<PAGE>
As filed with the Securities and Exchange Commission on August 19, 1999
Registration No. 333-78367
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO.1
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BlackRock, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6211 51-0380803
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
345 Park Avenue
New York, NY 10154
(212) 754-5560
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Robert P. Connolly
Managing Director and General Counsel
BlackRock, Inc.
345 Park Avenue
New York, NY 10154
(212) 754-5560
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
Matthew J. Mallow Gary S. Schpero Steven Kaplan
Skadden, Arps, Slate, Simpson Thacher & Bartlett Arnold & Porter
Meagher & Flom LLP 425 Lexington Avenue 555 Twelfth Street, N.W.
919 Third Avenue New York, New York 10017 Washington, D.C. 20004
New York, New York 10022 (212) 455-2000 (202) 942-5000
(212) 735-3000
</TABLE>
---------------
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 being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering (the
"International Prospectus"). The International Prospectus will be identical to
the U.S. Prospectus in all respects except for the front cover page, pages 77,
78, 79 and 80, and the back cover page. The form of the U.S. Prospectus is
included herein and is followed by the front cover page, pages 77, 78, 79 and
80, and the back cover page to be used in the International Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated August 19, 1999
PROSPECTUS
Shares of Class A Common Stock
[BlackRock Logo]
-----------
The U.S. underwriters are offering shares in the United States and
Canada and the international managers are offering shares outside the
United States and Canada.
We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. We expect that the
class A common stock will trade on the New York Stock Exchange under the symbol
"BLK."
Following the offerings, we will have two classes of authorized common
stock--class A common stock, offered through this prospectus, and class B
common stock, % of which will be owned by a subsidiary of PNC Bank Corp. The
rights of holders of class A common stock and class B common stock are
identical, except with respect to voting. Each share of class A common stock
will have one vote and each share of class B common stock will have five votes
on all matters submitted to a vote of our stockholders. As a result, following
the offerings, PNC will own % of the combined voting power of all classes of
BlackRock stock and will control all matters affecting BlackRock stockholders.
Investing in the class A common stock involves risks which are described in
the "Risk Factors" section beginning on page 9 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price................................. $ $
Underwriting discount................................. $ $
Proceeds, before expenses, to BlackRock............... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional shares of
class A common stock at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments. The international managers may similarly purchase up to an
aggregate of an additional shares of class A common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of class A common stock will be ready for delivery in New York,
New York on or about , 1999.
-----------
Merrill Lynch & Co.
Goldman, Sachs & Co.
Lehman Brothers
Prudential Securities
Salomon Smith Barney
-----------
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 9
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Dilution................................................................... 17
Capitalization............................................................. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 19
Business................................................................... 29
Management................................................................. 44
Executive Compensation..................................................... 48
Ownership of the Common Stock.............................................. 56
Certain Relationships and Related Transactions............................. 57
Description of Capital Stock............................................... 64
Shares Eligible for Future Sale............................................ 74
Underwriting............................................................... 76
Material United States Federal Income and Estate Tax Considerations
for Non-U.S. Holders of Class A Common Stock.............................. 80
Legal Matters.............................................................. 82
Experts.................................................................... 82
Where You Can Find More Information........................................ 82
Index to Consolidated Financial Statements................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors."
BlackRock
Overview. BlackRock is one of the 30 largest investment management firms
in the United States with $142 billion of assets under management at June 30,
1999. In 1998, PNC Bank Corp. (NYSE: PNC), one of the largest diversified
financial services companies in the United States, created BlackRock to
consolidate most of its asset management business into one entity. This process
began in 1995 when PNC acquired BlackRock Financial Management L.P., then a $25
billion fixed income manager. By year-end 1996, the BFM management team had
assumed responsibility for overseeing PNC's mutual fund marketing and liquidity
management efforts. The equity divisions were added in 1998, when a substantial
portion of PNC's asset management businesses were consolidated under the
BlackRock brand name. At that time, the BFM management team integrated
activities across investment product lines and established committees to
oversee each product line on a day-to-day basis.
Our Products and Services. We offer a variety of investment products to
institutional and individual investors in the U.S. and internationally. At June
30, 1999, fixed income products represented 56%, money market or liquidity
products represented 31%, equity products represented 11% and alternative
investment products represented 2% of total assets under management. We manage
these assets in approximately 400 separate accounts and 70 mutual funds on
behalf of more than 3,000 institutions and 150,000 individual investors. We
also offer a variety of risk management services to large institutional fixed
income investors. Through these risk management services, we use software,
which we have developed over many years, to provide comprehensive risk analysis
and advice with respect to more than $500 billion of assets managed by our
clients.
Our Asset Growth. Over the past five and a half years, our assets under
management have increased by more than $89 billion, a 25% compound annual
growth rate. Separate accounts, which are offered primarily to institutional
investors, grew by $65 billion, a 41% compound annual growth rate, and mutual
funds, which are offered primarily under the BlackRock Funds and Provident
Institutional Funds brand names, grew by $24 billion, a 12% compound annual
growth rate. Most of this growth has been in fixed income and liquidity
products in which assets under management have increased by $56 billion and $21
billion, respectively. Importantly, we achieved this growth largely by
attracting new clients and additional funds from existing clients, despite the
fact that investors have been shifting money out of bonds and into stocks to
take advantage of the sustained bull market in equities during the past decade.
Our Investment Performance and Client Service. We believe that our
success in increasing fixed income and liquidity assets under management is
principally due to our investment returns which have consistently met or
exceeded our clients' targets while assuming equal or lower levels of risk than
performance benchmarks, and to our comprehensive client service. We achieve our
investment results by using an investment process that combines the expertise
of our investment professionals and the scope of our risk management software.
Our senior professionals work closely with clients, consultants and
distributors to better understand their needs and to market our products and
provide client service. Products and services are tailored to meet differing
return objectives and risk tolerances, as well as regulatory, tax, accounting
and credit constraints. Our computer capabilities also play an important role
in client service by permitting efficient report customization and delivery
over the Internet.
1
<PAGE>
Our Strategies. We began 1999, our first full year as an integrated
business, better prepared to pursue opportunities across our products and
markets. We plan to continue to increase assets under management by pursuing
our current business strategy, which consists of the following key elements:
. Retaining and attracting talented professionals. The quality and
depth of our professional staff is critical to our business, and
the market for management, investment, technology and marketing
personnel is intensely competitive. As a result, we strongly
emphasize recruiting, training and long-term career development.
The experience and stability of our management team is one of our
greatest strengths. To promote stability, 39 managing directors
acquired 18% of BlackRock's equity and signed 5-year employment
contracts during 1998. After the offerings, these managing
directors will own % of the equity in BlackRock, and % of the
combined voting power of all classes of BlackRock stock. We also
granted long-term deferred compensation to key professionals. We
expect to expand employee ownership over time, both to retain and
motivate key personnel and to attract additional high caliber
professionals committed to building our long-term value.
. Continuing to build our fixed income and liquidity
presence. Although we have realized considerable growth in fixed
income and liquidity assets, the market for these products is
highly fragmented and no single firm accounts for substantial
market share. Accordingly, there is a substantial opportunity for
continued growth in these businesses. We plan to capitalize on
these opportunities through continued direct calling on pension
plan sponsors, insurance companies, corporations, industry
consultants and financial intermediaries.
. Expanding our equity business. After assuming responsibility for
PNC's equity products in 1998, we took steps to enhance our
capabilities and build capacity for future growth, including
upgrading computers, adding trading and operations resources and
expanding risk management reporting. We will continue to pursue
distribution opportunities for mutual funds, which currently
comprise the majority of our equity assets under management. In
addition, we will pursue both cross-selling and direct calling
efforts among institutional investors, particularly as we establish
longer term investment performance track records.
. Diversifying our products and clients. We will continue to
diversify our products in order to better serve our existing
clients and attract new ones. These efforts may include selective
development of new products that build upon or expand our existing
capabilities, including additional alternative investment products.
We will also seek additional distribution outlets for our mutual
funds, pursue relatively untapped segments of the institutional
investor universe and seek to enhance the distribution of our
products in international markets.
. Marketing our risk management services. We have developed
sophisticated risk management software that supports our risk
assessment and investment decision-making and automates our trade
processing and compliance functions. We recently began offering
risk management services separately from our asset management
services and intend to gradually expand our marketing efforts in
this area.
. Improving our operating efficiency and pursuing strategic
opportunities. By integrating our business across investment
product lines, we expect to have opportunities to realize continued
improvement in our operating margins. We will also seek to use our
technology strengths to achieve greater automation and improve
management reporting to support future growth. Finally, we believe
that as one of relatively few publicly-traded investment
2
<PAGE>
management firms, we will be better able to participate in future
industry consolidation. We will pursue acquisition and joint
venture opportunities that we believe can enhance stockholder value
by making our operations more efficient, expanding our product
capabilities and strengthening our distribution capabilities.
Headquarters. BlackRock is a Delaware corporation. Our principal
executive offices are located at 345 Park Avenue, New York, New York 10154, and
our telephone number is (212) 754-5560.
3
<PAGE>
The Offerings
The following information assumes that the underwriters and managers do
not exercise the options granted by BlackRock to purchase additional shares in
the offerings.
<TABLE>
<S> <C>
Class A common stock offered:
U.S. offering......................................... shares
International offering................................ shares
Total............................................... shares
Common stock outstanding after the offerings, including
shares reserved for issuance under our employee benefit
plans:
Class A common stock.................................. shares
Class B common stock.................................. shares
Total............................................... shares
</TABLE>
Use of proceeds.............
We estimate that the net proceeds to be
received by BlackRock from these
offerings will be approximately $
million. We intend to use these net
proceeds to repay a portion of
outstanding indebtedness under our $175
million revolving line of credit with
PNC Bank. At June 30, 1999, the
outstanding balance on this line of
credit, including accrued interest, was
$125 million.
Dividend policy............. BlackRock intends to retain earnings to
finance the development and growth of
its business, including possible
investments, and does not anticipate
paying cash dividends in the
foreseeable future.
Voting rights............... The rights of holders of class A common
stock and class B common stock are
identical, except that holders of class
B common stock will have five votes per
share, while holders of class A common
stock will have one vote per share.
Risk factors................ See "Risk Factors" and the other
information included in this prospectus
for a discussion of factors you should
carefully consider before deciding to
invest in shares of the class A common
stock.
NYSE symbol............ "BLK"
4
<PAGE>
SELECTED FINANCIAL DATA
The consolidated financial statements of BlackRock reflect the "carved
out" historical operating results of the asset management businesses of PNC
which were consolidated under BlackRock in 1998 as if the combined operations
had been a separate entity prior to the formation of BlackRock. The selected
financial data presented below has been derived in part from, and should be
read in conjunction with, the consolidated financial statements of BlackRock
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated financial
data includes the results of operations of BFM since its acquisition by PNC on
February 28, 1995. Had BFM's results of operations been included for the year
ended December 31, 1994 and the two months ended February 28, 1995, revenues
would have increased by $55.1 million and $12.1 million, respectively. BFM's
income before income taxes for these periods would not be comparable to post
acquisition results due to the financing costs and goodwill amortization
expense arising out of the acquisition and which have only been incurred in
periods since the acquisition.
The balance sheet data at June 30, 1998 and 1999, and the income statement
data for the six month periods then ended, have been derived from BlackRock's
unaudited financial statements which, in the opinion of BlackRock, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations of
BlackRock for those periods. The income statement data for interim periods is
not necessarily indicative of results for subsequent periods or a full year.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- ------- -------
(unaudited) (unaudited)
($ in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data
Revenue
Investment advisory and administration
fees:
Mutual funds......................... $26,995 $ 61,877 $ 87,189 $117,977 $162,487 $67,403 $99,637
Separate accounts.................... 7,638 24,458 43,069 62,985 101,352 42,376 71,569
BlackRock Asset Investors (BAI) (1).. -- 5,933 6,061 13,867 61,199 15,761 (2,054)
------- -------- -------- -------- -------- ------- -------
Total advisory and administration
fees.................................. 34,633 92,268 136,319 194,829 325,038 125,540 169,152
Other income........................... 1,411 5,814 10,159 10,644 14,444 5,713 10,941
------- -------- -------- -------- -------- ------- -------
Total revenue.......................... 36,044 98,082 146,478 205,473 339,482 131,253 180,093
Operating expenses
Employee compensation and benefits... 7,073 33,698 53,703 73,217 109,741 50,845 65,964
BAI incentive compensation (1)....... -- 3,070 3,525 9,688 44,806 10,332 (1,494)
Fund administration and servicing
costs--affiliates................... 10,475 12,412 19,611 27,278 52,972 15,656 36,334
General and administration........... 10,510 17,719 24,500 29,764 38,696 16,634 23,836
Amortization of goodwill............. -- 8,002 9,603 9,653 9,653 4,826 4,826
Mutual fund offering costs........... -- -- -- -- 4,252 -- --
------- -------- -------- -------- -------- ------- -------
Total operating expenses............... 28,058 74,901 110,942 149,600 260,120 98,293 129,466
------- -------- -------- -------- -------- ------- -------
Operating income....................... 7,986 23,181 35,536 55,873 79,362 32,960 50,627
Non-operating income (expense)
Interest and dividend income......... 331 943 1,877 3,117 1,995 1,066 1,293
Interest expense..................... -- (14,253) (19,975) (20,249) (13,347) (7,582) (7,121)
------- -------- -------- -------- -------- ------- -------
331 (13,310) (18,098) (17,132) (11,352) (6,516) (5,828)
------- -------- -------- -------- -------- ------- -------
Income before income taxes............. 8,317 9,871 17,438 38,741 68,010 26,444 44,799
Income taxes......................... 2,753 4,785 8,475 16,655 32,395 12,596 18,813
------- -------- -------- -------- -------- ------- -------
Net income............................. $ 5,564 $ 5,086 $ 8,963 $ 22,086 $ 35,615 $13,848 $25,986
======= ======== ======== ======== ======== ======= =======
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Six
Year months
ended ended
Dec. June
31, 30,
1998 1999
----- ------
<S> <C> <C>
Unaudited pro forma data
Historical income before income taxes..............................
Pro forma interest adjustment for debt repayment...................
Pro forma income taxes.............................................
--- ---
Pro forma net income...............................................
=== ===
Unaudited pro forma net income per share (2)
Basic............................................................
Diluted..........................................................
Unaudited pro forma weighted average shares outstanding
Basic............................................................
Diluted..........................................................
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
At December 31, At June 30,
------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited)
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data
Goodwill.................................................... $ -- $232,100 $223,216 $213,563 $203,910 $208,737 $199,084
Total assets................................................ 15,039 293,270 332,719 335,507 440,784 314,947 403,252
Long-term debt.............................................. -- 149,754 234,255 206,432 178,200 146,761 125,000
Total liabilities........................................... 3,904 270,481 300,047 290,544 334,593 232,516 271,174
Stockholders' equity........................................ 11,135 22,789 32,672 44,963 106,191 82,431 132,078
<CAPTION>
At December 31, At June 30,
------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(unaudited)
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Other financial data (3)
Assets under management
Separate accounts:
Fixed income*............................................. $13,848 $ 23,345 $ 28,958 $ 39,261 $ 52,869 $ 46,664 $ 68,286
Liquidity................................................. 3,269 5,556 7,430 10,019 13,826 12,738 12,362
Equity.................................................... 540 700 1,204 1,763 2,417 2,095 2,353
------- -------- -------- -------- -------- -------- --------
Subtotal.................................................. 17,657 29,601 37,592 51,043 69,112 61,497 83,001
Mutual funds:
Fixed income.............................................. 10,021 11,969 12,546 13,714 13,888 14,172 13,617
Liquidity................................................. 20,398 21,183 23,933 29,827 35,555 28,958 31,921
Equity.................................................... 4,615 6,306 8,643 10,829 12,087 12,055 13,262
------- -------- -------- -------- -------- -------- --------
Subtotal.................................................. 35,034 39,458 45,122 54,370 61,530 55,185 58,800
------- -------- -------- -------- -------- -------- --------
Total....................................................... $52,691 $ 69,059 $ 82,714 $105,413 $130,642 $116,682 $141,801
======= ======== ======== ======== ======== ======== ========
<CAPTION>
For Six Months
For the Year Ended December 31, Ended June 30,
------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(unaudited)
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net income.................................................. $ 5,564 $ 5,086 $ 8,963 $ 22,086 $ 35,615 $ 13,848 $ 25,986
Depreciation expense........................................ 292 1,531 2,097 2,498 3,199 1,391 4,629
Amortization of goodwill.................................... -- 8,002 9,603 9,653 9,653 4,826 4,826
------- -------- -------- -------- -------- -------- --------
EBITDA as adjusted (4)...................................... $ 5,856 $ 14,619 $ 20,663 $ 34,237 $ 48,467 $ 20,065 $ 35,441
======= ======== ======== ======== ======== ======== ========
Interest expense............................................ -- 14,253 19,975 20,249 13,347 7,582 7,121
Income taxes................................................ 2,753 4,785 8,475 16,655 32,395 12,596 18,813
------- -------- -------- -------- -------- -------- --------
EBITDA (5).................................................. $ 8,609 $ 33,657 $ 49,113 $ 71,141 $ 94,209 $ 40,243 $ 61,375
- --------------------------------------------------
======= ======== ======== ======== ======== ======== ========
</TABLE>
- -------
* including alternative investment products.
(1) Pursuant to a plan of liquidation to be completed by the fourth quarter of
1999, the assets of BAI are being sold and its business operations
terminated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(footnotes continued on next page)
7
<PAGE>
(footnotes continued from previous page)
(2) The unaudited pro forma data and the pro forma net income per share give
effect to the offerings, including the repayment of debt and decrease in
interest expense and the increase in income tax expense, as if the
offerings had been effected as of January 1, 1998. The unaudited pro forma
data and the pro forma net income per share do not purport to represent the
results of operations or the financial position of BlackRock which actually
would have occurred had the offerings been consummated on January 1, 1998,
or project the results of operations or the financial position of BlackRock
for any future date or period.
(3) For comparative purposes, "assets under management" at December 31, 1994
includes BFM.
(4) "EBITDA, as adjusted" represents earnings after interest expense and income
taxes but before depreciation and amortization and extraordinary items. We
believe that this measure may be useful to investors as another indicator
of funds available to us which may be used to repay debt obligations or
make new investments. EBITDA, as adjusted, as calculated by us may not be
consistent with the computation of EBITDA, as adjusted, by other companies.
EBITDA, as adjusted, is not a measure of financial performance under
generally accepted accounting principles and you should not consider it as
an alternative to net income as a measure of operating performance or to
cash flows from operating activities as a measure of liquidity.
(5) "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization and extraordinary items. We believe EBITDA may
be useful to investors as an indicator of our ability to service debt and
to meet working capital requirements. EBITDA, as calculated by us, may not
be consistent with computations of EBITDA by other companies. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and you should not consider it an alternative to net income as a
measure of operating performance or to cash flows from operating activities
as a measure of liquidity. EBITDA has increased every year since 1994,
primarily due to new business growth which resulted in annual increases to
operating income.
8
<PAGE>
RISK FACTORS
As a BlackRock stockholder, you will be subject to risks affecting our
business, risks relating to our relationship with PNC and risks relating to the
ownership of our stock. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to
invest in shares of the class A common stock.
Risk factors affecting our business
Decline in the securities markets could lead to a decline in our revenues
Our investment management revenues are comprised of fees based on a
percentage of the value of assets under management and performance fees
expressed as a percentage of the returns realized on assets under management. A
decline in the prices of stocks or bonds could cause our revenues to decline
by:
. causing the value of our assets under management to decrease,
which would result in lower investment management fees;
. causing the returns realized on our assets under management to
decrease, which would result in lower performance fees; and
. causing our clients to withdraw funds in favor of investments in
markets that they perceive to offer greater opportunity and that
we do not serve, which would result in lower investment management
fees.
Poor investment performance could lead to loss of our clients and a decline in
our revenues
We believe that investment performance is one of the most important
factors for the growth of our assets under management. Poor investment
performance could impair our revenues and growth because:
. existing clients might withdraw funds in favor of better
performing products, which would result in lower investment
management fees;
. our ability to attract funds from existing and new clients might
diminish; and
. we might earn little or no performance fees.
Our sources of revenues are subject to termination on short notice
Our revenues will decrease if our investment management contracts are
terminated or if clients withdraw funds that we manage on their behalf. Any of
the following could cause our revenues to decline:
. clients can, without penalty, terminate our investment management
contracts and can withdraw their funds generally with little or no
advance notice;
. the boards of registered investment companies that we advise could
choose to terminate or not renew our investment management
contracts, which they must consider annually; and
. fund shareholders can withdraw assets with no advance notice.
We may not be able to replace revenues from the funds we manage that have fixed
terms
We manage a variety of mutual funds that were designed with maturity
dates ranging from October 1999 to December 2010. At maturity, all remaining
assets will be distributed to investors in these
9
<PAGE>
funds and our investment advisory agreements will terminate. There is no
assurance that clients will reinvest these assets in our other products or, if
they do, that such reinvestments will be in products that provide us with equal
revenues. Funds maturing in the next three years include:
. BAI, which has adopted a plan of liquidation that we expect will
be completed by the fourth quarter of 1999, represented $159
million of our assets under management at June 30, 1999, and
contributed $16.4 million of operating income in 1998 and an
operating loss of $0.6 million for the six months ended June 30,
1999; and
. three closed-end taxable bond funds maturing on or prior to
December 31, 2001, which collectively represented $2.5 billion of
our assets under management at June 30, 1999 and contributed
$10.6 million of revenues during 1998 and $5.3 million during the
first six months of 1999.
Loss of significant separate accounts would decrease our revenues
We had approximately 400 separate accounts at June 30, 1999, of which the
10 largest (excluding alternative investment products) generated approximately
5.7% of our total revenues during 1998 and 7.1% during the six months ended
June 30, 1999. Loss of any of these accounts would reduce our revenues. We
have, from time to time, lost separate accounts because of corporate mergers
and restructuring, and in the future we could lose accounts under these or
other circumstances, such as adverse market conditions or poor performance.
Competitive fee pressures could reduce our revenues and our profit margins
The investment management business is highly competitive and has
relatively low barriers to entry. To the extent that we are forced to compete
on the basis of price, we may not be able to maintain our current fee
structure. Fee reductions on existing or future new business could cause our
revenues and profit margins to decline.
Performance fees may increase earnings volatility, which could increase the
volatility of our stock price
A portion of our investment management revenues are derived from
performance fees on certain separate accounts and private investment funds.
Generally, we are entitled to performance fees only if the returns on the
related portfolios exceed agreed-upon periodic or cumulative return targets. If
we do not exceed these targets, we will not generate performance fees for that
period and we may not earn performance fees in future periods if the targets
are based on cumulative returns. Performance fees will vary from period to
period in relation to volatility in investment returns, causing our earnings to
be more volatile than if we did not manage assets on a performance fee basis.
The volatility in our earnings may increase the volatility of the share price
of our common stock. Performance fees, excluding BAI, represented 6.2% of our
total revenue in 1998 and 7.5% of total revenue for the six months ended June
30, 1999.
Many of our competitors have greater resources than we do and could use these
resources to increase their business at our expense
Many firms offer similar and additional investment management products
and services to the same clients that we target. In addition, many of our
competitors have or may in the future develop greater financial and other
resources, more extensive distribution capabilities, more effective advertising
and marketing strategies and broader name recognition. Our competitors may be
able to use these resources and capabilities to place us at a competitive
disadvantage in retaining assets under management and achieving increased
market penetration.
Our corporate or acquisition strategies may decrease our earnings and harm our
competitive position
We employ a variety of strategies intended to enhance our earnings and to
improve our profit margins. In the future, these strategies may include
acquisitions of other investment management businesses. We may
10
<PAGE>
not be able to find suitable businesses to acquire at acceptable prices and we
may not be able to successfully integrate or realize the intended benefits from
these acquisitions. In general, our strategies may not be effective and failure
to successfully develop and implement our strategies may decrease our earnings
and harm our competitive position in the investment management industry.
Failure to develop effective business continuity plans could disrupt operations
and cause financial losses which could decrease our stock price
We are dependent to a substantial degree on the availability of our
office facilities and the proper functioning of our computer and
telecommunications systems. A disaster, such as water damage, an explosion or a
prolonged loss of electrical power, could materially interrupt our business
operations and cause material financial loss, regulatory actions, reputational
harm or legal liability, which, in turn, could cause a decline in our stock
price.
We currently estimate that the total cost of developing and implementing
our business continuity plans will not have a material impact on our results of
operations, liquidity or capital resources. We cannot provide any assurance,
however, that our business continuity plans will be effective or that our
estimates regarding the timing and cost of completing the plans will be
accurate.
Failure to achieve Year 2000 readiness could disrupt operations and cause
financial losses which could decrease our stock price
We are substantially dependent on the proper functioning of our computer
systems. In addition, we interact with a variety of third parties in the normal
course of business. A failure of our systems or any of those third parties'
systems to be Year 2000 ready could disrupt our operations and cause material
financial losses, which, in turn, could cause a decline in our stock price. The
primary problem is that many existing computer systems and microprocessors with
date functions 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." Computers
that are not Year 2000 ready may treat the year 2000 as the year 1900 and may
fail to treat the year 2000 as a leap year. Systems that calculate, compare or
sort using the incorrect date may malfunction, which could have the following
effects on our business:
. in the case of our systems, incomplete or inaccurate recording or
accounting of trades or inaccurate calculation of security
valuations and risk parameters;
. in the case of third-party data providers, the receipt of
inaccurate or out-of-date information that would impair our
ability to perform critical data functions, including pricing
portfolio assets or evaluating our risk exposures;
. in the case of customers, trading counterparties and financial
intermediaries such as exchanges and clearing agents, disruption
of funding flows, failed trade settlements or an inability to
trade in certain markets;
. in the case of custodian banks, fund administrators and transfer
agents, disruption of critical administrative, valuation and
record-keeping services for our mutual fund, separate account and
risk management clients;
. in the case of vendors, disruption of telecommunications and
electrical power and other services upon which we depend; and
. in the case of the issuers of securities in which we invest,
adverse impact on their operations and financial condition which
could decrease the value and liquidity of their securities, which
could cause the value of the assets we manage and our investment
management fees to decline.
Disruption or suspension of activity in the world's financial markets is
also possible. In addition, many market participants may reduce their market
activities temporarily as they assess the effectiveness of their Year 2000
readiness efforts during a "phase-in" period beginning in late 1999. This
reduction could decrease liquidity in the securities markets and inhibit our
ability to manage our client portfolios.
11
<PAGE>
We currently estimate that the total cost of implementing our Year 2000
program will not have a material impact on our results of operations, liquidity
or capital resources. We cannot provide any assurance, however, that our Year
2000 program will be effective or that our estimates about the timing and cost
of completing our Year 2000 program will be accurate or that third parties on
which we are dependent will be Year 2000 ready.
Failure to comply with client guidelines could result in damage awards against
us and loss of assets under management, both of which could cause earnings or
stock price to decline
When clients retain us to manage assets on their behalf, they specify
guidelines that we are required to observe in the management of their
portfolios. A failure to comply with these guidelines could result in losses
that the client could seek to recover from us and the client withdrawing its
assets from our management, both of which could cause our earnings or stock
price to decline.
Failure to comply with government regulations could result in fines or
temporary or permanent prohibitions on our activities, which could cause our
earnings or stock price to decline
Our business is subject to extensive regulation in the United States and
certain of our activities are subject to the laws of non-U.S. jurisdictions and
non-U.S. regulatory agencies or bodies. Violation of applicable laws or
regulations could result in fines, temporary or permanent prohibition on our
engagement in certain activities, suspensions of our personnel or revocation of
their licenses, suspension or termination of our investment adviser or broker-
dealer registrations, or other sanctions, which could cause our earnings or
stock price to decline.
Subsidiaries of ours are registered with the Securities and Exchange
Commission under the Investment Advisers Act, and BlackRock's mutual funds are
registered with the SEC under the Investment Company Act. The Investment
Advisers Act imposes numerous obligations on registered investment advisers
including record-keeping, operating and marketing requirements, disclosure
obligations and prohibitions on fraudulent activities. The Investment Company
Act imposes similar obligations, as well as additional detailed operational
requirements, on investment advisers to registered investment companies. The
failure of one of our subsidiaries to comply with the Investment Advisers Act
or the Investment Company Act could lead the SEC to institute proceedings and
impose sanctions for violations of either of these acts ranging from censure to
termination of an investment adviser's registration to prohibition to serve as
advisers to SEC-registered funds, any of which could cause our earnings or
stock price to decline.
Failure to comply with ERISA regulations could result in penalties against us
and cause our earnings or stock price to decline
Our asset management subsidiaries are subject to the Employee Retirement
Income Security Act of 1974, and to regulations promulgated thereunder, insofar
as they act as a "fiduciary" under ERISA with respect to benefit plan clients.
ERISA and applicable provisions of the Internal Revenue Code impose duties on
persons who are fiduciaries under ERISA, prohibit specified transactions
involving ERISA plan clients and provide monetary penalties for violations of
these prohibitions. The failure of any of our subsidiaries to comply with these
requirements could result in significant penalties against us which could
reduce our earnings or cause our stock price to decline.
Risks relating to our relationship with PNC
We will be controlled by PNC as long as it controls a majority of the
outstanding voting power of our common stock, and our other stockholders will
be unable to affect the outcome of stockholder voting during such time
Immediately after completion of these offerings, four of our six
directors will be directors and/or executive officers of PNC and PNC indirectly
will own approximately % of our outstanding shares of class B common stock,
representing % of the combined voting power of all classes of voting stock of
BlackRock. As long as PNC owns a majority of the voting power of our common
stock, PNC will be able to
12
<PAGE>
elect our entire board of directors and to remove any director, with or without
cause, and generally to determine the outcome of all corporate actions
requiring stockholder approval. Additionally, our bylaws provide that, subject
to applicable law and exchange policy, prior to the date on which PNC or
another person beneficially owns less than a majority of the voting power of
BlackRock common stock, a majority of all directors on the committees of our
board of directors will be designated by PNC or such other person. As a result,
subject to the power of executive management to manage the day-to-day
operations of BlackRock, PNC will be in a position to continue to control all
matters affecting BlackRock, including:
. the composition of our board of directors and, through it, any
determination with respect to the direction and policies of
BlackRock, including the appointment and removal of officers;
. any determination with respect to mergers or other business
combinations involving BlackRock;
. the acquisition or disposition of assets by BlackRock;
. future issuances of common stock or other securities of BlackRock;
. the incurrence of debt by BlackRock;
. amendments, waivers and modifications to our agreements, including
those with PNC;
. the payment of dividends on our common stock; and
. determinations with respect to the treatment of items in our tax
returns which are consolidated or combined with PNC's tax returns.
Concentration of PNC managed assets in BlackRock Funds could result in loss of
revenue if the PNC managed assets are withdrawn by PNC
Approximately 80% ($19.8 billion at June 30, 1999) of the assets in the
BlackRock Funds are assets of PNC clients and are invested in the BlackRock
Funds on a discretionary basis by PNC. PNC may withdraw these assets at any
time and we may not be able to replace them. In addition, we may not be
successful in increasing sales through PNC channels and PNC may determine not
to continue marketing the BlackRock Funds or our other products.
Banking regulation of PNC and BlackRock limits our activities and the types of
businesses in which we may engage
Because PNC is a bank holding company and BlackRock is a subsidiary of
PNC and PNC Bank, one of its national bank subsidiaries, we are subject to bank
regulations which limit our activities and the types of businesses in which we
may engage. These limitations might impair our ability to compete for assets
under management and grow our assets. As a subsidiary of a national bank,
BlackRock may not conduct new activities, establish a subsidiary, or acquire
the stock or assets of another company unless it first obtains written
regulatory approval, which is available only for activities that are legally
permissible for a national bank or a subsidiary of a national bank and
consistent with prudent banking principles and regulatory policy or, for non-
U.S. activities or investments, that are usual in connection with the
transaction of the business of banking or other financial operations outside of
the United States. Banking regulations may cause us to be at a competitive
disadvantage because most of our competitors are not subject to these
limitations. BlackRock is subject to the supervision, regulation, and
examination of the Office of the Comptroller of the Currency. As a PNC Bank
subsidiary, BlackRock is subject to the broad enforcement authority of the OCC,
including the OCC's power to prohibit BlackRock from engaging in any activity
that, in the OCC's opinion, constitutes an unsafe or unsound practice in
conducting its business. The OCC may also impose substantial fines and other
penalties for violations of banking regulations applicable to BlackRock. Some
of our subsidiaries that engage in activities outside the United States are
subject to regulation and supervision by the Board of Governors of the Federal
Reserve System. In addition, your shares will not be insured by the Federal
Deposit Insurance Corporation or guaranteed by any bank.
13
<PAGE>
We could lose existing management and investment contracts if there is a change
in control of PNC or BlackRock
Upon a change in control of PNC or BlackRock, PNC, BlackRock or any
successor may be required to offer to purchase all our capital stock held by
BlackRock's employee stockholders and by public stockholders. Upon a change in
control of PNC or BlackRock, our existing management may leave and new
management could be appointed. In addition, in the event of such a change in
control of PNC or BlackRock, the boards of registered investment companies and
our other clients might have to reapprove our investment management contracts.
The termination of any contracts would reduce our revenues.
Holders may not participate in PNC's disposal of its common stock which could
decrease our stock price
After the offerings, PNC will beneficially own approximately % of
BlackRock's outstanding class B common stock, representing % of the combined
voting power of all classes of voting stock of BlackRock. At any time following
the expiration of the 180 day lock-up period in connection with the offerings,
PNC could decide to sell or otherwise dispose of all or a portion of its class
B common stock, subject to rights of first refusal and tag along rights
provided to our employee stockholders in a stockholders agreement. If PNC were
to dispose of all its class B common stock, members of our management team and
other employee stockholders could choose to sell all of their shares of common
stock in such a transaction.
PNC will have the right to require BlackRock to register the class B
common stock held by PNC for sale in public offerings. BlackRock's other
existing stockholders also have registration rights and may therefore
participate in a public or private sale of shares by PNC. Because it owns a
controlling voting interest of BlackRock, PNC may realize a premium over the
prevailing market price in selling its class B common stock. Holders of class A
common stock may not be allowed to participate in a transfer by PNC of its
controlling interest and may not realize any premium with respect to their
shares of class A common stock.
Four of our directors are also directors or executive officers of PNC. Our
directors and officers may own PNC stock and, as a result, will have conflicts
of interest on issues involving both BlackRock and PNC
Four members of our board of directors are executive officers of PNC.
Three of these PNC officers are also directors of PNC. Those directors who are
also directors or executive officers of PNC will have obligations to both
companies and will have conflicts of interest with respect to matters
potentially or actually involving or affecting us, such as acquisitions,
financings and other corporate opportunities that may be suitable both for us
and for PNC.
Many of our directors and our executive officers own significant amounts
of PNC stock and employee stock options on PNC stock because of their
relationships with PNC. Such ownership could create, or appear to create,
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for BlackRock and PNC.
BlackRock's certificate of incorporation contains provisions addressing the
respective rights and duties of BlackRock, PNC and their respective officers
and directors. These provisions do not alter the fiduciary duty of loyalty of
our directors under applicable Delaware law.
Conflicts of interest with PNC due to our ongoing business relationship may
arise
Conflicts of interest may arise between BlackRock and PNC in a number of
areas relating to our past, ongoing and future relationships, including:
. the nature, quality and pricing of services rendered to us by PNC
and to PNC by us;
. competitive business activities;
. sales or distributions by PNC of all or a portion of its ownership
interest in BlackRock;
14
<PAGE>
. PNC's ability to control the management and affairs of BlackRock;
or
. other intercompany relationships, including insurance policies.
We may not be able to resolve any conflict of interest with PNC or, if a
conflict of interest is resolved, we may not receive as favorable a resolution
as we might have received if we were dealing with an unaffiliated third party.
Risk factors relating to our class A common stock
Disparate voting rights may decrease our stock price
The holders of class A common stock and class B common stock have
identical rights, except that:
. holders of class A common stock will have one vote per share on
all matters to be voted on by stockholders in general;
. holders of class B common stock will have five votes per share on
all matters to be voted on by stockholders in general; and
. holders of class A common stock are not eligible to vote on
matters relating exclusively to class B common stock, and vice
versa.
The difference in voting rights and our ability to issue additional
class B common stock could depress the value of the class A common stock.
Shares available for future sale or distribution, when sold or distributed,
may decrease our stock price
Immediately after the offerings, we will have outstanding
shares of class A common stock and shares of class B common stock.
Subject to the restrictions described under "Description of Capital Stock--
Common Stock--Stockholders Agreement," "Shares Eligible for Future Sale" and
the lock-up agreements described under "Underwriting," PNC and our existing
stockholders could from time to time and for any reason sell any or all of the
shares of class B common stock owned by them.
We cannot predict the effect, if any, that future sales or distributions
of class B common stock by PNC and our existing stockholders will have on the
market price of the class A common stock. Sales or distributions of
substantial amounts of class A common stock or class B common stock, or the
perception that such sales or distributions could occur, may cause the market
price for the class A common stock to decline.
Anti-takeover provisions may render changes of control more difficult and may
decrease our stock price
For so long as PNC owns a majority of the voting power of our
outstanding common stock, any merger or business combination involving
BlackRock would require the prior approval of PNC. In the event that PNC were
to control less than a majority of the voting power of our outstanding common
stock, provisions in our corporate documents may have the effect of rendering
more difficult or discouraging an acquisition of BlackRock or changes in
control of BlackRock deemed undesirable by the board of directors. These
obstacles to the acquisition of BlackRock by a third party could adversely
affect the price of our common stock and include the fact that our certificate
of incorporation and bylaws divide the board into three classes of directors,
each of which serves staggered three-year terms. Because this makes it more
difficult for stockholders to change the composition of the board, the
classification of the board may discourage a third party from trying to gain
control of BlackRock. This obstacle, and others discussed under "Description
of Capital Stock," could depress the value of our common stock.
15
<PAGE>
Statements about our future results are based on our outlook, and our actual
results may differ substantially from our current expectations
We make statements about our future results in this prospectus that may
constitute "forward-looking statements." These statements are based on our
current expectations and the current economic environment. We caution you that
these statements are not guarantees of future performance. They involve a
number of risks and uncertainties that are difficult to predict. Our actual
results could differ materially from those expressed or implied in the forward-
looking statements. Important factors, including those described under "Risk
Factors" and elsewhere in this prospectus, could cause our actual results to
differ materially from those in the forward-looking statements. We derived the
forward-looking statements in the prospectus from certain assumptions, and the
failure of those assumptions to be realized may also cause actual results to
differ materially from those projected.
----------------
This prospectus contains information you should consider when making your
investment decision. You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these securities in any
jurisdiction where such offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate at the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
USE OF PROCEEDS
We estimate that the net proceeds to be received by BlackRock from these
offerings, not including the proceeds received from the over-allotment options,
will be approximately $ million. We intend to use these net proceeds to
repay a portion of the outstanding indebtedness under our $175 million
revolving line of credit with PNC Bank. At June 30, 1999, the outstanding
balance of this facility, including accrued interest, was $125 million. The
revolving line of credit bears interest at PNC Bank's prime rate, which was
7.75% at June 30, 1999. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
We intend to retain future earnings, if any, for the development of our
business and therefore do not anticipate that our board of directors will
declare or pay any dividends on the class A common stock and class B common
stock in the foreseeable future. The declaration and payment of dividends by
BlackRock are subject to the discretion of our board of directors. BlackRock is
a holding company and, as such, our ability to pay dividends is subject to the
ability of our subsidiaries to provide cash to us. The board of directors will
determine future dividend policy based on our results of operations, financial
conditions, capital requirements and other circumstances. In addition, because
we are a consolidated subsidiary of PNC Bank, federal banking restrictions on
payments of dividends by PNC Bank may apply to us. See "Business--Regulation."
16
<PAGE>
DILUTION
Our pro forma net tangible book value at June 30, 1999 was $ million,
or $ per share of class A common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, each on a pro forma basis to reflect the sale of the
shares of class A common stock offered by BlackRock in these offerings at an
assumed public offering price of $ per share. The pro forma net tangible
book value per share was calculated without deduction of the estimated
underwriting discount and estimated offering expenses, and without any
provision for the application of the estimated net proceeds. Our pro forma net
tangible book value at June 30, 1999 would have been $ million, or $
per share without giving effect to the offerings. These offerings will cause an
immediate decrease in the pro forma net tangible book value of $ per share
to new investors in our class A common stock and an immediate increase in
pro forma net tangible book value of $ per share of class B common stock
held by our existing stockholders.
<TABLE>
<S> <C>
Public offering price per share(1)............................ $
Pro forma net tangible book value per share before these
offerings....................................................
Increase per share attributable to new investors..............
Pro forma net tangible book value per share after these
offerings....................................................
Dilution per share to new investors(2)(3)..................... $
============
</TABLE>
- --------
(1) Assumed public offering price before deduction of underwriting discount
and estimated expenses of these offerings to be paid by BlackRock.
(2) Dilution is determined by subtracting the pro forma net tangible book
value per share of our class A common stock after these offerings from the
assumed public offering price paid by purchasers in these offerings for a
share of our class A common stock.
(3) Assumes no exercise of outstanding employee stock options. As of the date
of this prospectus, there are options outstanding, all of which are
unvested, to purchase shares of class A common stock at the
initial offering price. See "Executive Compensation." If any of these
options are exercised, there will be further dilution to purchasers of
class A common stock in these offerings.
Assuming the underwriters' over-allotment options are exercised in full,
the pro forma net tangible book value at June 30, 1999 would have been $
million, or $ per share of class A common stock. The immediate increase in
pro forma net tangible book value of shares owned by existing stockholders
would be $ per share, and the immediate dilution to purchasers of shares of
class A common stock in these offerings would be $ per share.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of BlackRock at June
30, 1999 on an actual basis and on an as-adjusted basis. The as-adjusted basis
reflects the application of the estimated net proceeds from the offerings to
repay a portion of the outstanding amounts under our revolving credit line with
PNC Bank from the sale by BlackRock of shares of class A common stock
offered hereby at an initial public offering price of $ per share after
deducting the underwriter's discount and estimated offering expenses, and
assuming that the over-allotment options are not exercised. This table should
be read in conjunction with the consolidated financial statements and related
notes and other financial and operating data contained elsewhere in our
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 19 of this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
-------------------
As
Actual Adjusted
-------- ---------
($ in thousands)
<S> <C> <C>
Debt
7.5% unsecured note due February 2000.................... $ 28,200 $
Revolving line of credit with PNC Bank................... 125,000
-------- ---------
Total debt................................................. 153,200
Stockholders' equity
Class A common stock, $0.01 par value per share;
shares authorized; shares issued and
outstanding.............................................
Class B common stock, $0.01 par value per share;
shares authorized; shares issued and
outstanding.............................................
Additional paid-in capital............................... 53,105
Retained earnings........................................ 79,272
Unrealized gain (loss) on investments, net............... (99)
Treasury stock, at cost, shares.................... (200)
-------- ---------
Total stockholders' equity................................. 132,078
-------- ---------
Total capitalization....................................... $285,278 $
======== =========
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BlackRock was formed in 1998 as a result of PNC's decision to
substantially consolidate its asset management businesses under the BlackRock
brand name and management team. Prior to this consolidation, PNC provided the
fixed income, liquidity and equity advisory services now under BlackRock
through various legal entities utilizing separate brand names. Through PNC Bank
and other PNC affiliates, PNC continues to provide asset management services as
part of its personal trust activities and otherwise to individual and
institutional clients.
The consolidated financial statements of BlackRock reflect the "carved
out" historical operating results of the asset management businesses of PNC
which were consolidated under BlackRock in 1998 as if the combined operations
had been a separate entity prior to the formation of BlackRock.
General
BlackRock derives a substantial portion of its revenues from investment
advisory and administration fees, which are recognized as the services are
performed. Such fees are primarily based on predetermined percentages of the
market value of assets under management and are affected by changes in assets
under management, including market appreciation or depreciation and net
subscriptions or redemptions. Net subscriptions or redemptions represent the
sum of new client assets, additional fundings from existing clients,
withdrawals of assets from and termination of client accounts and purchases and
redemptions of mutual fund shares.
The following table presents the component changes in BlackRock's assets
under management for the years ended December 31, 1996, 1997 and 1998, and for
the six months ended June 30, 1999. The $3.8 billion in net mutual fund
redemptions for the six months ended June 30, 1999 was almost entirely due to
$3.7 billion in net redemptions in our institutional money market fund family,
Provident Institutional Funds. These funds experience high levels of
subscriptions and redemptions on a daily basis which can result in volatile
period-to-period changes in assets under management.
<TABLE>
<CAPTION>
For the
Six Months
For the Year Ended ended June
December 31, 30,
--------------------------- ----------
1996 1997 1998 1999
------- -------- -------- ----------
($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts
Beginning assets under management..... $29,601 $ 37,592 $ 51,043 $ 69,112
Net subscriptions..................... 6,616 11,301 15,166 15,505
Market appreciation (depreciation).... 1,375 2,150 2,903 (1,616)
------- -------- -------- --------
Ending assets under management........ 37,592 51,043 69,112 83,001
Mutual Funds
Beginning assets under management..... 39,458 45,122 54,370 61,530
Net subscriptions (redemptions)....... 4,551 7,221 5,674 (3,844)
Market appreciation................... 1,113 2,027 1,486 1,114
------- -------- -------- --------
Ending assets under management........ 45,122 54,370 61,530 58,800
------- -------- -------- --------
Total Assets Under Management ("AUM").. 82,714 105,413 130,642 141,801
======= ======== ======== ========
Net subscriptions..................... $11,167 $ 18,522 $ 20,840 $ 11,661
% of Change in AUM from net
subscriptions........................ 81.8% 81.6% 82.6% 104.5%
</TABLE>
Investment advisory agreements for certain separate accounts and
BlackRock's alternative products provide for performance fees in addition to
fees based on assets under management. Performance fees are earned when
investment performance exceeds a contractual threshold and, accordingly, may
increase the volatility of BlackRock's revenues and earnings. Other income
primarily reflects fees earned on risk management advisory engagements. See
"Business--Risk Management Products."
19
<PAGE>
BAI, one of our alternative investment products, was created in 1994 in
response to the opportunity we perceived in commercial real estate debt arising
from the dislocation of traditional lenders that had occurred and the resulting
lack of capital in the sector. We believed that BAI would capture equity-like
returns as an early market participant able to invest in these types of assets.
As the commercial real estate markets recovered and capital market
participation in commercial mortgage securities expanded, further opportunities
to generate equity-like returns diminished. As a result, BAI's Board of
Trustees and shareholders decided to adopt management's recommendation to
liquidate the fund. For the years ended December 31, 1996, 1997 and 1998, BAI
generated operating income (advisory and performance fees, net of expenses) of
$2.5 million, $4.2 million and $16.4 million, respectively. As a result of the
liquidation, which involved the sale of BAI's assets, BlackRock has realized an
operating loss of $0.6 million for the six months ended June 30, 1999. We do
not believe that the liquidation of the remaining assets and distributions to
shareholders will have a material impact on future operations. We expect the
liquidation of BAI will be completed by the fourth quarter of 1999.
Operating expenses primarily consist of employee compensation and benefit
expense, BAI incentive compensation expense, fund administration and servicing
expense, general and administrative expense and goodwill amortization. Employee
compensation and benefit expense reflects salaries, deferred and incentive
compensation, and related benefit costs. BAI incentive compensation expense
reflects compensation payable in accordance with various agreements to
investment advisory and other employees of BlackRock. Fund administration and
servicing expenses reflect payments made to PNC affiliated entities (see
"Certain Relationships and Related Transactions" and Note 7 of "Notes to
BlackRock's Consolidated Financial Statements") associated with the
administration and servicing of BlackRock's mutual funds. Goodwill at December
31, 1998 was $203.9 million with annual amortization expense of approximately
$9.7 million. Substantially all of the goodwill resulted from PNC's acquisition
of BFM on February 28, 1995.
Operating Results for Six Months Ended June 30, 1999 as Compared to Six Months
Ended June 30, 1998
Assets Under Management
Assets under management rose $25.1 billion, or 21.5%, to $141.8 billion
at June 30, 1999, as compared to $116.7 billion at June 30, 1998. The increase
was largely driven by a 35.0% growth in separate account assets, primarily
reflecting new fixed income advisory business. Net subscriptions totaled $24.4
billion, or 97.2% of the $25.1 billion increase in assets under management,
with the remaining $0.7 billion (2.8%) reflecting market appreciation.
<TABLE>
<CAPTION>
For the Six
Months Ended June
30, Period-to-Period
----------------- ------------------
1998 1999 $ Change % Change
-------- -------- -------- --------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts
Fixed income*.......................... $ 46,664 $ 68,286 $21,622 46.3%
Liquidity.............................. 12,738 12,362 (376) (3.0)%
Equity................................. 2,095 2,353 258 12.3%
-------- -------- -------
Subtotal............................... 61,497 83,001 21,504 35.0%
-------- -------- -------
Mutual Funds
Fixed income........................... 14,172 13,617 (555) (3.9)%
Liquidity.............................. 28,958 31,921 2,963 10.2%
Equity................................. 12,055 13,262 1,207 10.0%
-------- -------- -------
Subtotal............................... 55,185 58,800 3,615 6.6%
-------- -------- -------
Total.................................... $116,682 $141,801 $25,119 21.5%
======== ======== =======
</TABLE>
- --------
* including alternative investment products.
