Document:

EX-10.39 LETTER TO MR. WILLIAM W. GEORGE

 

EXHIBIT 10.39

The Goldman Sachs Group, Inc. • 85 Broad Street • New York, New York 10004

Tel: 212-902-5904

 

Henry M. Paulson, Jr.

Chairman

Chief Executive Officer

December 18, 2002

PERSONAL AND CONFIDENTIAL

William W. George

Medtronic, Inc.

4900 IDS Center

80 South 8th Street

Minneapolis, MN 55402

Dear Bill:

     We are all very pleased that you have agreed to join the Board of
Directors of The Goldman Sachs Group, Inc. (“GS Inc.”) and look forward to
seeing you at the January 15th and 16th meetings in New York, if not before. I
am writing to set forth the terms of your compensation as a director. The
terms of directors’ compensation are, of course, subject to future modification
by the Board.

     Your term as a director commenced on December 18, 2002 and will run
through the 2003 annual meeting of shareholders of GS Inc. You have also been
appointed a member of the Audit, Compensation and Corporate Governance and
Nominating Committees as of December 18, 2002.

     You will receive an initial grant of 3,000 fully vested restricted stock
units (“RSUs”) under The Goldman Sachs 1999 Stock Incentive Plan (the “SIP”).

     As additional compensation for your services, you will receive:

	 	•	 	$35,000 per year (the “Annual Retainer”);
	 
	 	•	 	$15,000 per year for serving on each Board committee of which you
are a member (the “Committee Fees”);
	 
	 	•	 	$1,000 for each meeting of the Board or of a Board committee that
you attend (the “Meeting Fees”); and

 

 

	 	•	 	an annual grant (the “Annual Grant”), at your election, of (a)
2,000 fully vested RSUs; (b) fully vested options (“Options”) to
purchase 6,000 shares of GS Inc. common stock; or (c) 1,000 RSUs and
Options to purchase 3,000 shares of GS Inc. common stock.

     The Annual Retainer and the Committee Fees are paid annually in arrears in
the form of RSUs unless GS Inc. determines to pay them in cash. The Meeting
Fees are payable in cash, also annually in arrears. The Annual Grant is paid
annually in advance of the fiscal year to which it pertains in the form of RSUs
and/or Options as elected by you.

     For fiscal year 2003, you will receive the Annual Retainer, Committee Fees
and Annual Grant pro rated from the date of your appointment. Meeting Fees
will be calculated based on the number of meetings you attend for the remainder
of 2003 and will be paid in cash in arrears. I enclose a form for the 2003
Annual Grant election as between RSUs and Options.

     The terms of the Options for the 2003 Annual Grant were set in November
2002 and have the same exercise price ($78.87) as the options that were granted
to employees for the 2002 fiscal year; will become exercisable on the earlier
of (a) the first trading day in January 2006 unless that day is not during an
“access person window period” (“Window Period”) under GS Inc.’s trading policy,
in which case, the first trading day of the first Window Period that begins
thereafter, and (b) the date on which you cease to be a director of GS Inc.;
and will expire on November 30, 2012.

     Any Options granted to you as part of the Annual Grant for 2004 and
thereafter will:

	 	(i)	 	be granted on the same date as the date of grant of
any year-end equity awards granted to employees of GS Inc. and
its affiliates who are subject to Section 16 of the Securities
Exchange Act (“Section 16 Persons”) for the prior fiscal year
or, if no such equity awards are granted, on the last business
day of December in the fiscal year to which the Annual Grant
pertains;
	 
	 	(ii)	 	first become exercisable on the earlier of (a) the
same date that year-end options granted to Section 16 Persons
for the prior fiscal year become exercisable or, if no such
options are granted, on the first trading day in January three
years after the date of grant unless that date is not during a
Window Period, in which case the first trading day of the first
Window Period that begins thereafter, and (b) the date on which
you cease to be a director of GS Inc.;
	 
	 	(iii)	 	have an exercise price equal to the exercise price
of any year-end options granted to Section 16 Persons for the
prior fiscal year or, if no such options are granted, the
closing price of GS Inc.’s common stock on the New York Stock
Exchange on the date of grant of the Annual Grant; and
	 
	 	(iv)	 	will expire ten years after the date of grant.

 

 

     RSUs for the Annual Retainer, the Committee Fees and, if applicable, the
Annual Grant will:

	 	(i)	 	be granted to you as of the date of grant of any
year-end equity award granted to Section 16 Persons or, if no
such award is granted, as of the last business day of December
of such fiscal year (or, in the case of RSUs for the Annual
Grant, as of the last business day of December in the fiscal
year to which the grant pertains); and
	 
	 	(ii)	 	provide for delivery of shares of GS Inc. common
stock on the last business day in May in the year following the
date on which you cease to be a director of GS Inc.

