Company Name: Goldman Sachs Group, Inc.
Public Availability Date: Aug. 24, 1998

[LETTER OF INQUIRY 1]

August 21, 1998

Office of Chief Counsel,
Division of Corporation Finance,
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.
Attention: Catherine T. Dixon

Re: Treatment under Section 2(3) of
the Securities Act of 1933 of
Awards of Restricted Stock Units

Dear Ms. Dixon:

On behalf of our client, The Goldman Sachs Group, L.P. ("GS Group"), we are seeking to confirm that the staff of the Securities and Exchange Commission (the "Commission") will not recommend enforcement action to the Commission if The Goldman Sachs Group, Inc. (the "Issuer") makes awards of restricted stock units to its employees, with the terms described below, without registration under the Securities Act of 1933 (the "Securities Act").

Background

GS Group is a privately-held Delaware limited partnership that intends to pursue an initial public offering (the "IPO"). Subject to certain approvals, GS Group expects the IPO to occur in the fall of this year.

In connection with the IPO, the Issuer plans to make a large equity-based award to its employees. It is currently proposed that one element of this award would be a grant of restricted stock units ("RSUs") on a formula basis to substantially all of the Issuers employees. Such RSUs will be immediately vested, but will not provide for the delivery of the underlying common stock until a later date (the "Release Date"). ^* It is also contemplated that such vested RSUs will be subject to forfeiture if the recipient engages in conduct detrimental to the firm prior to the Release Date, including, after termination of employment, soliciting clients or employees of the firm or engaging in a competitive activity. ^** However, in light of the immediate vesting of the award, an employee could leave the firm and still be entitled to receive delivery of the common stock underlying the RSU so long as the employee did not engage in conduct detrimental to the firm.

Analysis

The Commission has indicated that stock awarded at no direct cost to "a relatively broad class of employees" does not constitute a sale for purposes of Section 2(3) of the Securities Act, as the employees "do not individually bargain to contribute cash or other tangible or definable consideration to such plans." ^*** One of the rationales behind this position is that registration of bonus stock would "serve little purpose . . . since employees in almost all instances would decide to participate if given the opportunity." ^*

While the Commission has indicated that entering into an employment agreement may prevent reliance on this interpretive position, ^** the staff of the Commission has confirmed on numerous occasions that grants of restricted stock, which vest over a period of time and provide for forfeiture if the recipient ceases to be an employee prior to the end of the vesting period, may be granted to a broad class of employees without registration under the Securities Act. ^*** For purposes of this request, you may assume that the awards of RSUs will be made to a "broad class of employees" and that the employees will not be required to surrender any cash, securities or other property in order to receive the awards or to enter into employment agreements. The RSUs will be identical to restricted stock previously addressed by the staff, except that, instead of vesting over a period of time after the award with forfeiture if employment terminates prior to vesting, the RSUs will provide for immediate vesting with forfeiture if the recipient engages in conduct detrimental to the firm prior to the Release Date, including, after termination of employment, soliciting clients or employees of the firm or engaging in a competitive activity. We believe that the presence of these forfeiture provisions should not prevent the awards of RSUs from being exempt from registration under the Securities Act as not involving the "sale" or an "offer to sell" for purposes of Section 2(3).

We believe that the appropriate focus of the "no-sale" analysis in this area is whether the recipient is making an investment decision. In our case, no recipient is in any sense making an investment decision to acquire the RSUs; the RSUs are simply being awarded by the Issuer to a broad group of employees for employee compensation purposes. Also, as noted above, the recipients are not being required to surrender any cash, securities or other property for the award.

The forfeiture provisions of any particular award should not affect the analysis since the forfeiture provisions only affect the likelihood of the actual realization of the benefit of the award, and not the involuntary nature of the award. Distinguishing between types of forfeiture provisions which are embedded in the terms of such awards would involve the staff in an award-by-award analysis. Such an analysis, in our view, would lose sight of the basis for the application of the no-sale doctrine in this area--whatever the forfeiture provisions, the employee is still not bargaining for the award and still would be almost certain to accept the award if given the choice.

It would seem an untoward result for the Issuer to be required to provide for the more draconian approach of complete forfeiture of the award for any termination of employment prior to the Release Date solely to make such award fall within the literal scope of the existing interpretive letters. Stated differently, the Issuer should not be placed in a worse position from a Securities Act registration perspective simply because it permits conditional delivery on non-employment related conditions.

For the foregoing reasons, we respectfully request the staff to confirm that it will not recommend enforcement action to the Commission if the Issuer makes the proposed grant of the RSUs described herein to its employees in reliance upon our opinion that the grant does not involve a "sale" or "offer to sell" for purposes of Section 2(3) of the Securities Act.

If you have any questions concerning the foregoing or if you need any additional information, please do not hesitate to contact me at (212) 558-3755 or John P. Mead at (212) 558-3764.

Sincerely,

Robert W. Reeder

cc: Gregory K. Palm

(Goldman, Sachs & Co.)

Alan Beller

Christopher Austin

(Cleary, Gottlieb, Steen & Hamilton)

[LETTER OF INQUIRY 2]

August 21, 1998

Office of Chief Counsel,

Division of Corporation Finance,

Securities and Exchange Commission,

450 Fifth Street, N.W.,

Washington, D.C. 20549.