20
<PAGE>
Revenues
Investment advisory and administration fees increased $43.6 million, from
$125.5 million for the six months ended June 30, 1998 to $169.1 million for the
six months ended June 30, 1999. The growth in investment advisory and
administration fees was due to increases in assets under management for
separate accounts and mutual funds and was partially offset by reductions in
BAI-related performance fees as a result of the planned liquidation of the fund
by the fourth quarter of 1999.
<TABLE>
<CAPTION>
For the Six
Months Ended June
30, Period-to-Period
----------------- ------------------
1998 1999 $ Change % Change
-------- -------- -------- --------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Investment advisory and
administration fees:
Mutual funds...................... $ 67,403 $ 99,637 $32,234 47.8%
Separate accounts................. 42,376 71,569 29,193 68.9%
BAI............................... 15,761 (2,054) (17,815) (113.0)%
-------- -------- -------
Total investment advisory and
administration fees................ 125,540 169,152 43,612 34.7%
Other income........................ 5,713 10,941 5,228 91.5%
-------- -------- -------
Total revenue..................... $131,253 $180,093 $48,840 37.2%
======== ======== =======
Mutual fund advisory and administration fees increased $32.2 million for
the six months ended June 30, 1999 due to a $3.6 billion increase in mutual
fund assets under management and the May 1998 conversion of $8.2 billion of PNC
common trust funds into the BlackRock Funds, which earn higher advisory fees.
Separate account advisory fees rose $29.2 million largely as a result of a
$21.5 billion increase in separate account assets under management as well as
increased performance fees earned on BlackRock's domestic and off-shore fixed
income hedge funds. BAI advisory fees decreased $17.8 million due to the
discontinuance of any further business activity other than asset sales
associated with the fund's liquidation. Other income increased $5.2 million
primarily from new risk management advisory engagements and includes a $1.0
million increase for additional services provided to PNC. See "Certain
Relationships and Related Transactions--Transactions with PNC and Its
Subsidiaries."
Expenses
Operating expenses increased by $31.2 million, from $98.3 million for the
six months ended June 30, 1998 to $129.5 million for the six months ended June
30, 1999. The change was primarily the result of increases in employee
compensation and benefits, fund administration and servicing costs-affiliates
due to higher levels of PNC client assets under management in the BlackRock
Funds and general and administration expenses. The increases were partially
offset by lower incentive compensation in 1999 related to the liquidation of
BAI.
<CAPTION>
For the Six
Months Ended June
30, Period-to-Period
----------------- ------------------
1998 1999 $ Change % Change
-------- -------- -------- --------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Employee compensation and benefits.. $ 50,845 $ 65,964 $15,119 29.7%
BAI incentive compensation.......... 10,332 (1,494) (11,826) (114.5)%
Fund administration and servicing
costs-affiliates................... 15,656 36,334 20,678 132.1%
Amortization of goodwill............ 4,826 4,826 -- 0.0%
General and administration.......... 16,634 23,836 7,202 43.3%
-------- -------- -------
Total Operating Expenses.......... $ 98,293 $129,466 $31,173 31.7%
======== ======== =======
</TABLE>
21
<PAGE>
Employee compensation and benefits rose $15.1 million due to additional
expenses of $3.7 million related to salary and benefits and $11.4 million for
incentive compensation based primarily on operating profit growth. Salary and
benefit cost increases were the result of a 20.7% increase in full-time
employees to support business growth and enhancements to the company's 401(k)
plan which were partially offset by the adoption of SOP 98-1 (Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use). BAI
incentive compensation decreased by $11.8 million due to the discontinuance of
any further business activity other than asset sales associated with the fund's
liquidation. Fund administration and servicing costs-affiliates increased $20.7
million primarily due to the May 1998 conversion of $8.2 billion of PNC common
trust funds into the BlackRock Funds, on which BlackRock pays higher service
fees. General and administration expenses increased $7.2 million primarily
attributable to additional expenditures of $1.6 million related to occupancy
and office services, $1.9 million related to marketing and promotional costs
and $2.1 million related to systems and communications. These increases
resulted from the substantial business growth experienced during the period as
well as management's decision to adjust the depreciable life on equipment from
five years to three years, which increased depreciation expense by $1.6
million.
Operating Income and Net Income
Operating income was $50.6 million for the six months ended June 30,
1999, representing a $17.7 million or 53.6% increase from the same period in
1998. Net interest expense decreased $0.7 million or 10.6% to $5.8 million for
the six months ended June 30, 1999 as compared to $6.5 million for the six
months ended June 30, 1998, due to the repayment of debt. Income tax expense
was $18.8 million and $12.6 million for the six months ended June 30, 1999 and
1998, respectively, representing effective tax rates of 42.0% and 47.6%. The
difference in the effective tax rates resulted from various permanent
differences and variations caused by state and local income tax accruals
pursuant to the PNC tax sharing policy which BlackRock is subject to prior to
the Tax Disaffiliation Agreement taking effect. Net income totaled $26.0
million for the six months ended June 30, 1999 as compared to $13.8 million for
the six months ended June 30, 1998, an increase of 87.7%.
Operating Results for 1998 as Compared to 1997
Assets Under Management
Assets under management rose $25.2 billion in 1998, propelled by a 35.4%
growth in separate account assets, primarily reflecting new fixed income
advisory business. Net subscriptions totaled $20.8 billion, or 83% of the $25.2
billion increase in assets under management, with the remaining $4.4 billion
(17%) reflecting market appreciation.
<TABLE>
<CAPTION>
At December 31, Year-to-Year
----------------- -----------------
1997 1998 $ Change % Change
-------- -------- -------- --------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts
Fixed income*.......................... $ 39,261 $ 52,869 $13,608 34.7%
Liquidity.............................. 10,019 13,826 3,807 38.0%
Equity................................. 1,763 2,417 654 37.1%
-------- -------- -------
Subtotal............................... 51,043 69,112 18,069 35.4%
-------- -------- -------
Mutual Funds
Fixed income........................... 13,714 13,888 174 1.3%
Liquidity.............................. 29,827 35,555 5,728 19.2%
Equity................................. 10,829 12,087 1,258 11.6%
-------- -------- -------
Subtotal............................... 54,370 61,530 7,160 13.2%
-------- -------- -------
Total.................................... $105,413 $130,642 $25,229 23.9%
======== ======== =======
</TABLE>
- --------
* including alternative investment products.
22
<PAGE>
Revenues
Investment advisory and administration fees increased $130.2 million,
from $194.8 million in 1997 to $325.0 million in 1998. The growth in investment
advisory and administration fees for 1998 was due to increases in assets under
management for separate accounts and mutual funds as well as an increase in
BAI- related performance fees.
<TABLE>
<CAPTION>
Year Ended December 31, Year-to-Year
----------------------- -------------------------
1997 1998 $ Change % Change
----------- ----------- ---------------- --------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Investment advisory and
administration fees:
Mutual funds............ $ 117,977 $ 162,487 $ 44,510 37.7%
Separate accounts....... 62,985 101,352 38,367 60.9%
BAI..................... 13,867 61,199 47,332 341.3%
----------- ----------- --------
Total investment advisory
and administration
fees.................... 194,829 325,038 130,209 66.8%
Other income............. 10,644 14,444 3,800 35.7%
----------- ----------- --------
Total revenue........... $ 205,473 $ 339,482 $134,009 65.2%
=========== =========== ========
</TABLE>
Mutual funds advisory and administration fees increased $44.5 million due
to a $7.2 billion increase in mutual fund assets under management and the May
1998 conversion of $8.2 billion of PNC common trust funds into the BlackRock
Funds which earn higher advisory fees. Separate account advisory fees rose
$38.4 million largely as a result of an $18.1 billion increase in separate
account assets under management as well as increased performance fees earned on
BlackRock's domestic and off-shore fixed income hedge funds. BAI advisory fees
increased $47.3 million primarily due to increased performance fees based on
the market value of fund assets to be liquidated and projected fund returns.
Other income increased $3.8 million primarily from new risk management advisory
engagements.
Expenses
Operating expenses increased by $110.5 million, from $149.6 million in
1997 to $260.1 million in 1998. The change was primarily the result of
increases in employee compensation and benefits, incentive compensation related
to the liquidation of BAI, and fund administration and servicing costs due to
higher levels of PNC client assets under management in the BlackRock Funds.
<TABLE>
<CAPTION>
Year Ended December 31, Year-to-Year
----------------------- -------------------------
1997 1998 $ Change % Change
----------- ----------- ---------------- --------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Employee compensation and
benefits................... $ 73,217 $ 109,741 $ 36,524 49.9%
BAI incentive compensation.. 9,688 44,806 35,118 362.5%
Fund administration and
servicing costs-
affiliates................. 27,278 52,972 25,694 94.2%
Amortization of goodwill.... 9,653 9,653 -- 0.0%
General and administration.. 29,764 38,696 8,932 30.0%
Mutual fund offering costs.. -- 4,252 4,252 NA
----------- ----------- --------
Total operating expenses.... $ 149,600 $ 260,120 $110,520 73.9%
=========== =========== ========
</TABLE>
Employee compensation and benefits rose $36.5 million due to additional
expenses of $16.1 million related to salary and benefits, $16.0 million for
incentive compensation based primarily on operating profit growth and $4.4
million associated with the establishment of a deferred compensation program to
retain key executives and employees. Salary and benefit cost increases largely
resulted from a 25% rise in full time employees to support business growth and
enhance infrastructure. BAI incentive compensation increased $35.1 million
based on the substantial increase in BAI performance fee revenues. Fund
administration and
23
<PAGE>
servicing costs-affiliates increased $25.7 million primarily due to the May
1998 conversion of $8.2 billion of PNC common trust funds into the BlackRock
Funds on which BlackRock pays higher service fees. General and administration
expenses increased $8.9 million, primarily attributable to additional
expenditures of $1.8 million related to occupancy and office services, $1.8
million related to marketing and promotion and $1.3 million related to systems
and communications. These increases resulted from the substantial business
growth experienced in 1998 as well as from BlackRock's formation, which
required significant staff increases and included sizable new investments in
technology and leased premises as compared to the prior year. BlackRock also
launched a new high yield mutual fund in December 1998, which resulted in the
immediate recognition of $4.3 million of expense for broker-related sales
commissions.
Operating Income and Net Income
Operating income was $79.4 million for 1998, representing a $23.5 million
or 42.0% increase from the prior year. Net interest expense decreased to $11.4
million for 1998 as compared to $17.1 million for 1997, a 33.7% decrease due to
the continuing reduction of debt. Income tax expense was $32.4 million and
$16.7 million for 1998 and 1997, respectively, representing effective tax rates
of 47.6% and 43.0%. The increase in the effective tax rate from the prior year
is attributable to increased state and local taxes. Net income totaled $35.6
million for 1998 as compared to $22.1 million for 1997, an increase of 61.3%.
Operating Results for 1997 as Compared to 1996
Assets Under Management
Total assets under management increased by 27.4% in 1997, reflecting
strong growth in both separate account and mutual fund assets under management.
Separate account assets under management rose $13.5 billion due to continued
strong growth in new fixed income clients while mutual fund assets under
management increased $9.2 billion, primarily due to $7.2 billion in net
subscriptions.
<TABLE>
<CAPTION>
At December 31, Year-to-Year
---------------- ------------------------
1996 1997 $ Change % Change
------- -------- --------------- --------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts
Fixed income*.................... $28,958 $ 39,261 $10,303 35.6%
Liquidity........................ 7,430 10,019 2,589 34.8%
Equity........................... 1,204 1,763 559 46.4%
------- -------- -------
Subtotal......................... 37,592 51,043 13,451 35.8%
------- -------- -------
Mutual Funds
Fixed income..................... 12,546 13,714 1,168 9.3%
Liquidity........................ 23,933 29,827 5,894 24.6%
Equity........................... 8,643 10,829 2,186 25.3%
------- -------- -------
Subtotal......................... 45,122 54,370 9,248 20.5%
------- -------- -------
Total.............................. $82,714 $105,413 $22,699 27.4%
======= ======== =======
</TABLE>
- --------
* including alternative investment products.
Revenues
Investment advisory and administration fees totaled $194.8 million in
1997, which represented a $58.5 million or 42.9% increase from 1996. The
increase in investment advisory and administration fees was primarily
attributable to a $22.7 billion rise in mutual fund and separate account assets
under management.
24
<PAGE>
Mutual fund advisory and administration fees for 1997 of $118.0 million
increased $30.8 million from 1996 or 35.3% as mutual fund assets under
management increased $9.2 billion or 20.5%. Separate account advisory fees were
$63.0 million in 1997, an increase of $19.9 million or 46.2% reflecting a $13.5
billion or 35.8% increase in separate account assets under management. BAI
advisory fees increased $7.8 million to $13.9 million in 1997, primarily as a
result of higher performance fees. Other income increased by $0.5 million to
$10.6 million in 1997.
Expenses
Operating expenses increased $38.7 million or 34.8% from $110.9 million
in 1996 to $149.6 million in 1997. The increase was primarily due to
significant business growth, which resulted in higher employee compensation and
benefit costs and increased marketing expenses.
Employee compensation and benefits of $73.2 million were up $19.5 million
or 36.3% compared with 1996. The increase was attributable to additional
expenses of $8.0 million related to salary and benefits and $11.5 million for
incentive compensation based on operating profit growth. Salary and benefit
cost increases were largely due to higher staffing levels to support new
business growth together with normal merit pay raises and escalations in
benefit costs. BAI incentive compensation of $9.7 million was up $6.2 million
from the prior year. The rise was largely attributable to the rise in earned
performance fees. Fund administration and servicing costs were $27.3 million in
1997, an increase of $7.7 million or 39.1% from the prior year. The increase
was attributable to increases in PNC private banking client assets in the
BlackRock Funds as well as higher assets under management in the Provident
Institutional Funds on which BlackRock pays administration fees to a PNC mutual
fund processing subsidiary. General and administration expenses were $29.8
million in 1997, a $5.3 million or 21.5% increase over 1996. The increase was
primarily attributable to a $4.1 million rise in marketing and promotional
costs associated with increased mutual fund and institutional separate account
sales.
Operating Income and Net Income
Operating income was $55.9 million for 1997, representing a $20.3 million
increase or 57.2% from the prior year. Net interest expense declined to $17.1
million in 1997 from $18.1 million in 1996. Income tax expense was $16.7
million and $8.5 million for 1997 and 1996, respectively, representing
effective tax rates of 43.0% and 48.6%. Net income totaled $22.1 million for
1997 as compared to $9.0 million for 1996, an increase of 146.4%.
Liquidity and Capital Resources
BlackRock's business is not capital intensive. BlackRock has historically
met its working capital requirements through cash generated by its operating
activities and borrowings with PNC Bank under a $175 million revolving credit
facility. Cash provided by operating activities totaled $17.9 million, $47.2
million and $53.7 million for the years ended December 31, 1996, 1997 and 1998
respectively, and $15.6 million for the first six months of 1999. BlackRock
expects that such cash flows will continue to serve as the principal source of
working capital for the near future.
Net cash flow used in investing activities was $3.7 million, $3.0 million
and $5.0 million for the years ended December 31, 1996, 1997 and 1998
respectively, and $9.0 million for the first six months of 1999. Capital
expenditures for computer hardware, furniture and equipment and leasehold
improvements were $4.2 million, $2.2 million and $8.4 million for the years
ended December 31, 1996, 1997 and 1998 respectively, and $9.1 million for the
first six months of 1999.
Total capital at December 31, 1998, was $303.2 million and was comprised
of $106.2 million of stockholders' equity and $197.0 million of debt. Debt at
December 31, 1998 included $150.0 million outstanding on a $175.0 million
revolving credit facility with PNC Bank due December 31, 2002, and a $47.0
million unsecured note due through February 28, 2000 with B.P. Partners, L.P.,
an entity comprised of former partners of BFM who received deferred notes as
part of the purchase price for BFM. The $197.0 million in
25
<PAGE>
outstanding debt as of December 31, 1998 represents amounts remaining from
PNC's $240.0 million acquisition of BFM on February 28, 1995, which was
recorded on BFM's books. The revolving credit facility with PNC Bank, dated
February 28, 1996, as amended, bears interest at PNC Bank's "prime rate" and is
not terminable by the bank except in the event of a default. The unsecured note
bears interest at a fixed rate of 7.5% and is unconditionally guaranteed by
PNC. BlackRock repaid $18.8 million on February 28, 1999, and $28.2 million is
due on February 28, 2000. Total capital at June 30, 1999 was $285.3 million and
was comprised of $132.1 million of stockholders' equity and $153.2 million of
debt. Debt at June 30, 1999 included $125.0 million outstanding on the $175.0
million revolving credit facility with PNC Bank due December 31, 2002, and
$28.2 million on the unsecured note due February 28, 2000 with B. P. Partners,
L.P.
BlackRock intends that the net proceeds from the offerings will be used
to repay a portion of the outstanding indebtedness under our $175 million
revolving credit facility with PNC Bank.
Net cash flow used in financing activities was $4.4 million and $40.4
million for 1998 and 1997, respectively, and $43.8 million for the six months
ended June 30, 1999, while such activities provided approximately $20.8 million
of cash flow in 1996. During 1998, BlackRock received $34.2 million in net
proceeds from the sale of restricted stock to employees. On the March 31, 1998
formation date, $12.3 million in dividends were paid to PNC in order to
establish an appropriate exchange ratio for PNC and employee ownership
interests based on the fair market value of the combined businesses. Debt
payments totaled $28.2 million and $30.6 million for 1998 and 1997,
respectively, and $43.8 million for the six months ended June 30, 1999, with
outstanding debt increasing in 1996 by approximately $19.9 million.
Recent Accounting Developments
In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 ("Accounting for
Derivative Instruments and Hedging Activities"). SFAS No. 133 establishes
standards for recognizing and establishing fair value for derivative financial
instruments. SFAS No. 133, as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133," is required to be adopted for fiscal years
beginning after June 15, 2000. BlackRock does not expect implementation to have
any significant effect on BlackRock's reported financial position or results of
operations.
Seasonality
BlackRock does not believe its operations are subject to significant
seasonal fluctuations.
Interest Rates
The value of assets under management is affected by changes in interest
rates. Since BlackRock derives the majority of its revenues from investment
advisory fees based on assets under management, BlackRock's revenues may be
adversely affected by changing interest rates. In a period of rapidly rising
interest rates, BlackRock's assets under management would likely be negatively
affected by reduced asset values and increased redemptions. See "Risk Factors--
Risk factors affecting our business--Decline in the securities markets could
lead to a decline in our revenues."
Inflation
The majority of BlackRock's revenues are based on the value of assets
under management. There is no predictable relationship between the rate of
inflation and the value of assets under management by BlackRock, except as
inflation may affect interest rates. BlackRock does not believe inflation will
significantly affect its compensation costs as they are substantially variable
in nature. However, the rate of inflation may affect BlackRock expenses such as
information technology and occupancy costs. To the extent inflation results in
rising interest rates and has other effects upon the securities markets, it may
adversely affect BlackRock's results of operations by reducing BlackRock's
assets under management, revenues or otherwise. See "Risk Factors--Risk factors
affecting our business--Decline in the securities markets could lead to a
decline in our revenues."
26
<PAGE>
Year 2000 Readiness
BlackRock has been working since 1997 to prepare its computer systems to
meet the Year 2000 challenge. This process involves reviewing, modifying and
replacing existing software, hardware and other equipment, as necessary, and
communicating with counterparties, external service providers and customers
regarding their responses to Year 2000 issues.
As of December 31, 1998, substantially all of BlackRock's internally
developed software had been tested and remediated where necessary. We had
substantially completed an organization-wide assessment of Year 2000 issues
relating to our critical system equipment as well as an assessment of the Year
2000 preparedness of our identified critical service providers.
The Year 2000 issue may have an adverse impact on the operations and
financial condition of the issuers of the securities in which the firm invests.
Before purchasing securities, BlackRock considers the Year 2000 readiness of
issuers. The depth of the review depends on the issuers' industry. BlackRock
will continue to review and assess the Year 2000 preparedness of issuers
throughout 1999.
During the third quarter of 1999, BlackRock plans to conduct tests of its
networking and telecommunications systems in an attempt to verify vendor
representations of Year 2000 readiness. We currently estimate that the total
cost of implementing our Year 2000 programs will not have a material impact on
our results of operations, liquidity or capital resources. No significant
expenditures have been made to replace existing systems solely for Year 2000
readiness reasons. The costs and timetable in which BlackRock plans to complete
its Year 2000 readiness activities are based on management's best estimates,
which were derived using numerous assumptions of future events including the
continued availability of certain resources, third party preparedness and other
factors. We have incurred approximately $800,000 in Year 2000 readiness
expenses through June 30, 1999 and we expect to spend an additional $200,000 to
fully implement our program. BlackRock can make no guarantee that these
estimates will prove correct, and actual results could differ from such plans.
BlackRock has reviewed and strengthened its business continuity plans to
address Year 2000 implications. We have written business continuity plans in
place for each of our four offices, including recovery strategies for data,
communications and personnel, designed to achieve the goal of resuming critical
business functions at an alternate site within 24 hours of an emergency. We
update and test these plans at least once a year to reflect changes in our
business and our systems. We also have written contingency plans for all of our
critical business systems at each office site which outline alternative
business procedures in the event of minor disruptions.
We are working with our critical service providers to provide alternate
service to our disaster recovery sites. We expect to have backup communications
lines in place, where appropriate, by December 31, 1999.
BlackRock's Year 2000 readiness efforts and contingency plans are also
subject to oversight and regulation by the SEC, the OCC, the Federal Reserve
and other regulatory bodies. As a registered investment adviser, we were
required to file a disclosure document with the SEC regarding our preparation
for Year 2000 complications. We have also responded to specific inquiries from,
and provided information to, the SEC, the OCC and the Federal Reserve regarding
the potential adverse implications to our business from Year 2000 consequences
and our plans for addressing them.
It is not possible to predict with certainty all of the adverse effects
that could result from a failure of BlackRock or of third parties to become
fully Year 2000 ready or whether such effects could have a material adverse
impact on BlackRock. However, if BlackRock were to fail to correct internal
Year 2000 problems or if BlackRock's contingency plans fail to mitigate any
such problems, or if one or more third parties is unable, due
27
<PAGE>
to Year 2000 issues, to provide services required by BlackRock, a disruption of
operations resulting in increased operating costs, loss of revenues and other
adverse effects could occur. A disruption of operations might include a
temporary inability to process transactions and delays in providing services.
In addition, to the extent that the issuers of securities are weakened due to
Year 2000 issues, the value and liquidity of client portfolios could be
adversely affected. Disruption or suspension of activity in the world's
financial markets is also possible as a result of Year 2000 issues. See "Risk
Factors--Risk factors affecting our business--Failure to achieve Year 2000
readiness could disrupt operations and cause financial losses which could
decrease our stock price."
28
<PAGE>
BUSINESS
We differentiate ourselves from our competitors through our investment
process, the risk management software we have developed, the quality of our
client service and the stability of our management team. Together, these have
helped us deliver investment returns that have consistently met or exceeded our
clients' targets while assuming equal or lower levels of risk than performance
benchmarks. They also have enabled our experienced professionals to serve the
varying needs of our clients with customized products and services. We believe
that these factors, as well as the quality and depth of our employees, have
been critical to achieving growth in assets under management and will continue
to be of primary importance to our future success. We also believe that these
offerings will enhance stockholder value by furthering our ability to attract
and retain talented professionals, permitting strategic investments in our
existing business and improving our ability to participate in future industry
consolidation.
Assets Under Management
<TABLE>
<CAPTION>
At December 31, At June 30, Compound
----------------------------------------- ----------- Annual
1994 1995 1996 1997 1998 1999 Growth Rate
------- ------- ------- -------- -------- ----------- -----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Separate Accounts
Fixed income*......... $13,848 $23,345 $28,958 $ 39,261 $ 52,869 $ 68,286 43%
Liquidity............. 3,269 5,556 7,430 10,019 13,826 12,362 34%
Equity................ 540 700 1,204 1,763 2,417 2,353 39%
------- ------- ------- -------- -------- --------
Subtotal.............. 17,657 29,601 37,592 51,043 69,112 83,001 41%
<CAPTION>
Mutual Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed income.......... 10,021 11,969 12,546 13,714 13,888 13,617 7%
Liquidity............. 20,398 21,183 23,933 29,827 35,555 31,921 10%
Equity................ 4,615 6,306 8,643 10,829 12,087 13,262 26%
------- ------- ------- -------- -------- --------
Subtotal.............. 35,034 39,458 45,122 54,370 61,530 58,800 12%
------- ------- ------- -------- -------- --------
Total................. $52,691 $69,059 $82,714 $105,413 $130,642 $141,801 25%
======= ======= ======= ======== ======== ========
</TABLE>
- --------
* including alternative investment products.
Background
In 1995, PNC acquired BFM, then a $25 billion fixed income manager, to
complement existing capabilities in liquidity and equities. Since the
acquisition, all of BFM's senior management team have remained with the firm.
During the same period fixed income assets have nearly tripled. As highlighted
below, the BFM management team has assumed increasing responsibility for a
substantial portion of PNC's other asset management activities over time.
. Mutual Funds. PNC has been actively involved in the mutual funds
management business for over 40 years, having offered its first
common trust fund in 1956. In January 1996, the BFM management
team merged several of PNC's mutual fund families and assumed
responsibility for related marketing and product management
efforts. We have continually worked to enhance service to PNC and
its customers, which represent the funds' largest investor base.
In addition, we sought to build on the relationships developed
through BFM's mutual fund business by targeting distribution
through broker-dealers and other intermediaries. Assets have grown
by more than $11 billion, or 85%, since BFM's management team
assumed responsibility for the fund family, which we renamed
BlackRock Funds in 1998. We have also established more than 200
broker agreements and as of June 30, 1999, BlackRock Funds ranked
as the 14th largest wholesale fund family in the United States.
. Liquidity. PNC entered the liquidity management business in 1973
with the introduction of TempFund, the first institutional money
market fund. At year-end 1996, BFM's management
29
<PAGE>
team was charged with overseeing PNC's liquidity management
business. We restructured sales and marketing to enhance our
ability to grow our institutional money market fund family,
Provident Institutional Funds, and to build a separate account
business in this product area. We also transitioned PNC's
liquidity portfolios to BlackRock's fixed income system to enhance
capacity and operating efficiency. Liquidity assets have increased
by $13 billion, or more than 40%, since BFM assumed responsibility
for the business.
. Equities. PNC's involvement in equity funds extends back to 1958
when it introduced the PNC Common Stock Fund, a common trust fund
that was merged into the BlackRock Funds Select Equity Portfolio
in 1998. The BFM management team assumed responsibility for a
substantial portion of PNC's equity investment management
businesses in the first quarter of 1998. Our initial efforts have
focused on maintaining continuity with our equity professionals
and on building the foundation for future growth by making
critical infrastructure investments, pursuing selected
enhancements to our investment process and integrating equity
expertise with our marketing and client service capabilities.
We believe that the PNC/BFM affiliation has been and will continue to be
successful in large measure because of our shared commitment to attracting and
retaining talented professionals, developing and delivering highly
sophisticated investment management services and systems and finding ways to
jointly pursue distribution of our products.
Asset Management Products
Today, we offer a wide variety of fixed income, liquidity, equity and
alternative investment products. Revenue from these products consists of
advisory fees typically structured as a percentage of assets managed and, in
some instances, a performance fee expressed as a percentage of returns
realized in excess of agreed-upon targets.
. Fixed Income. At June 30, 1999, fixed income assets under
management, excluding alternative investment products, were $80
billion. Since 1994, fixed income assets have grown by 31% on a
compound annual basis despite the fact that investors have been
shifting money out of bonds and into stocks to participate in the
equity bull market of the past decade.
Over time we have introduced new fixed income products to better
meet investor needs. Our product development efforts emphasize
meeting client needs by using existing capabilities and by adding
professional expertise that can be fully integrated with our
existing operations. The two capabilities we introduced in 1998,
BlackRock's Equity PLUS product and high yield bond management,
exemplify our deliberate approach to product line expansion.
Specifically, BlackRock's Equity PLUS product utilizes existing
fixed income and derivatives expertise to meet client demand for
new ways to participate in the equity markets, while development
of our high yield capability was deferred until we identified high
caliber professionals who would become integrated members of our
portfolio management team and complement existing fixed income
capabilities. Our fixed income products, excluding alternative
products, can be broadly grouped into three categories, as
described below.
Fixed Income Products*
<TABLE>
<CAPTION>
At December 31, At June 30,
--------------------------------------- -----------
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Core........................ $ 5,061 $ 9,817 $14,175 $21,050 $28,310 $32,936
Sector specialty............ 7,143 11,044 11,136 12,771 16,838 19,214
Targeted duration........... 11,665 14,352 15,790 18,665 19,673 27,656
------- ------- ------- ------- ------- -------
Total....................... $23,869 $35,213 $41,101 $52,486 $64,821 $79,806
======= ======= ======= ======= ======= =======
</TABLE>
- --------
* excluding alternative investment products.
30
<PAGE>
Core. Core products represented 41% of our fixed income assets
at June 30, 1999, and have increased at a compound annual growth
rate of 52% since 1994. All of these accounts seek to achieve
superior returns while assuming equal or lower levels of risk
than the Lehman Brothers Aggregate Index or other broad market
indices. Traditional core accounts invest in all asset classes
represented in the index while maintaining portfolio duration
close to that of the securities in the index. Enhanced index
core accounts more tightly constrain portfolio risk parameters
relative to the benchmark, while core plus accounts are
permitted to invest in assets not included in the index, such as
high yield and non-dollar debt.
Sector specialty. Sector specialty accounts represented 24% of
our fixed income assets at June 30, 1999, and have grown at a
25% compound annual rate since 1994. This product line includes
all accounts that seek to outperform a subset of the broad fixed
income market. Examples include mortgage, corporate, U.S.
Treasury and high yield mandates. The investment objective is
typically total return based, although clients may specify
income, tax or other constraints to be observed in the
management of their portfolios.
Targeted duration. Targeted duration products represented 35% of
our fixed income assets at June 30, 1999, and have experienced
compound annual growth in excess of 21% since 1994. These
accounts are designed to achieve returns in excess of the
duration of specified liabilities or of indices consisting of
U.S. Treasury securities or other obligations maturing within
defined time parameters. These products are often used by
investors seeking to earn a spread relative to their financing
costs or to fund other liabilities.
. Liquidity. At June 30, 1999, liquidity assets under management
were $44 billion. Products are designed to meet the needs of
domestic corporations and their foreign subsidiaries, municipal
treasurers, banks, bank trust departments and other
intermediaries. We seek to achieve attractive yields, subject to
stringent safety and liquidity guidelines, which are implemented
by a dedicated team of portfolio managers who are based in
Wilmington, Delaware and are supported by our fixed income credit
analyst team as well as our risk management systems. In general,
clients use our liquidity products to invest money that they
expect to need in the short-term. As a result, our money market
portfolios experience a high level of subscriptions and
redemptions on a daily basis, and liquidity assets under
management can be quite volatile. For example, at June 30, 1999,
liquidity assets were more than $5 billion less than at year-end
1998, although they were nearly $3 billion higher than they were
at June 30, 1998. As highlighted below, we offer three basic types
of liquidity products.
Liquidity Products
<TABLE>
<CAPTION>
At December 31, At June 30,
--------------------------------------- -----------
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Prime....................... $12,874 $13,187 $16,103 $23,279 $32,479 $28,082
Government.................. 7,518 8,954 10,211 11,384 12,677 12,254
Tax-exempt.................. 3,275 4,598 5,049 5,183 4,225 3,947
------- ------- ------- ------- ------- -------
Total....................... $23,667 $26,739 $31,363 $39,846 $49,381 $44,283
======= ======= ======= ======= ======= =======
</TABLE>
Prime. Prime products are designed to utilize a wide variety of
liquidity instruments to achieve enhanced money market returns.
These portfolios invest in "prime" or short-term corporate and
bank debt, as well as U.S. Treasury and agency obligations.
Customized versions include our offshore liquidity funds, which
are subject to investment constraints based on tax
considerations, and separate accounts that permit broader
investment flexibility than money market funds.
31
<PAGE>
Government. Government products are designed to meet the needs
of investors who cannot assume credit risk of any kind or
otherwise prefer highly conservative products for their
liquidity investments. These products include all portfolios
that invest solely in U.S. Treasuries, agency securities and/or
obligations backed by U.S. Treasuries or agencies.
Tax-exempt. Tax-exempt products are designed for investors
seeking to optimize after-tax returns. These products include
national funds investing in securities that are exempt from
federal taxation, as well as state-specific funds that invest
solely in securities exempt from both federal and state
taxation.
. Equity. Our equity business represents the smallest of our primary
products lines, with assets under management of approximately $16
billion at June 30, 1999. Over 80% of these assets are in mutual
funds, all of which emphasize long-term capital appreciation and
strict adherence to investment discipline and market
capitalization guidelines. We have expanded our capacity in this
business and we intend to pursue separate accounts for
institutional investors, particularly as longer term investment
performance track records are established. Strategies are
developed and implemented by dedicated portfolio managers and
research analysts based in Philadelphia, Pennsylvania, and
Edinburgh, Scotland. Our equity products can be classified as
discussed below.
Equity Products
<TABLE>
<CAPTION>
At December 31, At June 30,
------------------------------------ -----------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------- ------- -----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
U.S. growth.................... $ 841 $1,576 $2,676 $ 3,542 $ 4,447 $ 4,881
U.S. value..................... 1,729 2,185 2,990 3,989 4,144 4,110
International.................. 846 1,056 1,676 1,926 2,084 1,984
Other.......................... 1,739 2,189 2,505 3,135 3,829 4,640
------ ------ ------ ------- ------- -------
Total.......................... $5,155 $7,006 $9,847 $12,592 $14,504 $15,615
====== ====== ====== ======= ======= =======
</TABLE>
U.S. growth. U.S. growth equity products seek to achieve returns
by investing in companies that are expected to realize
significant earnings growth and price appreciation. Products are
differentiated by the market capitalization of the companies in
which they invest, and include large-, mid-, small- and micro-
cap portfolios.
U.S. value. U.S. value equity products seek to achieve returns
versus market indices by investing in companies that are
undervalued relative to industry peers and/or historical trading
ratios. These products also vary according to the size of the
market capitalization of the underlying stocks in the portfolio,
and include large-, mid- and small-cap portfolios.
International. International equity products are designed to
deliver returns by investing in a variety of foreign stock
markets. These products are typically differentiated by
geographic markets and include Europe, Pacific Basin and
emerging market portfolios, as well as Europe, Australia and Far
East (EAFE) combined portfolios.
Other. Other equity products that we offer include balanced
funds, which invest in both equities and fixed income
securities, as well as index and enhanced index funds.
. Alternative Investment Products. At June 30, 1999, we managed $2.1
billion in alternative investment products. We have created these
products to take advantage of unique market opportunities or to
meet specific client interests. These products usually involve a
higher level of investment risk and offer the potential for
significantly greater absolute returns than our traditional
investment products. We generally structure these products as
commingled investment vehicles and limit the amount of capital we
will accept from investors. To date, we have created four
alternative investment products.
32
<PAGE>
Alternative Investment Products
<TABLE>
<CAPTION>
At December 31, At June 30,
---------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
------ ---- ---- ---- ------ ------
<CAPTION>
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
BAI.................................... $ -- $101 $359 $243 $ 173 $ 159
Obsidian............................... -- -- 44 246 582 760
Anthracite............................. -- -- -- -- 181 178
Magnetite.............................. -- -- -- -- 1,000 1,000
------ ---- ---- ---- ------ ------
Total.................................. $ -- $101 $403 $489 $1,936 $2,097
====== ==== ==== ==== ====== ======
</TABLE>
BlackRock Asset Investors. BAI was created in 1994 to target
opportunities in the rapidly changing real estate financing
markets. We structured BAI as a mutual fund to address unique
regulatory restrictions applicable to our pension clients. BAI
is currently in liquidation, which we expect to complete by the
fourth quarter of 1999. We expect to realize returns
substantially in excess of our original targets.
Obsidian Funds. The Obsidian Funds, our domestic and offshore
fixed income hedge funds, were introduced in 1996 in direct
response to client interest. These products implement the
strategies of our fixed income portfolio management team on a
more leveraged or more concentrated basis.
Anthracite Capital. Anthracite Capital Inc. (NYSE: AHR) was
offered in early 1998 to focus on continuing investment
opportunities in the real estate debt markets. Anthracite is a
mortgage REIT that brings together our capital markets expertise
with PNC's commercial mortgage loan origination and servicing
capabilities. We aggressively restructured Anthracite's
asset/liability structure last fall to strengthen its balance
sheet. We continue to seek ways to enhance Anthracite's
performance.
Magnetite Asset Investors. Late last year, we created Magnetite
Asset Investors, LLC to pursue investment opportunities in the
high yield market. Specifically, Magnetite invests in a variety
of high yield securities using our disciplined investment
process and the sub-advisory services of Kelso & Co., a
leveraged buyout firm, to enhance Magnetite's access to certain
types of high yield investments. Magnetite was privately offered
to institutional and high net worth investors, from whom we
raised debt and equity capital of $1 billion.
Investment Process
Our investment process emphasizes a highly disciplined team approach,
rather than depending upon a few "star" managers, use of our extensive
proprietary risk management software, and intensive credit and fundamental
research. Multiple checks and balances are incorporated in the process,
including automated compliance monitoring. The formal components of our
investment process include new account meetings prior to funding, daily
portfolio management meetings, weekly investment strategy group meetings and
monthly account review meetings. Other groups that support the investment
process, such as the credit committee and product specialist teams, also meet
regularly. All of these efforts are designed to help us achieve our clients'
objectives, while adhering to their investment guidelines and regulatory
requirements and conducting our operations efficiently.
. Investment Strategy. Our fixed income strategies seek to achieve
consistent returns in excess of client benchmarks with equal or
lower levels of risk. Our liquidity strategies concentrate on
enhancing yield, subject to safety and liquidity guidelines.
Although interest rates are a critical factor in determining bond
values, we do not emphasize strategies that involve speculating on
the level or direction of interest rates. Instead, we seek to add
value relative to client benchmarks principally by choosing the
types of bonds and the individual securities in which to invest.
The judgment of our portfolio managers, as well as quantitative
33
<PAGE>
and credit research, are fundamental to our investment process.
Broad strategies are set by our investment strategy group, which
considers macroeconomic and market conditions, as well as credit
and liquidity trends, to determine appropriate portfolio
positioning. The investment strategy group's conclusions are
implemented across all portfolios by product specialists, subject
to each client's investment guidelines.
Similarly, our equity strategies seek to achieve returns in excess
of market indices. We seek to add value through a disciplined
stock selection process that uses inputs from proprietary
quantitative analysis, fundamental research provided by our equity
analysts and market flow information supplied by our equity
traders. Strategies are developed by portfolio management teams
dedicated to each of our equity specialties.
. Risk Management. We look at investment risk across all of our
products in an asset/liability management framework. We believe
that in order to achieve long-term investment performance
consistent with clients' expectations, we must have a
comprehensive understanding of the investment risks taken, or
proposed to be taken, in each portfolio relative to the
corresponding liability, as well as those risks inherent in the
increasingly complex global capital markets. Our risk analyses are
customized as necessary to address unique regulatory, accounting
and tax considerations applicable to individual client portfolios.
We produce risk management reports daily and provide on-line
access to analyses that our portfolio managers use to evaluate and
monitor risks and refine investment strategy.
Credit and fundamental research are also critical components of
our investment process. Fixed income analysts evaluate industry
conditions, the creditworthiness of individual issuers and the
features of individual securities in order to recommend relative
industry weightings, establish our approved credit list and
provide ongoing surveillance throughout the holding period. Equity
analysts review company filings and research reports and visit
companies to assess numerous factors, including the quality of a
company's management team, its cash flows, the diversity of its
products and customers, its balance sheet strength and financial
condition, and both the company's and the industry's stage in the
business life cycle.
. Compliance. Our proprietary risk management system, used in our
fixed income and liquidity businesses, provides a high degree of
automation in trade processing and compliance. Trades are entered
electronically by our portfolio managers. Compliance criteria are
built into our system to provide efficient checks and balances.
Our system is designed to prevent execution of non-compliant
trades and to alert portfolio compliance personnel, who consult
investment guidelines and regulations, as well as portfolio and
account managers, to determine further action. Compliant trades
are forwarded to operations and administration personnel and to
clients' custodians, who work together to process each trade from
confirmation through settlement. Similar, though more manual,
processes are applied in our equity business and opportunities
will be pursued to achieve greater automation in these activities
over time.
. Interdisciplinary Account Teams. All account team members,
including marketing and client service, portfolio and risk
management, administration, operations and compliance personnel,
attend formal monthly account review meetings. These meetings are
organized by product type, so that deviations in performance among
accounts with comparable objectives and guidelines can be quickly
identified. In addition, investment performance, guideline
changes, and custody and trade operations issues are reviewed for
each account. To facilitate ongoing communication and senior
management oversight, up-to-date guidelines, portfolio holdings,
risk analyses and credit research are published on our intranet.
. Investment Performance. Separate account returns are aggregated
into composites in accordance with industry standards and reported
to pension consultants, who track and report performance (as
measured by gross returns) relative to market indices and manager
universes. Similarly, independent third parties, such as Lipper
Inc. and others, maintain mutual fund data and report performance
relative to indices and peers.
34
<PAGE>
. Fixed income performance is illustrated below for our core fixed
income product, which represents over 40% of our total fixed
income assets under management. Specifically, over the past 7
years we have consistently achieved higher returns and lower risk
than both the Lehman Brothers Aggregate Index, the most
frequently used benchmark, and a group of 51 managers reporting
core composite returns to Frank Russell Company.
. Liquidity performance is illustrated below for our TempFund,
which represents more than 50% of the assets managed in our
Provident Institutional Funds. Specifically, over the past 10
years, we have delivered higher yields and lower risk than the
universe of first tier, institutions-only money market funds as
reported by IBC Financial.
[LOGO--Composite and TempFund]
35
<PAGE>
. Equity performance is illustrated with the Lipper quartile
rankings of the BlackRock Funds equity portfolios, which represent
more than 80% of our equity assets under management. For the 1-
year period ended June 30, 1999, six of our equity funds ranked in
the first quartile.
BlackRock Funds Portfolios
Lipper Quartile Ranking* as of June 30, 1999
<TABLE>
<CAPTION>
1-Year 3-Year 5-Year
------ ------ ------
<S> <C> <C> <C>
U.S. growth
Large-cap growth......................................... 1 1 1
Mid-cap growth........................................... 1 NA NA
Small-cap growth......................................... 1 3 1
Micro-cap................................................ 1 NA NA
U.S. value
Large-cap value.......................................... 3 2 2
Mid-cap value............................................ 4 NA NA
Small-cap value.......................................... 4 2 3
International
International equity..................................... 2 3 3
International small cap.................................. 3 NA NA
International emerging markets........................... 3 4 4
Other
Index equity............................................. 2 2 3
Select equity............................................ 1 1 1
Balanced................................................. 1 1 1
</TABLE>
- --------
* The Lipper rankings and percentiles are from Lipper Inc. Lipper is a mutual
fund performance monitor. Lipper rankings are based on total returns with
dividends and distributions reinvested and do not reflect sales charges.
Funds with returns among the top 25% of a peer group of portfolios with
comparable objectives are in the first quartile, 25% to 50% are in the
second quartile and 50% to 75% are in the third quartile. Funds with returns
among the bottom 25% of returns are in the fourth quartile.
Distribution
Our investment products are offered to individual and institutional
investors worldwide through separate accounts and a variety of mutual funds.
Senior professionals work closely with our clients, consultants and
distributors to better understand investor needs. We tailor our products and
services to meet differing return objectives and risk tolerances, as well as
regulatory, tax, accounting and credit constraints. We use our technology
capabilities to develop products, to enhance client service by customizing
reports and, in the case of institutional clients, to deliver them efficiently
over the Internet.
. Separate Accounts. We have increased separate account assets under
management from $18 billion at year-end 1994 to $83 billion at
June 30, 1999, which represents compound annual growth of 41%.
Asset growth reflects additional assets from existing clients and
new client assignments. We distribute separate accounts and
alternative investment products principally through the direct
marketing efforts of our account management group, which included
36 professionals as of June 30, 1999. These employees focus
primarily on three client bases: tax-exempt, taxable and
international institutions. Alternative investment products are
used to expand investment options offered to existing clients and
to gain access to relatively untapped segments of the investor
universe.
36
<PAGE>
Separate Account Clients
<TABLE>
<CAPTION>
At December 31, At June 30,
--------------------------------------- -----------
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Tax-exempt.................. $ 4,444 $ 7,502 $12,068 $18,856 $25,181 $30,897
Taxable..................... 12,382 20,679 24,356 28,571 37,592 43,089
International............... 831 1,420 1,168 3,616 6,339 9,015
------- ------- ------- ------- ------- -------
Total....................... $17,657 $29,601 $37,592 $51,043 $69,112 $83,001
======= ======= ======= ======= ======= =======
</TABLE>
Tax-exempt. Our tax-exempt clients consist primarily of defined
benefit and defined contribution pension plans. As of June 30,
1999, 133 pension plans maintained $29 billion in separate
accounts with us. During 1998, assets managed for tax-exempt
investors increased by over $6 billion, or 34%. Our growth in
pension assets last year resulted in our being ranked as the
10th fastest growing pension asset manager across all products
and the 7th fastest growing among active domestic fixed income
advisers. Although the market for investment management services
in this channel remains highly fragmented, industry data
suggests that tax-exempt investors are increasingly
consolidating their manager universes, resulting in above
average growth for the largest and best performing managers. We
have been benefiting from this trend and we believe that we can
further develop this distribution channel with direct calling
and cross-selling efforts, as well as by introducing new
products and capabilities over time that enable us to meet the
needs of a broader universe of tax-exempt investors.
Taxable. Our taxable clients include insurance companies,
corporations, banks, third party mutual fund sponsors and other
financial services companies. As of June 30, 1999, we managed
$43 billion in assets for taxable clients. During 1998, separate
account assets managed for taxable clients increased by over $9
billion, or 32%. We are one of the largest independent managers
of insurance company assets with more than $28 billion under
management as of June 30, 1999. We offer a comprehensive range
of services to our insurance clients, many of which seek to
outsource some or all of their investment functions and retain
us to manage multiple portfolios, to serve as a manager of
managers and to deliver consolidated risk management reports
through password-protected sites on the World Wide Web.
Liquidity, short term and other portfolios are managed for a
variety of other taxable investors seeking to maximize income
relative to their funding costs. In addition, BlackRock manages
mutual funds for third party sponsors who wish to obtain
investment management services, while retaining marketing and
distribution consistent with their internal branding strategies.
International. Our international clients include mutual fund
sponsors, insurance companies, banks, corporations and
supranationals located in 16 countries. We have been active in
these markets since BFM was formed and, as of June 30, 1999, we
managed over $9.0 billion of assets on behalf of international
clients. Products include separate accounts and offshore funds
for both institutional and retail investors. In 1998, we raised
more than $1 billion of new assets in Japan through three
investment trusts created with Nomura Asset Management Co., Ltd.
(NAM), the largest money manager in Japan. Since year-end, we
have entered into a formal relationship with NAM by establishing
Nomura BlackRock Asset Management Co., Ltd., a joint venture
that will initially focus on offering BlackRock's fixed income
products in the Japanese institutional and investment trust
markets. To further promote our international business, we will
consider establishing additional strategic affiliations and
foreign business development offices in the future.
. Mutual Funds. We have increased mutual fund assets under
management from $35 billion at year-end 1994 to $59 billion at
June 30, 1999, which represents compound annual growth
37
<PAGE>
of more than 12%. Approximately $47 billion, or nearly 80%, of our
mutual fund assets are managed in our two open-end fund families,
BlackRock Funds and Provident Institutional Funds. We also manage
21 publicly-traded closed-end funds and several short-term
investment funds ("STIFs"). Our funds group is responsible for
wholesaling to PNC, third party broker-dealers and other
intermediaries. The funds group also conducts direct calling
efforts for our institutional funds and develops and implements
marketing, product management, branding and media relations
strategies designed to enhance client service and distribution
across all channels.
