<PAGE>
As filed with the Securities and Exchange Commission on May 13, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
Proposed
Maximum Amount of
Title of Each Class of Aggregate Registration
Securities To Be Registered Offering Price Fee
- --------------------------------------------------------------------------------------
<S> <C> <C>
Class A common stock, $.01 par value per share........... $100,000,000 $27,800
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 75,
76, 77 and 78, and the back cover page. The form of the U.S. Prospectus is
included herein and is followed by the front cover page, pages 75, 76, 77 and
78, 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 May 13, 1999
PROSPECTUS
Shares
[BlackRock Logo]
Class A Common Stock
-----------
This is BlackRock, Inc.'s initial public offering of its class A common
stock. 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
" ."
Following the offerings we will have two classes of authorized common
stock--class A common stock and class B common stock. 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.
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.
-----------
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.......................................................... 17
Dividend Policy.......................................................... 17
Dilution................................................................. 18
Capitalization........................................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 27
Management............................................................... 42
Executive Compensation................................................... 46
Ownership of the Common Stock............................................ 55
Certain Relationships and Related Transactions........................... 56
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 73
Underwriting............................................................. 75
Legal Matters............................................................ 79
Experts.................................................................. 79
Where You Can Find More Information...................................... 79
Index to Consolidated Financial Statements............................... F-1
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>
----------------
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make statements about our future results in this prospectus that may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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. We assume no obligation to publicly
correct or update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting the forward-
looking statements or if we later become aware that they are not likely to be
achieved.
----------------
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 the 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.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully. In this
prospectus, "BlackRock," "we," "us" and "our" refer to BlackRock, Inc. and to
our consolidated subsidiaries and any predecessor businesses where the context
requires.
BlackRock
Overview. BlackRock is one of the 30 largest investment management firms
in the United States with $131 billion of assets under management at December
31, 1998. After the offerings, we expect to be the fifth largest publicly-
traded company focused on investment management in the United States on the
basis of assets under management. The creation of BlackRock, Inc. in 1998 by
PNC Bank Corp. (NYSE: PNC) ("PNC"), one of the largest diversified financial
services companies in the United States, was the culmination of a strategic
restructuring of PNC's asset management business. This process began in 1995
when PNC acquired BlackRock Financial Management ("BFM"), then a $24 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 fully integrated
all activities along functional lines and established interdisciplinary
operating committees charged with day-to-day oversight of each product line.
Our Products and Services. We offer a variety of investment products to
institutional and individual investors in the U.S. and internationally. At
year-end 1998, fixed income products represented 50%, liquidity products
represented 38%, equity products represented 11% and alternative investment
products represented 1% of total assets under management. We manage these
assets in approximately 350 separate accounts and 75 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, which are an outgrowth of
our longstanding commitment to developing highly sophisticated investment
technology, we provide comprehensive risk analysis and advice with respect to
more than $400 billion of assets managed by our clients.
Our Asset Growth. Over the past five years, our assets under management
have increased by more than $78 billion, a 26% compound annual growth rate
("CAGR"). Separate accounts, which are offered primarily to institutional
investors, grew by $51 billion, a 41% CAGR, and mutual funds, which are offered
primarily under the BlackRock Funds and Provident Institutional Funds brand
names, grew by $27 billion, a 15% CAGR. Most of this growth has been in our
fixed income and liquidity products, in which assets have increased by $41
billion and $26 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 long-term risk-adjusted returns relative to clients'
benchmarks and to our comprehensive client service. We achieve our investment
results by using a highly disciplined investment process, which brings together
the expertise of our investment professionals and our extensive proprietary
risk management systems. A group of senior professionals, who work closely with
clients, consultants and distributors to better understand their needs, market
our products and provide client service. Products and services are tailored to
meet differing return objectives and risk tolerances, as well as
1
<PAGE>
regulatory, tax, accounting and credit constraints. Our technology also plays
an important role in client service by permitting efficient report
customization and delivery over the Internet.
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. We also granted long-term deferred
compensation to 60 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 and industry
consultants, as well as wholesaling efforts among 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 systems, 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 highly
sophisticated proprietary investment technology that supports our
risk assessment and investment decision-making, as well as highly
automated 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 businesses along functional
lines, we expect to have opportunities to realize continued
improvement in our operating margins. We will also seek to use our
technology expertise to achieve greater automation and enhance
firmwide infrastructure to support future growth.
