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".
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:
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:
Transfer Restrictions
Each party to the shareholders' agreement will agree, among other
things, to:
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 to permit parties to the shareholders' agreement
to:
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:
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 obligations 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".
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.
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.
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, 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".
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.
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