not further or otherwise) unto the Tenant on and from the Twenty-fifth day of March One thousand nine hundred and ninety-one for a term of years expiring on the Twenty-fourth day of March Two thousand and sixteen YIELDING AND PAYING therefor during the Term and in proportion for any less time than a year FIRST the clear YEARLY RENT of [ ] POUNDS (pounds ) (subject to increase as set out in the Fifth Schedule) hereto to be paid in advance by equal quarterly payments on the usual quarter days (namely the Twenty-fifth day of March the Twenty-fourth day of June the Twenty-ninth day of September and the Twenty-fifth day of December) clear of all deductions whatsoever (except for deductions which the Tenant is by law bound to make) the first of such payments in respect of the period on and from the day of One thousand nine hundred and to the quarter day next following to be made on -10- 242 the day of One thousand nine hundred and ; SECONDLY by way of additional rent on demand the whole of the additional cost to the Landlord of providing any of the Services at the request of the Tenant outside Office Hours (or in the event of Services being provided outside Office Hours for the use of the Tenant and any other tenant(s) or occupier(s) of the Building a fair proportion thereof) as determined by the Landlord's Surveyors who shall act fairly and impartially; THIRDLY by way of additional rent on demand all sums which the Landlord may from time to time properly pay in respect of insurance of the Loss of Rent and a fair proportion determined by the Landlord's Surveyors (who shall act fairly and impartially) of the sums which the Landlord may from time to time pay in respect of insurance of the Building against loss or damage by the Insured Risks; FOURTHLY by way of additional rent the Service Charge payable to the Landlord pursuant to Clause 6(4) hereof; FIFTHLY by way of additional rent on demand the moneys referred to in Clause 3(2) hereof. 3. TENANT'S COVENANTS THE Tenant to the intent that the obligations hereby created shall continue throughout the Term HEREBY COVENANTS with the Landlord as follows:- 3. (1) Rent To pay the rents hereinbefore reserved at the times and in the manner aforesaid; 3. (2) Interest on overdue moneys If any sum payable by the Tenant under this Lease shall not be paid on the due date (in the case of the -11- 243 rent first hereinbefore reserved) or shall not be paid on the date seven Business Days following demand or (if later) the ascertainment thereof (in the case of other sums) to pay on demand to the Landlord interest thereon at the Prescribed Rate from the date when the same became due until payment thereof (as well after as before any judgment); 3. (3) Outgoings To bear pay and discharge all existing and future rates taxes duties charges assessments impositions and outgoings whatsoever (whether parliamentary parochial local or otherwise and whether or not of a capital or non-recurring nature) which now are or may at any time hereafter during the Term be charged levied assessed or imposed upon the Premises or the Car Parking Spaces or upon the owner or occupier in respect thereof other than:- 3. (3) (a) any tax assessed on the Landlord (other than Value Added Tax if applicable) in respect of any rent received by the Landlord under this Lease (unless the statute imposing such tax shall prescribe or intend that the tax is payable by the Tenant); and 3. (3) (b) any tax payable only as a direct result of the grant of this Lease or any dealing by the Landlord with its reversionary interest in the Premises; Provided that if any assessment is made in relation to the Premises or the Car Parking Spaces together with other premises or areas the Tenant shall pay to the Landlord a fair proportion thereof to be determined by the Landlord's Surveyors who shall act fairly and impartially; 3. (4) Utilities To pay to the suppliers of and to indemnify the Landlord against all charges for water electricity gas all types of telephonic communication and other services used on or in relation to the Premises (including without limitation all charges for meters and all standing charges) Provided that if and in case the water electricity gas or other services shall be metered or charged jointly in respect of the Premises and other premises to pay to the Landlord on demand a fair proportion thereof to be determined by the Landlord's Surveyors who shall -12- 244 act fairly and impartially; 3. (5) (a) To repair To repair and to put and keep the Premises and the Conduits to the extent that they serve exclusively the Premises (but excluding such of the Landlord's Plant as is within the Premises and the point of connection to Conduits serving also other premises) in good and substantial repair and condition and as and when necessary to replace any of the landlord's fixtures and fittings in the Premises which are or become beyond repair with new ones which are similar in type and quality (damage by the Insured Risks excepted in each case save to the extent that payment of any insurance moneys be refused in whole or in part by reason of or arising out of any act omission neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control); 3. (5) (b) As often as shall be necessary in order to comply with the covenant contained in sub-clause (a) of this Clause 3(5) to rebuild reinstate or replace the Premises or any part or parts thereof (damage by any of the Insured Risks excepted in each case save to the extent that payment of any insurance be refused in whole or in part by reason of or arising out of any neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control); 3. (6) (a) Plant and Machinery To keep all plant machinery apparatus and equipment in the Premises (excluding Landlord's Plant) properly maintained and in good working order and condition and for that purpose:- 3. (6) (a) (i) to employ reputable contractors to inspect maintain and service the same regularly; 3. (6) (a) (ii) to renew or replace all working and other parts as and when necessary; 3. (6) (a) (iii) to use all reasonable endeavours to ensure by directions to the Tenant's staff and otherwise that such plant and machinery is properly operated; -13- 245 3. (6) (b) When reasonably required by the Landlord following any alterations to the electrical circuits by the Tenant to produce to the Landlord a certificate issued by an electrical contractor (who shall first be approved in writing by the Landlord (such approval not to be unreasonably withheld)) that the electrical circuits within the Premises comply in all respects with the regulations of the Institute of Electrical Engineers current when the electrical circuits were installed or other amended standards (approved by the Landlord such approval not to be unreasonably withheld) or recommended current codes of practice (approved by the Landlord such approval not to be unreasonably withheld); 3. (7) Decoration As often as may be necessary and in any event not less frequently than once in every fifth year during the Term and also during the last year thereof (howsoever the same may be determined) properly to prepare and decorate the interior of the Premises throughout in a good and workmanlike manner in accordance with any instructions of the manufacturers of the products used and such decoration and treatment in the last year of the Term to be executed in such colours and with such materials as the Landlord may reasonably approve; 3. (8) Cleaning To keep the interior of the Premises properly cleaned and tidy and clear of all rubbish and to clean at least once in every month the inside of the window panes and frames of the Premises and all glass (if any) in the entrance doors thereto; 3. (9) Permit entry To permit the Landlord and all persons authorised by the Landlord at all times on giving reasonable prior written notice (except in emergency) to the Tenant to enter the Premises for the purpose of ascertaining that the covenants and conditions of this Lease have been observed and performed to view the state of repair and condition thereof and to take a schedule of the landlord's fixtures and of any dilapidations and to exercise the rights herein excepted and reserved the person entering causing as little damage and inconvenience to the Tenant and/or other occupiers as reasonably practicable and making good any damage caused to the Premises thereby; -14- 246 3. (10) Notices to repair To remedy all breaches and repair all defects of which notice in writing shall be given to the Tenant by the Landlord and for which the Tenant is liable hereunder and to commence the same as soon as reasonably practicable after receipt of such notice (or sooner if requisite) and thereafter diligently to proceed with and complete the same as soon as reasonably practicable and if the Tenant shall fail to comply with any such notice it shall be lawful (but not obligatory) for the Landlord (without prejudice to the right of re-entry hereinafter contained) to enter the Premises to make good the same at the cost of the Tenant which cost (together with all Solicitors' and Surveyors' charges and other expenses which may be properly incurred by the Landlord in connection therewith) shall be repaid by the Tenant to the Landlord on demand and in default of payment the same shall be recoverable as rent in arrear; 3. (11) (a) Dangerous Substances and Insurances Not to bring into the Premises or the Building or to place or store or permit to remain therein any article or thing which is or may become dangerous offensive combustible inflammable radioactive or explosive and not to carry on or do thereon any hazardous trade or act in consequence of which the Landlord would be likely to be prevented from insuring the Premises or the Building at the ordinary rate of premium or whereby any insurance effected in respect thereof of which details have been supplied to the Tenant would be likely to be vitiated or prejudiced and not without the written consent of the Landlord (which shall not be unreasonably withheld if the Tenant pays any additional premium) to do anything whereby any additional premium becomes payable for the insurance of the Premises or the Building; 3. (11) (b) In the event of the Premises or any part of the Building bounding the Premises or any part thereof being destroyed or damaged by any peril or risk whatsoever to give notice thereof to the Landlord as soon as such destruction or damage shall come to the notice of the Tenant; 3. (11) (c) To comply with all the proper requirements (and recommendations failure to comply with which would be likely to vitiate -15- 247 or prejudice any insurance on usual terms effected in respect of the Premises or the Building) of the Insurers relating to the Premises (save to the extent that the Landlord or the Management Company is obliged to comply with the same hereunder); 3. (11) (d) Not to effect any insurance relating to the Premises which would have the effect of causing the Insurers to refuse to make payment of any claim in full; 3. (11) (e) The Tenant shall notify the Landlord and the Superior Landlord in writing at the time of the installation thereof of the full reinstatement cost of any fixtures and fittings installed at any time by the Tenant and which may be or become landlord's fixtures and fittings for the purpose of enabling the Landlord or the Superior Landlord (as the case may be) to effect adequate insurance cover for the same; 3. (11) (f) If the Tenant shall become entitled to the benefit of any insurance on the Premises which causes the Insurers to refuse to make payment of any claim of the Landlord or the Superior Landlord in full then to the extent that the claim shall not be so met the Tenant shall apply all moneys received by virtue of such insurance in making good the loss or damage in respect of which the same shall have been received; 3. (11) (g) In the event of the Premises or the Building or any part thereof being destroyed or damaged by any of the Insured Risks and the insurance money under any insurance against the same effected thereon by the Landlord being wholly or partly irrecoverable by reason solely or in part of any act or default of the Tenant or any person deriving title under the Tenant or their respective servants agents licensees or invitees then and in every such case the Tenant will forthwith pay to the Landlord the whole or (as the case may require) a fair proportion of the irrecoverable insurance moneys; 3. (12) (a) Overloading floors and services Not to overload the floors of the Premises or suspend any excessive weight from the ceilings walls stanchions or structure of the Premises or the Building and not to -16- 248 overload the electrical wiring or installation or any other services or any supplies in or serving the Premises; 3 (12) (b) Not to do anything which may subject the Premises or the Building to any strain beyond that which they are designed to bear with due margin for safety and in the event of alterations being carried out by the Tenant to pay to the Landlord on demand all costs reasonably incurred by the Landlord or the Superior Landlord in obtaining the opinion of a qualified structural engineer as to whether the structure of the Premises or the Building is being or is about to be overloaded by reason of any act neglect or default of the Tenant or any person deriving title under the Tenant or any person under its or their control; 3 (12) (c) To observe the weight limits prescribed for all lifts in the Building with due margin for safety; 3 (13) Conduits Not to discharge into any Conduits in or serving the Premises any oil or grease or any noxious or deleterious effluent or substance whatsoever which may cause an obstruction or might be or become a source of danger or which might injure the Conduits