2
<PAGE>
Finally, we believe that as one of relatively few publicly-traded
investment 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 adding scale, expanding product capabilities and
strengthening distribution.
Legal Structure and Ownership. BlackRock was incorporated in 1998 in
Delaware to effect the consolidation of a substantial portion of PNC's asset
management businesses. We continue to work closely with PNC to seek ways to
enhance value for both BlackRock and PNC stockholders. After the offerings, PNC
will own, indirectly, through its wholly-owned subsidiary, PNC Bank, N.A. ("PNC
Bank"), % of the class B common stock, representing % of the combined
voting power of all classes of BlackRock stock. BlackRock's principal executive
offices are located at 345 Park Avenue, New York, New York 10154 and the
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 March 31, 1999, the
outstanding balance on this line of
credit, including accrued interest, was
$151 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................. " "
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 audited consolidated financial statements of
BlackRock for the years ended December 31, 1996, 1997 and 1998 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 $12.1 million, respectively. BFM's
income before income taxes for these periods would not be comparable to post
acquisition results due to the financing costs and goodwill amortization
expense arising out of the acquisition and which have only been incurred in
periods since the acquisition.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
(unaudited)
($ in thousands, except per share data)
<S> <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
Separate accounts............ 7,638 24,458 43,069 62,985 101,352
BlackRock Asset Investors
(BAI)....................... -- 5,933 6,061 13,867 61,199
------- -------- -------- -------- --------
Total advisory and
administration fees........... 34,633 92,268 136,319 194,829 325,038
Other income................... 1,411 5,814 10,159 10,644 14,444
------- -------- -------- -------- --------
Total revenue.................. 36,044 98,082 146,478 205,473 339,482
Operating expenses
Employee compensation and
benefits.................... 7,073 33,698 53,703 73,217 109,741
BAI incentive compensation... -- 3,070 3,525 9,688 44,806
Fund administration and
servicing costs--
affiliates.................. 10,475 12,412 19,611 27,278 52,972
General and administration... 10,510 17,719 24,500 29,764 38,696
Amortization of goodwill..... -- 8,002 9,603 9,653 9,653
Closed-end fund offering
costs....................... -- -- -- -- 4,252
------- -------- -------- -------- --------
Total operating expenses....... 28,058 74,901 110,942 149,600 260,120
------- -------- -------- -------- --------
Operating income............... 7,986 23,181 35,536 55,873 79,362
Non-operating income (expense)
Interest and dividend
income...................... 331 943 1,877 3,117 1,995
Interest expense............. -- (14,253) (19,975) (20,249) (13,347)
------- -------- -------- -------- --------
331 (13,310) (18,098) (17,132) (11,352)
------- -------- -------- -------- --------
Income before income taxes..... 8,317 9,871 17,438 38,741 68,010
Income taxes................. 2,753 4,785 8,475 16,655 32,395
------- -------- -------- -------- --------
Net income..................... $ 5,564 $ 5,086 $ 8,963 $ 22,086 $ 35,615
======= ======== ======== ======== ========
Pro-forma net income per share
(1)
Basic..........................
Diluted........................
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- -------- --------------- -------- --------
(unaudited)
($ in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data
Goodwill................... $ -- $232,100 $223,216 $213,563 $203,910
Total assets............... 15,039 293,270 332,719 335,507 440,784
Long-term debt............. -- 235,982 255,859 225,232 197,000
Total liabilities.......... 3,904 270,481 300,047 290,544 334,593
Stockholders' equity....... 11,135 22,789 32,672 44,963 106,191
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- -------- --------------- -------- --------
(unaudited)
($ in millions)
<S> <C> <C> <C> <C> <C>
Other financial data (2)
Assets under management
Separate accounts:
Fixed income*............ $13,848 $ 23,345 $ 28,958 $ 39,261 $ 52,869
Liquidity................ 3,269 5,556 7,430 10,019 13,826
Equity................... 540 700 1,204 1,763 2,417
------- -------- -------- -------- --------
Subtotal................. 17,657 29,601 37,592 51,043 69,112
Mutual funds:
Fixed income............. 10,021 11,969 12,546 13,714 13,888
Liquidity................ 20,398 21,183 23,933 29,827 35,713
Equity................... 4,615 6,306 8,643 10,829 12,087
------- -------- -------- -------- --------
Subtotal................. 35,034 39,458 45,122 54,370 61,688
------- -------- -------- -------- --------
Total...................... $52,691 $ 69,059 $ 82,714 $105,413 $130,800
======= ======== ======== ======== ========
EBITDA (Unaudited)
EBITDA (3) ($ in
thousands)................ $ 8,609 $ 33,657 $ 49,113 $ 71,141 $ 94,209
EBITDA, as-adjusted (4) ($
in thousands)............. $ 5,856 $ 14,619 $ 20,663 $ 34,237 $ 48,467
</TABLE>
- -------
* including alternative investment products.