The number of RSUs you receive for the Annual Retainer and the Committee Fees
will be determined in the same manner as grants to employees for year-end RSUs
for that fiscal year or, if no such RSUs are granted, at a grant price equal to
the average closing price of GS Inc.’s common stock on the New York Stock
Exchange over the 10 trading days up to and including the last day of the
fiscal year.

     All Options and RSUs will be subject to the terms and conditions of the
SIP and the relevant award agreements.

     I have enclosed various documents in connection with these arrangements.
Please complete them as necessary, sign where indicated and return them in the
enclosed envelope. The remaining copies are for your records.

	 	 	 
	 	 	
Very truly yours,
	 	 	 
	 	 	
/s/ HENRY M. PAULSON, JR.
	 	 	 
	 	 	
Henry M. Paulson, Jr.

	 	 	 
	Enclosures:	 	
The Goldman Sachs 1999 Stock Incentive Plan (and Prospectus
Materials)

Outside Director Initial RSU Award Agreement

Custody Agreement

Signature Card

Election Form for 2003 Annual Grant

Form W-9EX-10.40: AMENDMENT TO 1999 STOCK INCENTIVE PLAN

 

EXHIBIT 10.40

                         On November 20, 2002, the Compensation Committee of the Board of Directors
of The Goldman Sachs Group, Inc. approved the following resolution amending The
Goldman Sachs 1999 Stock Incentive Plan. The Goldman Sachs 1999 Stock
Incentive Plan is filed as Exhibit 10.6 to this Annual Report on Form 10-K.

                         RESOLVED, that, effective as of the date hereof, Section 1.6.1 of the SIP
shall be amended to read in its entirety as follows:

		
	 	                         “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 shall not exceed three hundred million (300,000,000) shares.
If, after the effective date 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 in any
fiscal year shall equal three million five hundred thousand
(3,500,000) shares of Common Stock. 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.”<PAGE>

                                                                 Exhibit (4)(c)

[PRUDENTIAL FINANCIAL LOGO]
                                PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
                                213 Washington Street, Newark, New Jersey 07102

                                a Prudential Financial company

                                   ENDORSEMENT

Amounts payable under the contract may be subject to a Market Value Adjustment
if withdrawn from a Market Value Adjustment Option before the end of a
Guaranteed Interest Rate Period. A Market Value Adjustment will not be applied
to: (a) a withdrawal, transfer, annuitization or settlement within 30 days
immediately following the end of a Guaranteed Interest Rate Period; (2) any
cancellation of the Contract under the "Right to Cancel Contract" provision; or
any death benefit payable.

This Endorsement is made a part of the Contract to which it is attached and is
effective immediately. In the case of a conflict with any provision in the
Contract, the provisions of this Endorsement will control. The following hereby
amends and supersedes the provisions of the Contract mentioned below.

We add the following new or revised definitions to the DEFINITIONS section of
the Contract:

         ADJUSTED CONTRACT VALUE: The Contract Value as of the Annuity Date,
         adjusted for any Market Value Adjustment, less any applicable Premium
         Tax Charge. The applicable Annuity Table is applied to this amount to
         determine the initial Annuity Payment.

         CONTRACT SURRENDER VALUE: The Contract Value, adjusted for any Market
         Value Adjustment, less any applicable Premium Tax Charge, Withdrawal
         Charge, optional benefit charge or Contract Maintenance Charge.

         GUARANTEED INTEREST RATE (GIR) PERIOD: The number of years for which a
         particular Guaranteed Interest Rate is applicable to an amount
         allocated or transferred to an MVA Option. A Guaranteed Interest Rate
         Period not exceeding 5 years will always be available.

         GUARANTEED INTEREST RATE (GIR): The interest rate applicable to an
         amount allocated or transferred to a Market Value Adjustment Option.
         The Guaranteed Interest Rate will never be less than 3%.

         MARKET VALUE ADJUSTMENT OR MVA: The amount by which any portion of
         Contract Value in an MVA Option is adjusted if withdrawn, transferred
         or annuitized at any time other than the 30-day period immediately
         following the end of the Guaranteed Interest Rate Period. A Market
         Value Adjustment can be a positive or a negative adjustment. An MVA may
         be applied even if the Contract has been continued by a surviving
         spouse under the spousal continuance provision.