or the drainage system of the Building or any adjoining property and not to do or omit any act or thing whereby the Landlord's Plant or any Conduits might be damaged; 3 (14) Disposal of refuse Not to deposit on any part of the Premises any trade empties rubbish or refuse of any kind other than in proper receptacles and not to burn any rubbish or refuse on the Premises; 3. (15) (a) Not to cause obstructions Not to use the courtyard of Peterborough Court or the accessways linking the same to Fleet Street for any purpose whatsoever other than by private cars or taxis for the purpose of setting down and picking up passengers and in particular not to park or wait thereon; 3. (15) (b) Not to park load or unload any goods or materials on to or from vehicles save in the loading bay or any other parts of the Building -17- 249 as shall have been designated by the Landlord for such purpose and not to cause any other obstruction of the Common Parts; 3. (16) (a) User Not to hold on the Premises any sale by auction or public exhibition or public show or spectacle or political meetings or gambling; and 3. (16) (b) Not to carry on or use the Premises for any noisy noisome offensive or dangerous trade manufacture business or occupation nor for any illegal or immoral purpose nor to sleep on the Premises nor to do on the Premises any act or thing whatsoever which constitutes a nuisance or causes damage (other than as a result of competition from any business carried on in the Premises) to the prejudice of the Landlord or to the owners or occupiers of any adjoining or neighbouring premises or any of them or which may be injurious to the character of the Premises; and 3. (16) (c) Not to use the Premises as a Post Office an Employment Exchange an office of the Department of Health or the Department of Social Security at which the general public call without appointment a staff or other employment agency a betting shop turf accountant's or bookmaker's office an undertaker a travel ticket or estate agency Provided Always that this covenant shall not operate to prevent the Tenant providing an executive selection service for its clients; and 3. (16) (d) Without prejudice to the provisions of paragraphs (a) to (c) of this sub-clause not to use the Premises otherwise than as offices with storage and other accommodation ancillary to such office use; and 3. (16) (e) The Tenant hereby acknowledges and admits that notwithstanding the foregoing provisions the Landlord does not thereby or in any other way give or make nor has given or made at any other time any representation or warranty that any such use is or will be or will remain a permitted use within the provisions of the Planning Acts nor shall any consent in writing which the Landlord may hereafter give to any change of use be taken as including any such representation or warranty and that notwithstanding that any such use as aforesaid is not a permitted use -18- 250 within such provisions as aforesaid the Tenant shall remain fully bound and liable to the Landlord in respect of the obligations undertaken by the Tenant by virtue of this Lease without any compensation recompense or relief of any kind whatsoever; 3. (17) Regulations To observe all reasonable rules and regulations for the proper management and security of the Building laid down by the Landlord or the Landlord's Surveyors from time to time for observance by occupiers of the Building generally and notified in writing to the Tenant including (without limitation) any such regulations controlling admission to the Building by means of a system of personal identity cards; 3. (18) Signs Not to erect or display in or upon any part of the Premises any pole flag aerial advertisement poster notice or other sign which shall be visible from the outside of the Premises or elsewhere in the Building except as permitted by paragraph 3 of the Second Schedule hereto without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed) Provided Always that the Tenant shall be permitted to display the name and corporate logo of the Tenant its permitted underlessees and other permitted occupiers of the Premises in the lift lobbies forming part of the Premises; 3. (19) (a) Alterations Not to make any new aperture in any floor or ceiling slab or exterior wall of the Building or otherwise to alter divide cut maim injure or remove any of the principal or load-bearing walls floors beams or columns of the Building or other parts of the Building which bound the Premises nor to make any other alterations or additions of a structural nature to the Premises Provided that the Tenant may with the consent of the Landlord (which shall not be unreasonably withheld or delayed) make openings through the floor slabs dividing the floors of the Premises and dividing the basement levels of the Premises or fix anything to any part of the Building bounding the Premises or affix additional beams if there is a need for local strengthening or make minor alterations to the walls floors or columns and openings in the beams of the Building bounding the Premises where the same do not:- -19- 251 3. (19) (a) (i) adversely affect the structural stability of the Building; or 3. (19) (a) (ii) affect the exterior (including the appearance) of the Building; or 3. (19) (a) (iii) materially and adversely affect the usage or functioning of the mechanical electrical sanitary heating ventilating life safety air-conditioning or other service systems within the Building; or 3. (19) (a) (iv) materially and adversely affect the use and enjoyment of the Premises; 3. (19) (b) Not to fix anything to any part of the Building bounding the Premises in such manner as to affect adversely the structure thereof or the functioning of any exterior walls doors door frames windows or window frames thereof; 3 (19) (c) (i) Not to make any alteration or addition to the Landlord's Plant or to lay any new Conduits outside the Premises other than in accordance with Clause 3(19)(c)(ii) hereof; 3 (19) (c) (ii) Not to make any connection with the Landlord's Plant or to lay any new Conduits in exercise of the rights granted by paragraph 8 [and 9] of the Second Schedule hereto or to make any other material variation to the Conduits without the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); [Note: Reference to paragraph 9 only applicable in relation to Review Unit (ii) and (iii)] 3 (19) (c) (iii) Not to make any other alteration or addition to the Premises which would materially adversely affect the operation of the Landlord's Plant or unreasonably increase the demands thereon; -20- 252 3. (19) (d) Not (save as mentioned in sub-clause 3(19)(f) hereof) to make any alterations or additions of a non-structural nature to the Premises or to fix to any part of the Building bounding the Premises without obtaining the prior written consent of the Landlord (which shall not be unreasonably withheld or delayed); 3. (19) (e) The Landlord may as a condition of giving any consent required under this Clause 3(19) require the Tenant to enter into such covenants with the Landlord as the Landlord may reasonably require as regards the execution of any such works and an absolute covenant that the Tenant will immediately prior to the end or sooner determination of the Term to the extent that the Landlord so requests remove (without cost to the Landlord) such alterations (or such part thereof as the Landlord shall specify in its request to the Tenant) and reinstate the Premises and the Building to the condition they were in prior to the execution of such alterations; 3. (19) (f) Subject to Clause 3(19)(d) the Tenant may without obtaining the prior consent of the Landlord erect modify and remove internal demountable partitioning Provided That:- 3. (19) (f) (i) such partitioning does not materially adversely affect the efficient working of the service systems within the Building; and 3. (19) (f) (ii) such partitioning does not obstruct or block up the windows of the Premises; and 3. (19) (f) (iii) such partitioning does not violate any law or any regulation or requirement of any competent authority; 3. (19) (g) In relation to any alterations or additions to the Premises which the Landlord would be obliged by Clause 4(2) to insure once completed (whether or not the consent of the Landlord is required for such works) to give notice to the Landlord of the anticipated reinstatement cost thereof before commencement and also to notify the -21- 253 Landlord on completion of the same; 3. (19) (h) In the event of the Tenant failing to remedy as soon as reasonably practicable after receipt of written notice from the Landlord any breach of Clause 3(18) or (19) in any respect it shall be lawful (but not obligatory) for the Landlord (without prejudice to the right of re-entry hereinafter contained) to enter the Premises and remove any unauthorised alterations or additions or signs and execute such works as may be appropriate to restore the Building and the Premises to their former state at the cost of the Tenant which cost (together with all Solicitors' and Surveyors' charges and other expenses which may be properly incurred by the Landlord in connection therewith) shall be repaid by the Tenant to the Landlord on demand as a debt and on a full indemnity basis; 3. (20) (a) Alienation Not to assign mortgage charge or grant any security interest over part only of the Premises or (save as hereinafter provided) to share or part with the possession or occupation of the whole or part only of the Premises Provided that any of the persons mentioned in Clause 3(20)(d)(v) hereof may occupy or share occupation of any part of the Premises on condition that:- 3. (20) (a) (i) such occupation or sharing of occupation does not create any relationship of landlord and tenant; and 3. (20) (a) (ii) such occupation or sharing of occupation shall not continue after the date upon which the occupying company or partnership ceases to be associated with the Tenant; 3. (20) (a) (iii) the Landlord is notified of such sharing and the identity of those sharing occupation with the Tenant; 3. (20) (b) Not to underlet or agree to underlet the Premises or any part thereof at a fine or premium or at a rent which is less than the open market rental value of the premises to be demised (taking into account such rent free periods as reflect market practice at the time of -22- 254 the underlease or as may otherwise have been approved by the Landlord) nor to permit the reduction of rent paid or payable by any underlessee; 3. (20) (c) Not to assign the whole of the Premises without on each occasion procuring:- 3. (20) (c) (i) that any intended assignee shall covenant direct with the Landlord and the Management Company (in respect of the respective obligations owed to them) that during the residue of the Term then subsisting the said assignee will pay the rent reserved by and will observe and perform the covenants and conditions on the part of the Tenant contained in this Lease; 3. (20) (c) (ii) that if the Landlord shall reasonably so require the obligations of the assignee shall be guaranteed by a person or persons approved by the Landlord (whose approval shall not be unreasonably withheld) who shall covenant with the Landlord (jointly and severally if more than one) as a primary obligation in the terms set out in the Seventh Schedule hereto (mutatis mutandis) or such other terms as the Landlord shall from time to time reasonably specify; 3. (20) (d) Not to underlet or agree to underlet the whole of the Premises or any Permitted Letting Unit without on each occasion procuring:- 3. (20) (d) (i) that any intended underlessee shall covenant with the Landlord as from the date of the underlease either to observe and perform the covenants and conditions herein contained in so far as the same relate to the underlet premises (excluding the covenants to pay the rents hereinbefore reserved and the sums due to the Management Company or the Landlord under Clause 6(4) hereof) or (in the case of underlettings not exceeding five years excluding Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954) to observe and perform the covenants and conditions contained in the Approved Form of Underlease; -23- 255 3. (20) (d) (ii) that in any permitted mediate or immediate underlease the rent shall be payable no more than one quarter in advance and shall be subject to review in an upward direction only at such times and in such manner as to coincide with the rent review provided for under this Lease; 3. (20) (d) (iii) that in the case of a Permitted Letting Unit including part only of a floor of the Premises prior to the completion of any underlease and the occupation by any undertenant or proposed undertenant of the premises to be demised thereby (or any part thereof) an Order be obtained from the Court authorising the exclusion of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in respect of such underlease (a declaration to that effect being contained therein) and that a certified copy of such Order (together with a certified copy of the form of underlease which accompanied the application therefor) be supplied to the Landlord and no such underlease shall be completed or occupation allowed before such an Order has been obtained and produced to the Landlord; 3. (20) (d) (iv) that any underlease including part only of a floor of the Premises shall contain an absolute prohibition against mortgaging charging underletting or parting with possession of part only of the premises to be demised thereby; 3. (20) (d) (v) that there shall at no time be more than [ ] separate units of occupation within the Premises (including any part from time to time not underlet) and that none shall comprise less than five thousand square feet of Net Internal Area on any level Provided that the following