(1) The unaudited pro-forma net income per share gives effect to the offerings,
including the repayment of debt and decrease in interest expense and the
increase in income tax expense thereon, as if the offerings had been
effected as of January 1, 1998. The unaudited pro forma net income per
share does 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.
(2) For comparative purposes, assets under management at December 31, 1994,
include BFM.
(3) "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization and extraordinary items. 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.
(4) "EBITDA, as-adjusted" represents earnings after interest expense and income
taxes but before depreciation and amortization and extraordinary items.
EBITDA, as-adjusted 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.
6
<PAGE>
Recent Developments
Results for the First Quarter Ended March 31, 1999. BlackRock's net
income increased to $12.2 million in the first quarter of 1999, up $4.6 million
or 59.6% from the first quarter of 1998 results of $7.7 million.
Total revenue for the first quarter of 1999 was $87.9 million, up $18.7
million or 27.0% from $69.2 million earned in the first quarter of 1998.
Investment advisory and administration fees for the first quarter of 1999 were
$84.0 million, an increase of $32.5 million or 63.2% from the first quarter of
1998 total of $51.5 million. The increase was attributable to a $27.1 billion
or 24% increase in assets under management and the May 1998 conversion of $8.2
billion in PNC common trust funds into the BlackRock Funds which resulted in
increased fees for BlackRock. Other income for first quarter of 1999 was $5.3
million which represented a $2.5 million or 91.3% increase from the prior year.
The growth in other income was primarily due to new risk management advisory
engagements. BlackRock Asset Investors ("BAI") revenues of ($1.4) million for
the first quarter of 1999 primarily reflected asset sales and valuation
adjustments since December 31, 1998, associated with the fund's liquidation.
BAI revenues, including performance fees, were $14.9 million for the first
quarter of 1998.
Operating expenses totaled $64.2 million, an increase of $13.0 million or
25.3% from the first quarter of 1998 total of $51.2 million. The rise in
operating expenses was attributable to increases in compensation and benefits
of $8.0 million, fund administration and servicing costs of $12.1 million and
$4.2 million in general and administration expenses, and were offset by an
$11.3 million decline in BAI incentive compensation. The increase in
compensation and benefits reflect staff increases, escalation in 401k benefit
costs due to program changes and increased incentive compensation costs
associated with operating income growth which were partially offset by our
adoption of Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Fund administration and
servicing costs increased due to the May 1998 conversion of $8.2 billion in PNC
common trust funds into the BlackRock Funds. The increase in general and
administration expense was largely attributable to higher marketing
expenditures as well as management's decision to reduce the estimated useful
life of certain equipment which increased depreciation expense.
Operating income was $23.7 million for the first quarter of 1999,
representing a $5.7 million or 31.8% increase from first quarter 1998 results
of $18.0 million.
Assets Under Management. BlackRock's assets under management at March 31,
1999, were $140.2 billion as compared to $113.1 billion and $130.8 billion at
March 31 and December 31, 1998, respectively. The increase in assets under
management from the prior year primarily reflects new fixed income advisory
business. Fixed income and alternative investment products assets under
management at March 31, 1999 were $78.2 billion which represented a $21.6
billion or 38.1% increase from the first quarter 1998 results of $56.7 billion.
Strategic Joint Venture. In 1998, we obtained more than $1 billion of new
assets under our management in Japan through three investment trusts created
with Nomura Asset Management Co., Ltd., ("NAM"), the largest money manager in
Japan. Since year-end, we have entered into a formal relationship with NAM by
establishing Nomura BlackRock Asset Management Co., Ltd., a joint venture that
will initially focus on offering BlackRock's fixed income products in the
Japanese institutional and investment trust markets. To further promote our
international business, we will consider establishing additional strategic
affiliations and foreign business development offices in the future.