Attention: Catherine T. Dixon

Re: Treatment under Section 2(3) of

the Securities Act of 1933 of

Awards of Restricted Stock Units

Dear Ms. Dixon:

On behalf of our client, The Goldman Sachs Group, L.P. ("GS Group"), we are seeking to confirm that the staff of the Securities and Exchange Commission (the "Commission") will not recommend enforcement action to the Commission if The Goldman Sachs Group, Inc. (the "Issuer") makes awards of restricted stock units to its employees, with the terms described below, without registration under the Securities Act of 1933 (the "Securities Act").

Background

GS Group is a privately-held Delaware limited partnership that intends to pursue an initial public offering (the "IPO"). Subject to certain approvals, GS Group expects the IPO to occur in the fall of this year.

In connection with the IPO, the Issuer plans to make a large equity-based award to its employees. It is currently proposed that one element of this award would be a grant of restricted stock units ("RSUs") on a formula basis to substantially all of the Issuers employees. Such RSUs will be immediately vested, but will not provide for the delivery of the underlying common stock until a later date (the "Release Date"). ^* It is also contemplated that such vested RSUs will be subject to forfeiture if the recipient engages in conduct detrimental to the firm prior to the Release Date, including, after termination of employment, soliciting clients or employees of the firm or engaging in a competitive activity. ^** However, in light of the immediate vesting of the award, an employee could leave the firm and still be entitled to receive delivery of the common stock underlying the RSU so long as the employee did not engage in conduct detrimental to the firm.

Analysis

The Commission has indicated that stock awarded at no direct cost to "a relatively broad class of employees" does not constitute a sale for purposes of Section 2(3) of the Securities Act, as the employees "do not individually bargain to contribute cash or other tangible or definable consideration to such plans." ^*** One of the rationales behind this position is that registration of bonus stock would "serve little purpose . . . since employees in almost all instances would decide to participate if given the opportunity." ^*

While the Commission has indicated that entering into an employment agreement may prevent reliance on this interpretive position, ^** the staff of the Commission has confirmed on numerous occasions that grants of restricted stock, which vest over a period of time and provide for forfeiture if the recipient ceases to be an employee prior to the end of the vesting period, may be granted to a broad class of employees without registration under the Securities Act. ^*** For purposes of this request, you may assume that the awards of RSUs will be made to a "broad class of employees" and that the employees will not be required to surrender any cash, securities or other property in order to receive the awards or to enter into employment agreements. The RSUs will be identical to restricted stock previously addressed by the staff, except that, instead of vesting over a period of time after the award with forfeiture if employment terminates prior to vesting, the RSUs will provide for immediate vesting with forfeiture if the recipient engages in conduct detrimental to the firm prior to the Release Date, including, after termination of employment, soliciting clients or employees of the firm or engaging in a competitive activity. We believe that the presence of these forfeiture provisions should not prevent the awards of RSUs from being exempt from registration under the Securities Act as not involving the "sale" or an "offer to sell" for purposes of Section 2(3).

We believe that the appropriate focus of the "no-sale" analysis in this area is whether the recipient is making an investment decision. In our case, no recipient is in any sense making an investment decision to acquire the RSUs; the RSUs are simply being awarded by the Issuer to a broad group of employees for employee compensation purposes. Also, as noted above, the recipients are not being required to surrender any cash, securities or other property for the award.

The forfeiture provisions of any particular award should not affect the analysis since the forfeiture provisions only affect the likelihood of the actual realization of the benefit of the award, and not the involuntary nature of the award. Distinguishing between types of forfeiture provisions which are embedded in the terms of such awards would involve the staff in an award-by-award analysis. Such an analysis, in our view, would lose sight of the basis for the application of the no-sale doctrine in this area--whatever the forfeiture provisions, the employee is still not bargaining for the award and still would be almost certain to accept the award if given the choice.

It would seem an untoward result for the Issuer to be required to provide for the more draconian approach of complete forfeiture of the award for any termination of employment prior to the Release Date solely to make such award fall within the literal scope of the existing interpretive letters. Stated differently, the Issuer should not be placed in a worse position from a Securities Act registration perspective simply because it permits conditional delivery on non-employment related conditions.

For the foregoing reasons, we respectfully request the staff to confirm that it will not recommend enforcement action to the Commission if the Issuer makes the proposed grant of the RSUs described herein to its employees in reliance upon our opinion that the grant does not involve a "sale" or "offer to sell" for purposes of Section 2(3) of the Securities Act.

If you have any questions concerning the foregoing or if you need any additional information, please do not hesitate to contact me at (212) 558-3755 or John P. Mead at (212) 558-3764.

Sincerely,

Robert W. Reeder

cc: Gregory K. Palm

(Goldman, Sachs & Co.)

Alan Beller

Christopher Austin

(Cleary, Gottlieb, Steen & Hamilton)

[STAFF REPLY LETTER]

August 24, 1998

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: The Goldman Sachs Group, Inc. ("Issuer")

Incoming letter dated August 21, 1998

Based on the facts presented, the Division will not recommend enforcement action to the Commission if the Issuer makes the described awards of restricted stock units without registration under the Securities Act of 1933 in reliance on your opinion as counsel that such awards are not sales within the meaning of section 2(a)(3) of such Act.

This position is based on the representations made to the Division in your letter. Any different facts or conditions might require another result. This response expresses the Divisions position on enforcement action only and does not express a legal position on the question presented.

Sincerely,

Michael Hyatte

Special Counsel

SEC_CODE_REF_0090001192884