persons in occupation in accordance with Clause 3(20) hereof shall for the purpose of this sub-clause be treated as one:- [Note: number to be inserted for Review Unit (i) is twenty for Review Unit (ii) is five for Review Unit (iii) is two for Review Unit (iv) is seven] -24- 256 3. (20) (d) (v) (aa) the Tenant and any associated company or partnership of the Tenant; 3. (20) (d) (v) (bb) any permitted undertenant and any associated company corporation or partnership of such permitted undertenant; 3. (20) (d) (v) (cc) where this Lease or any underlease is held as a partnership asset but the Tenant or any permitted undertenant comprises some only of the members of a partnership:- 3. (20) (d) (v) (cc) (A) all members of such partnership; and 3. (20) (d) (v) (cc) (B) any associated company or partnership of such partnership; 3. (20) (e) Subject as aforesaid the Tenant shall be permitted to assign or underlet the Premises as a whole and to underlet any Permitted Letting Unit with the prior written consent of the Landlord which shall not be unreasonably withheld or delayed; 3. (20) (f) Not to vary the terms of any underlease of the Premises or any part thereof in a manner inconsistent with this Clause 3(20); 3. (20) (g) To procure in any permitted underlease that the rent is reviewed under such underlease in accordance with the terms thereof but not to agree any reviewed rent with the undertenant nor any rent payable on any renewal thereof pending determination of the rent payable hereunder with effect from the relevant Review Date without the prior written consent of the Landlord (such consent not to be unreasonably withheld) save where the rent under any underlease is determined by an independent valuer acting as an expert or arbitrator or by the Court; 3. (21) (a) Registration Within twenty-one days after the date of any assignment of this Lease or the grant of any underlease of the Premises or any assignment of such an underlease or the execution of any mortgage or charge (other than a floating charge) affecting this Lease or any -25- 257 transfer of any such mortgage or charge or any devolution of the Term or of any such underlease as aforesaid by assent or operation of law or any surrender or variation of any such underlease to give written notice and to deliver a certified copy to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same and to pay or cause to be paid to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty pounds for the registration thereof; 3. (21) (b) Within twenty-one days after the creation of any floating charge affecting this Lease to give written notice to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with details of the chargee(s) and within twenty-one days after the crystallization of any floating charge to give written notice to the Landlord's Solicitors (or as the Landlord may from time to time direct) of the same with a certified copy of the instrument creating the floating charge and details of the circumstances of crystallization and to pay to the Landlord's Solicitors or as the Landlord may from time to time direct a reasonable fee of not less than Twenty Pounds for the registration thereof; 3. (22) (a) Easements Not by building or otherwise to stop up or darken any window or light in the Premises nor permit any new wayleave easement right privilege or encroachment to be made or acquired into against or upon the Premises and in case any such easement right privilege or encroachment shall be made or attempted to be made to give immediate notice thereof to the Landlord and to permit the Landlord and its agents to enter the Premises for the purpose of ascertaining the nature of any such easement right privilege or encroachment and at the request and cost of the Landlord to join the Landlord in adopting such means as may be reasonably necessary for preventing any such encroachment or the acquisition of any such easement right privilege or encroachment; 3. (22) (b) Not to give to any third party any acknowledgement that the Tenant enjoys the access of light to any of the windows or openings in the Premises by the consent of such third party nor to pay to such -26- 258 third party any sum of money nor to enter into any agreement with such third party for the purpose of inducing or binding such third party to abstain from obstructing the access of light to any windows or openings and in the event of any of the owners or occupiers of adjacent land or buildings doing or threatening to do anything which obstructs the access of light to any of the said windows or openings to notify the Landlord forthwith upon the same coming to the attention of the Tenant; 3. (23) Landlord's costs To pay to the Landlord on demand all costs charges and expenses (including but without prejudice to the generality of the foregoing Solicitors' costs Counsels' Architects' and Surveyors' and other professional fees and commission payable to a bailiff) properly and (in the case of sub-clause (d) of this Clause) reasonably incurred by the Landlord:- 3. (23) (a) incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 and/or in or in reasonable contemplation of any proceedings under Section 146 or 147 of the said Act (whether or not any right of re-entry or forfeiture has been waived by the Landlord or a notice served under the said Section 146 is complied with by the Tenant or the Tenant has been relieved under the provisions of the said Act and notwithstanding forfeiture is avoided otherwise than by relief granted by the court) and to keep the Landlord fully indemnified against all costs charges expenses claims and demands whatsoever in respect of the said proceedings and the preparation and service of the said notice; 3. (23) (b) incidental to or in reasonable contemplation of the preparation and service of a Schedule of Dilapidations at any time during or within six months after the expiration or earlier determination of the Term but relating in all cases only to wants of repair arising not later than the expiration or earlier determination of the Term; 3. (23) (c) in connection with or in procuring the remedying of any breach of covenant on the part of the Tenant or any person deriving title -27- 259 under the Tenant contained in this Lease; 3. (23) (d) in relation to any application for consent required or made necessary by this Lease (such costs to include reasonable management fees and expenses) whether or not the same is granted (except in cases where the Landlord is obliged not unreasonably to withhold consent and the withholding of consent is held to be unreasonable) or the application is withdrawn; 3. (24) (a) Statutory requirements At all times and from time to time (save in so far as the same shall be the responsibility of the Landlord or the Management Company pursuant to clause 6) and at its own expense to execute all works as are or may under or in pursuance of any Act of Parliament already or hereafter to be passed be directed or required to be done or executed upon or in respect of the Premises or the Tenant's user thereof whether by the owner and/or the Landlord and/or the Tenant thereof or any person deriving title thereunder and to comply with all notices relating to the Premises which are served by the public local or statutory authority and not to do on the Premises any act or thing whereby the Landlord may become liable to pay any penalty imposed or to bear the whole or any part of any expenses incurred under any such Act as aforesaid; 3. (24) (b) Without prejudice to the foregoing at all times during the Term at the Tenant's expense to comply with all requirements from time to time of the appropriate authority in relation to means of escape from the Premises in case of fire or other emergency and at the expense of the Tenant to keep the Premises sufficiently supplied and equipped with fire fighting and extinguishing apparatus and appliances of a type suitable in all respects to the type of user of or business or trade carried on upon the Premises such apparatus and appliances to be open to inspection and to be adequately maintained and also not to obstruct the access to or means of working such apparatus and appliances by its operations at or connected with the Premises; -28- 260 3. (24) (c) To comply with the requirements and regulations of the respective supply authorities in relation to the use of water electricity gas all types of telephonic communication and other services at the Premises; 3. (24) (d) Not to operate equipment connected to the Landlord's Plant otherwise than in accordance with the manufacturers' instructions which have been notified to the Tenant; 3. (24) (e) Within fourteen days of receipt of the same (or sooner if requisite having regard to the requirements of the notice or order in question or the time limits stated therein) to produce to the Landlord a true copy and any further particulars required by the Landlord of any notice or order or proposal for the same given to the Tenant and relevant to the Premises or the occupier thereof by any government department or local or public authority and without delay to take all necessary steps to comply with the notice or order so far as the same is the responsibility of the Tenant and at the request of the Landlord to make (at a cost which shall be borne by the Landlord and the Tenant equally) or join with the Landlord in making (at the cost of the Tenant) such proper objection or representation against or in respect of any such notice order or proposal as the Landlord shall reasonably deem expedient; 3. (25) Planning In relation to the Planning Acts:- 3. (25) (a) At all times during the Term to comply in all respects with the Planning Acts; 3. (25) (b) Not to apply for nor implement any planning permission in respect of the Premises (save as necessary to comply with Clause 3(32) hereof) unless the application and permission shall have been approved by the Landlord (whose approval shall not be unreasonably withheld or delayed where under the other relevant provisions of this Lease the consent of the Landlord is not required or cannot be unreasonably withheld or delayed); -29- 261 3. (25) (c) Unless the Landlord shall otherwise direct to carry out before the expiration or determination of the Term (howsoever the same may be determined) any works stipulated to be carried out to the Premises by a date subsequent to such expiration or sooner determination as a condition of any planning permission which may have been granted to and commenced to have been implemented by the Tenant; 3. (25) (d) If called upon so to do to produce to the Landlord all plans documents and other evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of this Clause have been complied with; 3. (25) (e) Not without the consent of the Landlord (which shall not be unreasonably withheld or delayed) to enter into any agreement under Section 106 of the Town and Country Planning Act 1990 relating to the Premises; 3. (25) (f) Not without the consent of the Landlord to serve any notice under Part VI of the Town and Country Planning Act 1990 in respect of the Premises; 3. (26) Notices affecting the Premises Upon the happening of any occurrence or upon the receipt of any notice order requisition direction or other thing which adversely affects the Landlord's interest in the Premises the Tenant shall forthwith at its own expense deliver full particulars or a copy thereof to the Landlord; 3. (27) Defects and indemnity To inform the Landlord in writing immediately upon the same coming to the Tenant's attention of any defect in the Premises or in the parts of the Building which bound the Premises which would be likely to give rise to a duty imposed by common law or statute on the Landlord in favour of the Tenant or any other person and to indemnify the Landlord in respect of all actions proceedings costs claims and demands which might be made by any tenant occupier adjoining owner or any other person whatsoever or any competent authority which may be incurred by reason of:- -30- 262 3. (27) (a) any use of the Premises or any defect in the Premises or in the execution or existence of any alterations or additions to the Premises for which the Tenant is responsible hereunder; 3. (27) (b) the use of cars or other vehicles in the Common Parts by the Tenant or any person deriving title under the Tenant or their respective servants agents licensees and invitees; 3. (27) (c) any breach by the Tenant or by any person deriving title under the Tenant of any covenant on the part of the Tenant or any condition contained in this Lease; 3. (28) Reletting notices To permit the Landlord at all reasonable times during the last six months of the Term to enter upon the Premises and affix and retain without interference upon any suitable part of the Premises (but not so as materially to affect the access of light and air to the Premises) notices for reletting the same and not to remove or obscure the said notices and to permit all persons with the written authority of the Landlord to view the Premises at all reasonable hours in the daytime upon prior appointment having been made; 3. (29) Applications for consent Upon making an application for any consent or approval which is required under this Lease the Tenant shall disclose to the Landlord such information as the Landlord may reasonably require; 3. (30) Observe covenants By way of indemnity only to observe and perform the agreements covenants and stipulations contained or referred to in the documents referred to in the Fourth Schedule hereto so far as any of the same are still subsisting and capable of taking effect and relate to the Premises; 3. (31) Breaches by underlessees In the event of a breach non-performance or non-observance of any of the covenants conditions agreements and provisions