7
<PAGE>
Selected Operating Data
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
----------------------
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Income statement data ($ in thousands)
Revenue
Investment advisory and administration fees........... $ 51,494 $ 84,048
BAI................................................... 14,948 (1,440)
Other................................................. 2,753 5,266
---------- ----------
Total revenue........................................... 69,195 87,874
Operating expenses...................................... 51,207 64,169
---------- ----------
Operating income........................................ 17,988 23,705
Interest and dividend income............................ 711 618
Interest expense--affiliates............................ (4,076) (3,670)
---------- ----------
Income before income taxes.............................. 14,623 20,653
Income tax provision.................................... 6,965 8,434
---------- ----------
Net income.............................................. $ 7,658 $ 12,219
========== ==========
Pro-forma net income per share
Basic.................................................
Diluted...............................................
Balance sheet data ($ in thousands)
Goodwill................................................ $ 211,150 $ 201,497
Total assets............................................ 292,869 400,131
Debt.................................................... 174,452 179,201
Total liabilities....................................... 223,326 281,756
Stockholders' equity.................................... 69,543 118,375
Other financial data ($ in millions)
Assets under management at period end:
Separate accounts*.................................... $ 57,326 $ 80,435
Mutual funds.......................................... 55,748 59,749
---------- ----------
Total................................................... $1 13,074 $ 140,184
========== ==========
Assets under management at period end:
Fixed income*......................................... $ 56,650 $ 78,220
Liquidity............................................. 42,051 47,511
Equity................................................ 14,373 14,453
---------- ----------
Total................................................... $ 113,074 $ 140,184
========== ==========
</TABLE>
- --------
* including alternative investment products.
8
<PAGE>
RISK FACTORS
Investing in the class A common stock will provide you with an equity
ownership interest in BlackRock. 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. The performance of
your shares will reflect the performance of our business relative to, among
other things, our competitors, general economic and market conditions and
industry conditions. The value of your investment may increase or decrease and
could result in a loss. PNC is a bank holding company, but your shares will not
be insured by the Federal Deposit Insurance Corporation ("FDIC") or guaranteed
by any bank. 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 revenues
Our investment management revenues are comprised largely of fees based on
a percentage of the value of assets under management and, in certain
circumstances, 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 performance could lead to loss of clients and 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 would adversely affect our revenues:
. clients can, without penalty, terminate our investment management
contracts and can withdraw their funds generally with little or no
advance notice;
9
<PAGE>
. the boards of registered investment companies that we advise could
choose to terminate or not renew our investment management
contract, which they must consider annually; and
. fund shareholders can withdraw assets with no advance notice.
Certain funds we manage have fixed terms and we may not be able to replace
these revenues
We manage a variety of closed-end 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 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 is expected to liquidate by the fourth quarter of 1999,
represented $173 million of our assets under management at
December 31, 1998, and contributed $16.4 million of operating
income in 1998;
. three closed-end funds maturing on or prior to December 31, 2001,
which collectively represented $2.6 billion of our assets under
management at December 31, 1998, and contributed $10.6 million of
revenues during 1998.
Loss of significant separate accounts would adversely affect our revenues
We had approximately 350 separate accounts at December 31, 1998, of which
the 10 largest (excluding alternative investment products) generated
approximately 5.7% of our total revenues during 1998. 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.
Fee pressures could reduce profit margin
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 have an
adverse affect on our profit margins and results of operations.
Performance fees may result in increased earnings volatility
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 returns, causing our earnings to be more
volatile than if we did not manage assets on a performance fee basis. In 1998,
performance fees, excluding BAI, represented 1.6% of our total revenue.
Many of our competitors have greater resources than we do
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 market 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.
10
<PAGE>
Failure to successfully pursue our corporate or acquisition strategies may
adversely affect us
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 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 adversely affect our
earnings and our competitive position in the investment management industry.
Failure to develop effective business continuity plans could disrupt operations
and cause losses
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.
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
losses
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 their systems to be Year
2000 ready could disrupt our operations and have other adverse effects. 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 the securities and
adversely affect our investment management fees.
11
<PAGE>
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.
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 or government regulations could
adversely affect us
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 us.
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
engaging 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.