Mutual Fund Assets
<TABLE>
<CAPTION>
At December 31, At June 30,
--------------------------------------- -----------
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
($ in millions)
BlackRock Funds........... $10,038 $13,670 $17,846 $22,129 $24,231 $25,255
Provident Institutional
Funds.................... 16,421 15,496 16,230 20,278 25,368 21,578
Closed-end funds.......... 7,080 7,953 7,881 8,114 7,756 7,507
STIFs..................... 1,495 2,339 3,165 3,849 4,175 4,460
------- ------- ------- ------- ------- -------
Total..................... $35,034 $39,458 $45,122 $54,370 $61,530 $58,800
======= ======= ======= ======= ======= =======
</TABLE>
BlackRock Funds. The BlackRock Funds family consists of 36
portfolios, including 13 equity, 15 fixed income and eight
liquidity funds. In May 1998, PNC converted $8.2 billion of PNC
common trust funds into the BlackRock Funds. For comparative
purposes in the table above, assets in the BlackRock Funds have
been restated to include the PNC common trust fund assets as if
such assets were part of the BlackRock Funds. Prior to 1996,
assets were gathered almost exclusively through PNC channels and
by acquisition. In addition to working closely with the PNC
channels, we have pursued marketing opportunities with third
party intermediaries by building a staff of 26 wholesalers and
securing more than 200 broker agreements. Through these efforts,
we have established BlackRock Funds as the 14th largest
wholesale fund family in the United States. We intend to
continue to pursue distribution within both PNC and wholesale
channels. We also plan to pursue opportunities with fund
supermarkets, financial planners and other distributors to
expand market penetration in the future.
Provident Institutional Funds. Provident Institutional Funds is
our institutional money market fund family and consists of 11
prime, government and tax-exempt funds. As mentioned earlier,
money market assets are subject to substantial volatility. We
market these funds through the direct calling efforts of a
dedicated sales force consisting of 12 regional salespeople. A
limited number of additional professionals are responsible for
wholesaling Provident Institutional Funds through the PNC
channels. In addition, we develop and deliver software,
including cash sweep and Web-based order entry capabilities,
that enhance clients' ability to efficiently invest in Provident
Institutional Funds. Our marketing strategies have focused on
diversifying our client base in light of consolidation and
internalization trends in the banking industry. We will continue
to closely observe industry trends and develop marketing
strategies to further diversify our client base.
Closed-end funds. Closed-end funds represent approximately 13%
of our mutual fund assets, with $8 billion managed at June 30,
1999 in 21 funds listed on the New York or American stock
exchanges. All of these funds are fixed income products,
including 13 target term trusts, a product that we introduced to
the industry in 1988. When the BlackRock 1998 Term Trust matured
at the end of last year at $10.02 per share, we became the first
and only term trust manager to meet or exceed the fund's
targeted
38
<PAGE>
terminal value. Unlike open-end funds, closed-end funds are
generally underwritten and sold exclusively through broker-
dealers. Although we maintain very close relationships with
brokerage firms, access to distribution is highly competitive
and increasingly expensive. In 1998, we raised $95 million in
the BlackRock High Yield Trust (NYSE: BHY), our first public
closed-end fund offering since 1993. We will continue to create
and offer closed-end funds as market opportunities permit.
STIFs. Short-term investment funds are also offered to
institutional clients through PNC. At June 30, 1999, we managed
over $4 billion of assets in several STIFs, which are structured
as open-end commingled investment trusts, rather than as
registered mutual funds.
Risk Management Products
Since the formation of BFM in 1988, we have made substantial investments
in developing sophisticated, risk management and analytic software. Today, the
risk management staff represents more than 25% of our total employees.
Professionals include quantitative and credit analysts, financial model and
software developers, and management information systems and technology
personnel. These professionals support our investment process, client service
efforts, computing environment and the growing number of clients who separately
purchase our risk management services.
Our investment technology has evolved over the years into a comprehensive
information processing capability fully integrated with sophisticated analytics
that support risk assessment and investment decision-making. We believe that
our combination of integrated front-to-back office automation and professional
expertise resulted in an increasing number of requests for our technology
products by large institutional clients. As a result, in 1995, we began
offering high value-added risk management systems and advisory services
separate from our asset management products. As of June 30, 1999, we provided
these services to 13 clients, including three relationships that we added in
the first six months of 1999. In total, we provide analyses with respect to
more than $500 billion of assets managed by these clients.
. Analytics Service Bureau. We offer daily, weekly or monthly
production of risk management reports to a variety of clients,
including insurance companies, banks and pension plans. Portfolio
transactions executed by the client's investment staff or other
asset managers on the client's behalf are transmitted to us. Asset
and liability positions are modeled and risk parameters are
measured for each position, for the corresponding portfolio and/or
for the balance sheet as a whole. We then generate risk management
reports and provide them through password-protected sites on the
Internet or through dedicated lines to the client's in-house
systems. Service bureau contracts are typically multi-year
arrangements in which we are paid a set-up fee at the outset and
an ongoing service fee based on the number of positions processed.
. Advisory Services. We also offer a range of advisory services in
conjunction with risk management reporting to enhance clients'
development of a variety of asset/liability management strategies.
Over time, these services have included asset disposition,
portfolio restructuring and hedging advice provided to service
bureau clients, broker-dealers, REITs and mortgage banks. Our
senior risk management professionals provide a highly customized
consulting service, working closely with clients to evaluate their
risk positions relative to their liabilities, market conditions
and regulatory, accounting and tax considerations. Hedging and
other risk management strategies are jointly developed for
implementation by the client or, at the client's direction, by us.
Assignments can be project-oriented or ongoing in nature, and
contracts provide fixed advisory fees and, occasionally,
performance fees based on the client's determination of overall
value-added.
39
<PAGE>
. Trading Systems Services. In 1998, we entered into our first
contract to provide trading system outsourcing. BlackRock's system
was chosen following a search by a large institutional client that
included well-established industry competitors, evidencing our
strong capabilities in investment technology. A long lead-time was
necessary to complete hardware upgrades, further software
development and user documentation. The multi-year contract
provides set-up fees, annual service fees and consulting fees for
client-specified customization. Revenues, particularly in the
early years, will be substantially reinvested in order to satisfy
our obligations under the contract and to build our ability to
provide this service more efficiently in the future. We have
chosen to limit marketing of this product until this first
installation has been made and tested, but potential clients
include banks, insurance companies, brokerage firms and other
substantial fixed income investors.
We view these risk management activities as a start-up technology service
venture. By first establishing an analytics service bureau and providing risk
management advisory services, we have been able to attract or expand
relationships with a variety of sophisticated institutional investors, many of
which are leaders in their industries. At the same time, we are building the
capability to provide trading system outsourcing or to license our trading
system to others, which should provide substantially greater scale in the risk
management business over time.
Facilities
BlackRock's principal executive offices are located at 345 Park Avenue,
New York, New York 10154, where it occupies approximately 65,000 square feet of
space under various leases expiring through 2005. BlackRock also has office
space at 1600 Market Street, Philadelphia, Pennsylvania 19103 and 400 Bellevue
Parkway, Wilmington, Delaware 19805 where it occupies a total of approximately
46,500 square feet of space under a lease arrangement with PNC. See "Certain
Relationships and Related Transactions" and Note 7 of "Notes to BlackRock's
Consolidated Financial Statements."
Competition
BlackRock competes with investment management firms, mutual fund
complexes, insurance companies, banks, brokerage firms and other financial
institutions that offer products that are similar to, or alternatives to, those
offered by BlackRock. In order to grow our business, BlackRock must be able to
compete effectively for assets under management. Key competitive factors
include investment performance track records, investment style and discipline,
quality of client service and brand name recognition. We have historically
competed principally on the basis of our long-term investment performance track
record, our investment process, our risk management and analytic capabilities
and our approach to client service. Over the past five years, we have succeeded
in growing aggregate assets under management, and we believe that we will
continue to be able to do so by maintaining strong investment performance and
client service, building longer-term track records in our equity products, and
developing new products and new distribution capabilities. Many of our
competitors, however, have greater financial or marketing resources and better
brand name recognition than BlackRock. These factors and others identified
elsewhere in this prospectus may place BlackRock at a competitive disadvantage,
and there can be no assurance that our strategies and efforts to maintain our
existing assets and attract new business will be successful.
40
<PAGE>
Employees
At June 30, 1999, BlackRock had 551 full-time employees, including 95
professionals in the portfolio management group, 154 professionals in risk
management and analytics, 108 professionals in the separate account and funds
marketing and client service areas and 90 professionals in administrative and
support departments.
Legal Proceedings
From time to time, we may be a defendant in various lawsuits incidental
to our business. We do not believe the outcome of any current litigation will
have a material adverse effect on BlackRock's financial condition or results of
operations.
Regulation
Virtually all aspects of BlackRock's business are subject to various
federal and state laws and regulations. These laws and regulations are
primarily intended to protect investment advisory clients, stockholders of
registered investment companies, PNC's bank subsidiaries and bank customers of
PNC Bank. Under these laws and regulations, agencies that regulate investment
advisers and bank subsidiaries such as BlackRock and its subsidiaries have
broad administrative powers, including the power to limit, restrict or prohibit
it from carrying on business if it fails to comply with such laws and
regulations. Possible sanctions for significant compliance failures include the
suspension of individual employees, limitations on engaging in certain lines of
business for specified periods of time, revocation of investment adviser and
other registrations, censures and fines.
BlackRock's subsidiaries are subject to regulation, primarily at the
federal level, by the SEC, the Department of Labor, the OCC, the Federal
Reserve, the Commodity Futures Trading Commission and other regulatory bodies.
The Investment Advisers Act imposes numerous obligations on registered
investment advisers, including record keeping requirements, operational
requirements, marketing requirements, disclosure obligations and prohibitions
on fraudulent activities. The Investment Company Act imposes similar
obligations, as well as detailed operational requirements, on investment
advisers to registered investment companies and other managed accounts. The SEC
is authorized to institute proceedings and impose sanctions for violations of
the Investment Advisers Act and the Investment Company Act, ranging from fine
and censure to termination of an investment adviser's registration.
BlackRock derives a substantial majority of its revenues from investment
advisory services through its investment management agreements. Under the
Investment Advisers Act, BlackRock's investment management agreements may not
be assigned without the client's consent. Under the Investment Company Act,
advisory agreements with registered investment companies terminate
automatically upon assignment. The term "assignment" is broadly defined and may
include direct assignments as well as assignments that may be deemed to occur
upon the transfer, directly or indirectly, of a controlling interest in
BlackRock or any of its parent companies. The offerings will not constitute an
assignment for these purposes. Accordingly, BlackRock does not intend to seek
client consents or approvals of new investment advisory agreements in
connection with these transactions.
BlackRock's subsidiaries are subject to ERISA and to regulations
promulgated thereunder, insofar as they act as a "fiduciary" under ERISA with
respect to benefit plan clients. ERISA and applicable provisions of the
Internal Revenue Code impose certain duties on persons who are fiduciaries
under ERISA, prohibit certain transactions involving ERISA plan clients and
provide monetary penalties for violations of these prohibitions. One of
BlackRock's subsidiaries is registered as a commodity pool operator and
commodity trading adviser with the CFTC and the National Futures Association.
The CFTC and NFA administer a comparable regulatory
41
<PAGE>
system covering futures contracts and various other financial instruments in
which BlackRock clients may invest. Another subsidiary is registered with the
SEC as a broker-dealer and is a member of the National Association of
Securities Dealers. Although this entity's NASD membership agreement limits its
permitted activities to the sale of investment company securities and annuities
and certain private placement and financial consulting activities, it is
subject to the customer dealing, reporting and other requirements of the NASD
as well as the net capital and other requirements of the SEC.
PNC is a bank holding company regulated by the Federal Reserve under the
Bank Holding Company Act. PNC Bank, the indirect parent of BlackRock, is a
national bank subsidiary of PNC. As the subsidiary of PNC Bank, a national
bank, BlackRock is subject to most banking laws, regulations, and orders that
are applicable to PNC Bank, and therefore to the supervision, regulation, and
examination of the OCC. The OCC and the FDIC also have broad enforcement
authority over PNC Bank and its subsidiaries, including the power to prohibit
PNC or any subsidiary from engaging in any activity that, in the OCC's opinion,
constitutes an unsafe or unsound practice in conducting its business, to
terminate deposit insurance, to appoint the FDIC as conservator or receiver of
PNC Bank if any of a number of conditions are met, and to impose substantial
fines and other penalties. Supervision and regulation of PNC and its
subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC, and the banking system as a whole, not for
the protection of stockholders or creditors of national banks or their
subsidiaries. The Federal Reserve has regulatory and supervisory authority with
respect to PNC's non-U.S. activities and investments as well as with respect to
its non-bank subsidiaries; the OCC, the FDIC, and the Office of Thrift
Supervision have regulatory and supervisory authority with respect to PNC's
bank and thrift subsidiaries and subsidiaries of such banks and thrifts.
Because BlackRock is a consolidated subsidiary of PNC Bank, federal
restrictions on payments of dividends by PNC Bank might be applied to
BlackRock. Under federal law, OCC approval is needed before PNC Bank may pay
dividends in any year in which the total of all dividends paid would exceed the
total of PNC Bank's net profits for that year combined with its retained net
profits from the prior two years. PNC Bank also may not pay dividends exceeding
its capital surplus.
As a subsidiary of a national bank, BlackRock may not conduct new
activities, establish a subsidiary, or acquire the stock or assets of another
company unless it first obtains the written approval of the OCC and, with
respect to most non-U.S. activities or investments, the Federal Reserve. The
OCC will only approve activities and investments that are legally permissible
for a national bank, and consistent with prudent banking principles and
regulatory policy. The Federal Reserve will approve only those activities that
are usual in connection with the transaction of the business of banking or
other financial operations outside of the United States. BlackRock is not
permitted to act as a distributor of any fund, the shares of which are offered
more often than four times a year or to control any open-end fund or any
closed-end fund that invests in assets of a type or quantity not permitted to
be held by a bank holding company. BlackRock also is limited in its authority
to invest in any fund that it advises. BlackRock's current domestic and
overseas activities are permissible for a national bank.
Under federal law, PNC Bank and its subsidiaries, including BlackRock,
generally may not engage in transactions with PNC or its non-bank subsidiaries,
except on terms and under circumstances that are substantially the same as
those prevailing for comparable transactions involving nonaffiliated companies,
or, in the absence of comparable transactions, that in good faith would be
offered to or would apply to nonaffiliated companies. In addition, certain
transactions, including loans and other extensions of credit, guarantees,
investments, and asset purchases between PNC Bank and its subsidiaries,
including BlackRock, on the one hand, and PNC and its nonbank subsidiaries on
the other hand, are limited to 10% of PNC Bank's capital and loan loss reserve
allowance for transactions with a single company and to 20% of PNC Bank's
capital and loan loss reserve allowance for aggregate transactions with PNC and
all of its nonbank subsidiaries and other affiliates. In certain circumstances,
federal regulatory authorities may impose more restrictive limitations. Such
extensions of credit, with limited exceptions, must be fully collateralized.
42
<PAGE>
The FDIC could be appointed as conservator or receiver of PNC Bank if the
bank were to become insolvent or if other conditions or events were to occur.
As conservator or receiver, the FDIC could exercise all rights of PNC Bank as
stockholder of BlackRock. The FDIC would also have the authority to repudiate
contracts by PNC Bank, including servicing or other contracts with BlackRock,
at any time within 180 days of its appointment as conservator or receiver, and
would be obligated to pay BlackRock only "actual direct compensatory damages,"
not including damages for lost profits or opportunity, as of the date of
conservatorship or receivership as a result of such repudiation. The FDIC could
also disregard, without paying damages, any contract that tended to diminish or
defeat the FDIC's interest in any PNC Bank asset if the contract were not:
. in writing;
. executed by PNC Bank and BlackRock contemporaneously with the
acquisition of the asset by PNC Bank;
. approved by the board of directors of PNC Bank or its loan
committee with the approval reflected in the minutes of the board
or committee; and
. continuously, from the time of its execution, an official record
of PNC Bank.
In addition, the FDIC could obtain a stay of up to 90 days of any
judicial action or proceeding involving PNC Bank, and could require BlackRock
to exhaust its remedies under FDIC claims procedures before pursuing any
available judicial remedy.
PNC's bank and thrift subsidiaries are subject to "cross-guarantee"
provisions under federal law that provide if one of these banks or thrifts
fails or requires FDIC assistance, the FDIC may assess a "commonly controlled"
bank or thrift, such as PNC Bank, for the estimated losses suffered by the
FDIC. The FDIC's claim is superior to the claims of affiliates, such as
BlackRock, and of stockholders of the banks. At December 31, 1998, all of PNC's
bank and thrift subsidiaries exceeded the required ratios for classification as
"well capitalized" under statutory and regulatory standards.
BlackRock's international operations are subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies or bodies. As BlackRock expands
its international business its internal operations may become subject to
requirements in numerous jurisdictions regarding reporting of beneficial
ownership positions in securities issued by companies whose securities are
publicly traded in those countries. BlackRock's subsidiaries are subject to
periodic examination by these regulatory agencies. BlackRock's international
subsidiaries have developed comprehensive compliance systems in order to
satisfy applicable regulatory requirements. The failure of BlackRock's internal
operations to comply with the applicable regulatory frameworks could have a
material adverse effect on BlackRock.
PNC currently holds its ownership interest in BlackRock through a
subsidiary of PNC Bank. As such, BlackRock currently is not subject to
regulation under the nonbanking provisions of the Bank Holding Company Act. If
PNC were to hold its ownership interest in BlackRock at the holding company
level as a nonbank subsidiary, BlackRock would no longer be subject to OCC
supervision and regulation, but would instead become subject to Federal Reserve
supervision and regulation as a nonbank subsidiary of a bank holding company.
43
<PAGE>
MANAGEMENT
Directors and Executive Officers of BlackRock
The following table sets forth certain information concerning the
directors and executive officers of BlackRock. Our board currently has six
members. Four of our directors, Thomas H. O'Brien, James E. Rohr, Walter E.
Gregg, Jr., and Helen P. Pudlin are currently executive officers and/or
directors of PNC and various PNC subsidiaries. We expect to add four board
members in the several months following the offerings, all of whom will be
independent. The ages listed below are as of January 1, 1999.
Our board will be divided into three classes (I, II, and III) serving
staggered terms. After an initial transition period following the offerings,
directors in each class will be elected to serve for three-year terms and will
serve until their successors are elected and qualified. Each year, the
directors of one class will stand for election as their terms of office expire.
We expect that after the offerings:
. will be designated class I directors, with terms expiring in 2000,
. will be designated class II directors, with terms expiring in
2001, and
. will be designated class III directors, with terms expiring in
2002.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Laurence D. Fink........ 46 Director, Chairman and Chief Executive Officer
Ralph L. Schlosstein.... 47 Director and President
Thomas H. O'Brien....... 61 Director
James E. Rohr........... 50 Director
Walter E. Gregg, Jr..... 57 Director
Helen P. Pudlin......... 49 Director
Robert S. Kapito........ 41 Vice Chairman
Paul L. Audet........... 45 Managing Director and Chief Financial Officer
Robert P. Connolly...... 44 Managing Director and General Counsel
</TABLE>
Laurence D. Fink, director, chairman and chief executive officer of
BlackRock, is chairman of the management committee and co-chair of the
investment strategy group. He is also chairman of the board of BlackRock's
family of closed-end mutual funds, a director of BlackRock's offshore funds and
alternative investment vehicles, and chairman of the board of Nomura BlackRock
Asset Management Co., Ltd. Mr. Fink serves on the asset liability committee of
PNC Bank. Prior to founding BlackRock Financial Management in 1988, Mr. Fink
was a managing director and member of the management committee of The First
Boston Corporation.
Ralph L. Schlosstein, director and president of BlackRock, is a member of
the management committee and the investment strategy group. Mr. Schlosstein is
president and a director of BlackRock's family of closed-end mutual funds and a
director and officer of BlackRock's alternative investment vehicles. Prior to
founding BFM in 1988, Mr. Schlosstein was a managing director of Lehman
Brothers Inc. Mr. Schlosstein is a director of Pulte Corporation.
Thomas H. O'Brien, director, is chairman and chief executive officer of
PNC and PNC Bank and a member of PNC's Office of the Chairman. Mr. O'Brien was
appointed to the board of directors and elected vice chairman of PNC in 1983,
president and chief executive officer in 1985, and chairman in June 1988. Prior
to his election as president and chief executive officer in 1985, he was
chairman and chief executive officer of Pittsburgh National Bank (predecessor
of PNC Bank). He joined Pittsburgh National Bank in 1962, was elected vice
president in 1967, senior vice president in 1973, executive vice president in
1980, vice chairman of PNC Bank in 1983, and chairman of PNC Bank in 1993. Mr.
O'Brien is a director of Bell Atlantic Corp., US Airways Inc., and Hilb, Rogal
& Hamilton Co.
44
<PAGE>
James E. Rohr, director, is president and chief operating officer of PNC
and PNC Bank and a member of PNC's Office of the Chairman. Mr. Rohr joined PNC
through its Management Development Program in 1972. In 1990, Mr. Rohr was
elected chairman and chief executive officer of Pittsburgh National Bank. He
was elected a vice chairman of PNC in 1989, named a director in 1990, elected
president in 1992 and named chief operating officer in 1998. Mr. Rohr is a
director of Allegheny Teledyne Incorporated and Equitable Resources, Inc.
Walter E. Gregg, Jr., director, is vice chairman of PNC and a member of
PNC's Office of the Chairman. He also is a director of PFPC Worldwide, PNC's
mutual fund servicing arm. Mr. Gregg joined Pittsburgh National Bank in 1974 as
resident attorney. He was elected senior vice president, treasurer and chief
counsel-regulatory reporting/acquisitions in 1983, executive vice president-
finance and administration for PNC in 1989, senior executive vice president in
1997, a director in 1998 and vice chairman in 1999.
Helen P. Pudlin, director, is senior vice president and general counsel
of PNC and PNC Bank. Ms. Pudlin joined PNC in 1989 as general counsel of
Provident National Bank (predecessor of PNC Bank) from the law firm of Ballard,
Spahr, Andrews & Ingersoll in Philadelphia, where she was a partner. She was
elected senior vice president and deputy general counsel for PNC in 1992,
became a managing general counsel in 1993, was named senior vice president and
general counsel of PNC later in 1993, and became senior vice president and
general counsel of PNC Bank in 1998.
Robert S. Kapito, vice chairman, is head of the portfolio management
group, co-head of the equity operating committee, a member of the investment
strategy group and a member of the management committee. Mr. Kapito serves as a
vice president of BlackRock's family of closed-end mutual funds and of the
Smith Barney Adjustable Rate Government Income Fund. Prior to founding BFM in
1988, Mr. Kapito was a vice president in the mortgage products group at The
First Boston Corporation.
Paul L. Audet, managing director, is chief financial officer and a member
of the management committee and co-head of the infrastructure operating
committee. Prior to joining BlackRock in 1998, Mr. Audet was a senior vice
president at PNC, responsible for mergers and acquisitions and for finance at
PNC Asset Management Group, Inc. He joined PNC in 1991 as chief financial
officer of PNC's eastern operations, which included Provident National Bank in
Philadelphia and PFPC Worldwide in Wilmington, Delaware.
Robert P. Connolly, managing director, is general counsel of BlackRock
and a member of the management committee. Mr. Connolly is responsible for all
legal affairs of BlackRock. Prior to joining PNC Asset Management Group, Inc.
in 1997, Mr. Connolly was managing director and general counsel of New England
Funds, L.P. beginning in April 1995. From March 1993 through April 1995, Mr.
Connolly was managing director and general counsel of Kroll Associates, Inc.,
and prior to March 1993, he was managing director and general counsel of
Equitable Capital Management Corporation.
Committees of the Board of Directors
BlackRock has established an executive committee, a compensation
committee, an investment committee and a nominating committee. An audit
committee will be established after the offerings. As additional persons join
our board in connection with and following the offerings, we expect that
membership on some of these committees will be modified and that we will
appoint other members to some of these committees. We expect that, so long as
PNC owns a majority of the voting power of our outstanding common stock, the
majority of the members of each committee will be directors who are also
directors and/or officers of PNC to the extent permitted by applicable law or
stock exchange policy.
45
<PAGE>
The executive committee will be authorized to exercise, between meetings
of our board, all of the powers and authority of the board in the direction and
management of BlackRock, except as prohibited by applicable law and except to
the extent another committee has been accorded authority over the matter. The
audit committee will recommend the annual appointment of BlackRock's auditors,
with whom the audit committee will review the scope of audit and non-audit
assignments and related fees, accounting principles used by BlackRock in
financial reporting, internal auditing procedures and the adequacy of
BlackRock's risk management compliance and internal control procedures. The
compensation committee will administer BlackRock's stock award and incentive
plans and will establish the compensation for BlackRock's executive officers.
The investment committee will review and make recommendations to the board of
directors regarding investments by BlackRock, including investments in our
alternative investment products. The nominating committee will review the
qualifications of potential candidates for the board of directors, report its
findings to the board of directors and propose nominations for board
memberships for approval by the board of directors and submission to the
stockholders of BlackRock for approval. Our board may alter the duties of these
committees and may establish other committees from time to time to facilitate
the management of the business and affairs of BlackRock.
Compensation of Directors
Directors who are also employees of BlackRock or PNC will receive no
compensation for serving as directors or committee members. Non-employee
directors will receive total compensation of $50,000 per year.
Key Employees
The following table sets forth certain information concerning key
employees of BlackRock. The ages listed below are as of January 1, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Keith T. Anderson................................. 39 Managing Director
Rosemarie F. Bruno................................ 39 Managing Director
Daniel B. Eagan................................... 36 Managing Director
Hugh R. Frater.................................... 43 Managing Director
Henry Gabbay...................................... 51 Managing Director
Bennett W. Golub.................................. 41 Managing Director
Charles S. Hallac................................. 34 Managing Director
Barbara G. Novick................................. 38 Managing Director
Karen H. Sabath................................... 33 Managing Director
Susan L. Wagner................................... 37 Managing Director
William J. Wykle.................................. 61 Managing Director
</TABLE>
Keith T. Anderson, managing director, is chief investment officer, fixed
income and co-chair of the investment strategy group, as well as co-head of the
fixed income operating committee and a member of BlackRock's management
committee. Mr. Anderson also serves as a vice president of BlackRock's family
of closed-end mutual funds. Prior to founding BFM in 1988, Mr. Anderson was a
vice president in fixed income research at The First Boston Corporation.
Rosemarie F. Bruno, managing director, is director of human resources and
a member of the management committee. Ms. Bruno is responsible for the firm's
human resources strategy, programs and policies. Prior to joining BlackRock in
1998, Ms. Bruno was the New York Metro Region Human Resources Director for
Kwasha HR Solutions of PricewaterhouseCoopers.
46
<PAGE>
Daniel B. Eagan, managing director, is a senior portfolio manager,
equities, a member of the equity operating committee and a member of the
management committee. His primary responsibility is as lead manager for large-
cap value and enhanced core equity portfolios. He is also the co-manager for
small-cap value products. Before joining PNC Asset Management Group in 1994,
Mr. Eagan was a senior research consultant for William M. Mercer Asset
Planning, Inc.
Hugh R. Frater, managing director, is president and director of
Anthracite Capital, Inc., head of the real estate operating committee and a
member of the management committee. Anthracite Capital, Inc. is a REIT that was
created by BlackRock in 1998. Prior to forming the REIT, Mr. Frater co-headed
BlackRock's account management group. Before joining BFM in 1988, Mr. Frater
was a vice president in investment banking at Lehman Brothers Inc.
Henry Gabbay, Ph.D., managing director, is the head of the fund
administration and operations group and is a member of the management
committee. Dr. Gabbay also serves as treasurer for BlackRock's family of
closed-end mutual funds. Prior to joining BFM in 1989, Dr. Gabbay was a vice
president in the finance department at The First Boston Corporation.
Bennett W. Golub, Ph.D., managing director, is co-head of the risk
management and analytics group, a member of the investment strategy group and
the credit committee, and a member of the management committee. Prior to
founding BFM in 1988, Dr. Golub was a vice president at The First Boston
Corporation.
Charles S. Hallac, managing director, is co-head of the risk management
and analytics group, a member of the investment strategy group and a member of
the management committee. Prior to joining BFM in 1988, Mr. Hallac was an
associate in the mortgage products group at The First Boston Corporation.
Barbara G. Novick, managing director, is head of the account management
group, co-head of the fixed income and equity operating committees and a member
of the management committee. Prior to founding BFM in 1988, Ms Novick was a
vice president in the mortgage products group at The First Boston Corporation.
Karen H. Sabath, managing director, is head of the funds group and the
funds operating committee and a member of BlackRock's management committee. Ms.
Sabath also serves as the secretary for BlackRock's family of closed-end mutual
funds. Prior to joining BFM in 1988, Ms. Sabath was an associate in the
mortgage products group at The First Boston Corporation.
Susan L. Wagner, managing director, is head of the strategy and product
development group, co-head of the infrastructure operating committee and a
member of the management committee. Ms. Wagner serves as a director of
BlackRock's offshore funds and an officer of BlackRock's alternative investment
vehicles. Prior to founding BFM in 1988, Ms. Wagner was a vice president in the
mortgage and savings institutions group at Lehman Brothers Inc.
William J. Wykle, managing director, is a senior portfolio manager,
equities, a member of the equity operating committee and a member of the
management committee. His primary responsibility is lead manager on the mid-
small- and micro-cap growth products, for which he oversees the investment
management and research process. Before joining PNC Asset Management Group in
1986, Mr. Wykle was a senior vice president and chief investment officer at One
Valley Bancorp of West Virginia.
47
<PAGE>
EXECUTIVE COMPENSATION
Summary of Compensation
The following summary compensation table sets forth information
concerning compensation earned in the fiscal year ended December 31, 1998, by
BlackRock's chief executive officer and its other four most highly compensated
executive officers (the "named executive officers").
Summary Compensation Table--1998
<TABLE>
<CAPTION>
Long-term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
Number of
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Salary Bonus Compensation Award(s) Option Payouts Compensation
------------------ ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Laurence D. Fink........ $ $ $ $ $ $ $
Chairman and Chief
Executive Officer
Ralph L. Schlosstein.... $ $ $ $ $ $ $
President
Robert S. Kapito........ $ $ $ $ $ $ $
Vice Chairman
Paul L. Audet........... $ $ $ $ $ $ $
Chief Financial Officer
Robert P. Connolly...... $ $ $ $ $ $ $
General Counsel
</TABLE>
PNC Stock Options
The following table sets forth information concerning the grant of PNC
stock options to each of BlackRock's named executive officers during the last
fiscal year.
PNC Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
% of Total
Number of Options Grant
Securities Granted to Date
Underlying PNC Employees Exercise Present
Options in Fiscal or Base Expiration Value
Name Granted(1) Year Price ($/SH) Date ($)(2)
---- ---------- ------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Laurence D. Fink..... 35,000 1.00% $57.8125 5/28/08 $335,000
Ralph L.
Schlosstein......... 25,000 0.72% $57.8125 5/28/08 $239,500
Robert S. Kapito..... 10,000 0.29% $57.8125 5/28/08 $ 95,800
Paul L. Audet........ 15,000 0.43% $54.7188 2/19/08 $134,400
Robert P. Connolly... 7,400 0.21% $54.7188 2/19/08 $ 66,304
</TABLE>
- --------
(1) The options granted to Messrs. Fink, Schlosstein and Kapito have a grant
date of May 28, 1998, and became exercisable on May 28, 1999. The options
granted to Messrs. Audet and Connolly have a grant date of February 19,
1998, and became exercisable on February 19, 1999.
48
<PAGE>
(2) The chart below shows, by option grant date, the assumptions used to
determine the grant date present value per option. BlackRock or PNC Bank in
no way intends to provide any predictions or assurances with respect to
option or common stock values, as some of the underlying assumptions are
highly subjective.
<TABLE>
<CAPTION>
Annualized Dollar
Risk Free Estimated Value
Grant Market Exercise Rate of Useful Dividend Of
Date Price Price Volatility Return Life Yield@ Option
----- ------ -------- ---------- ---------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
2/19/98 $54.72 $54.72 0.198 5.57% 6 Years 4.40% $8.96
5/28/98 $57.81 $57.81 0.199 5.65% 6 Years 4.40% $9.58
</TABLE>
Exercise of PNC Options
The following table sets forth information concerning the exercise of PNC
stock options during the last fiscal year by each of BlackRock's named
executive officers and the fiscal year-end value of unexercised options.
Aggregated Option Exercises in Last Fiscal Year, and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired on Value Unexercised Options In-the-Money Options
Exercise Realized at FY-End at FY-End
----------- -------- ------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Laurence D. Fink........ -- $ -- 40,000 35,000 $956,250 $ --
Ralph L. Schlosstein.... 30,000 $499,376 -- 25,000 $ -- $ --
Robert S. Kapito ....... -- $ -- 9,400 10,000 $ 96,937 $ --
Paul L. Audet........... -- $ -- 12,700 15,000 $130,968 $ --
Robert P. Connolly...... -- $ -- -- 7,400 $ -- $ --
</TABLE>
PNC Defined Benefit or Actuarial Plan
Mr. Audet and Mr. Connolly are the only BlackRock executive officers who
participate in PNC's pension plan. Mr. Audet and Mr. Connolly would receive
estimated total annual benefits (including those payable by supplemental non-
qualified pension plans) upon retirement at age 65 equal to $320,939 and
$96,772, respectively. The benefits have been projected assuming that (a) Mr.
Audet's and Mr. Connolly's salary remain constant and (b) the 30-year U.S.
Treasury Bond rate until retirement is 7.0%.
Employment Agreements
BlackRock has entered into employment agreements and stock arrangements
with Mr. Fink and with each of its managing directors that are designed to
retain their services through compensation and equity arrangements.
BlackRock intends to enter into new employment agreements with Mr. Fink
and its managing directors which will become effective when the offerings are
completed. Mr. Fink and these managing directors are generally referred to as
"executives." These employment agreements will provide for compensation for
each executive in the form of an annual base salary and an annual bonus in an
amount determined by BlackRock and will provide that BlackRock's chief
executive officer and its management committee will manage the day-to-day
operations of BlackRock. Generally, these agreements will expire on December
31, 2002.
The employment agreements will provide that the employment of an
executive will terminate upon the death or disability of the executive, and may
be terminated by BlackRock for cause or good reason or, for those
49
<PAGE>
executives whose employment agreements also contain a non-competition provision
(as described below), by the executive by reason of a deficient opportunity (as
defined below). Other than Mr. Fink's employment agreement, the employment
agreements will provide that the determination as to whether an executive's
termination of employment is for cause or good reason can only be made by
BlackRock's chief executive officer and a majority of the members of its
management committee, other than that executive. Mr. Fink's employment will
provide that such a determination may only be made by BlackRock's board of
directors.
The employment agreements with Mr. Fink and certain key executives will
also provide that, following a change in control of BlackRock (as defined below
under "Certain Relationships and Related Transactions--IPO Agreement--Change in
Control of BlackRock") or a change in control of PNC (as defined below under
"Certain Relationships and Related Transactions --IPO Agreement--Change in
Control of PNC"), such executive will be entitled to a severance payment equal
to either one times or two times the executive's total compensation upon the
termination of the executive's employment by BlackRock without cause or good
reason or by the executive by reason of a deficient opportunity, subject to the
executive's compliance with the non-competition and other surviving provisions
of the employment agreement.
The employment agreements will also provide that, unless BlackRock's
chief executive officer and a majority of the management committee decide
otherwise, in the event that BlackRock's chief executive officer and its
management committee cease to manage the day-to-day operations of BlackRock,
the restrictions on shares will lapse on the earlier of (i) the date or dates
such restrictions would otherwise have lapsed or (ii) the first anniversary of
the date on which BlackRock's chief executive officer and its management
committee were deemed to have ceased managing the day-to-day operations of
BlackRock.
The employment agreements will also contain various restrictive covenants
applicable to the executive during his or her employment and upon the
termination of the executive's employment, including provisions relating to
non-disparagement, non-solicitation of clients, non-hiring of employees and
non-disclosure of confidential information and, for those executives whose
employment agreements contain a deficient opportunity provision, non-
competition.
For purposes of the employment agreements, "deficient opportunity" occurs
if (i) the executive does not have duties, authority and reporting
responsibilities in BlackRock which are substantially equivalent to or greater
than those as of the beginning of his or her term of employment, unless
otherwise mutually agreed upon, (ii) the executive's principal work location is
relocated beyond a specified geographic area, unless otherwise mutually agreed
upon or at the direction of the chief executive officer or (iii) there occurs a
change in control of BlackRock or a change in control of PNC and, at the
direction of the entity causing such change in control and without the consent
of the chief executive officer, the sum of (1) the aggregate annual salary and
bonus earned by the executive with respect to the fiscal year in which the
change in control occurs or with respect to either of the two succeeding fiscal
years and (2) the value of other incentive awards granted to the executive in
the applicable fiscal year, is less than the sum of (x) the average annual
salary and bonus paid to or earned by the executive with respect to the two
fiscal years immediately preceding the year in which such change in control
occurs and (y) the average value of other incentive awards granted to the
executive in the two fiscal years immediately preceding the year in which such
change in control occurs, unless the reason that the sum of (1) and (2) is less
than the sum of (x) and (y) is because of the adverse financial performance of
BlackRock during the applicable fiscal year.
BlackRock, Inc. 1999 Stock Award and Incentive Plan
On , 1999 BlackRock adopted, and on , 1999 the stockholders
approved, the BlackRock, Inc. 1999 Stock Award and Incentive Plan (the "Award
Plan"). A maximum of shares of class A common stock has been reserved
for issuance under the Award Plan. The number of shares authorized is generally
subject to equitable adjustment upon the occurrence of any stock dividend or
other distribution, recapitalization, stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, or other similar corporate transaction or event.
50
<PAGE>
Pursuant to the Award Plan, BlackRock may grant awards which may consist
of:
. stock options, including incentive stock options and nonqualified
stock options;
. stock appreciation rights, either in connection with stock options
granted under the Award Plan or independently of options;
. restricted stock;
. restricted stock units; and/or
. dividend equivalents and other stock or cash-based awards.
From and after the consummation of the initial public offerings, the
Award Plan is intended to satisfy any applicable requirements of Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934 and Section
162(m) of the Internal Revenue Code, and will be interpreted in a manner
consistent with the requirements of those rules and regulations.
The Award Plan will be administered by the compensation committee
established by the board of directors, and the compensation committee will make
awards in a manner that satisfies Section 162(m) of the Internal Revenue Code
and Rule 16b-3 under the Exchange Act. The compensation committee shall have
full authority, subject to the provisions of the Award Plan, to, among other
things, determine the persons to whom awards will be granted, determine the
terms and conditions (including any applicable performance criteria) of the
awards, and prescribe, amend and rescind rules and regulations relating to the
Award Plan.
Grants of awards may be made under the Award Plan to selected employees,
independent contractors and directors of BlackRock and its present or future
affiliates, at the discretion of the compensation committee.
Stock options and appreciation rights
Stock options may be either "incentive stock options," as such term is
defined in Section 422 of the Internal Revenue Code, or nonqualified stock
options. The exercise price of a nonqualified stock option may be above, at or
below the fair market value per share of class A common stock on the date of
grant; the exercise price of an incentive stock option may not be less than the
fair market value per share of class A common stock on the date of grant. The
exercise price may be paid in cash or by the surrender or withholding of class
A common stock.
Stock appreciation rights may be granted alone or together with stock
options. A stock appreciation right is a right to be paid an amount equal to
the excess of the fair market value of a share of class A common stock on the
date the stock appreciation right is exercised over either the fair market
value of a share of class A common stock on the date of grant (in case of a
free standing stock appreciation right) or the exercise price of the related
stock option (in case of a tandem stock appreciation right). Payment can be
made in cash, class A common stock or both, as specified in the award agreement
or as determined by the compensation committee.
No person may be granted stock options or stock appreciation rights under
the Award Plan in any calendar year representing an aggregate of more than
shares of class A common stock. Stock options and stock appreciation
rights will be exercisable at such times and upon such conditions as the
compensation committee may determine, as reflected in the applicable award
agreement. In addition, the plans may provide for the accelerated vesting of
all stock options and stock appreciation rights in the event of certain
circumstances following a "change in control" of BlackRock or PNC. The exercise
period shall be determined by the compensation committee except that, in the
case of an incentive stock option, the exercise period shall not exceed ten
years from the date of grant of the incentive stock option.
Except to the extent that the applicable award agreement provides
otherwise, in the event of the termination of employment of an employee or
termination of the independent contractor relationship or termination of
service as a director, the right to exercise stock options and stock
appreciation rights held by such participant, independent contractor or
director, as applicable, will cease.
51
<PAGE>
Restricted stock and restricted stock units
A restricted stock award is an award of class A common stock and a
restricted stock unit award is an award of the right to receive cash or class A
common stock at a future date. In each case, the award is subject to
restrictions on transferability and other restrictions, if any, as the
compensation committee may impose at the date of grant. The restrictions may
lapse separately or in combination at such times, under such circumstances,
including, without limitation, a specified period of employment or the
satisfaction of pre-established performance goals, in such installments, or
otherwise, as the compensation committee may determine. Except to the extent
restricted under the award agreement relating to the restricted stock, a
participant granted restricted stock will have all of the rights of a
stockholder, including, without limitation, the right to vote and the right to
receive dividends on the restricted stock. In addition, the award plan can
accelerate the lapsing of all or any portion of any outstanding restrictions on
the restricted stock and may provide that all restrictions affecting the
awarded shares or units will lapse in the event of specified circumstances
following a "change in control" of BlackRock or PNC.
Upon termination of employment or termination of the independent
contractor relationship or termination of service as a director during the
applicable restriction period, restricted stock, restricted stock units and any
accrued but unpaid dividends or dividend equivalents that are at that time
subject to restrictions will be forfeited unless the compensation committee
provides otherwise. The compensation committee can determine, by rule or
regulation or in any award agreement that restrictions or forfeiture conditions
relating to restricted stock or restricted stock units will be waived in whole
or in part in the event of terminations resulting from specified causes. The
compensation committee may in other cases waive in whole or in part the
forfeiture of restricted stock.
No person may be granted restricted stock or restricted stock units under
the Award Plan in any calendar year representing an aggregate of more than
shares of class A common stock.
Other awards
The compensation committee may grant to a participant the right to
receive cash or class A common stock, in each case equal in value to dividends
paid with respect to a specified number of shares of class A common stock.
Dividend equivalents may be awarded on a free-standing basis or in connection
with another award, and may be paid currently or on a deferred basis. The
compensation committee is also authorized to grant class A common stock as a
bonus or to grant other cash awards.
Transferability
Except as otherwise determined by the compensation committee, awards
granted under the Award Plan may be transferred only by will or by the laws of
descent and distribution.
Amendment and termination
The Award Plan may, at any time and from time to time, be altered,
amended, suspended, or terminated by the board of directors or the compensation
committee, in whole or in part, except that no amendment that requires
stockholder approval in order for the Award Plan to continue to comply with
Section 162(m), state law, stock exchange requirements or other applicable law
will be effective unless the amendment has received the required stockholder
approval. In addition, no amendment may be made which adversely affects any of
the rights of any award holder previously granted an award, without the
holder's consent.
52
<PAGE>
Outstanding awards
On , 1999, BlackRock granted the following stock options to
the following named executive officers:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Number of % of Total Grant
Securities Options Date
Underlying Granted to Exercise Present
Options Employees in or Base Expiration Value
Name Granted Fiscal Year Price ($/SH) Date ($)
---- ---------- ------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Laurence D. Fink..... % $ $
Ralph L.
Schlosstein.........
Robert S. Kapito.....
Paul L. Audet........
Robert P. Connolly...
</TABLE>
Key Executive Long-Term Incentive Bonus Plan
BlackRock has adopted the Key Executive Long-Term Incentive Bonus Plan
("Incentive Bonus Plan"), effective as of , 1999, with respect to its
eligible participants. The Incentive Bonus Plan is intended to serve as a
qualified performance-based compensation program under Section 162(m) of the
Internal Revenue Code.
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four other executive
officers named in the summary compensation table of the corporation's proxy
statement. Compensation that qualifies as "performance-based" compensation is,
however, exempt from the $1 million deductibility limitation. In order for
compensation granted pursuant to the Incentive Bonus Plan to qualify for this
exemption, among other things, the material terms under which the compensation
is to be paid must be disclosed to and approved by stockholders in a separate
vote prior to payment, and the compensation must be paid solely on account of
achieving pre-established, objective performance goals. The Incentive Bonus
Plan will serve as a qualified performance-based compensation program under
Section 162(m) of the Internal Revenue Code, in order to preserve BlackRock's
tax deduction paid under the Incentive Bonus Plan to the named executive
officers.
The board of directors believes that adoption of the Incentive Bonus Plan
is necessary to meet BlackRock's objectives of securing, motivating and
retaining officers and other employees of BlackRock and its subsidiaries. The
principal features of the Incentive Bonus Plan are described below. The
description of the Incentive Bonus Plan set forth herein is qualified in its
entirety by reference to the text of the Incentive Bonus Plan.
The purpose of the Incentive Bonus Plan is to encourage behavior by
Incentive Bonus Plan participants that create superior financial performance
and strengthen the commonality of interests between the participants and
stockholders in creating superior stockholder value.
The Incentive Bonus Plan will be administered by the compensation
committee.
The Incentive Bonus Plan provides that any employee who is selected by
the compensation committee is eligible to participate in the Incentive Bonus
Plan. Payment of awards to participants are permitted if, and only to the
extent that, performance goals established by the compensation committee are
met for the applicable performance period. The performance goals may relate to
the performance of BlackRock, a business unit, product line, territory or any
combination thereof. With respect to participants who are not executive
officers,
53
<PAGE>
performance goals may also include such objective or subjective performance
goals as the compensation committee may, from time to time, establish.
Performance goals may include a threshold level of performance below which no
award payment will be made and levels of performance at which specified
percentages of the target award will be paid, and may also include a maximum
level of performance above which no additional award will be paid. The
performance measure or measures and the performance goals established by the
compensation committee may be different for different performance periods and
different goals may be applicable to different divisions or other operational
segments.
Before any awards for a particular performance period can be paid to the
named executive officers, the compensation committee must certify the extent to
which performance goals and any other material terms were satisfied.
Unless the compensation committee otherwise determines, a participant
will receive the award only if the participant is employed by BlackRock on the
last day of the applicable performance period. If a participant is terminated
by BlackRock for cause prior to the date on which the payment of awards is
made, the participant will forfeit all claims to unpaid amounts earned or
otherwise due under the Incentive Bonus Plan.
A participant's award with respect to each performance period will be
paid in cash. The amount of the award payable to a named executive officer upon
attainment of a performance goal cannot be increased by the compensation
committee at its discretion and cannot exceed with respect to any
performance period.
The board or the compensation committee may from time to time amend,
suspend or discontinue the Incentive Bonus Plan. No amendment that requires
stockholder approval in order for the Incentive Bonus Plan to continue to
comply with Section 162(m) of the Internal Revenue Code will be effective
unless it receives stockholder approval. No amendment, however, shall affect
adversely any of the rights of any participant under any award following the
end of the applicable performance period.
Since benefits under the Incentive Bonus Plan will be determined by the
compensation committee and performance goal criteria may vary from performance
period to performance period and from participant to participant, benefits to
be paid under the Incentive Bonus Plan are not determinable at this time.
Employee Stock Purchase Plan
BlackRock has also adopted the Employee Stock Purchase Plan, effective as
of , 1999. The purpose of the Employee Stock Purchase Plan is to align
the interests of employees and stockholders by encouraging participants to
purchase shares of class A common stock. The Employee Stock Purchase Plan is
intended to comply with the requirements of Section 423 of the Internal Revenue
Code, and to provide participants with the tax advantages provided by Section
423. A total of shares of class A common stock have been authorized for
issuance under the Employee Stock Purchase Plan, subject to adjustment in the
event of a recapitalization, stock split, stock dividend or other similar
transaction. The description of the Employee Stock Purchase Plan set forth
herein is qualified in its entirety by the text of the Employee Stock Purchase
Plan.
Subject to certain procedural requirements, all employees of BlackRock
who have at least one year of service and work more than twenty hours per week
will be eligible to participate in the Employee Stock Purchase Plan, except
that employees who are "highly compensated" within the meaning of Section
414(q) of the Internal Revenue Code and employees who are five percent or more
stockholders of BlackRock or any subsidiary of BlackRock will not be eligible
to participate. Designations of corporations participating in the Employee
Stock Purchase Plan may be made from time to time by the compensation committee
from among the subsidiaries of BlackRock, including corporations which become
subsidiaries after approval and adoption of the Plan. Currently, all
subsidiaries of BlackRock are participating in the Employee Stock Purchase
Plan.
54
<PAGE>
Pursuant to the Employee Stock Purchase Plan, each eligible employee will
be permitted to purchase shares of class A common stock through regular payroll
deductions and/or cash payments in an aggregate amount equal to % to % of the
employee's base pay. Under the Employee Stock Purchase Plan, the right to
purchase class A common stock may not accrue at a rate that exceeds $25,000
worth of stock for each calendar year.
Participating employees will be able to purchase shares of class A common
stock with payroll deductions and/or cash payments on the last day of each six
month purchase period during each one-year cycle, at a purchase price equal to
the lesser of:
. 85 percent of the fair market value of class A common stock on the
date the cycle begins; and
. 85 percent of the fair market value of class A common stock on the
last day of the purchase period.
A right to purchase shares of class A common stock which is granted to a
participant under the Employee Stock Purchase Plan is transferable only by will
or the laws of descent and distribution, and is exercisable, during the
participant's lifetime, only by the participant.
The compensation committee may from time to time amend or terminate the
Employee Stock Purchase Plan. No such amendment or termination may adversely
affect the rights of any participant without the consent of such participant
and, to the extent required by Section 423 of the Internal Revenue Code or any
other law, regulation or stock exchange rule, no amendment will be effective
without the approval of stockholders entitled to vote on the amendment.