contained or referred to in this Lease by any underlessee or other person deriving title under the Tenant forthwith -31- 263 upon discovering the same to take and institute without expense to the Landlord all appropriate steps and proceedings to remedy such breach non-performance or non-observance; 3. (32) (a) Yielding up Immediately prior to the expiration or sooner determination of the Term at the cost of the Tenant:- 3. (32) (a) (i) to remove from the Premises any moulding sign writing or painting of the name or business of the Tenant or occupiers and all tenant's fixtures fittings furniture and effects (including any demountable partitioning) and to make good all damage caused to the Premises by such removal; and 3. (32) (a) (ii) to the extent that the Landlord so requests to remove such parts of the Premises and such fixtures and fittings therein to carry out such works and to renew replace or install such items as are necessary to put the Premises in no lower standard of condition than shall accord with the description thereof in the Rent Review Specification (or such part of the Rent Review Specification as the Landlord shall specify in its request to the Tenant); and 3. (32) (a) (iii) upon removal of any such tenant's fixtures and fittings or plant and equipment as are connected to or take supplies from any Conduits to seal off such Conduits so as not to interfere with the continued functioning of the remainder of the Conduits; 3. (32) (a) (iv) for the avoidance of doubt and without prejudice to the generality of the foregoing the Landlord shall be entitled in making any such requests to require the Tenant to remove or (as the case may be) add to and put back the Premises without the "Additions" but with the "Omissions" (save where the contrary is specified) in the Schedule of Agreed Additions to and Omissions from the Base Building Contract included in the Rent Review Specification; 3. (32) (b) At the expiration or sooner determination of the Term (howsoever the same be determined) to yield up to the Landlord the -32- 264 Premises in such condition as shall be in accordance with the covenants on the part of the Tenant contained in this Lease; 3. (33) (a) VAT Except where Clause 3(33)(b) applies to pay to the Landlord by way of additional rent any Value Added Tax at the rate for the time being in force properly chargeable in respect of any rent or other payment made or other supplies provided to the Tenant under the terms of or in connection with this Lease and in every case where the Tenant covenants to pay an amount of money under this Lease such amount shall be regarded as being exclusive of all Value Added Tax which may from time to time be legally payable thereon; 3. (33) (b) If any supplies made by the Landlord to the Tenant under or in connection with this Lease are subject to Value Added Tax by reason of an election to waive exemption under Schedule 6A of the Value Added Tax Act 1983 in breach of the Landlord's covenant contained in Clause 4(3)(a) but would not be subject to Value Added Tax if such an election had not been made any payment or other consideration covenanted to be provided by the Tenant under this Lease for such supplies shall be regarded as inclusive of all Value Added Tax which may be legally payable thereon; 3. (33) (c) For the avoidance of doubt supplies made by the Landlord in connection with this Lease which are subject to Value Added Tax by reason of an election made without breach of the Landlord's covenant contained in Clause 4(3)(a) shall be subject to the provisions of Clause 3(33)(a) and shall be exclusive of Value Added Tax; 3. (34) Reimbursement of VAT In every case where the Tenant has agreed to reimburse the Landlord in respect of any payment made by the Landlord under the terms of or in connection with this Lease that the Tenant shall also reimburse any Value Added Tax properly paid by the Landlord on such payment save to the extent to which the same is reasonably recoverable by the Landlord as input tax. -33- 265 4. LANDLORD'S COVENANTS THE Landlord HEREBY COVENANTS with the Tenant as follows:- 4. (1) Quiet enjoyment That the Tenant paying the rents hereby reserved and performing and observing the covenants and agreements on the part of the Tenant hereinbefore contained shall and may peaceably hold and enjoy the Premises during the Term without any interruption by the Landlord or any person rightfully claiming through under or in trust for it; 4. (2) Insurance That the Landlord will:- 4. (2) (a) At all times during the Term (save to the extent that such insurance shall be vitiated in whole or in part by any act neglect default or omission of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) insure or procure the insurance of the Building (except items in the nature of tenant's and trade fixtures and fittings installed by the Tenant and other tenants and occupiers of the Building) and the main entrance hall through 133 Fleet Street in such insurance office or with such underwriters and through such agency as the Landlord may from time to time decide (the interests of the Tenant and others having an interest in the Premises being noted on the policy) but at reasonably competitive rates against loss or damage by the Insured Risks in the Full Cost of Reinstatement thereof and the Loss of Rent; and 4. (2) (b) (i) If reasonably required by the Tenant produce to the Tenant sufficient details of the policy or policies of such insurance and evidence of the fact that the policy or policies is or are subsisting and in effect; and 4. (2) (b) (ii) If and so long as the same can be procured in the London insurance market to procure that the Insurers shall waive their rights of subrogation against the Tenant and that the policy shall be -34- 266 written on terms such that it would not be vitiated by any act or omission beyond the control of the insured; 4. (2) (c) In case of destruction of or damage to the Building (except as aforesaid) or the main entrance hall through 133 Fleet Street by any of the Insured Risks then (save to the extent that payment of the insurance moneys shall be refused in whole or in part by reason of or arising out of any act neglect or default of the Tenant or any person deriving title under the Tenant or of its or their servants agents licensees or invitees) with all reasonable speed subject to obtaining all necessary planning consents and all other necessary licences approvals and consents (which the Landlord shall use its reasonable endeavours to procure are obtained) and subject to the necessary labour and materials being and remaining available the Landlord shall cause all moneys received in respect of such insurance (other than in respect of rent and fees) to be paid out in the rebuilding and reinstatement of the same substantially as prior to any such destruction or damage and make up any deficiency in the insurance moneys from its own funds Provided that:- 4. (2) (c) (i) any liability of the Landlord hereunder to rebuild and reinstate shall so far as the Premises are concerned be deemed to have been satisfied if the Landlord provides accommodation substantially as convenient and (so far as the Landlord is able) in approximately the same location as but not necessarily identical to that previously existing and shall as regards the rest of the Building and the main entrance hall through 133 Fleet Street be deemed to have been satisfied if the Landlord rebuilds and reinstates the same to a standard reasonably equivalent to those parts which have been destroyed or damaged; 4. (2) (c) (ii) if during the last ten years of the Term the Premises or the essential means of access to the Premises shall be so destroyed or damaged by any of the Insured Risks as to render the Premises unfit for occupation and use the Landlord or the Tenant may determine this Lease by giving to the other not less than three months' notice in writing in that behalf and upon the expiration of such notice the Term shall determine without prejudice to any rights or remedies of the Landlord or the Tenant -35- 267 in respect of any antecedent breach of any of the covenants or conditions contained in this Lease; 4. (2) (c) (iii) if the Term is determined pursuant to Clause 4(2)(c)(ii) hereof the Landlord shall retain absolutely out of the moneys payable by virtue of any such insurance a sum equal to the Full Cost of Reinstatement of the Building (excluding the Premises) and of the Premises to the standard detailed in the Rent Review Specification (less a sum equal to any deficiency in the insurance moneys for which the Landlord is responsible hereunder) and the balance of such moneys shall be paid to the Tenant and all proceeds of the insurance of the Loss of Rent shall be retained absolutely by the Landlord; 4. (3) (a) VAT That the Landlord shall not make an election to waive exemption for Value Added Tax in relation to the Building under paragraph 2 of Schedule 6A to the Value Added Tax Act 1983 unless the Landlord is at any time obliged to make such an election by law and if such an election is made the Landlord will supply to the Tenant a copy of the notification to Customs & Excise in respect of the election and if the same is acknowledged a copy of Customs & Excises's acknowledgement of it; 4. (3) (b) To issue a proper Value Added Tax invoice in respect of any rent upon which Value Added Tax is payable pursuant to this Lease to the Tenant forthwith following the payment by the Tenant of the relevant rent and Value Added Tax thereon; 4. (3) (c) That the Landlord will not convey or assign the reversion to the Premises or grant any concurrent lease thereof without procuring that the person acquiring the reversion or taking such lease enters into a direct covenant with the Tenant to observe and perform the covenants in sub-clauses (a) and (b) of this Clause. -36- 268 5. PROVISOS 5. (1) Forfeiture 5. (1) (a) If the rents hereby reserved or any part thereof shall at any time be in arrear for fourteen days after the same shall have become due (whether formally demanded or not); or 5. (1) (b) If there shall be any breach non-performance or non-observance of any of the covenants and conditions on the part of the Tenant contained in this Lease; or 5. (1) (c) If the Tenant and/or the Guarantor (if any) (being a body corporate) has a winding-up petition or petition for an administration order presented against it or passes a winding-up resolution (other than in connection with a members' voluntary winding-up for the purposes of an amalgamation or reconstruction which has the prior written approval of the Landlord) or calls a meeting of its creditors for the purposes of considering a resolution that it be wound up voluntarily or resolves to present its own winding-up petition or is wound up (whether in England or elsewhere) or the directors or shareholders of the Tenant or the Guarantor resolve to present a petition for an administration order in respect of the Tenant or the Guarantor (as the case may be) or an Administrative Receiver or a Receiver or a Receiver and Manager is appointed in respect of the property or any part thereof of the Tenant or the Guarantor; or 5. (1) (d) If the Tenant and/or the Guarantor (if any) (being a body corporate) calls or a nominee calls on its behalf a meeting of its creditors or any of them or makes an application to the Court under Section 425 of the Companies Act 1985 or submits to its creditors and any of them a proposal pursuant to Part I of the Insolvency Act 1986 or enters into any arrangement scheme compromise moratorium or composition with its creditors or any of them (whether pursuant to Part I of the Insolvency Act 1986 or otherwise); or -37- 269 5. (1) (e) If the Tenant and/or the Guarantor (if any) (being an individual) makes an application to the Court for an interim order under Part VIII of the Insolvency Act 1986 or convenes a meeting of his creditors or any of them or enters into any arrangement scheme compromise moratorium or composition with his creditors or any of them (whether pursuant to Part VIII of the Insolvency Act 1986 or otherwise) or has a bankruptcy petition presented against him or is adjudged bankrupt (whether in England or elsewhere); or 5. (1) (f) If the Tenant is struck off the Register of Companies or is dissolved or (being a corporation or company incorporated outside Great Britain) is dissolved or ceases to exist under the laws of the country or state of its incorporation; or 5. (1) (g) If the Tenant being a company is deemed unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986 or if the Tenant being an individual appears to be unable to pay his debts within the meaning of Section 268 of the Insolvency Act 1986; then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter into and upon the Premises or any part thereof in the name of the whole and to have again repossess and enjoy the Premises as in their former estate and thereupon the Term shall absolutely cease and determine but without prejudice to any rights or remedies of the Landlord and the Tenant in respect of any antecedent breach of any of the covenants or conditions contained in this Lease; 5. (2) Implied easements Neither the granting of this Lease nor anything herein contained shall by virtue of Section 62 of the Law of Property Act 1925 or otherwise by implication of law or in any other way operate or be deemed to confer upon the Tenant any easement right or privilege whatsoever save as expressly hereby granted and any additional privileges in fact enjoyed from time to time shall be and be deemed to be by the consent of the Landlord only; -38- 270 5. (3) Restrictions on adjoining property Save as expressly provided in this Lease neither the granting of this Lease nor anything herein implied shall impose or be