Subsidiaries of ours are registered with the Securities and Exchange
Commission ("SEC") 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 SEC is authorized to institute proceedings and impose
sanctions for violations of the Investment Advisers Act and the Investment
Company Act, ranging from censure to termination of an investment adviser's
registration to prohibition to serve as advisers to SEC-registered funds. The
failure of one of our subsidiaries to comply with the Investment Advisers Act
or the Investment Company Act could have a material adverse effect on us.
Our asset management subsidiaries are subject to the Employee Retirement
Income Security Act of 1974 ("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. The failure of any of our
subsidiaries to comply with these requirements could have a material adverse
effect on us.
Because we are a subsidiary of PNC and PNC Bank we are subject to certain
banking regulations as described below under the heading "--Risks relating to
our relationship with PNC--Banking regulation of PNC and BlackRock."
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
12
<PAGE>
BlackRock. As long as PNC owns a majority of the outstanding voting power of
our common stock, PNC will continue to be able to 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 right 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 treatment of the items in our tax
returns which are consolidated or combined with PNC's tax returns.
Concentration of PNC managed assets in BlackRock Funds
Approximately 81% ($19.5 billion at December 31, 1998) of the assets in
the BlackRock Funds are assets of PNC clients and are managed 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 the PNC channels and PNC may determine to not continue
marketing the BlackRock Funds or our other products.
Banking regulation of PNC and BlackRock
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 and which may cause us to be at a competitive disadvantage.
BlackRock is subject to the supervision, regulation, and examination of the
Office of the Comptroller of the Currency ("OCC"). 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 ("Federal Reserve").
Change in control of PNC
Upon a change in control of PNC, under certain circumstances, PNC or its
successor would 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, our existing management may leave and new management would be
appointed. Such a change in control of PNC or in our management might be deemed
an "assignment," which would result in the termination of certain of our
investment management contracts unless the contracts were reapproved by the
boards of registered investment companies. The termination of advisory
agreements may result in other clients terminating their advisory agreements
with BlackRock.
13
<PAGE>
Holders may not participate in PNC's disposal of its common stock
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 other 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 shareholders could choose to sell all of their shares of
common stock in such 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 any 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 may have conflicts of interest because they are also
directors or executive officers of 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 may 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. BlackRock's certificate of incorporation contains provisions
designed to facilitate resolution of these potential conflicts, which we
believe will assist our directors in fulfilling their fiduciary duties to our
stockholders. These provisions do not, however, alter the fiduciary duty of
loyalty of our directors under applicable Delaware law. Subject to applicable
Delaware law, by becoming a BlackRock stockholder, you will be deemed to have
notice of and have consented to these provisions of our certificate of
incorporation. Although these provisions are designed to fairly resolve such
conflicts between us and PNC, we cannot assure you that any conflicts will be
so resolved.
Our directors and executive officers may have conflicts of interest because of
their ownership of PNC stock
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 prior to these offerings. 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.
Conflicts of interest with PNC due to our ongoing business relationship
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;
. 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.
14
<PAGE>
Risk factors relating to our class A common stock
Potential adverse effect on common stock share price from disparate voting
rights
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 adversely affect the value of the class A common
stock.
Shares available for future sale or distribution, when sold or distributed,
may adversely affect the market price of the class A common stock
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
For so long as PNC owns a majority of the outstanding voting power of
our common stock, any merger or business combinations involving BlackRock
would require the prior approval of PNC. In the event that PNC were to control
less than a majority of the outstanding voting power of our 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 following:
. 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.
. Our certificate of incorporation authorizes our board of directors
to issue "blank check" preferred equity with designations, rights
and preferences as it may determine. Accordingly, the board of
directors can, without stockholder approval, issue preferred
equity with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other
rights of the holders of the class A common stock.
15
<PAGE>
. Our bylaws provide that meetings of stockholders may only be
called by the board of directors and require stockholders who wish
to bring matters before stockholder meetings to
comply with stockholder notice and informational requirements. The
certificate of incorporation also prohibits stockholders from
acting by written consent in lieu of a meeting.
. Following the date on which PNC or another person ceases to
control a majority of the voting power of our common stock, our
certificate of incorporation also imposes some restrictions on
mergers and business combinations between us and any holder of 15%
or more of our outstanding voting stock.