Additionally, the compensation committee may make such amendments as it deems
necessary to comply with applicable laws, rules and regulations.
Since the amount of benefits to be received by each participant is
determined by his or her election, the amount of future benefits to be
allocated to any individual or group of individuals under each Employee Stock
Purchase Plan is not determinable.
Non employee Directors Stock Purchase Plan
The board of directors adopted the Non employee Directors Stock Purchase
Plan effective as of , 1999. The purpose of the director plan is to
encourage members of the board of directors who are not also employees of
BlackRock or any of its subsidiaries and who receive fees for their services to
acquire additional stock ownership interests in BlackRock. The following is a
description of the material terms of the director plan, and as such is
qualified in its entirety by the actual terms of the director plan.
Only outside directors are eligible to participate in the director plan.
Currently, no outside directors serve on the board of directors. The director
plan will be administered by the board of directors or by the compensation
committee which may at any time alter, amend, suspend or terminate the director
plan.
Each outside director may elect that a specified percentage of his or her
future compensation as a director be paid in shares of class A common stock
rather than in cash. Shares of class A common stock issuable to an outside
director under the director plan will be transferred to the outside director as
soon as practicable following the end of each calendar quarter. The total
number of shares of class A common stock to be so transferred on each such date
will be determined by dividing:
(a)the product of (1) the percentage of compensation elected by
the outside directors and (2) the outside director's compensation
payable for services rendered in the calendar quarter with respect to
which such transfer is being made; by
(b)the fair market value (as defined in the director plan) of a
share of class A common stock on the last day of such calendar quarter.
Cash will be paid in lieu of any fractional shares of class A common
stock.
Because awards under the director plan depend on elections by outside
directors, and no elections have been made, the awards to be made in 1999 have
not been determined.
55
<PAGE>
OWNERSHIP OF THE COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of June 30, 1999; by:
. Each person who is known by us to own beneficially more than 5% of
the outstanding shares of common stock;
. Each of our directors;
. Our executive officers named in the "Summary Compensation Table"
on page 48 of this prospectus; and
. All of our directors and executive officers as a group.
Except as otherwise noted, the beneficial owners named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership Prior to Beneficial Ownership After
Offerings Offerings
-------------------------------- --------------------------------
Percent of Percent of Percent of Percent of
class A class B class A class B
common stock common stock common stock common stock
Number outstanding outstanding Number outstanding outstanding
------ ------------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PNC Asset Management
Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Laurence D. Fink
Ralph L. Schlosstein
Robert S. Kapito
Thomas H. O'Brien
James E. Rohr
Walter E. Gregg, Jr.
Helen P. Pudlin
Paul L. Audet
Robert P. Connolly
All directors and
executive officers as a
group (9 persons)
</TABLE>
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Background
BFM was acquired by PNC on February 28, 1995 for total consideration of
$240 million. PNC accounted for the acquisition by contributing $10 million of
equity capital and utilized "push down" accounting to record approximately $230
million of debt and approximately $240 million of goodwill on the books of BFM.
Outstanding debt included a $94 million unsecured note payable to certain
partners of BFM through February 2000 with the balance ultimately representing
amounts borrowed from PNC Bank under a $175 million revolving credit facility.
Equity Offering to Employees of BFM
In July 1997, PNC retained an independent investment bank to assist in
the valuation of PNC's investment management business, including a fair market
valuation of BFM in connection with a proposed sale of equity to employees.
PNC's objectives were to establish a long-term retention program for key
employees and to more closely align PNC and employee interests in generating
stockholder value growth. On January 31, 1998, PNC sold 30,000 shares of BFM
restricted stock with a fair value of $999.36 per share to key employees at a
purchase price of $966.00 per share. PNC retained 70,000 shares or a 70%
ownership interest in BFM. BFM received $29.0 million in proceeds from the sale
and recorded compensation expense of $1.0 million reflecting the purchase price
discount from fair value.
In connection with these offerings, BFM, PNC and certain employees of BFM
entered into a stockholders agreement. The stockholders agreement restricts
transfer of BFM employee shares until restrictions are ratably removed on
December 31, 2000, 2001 and 2002, as applicable, or earlier in certain
situations. The stockholders agreement also requires holders of restricted
stock who voluntarily terminate their employment with BFM to sell their shares
back to BFM at the lower of cost or fair market value and provides a right of
first refusal in the favor of PNC and BFM employee stockholders before any sale
of BFM stock to a third party. See "Description of Capital Stock--Common
Stock--Stockholders Agreement."
Formation Transactions
On March 31, 1998, PNC contributed BFM and certain of its other
investment management subsidiaries into a new holding company. The contribution
was recorded at historical book value as a combination of entities under common
control. On the formation date, BFM's employee stockholders and PNC exchanged
their shares in BFM for an equal number of shares in BlackRock with PNC
receiving $12.3 million in cash dividends and an additional 94,000 shares of
stock representing the value of PNC's other contributed investment management
businesses. As part of the formation, BlackRock also offered to sell an
additional 5,507 shares of restricted stock with a market value of $1,085.15
per share to key employees of PNC's other contributed businesses at a per share
price of $966.00. These stock transactions were completed in May 1998 with all
employee stockholders, including BFM employees, required to execute a new
stockholders agreement with BlackRock and PNC containing the same provisions
previously outlined in the sale of stock to employees of BFM. Proceeds from the
second sale of stock were $5.3 million with BlackRock recording an additional
$0.7 million in compensation expense. At December 31, 1998, there were five
forward sale agreements to purchase restricted stock outstanding with certain
key employees. These agreements totaled 637 additional shares at an initial
price per share of $966.00 plus an imputed annual financing charge of 12%.
Transactions with PNC and Its Subsidiaries
After completion of the offerings, PNC will beneficially own
approximately % of the combined voting power of BlackRock's outstanding
common stock (approximately % if the underwriters over-allotment options are
exercised in full).
57
<PAGE>
BlackRock provides risk management advisory services to PNC's corporate
and line of business asset/liability management committees ("ALCO") for which
it received an annual fee of $3.0 million for 1996, 1997 and 1998 and $2.5
million for the six months ended June 30, 1999. Effective June 1, 1998,
BlackRock entered into an agreement with PNC's private banking group to provide
model portfolio and investment research services for $4.4 million per year.
Total fees earned in 1998 were $2.6 million and total fees earned through June
30, 1999 were $2.2 million.
BlackRock acts as the investment adviser for certain commingled funds or
separate accounts which are either sponsored by PNC affiliated entities or are
PNC clients. In most instances, these advisory and administration services are
provided in accordance with formal advisory agreements. BlackRock is generally
compensated on the basis of fees calculated as a percentage of the market value
of the assets under management. Investment advisory and administration fees
associated with PNC affiliated entities for the years ended December 31, 1996,
1997 and 1998 amounted to $10.3 million, $13.1 million and $11.0 million,
respectively. The decrease in 1998 was attributable to the May 1998 conversion
of $8.2 billion in PNC commingled common trust fund assets into the BlackRock
Funds.
At June 30, 1999, clients of PNC affiliated entities maintained
approximately $19.8 billion of investments in the BlackRock Funds, which
represents approximately 80% of the assets in the BlackRock Funds. For the year
ended December 31, 1998, BlackRock earned approximately $69 million in
investment advisory and administrative fees on PNC client investments in the
BlackRock Funds and for the six months ended June 30, 1999 earned approximately
$50.0 million. As a result of the formation and the common trust fund
conversion, BlackRock and PNC entered into a memorandum of understanding in
1998 establishing the services to be provided and fees to be paid to PNC
affiliated entities associated with maintaining their client investments in the
BlackRock Funds. BlackRock also pays co-administration fees to a PNC mutual
fund servicing affiliate for administrative services provided to the Provident
Institutional Funds. Costs for these services are based on a percentage of the
market value of assets under management. Fund administration and servicing
costs-affiliates for the years ended December 31, 1996, 1997 and 1998 were
$19.6 million, $27.3 million and $53.0 million, respectively, and were $36.3
million for the six months ended June 30, 1999. The increase in expense for
1998 and the six months ended June 30, 1999, was largely due to the May 1998
common trust fund conversion.
Pursuant to an administrative services agreement, PNC provides BlackRock
with certain management and administrative services. The services include
legal, audit, employee benefit, payroll and information services. As
consideration for these services, BlackRock pays PNC a monthly fee based on
actual usage of the services or on defined formulas which, in management's
view, result in reasonable charges. Total expense for these services was $6.9
million, $3.0 million and $3.3 million for the years ended December 31, 1996,
1997 and 1998 respectively, and was $2.0 million for the six months ended June
30, 1999.
Pursuant to a master lease agreement with an affiliate of PNC, BlackRock
currently leases approximately 22,500 square feet of office space at 400
Bellevue Parkway, Wilmington, Delaware 19805 and 24,000 square feet of office
space at 1600 Market Street, Philadelphia, Pennsylvania 19103. The lease is
subject to annual renewal and calls for annual lease payments of approximately
$1.4 million. BlackRock believes that the price and other terms under the lease
are at least as favorable as prices and terms being offered generally in the
same marketplaces by unrelated parties for comparable space.
Debt of $153 million at June 30, 1999 included $125 million outstanding
on a $175 million revolving line of credit facility with PNC Bank and a $28
million unsecured note due February 28, 2000 with B.P. Partners, L.P.
BlackRock's outstanding debt largely reflects amounts remaining from PNC's
acquisition of BFM on February 28, 1995. B.P. Partners, L.P. is a limited
partnership comprised of former partners of BFM who received deferred notes as
part of the purchase price for BFM. The revolving credit facility dated
February 28, 1996, as amended, bears interest at PNC Bank's prime rate and is
not terminable by the bank except in the event of a default. The unsecured note
bears interest at a fixed rate of 7.5% and is unconditionally guaranteed
58
<PAGE>
by PNC. BlackRock repaid $18.8 million on February 28, 1999 and $28.2 million
is due on February 28, 2000. Interest expense paid by BlackRock for the years
ended December 31, 1996, 1997 and 1998 was $20.0 million, $20.2 million and
$13.3 million, respectively, and was $7.1 million for the six months ended June
30, 1999. BlackRock intends that net proceeds from the offerings will be used
to repay a portion of the outstanding indebtedness under the revolving credit
facility with PNC Bank.
Tax Sharing Policy and Tax Disaffiliation Agreement
BlackRock will participate in the PNC and PNC Asset Management, Inc. tax
sharing policies through the completion of the offerings. The PNC tax sharing
policy provides, among other things, that the consolidated federal income tax
liability for all 80% or more owned subsidiaries of PNC included in the PNC
consolidated federal income tax return will generally be allocated to each
subsidiary based on their separately calculated liability. Because BlackRock
and its subsidiaries were not eligible to join PNC's consolidated federal
income tax return after March 31, 1998, the provisions of such policy related
to federal income taxes were not applicable to BlackRock for federal income tax
periods beginning after that date. BlackRock has, however, participated in the
PNC Asset Management, Inc. tax sharing policy, the provisions of which are
generally identical to those of the PNC tax sharing policy, with respect to PNC
Asset Management, Inc. consolidated federal income tax returns for taxable
periods beginning after March 31, 1998. BlackRock will be subject to the state
and municipal provisions of the PNC tax sharing policy through the completion
of the offerings. The PNC tax sharing policy generally provides that state and
municipal income tax liabilities are determined as if each PNC subsidiary has
filed a separate return. In the event that a state or municipality imposes
income and/or franchise taxes on two or more individual PNC subsidiaries, on a
consolidated, combined or unitary basis, the income tax liability is allocated
to those subsidiaries whose business operations generated the liability.
Prior to the completion of the offerings, PNC and BlackRock will enter
into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement") that
will set forth each party's rights and obligations with respect to income tax
payments and refunds for taxable periods before and after the completion of the
offerings and will also address related matters such as the filing of tax
returns and the conduct of audits or other proceedings involving claims made by
taxing authorities.
As described above, prior to the completion of the offerings, BlackRock
and its subsidiaries will be included in consolidated, combined and unitary
income and franchise tax returns with PNC and/or certain of its subsidiaries,
including PNC Asset Management, Inc. Under the Tax Disaffiliation Agreement,
PNC or PNC Asset Management, Inc. will be responsible for preparing and filing
all of such consolidated, combined and unitary income tax returns. In addition,
BlackRock will generally agree to indemnify PNC for income taxes relating to
the taxable period, or portion thereof, beginning before the completion of the
offerings to the extent such income taxes are attributable to BlackRock.
BlackRock's share of the income tax liability with respect to federal
consolidated income tax returns including PNC and/or PNC Asset Management, Inc.
generally will be based upon the tax liability that would have been incurred by
BlackRock and its subsidiaries if such group had filed its own federal
consolidated income tax return and with respect to state or municipal combined
or unitary income or franchise tax returns including PNC and/or certain of its
subsidiaries will generally be based upon an allocation to BlackRock of a
percentage of the total tax liability based upon BlackRock's level of activity
in such state or municipality. PNC will agree to indemnify BlackRock for all
other income and franchise taxes relating to the taxable period, or portion
thereof, ending on or before the completion of the offerings. PNC and PNC Asset
Management, Inc. also will have exclusive control over any audits or other
proceedings involving claims made by taxing authorities with respect to such
consolidated, combined or unitary tax returns, notwithstanding that such audits
or proceedings may result in a liability to BlackRock under the Tax
Disaffiliation Agreement. PNC is obligated to consult with BlackRock and take
the best interests of all parties into account in the conduct of such audits or
proceedings.
Upon completion of the offerings, BlackRock will begin filing its own
separate consolidated federal income tax return for taxable periods beginning
after the date of the offerings. BlackRock will file separate
59
<PAGE>
state and municipal income and franchise tax returns or may be included in
state and municipal income and franchise tax returns with one or more PNC
subsidiaries on a combined or unitary basis. If BlackRock is included in a
group's combined or unitary state or municipal income tax filing with other PNC
subsidiaries, BlackRock's share of the group's liability will generally be
based upon an allocation to BlackRock of a percentage of the total tax
liability based upon BlackRock's level of activity in such state or
municipality.
IPO Agreement
General
We have entered into an Initial Public Offering Agreement with PNC which
governs our respective rights and duties with respect to the offerings, and
sets forth covenants we and PNC have agreed to for various periods following
the offerings.
Subsequent issuances of common stock and additional purchases of common stock
by PNC
The IPO Agreement provides that at any time following the offerings until
the date on which PNC or another person (a "PNC transferee") beneficially owns
less than a majority of the voting power of our common stock (the "Trigger
Date"), we will not, without PNC's prior written consent, issue any shares of
capital stock or any rights, warrants or options to acquire our capital stock.
The IPO Agreement further provides that until the Trigger Date, if we issue
capital stock, PNC will be entitled, but not required, to purchase from
BlackRock a number of shares of capital stock when it is issued so that PNC
would continue to maintain the same proportionate economic and voting rights
after the issuance as it had before the issuance of capital stock. If we issue
class A shares for cash, PNC must pay the same per share price to purchase
additional shares. In all other cases, the price that PNC must pay to purchase
the additional shares of capital stock shall be the fair value of the class of
capital stock and, with respect to class A common stock and class B common
stock, shall be equal to the average of the closing prices of the class A
common stock reported on the NYSE for the ten trading days prior to the
completion of the issuance giving rise to PNC's additional purchase right.
Change in control of PNC or BlackRock
The IPO Agreement provides that if there is a change in control of PNC at
any time following the offerings until the Trigger Date or change in control of
BlackRock at any time, PNC or its successor must offer to purchase all of our
outstanding common stock not held by PNC or its successor (i.e., stock held by
public stockholders and employee stockholders) at a "fair value" if, within 12
months following a change in control of PNC or BlackRock, a committee
consisting of all of our independent directors immediately prior to such a
change in control determines that the fundamental economics and prospects of
our business will be materially and adversely affected as a result of the
change in control of PNC or BlackRock.
The "fair value" of our capital stock would be determined through
negotiation by us and PNC or its successor. However, if we were unable to agree
on a fair value, then the fair value would be determined by two nationally
recognized investment banking or business appraisal firms--one selected by PNC
or its successor and one selected by our management committee. If these two
firms were unable to agree on the fair value of our capital stock, they would
jointly select a third nationally recognized investment banking or business
appraisal firm which would resolve any disputes between the two original firms
and conclusively determine the fair value of our capital stock. Fair value of
our common stock will be determined by reference to, among other factors, the
trading value of our common stock prior to the announcement of the change in
control of PNC or BlackRock.
A "change in control of PNC" will be deemed to occur if, whether by an
actual or threatened proxy contest, including a consent solicitation, or any
merger, reorganization, consolidation or similar transaction, persons who are
directors of PNC immediately prior to the proxy contest or execution of the
agreement
60
<PAGE>
pursuant to which the transaction is consummated cease to constitute a majority
of the board of directors of PNC or any successor entity immediately following
the proxy contest or the consummation of the transaction. In making the
determination as to whether a majority of the board of directors consists of
persons who served as directors prior to the proxy contest or other
transaction, any director whose initial assumption of office was in connection
with a prior actual or threatened proxy contest will not be deemed to be a
prior director regardless of when the individual took office.
A "change in control of BlackRock" will be deemed to have occurred if (i)
PNC transfers 50% or more of the voting power of BlackRock's capital stock and
PNC or a PNC affiliate no longer is the largest stockholder of BlackRock or
(ii) whether by virtue of an actual or threatened proxy contest (including a
consent solicitation) or any merger, reorganization, consolidation or similar
transaction, persons who are directors of BlackRock immediately prior to such
proxy contest or the execution of the agreement pursuant to which such
transaction is consummated (other than a director whose initial assumption of
office was in connection with a prior actual or threatened proxy contest) cease
to constitute a majority of the board of directors of BlackRock or any
successor entity immediately following such proxy contest or the consummation
of such transaction.
If PNC or its affiliates or, following a change in control of PNC or
BlackRock, any successor offers to purchase or purchases all outstanding shares
of class A common stock or purchases sufficient shares of class A common stock
to cause such stock to be delisted, it must also offer to purchase all
outstanding shares of class B common stock or other capital stock held by
employee stockholders at fair value, which, with respect to both class A common
stock and class B common stock, shall be the highest price paid for class A
common stock.
Other BlackRock Covenants
After the offerings, PNC will continue to own a significant portion of
our outstanding voting stock. As a result, PNC will continue to include us as a
"subsidiary" for various financial reporting, accounting and other purposes.
Accordingly, we have agreed to certain covenants in the IPO Agreement. Certain
of these covenants are described below:
Financial information. We have agreed that, for so long as PNC is
required to consolidate our results of operations and financial position or
account for its investment in BlackRock using the equity method of accounting,
and subject to appropriate confidentiality provisions to protect the
confidentiality commitments we have made to our customers, we will:
. provide PNC full access to our books and records, including
budgets and financial projections;
. present our financial information in a manner consistent with
PNC's accounting policies and procedures; and
. cooperate fully, and cause our accountants to cooperate fully,
with PNC in connection with public disclosures and regulatory
reporting.
We have generally agreed to indemnify PNC and its affiliates against all
liabilities arising out of any incorrect, inaccurate or incomplete financial
and other information we provide to PNC pursuant to the terms of the IPO
Agreement.
Other covenants. Until the Trigger Date, we have agreed that:
. we will not, without PNC's prior written consent, which it may
withhold in its sole and absolute discretion, take any action
which limits PNC's ability to freely sell, pledge or otherwise
dispose of shares of our common stock or limits the legal rights
of or denies any benefit to PNC as a BlackRock stockholder in a
manner not applicable to BlackRock stockholders generally; and
. to the extent that PNC is a party to, or enters into, any
agreements that provide that certain actions of PNC's subsidiaries
may result in PNC being in breach or default under such
61
<PAGE>
agreements, and we have been advised of the existence of such
agreements, we will not take any actions that may result in PNC
being in breach or default under any such agreement. PNC will not,
however, enter into any agreements that would materially restrict
BlackRock's business as currently conducted.
Expenses
In general, unless otherwise provided for in the IPO Agreement or any
other agreement, we and PNC will pay our respective costs and expenses
incurred in connection with the offerings.
PNC transferees
Any PNC transferee will be bound by the IPO Agreement and have the
rights and obligations of PNC under the IPO Agreement.
Registration Rights Agreement
PNC and our employees who hold shares of class B common stock cannot
freely sell such shares without registration under the Securities Act.
Accordingly, we have entered into a Registration Rights Agreement with PNC and
our employee stockholders to provide them with registration rights relating to
shares of our class A common stock into which their shares of class B common
stock are convertible. No shares may be sold under the Registration Rights
Agreement until the expiration of the 180-day lock-up period. See "Shares
Eligible for Future Sale."
Shares covered. The Registration Rights Agreement covers the shares of
our common stock that are held by PNC and our employee stockholders or that
PNC or our employee stockholders may acquire in the future.
Demand registrations. PNC or employee stockholders holding a majority
interest of the class B common stock held by all employee stockholders may
request registration under the Securities Act of all or any portion of our
shares covered by the Registration Rights Agreement.
. Terms of each offering. PNC or the employee stockholders will
designate the terms of each offering effected pursuant to a Demand
Registration, which may take any form, including:
(1) an underwritten public offering;
(2) a shelf registration;
(3) in the case of PNC, a registration in connection with the
distribution of, or exchange of or offer to exchange, shares of
our common stock to holders of debt or equity securities of PNC,
a subsidiary or affiliate thereof or any other person; or
(4) in the case of PNC, a distribution in connection with the
registration by PNC or a subsidiary or affiliate thereof of
securities convertible into, exercisable for or otherwise related
to such shares of our common stock.
Except for an offering described in clauses (3) and (4) above, each
Demand Registration must meet a certain minimum aggregate expected offering
price.
. Timing of demand registration. We are not required to undertake a
Demand Registration within 90 days of the effective date of a
previous Demand Registration, other than a Demand Registration that
was effected as a shelf registration. Also, we have the right to
postpone the filing or effectiveness of any Demand Registration for
up to 90 days if in our reasonable judgment such registration would
reasonably be expected to have a material adverse effect on any
existing
62
<PAGE>
proposal or plans by our company to engage in certain material
transactions, provided, however, that we may exercise this right only
for a total of 90 days in any 12-month period.
Piggyback registrations. The Registration Rights Agreement also provides
for certain "piggyback" registration rights for PNC and our employee
stockholders. Whenever we propose to register any of our securities under the
Securities Act for ourselves or others, subject to certain customary
exceptions, we must provide prompt notice to PNC and our employee stockholders
and include in such registration all shares of our stock which PNC or our
employee stockholders request to be included.
Registration procedures and expenses. The Registration Rights Agreement
sets forth customary registration procedures, including a covenant by us to
make available our senior management for road show presentations. All
registration expenses incurred in connection with the Registration Rights
Agreement, including all filing fees, fees and expenses of compliance with
securities and/or blue sky laws, financial printing expenses, fees and
disbursements of custodians, transfer agents, exchange agents and/or
information agents, and fees and disbursements of counsel for our company and
all independent certified public accountants, underwriters, excluding
discounts and commissions, and other persons retained by us will be paid by
us. In addition, we must reimburse PNC and our employee stockholders for the
fees and disbursements of their outside counsel as well as out-of-pocket
expenses incurred in connection with any such registration.
Indemnification. The Registration Rights Agreement contains customary
indemnification and contribution provisions by us for the benefit of PNC, our
employee stockholders and any underwriters and by PNC and our employee
stockholders for the benefit of us and any underwriters with respect to
information provided by PNC or our employee stockholders.
Transfer. PNC and our employee stockholders may transfer shares covered
by the Registration Rights Agreement and the holders of such transferred
shares will be entitled to the benefits of the Registration Rights Agreement,
provided that each such transferee agrees to be bound by the terms of the
Registration Rights Agreement. Such transferees will be entitled to the rights
available to PNC or our employee stockholders described above. Any successor
entities to our company will be bound by the terms of the Registration Rights
Agreement.
Duration. The registration rights under the Registration Rights
Agreement will remain in effect with respect to any shares of our common stock
until:
. such shares have been sold pursuant to an effective registration
statement under the Securities Act;
. such shares have been sold to the public pursuant to Rule 144
under the Securities Act, or any successor provision;
. such shares have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have
been delivered by us and subsequent public distribution of them
shall not require registration of them under the Securities Act or
any similar state law;
. such shares have ceased to be outstanding; and
. in the case of shares held by a transferee of PNC or any employee
stockholder, when such shares become eligible for sale pursuant to
Rule 144(k) under the Securities Act, or any successor provision.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized equity capital consists of shares of class A
common stock, $.01 par value per share, shares of class B common
stock, $.01 par value per share, (the class A common stock and class B common
stock, together, the "common stock"), and shares of preferred stock,
$.01 par value per share. No preferred stock is outstanding as of the date of
this prospectus. Of the class A common stock authorized, shares are
being offered in the offerings ( shares if the underwriters' over-
allotment options are exercised in full). class A common shares have
been reserved for issuance pursuant to certain of our employee benefit plans.
See "Management -- Executive Compensation." Of the shares of class B
common stock authorized, will be outstanding and held by PNC (or its
affiliates) and certain employee stockholders. The following summary
description of our capital stock is qualified by reference to our certificate
of incorporation and bylaws, copies of which are filed as exhibits to the
registration statement, and to Delaware corporate law.
Common Stock
Voting rights
The holders of class A common stock and class B common stock generally
have identical rights. The one exception is that, on all matters to be voted on
by stockholders, holders of class A common stock are entitled to one vote per
share, whereas holders of class B common stock are entitled to five votes per
share. Holders of shares of class A common stock and class B common stock are
not entitled to cumulate their votes in the election of directors. Generally,
all matters to be voted on by stockholders must be approved by a majority (or,
in the case of election of directors, by a plurality) of the votes entitled to
be cast by all shares of class A common stock and class B common stock present
in person or represented by proxy, voting together as a single class, subject
to any voting rights granted to holders of any outstanding preferred stock.
Except as otherwise provided by law or in our certificate of
incorporation or bylaws, and subject to any voting rights granted to holders of
any outstanding preferred stock, amendments to our certificate of incorporation
generally must be approved by a majority of the combined voting power of all
class A common stock and class B common stock voting together as a single
class. Amendments to our certificate of incorporation that would alter or
change the powers, preferences, or special rights of the class A common stock
or the class B common stock so as to affect them adversely also must be
approved by a majority of the votes entitled to be cast by the holders of the
shares adversely affected by the amendment, voting as a separate class. Holders
of class A common stock are not eligible to vote on any change in the powers,
preferences, or special rights of the class B common stock that would not
adversely affect the rights of the class A common stock (and vice versa). For
the foregoing purposes, any provisions for the voluntary, mandatory or other
conversion of class B common stock into or for class A common stock on a one-
for-one basis are deemed not to adversely affect the rights of the class A
common stock. Any amendment to our certificate of incorporation to increase the
authorized shares of any class or classes of capital stock will be deemed not
to affect adversely the powers, preferences, or special rights of the class A
common stock or class B common stock.
Dividends
Holders of class A common stock and class B common stock will receive an
equal amount per share in any dividend declared by the board of directors.
Dividends to any holders of common stock are subject to any preferential rights
of any outstanding preferred stock. In addition, because BlackRock is a
consolidated subsidiary of PNC, federal restrictions on payment of dividends by
PNC may apply to BlackRock. See "Business --Regulation." Dividends consisting
of shares of class A common stock and class B common stock may be paid only as
follows:
. shares of class A common stock may be paid only to holders of
class A common stock and shares of class B common stock may be
paid only to holders of class B common stock; and
64
<PAGE>
. shares will be paid proportionally with respect to each
outstanding share of class A common stock and class B common
stock.
We may not reclassify, subdivide or combine the shares of either class of
common stock without at the same time proportionally reclassifying, subdividing
or combining shares of the other class.
Conversion
Subject to the transfer and other restrictions in the Amended
Stockholders Agreement, holders of class B common stock may, at their option,
convert their shares of class B common stock into shares of class A common
stock at anytime. Each share of class B common stock is convertible into one
share of class A common stock. Any unrestricted shares of class B common stock
held by employee stockholders will automatically convert into shares of class A
common stock upon the termination of their employment with BlackRock.
Other rights
In the event of any reorganization or consolidation of BlackRock with one
or more corporations or a merger of BlackRock with another corporation in which
shares of common stock are converted into or exchangeable for shares of stock,
other securities or property, including cash, all holders of common stock,
regardless of class, will be entitled to receive the same kind and amount of
shares of stock and other securities and property, including cash, unless
otherwise approved by a majority of the votes entitled to be cast by the
holders of each class of common stock, voting separately as a class.
On liquidation, dissolution, or winding up of BlackRock, after payment in
full of any amounts required to be paid to holders of preferred stock, all
holders of common stock, regardless of class, are entitled to share ratably in
any assets available for distribution to holders of shares of common stock. No
shares of common stock are subject to redemption or have preemptive rights to
purchase additional shares of common stock, except as provided under the terms
of the IPO Agreement and the Amended Stockholders Agreement. Under the IPO
Agreement, PNC has the right, at its option, any time we issue additional
shares of common stock, to purchase a sufficient number of shares of common
stock so that PNC maintains its proportionate economic and voting rights after
the issuance as it had before the issuance of common stock. See "Certain
Relationships and Related Transactions--IPO Agreement--Subsequent issuances of
common stock and additional purchases of common stock by PNC." Upon
consummation of the offerings, all the outstanding shares of class A common
stock and class B common stock will be validly issued, fully paid, and
nonassessable.
Stockholders Agreement
BlackRock, PNC Asset Management, Inc., the indirect, wholly owned
subsidiary of PNC that holds PNC's shares of class B common stock, and certain
employees of BlackRock, or its affiliates, who will hold shares of class B
common stock, have been parties to a stockholders agreement since April 30,
1998. These parties will enter into an Amended Stockholders Agreement which
will become effective when the offerings are completed.
For so long as PNC owns voting stock representing at least 25% of the
voting power of the capital stock of BlackRock, subject to applicable law, (i)
the employee stockholders agree to vote their shares for the election of the
four director candidates nominated by PNC and (ii) PNC agrees to vote its
shares of Class B Common Stock for the two director candidates nominated by the
BlackRock management committee. From and after the time PNC owns voting stock
representing less than 25% but more than 10% of the voting power of BlackRock,
subject to applicable law, (x) the employee stockholders agree to vote their
PNC shares for the election of two director candidates nominated by PNC and (y)
PNC agrees to vote its shares of class B common stock for two directors
candidates nominated by the BlackRock management committee.
65
<PAGE>
Under the terms of the Amended Stockholders Agreement, one-third of the
class B shares held by the employee stockholders may not be transferred, except
for estate planning purposes, until December 31, 2000; one third until December
31, 2001; and one third until December 31, 2002. Any transfers of employee
stockholders' class B shares made in violation of the terms of the Amended
Stockholders Agreement are null and void.
The Amended Stockholders Agreement will provide that upon the termination
of Mr. Fink's employment for any reason other than by BlackRock for cause, any
restrictions on shares then held by him will immediately lapse. For the other
employee stockholders, any restrictions on shares held will immediately lapse
upon the termination of the employee's employment by BlackRock without cause or
good reason, or upon termination of the employee's employment by reason of a
deficient opportunity (as defined above under "Management--Employment
Agreements") or as a result of death or disability. Immediately following the
termination of an employee's employment, including Mr. Fink, all shares of
unrestricted class B common stock then held by that employee will convert into
shares of class A common stock.
In addition, the Amended Stockholders Agreement will provide that upon a
termination of an employee's employment by BlackRock for cause or good reason
or by the employee for any reason other than a deficient opportunity, BlackRock
must purchase all remaining restricted shares then held by the employee.
Any restricted class B shares held by any employee stockholder or valid
transferee of any employee stockholder must be repurchased by us immediately
after the employee stockholder ceases to be an employee at the lower of:
. the market value of the shares, which will be equal to the market
value of shares of class A common stock, or
. the cost at which the shares were originally acquired by the
employee stockholder.
The Amended Stockholders Agreement will provide that holders of class B
common stock may, at their option, convert their unrestricted shares of class B
common stock into shares of class A common stock at any time. However,
restricted shares of class B common stock may be transferred to permitted
transferees. If a holder of class B common stock attempts to transfer
restricted shares of class B common stock in a transfer that is not permitted
under, or would violate, the Amended Stockholders Agreement, then those shares
will be automatically converted into shares of class A common stock and the
transferee will be treated for all purposes as having become the record owner
of the class A common stock issuable upon such conversion. In general, the
following are permitted transfers of restricted shares of class B common stock
by an employee stockholder:
. a transfer to BlackRock or its affiliates; and
. a transfer to the estate, personal representative or certain of
the employee stockholder family members, or to certain entities
that hold economic interests for the benefit of any such person.
In addition, PNC may transfer shares of class B common stock among its
affiliates, and PNC may transfer shares of class B common stock to third
parties, subject to certain rights of employee stockholders and their permitted
transferees under the Amended Stockholders Agreement as described below.
The Amended Stockholders Agreement will provide that any proposed
transfer of class B common stock will be subject to a right of first refusal
and, in certain circumstances, rights to participate in the proposed transfer
by the other holders of class B common stock as follows:
. The right of first refusal means that before a holder of class B
common stock can sell any of its shares of class B common stock to
a third party, it must first offer the shares on the same
66
<PAGE>
terms as offered to the third party to the other holders of class
B common stock for purchase in proportion to their respective
ownership interests. Any shares which are not claimed under the
right of first refusal within 30 days may then be sold to the
third party at a price that is at least as high as was originally
proposed.
. The rights to participate in the proposed transfer apply if a
holder of class B common stock proposes to transfer to a third
party shares constituting more than 5% of the then outstanding
class B common stock. In that event, any other holder of class B
common stock who does not exercise the right to purchase the
shares pursuant to the right of first refusal described above may
instead require the transferring stockholder to include a portion
of the holder's unrestricted shares in the block of shares being
sold to the third party.
The right of first refusal and rights to participate in the proposed
transfer are not applicable to transfers of shares of class B common stock
among PNC affiliates, to transfers of shares by an employee stockholder to the
estate, personal representative or certain family members of employee
stockholders, or to certain entities which hold an economic interest for the
benefit of any such persons or to BlackRock and to the transfer of shares
registered in accordance with the terms of the Registration Rights Agreement.
Any PNC transferee will be bound by the Amended Stockholders Agreement and
have the rights and obligations of PNC under the Amended Stockholders
Agreement.
Preferred Stock
At the date of this prospectus, no shares of preferred stock are
outstanding. The board of directors may authorize the issuance of preferred
stock in one or more series and may determine, with respect to any series, the
designations, powers, preferences, and rights of the series, and its
qualifications, limitations, and restrictions, including, without limitation:
. the designation of the series;
. the number of shares of the series, which number the board of
directors may later increase or decrease, unless otherwise
provided in the designations for the series; however, the number
of shares cannot be decreased below the number of shares of the
series then outstanding;
. whether dividends, if any, will be cumulative or noncumulative and
the dividend rate of the series; the conditions upon which and the
dates at which dividends, if any, will be payable, and the
relation that those dividends, if any, will bear to the dividends
payable on any other class or classes of stock;
. the redemption rights and price or prices, if any, for shares of
the series;
. the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
. the amounts payable on shares of the series and the preferences,
if any, of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution, or winding up of BlackRock;
. whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of BlackRock
or any other corporation; if the shares will be convertible, the
specification of the other class or series or the other security,
the conversion price or prices or rate or rates, any applicable
adjustments, the date or dates at which the shares will be
convertible and all other terms and conditions upon which the
conversion may be made;
. restrictions, if any, on the issuance of shares of the same series
or of any other class or series of BlackRock capital stock; and
. the voting rights, if any, of the holders of shares of the series.
67
<PAGE>
We believe that the ability of the board of directors to issue one or
more series of preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions and in meeting other corporate
needs that might arise. The authorized shares of preferred stock will be
available for issuance without further action by our stockholders, unless
action is required by applicable law or by the rules of any stock exchange on
which our securities may be listed or traded. The NYSE, on which BlackRock
expects to list the class A common stock, currently requires stockholder
approval as a prerequisite to listing shares in several instances, including
where the present or potential issuance of shares could result in an increase
of at least 20% in the number of shares of common stock outstanding or in the
amount of voting securities outstanding.
Although the board of directors has no current intention of doing so, it
could issue a series of preferred stock that could, depending on the terms of
the series, impede the completion of a merger, tender offer, or other takeover
attempt. The board of directors will make any determination to issue shares
based on its judgment as to the best interests of BlackRock and our
stockholders. In making its determination, the board of directors could issue
preferred stock having terms that could discourage a potential acquirer from
making an acquisition attempt that may change the composition of the board of
directors, without first negotiating with the board of directors. The
transactions that might be discouraged could include a tender offer or other
transaction that some, or a majority, of our stockholders might believe to be
in their best interests or in which stockholders might receive a premium for
their stock over the then current market price of the stock.
Delaware Business Combination Statute
Our amended and restated certificate of incorporation provides that
Section 203 of the Delaware General Corporation Law, which restricts certain
business combinations between a corporation and certain interested stockholders
of that corporation, is not applicable to us. However, our amended and restated
certificate of incorporation contains provisions that as of and following the
Trigger Date will restrict transactions between us and interested stockholders
in the same manner such transactions would be restricted if we were subject to
Section 203. See "Certificate of Incorporation and Bylaw Provisions-- Business
combination transaction restrictions."
Certificate of Incorporation and Bylaw Provisions
The summary set forth below describes material provisions of the
certificate of incorporation and bylaws. The summary is qualified in its
entirety by reference to the provisions of the certificate of incorporation and
bylaws, copies of which were filed as exhibits to the registration statement of
which this prospectus forms a part.
Certain of the provisions of the certificate of incorporation or the
bylaws discussed below may, following the Trigger Date, either alone or in
combination with the provisions of the Delaware General Corporation Law
discussed above, make more difficult or discourage a tender offer, proxy
contest or other takeover attempt that is opposed by the board of directors but
that a stockholder might consider to be in such stockholder's best interest.
Those provisions include restrictions on the rights of stockholders to remove
or elect directors and prohibitions against stockholders calling a special
meeting of stockholders. Prior to the Trigger Date, these provisions will have
little practical significance in terms of discouraging takeover attempts
because such attempts cannot succeed without the consent of PNC or a PNC
transferee so long as PNC or a PNC transferee owns more than 50% of our voting
power. In addition, the certificate of incorporation contains provisions
relating to the allocation of certain corporate opportunities and resolution of
certain conflicts of interest.
Staggered board
The certificate of incorporation and the bylaws divide the board of
directors into three classes of directors, each class constituting
approximately one-third of the total number of directors. One class will be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2000, another will be
68
<PAGE>
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2001 and another will be originally elected for a term expiring at
the annual meeting of stockholders to be held in 2002. Each director is to hold
office until his or her successor is duly elected and qualified. Commencing
with the 2000 annual meeting of stockholders, directors elected to succeed
directors whose terms then expire will be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor is
duly elected and qualified.
The classification of the board of directors will make it more difficult
for stockholders to change the composition of the board of directors because
only a minority of the directors can be elected at once. The classification
provisions could also discourage a third party from accumulating BlackRock's
stock or attempting to obtain control of BlackRock, even though such an attempt
might be beneficial to BlackRock and some, or a majority, of its stockholders.
Accordingly, under certain circumstances stockholders could be deprived of
opportunities to sell their shares of common stock at a higher price than might
otherwise be available.
Number and composition of directors; filling vacancies; removal
The certificate of incorporation and bylaws provide that the board of
directors will consist of a number of directors as may be fixed from time to
time pursuant to a resolution adopted by directors constituting, prior to the
Trigger Date, at least 80% of the directors on the board of directors, and as
of and following the Trigger Date, a majority of the board of directors. The by
laws provide that unless the board of directors otherwise determines, any
vacancies on the board of directors will be filled only by the affirmative vote
of a majority of the remaining directors, even if less than a quorum, or by a
sole remaining director. These provisions would be subject to any rights of
holders of preferred stock to elect directors under specified circumstances.
Accordingly, absent an amendment to the certificate of incorporation or the
bylaws, the board of directors could prevent any stockholder from enlarging the
board of directors and filling the new directorships with such stockholder's
own nominees.
The certificate of incorporation and the bylaws provide that as of and
following the Trigger Date, a director may be removed only for cause and only
upon the affirmative vote of holders of at least 80% of the voting power of the
then outstanding shares of common stock entitled to vote generally in the
election of directors, voting together as a single class. Prior to the Trigger
Date, directors may be removed, with or without cause, with the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding voting stock, voting together as a single class. Prior to the
Trigger Date, PNC or a PNC transferee will always have the power to remove any
director, subject to its obligations under the Amended Stockholders Agreement.
See "--Stockholders Agreement."
The bylaws also provide that, prior to the Trigger Date, to the extent
permitted by applicable law:
. a majority of all of the directors on the committees of the board
of directors will be directors designated by PNC or its
affiliates, and
. at least one director on each committee of the board of directors
will be a director designated by a majority of our employee
stockholders holding shares of class B common stock.
Quorum; certain board voting requirements
The bylaws provide that a quorum for the transaction of business by the
board of directors at a meeting will only be constituted if a majority of the
board of the directors, including the chairman of the board of directors and
two directors designated by PNC, are present at the meeting; provided, that the
board of directors will be entitled to take any action at any meeting if a
quorum is otherwise present if the meeting is a regularly scheduled meeting or,
if the meeting is not a regularly scheduled meeting, after having been sent
69
<PAGE>
required notice of the meeting, either all of the directors designated by PNC
or the chairman of the board are absent from the meeting and, the absent PNC
designated directors or chairman of the board will have failed to communicate
in writing to the secretary of BlackRock good reason for such absence in
advance of the relevant meeting. The bylaws also provide that, except as
otherwise provided by applicable law, certain bylaw amendments including but
not limited to those relating to: changes in the size and composition of the
board of directors, mergers, acquisitions and certain other significant
transactions, issuance of additional stock, incurrence of indebtedness,
engaging in new types of business activities, proposed changes in auditors and
dividend declarations and matters which may materially affect the economic
interests of PNC, may only be acted upon or put into effect by the affirmative
vote of 80% of the board of directors. Based on the expected composition of the
board of directors following the offerings, an affirmative vote of 80% of the
board of directors would require the affirmative vote of at least two directors
who are designated to be directors by PNC.
Certain business activities
The bylaws provide that so long as PNC, or any successor company, or any
of PNC's subsidiaries or their respective successors, directly or indirectly
owns at least 10% of the capital stock of BlackRock, or any successor company,
BlackRock or its successor entity may not, without PNC's consent, directly or
indirectly own any asset or engage in any activity if to do so would cause
BlackRock or any of its subsidiaries or the PNC entity that owns capital stock
of BlackRock or any successor to such PNC entity, to be in violation of any
applicable federal banking law or any rule, regulation, policy or order of any
federal banking regulator with jurisdiction over BlackRock or the PNC entity or
any successor to such PNC entity. The bylaws further provide that BlackRock
will, and will cause its subsidiaries to, take any necessary action to ensure
compliance with the foregoing provision, including, without limitation,
obtaining any required approval from, or filing any required notice or
application with, any applicable federal banking agency.
No stockholder action by written consent
The certificate of incorporation and bylaws provide that, subject to the
rights of any holders of preferred stock to elect additional directors under
specified circumstances,
. effective as of the Trigger Date, stockholder action can be taken
only at an annual or special meeting of stockholders and
stockholder action may not be taken by written consent in lieu of
a meeting; and
. prior to the Trigger Date, any stockholder action can be taken by
written consent in lieu of an annual or special meeting of
stockholders as permitted by law.
Advance notice procedures
The bylaws provide for an advance notice procedure for the nomination,
other than by or at the direction of the board of directors, of candidates for
election as directors, as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at meetings will have to be received in
writing by BlackRock not less than 90 nor more than 120 days prior to the
anniversary of the previous year's annual meeting of stockholders. The notice
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
Special meetings
The certificate of incorporation and bylaws provide that special meetings
of stockholders can be called only by BlackRock's chairman or president or a
majority of the board of directors. Prior to the Trigger Date, special meetings
can also be called at the request of PNC. Effective as of the Trigger Date, the
power of any
70
<PAGE>
stockholder to call a special meeting is specifically denied. This provision is
subject to the rights of holders of any series of preferred stock to elect
additional directors under specified circumstances. The business permitted to
be conducted at any special meeting of stockholders is limited to the business
brought before the meeting pursuant to the notice of meeting.
The provisions of the bylaws permitting special meetings to be called
only by BlackRock's chairman or president or at the request of a majority of
the board of directors may have the effect, after the Trigger Date, of delaying
consideration of a stockholder proposal until the next annual meeting.
Moreover, a stockholder could not force stockholder consideration of a proposal
over the opposition of BlackRock's chairman or president or a majority of the
board of directors by calling a special meeting of stockholders prior to the
time they believe stockholder consideration to be appropriate.
Business combination transaction restrictions
As of and following the Trigger Date, we will be subject to restrictions
on certain business combinations between us and an interested stockholder set
forth in our certificate of incorporation. These restrictions are intended to
be equivalent to the restrictions on business combinations with interested
stockholders imposed by Section 203 of the Delaware General Corporation Law.
BlackRock has elected not to be subject to Section 203 of the Delaware General
Corporation Law. The following discussion is a summary of these restrictions in
our certificate of incorporation. An "interested stockholder" is a stockholder
owning 15% or more of our outstanding voting stock or its affiliates or
associates for a period of three years following the time that the stockholder
becomes an "interested stockholder." The restrictions do not apply if:
. prior to an interested stockholder becoming an interested
stockholder, the board of directors approved either the business
combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
. upon consummation of the transaction that resulted in any person
becoming an interested stockholder, the interested stockholder
owned at least 85% of our voting equity outstanding at the time
the transaction commenced (excluding shares owned by certain
employee equity ownership plans and persons who are both our
directors and officers); or
. at or subsequent to the time an interested stockholder becomes an
interested stockholder, the business combination is both approved
by the board of directors and authorized at an annual or special
meeting of our stockholders, not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting
equity not owned by the interested stockholder.
Under certain circumstances, these provisions will make it more difficult
for a person who would be an "interested stockholder" as of and following the
Trigger Date to effect various business combinations with us for a three-year
period. Although the stockholders may elect to repeal these restrictions, the
repeal would not take effect for twelve months following stockholder approval
of the repeal. It is anticipated that these provisions may encourage companies
interested in acquiring us to negotiate in advance with the board of directors,
since the stockholder approval requirement would be avoided if a majority of
the directors then in office approves, prior to the date on which a stockholder
becomes an interested stockholder, either the business combination or the
transaction that results in the stockholder becoming an interested stockholder.
These restrictions on business combination transactions with interested
stockholders will not be applicable prior to the Trigger Date. Therefore, these
restrictions will not be applicable to any proposed business combination
transactions between us and PNC or any PNC transferee.
Liability of directors; indemnification
BlackRock's certificate of incorporation provides that, to the fullest
extent permitted by the Delaware General Corporation Law, no director of
BlackRock will be liable to BlackRock or its stockholders for
71
<PAGE>
monetary damages for the breach of his or her fiduciary duty as a director.
Under the Delaware General Corporation Law, this provision does not eliminate
or limit the liability of any director if a judgment or other final
adjudication establishes that his or her acts or omissions constituted a breach
of his or her duty of loyalty to BlackRock or its stockholders or were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he or she personally gained a material profit or other advantage to which he
was not legally entitled or that his acts violated Section 174 of the Delaware
General Corporation Law.
As a result of this provision, BlackRock and its stockholders may be
unable to obtain monetary damages from a director for breach of his duty of
care. Although stockholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, stockholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
The bylaws provide that BlackRock will indemnify, to the maximum extent
not prohibited by Delaware law, any person who was or is a party to any
threatened, pending, or completed action, suit or proceeding because he or she
is or was a director or officer of BlackRock, or is or was serving at the
request of BlackRock as a director or officer of another corporation,
partnership or other enterprise. The bylaws provide that indemnification will
be from and against expenses, judgments, fines and amounts paid in settlement
by the director or officer.
Overview of corporate opportunity and conflict of interest policies
Our certificate of incorporation sets forth certain provisions which
regulate and define the conduct of certain business and affairs of BlackRock
from the time of the completion of the offerings until the time PNC ceases to
be the owner of any voting stock. For purposes of this section, "PNC" will
include PNC as well as its affiliates and any PNC Transferee. These provisions
serve to address the respective rights and duties of BlackRock, PNC and certain
of their respective directors, and officers in anticipation that:
. directors, officers, and/or employees of PNC may serve as
directors of BlackRock;
. PNC engages in, is expected to continue to engage in, and in the
future may engage in lines of business that are the same as,
similar or related to, overlap or compete with the lines of
business of BlackRock; and
. PNC and BlackRock will engage in material business transactions
including, without limitation, pursuant to the agreements
described under "Certain Relationships and Related Transactions."
BlackRock may, from time to time, enter into and perform agreements with
PNC to engage in any transaction, and to agree to compete or not to compete
with each other, including to allocate, or to cause their respective directors,
officers and employees to allocate, corporate opportunities between themselves.
BlackRock may also enter into such agreements with its own or PNC's directors,
officers or employees, or with other entities in which these persons have a
financial interest.