deemed to impose any restriction on the use of any land or premises not comprised in this Lease or give the Tenant the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any purchaser from or by any lessee or occupier of the Landlord in respect of property not comprised in this Lease or prevent or restrict in any way the development extension or alteration of any land or premises not comprised in this Lease; 5. (4) (a) Variation of and liability for Services The Management Company or the Landlord may extend vary or make any alteration in the rendering of the Services or any of them from time to time if the Management Company or the Landlord (as the case may be) reasonably deems it desirable so to do for the more efficient conduct and management of the Building and for the general benefit of all occupiers thereof; 5. (4) (b) Notwithstanding anything contained in this Lease neither the Management Company nor the Landlord shall be liable to the Tenant nor shall the Tenant have any claim against the Management Company or the Landlord in respect of any temporary interruption in any of the Services or any loss or damage in consequence thereof by reason of inspection testing maintenance servicing repair renewal or replacement of any Landlord's Plant or damage thereto or destruction thereof by any cause beyond the Management Company's or the Landlord's reasonable control or by reason of mechanical or other defect or breakdown or frost or other inclement conditions or shortage of fuel materials water or labour Provided Always that the Landlord or the Management Company shall procure that the Services shall be restored as quickly as reasonably possible and shall use its reasonable endeavours to ensure that any disruption and inconvenience to the Tenant shall be minimised; 5. (5) Cesser of rent In case the Premises or any part thereof or the means of access thereto shall at any time during the Term be so damaged or destroyed by any of the Insured Risks as to render the Premises unfit -39- 271 or inaccessible for occupation and use in accordance with the terms and provisions of this Lease then (save to the extent that the insurance money payable under any policy of insurance effected or caused to be effected by the Landlord shall be wholly or partially irrecoverable by reason solely or in part of any act or default of the Tenant or any person deriving title under the Tenant or any of its servants agents licensees or invitees) the rents first and fourthly hereinbefore reserved and for the time being payable hereunder or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Premises shall again be rendered fit and accessible for occupation and use or until the loss of rent insurance effected or caused to be effected by the Landlord shall be exhausted (whichever shall be the earlier) and any dispute with reference to this proviso shall be referred to arbitration in accordance with the Arbitration Acts 1950 and 1979; 5. (6) Abandoned property If at such time as the Tenant has vacated the Premises on the determination of the Term (either by effluxion of time or otherwise) any property of the Tenant shall remain in or on the Premises and the Tenant shall fail to remove the same within fourteen days after being requested by the Landlord so to do the Landlord may as agent of the Tenant (and the Landlord is hereby appointed by the Tenant to act in that behalf) dispose of such property by way of sale (unless the sale proceeds would be unlikely to meet the costs of selling) and shall then hold the proceeds of sale (if any) after deducting the proper costs and expenses of removal storage and sale incurred by it and any other moneys due from the Tenant to the Landlord to the order of the Tenant Provided always that if such proceeds of sale shall be insufficient to meet the costs and expenses as aforesaid the Tenant shall pay the amount of the deficiency on demand; 5. (7) (a) Notices The provisions of Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 shall apply to the giving and service of all notices and documents under or in connection with this Lease except that Section 196 shall be deemed to be amended by the deletion of the final words of Section 196(4) "... -40- 272 and that service ... be delivered" and the substitution of the words: " ... and that service shall be deemed to be made on the third Business Day after the registered letter has been posted"; 5. (7) (b) Any notice or document shall also be sufficiently served if sent by facsimile transmission to the party to be served and such service shall be deemed to be made on the day of transmission if transmitted before four p.m. on a Business Day but otherwise on the next following Business Day; 6. SERVICES AND SERVICE CHARGE 6. (1) Management Company's covenant The Management Company hereby covenants with the Tenant and as a separate covenant with the Landlord that (unless and until the Landlord assumes responsibility for providing the Services in accordance with Clause 6(3) hereof) subject to the Tenant paying the moneys due under Clause 6(4) hereof the Management Company will provide the Services mentioned in paragraphs (1A) (1B) (2A) (2B) (3A) and (3B) of Part II (A) of the Sixth Schedule hereto and will act reasonably in response to the reasonable requests of the Tenant relating to the operation of the Building Management System in so far as such operation affects the Premises and will use its reasonable endeavours to provide the remainder of the Services; 6. (2) Landlord's covenant The Landlord hereby covenants with the Tenant that subject to the Tenant paying the moneys due under Clause 6(4) hereof the Landlord will provide the Services mentioned in paragraphs (1A) (1B) (2A) (2B) (3A) and (3B) of Part II (A) of the Sixth Schedule hereto and will act reasonably in response to the reasonable requests of the Tenant relating to the operation of the Building Management System in so far as such operation affects the Premises and will use its reasonable endeavours to provide the remainder of the Services:- 6. (2) (a) in so far as the Management Company is in breach of its obligations under this Lease to provide the Services or any of them; and -41- 273 6. (2) (b) if the Landlord assumes responsibility for providing the Services in accordance with Clause 6(3) hereof; 6. (3) Services by Landlord The Landlord may assume responsibility for the provision of the Services at any time and if and when the Landlord does so the Landlord shall forthwith give written notice thereof to the Tenant; 6. (4) (a) Service Charge The Tenant hereby covenants with the Management Company and as a separate covenant with the Landlord to pay the Service Charge in respect of any Financial Year during which the Management Company is responsible for providing the Services hereunder to the Management Company clear of all deductions (save for deductions which the Tenant is by law bound to make) at the times and in the manner set out in the Sixth Schedule hereto Provided always that if the Tenant shall not pay any sum in respect of the Service Charge within ten Business Days after the due date for payment thereof the Landlord shall be entitled (but not obliged) to pay the same to the Management Company in which case the Tenant shall repay the same to the Landlord on demand; 6. (4) (b) The Tenant hereby covenants with the Landlord to pay the Service Charge Proportion of any Service Expenditure incurred by the Landlord pursuant to Clause 6(2)(a) hereof (save to the extent that the Tenant shall have made payment to the Management Company in respect of the Service Charge Proportion of such Service Expenditure); 6. (4) (c) The Tenant hereby covenants with the Landlord to pay the Service Charge in respect of any Financial Year during which the Landlord is responsible for providing the Services hereunder (other than under Clause 6(2)(a) hereof) clear of all deductions (save for deductions which the Tenant is by law bound to make) at the times and in the manner set out in the Sixth Schedule hereto; 6. (4) (d) The definitions in Part I of the Sixth Schedule hereto shall apply for the purposes of this Clause 6. -42- 274 I N W I T N E S S whereof the parties hereto have duly executed this Lease as a deed the day and year first before written. THE FIRST SCHEDULE The Premises Those premises on the [ ] to [ ] floors and basement levels [ ] and [ ] of the Building shown for the purpose of identification only edged red on the plans reference [ and ] annexed hereto (in this Schedule called "the said premises") including:- (a) All walls wholly within the said premises; (b) The plaster and surface finish of the structural columns within the said premises and of all walls separating the said premises from the Retained Areas; (c) One half (severed vertically) of all walls separating the said premises from other Lettable Units within the Building; (d) The airspace above the floor slab below the said premises and the raised floors and the floor covering; (e) The airspace below the floor slab above the said premises and all suspended ceilings and all lighting in the said premises; (f) All landlord's fixtures and fittings within the said premises; (g) All Conduits which lie within and exclusively serve the said premises; BUT EXCLUDING:- (i) all structural columns within the said premises (other than the plaster and surface finish thereof); -43- 275 (ii) all walls separating the said premises from the Retained Areas (other than the plaster and surface finish thereof); (iii) the exterior walls of the Building including the doors and door frames and window frames and window glass therein; (iv) the floor and ceiling slabs; (v) any part of the heating system serving the Building. THE SECOND SCHEDULE Rights granted to the Tenant 1. Subject to compliance with any reasonable applicable regulations laid down in writing by the Landlord from time to time for observance by occupiers of the Building generally the rights (in common with the Landlord and all other persons having the like rights):- (a) to pass and repass on foot only over and along the courtyard of the Building and the passageways linking the same to Fleet Street Shoe Lane and Wine Office Court the entrance halls foyers corridors lobbies and landings and the passenger lifts escalators and staircases of the Common Parts (other than the routes designated as fire escape routes only) leading to and from the Premises and the Car Parking Spaces; (b) to pass on foot only over and along the fire escape corridors landings stairs and exits of the Building at any time; (c) to pass and repass with private motor vehicles over the vehicle entrances ramps and circulation areas of the Common Parts leading between Shoe Lane and the Car Parking Spaces; (d) to use the lorry berths in the Common Parts and the goods handling equipment in the lorry berths and loading bay for the -44- 276 purposes of delivery and collection of goods to and from the Premises together with the rights for lorries to pass and repass over the vehicle entrances and circulation areas leading between Shoe Lane and such lorry berths and the right to use the goods lifts and service corridors and stairs (but not the public areas) of the Common Parts to convey goods to and from the Premises PROVIDED THAT the Tenant shall not cause any vehicle to park in or otherwise obstruct such entrances and circulation areas or to remain in the lorry berths longer than is reasonably necessary for loading or unloading or cause any goods to be left in the goods reception or goods handling areas the goods lifts or service corridors longer than reasonably necessary; (e) to use the refuse collection areas and refuse compactors in the Common Parts; (f) to enter the Common Parts and other areas in the Building (upon prior appointment (which will not be unreasonably withheld) with the Landlord and any lessee of any other Lettable Unit (except in case of emergency)) for the purpose of complying with the covenants on the Tenant's part contained in this Lease and for the purpose of exercising the rights enjoyed by the Tenant PROVIDED THAT the Tenant shall cause as little damage and inconvenience as reasonably possible and comply with all conditions reasonably imposed by the Landlord in relation to such entry and make good all physical damage caused in exercise of such right; (g) to use such lavatory and washroom facilities at ground floor and basement levels as the Landlord shall from time to time designate for common use Provided Always that the Landlord shall ensure that adequate lavatory and washroom facilities at ground floor and basement levels shall be designated at all times to comply with applicable public health requirements. 2. The right to park [ ] private motor cars in the Car Parking Spaces shown edged purple on drawing No [ ] annexed hereto Provided Always -45- 277 that the Landlord shall have the right to designate alternative Car Parking Spaces in the Building in place of those shown on the said drawing which are reasonably accessible and no smaller than those shown on the said drawing. 