         MARKET VALUE ADJUSTMENT (MVA) OPTION: An interest rate option that
         credits a declared interest rate for a stipulated period of time.
         Withdrawals or transfers may be subject to a Market Value Adjustment,
         which can be a positive or a negative adjustment. We may offer multiple
         MVA Options at any one time, each with a different interest rate and
         guarantee period. Amounts allocated or transferred to a Market Value
         Adjustment Option are held in the Separate Account identified on the
         Contract Data pages.

<PAGE>

We add the following new section to the Contract:

                      MARKET VALUE ADJUSTMENT (MVA) OPTION

         INTEREST SEGMENT: An interest segment is created whenever you allocate
         or transfer an amount to an MVA Option. You may have multiple interest
         segments associated with an MVA Option. We credit interest to the
         amount in each interest segment at the daily equivalent of the specific
         rate declared for that interest segment until the earliest of:

(1)        the date the Contract is surrendered;

(2)        the date the amount is withdrawn;

(3)        the date the amount is transferred ;

(4)        the maturity date of the interest segment;

(5)        the Annuity Date; and

(6)        the date as of which a death benefit is determined.

         GUARANTEED INTEREST RATE (GIR) PERIOD: When you allocate or transfer an
         amount to an MVA Option, the option will have a GIR Period, which is
         the number of years for which the Guaranteed Interest Rate is
         applicable to that amount. The GIR Period will be a set number of
         years. We reserve the right to determine what MVA Options we will
         offer. You may not elect an MVA Option with a GIR Period that would
         mature after the Contract's Annuity Date.

         At least 15 days, but not more than 45 days, prior to the end of a GIR
         Period, we will notify you, at your last known address, of the
         available MVA Options and their corresponding GIR Periods offered by us
         at that time. You have 30 days immediately following the end of the
         current GIR Period to provide us a written request in Good Order to
         elect one of the following options:

     (1)          elect that the amount in the interest segment be allocated to
                  an MVA Option with the same or different GIR Period as your
                  current GIR Period, provided that we are offering a GIR Period
                  of that duration at that time.;

     (2)          transfer the amount to another Allocation Option; or

     (3)          withdraw the amount from the Contract.

         You may elect different options for different portions of an interest
         segment, subject to the minimum amount restrictions applicable to
         withdrawals and transfers. Withdrawals from a maturing interest segment
         during this 30-day period will be subject to any applicable Withdrawal
         Charge but not the MVA. Transfers from a maturing interest segment
         during this 30-day period will not be subject to Transfer Charges or
         the MVA. If you elect to allocate the amount in a maturing interest
         segment to an MVA option with the same or different GIR period, the
         interest rate you receive will be the one available on the day we
         receive your election instructions.

         If we do not receive a written request in Good Order during the 30-day
         period immediately following the end of a GIR Period, the amount in
         that interest segment will be transferred to the money market
         subaccount at the end of the 30-day period. Amounts that you withdraw
         or transfer during the 30-day period will receive interest until the
         date of withdrawal or transfer. The interest rate will be the current
         interest rate available for an MVA Option with the same GIR Period as
         the maturing interest segment, on that segment's maturity date. If we
         do not offer such a period, the interest rate will be the current rate
         associated with the MVA Option with the shortest GIR Period available
         at the time.

         ALLOCATIONS AND TRANSFERS TO MVA OPTIONS: You may allocate up to 100%
         of your purchase payments to an MVA Option. You may transfer up to 100%
         of your Contract Value to an MVA Option, except that no transfers may
         be made from the DCA Option, and amounts held in the Fixed Rate
         Investment Option are subject to the restrictions on transfers set
         forth in the Contract. You may invest in one MVA Option or a
         combination of MVA Options having different GIR Periods. The minimum
         allocation or transfer to any one MVA Option is $1,000.

                                       2

<PAGE>

         MARKET VALUE ADJUSTMENT (MVA): Amounts withdrawn from an MVA Option
         (including by transfer or annuitization), prior to the end of a GIR
         Period, may be subject to a Market Value Adjustment (MVA). The MVA is
         applied as a positive or negative adjustment to the applicable portion
         of the Contract Value by multiplying the withdrawal amount before
         deduction of any applicable Withdrawal Charge by the MVA factor.

         The MVA factor is equal to:

                                   [Equation]

             where:  i   = the Guaranteed Interest Rate currently credited to
                           this interest segment at the time of the withdrawal,
                           transfer, annuitization, or settlement.

                     j   = the current credited interest rate at the time of
                           the withdrawal, transfer, annuitization, or
                           settlement for an MVA Option having a GIR Period
                           equal to n/12 years. If such a GIR period is not
                           offered by us, the rate will be determined using
                           linear interpolation of the nearest offered rates.

                     n   = the number of months remaining in this interest
                           segment's GIR Period (rounded up).