Class A common stockholders will experience immediate and substantial dilution
Purchasers of class A common stock in the offerings will experience
immediate and substantial dilution in net tangible book value of $ per
share, based on an assumed initial public offering price of $ per share.
To the extent that any options to be granted with respect to our common stock
are exercised after the vesting period expires, purchasers of class A common
stock will experience additional dilution.
Absence of a prior public market; volatility of price; no assurance that an
active trading market will develop or be sustained
Prior to the offerings, there was no public market for the class A common
stock and we do not know if an active trading market will develop or will be
sustained. BlackRock, PNC and the underwriters negotiated the initial public
offering price of the class A common stock, and that price may not be sustained
after the offerings. The market price for the class A common stock may be
highly volatile. Announcements by us, or by our competitors, of quarterly
financial results or other matters could cause the market price of the class A
common stock to fluctuate substantially. Market fluctuations or perceptions
regarding BlackRock or the investment management industry, as well as general
economic or political conditions, may cause the market price of the class A
common stock to decline.
16
<PAGE>
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 option,
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 March 31, 1999 the outstanding
balance of this facility, including accrued interest was $151 million. The
revolving line of credit bears interest at PNC Bank's prime rate, which was
7.75% at March 31, 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."
17
<PAGE>
DILUTION
Our pro forma net tangible book value at December 31, 1998, 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 December 31, 1998, would have been $ million, or
$ per share. 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, including both vested and unvested
options, outstanding to purchase shares of class A common stock at
a weighted average exercise price of $ per share. 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 December 31, 1998, 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.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of BlackRock at
December 31, 1998, 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" located on page 20 of this
prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-------------------
As
Actual Adjusted
-------- ---------
($ in thousands)
<S> <C> <C>
Debt
7.5% unsecured note due February 2000.................... $ 47,000 $
Revolving line of credit with PNC Bank................... 150,000
-------- ---------
Total debt................................................. 197,000
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........................................ 53,286
Treasury stock, at cost, shares.................... (200)
-------- ---------
Total stockholders' equity................................. 106,191
-------- ---------
Total capitalization....................................... $303,191 $
======== =========
</TABLE>
19
<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 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
principally as part of its personal trust activities and otherwise to
individual or smaller 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:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
($ in millions)
<S> <C> <C> <C>
Separate Accounts
Beginning assets under management........... $29,601 $ 37,592 $ 51,043
Net subscriptions........................... 6,616 11,301 15,166
Market appreciation......................... 1,375 2,150 2,903
------- -------- --------
Ending assets under management.............. 37,592 51,043 69,112
Mutual Funds
Beginning assets under management........... 39,458 45,122 54,370
Net subscriptions........................... 4,551 7,221 5,832
Market appreciation......................... 1,113 2,027 1,486
------- -------- --------
Ending assets under management.............. 45,122 54,370 61,688
------- -------- --------
Total Assets Under Management ("AUM")........ 82,714 105,413 130,800
======= ======== ========
Net subscriptions........................... $11,167 $ 18,522 $ 20,998
% of Change in AUM from net subscriptions... 81.8% 81.6% 82.7%
</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".
BAI, one of our alternative investment vehicles, was created in 1994 to
target opportunities in the rapidly changing real estate financing markets.
Since its inception we have realized substantial amounts of revenue and expense
from BAI, which are separately disclosed in our consolidated financial
statements. BAI is
20
<PAGE>
currently in the process of liquidating its assets, based on a plan approved by
its Board of Trustees and shareholders. 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 reflects 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 1998 as Compared to 1997
Assets Under Management
Assets under management rose $25.4 billion in 1998, propelled by a 35.4%
growth in separate account assets, primarily reflecting new fixed income
advisory business. Net subscriptions of $21.0 billion comprised 83% of the
$25.4 billion increase in assets under management with the remaining
$4.4 billion (17%) reflecting market appreciation.
<TABLE>
<CAPTION>
Year Ended 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 35,713 5,886 19.7%
Equity........................... 10,829 12,087 1,258 11.6%
----------- ----------- -------
Subtotal......................... 54,370 61,688 7,318 13.5%
----------- ----------- -------
Total.............................. $ 105,413 $ 130,800 $25,387 24.1%
=========== =========== =======
</TABLE>
- --------
* including alternative investment products.
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.