3. The right to display the name of the Tenant and its permitted underlessees of the Premises on a lessees' directory board in the main entrance hall from Fleet Street in such style and size as the Landlord shall from time to time reasonably prescribe. [4. The right to instal an additional generator chiller and fuel storage supply tank in the areas shown hatched respectively green on drawing no. A101 and yellow on drawing nos. A101 and A102 and brown on drawing no. A101 annexed hereto in each case in such specific location and form as the Landlord shall approve in writing (such approval not to be unreasonably withheld) subject to the Tenant obtaining any requisite planning permission or other statutory consent and PROVIDED THAT the Landlord may at any time on giving reasonable prior written notice to the Tenant and on indemnifying the Tenant against all costs properly incurred require the Tenant to relocate or itself relocate such generator chiller or tank to a reasonably convenient location or locations with appropriate ancillary facilities causing as little damage and inconvenience as reasonably practicable and making good any physical damage caused.] [Note: Para 4 to be included only in relation to Review Unit (ii)] 5. The right (in common with the Landlord and all others having the like rights) of free passage and running of water soil gas electricity telephone heating fuel exhaust gases and other services to and from the Premises through the Conduits now or during the period of eighty years from the date hereof (which shall be the perpetuity period "the Perpetuity Period" applicable to this Lease) in or under the Building or Daniel House PROVIDED THAT the Landlord may at any time during the Perpetuity Period alter the route of any such Conduits but adequate services to the Premises shall be maintained at all times. -46- 278 6. The right of support and protection for the Premises from the other parts of the Building. 7. Subject to compliance with Clause 3(19) hereof the right to:- (a) Make openings through the floor slabs dividing the floors of the Premises and dividing basement levels of the Premises; (b) Make minor alterations to the structural columns and openings in the beams within or adjacent to the Premises; (c) Fix to any part of the Building bounding the Premises; and (d) Affix additional beams if there is a need for local strengthening. 8. Subject to compliance with Clause 3(19) hereof the right to enter the Common Parts and other areas in the Building (upon prior appointment (which shall not be unreasonably withheld) with the Landlord and any lessee of any other Lettable Unit) to install and thereafter to use maintain repair replace and renew Conduits along routes to be approved in writing by the Landlord (such approval not to be unreasonably withheld) PROVIDED THAT the Tenant shall cause as little damage and inconvenience as reasonably possible and comply with all conditions reasonably imposed by the Landlord in relation to such entry and installation and make good all physical damage cause in exercise of such right. [9. Subject to Clause 3(19) hereof the right to enter the Common Parts and other areas of the Building (upon prior appointment with the Landlord which shall not be unreasonably withheld) and any lessee of any other Lettable Unit to install antennae and ventilation equipment in the tenth floor plant room in each case in such specific location and form as the Landlord shall approve in writing (such approval not to be unreasonably withheld) subject to the Tenant obtaining any requisite planning permission or other statutory consent PROVIDED THAT the Tenant shall cause as little damage and inconvenience as reasonably possible and -47- 279 comply with all conditions reasonably imposed by the Landlord in relation to such entry and installation and make good all physical damage caused in exercise of such right.] [Note; Para 9 to be included only in relation to Review Unit (ii) and (iii)] THE THIRD SCHEDULE Exceptions and reservations In favour of the Landlord and all persons from time to time authorised by the Landlord and all others entitled thereto:- 1. The rights of free passage and running of water soil gas electricity telephone heating and other services through the Conduits now or during the Perpetuity Period passing through the Premises to and from other parts of the Building 2. The right upon reasonable prior notice (except in emergency) to enter or (during the Tenant's absence in emergency only) to break and enter the Premises:- (a) to inspect the Premises and prepare a schedule of any dilapidations or other breaches of covenants and conditions to be observed or performed by the Tenant under the terms of this Lease; (b) to inspect cleanse maintain repair replace relay or connect to any Conduit; (c) to carry out work to any other part of the Building and any adjoining or neighbouring land or buildings which cannot reasonably be carried out without access to the Premises; -48- 280 (d) to perform the obligations on the part of the Landlord and the Management Company contained in this Lease; (e) for any proper purpose connected with the safety and management of the Building or other reasonable and lawful purpose; the person or persons exercising such rights causing as little physical damage and inconvenience as reasonably possible and making good all physical damage caused in exercise of such rights; 3. The right from time to time after reasonable prior notice to the Tenant to alter or temporarily restrict close or divert any part of the Common Parts in connection with the carrying out of any works thereto or to any other part of the Building or Daniel House or any adjoining or neighbouring property or for any other reasonable purpose provided that it shall be consistent with the proper management of the Building and provided further that reasonable means of access and delivery of goods to the Premises and means of escape from the Premises sufficient to comply with fire requirements remain available at all times; 4. The right to build rebuild or execute any works upon any adjoining or neighbouring land or buildings (including other parts of the Building) and to maintain scaffolding and cranes and other equipment thereon for such purposes in such manner as shall be reasonable Provided Always that (a) there shall be no permanent material interference with the access of light and air to the Premises or to the rights granted to the Tenant pursuant to this Lease and (b) the person or persons exercising such rights shall cause as little damage and inconvenience as reasonably possible and shall make good all physical damage caused. -49- 281 THE FOURTH SCHEDULE Documents which affect or relate to the Premises
Date Document Parties - ---- -------- ------- The property and charges registers of Title Nos. NGL495895 and NGL495896 as at 30 July 1990 31.08.1989 Deed MEPC plc (1) Town Investments Limited (2) LDT Partners (3) 24.11.1989 Agreement LDT Partners (1) Astonwade Properties Limited (2) Wheatland Limited (3) 02.02.1990 Licence Guardian Assurance plc JC No.3 (UK) Limited Fleet Street Square Management Limited and Fleet Street Financing Limited (1) Express Newspapers plc (2) LDT Partners (3) Taylor Woodrow Construction Limited (4) 31.5.1990 Agreement LDT Partners (1) Allied Breweries Limited (2) Guildford Holdings Limited (3)
-50- 282 5.7.1990 Agreement LDT Partners (1) Ye Olde Cheshire Cheese (2)
THE FIFTH SCHEDULE Rent Review Review of rent FIRST reserved 1. Definitions In this Schedule the following expressions have the following meanings:- 1. (A) "Rack Rental Market Value" means the yearly rent at which the Premises as a whole might reasonably be expected to be let in the open market with vacant possession at the relevant Review Date by a willing landlord to a willing tenant and without any fine or premium for a term equal to the residue of the Term remaining unexpired on the relevant Review Date or fifteen years (if longer) commencing on the relevant Review Date and otherwise on the terms and conditions of this Lease (other than the amount of rent but including these provisions for the review of rent); and (a) on the assumptions (if not facts) that:- (i) the Premises are fit and available for immediate occupation and use for the uses permitted by this Lease or by any licence granted at the request of the Tenant pursuant hereto; (ii) any rent free period concessionary rent or other inducement whether by means of a capital payment or otherwise which it might be the practice in open market lettings for a landlord to give to an incoming tenant to facilitate the fitting-out of the Premises on the grant of a lease of the -51- 283 Premises at the relevant Review Date has been made and any such rent free period has expired prior to the relevant Review Date; (iii) no work has been carried out to the Premises whether before the commencement of or during the Term which has diminished the rental value of the Premises; (iv) if the Premises have been destroyed or damaged they have been fully rebuilt and reinstated; (v) the covenants on the part of the Tenant herein contained have been fully performed and observed; (b) but disregarding:- (i) any effect on the rental value of the Premises of the fact that the Tenant or any sub-tenant has or their predecessors in title or other lawful occupier have been in occupation of the Premises; (ii) any goodwill attached to the Premises by reason of the business then carried on at the Premises by the Tenant or any sub-tenant or any of their predecessors in title or other lawful occupier; (iii) any improvement or other alteration to the Premises or any part thereof carried out by the Tenant or any sub-tenant or their predecessors in title or other lawful occupier before or during the Term otherwise than in pursuance of an obligation to the Landlord or its predecessors in title hereunder; (iv) all or any part of any rent free period originally granted to the Tenant hereunder on the grant of this Lease; (v) any rent free period concessionary or other inducement whether by means of a capital payment or otherwise which it -52- 284 might be the practice in open market lettings for a landlord to give to an incoming tenant to facilitate the fitting-out of the Premises but not otherwise on the grant of a lease of the Premises at the relevant Review Date; 1. (B) "the Revised Rent" means the Rack Rental Market Value of the Premises at the relevant Review Date. 2. Review With effect from each Review Date the FIRST yearly rent hereby reserved shall be such an amount as shall be the greater of (a) the yearly amount of the FIRST rent payable immediately before such Review Date by the Tenant to the Landlord and (b) the Revised Rent assessed in accordance with the following provisions of this Schedule. 3. (a) Determination For the purposes of this paragraph 3 "Surveyor" shall mean a Chartered Surveyor of recognised standing and having experience in letting and valuation of premises of a like kind and character to the Premises who shall be agreed upon by the parties hereto or in the event of failure so to agree to be nominated on the application of either party at any time after the relevant Review Date by or on behalf of the President for the time being of The Royal Institution of Chartered Surveyors and who shall act as an arbitrator in accordance with the Arbitration Acts 1950 to 1979. 3. (b) If the Landlord and the Tenant shall not agree on the amount of the Rack Rental Market Value by the relevant Review Date then at the election of the Landlord or the Tenant the amount thereof shall be decided by a Surveyor PROVIDED THAT any reference to a Surveyor shall not prevent the Landlord and the Tenant from agreeing the Revised Rent at any time and from withdrawing the reference to the Surveyor subject to payment of the Surveyor's proper charges up to the date of withdrawal. 3. (c) If the Surveyor shall die or becomes unwilling or unable to act before giving his determination the Rack Rental Market Value shall be decided by a further Surveyor and the process shall be repeated as often as necessary until a determination is made. -53- 285 4. Upwards only In no event shall the FIRST rent payable by the Tenant after any Review Date be less than the FIRST rent payable by the Tenant immediately before such Review Date. 5. (a) Payment after Review Date In the event that by any Review Date the amount of the Revised Rent has not been agreed between the parties hereto or determined as aforesaid then in respect of the period of time (hereinafter called "the Interval") beginning with such Review Date and ending on the quarter day immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid (which date is hereinafter called "the Late Payment Date") the Tenant shall continue to pay to the Landlord in manner hereinbefore provided the FIRST rent at the yearly rate thereof payable immediately before the relevant Review Date. 5. (b) Provided that on the Late Payment Date there shall be due as a debt payable by the Tenant to the Landlord (without any requirement for any demand therefor by the Landlord) an amount equal to the shortfall between the amount which would have been payable on each quarter day had the Revised Rent been determined by the relevant Review Date and the amount payable by virtue of paragraph 5(a) above during the Interval apportioned on a daily basis in respect of the Interval together with interest at four percent below the Prescribed Rate on the amount of such shortfall on and from the quarter day upon which each instalment thereof would have been due had the Revised Rent been agreed before the relevant Review Date. 6. Statutory restrictions If at any Review Date the Landlord shall be obliged to comply with any Act of Parliament dealing with the control of rent and which shall restrict or modify the Landlord's right to revise the FIRST rent in accordance with the terms of this Lease or which shall restrict the right of the Landlord to demand or accept payment of the full amount of the FIRST rent from time to time payable under this Lease then the Landlord shall on each occasion that any such enactment is removed relaxed or modified be entitled on giving notice in writing to the Tenant expiring after the date of each such removal relaxation or -54- 286 modification to specify such date as an intermediate review date (hereinafter called "the Intermediate Review Date") and the rent payable hereunder from an Intermediate Review Date to the next succeeding Review Date or Intermediate Review Date (whichever shall first occur) shall be determined in like manner as the rent payable from each Review Date as hereinbefore provided. 