The provisions of our certificate of incorporation with regard to such
transactions and/or corporate opportunities will terminate at such time as PNC
ceases to be the owner of voting stock provided, however, that the termination
will not terminate the effect of those provisions with respect to any agreement
between BlackRock and PNC that was entered into before that time or any
transaction entered into in the performance of such agreement, whether entered
into before or after that time, or any transaction entered into between
BlackRock and PNC for the allocation of any opportunity between them before
that time. These provisions do not alter the fiduciary duty of loyalty of our
directors under applicable Delaware law. Subject to applicable Delaware law, by
becoming a stockholder in BlackRock, you will be deemed to have notice of and
have consented to these provisions of our certificate of incorporation. These
provisions may be amended only with the affirmative vote of the holders of at
least 80% of the voting power of all shares of voting stock then outstanding,
voting together as a single class.
72
<PAGE>
Amendment
In general, our certificate of incorporation may be altered or repealed
and new provisions thereof adopted by the affirmative vote of the holders of a
majority of the outstanding voting stock and by the affirmative vote of a
majority of the board of directors. Similarly, our bylaws may be altered or
repealed and new provisions thereof adopted by the affirmative vote of the
holders of a majority of the outstanding voting stock or by the affirmative
vote of a majority of the board of directors, except that prior to the Trigger
Date, the board of directors will only be able to effect such an amendment
through the affirmative vote of at least 80% of the members of the board of
directors. As of and following the Trigger Date, certain provisions of our
certificate of incorporation and bylaws, including those relating to
stockholder action by written consent, the calling of special stockholder
meetings, other stockholder actions and proposals and certain matters related
to our board of directors, may be amended only by the affirmative vote of
holders of at least 80% of the voting stock.
Listing
We intend to apply for the listing of the class A common stock on the
NYSE under the symbol "BLK."
Transfer Agent and Registrar
The transfer agent and registrar for the class A common stock is
.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offerings, we will have outstanding shares
of class A common stock and shares of class B common stock. All of the
shares of class A common stock to be sold in the offerings will be freely
tradable without restrictions or further registration under the Securities Act,
except that shares purchased by one of our affiliates will be subject to the
resale limitations of Rule 144. The shares of class A and class B
common stock owned by PNC and our other existing stockholders may not be sold
in the absence of registration under the Securities Act other than pursuant to
Rule 144 under the Securities Act or another exemption from registration under
the Securities Act.
In general, under Rule 144:
. a person (or persons whose shares are required to be aggregated)
who has beneficially owned shares of common stock as to which at
least one year has elapsed since such shares were sold by us or by
an affiliate in a transaction or chain of transactions not
involving a public offering ("restricted securities"); or
. an affiliate who holds shares of common stock that are not
restricted securities
may sell, within any three-month period, a number of shares that does not
exceed the greater of 1% of our common stock then outstanding or the average
weekly trading volume in the common stock during the four calendar weeks
preceding the date on which notice of the sale required under Rule 144 was
filed. Sales under Rule 144 are also subject to certain provisions relating to
the manner and notice of sale and availability of current public information
about us.
Affiliates must comply with the requirements of Rule 144, including the
one-year holding period requirement, to sell shares of common stock that are
restricted securities. Furthermore, if a period of at least two years has
elapsed from the date restricted securities were acquired from us or an
affiliate, a holder of restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate at any time during the three
months prior to the sale would be entitled to sell the shares without regard to
the volume limitation and other conditions described above.
The shares of common stock authorized for issuance pursuant to options
that may be granted under the Award Plan may be either authorized but unissued
shares or treasury shares obtained by us through market or private purchases.
See "Executive Compensation--BlackRock, Inc. 1999 Stock Award and Incentive
Plan." We intend to register under the Securities Act the shares of common
stock issuable upon the exercise of options granted pursuant to the Award Plan.
Prior to the offerings, there has been no public market for the common
stock. Although we can make no prediction as to the effect, if any, that sales
of shares of common stock by PNC and our other existing stockholders would have
on the market price prevailing from time to time, sales of substantial amounts
of common stock or the availability of the shares for sale could adversely
affect prevailing market prices.
All of our executive officers, directors and stockholders have entered
into contractual "lock-up" agreements, providing that subject to certain
limited exceptions they will not during the period of 180 days from the date of
this prospectus, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise transfer or
dispose of, any common stock or any securities convertible into or
exercisable or exchangeable for common stock, whether now earned
or subsequently acquired or to which
74
<PAGE>
officers, directors and stockholders have or later acquire the
power of disposition, or file any registration statement under the
Securities Act with respect to any of the foregoing; or
. enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the common stock;
In each case, whether the swap or transaction is settled by delivery of
common stock or other securities, in cash or otherwise.
As a result of contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rule 144 promulgated
under the Securities Act, which are summarized above, shares subject to lock-
up agreements will not be saleable until the agreements expire.
We have agreed subject to certain limited exceptions not to, during the
period of 180 days from the date of this prospectus, without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or
indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or
dispose of, any common stock or any securities convertible into or
exercisable or exchangeable for common stock or file any
registration statement under the Securities Act with respect to
any of the foregoing; or
. enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the common stock;
in each case, whether the swap or transaction is settled by delivery of common
stock or other securities, in cash or otherwise. However, we may:
. grant stock options or stock awards under our existing benefit and
compensation plans as referred to in the prospectus;
. issue shares of class A common stock upon the exercise of options,
warrants or rights or the conversion of currently outstanding
securities as referred to in the prospectus; and
. issue, offer and sell shares of class A common stock or securities
convertible, exercisable or exchangeable into shares of class A
common stock in transactions not involving a public offering, as
long as each recipient of the securities agrees in writing to be
bound by the restrictions in this paragraph.
75
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Goldman, Sachs & Co., Lehman Brothers Inc., Prudential Securities Incorporated
and Salomon Smith Barney Inc. are acting as representatives (the "U.S.
Representatives") of each of the underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S.
purchase agreement (the "U.S. Purchase Agreement") among BlackRock and the U.S.
Underwriters, and concurrently with the sale of shares of class A common stock
to the International Managers (as defined below), BlackRock has agreed to sell
to the U.S. Underwriters, and each of the U.S. Underwriters severally and not
jointly has agreed to purchase from BlackRock, the number of shares of class A
common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
U.S. Underwriters Shares
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Goldman, Sachs & Co. ..........................................
Lehman Brothers Inc. ..........................................
Prudential Securities Incorporated.............................
Salomon Smith Barney Inc. .....................................
------
Total.................................................
======
</TABLE>
BlackRock has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International is
acting as lead manager (the "Lead Manager"). Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of shares of class A common stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, BlackRock has agreed to sell to the
International Managers, and the International Managers severally have agreed to
purchase from BlackRock, an aggregate of shares of class A common stock. The
initial public offering price per share and the total underwriting discount per
share of class A common stock are identical under the U.S. Purchase Agreement
and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of class A common stock being sold
pursuant to each such agreement if any of the shares of class A common stock
being sold pursuant to such agreement are purchased. In the event of a default
by an Underwriter, the U.S. Purchase Agreement and the International Purchase
Agreement provide that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriters may be increased or the Purchase Agreements may
be terminated. The closings with respect to the sale of shares of class A
common stock to be purchased by the U.S. Underwriters and the International
Managers are conditioned upon one another.
The U.S. Representatives have advised BlackRock that the U.S.
Underwriters propose initially to offer the shares of class A common stock to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of class A common stock. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of class A common stock to certain other dealers. After the initial public
offerings, the public offering price, concession and discount may change.
BlackRock has granted options to the U.S. Underwriters, exercisable for
30 days after the date of this prospectus, to purchase up to an aggregate of
additional shares of class A common stock at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
U.S.
76
<PAGE>
Underwriters may exercise these options solely to cover over-allotments, if
any, made on the sale of the class A common stock offered hereby. To the extent
that the U.S. Underwriters exercise these options, each U.S. Underwriter will
be obligated, subject to certain conditions, to purchase a number of additional
shares of class A common stock proportionate to such U.S. Underwriter's initial
amount reflected in the foregoing table. BlackRock has granted options to the
International Managers, exercisable for 30 days after the date of this
prospectus, to purchase up to an aggregate of additional shares of class A
common stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
The following table shows the per share and total public offering price,
underwriting discount to be paid by BlackRock to the U.S. Underwriters and the
International Managers and the proceeds before expenses to BlackRock. This
information is presented assuming either no exercise or full exercise by the
U.S. Underwriters and the International Managers of their over-allotment
options.
<TABLE>
<CAPTION>
Per Total Without Total With
Share Option Option
----- ------------- ----------
<S> <C> <C> <C>
Public offering price..................... $ $ $
Underwriting discount..................... $ $ $
Proceeds, before expenses, to BlackRock... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount)
are estimated at $ and are payable by BlackRock.
The shares of class A common stock are being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part.
At the request of BlackRock, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of the class A common stock
that will be offered by this prospectus for directors, officers and employees
of BlackRock and PNC. All purchasers of reserved shares will have agreed in
writing not to sell, transfer, assign, pledge or hypothecate such shares for
months from their date of purchase. The number of shares of class A common
stock available for sale to the general public will be reduced to the extent
reserved shares are purchased by such persons. Any reserved shares that are not
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered in this prospectus.
BlackRock and BlackRock's executive officers and directors and all
existing stockholders have agreed, subject to exceptions, not to directly or
indirectly: (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell or grant any
option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of common stock or securities convertible into or exchangeable or
exercisable for or repayable with common stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing; or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the common stock
whether any such swap or transaction is to be settled by delivery of common
stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the U.S. Underwriters and
the International Managers are permitted to sell shares of class A common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession.
77
<PAGE>
Under the terms of the intersyndicate agreement, the U.S. Underwriters and any
dealer to whom they sell shares of class A common stock will not offer to sell
or sell shares of class A common stock to persons who are non-U.S. or non-
Canadian persons or to persons they believe intend to resell to persons who are
non-U.S. or non-Canadian persons, and the International Managers and any dealer
to whom they sell shares of class A common stock will not offer to sell or sell
shares of class A common stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the intersyndicate agreement.
Prior to the offerings, there has been no public market for the class A
common stock of BlackRock. The initial public offering price will be determined
through negotiations among BlackRock, PNC and the U.S. Representatives and the
Lead Manager. The factors considered in determining the initial public offering
price, in addition to prevailing market conditions, are price-earnings ratios
of publicly traded companies that the U.S. Representatives and the Lead Manager
believe to be comparable to BlackRock, certain financial information of
BlackRock, the history of, and the prospects for, BlackRock and the industry in
which it competes, and an assessment of BlackRock's management, its past and
present operations, the prospects for, and timing of, future revenues of
BlackRock, and the present state of BlackRock's development. There can be no
assurance that an active trading market will develop for the class A common
stock or that the class A common stock will trade in the public market
subsequent to the offerings at or above the initial public offering price.
Application has been made to list the class A common stock on the New
York Stock Exchange under the symbol "BLK." In order to meet the requirements
for listing of the class A common stock on that exchange, the U.S. Underwriters
and the International Managers have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.
Because BlackRock may be deemed to be an affiliate of PNC Brokerage, the
offerings will be conducted in accordance with Conduct Rule 2720 of the
National Association of Securities Dealers, Inc., which requires that the
public offering price of an equity security be no higher than the price
recommended by a qualified independent underwriter which has participated in
the preparation of the registration statement and performed its usual standard
of due diligence. Merrill Lynch has agreed to act as qualified independent
underwriter with respect to the offerings, and the public offering price of the
class A common stock will be no higher than that recommended by Merrill Lynch.
The Underwriters do not expect sales of the class A common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
The Underwriters will not confirm sales of the class A common stock to
any account over which they exercise discretionary authority without the prior
written specific approval of the customer.
BlackRock has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act, or to contribute to payments the U.S.
Underwriters and International Managers may be required to make.
Until the distribution of the class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
class A common stock. As an exception to these rules, the U.S. Representative
is permitted to engage in transactions that stabilize the price of the class A
common stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the class A common stock.
If the Underwriters create a short position in the class A common stock
in connection with the offerings, i.e., if they sell more shares of class A
common stock than are set forth on the cover page of this prospectus, the U.S.
Representatives may reduce that short position by purchasing class A common
stock in the open market. The U.S. Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment options
described above.
78
<PAGE>
The U.S. Representative may also impose a penalty bid on Underwriters and
selling group members. This means that if the U.S. Representatives purchase
shares of class A common stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the class A common stock, they may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the class A common stock to the
extent that it discourages resale of the class A common stock.
Neither BlackRock nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the class A common stock. In addition,
neither BlackRock nor any of the Underwriters makes any representation that the
U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, BlackRock in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with BlackRock. Merrill Lynch, Prudential
Securities and its affiliated parties and Salomon Smith Barney distribute
BlackRock Funds and provide stockholder services in connection with those funds
in the ordinary course of business, for which it receives customary
compensation.
79
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-
U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a general summary of the material United States federal
income and estate tax consequences of the purchase, ownership, and sale or
other taxable disposition of the class A common stock by any person or entity
(a "non-U.S. Holder") other than:
. a citizen or resident of the United States;
. a partnership, corporation or other entity created or organized
in or under the laws of the United States or of any political
subdivision thereof;
. a trust, if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust or the trust
has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. Person; or
. an estate, the income of which is includible in gross income
for United States federal income tax purposes regardless of its
source.
This summary does not address all tax considerations that may be relevant to
non-U.S. Holders in light of their particular circumstances or to certain non-
U.S. Holders that may be subject to special treatment under United States
federal income or estate tax laws. This summary is based upon the Internal
Revenue Code, existing, temporary and proposed regulations promulgated
thereunder and administrative and judicial decisions, all of which are subject
to change, possibly with retroactive effect. In addition, this summary does not
address the effect of any state, local or foreign tax laws. Each prospective
purchaser of class A common stock should consult its tax advisor with respect
to the tax consequences of purchasing, owning and disposing of the class A
common stock.
Dividends
Dividends paid to a non-U.S. Holder of class A common stock generally
will be subject to a withholding of United States federal income tax at a 30
percent rate or such lower rate as may be specified by an applicable income tax
treaty unless:
. the dividend is effectively connected with the conduct of a
trade or business of the non-U.S. Holder within the United
States; or
. if a tax treaty applies, it is attributable to a United States
permanent establishment of the non-U.S. Holder,
in which cases the dividend will be taxed at ordinary federal income tax rates.
If the non-U.S. Holder is a corporation, such effectively connected income may
also be subject to an additional "branch profits tax."A non-U.S. Holder may be
required to satisfy certain certification requirements in order to claim treaty
benefits or otherwise claim a reduction of, or exemption from, the withholding
described above.
Sale or Other Disposition of Class A Common Stock
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of class A common stock unless:
. the gain is effectively connected with the conduct of a trade
or business of the non-U.S. Holder within the United States;
. in the case of a non-U.S. Holder who is an individual and holds
the class A common stock as a capital asset, the holder is
present in the United States for 183 or more days in the
taxable year of the sale or other taxable disposition and
certain other tests are met;
80
<PAGE>
. the non-U.S. Holder is subject to tax pursuant to the
provisions of United States federal income tax law applicable
to certain United States expatriates; or
. BlackRock is or has been during certain periods preceding the
sale or other taxable disposition a United States real property
holding corporation ("USRPHC") for United States federal income
tax purposes and certain other requirements are met. BlackRock
currently believes that it is not a USRPHC and anticipates that
it will not become a USRPHC.
Estate Tax
Class A common stock owned or treated as owned by an individual non-U.S.
Holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
Backup Withholding and Information Reporting
Dividends. United States backup withholding tax generally will not apply
to dividends paid on the class A common stock that are subject to the 30
percent or reduced treaty rate of United States withholding tax previously
discussed. BlackRock must report annually to the Internal Revenue Service and
to each non-U.S. Holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was withheld. This
information may also be made available to the tax authorities in the non-U.S.
Holder's country of residence.
Sale or Other Disposition of Common Stock. Upon the sale or other taxable
disposition of class A common stock by a non-U.S. Holder to or through a United
States office of a broker, the broker must backup withhold at a rate of 31
percent and report the sale to the Internal Revenue Service, unless the holder
certifies its non-U.S. Holder status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of class A
common stock by a non-U.S. Holder to or through the foreign office of a United
States broker, or a foreign broker with a certain relationship to the United
States, the broker must report the sale to the Internal Revenue Service (but
not backup withhold) unless the broker has documentary evidence in its files
that the seller is a non-U.S. Holder and certain other conditions are met or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against
a non-U.S. Holder's United States federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service on a timely basis.
The U.S. Treasury Department has issued regulations generally effective
for payments made after December 31, 2000 that will affect the procedures to be
followed by a non-U.S. Holder in establishing such holder's status as a non-
U.S. Holder for purposes of the withholding, backup withholding and information
reporting rules described herein. In general, such regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and clarify
reliance standards. Prospective investors should consult their tax advisors
concerning the effect of such regulations on an investment in the class A
common stock.
81
<PAGE>
LEGAL MATTERS
Legal matters with respect to the validity of the shares of the class A
common stock offered hereby will be passed upon for us by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Legal matters relating to the class A
common stock will be passed upon for the underwriters by Simpson Thacher &
Bartlett, New York, New York. Simpson Thacher & Bartlett has from time to time
in the past and may in the future provide services to BlackRock and its
affiliates for which it has or will receive customary compensation.
EXPERTS
The consolidated financial statements of BlackRock at December 31, 1997
and 1998, and for each of the three years in the period ended December 31, 1998
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. Ernst &
Young LLP also serve as PNC's independent auditors.
WHERE YOU CAN FIND MORE INFORMATION
After the offerings, we will be subject to the reporting requirements of
the Securities Exchange Act of 1934 and as a result we will file reports, proxy
statements and other information with the SEC. Our SEC filings will be
available over the internet at the SEC's web site at http://www.sec.gov. You
may also read, without charge, or copy, at prescribed rates, any document we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges. You may also
inspect our SEC reports and other information at The New York Stock Exchange,
20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-1 with the SEC covering
the class A common stock. For further information on us and the class A common
stock, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents to
which we refer you. Since the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.
We intend to furnish to our stockholders annual reports containing
audited consolidated financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
82
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Statements of Financial Condition.............................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Changes in Stockholders' Equity.................. F-6
Consolidated Statements of Cash Flows....................................... F-7
Notes to Consolidated Financial Statements.................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BlackRock, Inc.
We have audited the accompanying consolidated statements of financial
condition of BlackRock, Inc. as of December 31, 1997 and 1998, and the
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of BlackRock's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of BlackRock, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 26, 1999
F-2
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
------------------- -----------
1997 1998 1999
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Cash and cash equivalents..................... $ 69,085 $ 113,450 $ 76,262
Accounts receivable
Advisory and administration fees............ 28,632 47,611 47,565
BlackRock Asset Investors (BAI)............. 7,214 58,599 54,447
Investments (cost: $5,891 in 1997, $2,349 in
1998 and $2,329 in 1999)..................... 5,915 2,515 2,306
Property and equipment, net................... 7,037 12,252 16,737
Goodwill (less accumulated amortization of
$27,309 in 1997, $36,962 in 1998 and $41,788
in 1999)..................................... 213,563 203,910 199,084
Receivable from affiliate..................... 1,868 446 1,427
Other assets.................................. 2,193 2,001 5,424
--------- --------- --------
Total assets.................................. $ 335,507 $ 440,784 $403,252
========= ========= ========
Liabilities and stockholders' equity
Note and loan payable to affiliates........... 225,232 197,000 153,200
Accrued compensation
Employees................................... 40,424 65,523 49,116
BAI incentive compensation.................. 8,308 44,806 41,349
Accounts payable and accrued liabilities
Affiliate................................... 7,926 16,478 19,079
Other....................................... 5,053 7,627 7,522
Accrued interest payable to affiliates........ 1,658 1,175 705
Other liabilities............................. 1,943 1,984 203
--------- --------- --------
Total liabilities............................. 290,544 334,593 271,174
--------- --------- --------
Stockholders' equity
Common stock, no par value, 400,000 shares
authorized; 164,000, 199,300 and 199,300
shares outstanding, respectively........... -- -- --
Additional paid--in capital................. 15,091 53,105 53,105
Retained earnings........................... 29,872 53,286 79,272
Unrealized loss on investments, net......... -- -- (99)
Treasury stock, at cost, 207 shares........... -- (200) (200)
--------- --------- --------
Total stockholders' equity.................... 44,963 106,191 132,078
--------- --------- --------
Total liabilities and stockholders' equity.... $ 335,507 $ 440,784 $403,252
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
Six months ended
Year Ended December 31, June 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
Investment advisory and
administration fees
Mutual funds.............. $ 87,189 $117,977 $162,487 $ 67,403 $ 99,637
Separate accounts......... 43,069 62,985 101,352 42,376 71,569
BAI....................... 6,061 13,867 61,199 15,761 (2,054)
Other income
Affiliate................. 3,000 3,000 3,000 1,500 2,500
Other..................... 7,159 7,644 11,444 4,213 8,441
-------- -------- -------- -------- --------
Total revenues.............. 146,478 205,473 339,482 131,253 180,093
-------- -------- -------- -------- --------
Expenses
Employee compensation and
benefits................... 53,703 73,217 109,741 50,845 65,964
BAI incentive compensation.. 3,525 9,688 44,806 10,332 (1,494)
Fund administration and
servicing costs--
affiliates................. 19,611 27,278 52,972 15,656 36,334
General and administration
Affiliate................. 7,559 3,900 4,666 2,338 2,745
Other..................... 16,941 25,864 34,030 14,296 21,091
Amortization of goodwill.... 9,603 9,653 9,653 4,826 4,826
Closed-end fund offering
costs...................... -- -- 4,252 -- --
-------- -------- -------- -------- --------
Total expenses.............. 110,942 149,600 260,120 98,293 129,466
-------- -------- -------- -------- --------
Operating income............ 35,536 55,873 79,362 32,960 50,627
Non-operating income
(expense)
Interest and dividend
income..................... 1,877 3,117 1,995 1,066 1,293
Interest expense--
affiliates................. (19,975) (20,249) (13,347) (7,582) (7,121)
-------- -------- -------- -------- --------
(18,098) (17,132) (11,352) (6,516) (5,828)
-------- -------- -------- -------- --------
Income before income taxes.. 17,438 38,741 68,010 26,444 44,799
Income taxes................ 8,475 16,655 32,395 12,596 18,813
-------- -------- -------- -------- --------
Net income.................. $ 8,963 $ 22,086 $ 35,615 $ 13,848 $ 25,986
======== ======== ======== ======== ========
Earnings per share
Basic..................... $ 183.04 $ 130.39
======== ========
Diluted................... $ 182.44 $ 129.97
======== ========
Weighted average shares
outstanding
Basic..................... 194,578 199,300
======== ========
Diluted................... 195,215 199,937
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, 1998 June 30, 1999
----------------- ----------------
<S> <C> <C>
Unaudited pro forma data
Income before income taxes, as reported.. $ $
Pro forma interest adjustment for debt
repayment...............................
Pro forma income taxes...................
---------- ---------
Pro forma net income..................... $ $
========== =========
Unaudited pro forma net income per share
Basic....................................
Diluted..................................
Unaudited pro forma weighted average shares
outstanding
Basic....................................
Diluted..................................
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998 and six months ended June 30, 1999
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Unrealized Total
Paid-In Retained Loss on Treasury Stockholders'
Capital Earnings Securities Stock Equity
---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1995....... $15,091 $ 7,698 $ -- $ -- $ 22,789
Net Income............ -- 8,963 -- -- 8,963
Forgiveness of
intercompany
allocations.......... -- 920 -- -- 920
------- -------- ----- ----- --------
December 31, 1996....... 15,091 17,581 -- -- 32,672
Net income............ -- 22,086 -- -- 22,086
Dividend of
intercompany
allocations.......... -- (9,795) -- -- (9,795)
------- -------- ----- ----- --------
December 31, 1997....... 15,091 29,872 -- -- 44,963
Net income............ -- 35,615 -- -- 35,615
Dividends to PNC...... -- (12,300) -- -- (12,300)
Issuance of restricted
stock................ 35,951 -- -- -- 35,951
Purchase of treasury
stock................ -- -- -- (200) (200)
Forgiveness of
intercompany
allocations.......... -- 99 -- -- 99
Capital contribution
from PNC............. 2,063 -- -- -- 2,063
------- -------- ----- ----- --------
December 31, 1998....... 53,105 53,286 -- (200) 106,191
Net income
(unaudited).......... -- 25,986 -- -- 25,986
Unrealized loss on
investments
(unaudited).......... -- -- (99) -- (99)
------- -------- ----- ----- --------
June 30, 1999
(unaudited)............ $53,105 $ 79,272 $ (99) $(200) $132,078
======= ======== ===== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended June 30,
--------------------------- -----------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income............... $ 8,963 $ 22,086 $ 35,615 $ 13,848 $ 25,986
Adjustments to reconcile
net income to net cash
provided from (used in)
operating activities:
Depreciation and
amortization.......... 11,700 12,151 12,852 6,217 9,455
Discount on issuance of
restricted stock...... -- -- 1,737 1,737 --
Changes in operating
assets and
liabilities:
Decrease (increase)
in accounts
receivable.......... (9,204) (7,484) (70,364) (19,598) 4,198
Decrease (increase)
in receivable from
affiliate........... (1,487) (325) 1,422 1,844 (981)
Decrease (increase)
in other assets..... (1,019) (358) 192 (583) (3,423)
Increase (decrease)
in accrued
compensation........ 10,424 16,723 61,597 (7,322) (19,864)
Increase in accounts
payable and accrued
liabilities......... 2,282 6,516 11,126 8,891 2,496
(Decrease) in accrued
interest payable to
affiliates.......... (3,419) (536) (483) (291) (470)
Increase (decrease)
in other
liabilities......... (317) (1,578) 41 365 (1,781)
------- -------- -------- -------- --------
Cash provided from
operating activities.... 17,923 47,195 53,735 5,108 15,616
------- -------- -------- -------- --------
Cash flows from investing
activities
Purchases of property and
equipment............... (4,155) (2,165) (8,414) (2,300) (9,114)
(Purchase)/sale of
investments............. 474 (790) 3,400 2,053 110
------- -------- -------- -------- --------
Cash used by investing
activities.............. (3,681) (2,955) (5,014) (247) (9,004)
------- -------- -------- -------- --------
Cash flows from financing
activities
Net borrowings
from/(repayment of) note
and loan payable to
affiliates.............. 19,876 (30,627) (28,232) (59,671) (43,800)
Issuance of restricted
stock................... -- -- 34,214 34,214 --
Capital contribution from
PNC..................... -- -- 2,063 2,063 --
Purchase of treasury
stock................... -- -- (200) (200) --
Forgiveness of
intercompany
allocations............. 920 -- 99 -- --
Dividend of intercompany
allocations............. -- (9,795) -- (1,894) --
Dividends to PNC......... -- -- (12,300) (12,300) --
------- -------- -------- -------- --------
Cash provided by (used
in) financing
activities.............. 20,796 (40,422) (4,356) (37,788) (43,800)
------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............. 35,038 3,818 44,365 (32,927) (37,188)
Cash and cash
equivalents, beginning
of period............... 30,229 65,267 69,085 69,085 113,450
------- -------- -------- -------- --------
Cash and cash
equivalents, end of
period.................. $65,267 $ 69,085 $113,450 $ 36,158 $ 76,262
======= ======== ======== ======== ========
Supplemental disclosures
Cash paid for interest... $28,239 $ 20,780 $ 13,683 $ 6,891 $ 7,591
======= ======== ======== ======== ========
Cash paid for income
taxes................... $ 2,759 $ 4,730 $ 25,983 $ 7,906 $ 16,889
======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998
(Dollar amounts in thousands)
1. Significant Accounting Policies
Organization and Basis of Presentation
BlackRock, Inc. ("BlackRock" or "Company") is majority owned by PNC Bank
Corp. ("PNC") through its wholly-owned subsidiary PNC Bank, N.A. The
consolidated financial statements of BlackRock include the assets, liabilities
and earnings of its wholly-owned subsidiaries BlackRock Advisors Inc. ("BA"),
BlackRock Institutional Management Corporation ("BIMC"), Provident Advisors,
Inc. ("PAI"), BlackRock Financial Management, Inc. ("BFM") and BlackRock
International, Ltd. ("BI") and their subsidiaries. BlackRock and its
consolidated subsidiaries provide diversified investment management services to
institutional clients, including certain subsidiaries and affiliates of PNC,
and to retail investors through various investment vehicles. The institutional
investment management business primarily consists of the active management of
fixed income and equity client accounts and the management of the Provident
Institutional Funds, a money market mutual fund family serving the
institutional market. The individual investor services business primarily
consists of the management of the Company's sponsored open and closed-end
mutual funds. BA, BIMC, BFM and BI are registered investment advisers under the
Investment Advisers Act of 1940 while PAI is a registered broker-dealer.
The consolidated financial statements of BlackRock reflect the "carved
out" historical financial position, results of operations, cash flows and
changes in stockholders' equity of the asset management businesses of PNC which
were consolidated under BlackRock in 1998 as if the combined operations had
been a separate entity prior to the formation of BlackRock. The consolidated
statement of operations has been adjusted to reflect an allocation of certain
expenses, primarily relating to office rent and overhead charges for various
administrative functions provided by PNC. The allocations were required to
reflect all costs of doing business and have been based on various methods
which management believes results in reasonable allocations of such costs. The
intercompany allocations and other adjustments related to the carve out which
were not paid or received by BlackRock are reflected in BlackRock's
consolidated statements of changes in stockholders' equity as dividend or
forgiveness of intercompany allocations.
The consolidated financial statements reflect the results of operations
of BlackRock Financial Management, LP and BFM Advisory LP, which were acquired
by PNC on February 28, 1995. Total consideration for the acquisition was $240
million, of which $71 million was paid in cash at closing with the remaining
$169 million comprising unsecured debt, ultimately payable to the BFM partners
and recorded on the books of BFM. Goodwill recognized at acquisition
approximated $240 million.
Significant intercompany accounts and transactions between the
consolidated entities have been eliminated.
The unaudited interim consolidated financial statements of BlackRock
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial information and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of financial
position, results of operations and cash flows of BlackRock for the interim
periods presented and are not necessarily indicative of a full year's results.
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
those estimates.
F-8
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (continued)
Formation Transactions
BlackRock was formed in 1998 as a result of PNC's decision to consolidate
a substantial portion of its investment management businesses under a common
management and brand (BlackRock). Prior to the formation, on January 31, 1998,
PNC sold, pursuant to a private placement under the Securities Act of 1933, as
amended (the "Securities Act"), 30,000 shares of restricted BFM stock to
certain key employees and PNC retained 70,000 shares. The purchase price for
the stock was based on an independent valuation of BFM, with the shares subject
to significant vesting and transfer restrictions.
On March 31, 1998, PNC contributed BFM and certain other investment
management subsidiaries into a new holding company, BlackRock. BFM's employee
stockholders exchanged their stock in BFM for an equal number of restricted
shares in BlackRock while PNC received 70,000 shares of BlackRock for its
ownership interest in BFM and an additional 94,000 shares representing the fair
value based on an independent valuation of PNC's other contributed investment
management businesses.
In May 1998, BlackRock sold an additional 5,507 shares of restricted
stock pursuant to a private placement under the Securities Act to key employees
of the contributed businesses. BlackRock also executed forward sales of 637
shares of Company restricted stock to key employees. During the year, one
employee stockholder terminated his employment and sold 207 shares back to
BlackRock at cost.
At December 31, 1998, there were 199,300 common shares of BlackRock
outstanding including 164,000 (82.3%) owned by PNC and 35,300 (17.7%) owned by
employees. Total proceeds from employee purchases of restricted stock amounted
to $34,214. These shares were issued at a discount to fair market value of
$1,737, which was recorded as compensation expense.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with original maturities of three months or less. Cash and cash
equivalents are held at major financial institutions and in money market mutual
funds, to which BlackRock is exposed to market and credit risk.
Investments
Investments consist principally of shares of registered investment
companies and are stated at quoted market values. The resulting unrealized
gains and losses are included in the consolidated statements of income.
F-9
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (continued)
Revenue Recognition
Investment advisory and administration fees are recognized as the
services are performed. Such fees are primarily based on predetermined
percentages of the market values of the assets under management. Investment
advisory and administration fees are shown net of fees waived pursuant to
expense limitations.
BlackRock also receives performance fees or an incentive allocation from
selected institutional and private placement portfolios based on the returns
for each portfolio taking into consideration realized and unrealized gains and
losses. These performance fees generally are subject to payment only upon
attaining specified return thresholds and may contain other restrictions.
Administration and Servicing Costs
BlackRock incurs certain administration and servicing costs, which are
expensed as incurred, related to mutual funds advised by BlackRock. Such costs
are paid to affiliated companies.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation generally is provided on the straight-line method over an
estimated useful life of five years. Leasehold improvements are amortized using
the straight-line method over their estimated useful lives or lease terms,
whichever is shorter.
Goodwill
Goodwill is amortized by the straight-line method over 25 years.
BlackRock assesses the recoverability of goodwill based on the estimated future
nondiscounted cash flows over the remaining amortization period.
Earnings Per Share
BlackRock has adopted Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." Basic earnings per common share is calculated by dividing
net income applicable to common stockholders by the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed
using the treasury stock method. Diluted earnings per common share assumes full
dilution and is computed by dividing net income by the total of the weighted
average number of shares of common stock outstanding and common stock
equivalents.
Business Segments
BlackRock has not presented business segment data in accordance with SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
because it operates predominantly in one business segment, the investment
advisory and asset management business.
Recent Accounting Pronouncements
Comprehensive Income
BlackRock has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires companies to report all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
BlackRock has not presented a consolidated statement of comprehensive income
because the amount of "other comprehensive income" is immaterial.
F-10
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements (continued)
Software Costs
BlackRock intends to adopt, effective January 1, 1999, Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining software for internal
use. Qualifying software costs will be capitalized and amortized over the
estimated useful life of the software. Software costs currently are expensed as
incurred. Restatement of prior year financial statements is not permitted. The
adoption of SOP 98-1 is not expected to have a material impact on BlackRock's
results of operations or financial position.
Derivative Instruments and Hedging Activities
BlackRock intends to adopt, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires BlackRock to recognize
all financial derivatives, including hedges, at fair value, and all changes in
fair value or cash flow of both the hedge and the hedged item in earnings in
the same period. SFAS 133, as amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," is required to be adopted for fiscal years beginning after
June 15, 2000.
BlackRock did not enter into any derivative instruments or hedging
activities for the periods covered under the financial statements. The adoption
of SFAS 133 is not expected to have a material impact on BlackRock's results of
operations or financial position.
Disclosure of Fair Value
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of estimated fair values of certain on- and off-balance
sheet financial instruments. The methods and assumptions are set forth below:
. Cash and cash equivalents, receivables, accounts payable and
accrued liabilities approximate fair value due to the short
maturities.
. The fair value of investments is based on quoted market price.
. The fair value of the unsecured note is based on current rates
offered to BlackRock for debt with a similar remaining maturity
(see Note 3). The revolving line of credit is stated at fair value
as its interest rate is at prime.
2. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Office and computer equipment............................. $ 9,392 $13,472
Furniture and fixtures.................................... 4,660 5,792
Leasehold improvements.................................... 2,462 5,207
------- -------
16,514 24,471
Less accumulated depreciation............................. 9,477 12,219
------- -------
Property and equipment, net............................... $ 7,037 $12,252
======= =======
</TABLE>
Depreciation expense amounted to $2,097, $2,498 and $3,199 for the years
ended December 31, 1996, 1997 and 1998, respectively.
F-11
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3.Note and Loan Payable to Affiliates
BlackRock had the following note and line of credit outstanding:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
7.5% unsecured note, with interest payable semiannually,
through February 2000.................................. $ 65,800 $ 47,000
Revolving line of credit with PNC Bank, with interest at
prime rate (7.75% at December 31, 1998), maximum
outstanding principal of $175,000 due December 2002.... 159,432 150,000
-------- --------
$225,232 $197,000
======== ========
</TABLE>
The 7.5% unsecured note is unconditionally guaranteed by PNC and is
ultimately payable to certain employees of BlackRock resulting from PNC's
acquisition of BFM on February 28, 1995.
At December 31, 1998, future principal maturities of debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 18,800
2000.............................................................. 28,200
2001.............................................................. --
2002.............................................................. 150,000
--------
$197,000
========
</TABLE>
At December 31, 1998, the fair value of BlackRock's 7.5% unsecured note
due through February 2000, estimated based on the current rates offered to
BlackRock for debt with a similar remaining maturity, was approximately
$47,700. The revolving line of credit with PNC is carried at cost which
approximates fair value.
4.Commitments
BlackRock leases its primary office space under agreements which expire
in 2011. Future minimum commitments under these operating leases, net of rental
reimbursements of $959 through 2002 from a sublease arrangement, are as
follows:
<TABLE>
<S> <C>
1999............................................................... $ 4,225
2000............................................................... 3,790
2001............................................................... 3,714
2002............................................................... 1,831
2003............................................................... 1,459
Thereafter......................................................... 3,547
-------
$18,566
=======
</TABLE>
Under the lease agreement, BlackRock is responsible for certain
escalation payments. Equipment and occupancy expense amounted to $6,160, $7,253
and $10,060 for the years ended December 31, 1996, 1997 and 1998, respectively.
F-12
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Employee Benefit Plans
BlackRock's employees participate in PNC's Incentive Savings Plan
("ISP"). Under the ISP, employee contributions of up to 6% of eligible
compensation, subject to Internal Revenue Code limitations, are matched by
BlackRock. ISP expenses for BlackRock were $837, $1,019 and $1,210 for the
years ended December 31, 1996, 1997 and 1998, respectively. Contributions to
the plans are matched primarily by shares of PNC's common stock funded by PNC's
Employee Stock Ownership Plan.
PNC provides certain health care and life insurance benefits for retired
employees. Expenses for post-retirement benefits allocated to BlackRock by PNC
were $114, $105 and $217 for the fiscal years ended December 31, 1996, 1997 and
1998, respectively. At December 31, 1997 and 1998, accrued post-retirement
benefits included in the consolidated statements of financial condition totaled
$311 and $528, respectively. No separate financial obligation data for
BlackRock is available with respect to such plan. BlackRock currently does not
have any retired employees and as such did not make any benefit payments for
retirees in 1997 and 1998.
6. Deferred Compensation Plan
Effective January 1, 1998, BlackRock established the Long-Term
Compensation Plan (the "Plan") to provide a competitive long-term incentive for
key officers and employees. The Plan provides for payment of $18.5 million
divided equally in three separate awards. The awards vest in 2001, 2002 and
2003, respectively, and are recorded to expense on a straight-line method over
the respective vesting periods. Compensation expense for 1998 was $6,321.
7. Related Party Transactions
BlackRock and its consolidated subsidiaries provide investment advisory
and administration services to BlackRock's open-end and closed-end funds, the
Provident Institutional Funds and other commingled funds. Substantially all of
these services are provided under contracts that set forth the services to be
provided and the fees to be charged. Contracts for the Registered Investment
Companies are subject to annual review and approval by each of the funds'
boards of directors or trustees and, in certain circumstances, by the
stockholders.
Revenues for services provided to these mutual funds are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Investment advisory and administration fees--
mutual funds:
BlackRock open-end funds.................... $29,752 $ 44,009 $ 86,225
BlackRock closed-end funds.................. 34,960 36,050 36,521
Provident Institutional Funds............... 13,039 26,266 32,202
Commingled funds............................ 9,438 11,652 7,539
------- -------- --------
$87,189 $117,977 $162,487
======= ======== ========
</TABLE>
During May 1998, approximately $8.2 billion in assets of the PNC common
trust commingled funds were converted to the BlackRock open-end funds. For the
years ended December 31, 1996 and 1997, BlackRock earned fees of $6,443 and
$7,150, respectively, related to these funds. During the first four months of
1998, $3,142 of fees were earned prior to the conversion.
F-13
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Related Party Transactions (continued)
BlackRock provides investment advisory and administration services to
certain PNC subsidiaries for a fee, based on assets under management. In
addition, BlackRock provides risk management and, beginning in 1998, model
portfolio services to PNC. Revenues for such services are as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues:
Investment advisory and administration fees:
Separate accounts................................ $ 901 $1,496 $3,468
Model portfolio services......................... -- -- 2,567
Other income--risk management...................... 3,000 3,000 3,000
</TABLE>
BlackRock has entered into various memoranda of understanding and co-
administration agreements with affiliates of PNC pursuant to which BlackRock
pays administration fees for the Provident Institutional Funds and certain
other commingled funds based on total fund assets and service fees based on
assets under management for PNC's private banking clients invested in the
BlackRock open-end funds.
BlackRock also incurred interest expense to related parties in connection
with the 7.5% unsecured note and the revolving line of credit with PNC Bank.
PNC also provides general and administration services to BlackRock. Charges for
such services were based on actual usage or on defined formulas which, in
management's view, resulted in reasonable allocations. Aggregate expenses
included in the consolidated financial statements for transactions with PNC
subsidiaries are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expenses:
Fund administration and servicing costs--
affiliates.................................... $19,611 $27,278 $52,972
General and administration..................... 7,559 3,900 4,666
Interest expense--affiliates................... 19,975 20,249 13,347
</TABLE>
Additionally, an indirect wholly-owned subsidiary of PNC acts as a
financial intermediary associated with the sale of back-end loaded shares of
certain BlackRock open-end funds. This entity finances broker sales commissions
and receives all associated sales charges.
8. BlackRock Asset Investors
BFM is an investment advisor to BlackRock Asset Advisors ("BAI"), a
closed-end investment company. BAI's principal business is to acquire, work
out, pool and repackage performing and distressed commercial, multifamily, and
single family mortgage loans as commercial or residential mortgage-backed
securities for sale in the capital markets through independent underwriters and
broker-dealers.
The Board of Trustees ("Trustees") of BAI approved a plan of liquidation
on September 18, 1997 which was adopted by its stockholders on October 6, 1997.
The plan term runs two years from the stockholder approval date. The plan
requires the trustees to oversee the liquidation. Any remaining assets and
liabilities may be deposited in a voting trust at any time before the end of
the plan term.
F-14
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. BlackRock Asset Investors (continued)
BFM recorded management fees for BAI in 1996, 1997 and 1998 of $6,061,
$6,067 and $3,291, respectively. BFM earned performance fees based on a
stipulated percentage of the excess profits after BAI stockholders had received
a minimum return on invested capital. Based on the market value of BAI's
underlying assets, overall investor returns and anticipated asset liquidation
schedules BlackRock recorded performance fees of $0, $7,800 and $57,908 in
1996, 1997 and 1998, respectively.
In accordance with various contractual arrangements including the 1994
acquisition agreement between PNC and BFM, $3,525, $9,688 and $44,806 of BAI
revenue was allocated to incentive compensation for the years ended December
31, 1996, 1997, and 1998, respectively.
9. Net Capital Requirements
As a registered broker-dealer, PAI is subject to the Uniform Net Capital
requirements under the Securities Exchange Act of 1934, which requires
maintenance of certain minimum net capital levels. At December 31, 1998, PAI
net capital was $3,290 in excess of regulatory requirements.
10. Closed-End Fund Offering Costs
In accordance with SOP 98-5, "Reporting on the Costs of Start-Up
Activities," BlackRock has expensed the offering costs it incurred in
connection with an initial offering of a closed-end fund.
11. Income Taxes
BlackRock accounts for income taxes under the liability method prescribed
by SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases.
On a historical basis, the operating results of BlackRock have been
primarily included in the consolidated U.S. Federal income tax returns of PNC
or its subsidiaries. For state and local income tax purposes, BlackRock has
been included in the consolidated and unitary tax returns with PNC and its
subsidiaries, and has filed separate returns. BlackRock's tax provision has
been determined pursuant to the PNC tax sharing agreement.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $4,434 $11,872 $16,408
State & local..................................... 2,578 3,011 8,746
------ ------- -------
Total current....................................... 7,012 14,883 25,154
Deferred:
Federal........................................... 957 1,159 4,422
State & local..................................... 506 613 2,819
------ ------- -------
Total deferred...................................... 1,463 1,772 7,241
------ ------- -------
Total............................................... $8,475 $16,655 $32,395
====== ======= =======
</TABLE>
F-15
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes (continued)
The reconciliation between the federal statutory income tax rate and
BlackRock's effective income tax rate consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate........................ 35.0% 35.0% 35.0%
Increase resulting from:
State and local income taxes........................... 11.6% 6.1% 11.1%
Other.................................................. 2.0% 1.9% 1.5%
----- ----- -----
Total effective income tax rate.......................... 48.6% 43.0% 47.6%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities, which are shown net in
accounts payable and accrued liabilities--Affiliate in the consolidated
statement of financial condition, consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
<S> <C> <C>
Deferred tax assets:
Compensation and benefits................................ $2,355 $31,388
Other.................................................... 2,316 3,606
------ -------
Gross deferred tax asset................................. $4,671 $34,994
====== =======
Deferred tax liabilities:
Deferred revenue......................................... $ -- $33,980
Goodwill................................................. 9,704 13,129
Other.................................................... 4 163
------ -------
Gross deferred tax liability............................. $9,708 $47,272
------ -------
Net deferred tax liability................................. $5,037 $12,278
====== =======
</TABLE>
12. Subsequent Events (Unaudited)
Stock Award and Incentive Plan
BlackRock intends to adopt a stock award and incentive plan, and a
deferred compensation plan (the "Plan") prior to or concurrent with the initial
public offerings ("Offering").
Pro Forma Information
The unaudited pro forma amounts included in the accompanying pro forma
consolidated statement of income for the year ended December 31, 1998 and the
six months ended June 30, 1999 reflect the use of Offering proceeds to repay
outstanding debt as of January 1, 1998, and the corresponding reduction in
interest expense and tax benefit thereon. The unaudited pro forma consolidated
statement of income does not give effect to the Plan because its terms have not
been finalized.
F-16
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Subsequent Events (Unaudited) (continued)
BlackRock intends to file a separate consolidated federal income tax
return after the offerings. BlackRock has not determined whether it will
continue to file combined and/or unitary state and local income tax returns
with PNC and its subsidiaries. BlackRock's income tax provision for the six
months ended June 30, 1999 is computed pursuant to the tax sharing agreement
with PNC. This agreement provides that the federal income tax provision is
based on each subsidiary's separately calculated liability and that the
combined and/or unitary state and local income tax provision is allocated to
those subsidiaries whose business operations generate the liability.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in these offerings, 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.
Shares of Class A Common Stock
[BlackRock Logo]
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Goldman, Sachs & Co.
Lehman Brothers
Prudential Securities
Salomon Smith Barney
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[International--Alternate Cover Page]
Subject to Completion
Preliminary Prospectus dated August 19, 1999
PROSPECTUS
Shares of Class A Common Stock
[BlackRock Logo]
----------
The international managers will offer shares outside the United States
and Canada and the U.S. underwriters will offer shares in the United
States and Canada.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. We expect that the class A
common stock will trade on The New York Stock Exchange under the symbol "BLK."
Following the offering, we will have two classes of authorized common
stock--class A common stock, offered through this prospectus, and class B
common stock, % of which will be owned by a subsidiary of PNC Bank Corp. The
rights of holders of class A common stock and class B common stock are
identical, except with respect to voting. Each share of class A common stock
will have one vote and each share of class B common stock will have five votes
on all matters submitted to a vote of our stockholders. As a result, following
the offerings, PNC will own % of the combined voting power of all classes of
BlackRock stock and will control all matters affecting BlackRock stockholders.
Investing in the class A common stock involves risks which are described in
the "Risk Factors" section beginning on page 9 of this prospectus.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price................................. $ $
Underwriting Discount................................. $ $
Proceeds, before expenses, to BlackRock............... $ $
</TABLE>
The international managers may also purchase up to an additional
shares of class A common stock at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
aggregate of an additional shares of class A common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of class A common stock will be ready for delivery in New York,
New York on or about , 1999.
----------
Merrill Lynch International
Goldman Sachs International
Lehman Brothers International
Prudential-Bache Securities
Salomon Smith Barney International
----------
The date of this prospectus is , 1999.
<PAGE>
[International-Alternate Page]
UNDERWRITING
Merrill Lynch International is acting as lead manager (the "Lead
Manager") for each of the International Managers named below (the
"International Managers"). Subject to the terms and conditions set forth in an
international purchase agreement (the "International Purchase Agreement") among
BlackRock and the International Managers, and concurrently with the sale of
shares of class A common stock to the U.S. Underwriters (as defined below),
BlackRock has agreed to sell to the International Managers, and each of the
International Managers severally and not jointly has agreed to purchase from
BlackRock, the number of shares of class A common stock set forth opposite its
name below.
<TABLE>
<CAPTION>
Number
of
International Manager Shares
--------------------- ------
<S> <C>
Merrill Lynch International........................................
Goldman, Sachs International.......................................
Lehman Brothers International (Europe).............................
Prudential-Bache Securities (U.K.) Inc. ...........................
Salomon Brothers International Limited.............................
-----
Total.........................................................