21
<PAGE>
<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 $7.3 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%
Closed-end 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 servicing costs 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 result from the
substantial business growth experienced in 1998 as well as from BlackRock's
formation, which required significant staff increases
22
<PAGE>
and included sizable new investments in technology and leased premises as
compared to the prior year. BlackRock also launched a new high yield closed-end
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>
Year Ended 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. 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.
23
<PAGE>
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 expense 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 promotion 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. 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. 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.
Total capital at December 31, 1998, was $303.2 million and was comprised
of $106.2 million of stockholders' equity and $197 million of debt. Debt at
December 31, 1998, included $150 million outstanding on a $175 million
revolving credit facility with PNC Bank due December 31, 2002, and a $47
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 million in outstanding debt as of
December 31, 1998, represents amounts remaining from PNC's $240 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.
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.
24
<PAGE>
Net cash flow used in financing activities was $4.4 million and $40.4
million for 1998 and 1997, 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 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 fair valuing derivative financial instruments.
SFAS No. 133 is required to be adopted for fiscal years beginning after June
15, 1999. 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 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 financial position and 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 revenues."
Year 2000 Readiness
BlackRock has been working since 1997 to prepare its computer systems and
applications to meet the Year 2000 challenge. This process involves reviewing,
modifying and replacing existing hardware, software and embedded chip
technology systems, as necessary, and communicating with counterparties,
external service providers and customers regarding their addressing of Year
2000 issues.
As of December 31, 1998, substantially all of BlackRock's internally
developed systems had been tested and remediated where necessary. We had
substantially completed an organization-wide assessment of Year 2000 issues
relating to our critical systems that utilize embedded chip technologies as
well as an assessment of the Year 2000 preparedness of our identified critical
service providers.
25
<PAGE>
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 during
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. BlackRock can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
BlackRock has reviewed and strengthened its business continuity plans to
address Year 2000 implications. BlackRock will continue to review all
contingency plans during 1999 and modify them when necessary or appropriate.
Certain critical systems contingency plans will be tested during 1999.
BlackRock's Year 2000 readiness efforts and contingency plans are also
subject to oversight and regulation by certain regulatory authorities.
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 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 losses."
26
<PAGE>
BUSINESS
We differentiate ourselves from our competitors through our highly
disciplined investment process, our extensive proprietary risk management
systems, the quality of our client service and the stability of our management
team. Together, these promote the delivery of consistently superior risk-
adjusted returns and enable our experienced professionals to best 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, Compound
----------------------------------------- Annual
1994 1995 1996 1997 1998 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 40%
Liquidity.......... 3,269 5,556 7,430 10,019 13,826 43%
Equity............. 540 700 1,204 1,763 2,417 45%
------- ------- ------- -------- --------
Subtotal........... 17,657 29,601 37,592 51,043 69,112 41%
<CAPTION>
Mutual Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed income....... 10,021 11,969 12,546 13,714 13,888 9%
Liquidity.......... 20,398 21,183 23,933 29,827 35,713 15%
Equity............. 4,615 6,306 8,643 10,829 12,087 27%
------- ------- ------- -------- --------
Subtotal........... 35,034 39,458 45,122 54,370 61,688 15%
------- ------- ------- -------- --------
Total................ $52,691 $69,059 $82,714 $105,413 $130,800 26%
======= ======= ======= ======== ======== ===
</TABLE>
- --------
* including alternative investment products
Background
The formation of BlackRock was the culmination of a strategic
restructuring of PNC's asset management businesses that began in 1995 with the
acquisition of BFM. PNC acquired BFM, then a $24 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 open-end 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 closed-end fund business by targeting distribution
through broker-dealers and other intermediaries. Assets have grown
by more than $10 billion, or 77%, 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 December 31, 1998, the BlackRock
Funds ranked as the 17th largest wholesale fund family in the
United States.
27
<PAGE>
. 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 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 $18
billion, or more than 58%, 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.
On March 31, 1998, BFM's management team completed the strategic
restructuring by consolidating all its asset management activities and a
substantial portion of PNC's asset management activities under the BlackRock
brand name, integrating the business along functional lines, and establishing
operating committees charged with day-to-day oversight of each product line.