7. Memorandum As soon as the amount of FIRST rent payable after each Review Date has been agreed or ascertained in accordance with the terms hereof the Landlord and the Tenant will forthwith sign a memorandum thereof specifying the yearly amount of the Revised Rent. 8. Time not of essence Time shall not be of the essence for the purposes of this Schedule. THE SIXTH SCHEDULE Service Charge PART I 1. In this Schedule:- (i) "Financial Year" shall mean the year ending on 31 December or such other period of not less than six months or more than eighteen months as the Management Company or the Landlord may in its reasonable discretion from time to time determine as being that in respect of which the accounts of as the Management Company or the Landlord relating to the Building shall be made up PROVIDED THAT the Financial Year current on the date on which the Landlord assumes responsibility for the provision of the Services under Clause 6(3) hereof shall end on that date and the next Financial Year shall commence on the following day and end on the subsequent 31 December; (ii) "First Year" means the period from the Ninth day of August One thousand nine hundred and ninety-one to the end of the then current Financial Year; -55- 287 (iii) "Last Year" means the period to the determination of the Term from the end of the preceding Financial Year; (iv) "the Service Expenditure" means the total cost at market rates of the services and expenses mentioned in Part II of this Schedule (save in so far as provided or incurred exclusively for the benefit of any single lessee or occupier) reasonably provided for the benefit of the Building as a whole taking account (inter alia) of disbursements of a periodically recurring nature (by regular or irregular periods) reasonably and properly incurred before during or after the Term; (v) "the Service Charge Proportion" means a fair proportion to be determined from time to time by the Surveyors (who shall act fairly and impartially) taking into account the use made of and the benefit received from the Services and to be calculated by reference to metering or similar means of direct allocation where reasonably practicable subject as mentioned in paragraph 3 of this Part of this Schedule and for the avoidance of doubt different Service Charge Proportions may be applied to the various Services; (vi) "the Surveyors" means in relation to any Financial Year before a Landlord's notice under Clause 6(3) hereof takes effect the Management Company's surveyors or managing agents (who shall be an independent firm of surveyors if the Landlord itself or any associated company corporation or partnership of the Landlord occupies any part of the Building but in other circumstances may be an employee of the Management Company or a company within the same group of companies as the Management Company) and in relation to any Financial Year thereafter the Landlord's Surveyors. 2. (a) The Service Charge shall in relation to any full Financial Year during the Term be the Service Charge Proportion of the Service Expenditure in respect of such Financial Year. -56- 288 (b) The Service Charge shall in relation to the First Year and Last Year be such part of the Service Charge Proportion in respect of the relevant Financial Year as the Surveyors shall properly certify as being fair having regard to the length of the First Year or the Last Year (as the case may be) in relation to the relevant Financial Year. 3. The Landlord and the Management Company shall each have the right and duty to adjust the Service Charge Proportion to make fair allowances for differences in the services and facilities provided or supplied to or enjoyable by any Lettable Units. 4. (a) The Tenant shall pay the amount notified in writing to the Tenant by the Surveyors as being their reasonable estimate of the Service Charge for the First Year by equal instalments on the date of commencement of the First Year and the subsequent quarter days in the First Year. (b) The Tenant shall pay the amount notified in writing to the Tenant by the Surveyors as being their reasonable estimate of the Service Charge for each subsequent Financial Year on account by equal instalments on the usual quarter days Provided that:- (i) if the Tenant shall not have received notice of such estimate in respect of any Financial Year it shall on such quarter days pay an amount equal to the last quarterly payment on account in the preceding Financial Year and any requisite adjustment shall be made to the first quarterly payment after such notice is given; (ii) if the Surveyors shall notify the Tenant of any reasonable revision to their estimate of the Service Charge for any Financial Year after the Financial Year has begun the amount of such increase or decrease shall be added to or deducted from the instalments payable on the subsequent quarter days during such Financial Year equally; -57- 289 PROVIDED THAT to the extent that the Tenant shall have made payment to the Management Company in respect of the Service Charge Proportion of any Service Expenditure the Tenant shall not be obliged to make payment to the Landlord in respect of such Service Charge Proportion of such Service Expenditure. 5. (a) The amount of the Service Charge shall be ascertained by the Surveyors and certified by a certificate (hereinafter called "the Certificate") signed by the Surveyors acting as expert and not as arbitrator so soon after the end of each Financial Year as may be practicable Provided Always that if it so desires the Tenant shall be entitled to require the amount of Service Expenditure to be independently audited. (b) A copy of the Certificate for a Financial Year shall be supplied to the Tenant without charge to the Tenant and the Tenant shall be entitled by appointment (which the Surveyors shall not unreasonably withhold) to inspect at the offices of the Surveyors (or as they may direct) the accounts relating to the Service Charge Expenditure and all relevant supporting vouchers and receipts. (c) The Certificate shall contain a summary of the Service Expenditure incurred by the Management Company or the Landlord (as the case may be) during the Financial Year to which it relates together with a summary of the relevant details and figures forming the basis of calculation of the Service Charge and the Certificate (or a copy thereof duly certified by the Surveyors) shall be conclusive evidence for the purposes hereof of the matters of fact which it purports to certify save for any manifest errors. (d) If the estimated Service Charge is less than the Service Charge so certified the Tenant shall within seven days of demand pay to the Management Company or the Landlord (as required under Clause 6(4) hereof) the difference between the estimated Service Charge and the Service Charge so certified. -58- 290 (e) If the estimated Service Charge is in excess of the Service Charge so certified the overpayment shall forthwith be refunded to the Tenant. (f) The provisions of this paragraph shall continue to apply notwithstanding the termination of the Term for the purpose of ascertaining whether there has been any underpayment or overpayment of Service Charge for the Last Year and any preceding Financial Year. (g) PROVIDED THAT to the extent that the Tenant shall have made payment to the Management Company in respect of the Service Charge Proportion of any Service Expenditure the Tenant shall not be obliged to make payment to the Landlord in respect of such Service Charge Proportion of such Service Expenditure. PART II (A) Services (1A) Inspection maintenance and repair of the structure and exterior of the Building including (without limitation):- (a) the foundations and roofs; (b) all structural columns (other than the plaster and surface finish of such of the same as are within the Lettable Units); (c) all exterior walls including the doors and door frames and window frames and window glass therein; and (d) all floor and ceiling slabs; But excluding:- (i) all non-structural walls wholly within the Lettable Units; -59- 291 (ii) the plaster and surface finish within the Lettable Units of the structural columns and of the walls separating the Lettable Units from the Retained Areas; (iii) the suspended ceilings and the lighting therein and the screed on the floor slab and the floor covering in the Lettable Units. (1B) So far as necessary in order to put and keep the Building in good and substantial repair and condition rebuilding reinstatement or replacement of the structure and exterior of the Building or any part or parts thereof. (2A) Inspection maintenance and repair of the Retained Areas (excluding the structure thereof and the Landlord's Plant therein). (2B) So far as necessary in order to put and keep the building in good and substantial repair and condition rebuilding reinstatement and replacement of the Retained Areas. (3A) Inspection maintenance servicing repair insurance and where appropriate decoration renewal and replacement of the Landlord's Plant. (3B) Keeping the Landlord's Plant in good working order and condition and for that purpose renewing and replacing all working and other parts as and when necessary. (4) Provision of heating cooling and ventilation to the Building through the Landlord's Plant sufficient to meet statutory requirements and otherwise as the Management Company or the Landlord reasonably considers appropriate. (5) Decoration and cleaning of the exterior of the Building and the external and internal Retained Areas (including in each case the windows thereof) as often as the Management Company or the Landlord reasonably considers appropriate. -60- 292 (6) Lighting the Retained Areas including at the reasonable discretion of the Management Company or the Landlord external lamps and floodlighting and decorative lighting. (7) Provision of security services (including security guards and electronic surveillance as the Management Company or the Landlord reasonably considers appropriate). (8) Provision of general reception facilities in the main lobby of the Building (but excluding reception facilities for individual occupiers) and furnishing and equipping such facilities and maintaining directory boards listing the tenants and permitted occupiers of the Building in such lobby and in the main entrance hall from Fleet Street. (9) Provision maintenance repair renewal and decoration of such seats benches sculptures displays flags flagpoles decorative or drinking fountains bins ashtrays public pay telephones clocks and other amenities as the Management Company or the Landlord shall at its reasonable discretion provide for the benefit of the tenants and occupiers of the Building generally and their visitors invitees and employees and the amenity of the Common Parts and the Building. (10) Provision of mail and messenger room facilities for the receipt of incoming letters and parcels. (11) Supplying cultivating maintaining replacing tending and keeping tidy such plants and decorative landscaping in and on the Common Parts and the exterior of the Building as the Management Company or the Landlord reasonably consider appropriate. (12) Disposal of refuse from the Building including compaction thereof. (13) Execution of works as are under or in pursuant of any Act of Parliament directed or required to be done upon or in respect of the Retained Areas and the compliance with notices relating to the Retained Areas which are served by a public local or statutory authority. -61- 293 PART II (B) Expenses (1) The cost of supply of electricity gas oil or other fuel or energy supplies or power sources from time to time used in providing the Services. (2) All costs fees expenses and other outgoings in connection with:- (a) the employment or engagement of such independent contractors agents consultants professional advisers or other personnel as the Management Company or the Landlord reasonably considers necessary or desirable for the provision of the Services (including the cost of negotiating and entering into contracts with such persons); (b) the employment of staff for the mail and messenger room security guards receptionists and any others employed in connection with the provision of the Services including their wages salaries pensions and pension contributions and other emoluments statutory and other insurance health and welfare payments National Insurance and other payments required to be made by statute and benefits; (c) the provision of uniforms working and protective clothing tools appliances cleaning and other materials bins receptacles fixtures fittings and equipment properly required for use in connection with the provision of the Services. (3) All solicitors' surveyors' accountants' and other fees and disbursements properly incurred by the Management Company or the Landlord in connection with the administration and general management of the Services (but excluding the collection of rents) and the enforcement of any contract entered into by or on behalf of the Management Company or the Landlord with any third party in connection with the provision of the Services. -62- 294 (4) The fees and disbursements at market rates of the agents retained by the Landlord to manage the Services (but excluding the collection of rents and other management of the Landlord's interest in the Building) (or where the Management Company or the Landlord itself manages the Building amounts in lieu of and equivalent to such agents' fees and disbursements at market rates) including without limitation costs in respect of keeping records and accounts of the Services and the Service Expenditure and the preparation of all appropriate