=====
</TABLE>
BlackRock has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Goldman, Sachs & Co., Lehman Brothers Inc., Prudential
Securities Incorporated and Salomon Smith Barney Inc. are acting as
representatives (the "U.S. Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of shares of class A common stock to the International Managers
pursuant to the International Purchase Agreement, BlackRock has agreed to sell
to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to
purchase from BlackRock, an aggregate of shares of class A common stock. The
initial public offering price per share and the total underwriting discount per
share of class A common stock are identical under the International Purchase
Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of class A common stock being sold
pursuant to each such agreement if any of the shares of class A common stock
being sold pursuant to such agreement are purchased. In the event of a default
by an Underwriter, the U.S. Purchase Agreement and the International Purchase
Agreement provide that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriters may be increased or the Purchase Agreements may
be terminated. The closings with respect to the sale of shares of class A
common stock to be purchased by the International Managers and the U.S.
Underwriters are conditioned upon one another.
The Lead Manager has advised BlackRock that the International Managers
propose initially to offer the shares of class A common stock to the public at
the initial public offering price set forth on the cover page of this
prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of class A common stock. The International Managers
may allow, and such dealers may reallow, a discount not in excess of $ per
share of class A common stock to certain other dealers. After the initial
public offerings, the public offering price, concession and discount may
change.
BlackRock has granted options to the International Managers, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate
of additional shares of class A common stock at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
International Managers may exercise these options solely to cover over-
allotments, if any, made on the sale of the class A common stock offered
hereby. To the extent that the International Managers exercise these options,
each
77
<PAGE>
[International-Alternate Page]
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of class A common stock proportionate to
such International Manager's initial amount reflected in the foregoing table.
BlackRock has granted options to the U.S. Underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of class A common stock to cover over-allotments, if any,
on terms similar to those granted to the International Managers.
The following table shows the per share and total public offering price,
underwriting discount to be paid by BlackRock to the International Managers and
the U.S. Underwriters and the proceeds before expenses to BlackRock. This
information is presented assuming either no exercise or full exercise by the
International Managers and the U.S. Underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
Per Total Without Total With
Share Option Option
----- ------------- ----------
<S> <C> <C> <C>
Public offering price..................... $ $ $
Underwriting discount..................... $ $ $
Proceeds, before expenses, to BlackRock... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount)
are estimated at $ and are payable by BlackRock.
The shares of class A common stock are being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify any such offer and to reject orders in whole or
in part.
At the request of BlackRock, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of the class A common stock
that will be offered by this prospectus for directors, officers and employees
of BlackRock and PNC. All purchasers of reserved shares will have agreed in
writing not to sell, transfer, assign, pledge or hypothecate such shares for
months from their date of purchase. The number of shares of class A common
stock available for sale to the general public will be reduced to the extent
reserved shares are purchased by such persons. Any reserved shares that are not
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered in this prospectus.
BlackRock and BlackRock's executive officers and directors and all
existing stockholders have agreed, subject to exceptions, not to directly or
indirectly: (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell or grant any
option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of common stock or securities convertible into or exchangeable or
exercisable for or repayable with common stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing; or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the common stock
whether any such swap or transaction is to be settled by delivery of common
stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the International
Managers and the U.S. Underwriters are permitted to sell shares of class A
common stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the intersyndicate agreement, the U.S. Underwriters and any dealer
to whom they sell shares of class A common stock will not offer to sell or sell
shares of class A common stock to persons who
78
<PAGE>
[International-Alternate Page]
are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any dealer to whom they sell shares of class A
common stock will not offer to sell or sell shares of class A common stock to
U.S. persons or to Canadian persons or to persons they believe intend to resell
to U.S. or Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
Prior to the offerings, there has been no public market for the class A
common stock of BlackRock. The initial public offering price will be determined
through negotiations among BlackRock, PNC and the U.S. Representatives and the
Lead Manager. The factors considered in determining the initial public offering
price, in addition to prevailing market conditions, are price-earnings ratios
of publicly traded companies that the U.S. Representatives and the Lead Manager
believe to be comparable to BlackRock, certain financial information of
BlackRock, the history of, and the prospects for, BlackRock and the industry in
which it competes, and an assessment of BlackRock's management, its past and
present operations, the prospects for, and timing of, future revenues of
BlackRock, and the present state of BlackRock's development. There can be no
assurance that an active trading market will develop for the class A common
stock or that the class A common stock will trade in the public market
subsequent to the offerings at or above the initial public offering price.
Application has been made to list the class A common stock on the New
York Stock Exchange under the symbol "BLK." In order to meet the requirements
for listing of the class A common stock on that exchange, the U.S. Underwriters
and the International Managers have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.
Because BlackRock may be deemed to be an affiliate of PNC Brokerage, the
offerings will be conducted in accordance with Conduct Rule 2720 of the
National Association of Securities Dealers, Inc., which requires that the
public offering price of an equity security be no higher than the price
recommended by a qualified independent underwriter which has participated in
the preparation of the registration statement and performed its usual standard
of due diligence. Merrill Lynch has agreed to act as qualified independent
underwriter with respect to the offerings, and the public offering price of the
class A common stock will be no higher than that recommended by .
The Underwriters do not expect sales of the class A common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
The Underwriters will not confirm sales of the class A common stock to
any account over which they exercise discretionary authority without the prior
written specific approval of the customer.
BlackRock has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the U.S. Underwriters and
International Managers may be required to make.
Until the distribution of the class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
class A common stock. As an exception to these rules, the U.S. Representative
is permitted to engage in transactions that stabilize the price of the class A
common stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the class A common stock.
If the Underwriters create a short position in the class A common stock
in connection with the offerings, i.e., if they sell more shares of class A
common stock than are set forth on the cover page of this prospectus, the U.S.
Representatives may reduce that short position by purchasing class A common
stock in the open market. The U.S. Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment options
described above.
The U.S. Representatives may also impose a penalty bid on Underwriters
and selling group members. This means that if the U.S. Representatives purchase
shares of class A common stock in the open market to
79
<PAGE>
[International--Alternate Page]
reduce the Underwriters' short position or to stabilize the price of the class
A common stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the class A common stock to the
extent that it discourages resale of the class A common stock.
Neither BlackRock nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the class A common stock. In addition,
neither BlackRock nor any of the Underwriters makes any representation that the
U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Each International Manager has agreed that:
(i)it has not offered or sold and, prior to the expiration
of the period of six months from the closing date, will not offer
or sell any shares of class A common stock to persons in the
United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute
an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the class A common stock in,
from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in
connection with the issuance of class A common stock to a person
who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 as amended by the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom
such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of class A
common stock, or the possession, circulation or distribution of this prospectus
or any other material relating to BlackRock or shares of class A common stock
in any jurisdiction where action for that purpose is required. Accordingly, the
shares of class A common stock may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of class A common stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, BlackRock in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with BlackRock. Merrill Lynch, Prudential
Securities and its affiliated parties and Salomon Smith Barney distribute
BlackRock Funds and provide stockholder services in connection with those funds
in the ordinary course of business, for which it receives customary
compensation.
80
<PAGE>
[International--Alternate Back Cover]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (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.
Shares of Class A Common Stock
[BlackRock Logo]
----------------
PROSPECTUS
----------------
Merrill Lynch International
Goldman, Sachs International
Lehman Brothers International
Prudential-Bache Securities
Salomon Smith Barney International
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
The following table indicates the estimated expenses to be incurred in
connection with the Offerings, all of which will be paid by BlackRock.
<TABLE>
<S> <C>
SEC registration fee............................................. $27,800
NASD fee......................................................... 10,500
Listing fee...................................................... *
Accounting fee and expenses...................................... *
Legal fees and expenses.......................................... *
Printing and engraving........................................... *
Transfer Agent's fees............................................ *
Blue Sky fees and expenses (including counsel fees).............. *
Miscellaneous expenses........................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be supplied by amendment
Item 14. Indemnification of Directors and Officers
Article SEVENTH of BlackRock's certificate of incorporation provides that
no director of BlackRock shall be personally liable to BlackRock or its
stockholders for monetary damages for breach of fiduciary duty to the fullest
extent permitted by Delaware law.
In addition, the certificate of incorporation provides that if the
Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of
a director of BlackRock shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended. Article VI of
BlackRock's bylaws provides for indemnification by BlackRock of its directors
and officers under certain circumstances against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) incurred in connection
with the defense or settlement of any threatened, pending or completed legal
proceeding in which any such person is involved by reason of the fact that such
person is or was a director or officer of BlackRock.
The form of underwriting agreement to be filed as Exhibit 1.1 will
contain agreements between BlackRock, PNC and BlackRock's management and
directors and the underwriters and their controlling persons providing for
indemnification against civil liabilities, including liabilities under the
Securities Act, or for contribution to payments which any of them may be
required to make in respect thereof.
Item 15. Recent Sales of Unregistered Securities.
On January 31, 1998, PNC Bank Corp. ("PNC") sold, pursuant to a private
placement under Section 4(2) of the Securities Act, 30,000 shares of restricted
BlackRock Financial Management, Inc. ("BFM") stock to certain key employees and
PNC retained 70,000 shares. The purchase price for the stock was based on an
independent valuation of BFM, with the shares subject to significant vesting
and transfer restrictions.
On March 31, 1998, PNC contributed BFM and certain other investment
management subsidiaries into a new holding company, BlackRock. BFM's employee
stockholders exchanged their stock in BFM for an equal number of restricted
shares in BlackRock while PNC received 70,000 shares of BlackRock for its
ownership interest in BFM and an additional 94,000 shares representing the fair
value based on an independent valuation of PNC's other contributed investment
management businesses. The issuance of the BlackRock shares was made pursuant
to a private placement under Section 4(2) of the Securities Act.
II-1
<PAGE>
In May 1998, BlackRock sold an additional 5,507 shares of restricted
stock pursuant to a private placement under Regulation D under the Securities
Act to key employees of the contributed businesses. In December 1998, BlackRock
also executed forward sales of 637 shares of BlackRock restricted stock to key
employees. During 1998, one employee stockholder terminated his employment and
sold 207 shares back to BlackRock at cost. Total proceeds from employee
purchases of restricted stock amounted to $34,214,000. These shares were issued
at a discount to fair market value of $1,737,000 which was recorded as
compensation expense.
Item 16. Exhibits
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 --Form of Underwriting Agreement.*
3.1 --Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 --Form of Amended and Restated Bylaws of the Registrant.
4.1 --Specimen of Common Stock Certificate (per class).*
4.2 --Amended Stockholders Agreement.
5.1 --Opinion of Skadden, Arps, Slate Meagher & Flom LLP, regarding
legality of securities being registered.*
10.1 --Lease Agreement, dated as of March 31, 1993, between BlackRock
Advisors, Inc. and 345 Park Company.*
10.2 --Tax Disaffiliation Agreement among BlackRock Inc., PNC Asset
Management, Inc. and PNC Bank Corp.*
10.3 --Form of Lock-Up Agreement.*
10.4 --Form of Key Executive Long-term Incentive Bonus Plan.*
10.5 --Form of Employee Stock Purchase Plan.*
10.6 --Form of Non employee Directors Stock Purchase Plan.*
10.7 --Form of Employment Agreement.*
10.8 --Form of Initial Public Offering Agreement among the Registrant, PNC
Bank Corp. and PNC Asset Management, Inc.*
10.9 --Form of Registration Rights Agreement among the Registrant, PNC
Asset Management, Inc. and certain holders of class B common stock of
the Registrant.*
10.10 --Form of Administrative Service Agreement between the Registrant and
PNC Bank Corp.*
21.1 --List of subsidiaries of the Registrant.
23.1 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1).*
23.2 --Consent of Ernst & Young LLP.
24.1 --Powers of Attorney.**
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
II-2
<PAGE>
(b)Financial Statement Schedules
We did not include financial statement schedules with this item because
they are not required, not applicable or the information is included in the
financial statements or notes to the financial statements that are part of the
prospectus.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes to provide the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) 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 Act 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 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 public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(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 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-1 and has duly caused this
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, New York on
the 19th day of August, 1999.
BLACKROCK, INC.
/s/ Laurence D. Fink
By: _________________________________
Laurence D. Fink
Chairman of the Board of
Directors and Chief Executive
Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Laurence D. Fink Chairman of the Board of August 19, 1999
____________________________________ Directors and Chief
Laurence D. Fink Executive Officer (Principal
Executive Officer)
/s/ Paul L. Audet Managing Director, Chief August 19, 1999
____________________________________ Financial Officer (Principal
Paul L. Audet Financial and Accounting
Officer)
/s/ Ralph L. Schlosstein Director and President August 19, 1999
____________________________________
Ralph L. Schlosstein
* Director August 19, 1999
____________________________________
Thomas H. O'Brien
* Director August 19, 1999
____________________________________
James E. Rohr
* Director August 19, 1999
____________________________________
Walter E. Gregg, Jr.
* Director August 19, 1999
____________________________________
Helen P. Pudlin
</TABLE>
* Robert P. Connolly, pursuant to Powers of Attorney (executed by each of the
officers and directors indicated above and filed as part of the registrant's
Registration Statement, on May 13, 1999, Reg. No. 333-78367), by signing his
name hereto does hereby sign and execute this Amendment No. 1 to Form S-1
Registration Statement Under the Securities Act of 1933 on behalf of each
director.
/s/ Robert P. Connolly
-------------------------------------
Robert P. Connolly
II-5
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BLACKROCK, INC.
BlackRock, Inc., a Delaware corporation (hereinafter the
"Corporation") hereby certifies as follows:
1. The name of the corporation is BlackRock, Inc. The original
certificate of incorporation of the Corporation (the "Original Certificate of
Incorporation") was filed with the Secretary of State of the State of Delaware
on March 27, 1998.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") amends and restates in its entirety the
Corporation's Original Certificate of Incorporation and has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the "DGCL") and by written consent of the stockholders of the
Corporation and duly executed and acknowledged by the officers of the
Corporation in accordance with Section 103 of the DGCL.
3. Upon the filing (the "Effective Time") of this Certificate of
Incorporation pursuant to the DGCL, each share of the Corporation's common
stock, no par value per share, issued and outstanding immediately prior to the
Effective Time (the "Old Common Stock") shall be reclassified as and changed
into _____ validly issued, fully paid, and non-assessable share of Class B
Common Stock (the "Class B Common Stock") authorized by paragraph (C) of Article
FOURTH of the Certificate of Incorporation (totaling _______ shares of Class B
Common Stock), without any action by the holder thereof (the
"Reclassification"). Each Certificate that theretofore represented a share or
shares of Old Common Stock shall thereafter represent that number of shares of
Class B Common Stock into which the share or shares of Old Common Stock
represented by such certificates shall have been reclassified.
<PAGE>
4. The Original Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is BlackRock, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, State of Delaware, and 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 General
Corporation Law of the State of Delaware (the "DGCL").
FOURTH: A. Authorized Shares. The Corporation shall be authorized
to issue __________ shares of stock, of which (i) __________ shares shall be
shares of Class A Common Stock, par value $0.01 per share (the "Class A Common
Stock"), and __________ shall be shares of Class B Common Stock, par value $0.01
per share (the "Class B Common Stock") (the Class A Common Stock and the Class B
Common Stock being collectively referred to herein as the "Common Stock"), and
(ii) __________ shares shall be shares of Preferred Stock, par value $0.01 per
share (the "Preferred Stock").
B. Preferred Stock. The Preferred Stock may be issued
from time to time in one or more classes or series. The Board of Directors is
hereby authorized to provide for the issuance of shares of Preferred Stock in
one or more classes or series and, by filing a certificate pursuant to the DGCL
(hereinafter referred to as a "Preferred Stock Designation"), to establish from
time to time the number of shares to be included in each such classes or series,
and to fix the designations, voting powers (if any), privileges, preferences
and relative, participating, optional or other special rights of the shares of
each such classes or series and the qualifications, limitations and restrictions
thereon. The authority of the Board of Directors with respect to each class or
series shall include, but not be limited to, determination of the following:
(1) the designation of the class or series, which may be by
distinguishing number, letter or title;
2
<PAGE>
(2) the number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the number of
shares thereof then outstanding) in the manner permitted by law;
(3) the rate of any dividends (or method of determining the
dividends) payable to the holders of the shares of such class or series, any
conditions upon which such dividends shall be paid and the date or dates or the
method for determining the date or dates upon which such dividends shall be
payable;
(4) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any class or 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 class or series shall
cumulate;
(5) if the shares of such class or series may be redeemed
by the Corporation, the price or prices (or method of determining such price or
prices) at which, the form of payment of such price or prices (which may be
cash, property or rights, including securities of the Corporation or of another
corporation or other entity) for which, the period or periods within which and
the other terms and conditions upon which the shares of such class or 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, if any, including the obligation, if any, of the Corporation
to purchase or redeem shares of such class or series pursuant to a sinking fund
or otherwise;
(6) the amount payable out of the assets of the Corporation
to the holders of shares of the class or series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(7) provisions, if any, for the conversion or exchange of
the shares of such class or series, 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 class of capital stock of the
Corporation or into any other security of the Corporation, or into the stock or
other securities of any other corporation or other entity, and the price or
prices or rate or rates of conversion or exchange
3
<PAGE>
and any adjustments applicable thereto, and all other terms and conditions upon
which such conversion or exchange may be made;
(8) restrictions on the issuance of shares of the same class
or series or of any other class or series of capital stock of the Corporation,
if any; and
(9) the voting rights and powers, if any, of the holders of
shares of the class or series.
C. Common Stock. The following is a statement of the relative
powers, preferences and participating, optional or other special rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article
FOURTH, the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of the Class
A Common Stock and Class B Common Stock shall be identical in all respects.
(2) Subject to the rights of the holders of Preferred
Stock, and subject to any other provisions of this Certificate of Incorporation,
holders of Class A Common Stock and Class B Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock of any corporation
(other than Common Stock of the Corporation) or property of the Corporation as
may be declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor and shall share
equally on a per share basis in all such dividends and other distributions. In
the case of dividends or other distributions payable in Common Stock, including
distributions pursuant to stock splits or divisions of Common Stock of the
Corporation, only shares of Class A Common Stock shall be paid or distributed
with respect to Class A Common Stock and only shares of Class B Common Stock
shall be paid or distributed with respect to Class B Common Stock. The number of
shares of Class A Common Stock and Class B Common Stock so distributed on each
share shall be equal in number. Neither the shares of Class A Common Stock nor
the shares of Class B Common Stock may be reclassified, subdivided or combined
unless such reclassification, subdivision or combination occurs simultaneously
and in the same proportion for each class.
4
<PAGE>
(3) (a) At every meeting of the stockholders of the
Corporation, every holder of Class A Common Stock shall be entitled to one vote
in person or by proxy for each share of Class A Common Stock standing in his,
her or its name on the transfer books of the Corporation, and every holder of
Class B Common Stock shall be entitled to five votes in person or by proxy for
each share of Class B Common Stock standing in his, her or its name on the
transfer books of the Corporation, in connection with the election of directors
and all other matters submitted to a vote of stockholders. Except as may be
otherwise required by law or by this Certificate of Incorporation, the holders
of Class A Common Stock and Class B Common Stock shall vote together as a single
class and their votes shall be counted and totaled together, subject to any
voting rights which may be granted to holders of Preferred Stock, on all matters
submitted to a vote of stockholders of the Corporation. Notwithstanding any
other provision of this Certificate of Incorporation to the contrary, holders
of Class A Common Stock shall not be eligible to vote on any alteration or
change in the powers, preferences, or special rights of the Class B Common Stock
that would not adversely affect the rights of the Class A Common Stock and
holders of Class B Common Stock shall not be eligible to vote on any alteration
or change in the powers, preferences, or special rights of the Class A Common
Stock that would not adversely affect the rights of the holders of the Class B
Common Stock; provided that, for the foregoing purposes, any provision for the
voluntary, mandatory or other conversion or exchange of the Class B Common Stock
into or for Class A Common Stock on a one for one basis shall be deemed not to
adversely affect the rights of the Class A Common Stock.
(b) Except as otherwise provided by law, and subject to
any rights of the holders of Preferred Stock, the provisions of this Certificate
of Incorporation shall not be modified, revised, altered or amended, repealed or
rescinded in whole or in part, without the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and the Class B
Common Stock, voting together as a single class (except as otherwise provided in
paragraph (C)(3)(a) above); provided, however, that with respect to any proposed
amendment of this Certificate of Incorporation which would alter or change the
powers, preferences or special rights of the shares of Class A Common Stock or
Class B Common Stock so as to affect them adversely, the approval of a majority
of the votes entitled to be cast by the holders of the shares affected by the
proposed amendment, voting separately as a class, shall be obtained in addition
to the approval of a majority of the votes entitled to be cast by the holders of
the Class A Common Stock and the Class B Common Stock voting together as a
single class as hereinbefore provided. To the fullest extent permitted by law,
any increase in the authorized
5
<PAGE>
number of shares of any class or classes of stock of the Corporation or
creation, authorization or issuance of any securities convertible into, or
warrants, options or similar rights to purchase, acquire or receive, shares of
any such class or classes of stock shall be deemed not to affect adversely the
powers, preferences or special rights of the shares of Class A Common Stock or
Class B Common Stock.
(c) Every reference in this Certificate of
Incorporation to a majority or other proportion of shares, or a majority or
other proportion of the votes of shares, of Voting Stock, Common Stock, Class A
Common Stock, or Class B Common Stock shall refer to such majority or other
proportion of the votes to which such shares of Voting Stock, Common Stock,
Class A Common Stock or Class B Common Stock are entitled.
(d) At any meeting of stockholders, the presence in
person or by proxy of the holders of shares entitled to cast a majority of all
the votes which could be cast at such meeting by the holders of all of the
outstanding shares of stock of the Corporation entitled to vote on every matter
that is to be voted on at such meeting shall constitute a quorum.
(4) In the event of any dissolution, liquidation or winding
up of the affairs of the Corporation, whether voluntary or involuntary, after
payment in full of the amounts required to be paid to the holders of Preferred
Stock, the remaining assets and funds of the Corporation shall be distributed
pro rata to the holders of Common Stock, and the holders of Class A Common Stock
and the holders of Class B Common Stock will be entitled to receive the same
amount per share in respect thereof. For purposes of this paragraph (C)(4), the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(5) Except as shall otherwise be approved by a majority of
the votes entitled to be cast by the holders of each class of Common Stock
voting separately as a class, in case of any reorganization or any consolidation
of the Corporation with one or more other corporations or a merger of the
Corpora tion with another corporation in which shares of Class A Common Stock or
Class B Common Stock are converted into (or entitled to receive with respect
thereto) shares
6
<PAGE>
of stock and/or other securities or property (including cash), each holder of a
share of Class A Common Stock shall be entitled to receive with respect to such
share the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of Class B Common Stock and each holder of a share
of Class B Common Stock shall be entitled to receive with respect to such share
the same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or merger
by a holder of a share of Class A Common Stock. In the event that the holders of
Class A Common Stock (or of Class B Common Stock) are granted rights to elect to
receive one of two or more alternative forms of consideration, the foregoing
provision shall be deemed satisfied if holders of Class A Common Stock and
holders of Class B Common Stock are granted substantially identical election
rights.
(6) (a) Except as provided in the Stockholders Agreement,
dated , 1999, among the Corporation, PNC Asset Management, Inc., certain
employees of the Corporation and its Affiliates and Permitted Transferees (as
defined therein) thereof (the "Stockholders Agreement"), each share of Class B
Common Stock shall be convertible, at the option of its record holder, into one
validly issued, fully paid and non-assessable share of Class A Common Stock at
any time. At the time of a conversion, the record holder of shares of Class B
Common Stock shall deliver to the principal office of the Corporation or any
transfer agent for shares of the Class A Common Stock (i) the certificate or
certificates representing the shares of Class B Common Stock to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer, and
(ii) written notice to the Corporation specifying the number of shares of Class
B Common Stock to be converted into shares of Class A Common Stock and stating
the name or names (with addresses) and denominations in which the certificate or
certificates representing the shares of Class A Common Stock issuable upon such
conversion are to be issued and including instructions for the delivery thereof.
Conversion shall be deemed to have been effected at the time when delivery is
made to the Corporation of both such written notice and the certificate or
certificates representing the shares of Class B Common Stock to be converted or
such later time as may be specified in such written notice, and as of such time
each person named in such written notice as the person to whom a certificate
representing shares of Class A Common Stock is to be issued shall be deemed to
be the holder of record of the number of shares of Class A Common Stock to be
evidenced by that certificate. Delivery of such certificates and such written
notice shall obligate the Corporation to issue such shares of Class A Common
Stock, and thereupon the Corporation or its transfer agent shall promptly issue
and deliver at
7
<PAGE>
such stated address to such record holder of shares of Class A Common Stock a
certificate or certificates representing the number of shares of Class A Common
Stock to which such record holder is entitled by reason of such conversion, and
shall cause such shares of Class A Common Stock to be registered in the name of
such record holder.
(b) Upon any conversion of shares of Class B Common
Stock into shares of Class A Common Stock pursuant to the provisions of this
paragraph, any dividend, for which the record date or payment date shall be
subsequent to such conversion, which may have been declared on the shares of
Class B Common Stock so converted, shall be deemed to have been declared, and
shall be payable, with respect to the shares of Class A Common Stock into or for
which such shares of Class B Common Stock shall have been so converted, and any
such dividend which shall have been declared on such shares payable in shares of
Class B Common Stock shall be deemed to have been declared, and shall be
payable, in shares of Class A Common Stock.
(c) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, such number of
shares of Class A Common Stock as would become issuable upon the conversion of
all shares of Class B Common Stock then outstanding. The Corporation covenants
that all of the shares of Class A Common Stock so issuable shall, when so
issued, be duly and validly issued, fully paid and non-assessable, and free from
liens and charges. The Corporation shall take all action as may be necessary to
ensure that all such shares of Class A Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the shares of Class A Common Stock are
or may be listed, or of any inter-dealer quotation system of a registered
national securities association upon which the shares of Class A Common Stock
are or may be listed.
(d) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Class A Common Stock on the conversion of shares
of Class B Common Stock, and no such issue or delivery shall be made unless and
until the person effecting such transfer has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
8
<PAGE>
(7) For so long as the Stockholders Agreement shall remain
in effect, the Corporation shall recognize the restrictions on transfer
contained therein with respect to the parties thereto; provided that in
connection with any transfer or conversion of any stock of the Corporation
pursuant to or as permitted by the Stockholders Agreement, or in connection with
the making of any determination referred to therein:
(a) the Corporation shall be under no obligation to make
any investigation of facts unless an officer, employee or agent of the
Corporation responsible for making such transfer or determination or
issuing Class A Common Stock pursuant to such conversion has substantial
reason to believe, or unless the Board of Directors (or a committee of the
Board of Directors designated for the purpose) determines that there is
substantial reason to believe, that any affidavit or other document is
incomplete or incorrect in a material respect or that an investigation
would disclose facts upon which any determination should be made, in either
of which events the Corporation shall make or cause to be made such
investigation as it may deem necessary or desirable in the circumstances
and have a reasonable time to complete such investigation; and
(b) neither the Corporation nor any director, officer,
employee or agent of the Corporation shall be liable in any manner for any
action taken or omitted in good faith.
(8) No stockholder shall be entitled to exercise any right
of cumulative voting.
FIFTH: A. Stockholder Meetings.
(1) Meetings of stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. An annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may come before the meeting shall be held
at such time and place as shall be determined in accordance with the Bylaws.
Elections of directors need not be by written ballot unless otherwise provided
in the Bylaws.
(2) Except as otherwise required by law and subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or distributions upon liquidation, special
9
<PAGE>
meetings of stockholders of the Corporation of any class or series for any
purpose or purposes may be called only by:
(a) the Chairman of the Board of Directors;
(b) the President of the Corporation;
(c) a majority of the Board of Directors; or
(d) a Controlling Stockholder, provided that as of and
following the Trigger Date, the power of any stockholder to call a special
meeting is specifically denied.
B. Written Consent.
(1) Except as provided in paragraph (2) below and except
as may be otherwise provided in a resolution or resolutions providing for any
class or series of stock other than Common Stock with respect to action by
written consent by holders of such class or series of stock, any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be effected by written consent of such stockholders pursuant to Section 228
of the DGCL.
(2) As of and following the Trigger Date, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such stockholders and may
not be effected by any consent in writing by any such stockholders.
SIXTH: A. Powers of the Board of Directors. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, which shall be constituted as provided in this Article and
as provided by law.
B. Number of Directors. The Board of Directors shall
initially consist of six directors, which number of directors may be increased
or decreased from time to time pursuant to a resolution adopted by: (1) prior
to the Trigger Date, the affirmative vote of at least eighty percent (80%) of
the entire Board of Directors; or (2) as of and following the Trigger Date, the
affirmative vote of a majority of the entire Board of Directors.
10
<PAGE>
C. Classes, Election and Term. The Board of Directors
shall be divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. Class I
directors shall be elected initially for a one-year term, Class II directors
initially for a two-year term and Class III directors initially for a three-year
term. At each succeeding annual meeting of stockholders beginning in 2000,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, but
in no case shall a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting of
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation or removal from
office.
D. Removal of Directors.
(1) Prior to the Trigger Date, except as may be provided in
a resolution or resolutions providing for any class or series of Preferred Stock
with respect to any directors elected by the holders of such class or series,
any director, or the entire Board of Directors, may be removed from office at
any time, with or without cause, by the affirmative vote of the holders of at
least a majority of the votes entitled to be cast by the Voting Stock.
(2) As of and following the Trigger Date, except as may be
provided in a resolution or resolutions providing for any class or series of
Preferred Stock with respect to any directors elected by the holders of such
class or series, any director, or the entire Board of Directors, may be removed
from office at any time, only for cause (as defined by the Corporation's
Bylaws), by the affirmative vote of the holders of at least eighty percent (80%)
of the votes entitled to be cast by the Voting Stock.
E. Meetings of the Board of Directors. Meetings of the
Board of Directors may be held within or without the State of Delaware, as the
Bylaws may provide.
SEVENTH: A director of the Corporation shall, to the maximum extent
permitted by the laws of the State of Delaware, as now or hereafter in effect,
11
<PAGE>
have no personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) in connection with
a proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors. The
right to indemnification conferred by this Article SEVENTH shall include the
right to be paid by the Corporation the expenses incurred in defending or
otherwise participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement
of expenses to employees and agents of the Corporation similar to those
conferred in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the Bylaws of the Corporation, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification
and to the advancement of expenses or other protection of a director, officer,
employee or agent of the Corporation existing at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
EIGHTH: The Corporation shall not be subject to Section 203 of the
DGCL.
12
<PAGE>
NINTH: A. Business Combinations. As of and following the Trigger
Date, the Corporation shall not engage in any Business Combination with any
Interested Stockholder for a period of three years following the time that such
stockholder became an Interested Stockholder, unless:
(1) prior to such time the Board of Directors of the
Corporation approved either the Business Combination or the transaction which
resulted in the stockholder becoming an Interested Stockholder, or
(2) upon consummation of the transaction which resulted in
the stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the Voting Stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or
(3) at or subsequent to such time the Business Combination
is approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66-2/3% of the outstanding Voting Stock which is not owned by the
Interested Stockholder.
B. Exceptions. The restrictions contained in this Article
NINTH shall not apply if:
(1) The Corporation does not have a class of Voting Stock
that is (i) listed on a national exchange, (ii) authorized for quotation on the
NASDAQ Stock Market or (iii) held of record by more than 2,000 stockholders,
unless any of the foregoing results from action taken, directly or indirectly,
by an Interested Stockholder or from a transaction in which a person becomes an
Interested Stockholder;
(2) A stockholder becomes an Interested Stockholder
inadvertently and (i) as soon as practicable divests itself of ownership of
sufficient shares so that the stockholder ceases to be an Interested Stockholder
and (ii) would not, at any time within the 3-year period immediately prior to a
Business
13
<PAGE>
Combination between the Corporation and such stockholder, have been an
Interested Stockholder but for the inadvertent acquisition of ownership; or
(3) The Business Combination is proposed prior to the
consummation or abandonment of and subsequent to the earlier of the public
announcement or the notice required hereunder of a proposed transaction which
(i) constitutes one of the transactions described in the second sentence of this
paragraph; (ii) is with or by a person who either was not an Interested
Stockholder during the previous three years or who became an Interested
Stockholder with the approval of the Corporation's Board of Directors or during
the period described in paragraph (2) of this subsection B; and (iii) is
approved or not opposed by a majority of the members of the Board of Directors
then in office (but not less than 1) who were directors prior to any person
becoming an Interested Stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors. The proposed transactions referred to in the preceding sentence
are limited to (x) a merger or consolidation of the corporation (except for a
merger in respect of which, pursuant to Section 251 (f) of the DGCL, no vote of
the stockholders of the Corporation is required); (y) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of transactions), whether as part of a dissolution or otherwise, of assets of
the Corporation or of any direct or indirect majority-owned subsidiary of the
Corporation (other than to any direct or indirect wholly-owned subsidiary of the
Corporation) having an aggregate market value equal to fifty percent (50%) or
more of either the aggregate market value of all of the assets of the
Corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the Corporation; or (z) a proposed tender or
exchange offer for fifty percent (50%) or more of the Voting Stock. The
Corporation shall give not less than twenty (20) days notice to all Interested
Stockholders prior to the consummation of any of the transactions described in
clauses (x) or (y) of the second sentence of this paragraph.
C. Definitions. As used in this Article NINTH only, the
term:
(1) "affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another person.
(2) "associate," when used to indicate a relation ship with
any person, means (i) any corporation, partnership, unincorporated associa-
14
<PAGE>
tion or other entity of which such person is a director, officer or partner or
is, directly or indirectly, the owner of twenty percent (20%) or more of any
class of voting stock, (ii) any trust or other estate in which such person has
at least a twenty percent (20%) beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity, and (iii) any relative or
spouse of such person, or any relative of such spouse, who has the same
residence as such person.
(3) "Business Combination," when used in reference to the
Corporation and any Interested Stockholder of the Corporation, means:
(i) any merger or consolidation of the Corporation or
any direct or indirect majority-owned subsidiary of the Corporation with
(A) the Interested Stockholder, or (B) with any other corporation,
partnership, unincorporated association or other entity if the merger or
consolidation is caused by the Interested Stockholder and as a result of
such merger or consolidation paragraph (A) of this Article is not
applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions), except proportionately as a stockholder of the Corporation,
to or with the Interested Stockholder, whether as part of a dissolution or
otherwise, of assets of the Corporation or of any direct or indirect
majority-owned subsidiary of the Corporation which assets have an
aggregate market value equal to ten percent (10%) or more of either the
aggregate market value of all the assets of the Corporation determined on a
consolidated basis or the aggregate market value of all the outstanding
stock of the Corporation;
(iii) any transaction which results in the issuance or
transfer by the Corporation or by any direct or indirect majority-owned
subsidiary of the Corporation of any stock of the Corporation or of such
subsidiary to the Interested Stockholder, except (a) pursuant to the
exercise, exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of the Corporation or any such
subsidiary which securities were outstanding prior to the time that the
Interested Stockholder became such, (b) pursuant to a merger under Section
251(g) of the DGCL; (c) pursuant to a dividend or distribution paid or
made, or the exercise, exchange or conversion of securities exercisable
for, exchangeable for or convertible
15
<PAGE>
into stock of the Corporation or any such subsidiary which security is
distributed, pro rata to all holders of a class or series of stock of the
Corporation subsequent to the time the Interested Stockholder became such,
(d) pursuant to an exchange offer by the Corporation to purchase stock made
on the terms to all holders of said stock, or (e) any issuance or transfer
of stock by the Corporation, provided however, that in no case under (c)-
(e) above shall there be an increase in the Interested Stockholder's
proportionate share of the stock of any class or series of the Corporation
or of the Voting Stock;
(iv) any transaction involving the Corporation or any
direct or indirect majority-owned subsidiary of the Corporation which has
the effect, directly or indirectly, of increasing the proportionate share
of the stock of any class or series, or securities convertible into the
stock of any class or series, of the Corporation or of any such subsidiary
which is owned by the Interested Stockholder, except as a result of
immaterial changes due to fractional share adjustments or as a result of
any purchase or redemption of any shares of stock not caused, directly or
indirectly, by the Interested Stockholder; or
(v) any receipt by the Interested Stockholder of the
benefit, directly or indirectly (except proportionately as a stockholder of
the Corporation) of any loans, advances, guarantees, pledges, or other
financial benefits (other than those expressly permitted in subparagraphs
(i)-(iv) above) provided by or through the Corporation or any direct or
indirect majority owned subsidiary.
(4) "control," including the term "controlling," "controlled
by" and "under common control with," means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting stock, by
contract, or otherwise. A person who is the owner of twenty percent (20%) or
more of the outstanding voting stock of any corporation, partnership,
unincorporated association or other entity shall be presumed to have control of
such entity, in the absence of proof by a preponderance of the evidence to the
contrary. Notwithstanding the foregoing, a presumption of control shall not
apply where such person holds voting stock, in good faith and not for the
purpose of circumventing this Article, as an agent, bank, broker, nominee,
custodian or trustee for one or more owners who do not individually or as a
group have control of such entity.
16
<PAGE>
(5) "Interested Stockholder" means any person (other than
the Corporation and any direct or indirect majority-owned subsidiary of the
Corporation) that (i) is the owner of fifteen percent (15%) or more of the
Voting Stock, or (ii) is an affiliate or associate of the Corporation and was
the owner of fifteen percent (15%) or more of the outstanding Voting Stock at
any time within the 3-year period immediately prior to the date on which it is
sought to be determined whether such person is an Interested Stockholder; and
the affiliates and associates of such person; provided, however, that the term
"Interested Stockholder" shall not include any person whose ownership of shares
in excess of the fifteen percent (15%) limitation set forth herein is the result
of action taken solely by the Corporation provided that such person shall be an
Interested Stockholder if thereafter such person acquires additional shares of
Voting Stock, except as a result of further action of the Corporation not
caused, directly or indirectly, by such person. For the purpose of determining
whether a person is an Interested Stockholder, the Voting Stock deemed to be
outstanding shall include stock deemed to be owned by the person through
application of subparagraph (6) of this paragraph (B) but shall not include any
other unissued stock of the Corporation which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(6) "owner" including the terms "own" and "owned" when used
with respect to any stock means a person that individually or with or through
any of its affiliates or associates:
(i) beneficially owns such stock, directly or
indirectly; or
(ii) has (a) the right to acquire such stock (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a person shall not be deemed the owner
of stock tendered pursuant to a tender or exchange offer made by such
person or any of such person's affiliates or associates until such tendered
stock is accepted for purchase or exchange; or (b) the right to vote such
stock pursuant to any agreement, arrangement or understanding; provided,
however, that a person shall not be deemed the owner of any stock because
of such person's right to vote such stock if the agreement, arrangement or
understanding to vote such stock arises solely from a revocable proxy or
consent given in
17
<PAGE>
response to a proxy or consent solicitation made to ten (10) or more
persons; or
(iii) has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting (except voting pursuant to a
revocable proxy or consent as described in item (b) of clause (ii) of this
subparagraph), or disposing of such stock with any other person that
beneficially owns, or whose affiliates or associates beneficially own,
directly or indirectly, such stock.
TENTH: A. Certain Acknowledgments. The provisions of this
Article TENTH shall regulate and define the conduct of certain of the business
and affairs of the Corporation in relation to any Controlling Stockholder and
Affiliated Companies (as defined below in this Article TENTH) thereof, in
recognition and anticipation that:
(1) the Original Controlling Stockholder or another
Controlling Stockholder will remain a significant stockholder of the
Corporation;
(2) the directors, officers and/or employees of a
Controlling Stockholder or of Affiliated Companies thereof may serve as
directors and/or officers of the Corporation;
(3) the Controlling Stockholder and the Affiliated
Companies thereof engage, are expected to continue to engage and may in the
future engage in the same, similar or related lines of business as those in
which the Corporation, directly or indirectly, may engage and/or other business
activities that overlap with or compete with those in which the Corporation,
directly or indirectly, may engage;
(4) that the Corporation and Affiliated Companies thereof
will or may engage in material business transactions with the Controlling
Stockholder and Affiliated Companies thereof that the Corporation is expected to
benefit therefrom; and
(5) as a consequence of the foregoing, it is in the best
interests of the Corporation that the respective rights and duties of the
Corpora tion, the Controlling Stockholder and the Affiliated Companies of each,
and the duties of any directors or officers of the Corporation who are also
directors, officers
18
<PAGE>
or employees of the Controlling Stockholder or Affiliated Companies thereof, be
determined and delineated in respect of any transactions between, or
opportunities that may be suitable for both, the Corporation and Affiliated
Companies thereof, on the one hand, and the Controlling Stockholder and
Affiliated Companies thereof, on the other hand.
Any person or entity purchasing or otherwise acquiring any interest in
shares of capital stock of the Corporation shall be deemed to have notice of and
consented to the provisions of this Article TENTH.
The provisions of this Article TENTH are in addition to, and not in
limitation of, the provisions of the DGCL and the other provisions of this
Certificate of Incorporation. Any contract or business relationship which does
not comply with the procedures set forth in this Article TENTH shall not by
reason thereof be deemed void or voidable or result in any breach of any
fiduciary duty or duty of loyalty or failure to act in good faith or in the best
interests of the Corporation or derivation of any improper personal benefit, but
shall be governed by the provisions of this Amended and Restated Certificate of
Incorporation, the Bylaws, the DGCL and other applicable law.
B. Certain Agreements and Transactions Permitted; Certain
Fiduciary Duties of Certain Stockholders, Directors and Officers. The
Corporation may from time to time enter into and perform, and cause or permit
any Affiliated Company of the Corporation to enter into and perform, one or more
agreements (or modifications or supplements to pre-existing agreements) with the
Controlling Stockholder or Affiliated Companies thereof pursuant to which the
Corporation or an Affiliated Company thereof, on the one hand, and the
Controlling Stockholder or an Affiliated Company thereof, on the other hand,
agree to engage in transactions of any kind or nature with each other or with
Affiliated Companies thereof and/or agree to compete, or to refrain from
competing or to limit or restrict their competition, with each other, including
to allocate and to cause their respective directors, officers and employees
(including any who are directors, officers or employees of both) to allocate
opportunities between or to refer opportunities to each other. Subject to
paragraph (E) of this Article TENTH, (i) no such agreement shall be considered
void or voidable solely due to the nature of the parties thereto or due to the
existence of circumstances as described in paragraph (A) of this Article TENTH,
(ii) no such agreement, or the performance thereof by the Corporation or the
Controlling Stockholder, or any Affiliated Company thereof, shall be considered
contrary to any fiduciary duty that the Controlling Stockholder or any
Affiliated Company thereof
19
<PAGE>
may owe to the Corporation or any Affiliated Company thereof or to any
stockholder or other owner of an equity interest in the Corporation or any
Affiliated Company thereof by reason of the Controlling Stockholder or any
Affiliated Company thereof being a controlling stockholder of the Corporation or
participating in the control of the Corporation or of any Affiliated Company
thereof, (iii) no such agreement, or the performance thereof by the Corporation
or the Controlling Stockholder, or any Affiliated Company thereof, shall be
considered contrary to any fiduciary duty of any director or officer of the
Corporation or of any Affiliated Company thereof who is also a director, officer
or employee of the Controlling Stockholder or any Affiliated Company thereof to
the Corporation or such Affiliated Company, or to any stockholder thereof, and
(iv) the parties to any such agreement shall be deemed to have acted in good
faith and in a manner they reasonably believed to be in and not opposed to the
best interests of the Corporation and shall be deemed not to have derived any
improper personal benefit therefrom, if any of the following conditions shall
have been satisfied:
(1) such agreement shall have been entered into before
any shares of Common Stock of the Corporation were offered for sale to the
public and continued in effect in respect of any such transaction or opportunity
after such time; or
(2) such agreement shall have been approved (a) by the
Board of Directors by the affirmative vote of a majority of the directors (even
though less than a quorum) who are not Interested Persons (as defined below in
this Article TENTH) in respect of such agreement or (b) by a committee of the
Board of Directors constituted solely of directors who are not Interested
Persons in respect of such agreement by the affirmative vote of a majority of
the members of such committee or (c) by one or more officers or employees of the
Corporation (including officers or employees of the Corporation acting as
directors, officers, trustees, partners or members of, or in any similar
capacity on behalf of, any Affiliated Company of the Corporation) who in each
case is not an Interested Person in respect of such agreement and to whom the
authority to approve such agreement has been delegated either by the Board of
Directors by the same affirmative vote required by paragraph (B)(2)(a) of this
Article TENTH for approval of such agreement by the Board of Directors or by a
committee of the Board of Directors constituted as provided by and acting by the
same affirmative vote as required by paragraph (B)(2)(b) of this Article TENTH
for approval of such agreement by such committee or, in the case of an employee,
to whom such authority has been delegated by an officer to whom authority to
approve such agreement has been so delegated; pro-
20
<PAGE>
vided, however, that, before approval of such agreement, the material facts of
the relationship between the Corporation or such Affiliated Company thereof, on
the one hand, and the Controlling Stockholder or such Affiliated Company
thereof, on the other hand, and the material terms and facts as to such
agreement were disclosed to or were known by the members of the Board of
Directors or of such committee or the officer or officers or employee or
employees who acted on approval of such agreement, as the case may be; or
(3) such agreement was fair to the Corporation as of the
time it was entered into by the Corporation; or
(4) such agreement was approved by the affirmative vote of
the holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon and who do vote thereon, exclusive of the Controlling
Stockholder and any Affiliated Company thereof and any Interested Person in
respect of such agreement; or
(5) in the case of any such transaction that was not
entered into in the performance of an agreement that satisfied the requirements
of clause (1), (2), (3) or (4) of this sentence, such transaction shall have
been approved or ratified by (a) the Board of Directors of the Corporation by
the affirmative vote of a majority of the directors (even though less than a
quorum) who are not Interested Persons in respect of such transaction or (b) by
a committee of the Board of Directors constituted solely of directors who are
not Interested Persons in respect of such transaction by the affirmative vote of
a majority of the members of such committee or (c) by one or more officers or
employees of the Corporation (including officers or employees of the Corporation
acting as directors, officers, trustees, partners or members of, or in any
similar capacity on behalf of, any Affiliated Company of the Corporation) who in
each case is not an Interested Person in respect of such transaction and to
whom the authority to approve such transaction has been delegated either by the
Board of Directors by the same affirmative vote required by paragraph (B)(5)(a)
of this Article TENTH for approval of such transaction by the Board of Directors
or a committee of the Board of Directors constituted as provided by and acting
by the same affirmative vote as required by paragraph (B)(5)(b) of this Article
TENTH for approval of such transaction by such committee or, in the case of an
employee, to whom such authority has been delegated by an officer to whom
authority to approve such transaction has been so delegated; provided, however,
that, before such approval or ratification, the material facts of the
relationship between the Corporation or such Affiliated Company thereof, on the
one hand, and the Control-
21
<PAGE>
ling Stockholder or such Affiliated Company thereof, on the other hand, and the
material facts as to such transaction were disclosed to or were known by the
members of the Board of Directors or of such committee or the officer or
officers or employee or employees who acted on approval or ratification of such
transaction, as the case may be; or
(6) in case of any such transaction that was not entered into in the
performance of an agreement that satisfied the requirements of clause (1), (2),
(3) or (4) of this sentence, such transaction was approved or ratified by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Corporation entitled to vote thereon and who do vote thereon, exclusive of
the Controlling Stockholder and any Affiliated Company thereof and any
Interested Person in respect of such transaction. Subject to paragraph (D) of
this Article TENTH, neither the Controlling Stockholder nor any Affiliated
Company thereof, as a stockholder of the Corporation or participant in control
of the Corporation, shall have or be under any fiduciary duty to refrain from
entering into any agreement or participating in any transaction that meets the
requirements of any of clauses (1), (2), (3), (4), (5) or (6) of this paragraph
(B) and no director, officer or employee of the Corporation who is also a
director, officer or employee of the Controlling Stockholder or any Affiliated
Company thereof shall have or be under any fiduciary duty to the Corporation to
refrain from acting on behalf of the Corporation or any Affiliated Company
thereof in respect of any such agreement or transaction or performing any such
agreement in accordance with its terms. Any person purchasing or otherwise
acquiring any shares of capital stock of the Corporation, or any interest
therein, shall be deemed to have notice of and to have consented to the
provisions of this Article TENTH. The failure of any agreement or transaction
between the Corporation or an Affiliated Company thereof, on the one hand, and
the Controlling Stockholder or an Affiliated Company thereof, on the other hand,
to satisfy the requirements of this Article TENTH shall not, by itself, cause
such agreement or transaction to constitute any breach of any fiduciary duty to
the Corporation or to any Affiliated Company thereof, or to any stockholder or
other owner of an equity interest therein, by the Controlling Stockholder or
such Affiliated Company thereof or by any director or officer of the
Corporation, the Controlling Stockholder or any of their respective Affiliated
Companies.