         If we no longer offer a particular GIR Period, for the purpose of
         determining a rate for use in the MVA formula, we will use linear
         interpolation and the current rates of the GIR Periods closest in
         duration to those to be used in the formula. If we cannot interpolate,
         the current crediting rate for any GIR Period not being offered will be
         equal to:

     1)  the current Treasury spot rate for that GIR Period, plus

     2)  the current crediting rate for the next longer GIR Period then being
         offered, minus

     3)  the current Treasury spot rate for that next longer GIR Period.

         The current rate (j) in the MVA formula is subject to the same Minimum
         Interest Crediting Rate as the GIR.

         If the current rate (j) in the MVA formula is higher than the
         guaranteed rate (i) for an interest segment, the value of that segment
         will experience a negative MVA upon withdrawal, transfer,
         annuitization, or settlement. If the current rate (j) in the MVA
         formula is lower than the guaranteed rate (i) for an interest segment,
         the value of that segment may experience a positive MVA upon
         withdrawal, transfer, annuitization or settlement.

         A Market Value Adjustment will not be applied to a withdrawal,
         transfer, annuitization, or settlement within 30 days immediately
         following the end of a GIR Period.

         A Market Value Adjustment will not be applied to any cancellation of
         the Contract under the RIGHT TO CANCEL CONTRACT provision on the cover
         page of the Contract.

         A Market Value Adjustment will not be applied when the death benefit
         is payable.

         A detailed description of the MVA formula has been filed with the
         Superintendent.

         If the Company no longer offers this Endorsement on the underlying
         Contract Form at any time, the crediting rates available for subsequent
         Purchase Payments will be used to determine the value of "j" in the MVA
         formula above.

                                       3

<PAGE>

         WITHDRAWALS FROM MVA OPTIONS: A withdrawal from an interest segment
         associated with an MVA Option, within 30 days immediately following the
         end of its GIR Period, is not subject to the MVA. You may specify the
         interest segment or MVA Option from which you would like to make a
         withdrawal. If you specify an MVA Option, but not an interest segment,
         the withdrawal will be taken from the interest segment associated with
         that MVA Option that has the least time remaining until its maturity
         date. If you request a withdrawal from your contract, and do not
         provide specific instructions, we will take the withdrawal on a
         pro-rata basis from all Allocation Options to which your Contract Value
         is allocated. In this situation, all funds in MVA Options will be
         summed and considered as one Allocation Option. The portion of the
         withdrawal associated with MVA Options will be taken from the interest
         segments with the least amount of time remaining until the maturity
         date, regardless of the GIR period. A withdrawal from an MVA Option may
         be subject to an MVA, even if the withdrawal is not subject to a
         Withdrawal Charge because it is a Charge-Free Amount.

         TRANSFERS FROM MVA OPTIONS:
         A transfer from an interest segment associated with an MVA Option is
         subject to an MVA unless made during the 30 days immediately following
         the end of its GIR Period. You may specify the interest segment or MVA
         Option from which you would like to make a transfer. If you specify an
         MVA Option, but not an interest segment, the transfer will be taken
         from the interest segment associated with that MVA Option that has the
         least time remaining until its maturity date. Transfers from an
         interest segment within the 30 days immediately following the end of a
         GIR Period do not count toward the maximum number of transfers which
         may be made under the Contract. Transfers from an MVA Option at any
         other time count toward the maximum number of transfers which may be
         made under the Contract and may be subject to a Transfer Charge. Any
         Transfer Charge will be deducted from the unadjusted Contract Value
         before any adjustment for the MVA. If a transfer is being made from
         more than one interest segment or MVA Option, the applicable Transfer
         Charge will be proportionally deducted from the Contract Value
         associated with each MVA Option or interest segment. Any deduction for
         Transfer Charges will be made prior to the transfer. If a Transfer
         Charge is applicable, and the full amount in an interest segment or an
         MVA Option is being transferred, the Transfer Charge will be deducted
         first from the Contract Value, and the remaining amount will then be
         transferred. If a Transfer Charge is applicable, and the amount in an
         interest segment or MVA Option is insufficient to pay the Transfer
         Charge and provide the requested transfer amount, the Transfer Charge
         will be deducted first from the unadjusted Contract Value, and the
         remaining amount will then be transferred.

         We reserve the right to defer payment for a withdrawal or transfer from
         an MVA Option for the period permitted by law, but for not more than
         six months after a request in Good Order is received by us at the
         Annuity Service Center.

Except as modified herein, all terms and conditions of the Contract remain
unchanged.

Signed for Pruco Life Insurance Company of New Jersey

By: /s/ Clifford E. Kirsch
   ------------------------
       Secretary

                                       4

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