accounts statements and certificates in relation thereto but excluding costs in respect of the collection of rent. (5) The cost of the mail and messenger room the reception area the management suite the workshops and plant rooms and such other premises as the Management Company or the Landlord reasonably considers it necessary or desirable to provide in connection with the provision of the Services and the management of the Building from time to time including without limitation workshop and office accommodation for staff employed in relation thereto and fixtures fittings furniture and equipment therein Provided that such cost shall not include rent or notional rent other than the rent first reserved from time to time by the underlease whereunder the Management Company holds the Management Premises and notional rent in respect of any such reasonable additional or alternative premises within the Building or elsewhere owned by the Management Company or the Landlord and (if the Landlord shall have assumed responsibility for the provision of the Services and/or the underlease whereunder the Management Company holds the Management Premises shall have been terminated for whatever reason) in respect of the Management Premises equivalent to the open market rental value thereof assuming them to be available for use as storage space within the Building. (6) Any costs of leasing plant machinery or equipment used in connection with the provision of the Services. (7) The cost of any maintenance or service agreements or insurance contracts in respect of any of the plant machinery and equipment used in connection with the provision of the Services. -63- 295 (8) Premiums at reasonably competitive rates incurred by the Landlord in insuring against property owners' liability employers' liability and liability to third parties including members of the public and any other insurance properly maintained by the Management Company or the Landlord from time to time in respect of the Common Parts and the Building (save to the extent that the cost of such premiums is within the rent thirdly reserved hereby). (9) The cost of any contribution properly paid by the Management Company or the Landlord toward the cost of maintaining repairing rebuilding and renewing any roads ways pavements Conduits party walls party structures party fence walls and other conveniences serving the Building (whether or not used in common by any adjoining or neighbouring premises from time to time). (l0) All existing or future taxes rates charges duties assessments impositions and outgoings of whatever nature in respect of the Retained Areas and any other premises referred to in paragraph (5) above including any charge by the local or other competent authority in respect of refuse collection but excluding any taxes imposed on the Management Company or the Landlord in respect of the grant of this Lease any dealing by the Management Company or the Landlord with its interest therein or in any part thereof or the receipt of the rents hereby reserved. (11) Amounts properly paid as a contribution in respect of the main entrance hall through 133 Fleet Street toward the cost of cleaning the external stonework of the facade of Daniel House adjacent thereto. (12) The cost of taking all steps reasonably required in the interests of all occupiers of the Building for complying with or making representations against the incidence of any legislation or notice order or requirement thereunder concerning town planning compulsory purchase public health highways drainage or other matters relating or alleged to relate to or affecting the Common Parts or the Building. -64- 296 (13) The cost of establishing and maintaining financial reserves to meet the future costs (as from time to time reasonably estimated by the Surveyors) of providing the Services Provided Always that such reserves shall be held in a separate interest bearing account with the interest accruing thereto on trust for the purpose set out in this Schedule. (14) The payment of all Value Added Tax properly payable on any item of Service Expenditure (excluding this paragraph) save to the extent that the Management Company or the Landlord can recover the same from H.M. Customs and Excise. (15) The cost of providing such other reasonable and proper services and facilities as the Management Company or the Landlord reasonably consider necessary or desirable for the benefit of the tenants and occupiers of the Building as a whole and in the interests of good estate management from time to time. THE SEVENTH SCHEDULE Guarantor's covenants 1. Covenant and Indemnity by the Guarantor The Guarantor hereby covenants with the Landlord and the Management Company each as a primary obligation that the Tenant or the Guarantor shall at all times during the Term (including any continuation or renewal of this Lease) duly perform and observe all the covenants on the part of the Tenant contained in this Lease including the payment of the rents and all other sums payable under this Lease in the manner and at the times herein specified. 2. Waiver by Guarantor The Guarantor hereby waives any right to require the Landlord or the Management Company to proceed against the Tenant or to pursue any other -65- 297 remedy whatsoever which may be available to the Landlord or the Management Company before proceeding against the Guarantor. 3. Postponement of claims by Guarantor against Tenant The Guarantor hereby further covenants with the Landlord and the Management Company that the Guarantor shall not claim in any liquidation bankruptcy composition or arrangement of the Tenant in competition with the Landlord or the Management Company and shall remit to the Landlord or the Management Company (as the case may be) the proceeds of all judgments and all distributions it may receive from any liquidator trustee in bankruptcy or supervisor of the Tenant and shall hold for the benefit of the Landlord and the Management Company all security and rights the Guarantor may have over assets of the Tenant whilst any liabilities of the Tenant or the Guarantor to the Landlord and the Management Company remain outstanding. 4. Postponement of participation by Guarantor in security The Guarantor shall not be entitled to participate in any security held by the Landlord or the Management Company in respect of the Tenant's obligations to the Landlord or the Management Company under this Lease or to stand in the place of the Landlord or the Management Company in respect of any such security until all the obligations of the Tenant or the Guarantor to the Landlord and the Management Company under this Lease have been performed or discharged. 5. No release of Guarantor None of the following or any combination thereof shall release determine discharge or in any way lessen or affect the liability of the Guarantor as principal debtor under this Lease or otherwise prejudice or affect the right of the Landlord or the Management Company to recover from the Guarantor to the full extent of this guarantee:- -66- 298 (a) any neglect delay or forbearance of the Landlord or the Management Company in endeavouring to obtain payment of the rents or the amounts required to be paid by the Tenant or in enforcing the performance or observance of any of the obligations of the Tenant under this Lease; (b) any refusal by the Landlord to accept rent tendered by or on behalf of the Tenant at a time when the Landlord was entitled (or would after service of a notice under Section 146 of the Law of Property Act 1925 have been entitled) to re-enter the Demised Premises; (c) any extension of time given by the Landlord or the Management Company to the Tenant; (d) any variation of the terms of this Lease (including any reviews of the rent payable under this Lease) or the transfer of the Landlord's reversion or the assignment of this Lease; (e) any change in the constitution structure or powers of any of the Tenant the Guarantor the Landlord and the Management Company or the liquidation administration or bankruptcy (as the case may be) of either the Tenant or the Guarantor; (f) any legal limitation or any immunity disability or incapacity of the Tenant (whether or not known to the Landlord or the Management Company) or the fact that any dealings with the Landlord or the Management Company by the Tenant may be outside or in excess of the powers of the Tenant; (g) any other act omission matter or thing whatsoever whereby but for this provision the Guarantor would be exonerated either wholly or in part (other than a release under seal given by the Landlord or the Management Company). -67- 299 6. Disclaimer or forfeiture of Lease (a) The Guarantor hereby further covenants with the Landlord and the Management Company that:- (i) if a liquidator or trustee in bankruptcy shall disclaim or surrender this Lease; or (ii) if this Lease shall be forfeited; or (iii) if the Tenant shall cease to exist THEN the Guarantor shall, if the Landlord by notice in writing given to the Guarantor within three (3) months after such disclaimer or other event so requires accept from and execute and deliver to the Landlord a counterpart of a new lease of the Demised Premises for a term commencing on the date of the disclaimer or other event and continuing for the residue then remaining unexpired of the Term such new lease to be at the cost of the Guarantor and to be at the same rents and subject to the same covenants conditions and provisions as are contained in this Lease. (b) If the Landlord shall not require the Guarantor to take a new Lease the Guarantor shall upon demand pay to the Landlord a sum equal to the rents and other sums that would have been payable under this Lease but for the disclaimer or other event in respect of the period from and including the date of such disclaimer or other event until the expiration of three (3) months therefrom or until the Landlord shall have granted a Lease of the Demised Premises to a third party (whichever shall first occur). 7. Benefit of guarantee This guarantee shall enure for the benefit of the successors and assigns of the Landlord and the Management Company under this Lease without the necessity for any assignment thereof. -68- 300 ON ORIGINAL THE COMMON SEAL of [LANDLORD] ) was hereunto affixed in the ) presence of:- ) Director Secretary THE COMMON SEAL of [MANAGEMENT ) COMPANY] was hereunto affixed in ) the presence of:- ) Director Secretary ON COUNTERPART THE COMMON SEAL of [TENANT] ) was hereunto affixed in the ) presence of:- ) Director Secretary -69- EX-15.1 33 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15.1 April 29, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: The Goldman Sachs Group, Inc. Registration Statement on Form S-1 (File No. 333-74449) Commissioners: We are aware that our report dated April 9, 1999 on our review of condensed interim financial information of The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm") as of February 26, 1999 and for the three months ended February 26, 1999 and February 27, 1998 is included in the Firm's Prospectus constituting part of this Registration Statement on Form S-1. We are also aware that our report dated April 27, 1999 on our review of Pro Forma Consolidated Financial Information of The Goldman Sachs Group, L.P. and Subsidiaries as of February 26, 1999 and for the three months then ended is included in the Firm's Prospectus constituting part of this Registration Statement on Form S-1. Pursuant to Rule 436(c) under the Securities Act of 1933, these reports should not be considered a part of the Registration Statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. Very truly yours, /s/ PricewaterhouseCoopers LLP EX-23.1 34 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ------------------------ We consent to the inclusion in the Prospectus constituting part of this Registration Statement on Form S-1 of (i) our reports dated January 22, 1999, on our audits of the consolidated financial statements, selected historical consolidated income statement and balance sheet data and the financial statement schedule of The Goldman Sachs Group, L.P. and Subsidiaries (the "Firm"); (ii) our report dated April 27, 1999 on our examination of the Pro Forma Consolidated Income Statement Information for the year ended November 27, 1998; and (iii) our report dated March 15, 1999 relating to Management's Discussion and Analysis of Financial Condition and Results of Operations of the Firm for the three-year period ended November 27, 1998. We also consent to the references to our firm under the captions "Experts", "Summary Consolidated Financial Data", and "Selected Consolidated Financial Data". /s/ PricewaterhouseCoopers LLP New York, New York April , 1999. EX-23.5 35 CONSENT OF SECURITIES DATA COMPANY 1 Exhibit 23.5 [SECURITIES DATA COMPANY LETTERHEAD] We hereby consent to the use of the information we provided for use in Amendment No. 2 to the Registration Statement (No. 333-74449) relating to the offering of shares of Common Stock by The Goldman Sachs Group, Inc. and to the references to our name in Amendment No. 2 to the Registration Statement, including under the caption "Experts". Securities Data Company, A division of Thomson Information Services /s/ Kenneth J. Seng ----------------- Kenneth J. Seng Director, Account Management & Client Training April 13, 1999 EX-23.6 36 CONSENT OF JOHN L. WEINBERG 1 Exhibit 23.6 CONSENT I, John L. Weinberg, hereby consent to be named as a director of The Goldman Sachs Group, Inc., a Delaware corporation (the "Company"), in this registration statement on Form S-1 of the Company (including any and all amendments or supplements thereto). Dated: April 20, 1999 /s/ John L. Weinberg -------------------------------- John L. Weinberg -----END PRIVACY-ENHANCED MESSAGE-----