(7) No contract, agreement, arrangement or transaction between the
Corporation and the Controlling Stockholder or any of their Affiliated Companies
or between the Corporation and one or more of the directors or officers of the
Corporation, the Controlling Stockholder or any of their Affiliated
22
<PAGE>
Companies or between the Controlling Stockholder and any Affiliated Company
shall be void or voidable solely for the reason that the Corporation, any
Affiliated Company or any one or more of the officers or directors of the
Corporation, the Controlling Stockholder or any of their Affiliated Companies
are parties thereto, or solely because any such directors or officers are
present at or participate in the meeting of the Board of Directors or committee
thereof which authorizes the contract, agreement, arrangement or transaction, or
solely because his or their votes are counted for such purpose, and the
Controlling Stockholder, any Affiliated Company and such directors and officers
(a) shall have fully satisfied and fulfilled their fiduciary duties to the
Corporation and its stockholders with respect thereto, (b) shall not be liable
to the Corporation or its stockholders for any breach of fiduciary duty by
reason of the entering into, performance or consummation of any such contract,
agreement, arrangement or transaction, (c) shall be deemed to have acted in good
faith and in a manner such persons reasonably believe to be in and not opposed
to the best interests of the Corporation for purposes of Article TENTH and the
other provisions of this Certificate of Incorporation and (d) shall be deemed
not to have breached their duties of loyalty to the Corporation and its
stockholders and not to have derived an improper personal benefit therefrom for
the purposes of Article TENTH and the other provisions of this Certificate of
Incorporation, if:
(a) the material facts as to the contract, agreement,
arrangement or transaction are disclosed or are known to the Board of Directors
or the committee thereof which authorizes the contract or transaction, and the
Board of Directors or such committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(b) the material facts as to the contract, agreement,
arrangement or transaction are disclosed or are known to the holders of Voting
Stock entitled to vote thereon, and the contract, agreement, arrangement or
transaction is specifically approved in good faith by vote of the holders of a
majority of the then outstanding Voting Stock not owned by the Controlling
Stockholder or an Affiliated Company, as the case may be.
(8) Directors of the Corporation who are also directors or
officers of the Controlling Stockholder or an Affiliated Company may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract, agreement, arrangement or
transaction. Voting Stock owned by the Controlling Stockholder and any
23
<PAGE>
Affiliated Companies may be counted in determining the presence of a quorum at a
meeting of stockholders which authorizes the contract, agreement, arrangement or
transaction.
(9) For purposes of this Article TENTH, any contract,
agreement, arrangement or transaction with any corporation, partnership, joint
venture, association or other entity in which the Corporation owns (directly or
indirectly) fifty percent or more of the outstanding voting stock, voting power,
partnership interests or similar ownership interests, or with any officer or
director thereof, shall be deemed to be a contract, agreement, arrangement or
transaction with the Corporation.
(10) Notwithstanding anything in this Certificate of
Incorporation to the contrary and in addition to any vote of the Board of
Directors required by this Certificate of Incorporation, until the occurrence of
the Trigger Date, the affirmative vote of the holders of more than eighty
percent (80%) of the voting power of the Voting Stock then outstanding shall be
required to alter, amend or repeal, or adopt any provision inconsistent with any
provision of this Article TENTH. Neither the alteration, amendment or repeal of
this Article TENTH nor the adoption of any provision inconsistent with this
Article TENTH shall eliminate or reduce the effect of this Article TENTH in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article TENTH, would accrue or arise, prior to such alteration,
amendment, repeal or adoption.
C. Corporate Opportunities.
(1) The Controlling Stockholder and its Affiliated Companies
shall have no duty not to (i) engage in the same or similar activities or lines
of business as the Corporation, (ii) do business with any client or customer of
the Corporation, or (iii) employ or otherwise engage any officer or employee of
the Corporation, and neither the Controlling Stockholder nor its Affiliated
Companies nor any officer or director thereof shall be liable to the Corporation
or its stockholders for breach of any fiduciary duty by reason of any such
activities of the Control ling Stockholder or any Affiliated Company thereof or
of such person's participation therein. In the event that the Controlling
Stockholder or any Affiliated Company thereof acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the
Controlling Stockholder or any Affiliated Company thereof and the Corporation,
neither the Controlling Stockholder nor any Affiliated Company thereof shall
have any duty to communicate or present such
24
<PAGE>
corporate opportunity to the Corporation and shall not be liable to the
Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation by reason of the fact that the Controlling
Stockholder or any Affiliated Company thereof pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person, or
does not present such corporate opportunity to the Corporation.
(2) For the purposes of this Article TENTH, "corporate
opportunities" shall include, but not be limited to, business opportunities
which the Corporation is financially able to undertake, which are, from their
nature, in the line of the Corporation's business, are of practical advantage to
it and are ones in which the Corporation has an interest or a reasonable
expectancy, and in which, by embracing the opportunities, the self-interest of
the Controlling Stockholder or any Affilated Company or its officers or
directors, will be brought into conflict with that of the Corporation.
(3) If any contract, agreement, arrangement or transaction
between the Corporation and the Controlling Shareholder and any Affiliated
Company involves a corporate opportunity and is approved in accordance with the
procedures set forth in paragraph (B) of this Article TENTH, the Controlling
Shareholder and any Affiliated Company and their officers and directors shall
also for the purposes of this Article TENTH and the other provisions of this
Certificate of Incorporation (a) have fully satisfied and fulfilled their
fiduciary duties to the Corporation and its stockholders, (b) be deemed to have
acted in good faith and in a manner such persons reasonably believe to be in and
not opposed to the best interests of the Corporation and (c) be deemed not to
have breached their duties of loyalty to the Corporation and its stockholders
and not to have derived an improper personal benefit therefrom. Any such
contract, agreement, arrangement or transaction involving a corporate
opportunity not so approved shall not by reason thereof result in any such
breach of any fiduciary duty or duty of loyalty or failure to act in good faith
or in the best interests of the Corporation or derivation of any improper
personal benefit, but shall be governed by the other provisions of this Article
TENTH, this Certificate of Incorporation, the Bylaws, the DGCL and other
applicable law.
25
<PAGE>
D. Certain Definitions. For purposes of this Article
TENTH, the following definitions shall apply:
(1) "Affiliated Company" shall mean in respect of the
Controlling Stockholder any company which controls, is controlled by, or is
under common control with the Controlling Stockholder (other than the
Corporation and any company that is controlled by the Corporation) and in
respect of the Corporation shall mean any company controlled by the
Corporation.
(2) "Interested Person" in respect of an agreement or
transaction referred to in paragraph (B) of Article TENTH shall mean any
director, officer or employee of the Controlling Stockholder or an Affiliated
Company thereof and any person who has a financial interest that is material to
such person in the Controlling Stockholder or such Affiliated Company or
otherwise has a personal financial interest that is material to such person in
such agreement or transaction; provided, however, that no such financial
interest shall be considered material by reason of a person's ownership of
securities of the Controlling Stockholder or an Affiliated Company thereof, if
such ownership of securities has been determined in good faith not to be
reasonably likely to influence such individual's decision on behalf of the
Corporation or an Affiliated Company thereof in respect of the agreement or
transaction either in the specific instance by, or pursuant to a policy adopted
by, the Board of Directors by the affirmative vote of a majority of the
directors (even though less than a quorum) who are not directors, officers or
employees of the Controlling Stockholder or any Affiliated Company thereof or a
committee of the Board of Directors constituted solely of directors who are not
directors, officers or employees of the Controlling Stockholder or any
Affiliated Company thereof by the affirmative vote of a majority of such
committee.
E. Termination. The provisions of this Article TENTH
shall have no further force or effect at such time as any Controlling
Stockholder ceases to own directly or indirectly a majority of the Voting Stock;
provided, however, that such termination shall not terminate the effect of such
provisions with respect to (i) any agreement between the Corporation or an
Affiliated Company thereof and the Controlling Stockholder or an Affiliated
Company thereof that was entered into before such time or any transaction
entered into in the performance of such agreement, whether entered into before
or after such time, or (ii) any transaction entered into between the Corporation
or an Affiliated Company thereof and the Controlling Stockholder or an
Affiliated Company thereof for the allocation of any opportunity between them
before such time.
26
<PAGE>
ELEVENTH: The books of the Corporation may be kept (subject to any
provision contained in the DGCL or other applicable statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
TWELFTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may in a summary way on the
application of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of the DGCL, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
THIRTEENTH:
A. General Right to Amend Bylaws. Except as otherwise
set forth below in paragraph (B) of this Article, the Bylaws of the Corporation
may be adopted, consistent with law and the provisions of this Certificate of
Incorporation (including any Preferred Stock Designation), and once adopted,
any Bylaw may be altered or repealed by: (1) the affirmative vote of at least a
majority of the members of the Board of Directors then in office; provided,
however, that prior to the Trigger Date, the affirmative vote of at least eighty
percent (80%) of the entire Board of Directors shall be required to amend,
alter, change, adopt or repeal any provision of the Bylaws or to adopt any new
Bylaw; or (2) the affirmative vote of at least a majority of the voting power of
the Voting Stock.
27
<PAGE>
B. Certain Bylaw Amendments. As of and following the
Trigger Date, any proposed amendment, alteration, change, adoption or repeal of,
or the adoption of any Bylaw inconsistent with, any of Sections 2.3, 2.9, 2.10
or 2.12 of Article II or Sections 3.2 and 3.4 of Article III or Article VIII of
the Bylaws shall require the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all Voting Stock then outstanding.
FOURTEENTH:
A. General Right to Amend Certificate of Incorporation.
(1) The Corporation hereby reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Certificate of Incorporation, and to add thereto any other provision
authorized by the laws of the state of Delaware at the time in force, and except
as may otherwise be explicitly provided by any provision of this Certificate of
Incorporation, all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or officers of the Corporation or any
other person whomsoever by and pursuant to this Certificate of Incorporation in
its present form, or as hereafter amended, are granted subject to the right
reserved in this paragraph (A)(1).
(2) Subject to the provisions of paragraph (B) below and
the rights of the holders of Preferred Stock, the provisions of this
Certificate of Incorporation may only be altered, amended or repealed, and any
inconsistent provision adopted, with such action (if any) of the Board of
Directors as is provided by law, and in addition to any other vote of
stockholders (if any) required by law, and notwithstanding that a lower vote (or
no vote) of stockholders otherwise would be required:
(a) prior to the Trigger Date, the approval of at
least a majority of the voting power of Voting Stock; or
(b) as of and following the Trigger Date, the approval
of at least a majority of the voting power of Voting Stock; provided, however,
that any proposed amendment, alteration, change, adoption or repeal of, or the
adoption of any provision inconsistent with, any of paragraph (C)(3)(a) of
Article FOURTH, paragraph (A)(2) of Article FIFTH, paragraph (B) of Article
FIFTH, paragraph (C) of Article SIXTH, paragraph (E) of Article SIXTH, Article
EIGHTH,
28
<PAGE>
Article NINTH, Article TENTH and Article THIRTEENTH, shall require the approval
by affirmative vote of the holders of at least eighty percent (80%) of the
voting power of all Voting Stock.
B. Amendment of this Article. The affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all Voting Stock
shall be required to alter, amend or repeal, or to adopt any provision
inconsistent with, this Article FOURTEENTH.
FIFTEENTH: The Corporation shall have perpetual existence.
SIXTEENTH: For purposes of this Certificate of Incorporation, the
following definitions shall apply:
(1) "Beneficial Owner" shall have the meaning given to
such term in Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended;
(2) "Controlling Stockholder" shall mean a holder or
beneficial owner, in the aggregate, of at least a majority of the Voting Stock;
(3) "Employee Stockholder" shall mean any holder of
shares of Class B Common Stock, other than the Original Controlling Stockholder,
as of the date of the initial public offering of shares of Class A Common Stock
of the Corporation;
(4) "Original Controlling Stockholder" shall mean PNC
Asset Management, Inc.;
(5) each reference to a "person" shall be deemed to
include not only a natural person, but also a corporation, partnership, joint
venture, association, or legal entity of any kind; each reference to a "natural
person" (or to a "record holder" of shares, if a natural person) shall be deemed
to include, in his, her or its representative capacity, a guardian, committee,
executor, administrator or other legal representative of such natural person or
record holder;
(6) "Subsidiary" shall mean, as to any person or
entity, a corporation, part ownership, joint venture, association or other
entity in
29
<PAGE>
which such person or entity beneficially owns (directly or indirectly)
fifty percent (50%) or more of the Voting Stock or outstanding voting power,
partnership interests or similar voting interests; and
(7) "Trigger Date" shall mean the first date following
the date upon which a Controlling Stockholder ceases to be the holder or
beneficial owner of a majority of the voting power of the Voting Stock; and
(8) "Voting Stock" shall mean the then outstanding
shares of capital stock of the Corporation entitled to vote generally on the
election of directors and shall exclude any class or series of capital stock of
the Corporation only entitled to vote in the event of dividend arrearages or any
default under any provision of such series thereon, whether or not at the time
of determination there are any such dividend arrearages or defaults.
IN WITNESS WHEREOF, this Certificate of Incorporation which restates,
integrates and amends the provisions of the Original Certificate of
Incorporation of the Corporation, and which has been duly adopted in accordance
with Sections 242 and 245 of the Delaware General Corporation Law, has been
executed by an authorized officer of the Corporation this ____ day of
___________, 1999.
BLACKROCK, INC.
By:
-----------------------------------------
[Name]
[Title]
By:
-----------------------------------------
[Name]
[Title]
30
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS OF
BLACKROCK, INC.
A Delaware Corporation
ARTICLE I
Offices
Section 1.1 Registered Office. The registered office of BlackRock, Inc.
-----------------
(hereinafter called the "Corporation") within the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801, and the name of the registered agent of the
Corporation at such address shall be The Corporation Trust Company.
Section 1.2 Other Offices. The Corporation may also have offices at
-------------
such other places, both within and without the State of Delaware, as the Board
of Directors from time to time shall determine or the business of the
Corporation may require.
Section 1.3 Books and Records. The books and records of the Corporation
-----------------
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors or officers.
Section 1.4 Certain Definitions. Except where otherwise explicitly
-------------------
provided, all references herein to the "Certificate of Incorporation" shall mean
the certificate of incorporation of the Corporation as from time to time amended
or restated and in effect including any certificates of designation (each a
"Preferred Stock Designation") filed under section 151(g) (or any successor
provision) of the General Corporation Law of the State of Delaware, as amended
and in effect from time to time (the "DGCL"), starting with the Amended and
Restated Certificate of Incorporation dated ___________ ___, 1999 in effect on
the date these Bylaws become effective. In the event of any amendment of these
Bylaws that does not involve a complete restatement thereof, any reference
herein to "the Bylaws" or "these Bylaws" or "herein", or "hereof" or a like
reference shall refer to these Bylaws as so amended.
ARTICLE II
Meetings of Stockholders
Section 2.1 Place of Meetings. All meetings of the stockholders shall
-----------------
be held at any such place, either within or without the State of Delaware, as
shall be designated from time to
<PAGE>
time by the Board of Directors and stated in the notice of meeting or in a duly
executed waiver thereof.
Section 2.2 Annual Meeting. The annual meeting of the stockholders for
--------------
the election of directors and for the transaction of such other business as may
come before the meeting shall be held at such time and place as shall be
determined by the Board of Directors and stated in the notice of the meeting.
Only such business may be conducted as has been brought before an annual meeting
of stockholders by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of the
Corporation of such stockholder's intention to bring such business before the
meeting pursuant to Section 2.10 of these Bylaws.
Section 2.3 Special Meetings. Except as otherwise provided by law or by
----------------
the Certificate of Incorporation of the Corporation and subject to the rights of
the holders of Preferred Stock (as defined in the Certificate of Incorporation),
special meetings of the stock holders for any purpose or purposes may be called
only by a majority of the Board of Directors in accordance with these Bylaws,
the Chairman of the Board of Directors, the President of the Corporation or a
committee of the Board of Directors whose powers and authority include the power
to call such meetings; provided that, prior to the Trigger Date (as defined in
the Certificate of Incorporation), the Secretary shall call a special meeting of
stockholders promptly upon written request by the Controlling Stockholder (as
defined in the Certificate of Incorporation). As of and following the Trigger
Date, the power of any stockholder to call a special meeting is specifically
denied. The only business which may be conducted at a special meeting, other
than procedural matters and matters relating to the conduct of the meeting,
shall be the matter or matters described in the notice of such meeting.
Section 2.4 Adjournments. Any meeting of the stockholders 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, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.5 Notice of Meetings. Notice of meetings of stockholders
------------------
shall be given by the Corporation as required by applicable law not less than
ten days nor more than sixty days before such meeting (unless a different time
is specified by law) to every stockholder entitled by law to notice of such
meeting. Notice of any such meeting need not be given to any stockholder who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting, except when he shall attend 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.
2
<PAGE>
Section 2.6 List of Stockholders. A complete list of the stockholders
--------------------
entitled to vote at any meeting of stockholders, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares of each
class of capital stock of the Corporation registered in the name of each
stockholder, shall be prepared by the Secretary and shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, either at a place within the city 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, for at least ten
days before the meeting and at the place of the meeting during the whole time of
the meeting. The stock ledger of the Corporation shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger and the list
required by this Section 2.6 or to vote in person or by proxy at any meeting of
stockholders.
Section 2.7 Quorum. Unless otherwise required by law or the Certificate
------
of Incorporation, a majority in voting power of the outstanding shares of the
Corporation entitled to vote on the matters at issue, present in person or
represented by proxy, shall constitute a quorum. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 2.4, until a quorum shall be present or represented. A
quorum, once established, shall not be broken by the subsequent withdrawal of
enough votes to leave less than a quorum. At any such adjourned meeting at which
there is a quorum, any business may be transacted that might have been
transacted at the meeting originally called.
Section 2.8 Conduct of Meetings. The Board of Directors of the
-------------------
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. At every
meeting of stockholders, the Chairman of the Board of Directors, or in his
absence or inability to act, the President, or, in his absence or inability to
act, the person whom the Vice Chairman shall appoint, shall act as chairman of,
and preside at, the meeting. The Secretary or, in his absence or inability to
act, the person whom the chairman of the meeting shall appoint secretary of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Except to the extent inconsistent with such rules and regulations as adopted by
the Board of Directors, the chairman of any meeting of the stockholders shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are appropriate
for the proper conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the Board of Directors or prescribed by the chairman of the
meeting, may include, without limitation, the following: (a) the establishment
of an agenda or order of business for the meeting; (b) the determination of when
the polls shall open and close for any given matter to be voted on at the
meeting; (c) rules and procedures for maintaining order at the meeting and the
safety of those present; (d) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (e) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (f) limitations on the time allotted to
questions or comments by participants.
3
<PAGE>
Section 2.9 Nomination of Directors.
-----------------------
(a) Only persons who are nominated in accordance with the procedures
in this Section 2.9 shall be eligible for election as directors of the
Corporation, subject to the rights of the holders of Preferred Stock.
Nominations of persons for election to the Board of Directors may be made at any
annual meeting of stockholders (i) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (ii) by any stockholder
of the Corporation (A) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 2.9 and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(B) who complies with the notice procedures set forth in this Section 2.9.
(b) In addition to any other applicable requirements, for a nomination
to be made by a stockholder (other than by a Controlling Stockholder prior to
the Trigger Date), such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
(c) To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred and twenty
(120) days prior to the first anniversary of the date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
(d) To be in proper written form, a stockholder's notice to the
Secretary must set forth: (i) as to each person whom the stockholder proposes
to nominate for election as a director (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such person that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended
("Exchange Act") and the rules and regulations promulgated thereunder; and (ii)
as to the stockholder giving the notice (A) the name and record address of such
stockholder, (B) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(C) a description of all arrangements or understandings between such stockholder
and each proposed nominee and any other person or persons (including their
names) pursuant to which the nomination(s) are to be made by such stockholder,
(D) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to nominate the persons named in its notice and (E)
any other information relating to such stockholder that would be required to be
disclosed in a proxy
4
<PAGE>
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to being named as a
nominee and to serve as a director if elected.
(e) If the chairman of the annual meeting determines that a nomination
was not made in accordance with the foregoing procedures, the chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
(f) Notwithstanding anything to the contrary set forth herein, prior
to the Trigger Date, nominations by a Controlling Stockholder shall not be
subject to the notice procedures of this Section 2.9.
Section 2.10 Business at Annual Meetings.
----------------------------
(a) No business may be transacted at an annual meeting of
stockholders, other than business that is either (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (ii) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (iii) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (A) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 2.10 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (B) who complies with
the notice procedures set forth in this Section 2.10.
(b) In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder (other than by a
Controlling Stockholder prior to the Trigger Date), such stockholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
(c) To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred and twenty
(120) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or after
such anniversary date, notice by the stockholder in order to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
(d) To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons
5
<PAGE>
for conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder, (iv) a description of all arrangements or understandings
between such stockholder and any other person or persons (including their names)
in connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stock holder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
(e) Once business has been properly brought before the annual meeting
in accordance with such procedures, nothing in this Section 2.10 shall be deemed
to preclude discussion by any stockholder of any such business. If the chairman
of an annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, the Chairman
shall declare to the meeting that the business was not properly brought before
the meeting and such business shall not be transacted.
(f) Notwithstanding anything to the contrary set forth herein, prior
to the Trigger Date, business brought before an annual meeting by a Controlling
Stockholder shall not be subject to the notice procedures of this Section 2.10.
Section 2.11 Voting. Unless otherwise required by law, the Certificate
------
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the votes of shares of capital stock represented
and entitled to vote thereat, voting as a single class. Every reference in
these Bylaws to a majority or other proportion of shares, or a majority or other
proportion of the votes of shares, of capital stock shall refer to such majority
or other proportion of the votes to which such shares of capital stock are
entitled as provided in the Certificate of Incorporation. Votes of stockholders
entitled to vote at a meeting of stockholders may be cast in person or by proxy
but no proxy shall be voted on or after three years from its date, unless such
proxy provides for a longer period. The Board of Directors, in its discretion,
or the chairman of the meeting of stockholders, in such chairman's discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Abstentions shall not be considered to be votes cast.
Section 2.12 No Stockholder Action by Written Consent. As of and
----------------------------------------
following the Trigger Date, except as otherwise provided pursuant to provisions
of the Certificate of Incorporation fixing the powers, privileges or rights of
any series of preferred stock in respect of action by written consent of the
holders of such series of preferred stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such stockholders and may not be effected by
any consent in writing by such stockholders. Prior to the Trigger Date, action
of the stockholders of any class or classes, or series thereof, may be taken by
written consent as permitted by law.
6
<PAGE>
ARTICLE III
Board of Directors
Section 3.1 General Powers. The business and affairs of the Corporation
--------------
shall be managed by or under the direction of the Board of Directors. In
addition to the powers and authorities expressly conferred upon them by these
Bylaws, the Board of Directors may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2 Number, Qualifications, Election and Term of Office.
---------------------------------------------------
(a) The Board of Directors shall consist initially of six (6)
directors. Subject to the rights of the holders of Preferred Stock, the number
of directors on the Board of Directors may be increased or decreased from time
to time exclusively pursuant to a resolution adopted by: (i) prior to the
Trigger Date, the affirmative vote of at least eighty percent (80%) of the
entire Board of Directors; or (ii) as of and following the Trigger Date, the
affirmative vote of a majority of the entire Board of Directors. No reduction
in the number of directors shall have the effect of shortening the term of any
director in office at the time such reduction becomes effective.
(b) The retirement age of and other restrictions and qualifications
for directors constituting the Board of Directors shall be as authorized from
time to time by the affirmative vote of eighty percent (80%) of the members of
the Board of Directors then in office. Members of the Board of Directors need
not be residents of the State of Delaware and need not be stockholders of the
Corporation.
(c) The directors shall be divided into three classes, Class I, Class
II and Class III, as provided in the Certificate of Incorporation, and shall
hold office in accordance with the provisions as set forth therein.
Section 3.3 Vacancies. Subject to Section 3.10, unless otherwise
---------
required by law or by the Certificate of Incorporation, vacancies arising
through death, resignation, removal, an increase in the number of directors or
otherwise may be filled by a majority of the directors then in office, even
though less than a quorum, or by a sole remaining director, or by the
stockholders if such vacancy resulted from the action of stockholders (in which
event such vacancy may not be filled by the directors or a majority thereof),
and the directors so chosen shall hold office until the next election for such
class and until their successors are duly elected and qualified, or until their
earlier death, resignation or removal.
Section 3.4 Removal. Any director or the entire Board of Directors may
-------
be removed, with or without cause, by the affirmative vote of shares
representing a majority of the votes entitled to be cast by the Voting Stock;
provided, however that from and after the Trigger Date, a director may only be
removed for cause, such removal to be by the affirmative vote of the shares
7
<PAGE>
representing eighty percent (80%) of the votes entitled to be cast by the Voting
Stock. "Cause" for removal of a director shall be deemed to exist only if: (i)
the director whose removal is proposed has been convicted, or when a director is
granted immunity to testify when another has been convicted, of a felony by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal; (ii) such director has been found by the affirmative vote of a
majority of the Directors then in office at any regular or special meeting of
the Board of Directors called for that purpose, or by a court of competent
jurisdiction, to have been guilty of willful misconduct in the performance of
his duties to the Corporation in a matter of substantial importance to the
Corporation; (iii) such director has been adjudicated by a court of competent
jurisdiction to be mentally incompetent, which mental incompetency directly
affects his ability as a director of the Corporation; or (iv) the entry of any
order against such director by any governmental body having regulatory authority
with respect to the Corporation's business. Notwithstanding the foregoing,
whenever holders of outstanding shares of one or more series of Preferred Stock
are entitled to elect directors of the Corporation pursuant to the provisions
applicable in the case of arrearages in the payment of dividends or other
defaults contained in the resolution or resolutions of the Board of Directors
providing for the establishment of any such series, any such director of the
Corporation so elected may be removed in accordance with the provisions of such
resolution or resolutions. "Voting Stock" shall mean the shares of the then
outstanding capital stock entitled to vote generally on the election of
directors and shall exclude any class or series of capital stock only entitled
to vote in the event of dividend arrearages thereon or other defaults
thereunder, whether or not at the time of the determination there are any such
dividend arrearage or defaults.
Section 3.5 Place of Meetings. Meetings of the Board of Directors
------------------
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting. Each regular meeting of the Board
of Directors shall be held at the location specified in the notice with respect
to such meeting or, if no such notice is provided or no location is specified
therein, at the principal executive offices of the Corporation.
Section 3.6 Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and place as the Board of Directors may
fix. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by applicable law or these Bylaws.
Section 3.7 Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board of Directors or at the
request of twenty percent (20%) of the directors. The person or persons
authorized to call a special meeting of the Board of Directors may fix the
place, date and time of the meeting. Upon request by the person or persons
authorized to call such meeting, the Secretary of the Corporation shall give
any requisite notice for the meeting.
8
<PAGE>
Section 3.8 Notice of Meetings. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 3.8, in which notice shall be stated the date, time and place of the
meeting. Notice of a special meeting shall state the general purpose of the
meeting, but other routine business may be conducted at a special meeting
without such matter being stated in the notice. Notice of each meeting shall be
given to each director either by mail not less than forty-eight (48) hours
before the date of such meeting, by telephone or telegram on twenty-four (24)
hours' notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate under the circumstances. Notice of
any meeting need not be given to any director who shall, either before or after
the meeting, submit a signed waiver of notice or who shall attend such meeting,
except when he shall attend 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.
Section 3.9 Quorum.
------
(a) Except as otherwise provided by law, the Certificate of
Incorporation and Sections 3.3 and 3.9(b) of these Bylaws, at all meetings of
the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn such
meeting from time to time to another time and place. Notice of the time and
place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
(b) At least two directors designated by the Controlling Stockholder
pursuant to the Amended and Restated Stockholders Agreement, dated as of [
], 1999, by and among the Corporation, PNC Bank Corp. ("PNC"), PNC Asset
Management, Inc. and certain employees of the Corporation (the "Stockholders
Agreement"), and the Chairman of the Board of Directors must be present at any
meeting of the Board of Directors in order to establish a quorum to conduct
business; provided, however, that the Board of Directors will be entitled to
take any action at any meeting if a quorum is otherwise present if (i) the
meeting is a regularly scheduled meeting of the Board of Directors, or, (ii)
the meeting is not a regularly scheduled meeting and, after having been sent
notice of such meeting, either two of the directors designated by the
Controlling Stockholder and/or the Chairman of the Board of Directors, as the
case may be, are not present at such meeting, and the directors designated by
the Controlling Stockholder who are absent or the Chairman of the Board of
Directors shall, in either the case of either (i) or (ii), have failed to
communicate in writing to the Secretary good reason for such absence in advance
of the relevant meeting.
9
<PAGE>
Section 3.10 Board Approval Requirements in Certain Circumstances. Prior
----------------------------------------------------
to the Trigger Date, any act of the Board of Directors shall require the
affirmative vote of not less than eighty percent (80%) of the entire Board of
Directors if it relates to or involves one or more of the following matters:
(a) the size and composition of the Board of Directors and Board
committees or changes thereto, including but not limited to matters involving
Sections 3.2, 3.3, 3.4 and 3.16 of these Bylaws;
(b) any merger, acquisition, consolidation, divestiture or acquisition
of material assets, or any other similar transaction involving the Corporation;
(c) the issuance of capital stock, sales of treasury stock, grants of
options or other rights (other than issuances or grants pursuant to stock
option, bonus and other benefit plans of the Corporation);
(d) the incurrence of indebtedness by or on behalf of the Corporation
other than in the ordinary course of business;
(e) any business activity to be engaged in by or on behalf of the
Corporation of a type that is not currently conducted by or on behalf of the
Corporation;
(f) any change in the outside auditors of the Corporation;
(g) the declaration of any dividend by the Corporation;
(h) the amendment, alteration, modification or repeal of these Bylaws
or the Certificate of Incorporation; or
(i) any other matter materially affecting the economic interests of a
Controlling Stockholder.
Section 3.11 Organization. At each meeting of the Board of Directors,
------------
the Chairman of the Board of Directors or, in his absence, the Vice Chairman or
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside thereat. The Secretary or, in his absence,
any person appointed by the chairman, shall act as secretary of the meeting and
keep the minutes thereof.
Section 3.12 Resignations. Any director of the Corporation may resign at
------------
any time by giving written notice of his resignation to the Chairman of the
Board of Directors, the President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt.
10
<PAGE>
Unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3.13 Compensation. Directors shall receive such compensation,
------------
including fees and reimbursement of expenses, for their services as the Board of
Directors may determine from time to time. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 3.14 Action by Written Consent. Unless otherwise provided by the
-------------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of the proceedings of the Board of
Directors or such committee, as the case may be.
Section 3.15 Telephonic Meeting. Unless otherwise provided by the
------------------
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation by such means shall constitute presence in person
at a meeting.
Section 3.16 Board Committees.
----------------
(a) The Board of Directors may by resolution designate one or more
committees (in addition to the mandatory Standing Committees as set forth in
Section 3.16(e) below) consisting of one or more directors of the Corporation
which, to the extent authorized in any resolution of the Board of Directors or
these Bylaws and permissible under the DGCL and the Certificate of
Incorporation, shall have and may exercise any or all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation; provided, however, that prior to the Trigger Date, a majority of
directors on each such committee shall be directors that were designated as
directors by a Controlling Stockholder, and at least one director on each such
committee (including Standing Committees) shall be a director that was
designated as a director by a majority of the Employee Stockholders (as defined
in the Stockholders Agreement), in each instance as permitted by applicable
law or stock exchange policy.
(b) Subject to Section 3.16(a), with respect to all committees
designated in accordance with this Section 3.16, the Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of any such committee.
With respect to all Board committees designated in accordance with this Section
3.16, in the absence or disqualification of a member of a committee, and in the
absence of a designation by the Board of Directors of an alternate member to
replace the absent or disqualified member, the member or members thereof present
at any meeting and not
11
<PAGE>
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Any committee
may authorize the seal of the Corporation to be affixed to all papers which may
require it.
(c) A majority of the members of any committee may determine such
committee's procedures for the conduct of business and fix the time and place of
its meetings, unless the Board of Directors shall by resolution otherwise
provide. Notice of such meetings shall be given to each member of the committee
in the same manner as provided for meetings of the Board of Directors by these
Bylaws. Each committee shall keep written minutes of its proceedings and shall
report such proceedings to the Board of Directors when required. Except as
otherwise provided by resolution of the Board of Directors, a quorum for the
transaction of business by a committee at a meeting thereof shall be a majority
of the members and the affirmative vote of a majority of the members present at
a meeting at which a quorum is present shall be the act of the committee.
(d) Nothing herein shall be deemed to prevent the Board of Directors
from appointing one or more committees consisting in whole or in part of one or
more officers, employees or persons who are not directors of the Corporation to
conduct any part of the business or affairs of the Corporation; provided,
however, that no such committee shall have or may exercise any authority of the
Board of Directors.
(e) Standing Committees.
The standing committees which, subject to Section 3.16(a), shall be
appointed from time to time by the Board of Directors shall be the Executive
Committee, the Audit Committee, the Nominating Committee, the Compensation
Committee and the Investment Committee.
(i) Executive Committee.
-------------------
The Executive Committee shall consist of the Chairman and Chief
Executive Officer and such other directors, who shall from time to time be
appointed by the Board of Directors. The Executive Committee shall have and
exercise in the intervals between the meetings of the Board of Directors all the
powers of the Board of Directors, except as prohibited by applicable law. All
acts done and powers conferred by the Executive Committee from time to time
shall be deemed to be, and may be certified as being, done and conferred under
authority of the Board of Directors.
12
<PAGE>
(ii) Audit Committee.
---------------
The Board of Directors shall appoint annually the Audit Committee
consisting of not less than three directors, none of whom shall be an officer of
the Corporation. The Audit Committee will recommend the annual appointment of
the Corporation's auditors, with whom the Audit Committee will, among other
things, review the scope of audit and non-audit assignments and related fees,
accounting principles used by the Corporation in financial reporting, internal
auditing procedures and the adequacy of the Corporation's risk management,
compliance and internal control procedures.
(iii) Nominating Committee.
--------------------
The Board of Directors shall appoint annually the members of the
Nominating Committee, consisting of not less than three directors. The
Nominating Committee will review the qualifications of potential candidates for
the Board of Directors, report its findings to the Board of Directors and
propose nominations for board memberships for approval by the Board of Directors
and, if appropriate, submission to the stockholders of the Corporation for
approval.
(iv) Compensation Committee.
----------------------
The Board of Directors shall appoint annually the members of the
Compensation Committee, consisting of not less than three directors. The
Compensation Committee will administer the Corporation's 1999 Stock Award and
Incentive Plan, Key Executive Long-Term Incentive Bonus Plan and other such
compensation plans as the Board of Directors may determine from time to time,
and will establish the compensation for the Corporation's executive officers.
The Compensation Committee may by resolution designate a subcommittee to
administer the Corporation's compensation plans.
(v) Investment Committee.
--------------------
The Board of Directors shall appoint annually the members of the
Investment Committee consisting of not less than three directors. The
Investment Committee shall have and may exercise any or all the powers and
authority of the Board of Directors to the extent authorized in a resolution
of the Board of Directors and permissible under the DGCL, these Bylaws and the
Certificate of Incorporation.
ARTICLE IV
Officers
Section 4.1 Designation. The officers of the Corporation shall be
-----------
elected by the Board of Directors and shall include a Chief Executive Officer,
President, Chief Financial Officer, Treasurer and Secretary. The Board of
Directors of the Corporation, in its discretion,
13
<PAGE>
may also elect a Chairman of the Board of Directors (who must be a director),
one or more Vice Chairmen (who need not be a director) and one or more Managing
Directors, Directors, Vice Presidents, Assistant Treasurers, Assistant
Secretaries and other officers.
Section 4.2 Election and Tenure. Officers and assistant officers of the
-------------------
Corporation may, but need not, also be members of the Board of Directors or
stockholders of the Corporation. At its first meeting after each annual meeting
of the stockholders, the Board of Directors shall elect the officers or provide
for the appointment thereof. Unless otherwise provided by the Certificate of
Incorporation, the term of each officer elected by the Board of Directors shall
be until the first meeting of the Board of Directors following the next annual
meeting of stockholders and until his successor is elected and qualified or
until his earlier death, resignation or removal in the manner specified in this
Section 4.2. Any officer elected or appointed by the Board of Directors may be
removed by the Board of Directors at any time with or without cause by the
majority vote of the members of the Board of Directors then in office. Any
officer or assistant officer appointed by another officer may be removed from
office with or without cause by such officer. The removal of an officer without
cause shall be without prejudice to his contract rights, if any. The election
or appointment of an officer shall not of itself create contract rights. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Chairman of the Board of Directors, the President, or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Should any vacancy occur among the officers, the position shall be filled for
the unexpired portion of the term by appointment made by the Board of Directors
or, in the case of offices held by officers who may be appointed by other
officers, by any officer authorized to appoint such officer. Any individual may
be elected to, and may hold, more than one office of the Corporation.
Section 4.3 Duties. Except as set forth in Section 4.5, the powers and
------
duties of the several officers shall be as provided from time to time by
resolution or other directive of the Board of Directors. In the absence of such
provisions, the respective officers shall have the powers and shall discharge
the duties customarily and usually held and performed by like officers of
corporations similar in organization and business purposes to the Corporation.
Section 4.4 Compensation. Officers may be paid such reasonable
------------
compensation as the Board of Directors may from time to time authorize and
direct. The Board of Directors may delegate its authority to determine
compensation to a committee.
Section 4.5 Responsibilities of the Senior Officers.
---------------------------------------
(a) Chief Executive Officer
Subject to the direction of the Board of Directors, the Chief
Executive Officer shall have the general supervision of the policies, business
and operations of the Corporation, and
14
<PAGE>
of the other officers, agents and employees of the Corporation and, except as
otherwise provided in these Bylaws or by the Board of Directors, shall have all
the other powers and duties as are usually incident to the Chief Executive
Officer of a corporation. In the absence of the Chief Executive Officer, his
rights and duties shall be performed by such other officer or officers as shall
be designated by the Board of Directors. To the extent not specifically
appointed to a Committee, the Chief Executive Officer of the Corporation shall
be ex officio a member of all Committees except the Audit Committee, the
Nominating Committee, and the Compensation Committee.
(b) Chairman, President and Vice Chairman
The Chairman, the President and the Vice Chairman if not designated as
the Chief Executive Officer shall have such duties and powers as may be assigned
to them from time to time by the Board of Directors or, in the case of the
President and Vice Chairman, the Chief Executive Officer in the absence of any
assignment by the Board of Directors.
(c) Chief Financial Officer
Except as otherwise provided in these Bylaws or by the Board of
Directors, the Chief Financial Officer shall have all the other powers and
duties as are usually incident to the Chief Financial Officer of a corporation.
In the absence of the Chief Financial Officer, his rights and duties shall be
performed by such other officer or officers as shall be designated by the Board
of Directors.
(d) Managing Director, Director and Vice President
The Managing Directors, Directors, Executive Vice Presidents, Senior
Vice Presidents and the Vice Presidents, if such are elected, shall have the
duties and power as may from time to time be assigned to them by the Board of
Directors or by the Chief Executive Officer in the absence of any assignment by
the Board of Directors. Any reference in these Bylaws to a Vice President will
apply equally to an Executive Vice President or a Senior Vice President unless
the context requires otherwise.
(e) Treasurer
The Treasurer shall be responsible for the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors or the Chief
Executive Officer and shall perform such other duties as may be assigned to him
from time to time by the Board of Directors, Chief Financial Officer or the
Chief Executive Officer in the absence of any assignment by the Board of
Directors.
15
<PAGE>
(f) Secretary
The Secretary shall: attend the meetings of the stockholders, of the
Board of Directors, and any committees thereof, and shall keep minutes thereof
in suitable minute books; have charge of the corporate records, papers and the
corporate seal; have charge of the stock and transfer records of the Corporation
and shall keep a record of a all stockholders and give notices of all meetings
of stockholders, special meetings of the Board of Directors and of its
Committees; and have such other duties as may be assigned to him from time to
time by the Board of Directors or the Chief Executive Officer in the absence of
any assignment by the Board of Directors.
(g) Controller
The Controller, if a Controller is elected, shall cause to be kept
proper records of the transactions of the Corporation; shall be responsible for
the preparation of financial and tax reports required of the Corporation; and
shall perform such other duties as may be assigned to him from time to time by
the Board of Directors, the Chief Financial Officer or the Chief Executive
Officer in the absence of any assignment by the Board of Directors.
(h) Assistant Officers
Each assistant officer as shall be elected shall assist in the
performance of the duties of the officer to whom he is assistant and shall
perform such duties in the absence of the officer. He shall perform such
additional duties as may be assigned to him from time to time by the Board of
Directors, or in the absence of any assignment by the Board of Directors, the
Chief Executive Officer or the officer to whom he is assistant.
ARTICLE V
Stock Certificates and Their Transfer
Section 5.1 Uncertificated and Certificated Shares; Form of
-----------------------------------------------
Certificates. Effective at such time as the President or any Vice President or
- ------------
the Treasurer of the Corporation designates in writing to the Corporate
Secretary and any transfer agents of the Corporation with respect to any class
of stock of the Corporation, the shares of such class shall be uncertificated
shares, provided that the foregoing shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation and
provided further that upon request every holder of uncertificated shares shall
be entitled, to the extent provided in Section 158 of the DGCL, to have a
certificate signed in the name of the Corporation (i) by the President or a Vice
President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation.
16
<PAGE>
Section 5.2 Record Owners. A record of the name and address of the
-------------
holder of each certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the Corporation's books. The Corporation
shall be entitled to recognize the exclusive right of a person registered on its
records as the owner of shares of stock to receive dividends and to vote as such
owner, shall be entitled to hold liable for calls and assessments a person
registered on its records as the owner of shares of stock, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares of stock on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Delaware.
Section 5.3 Transfers of Stock. Stock of the Corporation shall be
------------------
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named as
the holder thereof on the stock records of the Corporation, by such person's
attorney lawfully constituted in writing, and in the case of shares represented
by a certificate upon the surrender of the certificate therefor, which shall be
cancelled before a new certificate shall be issued. No transfer of stock shall
be valid as against the Corporation for any purpose until it shall have been
entered in the stock records of the Corporation by an entry showing from and
to whom transferred. To the extent designated by the President or any Vice
President or the Treasurer of the Corporation, the Corporation may recognize the
transfer of fractional uncertificated shares, but shall not otherwise be
required to recognize the transfer of fractional shares.
Section 5.4 Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars. If any certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee, or (b) by a registrar
other than the Corporation or its employee, any 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.
Section 5.5 Regulations. The Board of Directors may make such
-----------
additional rules and regulations, not inconsistent with these Bylaws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
Section 5.6 Fixing the Record Date.
----------------------
(a) 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 (60) nor less than ten (10) days before the date of such meeting. If
no
17
<PAGE>
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.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, 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 ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolutions taking such prior action.
(c) 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 (60) days prior to
such action. 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.
Section 5.7 Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require
18
<PAGE>
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certificate.
19
<PAGE>
ARTICLE VI
Indemnification and Insurance
Section 6.1 Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director or officer of another company, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer or in any other capacity while serving as a director or
officer shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement) incurred
or suffered by such person in connection therewith and such director or officer
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 6.2(b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the DGCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 6.2 Right of Claimant to Bring Suit. If a claim under Section
-------------------------------
6.1 is not paid in full by the Corporation within thirty (30) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required,
20
<PAGE>
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
Section 6.3 Non-Exclusivity of Rights. The right to indemnification and
-------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.4 Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
ARTICLE VII
General Provisions
Section 7.1 Seal. The seal of the Corporation shall be in such form as
----
shall be approved by the Board of Directors. The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise, as
may be prescribed by law or custom or by the Board of Directors.
Section 7.2 Fiscal Year. The fiscal year of the Corporation shall begin
-----------
on January 1 and end on December 31 of each year.
Section 7.3 Checks, Notes, Drafts, Etc. All checks, notes, drafts or
--------------------------
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
Section 7.4 Voting of Stock in Other Corporations. Unless otherwise
-------------------------------------
provided by resolution of the Board of Directors, the Chief Executive Officer,
from time to time, may (or may
21
<PAGE>
appoint one or more attorneys or agents to) cast the votes that the Corporation
may be entitled to cast as a stockholder or otherwise in any other corporation,
any of whose shares or securities may be held by the Corporation, at meetings of
the holders of the shares or other securities of such other corporation, or
consent in writing to any action by any such other corporation. In the event one
or more attorneys or agents are appointed, the Chief Executive Officer may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chief Executive Officer may, or may instruct
the attorneys or agents appointed to, execute or cause to be executed in the
name and on behalf of the Corporation and under its seal or otherwise, such
written proxies, consents, waivers or other instruments as may be necessary or
proper in the circumstances relating to securities owned by the Corporation.
Section 7.5 Dividends. Subject to the provisions of the DGCL and the
---------
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting in accordance with the voting requirements set forth in Section 3.10
if applicable. Dividends may be paid in cash, in property or in shares of stock
of the Corporation, unless otherwise provided by the DGCL or the Certificate of
Incorporation.
Section 7.6 Certain Prohibited Business Activities. So long as PNC
--------------------------------------
owns, directly or indirectly, at least ten percent (10%) of the capital stock of
the Corporation, the Corporation or any successor entity to the Corporation
shall be prohibited, without PNC's consent, from directly or indirectly, owning
any asset or engaging in any activity if to do so would cause the Corporation
or any subsidiary thereof or PNC (or any successor company thereof) or any
direct or indirect bank or nonbank subsidiary of PNC (or any successor company
thereof (a "PNC Entity") that owns capital stock of the Corporation to be in
violation of any applicable federal banking law or any rule, regulation, policy
or order of any federal banking regulator with jurisdiction over the Corporation
or a PNC Entity. The Corporation will, and will cause its subsidiaries to, take
any necessary action to ensure compliance with this Section 7.6, including,
without limitation, obtaining any required approval from, or filing any required
notice or application with, any applicable federal banking agency.
ARTICLE VII
Amendments
Section 8.1 By the Board of Directors. Except as otherwise provided in
-------------------------
Section 8.2 below and subject to Section 3.10, these Bylaws may be amended,
altered, changed, adopted and repealed or new bylaws adopted by the affirmative
vote of at least a majority of the members of the Board of Directors then in
office at any regular or special meeting; provided, however, that prior to the
Trigger Date, the affirmative vote of at least eighty percent (80%) of the
entire Board of Directors shall be required to amend, alter, change, adopt or
repeal any provision of these Bylaws or to adopt any new Bylaw.
22
<PAGE>
Section 8.2 By the Stockholders. Prior to the Trigger Date, these
-------------------
Bylaws may be amended, altered, changed, adopted and repealed or new bylaws
adopted by the affirmative vote of at least a majority of the voting power of
the capital stock of the Corporation issued, outstanding and entitled to vote
thereon; provided, however, that as of and following the Trigger Date, any
proposed amendment, alteration, change, adoption or repeal of, or the adoption
of any Bylaw inconsistent with any of Sections 2.3, 2.9, 2.10, or 2.12 of
Article II or Sections 3.2 and 3.4 of Article III or this Article VIII of these
Bylaws shall require the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all of the then outstanding capital stock
of the Corporation entitled to vote thereon voting as a single class.
23
<PAGE>
Exhibit 4.2
-----------
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
By and Among
BLACKROCK, INC.
PNC ASSET MANAGEMENT, INC.
and
CERTAIN EMPLOYEES OF BLACKROCK, INC.
AND ITS AFFILIATES
________ __, 1999
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
-------------------------------------------
This AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") is made
and entered into as of _______ __, 1999, by and among BLACKROCK, INC., a
Delaware corporation ("BlackRock"), PNC ASSET MANAGEMENT, INC., a Delaware
corporation ("PAM"), and the parties identified on the signature pages hereto as
Employee Stockholders (as defined herein) or their Permitted Transferees (as
defined herein).
BACKGROUND
----------
BlackRock Financial Management, Inc. ("BFM"), a predecessor in interest to
BlackRock, PAM, and certain Employee Stockholders (as defined below) were
parties to a Shareholders Agreement, dated January 31, 1998 ("BFM Stockholders
Agreement"), with respect to the shares of common stock of BFM (the "BFM Common
Stock") outstanding immediately prior to the date thereof.
In the Exchange Agreement, dated March 31, 1998 (the "Exchange Agree
ment"), PAM and the Employee Stockholders exchanged their shares of BFM Common
Stock for shares of common stock, no par value, of BlackRock ("Old BlackRock
Common Stock") on a one share for one share basis.
The BFM Stockholders Agreement was terminated in its entirety with the
execution of a new stockholders agreement by and among BlackRock, PAM and
certain Employee Stockholders, dated as of April 30, 1998 ("1998 Stockholders
Agreement"). As of such date, BlackRock issued additional shares of Old
BlackRock Common Stock to certain Employee Stockholders, and the holders of such
additional Old BlackRock Common Stock as well as the other holders of Old
BlackRock Common Stock outstanding immediately prior to the date thereof became
subject to the terms and conditions of the 1998 Stockholders Agreement.
BlackRock intends to offer common stock for sale to the public in a
domestic offering and an international offering (together, the "Offerings").
Immediately prior to the completion of the Offerings, BlackRock will adopt an
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") which, among other things, will provide for the recapitalization
of BlackRock by creating two classes of common stock. In the recapitalization,
each outstanding share of Old BlackRock
1
<PAGE>
Common Stock will be changed and reclassified into shares of Class B Common
Stock, par value $0.01 per share ("Class B Common Stock"). PAM and the Employee
Stockholders will be the sole holders of Class B Common Stock. A second class of
common stock, Class A Common Stock, par value $0.01 per share ("Class A Common
Stock"), will be sold to the public in the Offerings. The Class A Common Stock
and the Class B Common Stock will be identical in all respects, except that each
share of Class B Common Stock is entitled to five votes while each share of
Class A Common Stock will be entitled to one vote.
The parties to the 1998 Stockholders Agreement agree that certain changes
to the 1998 Stockholders Agreement will be necessary and desirable and in the
best interests of BlackRock, PAM and the Employee Stockholders if the Offerings
are completed, and, therefore, the parties desire to enter into this Agreement
which on the Effective Date will amend and restate the 1998 Stockholders
Agreement.
TERMS
-----
NOW, THEREFORE, in consideration of the foregoing and the covenants set
forth herein, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
For purposes of this Agreement, in addition to terms defined elsewhere
herein, the following terms when used herein shall have the following meanings:
1.1 "1940 Act" means the Investment Company Act of 1940, as amended, and
the rules and regulations of the Securities and Exchange Commission ("Com
mission") promulgated thereunder, as now or hereafter in effect.
1.2 "Affiliate" of, or any person or entity "affiliated" with, the person
or entity specified shall mean any corporation, partnership, joint venture,
association, organization or other person or entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person or entity specified.
2
<PAGE>
1.3 "BlackRock Board" shall mean the Board of Directors of BlackRock.
1.4 "BlackRock Employee Shares" means any shares of Class B Common Stock
owned by any Employee Stockholder or acquired from an Employee Stockholder by a
Permitted Transferee.
1.5 "BlackRock Management Committee" means a committee consisting of the
Chief Executive Officer and President of BlackRock and not less than five (5)
Managing Directors of BlackRock or its subsidiaries who are designated from time
to time by the Chief Executive Officer and President of BlackRock to serve on
this committee.
1.6 "Change of Control of PNC" shall be deemed to occur if, whether by
virtue of an actual or threatened proxy contest (including a consent
solicitation) or any merger, reorganization, consolidation or similar
transaction Persons who are directors of PNC immediately prior to such proxy
contest or the execution of the agreement pursuant to which such transaction is
consummated (other than a director whose initial assumption of office was in
connection with a prior actual or threatened proxy contest) cease to constitute
a majority of the Board of Directors of PNC or any successor entity immediately
following such proxy contest or the consummation of such transaction.
1.7 "Change of Control of BlackRock" shall be deemed to occur if (i) PNC
transfers 50% of the voting power of the Voting Stock of BlackRock and PNC or
its Affiliates are no longer the stockholders with the greatest percentage of
the voting power of the Voting Stock of BlackRock or (ii) whether by virtue of
an actual or threatened proxy contest (including a consent solicitation) or any
merger, reorganization, consolidation or similar transaction, Persons who are
directors of BlackRock immediately prior to such proxy contest or the execution
of the agreement pursuant to which such transaction is consummated (other than
a director whose initial assumption of office was in connection with a prior
actual or threatened proxy contest) cease to constitute a majority of the Board
of Directors of BlackRock or any successor entity immediately following such
proxy contest or the consummation of such transaction.
1.8 "Cause" shall mean the occurrence or existence of any of the following
with respect to the Employee Stockholder: (i) a material breach by the Employee
Stockholder of any written policies of BlackRock or an affiliate thereof
required by law or established to maintain compliance with applicable law; (ii)
any
3
<PAGE>
act of fraud, misappropriation, dishonesty, embezzlement or similar conduct
by the Employee Stockholder against BlackRock or an affiliate thereof or any
client of BlackRock or an affiliate thereof; or (iii) conviction (including a
plea of nolo contendere) of the Employee Stockholder for the commission of a
---- ----------
felony; or (iv) entry of any order against the Employee Stockholder by any
governmental body having regulatory authority with respect to BlackRock's
business, which order relates to or arises out of the Employee Stockholder's
employment relationship with BlackRock. A determination of Cause may be made
only by BlackRock's Chief Executive Officer and a majority of the members of the
BlackRock Management Committee (excluding the Employee Stockholder, if
applicable), except that with respect to BlackRock's Chief Executive Officer,
such determination may be made only by a majority of the Board of Directors of
BlackRock.
1.9 "Deficient Opportunity" shall exist if (i) the Employee Stockholder
does not have duties, authority and reporting responsibilities in BlackRock or
an affiliate thereof which are substantially equivalent to or greater than those
at BlackRock or an affiliate thereof as of the commencement of the Term, unless
otherwise mutually agreed upon, or (ii) the Employee Stockholder's principal
work location has been relocated to any place more than thirty (30) miles from
the principal work location as of the commencement of the Term, unless
otherwise mutually agreed upon or at the direction of the Chief Executive
Officer, or (iii) there occurs a Change of Control of BlackRock or a Change of
Control of PNC and, by or at the direction of the entity effecting such Change
of Control and without the consent of the Chief Executive Officer, the sum of
(1) the aggregate annual salary and bonus paid to or earned by the Employee
Stockholder with respect to the fiscal year in which such Change of Control
occurs or with respect to either of the two succeeding fiscal years and (2) the
value of other incentive awards granted to the Employee Stockholder in the
applicable fiscal year (such sum, the "Compensation Amount"), is less than the
sum of (x) the average annual salary and bonus paid to or earned by the Employee
Stockholder with respect to the two fiscal years immediately preceding the year
in which such Change of Control occurs and (y) the average value of other
incentive awards granted to the Employee Stockholder in the two fiscal years
immediately preceding the year in which such Change of Control occurs (such sum,
the "Average Historical Compensation"); provided, however, that the failure of
-------- -------
the Employee Stockholder's Compensation Amount to equal or exceed the Employee
Stockholder's Average Historical Compensation shall not constitute a Deficient
Opportunity if such failure is solely due to adverse financial performance of
BlackRock during the applicable fiscal year.
4
<PAGE>
1.10 "Disability" shall mean an Employee Stockholder's physical or mental
incapacity constituting disability in accordance with Employer's long-term
disability policy which in any event does or is reasonably expected to continue
for at least six (6) months.
1.11 "Effective Date" shall mean the effective date of this Agreement as
provided in Section 6.1 hereof.
1.12 "Employee Stockholders" means all holders of Class B Common Stock who
are employees of BlackRock or any of its Affiliates and who are parties to this
Agreement.
1.13 "Employer" shall mean, with respect to any Employee Stockholder,
BlackRock or any Affiliate thereof that employs such Employee Stockholder.
1.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder, as now
or hereafter in effect.
1.15 "Good Reason" shall mean failure of the Employee Stockholder to
substantially perform any material assigned duties (other than by reason of
death, Disability or Deficient Opportunity). A determination of Good Reason may
be made only by BlackRock's Chief Executive Officer and a majority of the
members of the BlackRock Management Committee (excluding the Employee
Stockholder, if applicable), except that with respect to BlackRock's Chief
Executive Officer, such determination may be made only by a majority of the
Board of Directors of BlackRock.
1.16 "Insolvency" of any party hereto means that (i) the party or its
parent entity, if applicable, commences a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consents to the entry of an order for relief in an
involuntary case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
party or its parent entity, if applicable, or of any substantial part of its
property, or makes an assignment for the benefit of its creditors, or admits in
writing its inability to pay its debts as they become due, or (ii) a decree or
order for relief in respect of the party or its parent entity, if applicable, is
entered by a court having jurisdiction in an involuntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or
5
<PAGE>
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the party or its parent entity, if applicable, or
of any substantial part of its property, or, if applicable, ordering the winding
up or liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of 90 days and on account of any such event the party
or its parent entity, if applicable, shall, if applicable, liquidate, dissolve
or wind up.
1.17 "Market Value" shall mean, with respect to each share of Class B
Common Stock and Class A Common Stock, the average closing price per share of
Class A Common Stock on the New York Stock Exchange (as reported by The Wall
Street Journal or other authoritative source) for the ten (10) trading days
immediately preceding the date of determination.
1.18 "Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated the date hereof, by and among BlackRock, PAM and the Employee
Stockholders.
1.19 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, as now
or hereafter in effect.
1.20 "Transfer" shall mean any actual or proposed disposition of all or a
portion of an interest (legal or equitable) by any means, direct or indirect,
absolute or conditional, voluntary or involuntary, including, but not limited
to, by sale, assignment, put, transfer, pledge, hypothecation, mortgage or
other encumbrance, court order, operation of law, distribution, settlement,
exchange, waiver, abandonment, gift, alienation, bequest or disposal.
Notwithstanding the foregoing, the term Transfer shall not include any pledge of
BlackRock Employee Shares to a financial institution in connection with any
financing of the purchase of BlackRock Employee Shares by an Employee
Stockholder, or, in the event of any default of any Employee Stockholder in
connection with such financing, any foreclosure by such financial institution on
such BlackRock Employee Shares, provided that such financial institution agrees
to be subject to and bound by the terms of this Agreement.
1.21 "Trigger Date" shall mean the first date following the date upon
which PAM or any PAM Affiliate or a Controlling Stockholder (as defined in
BlackRock's Certificate of Incorporation) ceases to be the holder or beneficial
owner of majority of voting power of the Voting Stock.
6
<PAGE>
1.22 "Voting Stock" shall mean the then outstanding shares of capital stock
of BlackRock entitled to vote generally on the election of directors and shall
exclude any class or series of capital stock of BlackRock only entitled to vote
in the event of dividend arrearages or any default under any provision of such
series thereon whether or not at the time of determination there are any such
dividend arrearages or defaults.
ARTICLE 2.
GOVERNANCE AND OPERATION OF BLACKROCK
2.1 Rights of BlackRock Employee Shares. Except for the restrictions on
-----------------------------------
transfer imposed by this Agreement and any other agreements between the holders
of the BlackRock Employee Shares and BlackRock or any Affiliate thereof and/or
PAM, each BlackRock Employee Share shall have the same rights and privileges,
including voting rights, as the other shares of Class B Common Stock or, if
applicable, Class A Common Stock.
2.2 BlackRock Board of Directors.
----------------------------
(a) Following the Effective Date and for so long as PAM and its
Affiliates own in the aggregate Voting Stock representing at least twenty-five
percent (25%) of the voting power of the capital stock of BlackRock, subject to
applicable law, (i) the Employee Stockholders agree to vote their Employee
Shares for the election of the four (4) director candidates nominated by PAM or
its Affiliates and (ii) PAM agrees to vote its shares of Class B Common Stock
for the two (2) director candidates nominated by the BlackRock Management
Committee. From and after the time PAM and its Affiliates own in the aggregate
Voting Stock representing less than twenty-five percent (25%) but more than ten
percent (10%) of the voting power of BlackRock, subject to applicable law, (x)
the Employee Stockholders agree to vote their Employee Shares for the election
of two (2) director candidates nominated by PAM or its Affiliate and (y) PAM
agrees to vote its shares of Class B Common Stock for two (2) directors
candidates nominated by the BlackRock Management Committee.
(b) Following the Effective Date, subject to applicable law, the
Employee Stockholders and PAM agree to take no action to amend the Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") or
Amended and Restated Bylaws of BlackRock in effect on the Effective Date in a
manner that
7
<PAGE>
would be inconsistent with the provisions of this Agreement, as amended from
time to time and will their shares of Voting Stock against any such proposed
amendment.
(c) From and after such time as a person or entity other than PNC or
its Affiliate (the "Subsequent Principal Stockholder") (i) owns capital stock of
BlackRock representing fifty percent (50%) or more of the voting power of the
Voting Stock of BlackRock and (ii) owns Voting Stock representing greater voting
power than any other stockholder of BlackRock, PAM's rights under this Section
2.2 shall be transferred and assigned to the Subsequent Principal Stockholder.
ARTICLE 3.
TRANSFER RESTRICTIONS ON BLACKROCK EMPLOYEE SHARES;
PERMITTED TRANSFERS OF BLACKROCK EMPLOYEE SHARES
3.1 Transfer Restriction on BlackRock Employee Shares. Except as
-------------------------------------------------
expressly set forth in this Agreement, the BlackRock Employee Shares may not be
transferred, and any purported Transfer in violation of this provision shall be
null and void; provided that the restrictions on Transfer set forth in this
Section 3.1 will lapse with respect to one third of the BlackRock Employee
Shares held by each Employee Stockholder or Permitted Transferee on each of
December 31, 2000, December 31, 2001, and December 31, 2002 (or such other dates
as may be applicable to subsequent issuances of Class B Common Stock), unless
this restriction on Transfer is earlier removed in accordance with the
provisions of this Agreement. BlackRock Employee Shares which are subject to
this restriction on Transfer are sometimes referred to herein as "Restricted
BlackRock Employee Shares"; BlackRock Employee Shares on which this restriction
on Transfer has lapsed are sometimes referred to herein as "Unrestricted
BlackRock Employee Shares".
3.2 Lapse of Transfer Restrictions on Restricted BlackRock Employee
---------------------------------------------------------------
Shares. The restrictions on Transfer set forth in Section 3.1 hereof will lapse
immediately with respect to all Restricted BlackRock Employee Shares held by an
Employee Stockholder or any Permitted Transferee thereof and such shares shall
become Unrestricted BlackRock Employee Shares in the event of the termination of
an Employee Stockholder's employment:
(i) by reason of death or Disability;
(ii) by Employer without Cause or Good Reason; or
8
<PAGE>
(iii) if applicable, by such Employee Stockholder by reason of a
Deficient Opportunity.
3.3 Permitted Transfers of BlackRock Employee Shares.
------------------------------------------------
(a) Notwithstanding anything in Section 3.1 hereof to the contrary,
unless Article 4 is applicable to a proposed Transfer and is complied with,
Employee Stockholders shall be entitled to Transfer Restricted BlackRock
Employee Shares and Unrestricted BlackRock Employee Shares to a Permitted
Transferee; provided that (i) the Permitted Transferee executes a counterpart
copy of this Agreement and agrees to be bound by its terms and conditions and
(ii) the Permitted Transferee executes an irrevocable proxy in favor of the
transferring Employee Stockholder (or PAM or another Employee Stockholder in the
case of a Permitted Transferee that is an estate or personal representative)
entitling the proxyholder to exercise all voting rights with respect to the
transferred BlackRock Employee Shares.
(b) For purposes of this Agreement "Permitted Transferee" means with
respect to any Employee Stockholder (i) BlackRock and its Affiliates, (ii) the
estate or personal representative of the Employee Stockholder, (iii) any spouse,
child, grandchild or parent of the Employee Stockholder, or (iv) any trust,
corporation, partnership, limited liability company or other entity if
substantially all of the economic interests in such entity are held by or for
the benefit of the Employee Stockholder and/or persons specified in clauses (ii)
or (iii) at all times while such entity holds any BlackRock Employee Shares.
(c) If any person who was a Permitted Transferee at the time an
Employee Stockholder transferred BlackRock Employee Shares to such person ceases
to be a Permitted Transferee for any reason, such person must Transfer any
BlackRock Employee Shares held by such person back to the applicable Employee
Stockholder or another Permitted Transferee designated by such Employee
Stockholder. If an Employee Stockholder Transfers BlackRock Employee Shares to a
Permitted Transferee and such Employee Stockholder ceases to be employed by
BlackRock, this Agreement shall apply to all BlackRock Employee Shares held by
such Permitted Transferee that were Transferred by such Employee Stockholder and
such BlackRock Employee Shares shall be treated for all purposes as if held by
such Employee Stockholder at the time he or she ceased to be employed by
BlackRock.
9
<PAGE>
(d) Notwithstanding anything to the contrary set forth herein, but
subject to the provisions of subparagraph 3.3(f) below, in the event of any
direct or indirect transfer of beneficial ownership of any shares of Class B
Common Stock which, had such transfer also been a transfer of record ownership
of such shares of Class B Common Stock, would not have been to a Permitted
Transferee, each share of Class B Common Stock transferred shall be deemed,
without further act on the part of the holder thereof or BlackRock, to be
converted into one share of Class A Common Stock, and stock certificates
formerly representing each share of Class B Common Stock shall thereupon and
thereafter be deemed to represent such number of shares of Class A Common Stock
as equals the number of shares of Class A Common Stock into which such shares of
Class B Common Stock could be converted pursuant to the terms hereof.
(e) Notwithstanding anything to the contrary set forth herein, any
event which would result in the automatic conversion of shares of Class B Common
Stock into shares of Class A Common Stock shall not result in such conversion
if, after such event, the record holder of such shares of Class B Common Stock
is a corporation, limited liability company or partnership as to which, with
respect to the shares of Class B Common Stock held by such corporation, limited
liability company or partnership, any Permitted Transferee of the Employee
Stockholder prior to such event has, directly or indirectly, both investment
power (which includes the power to dispose, or direct the disposition of, such
shares of Class B Common Stock) and voting power (which includes the power to
vote, or direct the voting of, such shares of Class B Common Stock); provided
that no transaction or event intended to avoid the automatic conversion
provision of this subparagraph 3.3(e) shall in any event be entitled to the
benefit of this subparagraph 3.3(e).
(f) Notwithstanding anything to the contrary set forth herein, any
Employee Stockholder may pledge such Employee Stockholder's shares of Class B
Common Stock to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for any indebtedness or other obligation of any person;
provided that, even if such shares are registered in the name of the pledgee or
its nominee (which registration is hereby expressly permitted and shall not be
considered a transfer hereunder), such shares shall remain subject to the
provisions of this sub paragraph 3.3(f). In the event that such pledged shares
of Class B Common Stock (the "Pledged Stock") are foreclosed upon, each share of
such Pledged Stock shall be deemed, without further act on the part of the
holder thereof or BlackRock, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing one share of Class B Common
Stock shall thereupon and thereafter be
10
<PAGE>
deemed to represent such number of shares of Class A Common Stock as equals the
number of shares of Class A Common Stock into which such shares the earlier of
(i) if the pledgor is contesting the foreclosure on such shares of Pledged
Stock, 30 days after the date on which the foreclosure on such Pledged Stock
becomes final and non-appealable or (ii) if the pledgor is not contesting the
foreclosure on such shares of Pledged Stock, 30 days after the date on which
such Pledged Stock is foreclosed upon; provided that the Pledged Stock shall not
be automatically converted as provided herein as a result of such foreclosure
if, prior to expiration of such 30-day period, the Pledged Stock shall be
transferred by the pledgee or the purchaser in such foreclosure to a Employee
Stockholder or one or more Permitted Transferees of an Employee Stockholder.
(g) Notwithstanding anything to the contrary herein, BlackRock will
not register the transfer of any shares of Class B Common Stock, unless the
transferee and the transferor of such Class B Common Stock have furnished such
affidavits and other proof as BlackRock may reasonably request to establish that
such proposed transferee is a Permitted Transferee. In addition, upon any
purported transfer of shares of Class B Common Stock not permitted hereunder,
each share of Class B Common Stock purported to be so transferred shall be
deemed, without further act on the part of the holder thereof or BlackRock, to
be converted into one share of Class A Common Stock, and stock certificates
formerly representing one share of Class B Common Stock shall thereupon and
thereafter be deemed to represent such number of shares of Class A Common Stock
as equals the number of shares of Class A Common Stock into which such shares of
Class B Common Stock could be converted pursuant to the terms hereof, and
BlackRock shall register such shares of Class A Common Stock in the name of the
person to whom such shares of Class B Common Stock were purported to be
transferred.
3.4 BlackRock Board Approval Required for Certain Transfers of Class B
------------------------------------------------------------------
Common Stock.
- ------------
(a) Notwithstanding any provision of this Agreement to the contrary,
no Transfer of any BlackRock Employee Shares may be made by any Employee
Stockholder or Permitted Transferee without the prior written consent of the
BlackRock Board if (i) as a result of such Transfer, BlackRock would be required
to register any class of its securities under the Securities Act, except if
BlackRock is required to register Class A Common Stock under the terms of the
Registration Rights Agreement, or (ii) if such Transfer would constitute an
assignment of the advisory agreements of BlackRock or any investment advisory
subsidiary of
11
<PAGE>
BlackRock for purposes of the 1940 Act or the Investment Advisers Act of 1940,
as amended ("Advisers Act"). Any Transfer of BlackRock Employee Shares con
sented to by the BlackRock Board that constitutes an assignment for purposes of
the 1940 Act shall only be consummated after entering into and obtaining
appropriate covenants to assure compliance with Section 15(f) of the 1940 Act.
(b) In connection with a Transfer of Class B Common Stock (or Class A
Common Stock into which such Class B Common Stock has been converted) by PAM
or an Affiliate thereof (i) PAM or its Affiliate shall (A) use its best efforts
and take all actions necessary or appropriate to cooperate with BlackRock in
complying with any requirements of the 1940 Act and the Advisers Act applicable
to such Transfer; and (B) require, as a condition of the closing of any such
Transfer, compliance with the second sentence of Section 3.4(a); and (ii)
BlackRock shall use its best efforts and take all actions necessary or
appropriate to cooperate with PAM or its Affiliate and with the transferee in
complying with any requirements of the 1940 Act, the Advisers Act and Section
3.4(a) applicable to such Transfer.
(c) Any purported Transfer which would result in a violation of
Section 3.4(a) hereof shall be null and void.
3.5 Restricted BlackRock Employee Shares Not Convertible Into Class A
-----------------------------------------------------------------
Common Stock. No shares of Class B Common Stock may be converted into shares of
- ------------
Class A Common Stock so long as such shares of Class B Common Stock are
Restricted BlackRock Employee Shares.
ARTICLE 4.
STOCKHOLDERS' RIGHT OF FIRST REFUSAL ON
DISPOSITIONS OF BLACKROCK CLASS B COMMON STOCK
4.1 Transfers of Class B Common Stock to Third Parties. Subject to
--------------------------------------------------
compliance with the provisions of Article 4 of this Agreement, PAM may Transfer,
in whole or in part, its shares of Class B Common Stock, and any Employee Stock
holder or Permitted Transferee may transfer Unrestricted BlackRock Employee
Shares, to any third party at any time after the Effective Date.
4.2 Offer Notice Regarding the BlackRock Common Stock. Except as
-------------------------------------------------
otherwise provided in Section 4.9 hereof, if at any time after the Effective
Date, any
12
<PAGE>
stockholder wishes to Transfer all or any part of the unrestricted shares of
Class B Common Stock held by such stockholder, including PAM ("Transferring
Stock holder"), to a third party, other than as permitted by Section 3.3 of this
Agreement, the Transferring Stockholder shall give written notice (the "Offer
Notice") of the proposed transaction to BlackRock and the other parties to this
Agreement, (i) identifying the proposed transferee, (ii) setting forth the
proposed terms of such Transfer, which shall be limited to transactions
involving cash, cash equivalents, or marketable securities against delivery of
the Class B Common Stock, (iii) stating the Transfer Percentage (as defined
herein) and (iv) stating (A) whether more than 5% of the outstanding Class B
Common Stock will be transferred and (B) whether the Transfer will constitute an
assignment under the 1940 Act. The giving by the Transferring Stockholder of an
Offer Notice shall be deemed to be an offer to Transfer the Class B Common Stock
subject to the Offer Notice to the other stock holders who are parties to this
Agreement (to each such stockholder in proportion to his or her ownership of the
total number of outstanding shares of Class B Common Stock, not counting the
shares subject to the Offer Notice for this purpose) for a purchase price equal
to the value proposed to be paid by the proposed transferee. The right of first
refusal provided in this Article 4 shall not apply to any transfer of shares of
Class A Common Stock.
4.3 Response to Offer Notice. Within thirty (30) days of receipt of such
------------------------
Offer Notice, each stockholder who receives the Offer Notice must notify the
Transferring Stockholder whether such stockholder will exercise his, her or its
right to purchase the Class B Common Stock subject to the Offer Notice. Any
eligible stockholder that does not respond to the Offer Notice within the
allotted thirty (30) period shall not have any right to purchase shares of Class
B Common Stock subject to the Offer Notice. Each stockholder who receives the
Offer Notice shall also be entitled to indicate in his, her or its response to
the Offer Notice a number of shares of Class B Common Stock that such
stockholder is prepared to purchase in addition to any shares of Class B Common
Stock which are allocated to such stockholder based on such stockholder's
proportionate ownership of BlackRock. Any shares of Class B Common Stock which
are subject to the Offer Notice which are not claimed by any stockholder
entitled to claim such shares shall be allocated to those stock holders who
indicate in their response to the Offer Notice that they are prepared to
purchase remaining shares of Class B Common Stock in addition to the shares
which are allocated to them based on the proportionate ownership criteria. If
the stockholders who express an interest in purchasing remaining or additional
shares of Class B Common Stock indicate an interest in more shares than are
available from the remaining shares being offered by the Transferring
Stockholder, such remaining
13
<PAGE>
shares shall be allocated among the stockholders expressing an interest in
purchasing additional shares in proportion to such stockholders' relative
ownership percentages of Class B Common Stock.
4.4 Settlement for Purchases by BlackRock Stockholders. Settlement for
--------------------------------------------------
Class B Common Stock to be purchased by BlackRock stockholders pursuant to this
Article 4 shall be thirty (30) calendar days after the expiration of the thirty
(30) period provided for in Section 4.3 hereof or such other date as may be
agreed to by the relevant parties. At such settlement, (i) the BlackRock
stockholders who have elected to purchase Class B Common Stock pursuant to this
Article 4 shall deliver the consideration for such shares to the Transferring
Stockholder and (ii) the Transferring Stockholder shall deliver properly
endorsed certificates representing such Class B Common Stock to the appropriate
other BlackRock stockholders.
4.5 Right to Transfer to Third Party. Subject to Section 4.6 of this
--------------------------------
Agreement, to the extent eligible stockholders of BlackRock do not exercise
their purchase rights pursuant to this Article 4, the Transferring Stockholder
may, within three months from the date of the Offer Notice, if no eligible
stockholders exercise their purchase right, or the date of settlement pursuant
to Section 4.4 hereof, if some eligible stockholders exercise their purchase
right, Transfer all or a portion of the shares of Class B Common Stock which
were subject to the Offer Notice and not purchased by other eligible
stockholders of BlackRock pursuant to this Article 4, to the third party
identified in the Offer Notice at a purchase price equal to or greater than the
purchase price specified by the Transferring Stockholder in the Offer Notice. If
the Transferring Stockholder does not Transfer the Class B Common Stock in the
three-month period provided for in this Section 4.5, the Transferring
Stockholder shall thereafter only be entitled to Transfer any shares of Class B
Common Stock to a third party upon compliance with all of the provisions of this
Article 4 or Article 3.
4.6 Tag Along Rights.
----------------
(a) If a Transferring Stockholder proposes to Transfer more than five
percent 5% of the Voting Stock pursuant to Section 4.2 hereof, each BlackRock
stockholder that is a party to this Agreement that elects to not exercise the
purchase right pursuant to Section 4.3 hereof shall be entitled to exercise tag
along rights as set forth in this Section 4.6 by written notice (a "Tag Along
Notice") to the Transferring Stockholder not later than 30 days following
receipt of the related Offer Notice. The tag along rights provided in this
Article 4 shall not apply to any transfer of shares of Class A Common Stock.
The Tag Along Notice shall specify the number of shares
14
<PAGE>
of Class B Common Stock that such stockholder will require to be transferred
pursuant to this Section 4.6, the maximum number of which shall be determined in
accordance with the provisions set forth below:
(i) If the proposed Transfer shall not constitute an assign ment under
the 1940 Act, each such BlackRock stockholder shall be entitled to require
Transfer of a maximum number of such BlackRock stockholder's shares of Class B
Common Stock equal to the product of (A) the ratio of the number of shares of
Class B Common Stock proposed to be transferred by the Transferring Stock
holder to the total number of shares of Class B Common Stock held by such Trans
ferring Stockholder (the "Transfer Percentage"), and (B) the total number of
unrestricted shares of Class B Common Stock held by such BlackRock stockholder.
(ii) If the proposed Transfer shall constitute an assignment under
the 1940 Act, (A) the restriction on Transfer set forth in Section 3.1 hereof
will lapse immediately with respect to that number of Restricted BlackRock
Employee Shares held by each Employee Stockholder or any Permitted Transferee
thereof equal to (x) the product of the Transfer Percentage and the total number
of shares of Class B Common Stock held by such Employee Stockholder or Permitted
Transferee thereof, minus (y) the total number of Unrestricted BlackRock
Employee Shares held by such Employee Stockholder or any Permitted Transferee
thereof (provided that if such number shall be negative such number shall be
deemed to be zero), and (B) each such BlackRock stockholder shall be entitled to
require Transfer of a maximum number of such BlackRock stockholder's shares of
Class B Common Stock equal to the product of the Transfer Percentage and the
total number of shares of Class B Common Stock held by such BlackRock
stockholder.
(b) At least ten (10) business days prior to the consummation of a
Transfer by the Transferring Stockholder described in the Offer Notice, the
Transferring Stockholder shall provide written notice (a "Consummation
Notice") to the BlackRock stockholders entitled to exercise tag along rights
pursuant to this Section 4.6 stating (i) the number of shares of Class B Common
Stock that each such stockholder will be entitled to Transfer pursuant to this
Section 4.6 and (ii) the date the Transfer will be consummated. At least five
(5) business days prior to the date of the consummation of the Transfer by the
Transferring Stockholder to the third party identified in the Offer Notice, each
stockholder exercising rights pursuant to this Section 4.6 shall deliver to the
Transferring Stockholder for Transfer to the third party one or more
certificates, properly endorsed for Transfer, which represent the number of
shares of Class B Common Stock the stockholder is entitled to sell as
15
<PAGE>
provided in the Consummation Notice. The certificate(s) delivered to the
Transfer ring Stockholder shall be Transferred to the third party as part of the
consummation of the Transfer of Class B Common Stock pursuant to the terms and
conditions specified in the Offer Notice and the Consummation Notice.
4.7 Representations of Selling Stockholders. In connection with the
---------------------------------------
Transfer contemplated by Section 4.6 hereof or any Transfer among stockholders
permitted by this Agreement, any selling stockholder shall be required to make
customary representations and warranties regarding the Class B Common Stock that
it proposes to Transfer, including, but not limited to, such stockholder's
ownership of and authority to Transfer such Class B Common Stock, the absence of
any liens or other encumbrances on such Class B Common Stock, and the compliance
of such Transfer with the federal and state securities laws and all other
applicable laws and regulations.
4.8 Insolvency of a Party. The Insolvency of any party hereto shall be
---------------------
deemed to be an offer to sell the Class B Common Stock owned by such party and
its Affiliates and Permitted Transferees (other than a financial institution
referenced in the second sentence of Section 1.17 hereof) to the other
stockholders of BlackRock who are parties hereto in accordance with the terms
and procedures set forth in this Article 4, except that (i) the price per share
of Class B Common Stock offered in such event shall be equal to the Market Value
of each share of Class B Common Stock determined as of the date on which notice
of such offer is made in accordance with the provisions of this Article 4 and
(ii) Section 4.6 hereof shall not apply. If a court or other governmental
authority permits a transfer of Class B Common Stock to a party other than
stockholders of BlackRock in connection with a bankruptcy or other insolvency
proceeding notwithstanding the preceding sentence, such third party shall be
subject to and bound by the terms of this Agreement and shall be required to
offer to sell the Class B Common Stock acquired by such third party to the other
stockholders of BlackRock who are parties to this Agreement in accordance with
the first sentence of this Section 4.8. Each share of Class B Common Stock that
is offered for sale pursuant to this Section 4.8 and is not purchased by the
stockholders of BlackRock who are parties to this Agreement pursuant to their
rights of first refusal under this Article 4, shall be repurchased by BlackRock
at a purchase price equal to the price at which such share was offered to such
stockholders of BlackRock.
4.9 Transfers to Affiliates. Notwithstanding any other term of this
-----------------------
Agreement to the contrary, PAM may Transfer, in one or more transactions, all or
a
16
<PAGE>
portion of the Class B Common Stock held by it to any of its Affiliates and
subsequent Transfers of Class B Common Stock may be made among Affiliates of
PNC (other than BlackRock), provided that (i) any transferee shall agree in
writing prior to such Transfer to be bound by the terms of this Agreement and
(ii) any such Transfer must comply with Section 3.4 hereof. Any Transfer made
pursuant to this Section 4.9 shall not be subject to the other provisions of
Article 4 of this Agreement.
If, at any time, any person that received Class B Common Stock from
PAM or its Affiliates ceases to be an Affiliate of PAM for any reason, such
person must Transfer any shares of Class B Common Stock held by it back to PAM
or another Affiliate of PAM designated by PAM. In addition, if PAM shall cease
to be an Affiliate of PNC while PAM holds any Class B Common Stock, PAM must
Transfer any shares of Class B Common Stock held by it to PNC or an Affiliate of
PNC designated by PNC, and PNC or such Affiliate, as applicable. A transfer by
PNC of all of its interest in PAM shall be deemed a transfer of Class B Common
Stock subject to the terms of this Article 4.
ARTICLE 5.
REPURCHASES OF RESTRICTED BLACKROCK EMPLOYEE SHARES BY BLACKROCK; MANDATORY
CONVERSION OF CLASS B COMMON STOCK
5.1 Repurchase of Restricted BlackRock Employee Shares. Any Restricted
--------------------------------------------------
BlackRock Employee Shares held by an Employee Stockholder or a Permitted
Transferee of such Employee Stockholder as of the date of the termination of
such Employee Stockholder's employment by Employer, the restrictions on which
have not lapsed as a result of such termination of employment in accordance with
Section 3.2 hereof, shall be offered for sale to BlackRock and BlackRock shall
purchase such shares. The purchase price to be paid by BlackRock for such Re
stricted BlackRock Employee Shares shall be the lower of (i) the Market Value
determined as of a date three (3) business days prior to the date on which such
repurchase is consummated pursuant to Section 5.2 hereof and (ii) the
consideration paid by the Employee Stockholder for Restricted BlackRock Employee
Shares or the shares of BFM Common Stock that were exchanged for such Restricted
BlackRock Employee Shares pursuant to the Exchange Agreement, as the case may
be.
5.2 Settlement for Restricted BlackRock Employee Shares. The purchase by
---------------------------------------------------
BlackRock of Restricted BlackRock Employee Shares pursuant to this Article 5
17
<PAGE>
shall be consummated at a closing which shall take place on a date specified by
BlackRock, which date shall not be later than sixty (60) calendar days following
the occurrence of the event which requires BlackRock to purchase Restricted
BlackRock Employee Shares.
5.3 Conversion of Unrestricted BlackRock Employee Shares. Subject to
----------------------------------------------------
Sections 5.1 and 5.2 above, immediately following the termination of any
Employee Stockholder's employment with Employer, each Class B Unrestricted
BlackRock Employee Share held by such Employee Stockholder shall be converted
into one share of Class A Common Stock in accordance with the procedures set
forth herein and in Article FOURTH of BlackRock's Certificate of Incorporation.
Each Employee Stockholder hereby agrees to comply with the procedures set
forth herein and in Article FOURTH and take any other action required in order
to convert such shares of Class B Common Stock into Class A Common Stock.
ARTICLE 6.
EFFECTIVE DATE; TERMINATION; ADDITIONAL PARTIES
6.1 Effective Date. All rights and obligations set forth in this
--------------
Agreement shall take effect upon the filing of the Certificate of Incorporation
of BlackRock with the Delaware Secretary of State. On the Effective Date, the
1998 Stockholders Agreements shall terminate without any consideration paid
thereunder, and from and after the Effective Date, the 1998 Stockholders
Agreements shall be void and of no force and effect.
6.2 Termination.
-----------
(a) With respect to any holder of Class B Common Stock, all rights and
obligations set forth in this Agreement, to the extent not previously
terminated, shall terminate at such time as such holder shall cease to own any
shares of Class B Common Stock.
(b) With respect to PAM, all rights and obligations of PAM set forth
in this Agreement, to the extent not previously terminated, shall terminate at
such time as PAM or any Affiliate shall cease to own any shares of Class B
Common Stock.
18
<PAGE>
(c) This Agreement shall terminate automatically if all outstanding
shares Class B Common Stock represents less than five percent (5%) of the voting
power of the outstanding capital stock of BlackRock at such time.
(d) This Agreement may be terminated at any time upon the mutual
agreement of PAM and the holders of a majority in interest of the BlackRock
Employee Shares.
6.3 Additional Parties. Any person which proposes to acquire any Class B
------------------
Common Stock or any interest therein shall be required as a condition precedent
to such transaction to become a party to this Agreement by executing this
Agreement or a counterpart hereof. Any such additional party shall be subject
to and bound by the terms and conditions of this Agreement. Any employee of
BlackRock or any Affiliate thereof that becomes a party to this Agreement after
the date hereof shall be deemed an "Employee Stockholder" for purposes of this
Agreement. BlackRock shall promptly notify each existing party to this Agreement
of the addition of each new party hereto and such notice shall include the
requisite information for providing notice to such new party pursuant to
Section 7.1 hereof
ARTICLE 7.
MISCELLANEOUS
7.1 Notices. All notices, demands and requests required or permitted to
-------
be given under the provisions of this Agreement shall be: (i) in writing, (ii)
sent by telecopy (with receipt personally confirmed by telephone), delivered by
personal delivery, or sent by commercial delivery service or certified mail,
return receipt requested, (iii) deemed to have been given on the date telecopied
with receipt confirmed, the date of personal delivery, or the date set forth in
the records of the delivery service or on the return receipt, and (iv) addressed
as follows:
If to BlackRock: BlackRock, Inc.
--------------- 345 Park Avenue
New York, New York 10154
Attention: Laurence D. Fink
Telecopy: 212-754-8760
Telephone: 212-754-5546
(with a copy which shall
19
<PAGE>
not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Matthew J. Mallow
Telecopy: 212-735-2000
Telephone: 212-735-3930
If to PAM: PNC Asset Management, Inc.
--------- c/o PNC Bank Corp.
One PNC Plaza
Pittsburgh, Pennsylvania 15222
Attention: General Counsel
Telecopy: 412-768-2875
Telephone: 412-762-7987
(with a copy which shall
not constitute notice) to: Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004-1202
Attention: Steven Kaplan
Telecopy: 202-942-5999
Telephone: 202-942-5998
If to an Employee
Stockholder or
Permitted
Transferee: The address set forth on the stock
- ---------- transfer records of BlackRock
or to any such other or additional persons and addresses as the parties may from
time to time designate in a writing delivered in accordance with this Section
7.1. All notices, requests, demands and other communications hereunder shall be
deemed delivered when received by all persons entitled to their receipt.
7.2 Assignability; Binding Effect. Except as expressly permitted by this
-----------------------------
Agreement, this Agreement shall not be assignable by any of the parties hereto
without the prior written consent of (i) PAM and the BlackRock Management
Committee, in the case of any proposed assignment by BlackRock or by an Employee
Stockholder or Permitted Transferee thereof, or (ii) BlackRock and the
20
<PAGE>
BlackRock Management Committee, in the case of any proposed assignment by PAM.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors, heirs, executors, administrators and
permitted assigns.
7.3 Governing Law and Dispute Resolution.
------------------------------------
(a) This Agreement and all actions contemplated hereby shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware applicable to contracts made
and to be performed entirely within the State of Delaware and without giving
effect to its choice or conflict of laws rules or principles.
(b) If a dispute should arise with respect to the terms of this
Agreement, the parties shall have thirty (30) days from the date written notice
of the dispute is given by one party to another party to resolve the matter
through informal negotiation. If the matter is not resolved within those thirty
(30) days, and if any party wishes to pursue the dispute, the dispute shall be
submitted to binding arbitration under the Commercial Rules of the American
Arbitration Association. Arbitration may be initiated by any party making a
written demand for arbitration to the other party within a reasonable time from
the date the claim, dispute, or controversy arose. The party making such demand
shall designate a competent and disinterested arbitrator in such written demand.
Within thirty (30) days of such demand, the other party shall designate a
competent and disinterested arbitrator and shall give written notice of such
designation to the party making the initial demand for arbitration. Within
thirty (30) days after such notices have been given, the two arbitrators so
designated shall select a third competent and disinterested arbitrator and give
notice of such selection to both parties. If the two arbitrators designated by
the parties are unable to agree on a third arbitrator within (30) days, then
upon request of either party such third arbitrator shall be randomly selected
from a list of available arbitrators as provided by the American Arbitration
Association. In no event may the arbitration be initiated more than one year
after the date one party gave written notice to the other party. Any
arbitration proceeding pursuant to this Section 7.3(b) shall be conducted in the
City of New York. The arbitrators shall have no authority to award any punitive
or exemplary damages and may interpret or construe, but shall not vary or ignore
the terms of this Agreement and shall be bound to follow controlling law. Each
party shall pay its chosen arbitrator, and shall bear equally the expenses of
the third arbitrator and all other expenses of arbitration are to be borne by
the party
21
<PAGE>
incurring them. Any arbitration award made pursuant to this Section 7.3(b) shall
be nonappealable except as provided in applicable arbitration statues.
(c) Notwithstanding Section 7.3(b) hereof, in connection with any
dispute under this Agreement the parties to this Agreement shall be entitled to
seek injunctive relief (but not damages) in any court of equity having
jurisdiction over the relevant parties.
7.4 Counterparts. This Agreement may be executed simultaneously in one or
------------
more counterparts and may be executed by facsimile. Each such counterpart shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
7.5 Entire Agreement. This Agreement, the Initial Public Offering
----------------
Agreement dated the date hereof between PNC, PAM and BlackRock, the Registration
Rights Agreement, and any employment agreements between BlackRock and any
Employee Stockholders constitute the entire agreement among the parties hereto
with respect to the transactions contemplated hereby and thereby and, except as
provided herein, supersede all previous oral and written and all contemporaneous
oral negotiations, commitments, writings and understandings with respect to such
transactions.
7.6 Amendments and Waivers.
----------------------
(a) This Agreement may be amended only by the written agreement of
PAM, BlackRock and the director(s) of BlackRock nominated by the BlackRock
Management Committee; provided, however, that if any proposed amendment to this
Agreement would materially and adversely affect any holders of BlackRock
Employee Shares, the amendment must also be approved by a majority in interest
of those holders of BlackRock Employee Shares.
(b) No delay or omission on the part of any party hereto in enforcing
any of the obligations of any other party hereto shall operate as a waiver of
such obligation or operate to constrain the rights of any other party hereunder
to enforce such obligation. No waiver of any one right shall operate as a
waiver of any subsequent right.
22
<PAGE>
7.7 Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.8 Severability. It is the intent and understanding of each party hereto
------------
that if, in any action or proceeding before any court or agency legally
empowered to enforce this Agreement or arbitrator, any term, restriction,
covenant, or promise is found to be unreasonable and for that reason
unenforceable, then such term, restriction, covenant, or promise shall not
thereby be terminated but that it shall be deemed modified to the minimal extent
necessary to make it enforceable by such court or agency and, if it cannot be so
modified, that it shall be deemed amended to delete therefrom such provision or
portion adjudicated to be invalid or unenforceable, such modification or
amendment in any event to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made.
7.9 Legend. All certificates representing the Class B Common Stock
------
covered by this Agreement shall bear on their face the following legend, or one
substantially similar thereto:
The shares represented by this certificate have not been registered under
either the Securities Act of 1933 (the "Act") or applicable state or
foreign securities laws (the "Other Acts") and shall not be sold or
otherwise disposed of by the holder hereof except upon registration of such
sale or disposition in accordance with the securities registration
requirements of the Act or any applicable Other Acts, or pursuant to an
exemption from such registration requirements. In addition, the shares
represented by this certificate may be transferred only in compliance with
the provisions of the Stockholders Agreement dated as of ____________ ___,
1999 (a copy of which is avail able for inspection at the executive
offices of BlackRock, Inc. ("BlackRock") at 345 Park Avenue, New York, New
York 10154 and will be provided to a registered holder of securities of
BlackRock upon request) and no person who receives such shares in
connection with a transfer which does not meet the qualifications
prescribed by the Stockholders Agreement is entitled to own or to be
registered as the record holder of such shares but the record holder of
this certificate may at such time and in the manner set forth in said
Stockholders Agreement convert such shares into the same number of shares
of Class A Common Stock for purposes of effecting the sale or other
disposition of such shares to any person. Upon any such transfer in
violation of the Stockholders Agreement, the person receiving this
certificate in connection
23
<PAGE>
with such transfer shall promptly surrender such certificate to BlackRock
and shall be entitled to receive a certificate representing the shares of
Class A Common Stock issuable upon conversion of the shares of Class B
Common Stock. Each holder of this certificate, by accepting the same,
accepts and agrees to all of the foregoing.".
7.10 Further Agreements. Each of the parties hereto agrees to execute all
------------------
such further instruments and documents and to take all such further action as
any other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
7.11 Financial Information. BlackRock shall make available to each holder
---------------------
of Class B Common Stock all financial statements, reports and other informa
tion made available to holders of Class A Common Stock.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
have caused this Agreement to be executed by their duly authorized officers, as
appropriate, as of the date first above written.
BLACKROCK, INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
PNC ASSET MANAGEMENT, INC.
By:
_______________________________
Name:
_____________________________
Title:
____________________________
<PAGE>
_____________________________
LAURENCE FINK
_____________________________
RALPH SCHLOSSTEIN
_____________________________
ROBERT KAPITO
_____________________________
SCOTT AMERO
_____________________________
GORDON ANDERSON
_____________________________
PAUL AUDET
_____________________________
KEITH ANDERSON
<PAGE>
_____________________________
THOMAS BAIN
_____________________________
NIGEL BARRY
_____________________________
THOMAS CALLAN
_____________________________
LAURENCE CAROLAN
_____________________________
YOUNG CHIN
_____________________________
ROBERT CONNOLLY
<PAGE>
_____________________________
ANDREW DAMM
_____________________________
DANIEL EAGAN
_____________________________
HUGH FRATER
_____________________________
HENRY GABBAY
_____________________________
BENNETT GOLUB
_____________________________
ANDREW GORDON
_____________________________
CHARLES HALLAC
<PAGE>
_____________________________
[RICHARD HARMON]
_____________________________
MICHAEL HUEBSCH
_____________________________
KEVIN KLINGERT
_____________________________
JAMES KONG
_____________________________
RICHARD KUSHEL
_____________________________
PHILIP MATTHEWS
<PAGE>
_____________________________
WILLIAM McVAIL
_____________________________
JOHN MORAN
_____________________________
THOMAS NEVIN
_____________________________
BARBARA NOVICK
_____________________________
KAREN SABATH
_____________________________
DENNIS SCHANEY
_____________________________
JOEL SHAIMAN
<PAGE>
_____________________________
RAJIV SOBTI
_____________________________
CHRISTIAN STADLINGER
_____________________________
PETER TAIT
_____________________________
DOUGLAS WAGGONER
_____________________________
SUSAN WAGNER
_____________________________
ADAM WIZON
<PAGE>
_____________________________
WILLIAM WYKLE
<PAGE>
EXHIBIT 21.1
Subsidiaries of BlackRock, Inc.
The following table lists the direct and indirect subsidiaries of BlackRock,
Inc. as of June 30, 1999. In accordance with Item 601(21) of Regulation S-K,
the omitted subsidiaries considered in the aggregate as a single subsidiary
would not constitute a "significant subsidiary" as defined under Rule 1-02(w) of
Regulation S-X.
<TABLE>
<CAPTION>
Jurisdiction of Incorporating or
Name Organization
---- ------------
<S> <C>
BlackRock Advisors, Inc. Delaware
(100% owned by BlackRock)
BlackRock Overseas Investment Corp. EDGE Act Corporation (U.S.)
(100% owned by BlackRock)
BlackRock International, Ltd. (100% Scotland (U.K.)
owned by BlackRock)
BlackRock Institutional Management Delaware
Corporation (100% owned by BlackRock)
Advance Investment Management, Inc. West Virginia
(100% owned by BlackRock)
Provident Advisors, Inc. (100% owned by Delaware
BlackRock)
BlackRock Financial Management, Inc. Delaware
(100% owned by BlackRock)
BlackRock (Japan), Inc. (100% owned by Delaware
BlackRock)
Anthracite Securizations Corp. (95% Delaware
owned by BlackRock Financial
Management, Inc. and 5% owned by
Anthracite )
Risk Monitors, Inc. (100% owned by Pennsylvania
BlackRock)
BlackRock Japan Holdings, Inc. Delaware
(100% owned by BlackRock)
Nomura BlackRock Asset Management Co., Japan
Ltd. (10% ownership by BlackRock)
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and
to the use of our report on the Consolidated Financial Statements of BlackRock,
Inc. and subsidiaries dated February 26, 1999, in this Registration Statement
on Form S-1 (No. 333-78367) and the related Prospectus of BlackRock, Inc. to be
filed on or about August 18, 1999.
/s/ Ernst & Young LLP
New York, New York
August 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 76,262
<SECURITIES> 2,306
<RECEIVABLES> 103,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 16,737
<DEPRECIATION> 18,177
<TOTAL-ASSETS> 403,252
<CURRENT-LIABILITIES> 0
<BONDS> 153,200
0
0
<COMMON> 53,105
<OTHER-SE> 78,973
<TOTAL-LIABILITY-AND-EQUITY> 403,252
<SALES> 180,093
<TOTAL-REVENUES> 180,093
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 129,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,121
<INCOME-PRETAX> 44,799
<INCOME-TAX> 18,813
<INCOME-CONTINUING> 25,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,986
<EPS-BASIC> 130.39
<EPS-DILUTED> 129.97
</TABLE>