We began 1999, our first full year as an integrated business, better prepared
to pursue opportunities across our products and markets. 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. Revenues from these products consist 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 December 31, 1998, fixed income assets under
management, excluding alternative investment products, were $65
billion. Since 1994, fixed income assets have grown by 28% on a
compound annual basis despite the fact that investors have been
shifting money out of bonds and into stocks to participate in the
equity bull market of the past decade. Our strategies emphasize
value creation through security selection, rather than interest
rate anticipation, and are implemented by a team of highly
qualified portfolio managers employing a strictly disciplined
investment process and our extensive proprietary risk management
systems and analytics.
Over time we have introduced new fixed income products to better
meet investor needs, when such efforts could be fully integrated
with our investment team and process. In 1998, we introduced both
high yield capabilities and BlackRock's Equity Plus product. Both
of these initiatives exemplify our deliberate approach to product
line expansion. Specifically, we waited to establish our high
yield product until we were able to identify high caliber
professionals who integrated well with our portfolio management
group. BlackRock's Equity Plus product, on the other hand,
utilizes existing capabilities in fixed income and derivative
investments and was developed in direct response to client demand.
Our fixed income products, excluding alternative products, can be
broadly grouped in three categories, as described below.
28
<PAGE>
Fixed Income Products*
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
($ in millions)
<S> <C> <C> <C> <C> <C>
Core.................................... $ 5,061 $ 9,817 $14,175 $21,050 $28,310
Sector specialty........................ 7,143 11,044 11,136 12,771 16,838
Targeted duration....................... 11,665 14,352 15,790 18,665 19,673
------- ------- ------- ------- -------
Total................................... $23,869 $35,213 $41,101 $52,486 $64,821
======= ======= ======= ======= =======
</TABLE>
* excluding alternative investment products.
Core. Core products represented 44% of our fixed income assets
at December 31, 1998, and have increased at a compound annual
growth rate of 54% since 1994. All of these accounts seek to
achieve superior risk-adjusted total returns relative to 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 26% of
our fixed income assets at December 31, 1998, and have grown at
a 24% 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 management of
their portfolios.
Targeted duration. Targeted duration products represented 30% of
our fixed income assets at December 31, 1998, and have
experienced a compound annual growth in excess of 14% 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 December 31, 1998, liquidity assets under management
were $50 billion. Products are designed to meet the needs of
domestic corporations and their foreign subsidiaries, municipal
treasurers, banks, bank trust departments and other
intermediaries. We seek to achieve attractive yields, subject to
stringent safety and liquidity guidelines, which are implemented
by a dedicated team of portfolio managers based in Wilmington,
Delaware, supported by our fixed income credit analyst team as
well as our risk management systems. As highlighted below, we
offer three basic types of liquidity products.
Liquidity Products
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
($ in millions)
<S> <C> <C> <C> <C> <C>
Prime................................... $12,874 $13,187 $16,103 $23,279 $32,479
Government.............................. 7,518 8,954 10,211 11,384 12,835
Tax-exempt.............................. 3,275 4,598 5,049 5,183 4,225
------- ------- ------- ------- -------
Total................................... $23,667 $26,739 $31,363 $39,846 $49,539
======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
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.
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 $15
billion at December 31, 1998. Over 80% of these assets are in
mutual funds, all of which emphasize long-term capital
appreciation and strict adherence to investment discipline and
market capitalization guidelines. We have expanded our capacity in
this business and we intend to pursue separate accounts for
institutional investors, particularly as longer term investment
performance track records are established. Strategies are
developed and implemented by dedicated portfolio managers and
research analysts based in Philadelphia, Pennsylvania, and
Edinburgh, Scotland. Our equity products can be classified as
discussed below.
Equity Products
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- -------
($ in millions)
<S> <C> <C> <C> <C> <C>
U.S. Growth................................ $ 841 $1,576 $2,676 $ 3,542 $ 4,447
U.S. Value................................. 1,729 2,185 2,990 3,989 4,201
International.............................. 846 1,056 1,676 1,926 2,084
Other...................................... 1,739 2,189 2,505 3,135 3,772
------ ------ ------ ------- -------
Total...................................... $5,155 $7,006 $9,847 $12,592 $14,504
====== ====== ====== ======= =======
</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 EAFE, Europe, Pacific Basin and
emerging market 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.
30
<PAGE>
. Alternative Investment Products. At December 31, 1998, we managed
$1.9 billion in alternative investment products. We have created
these products to take advantage of unique market opportunities or
to meet specific client interests. These products usually involve
a higher level of investment risk and offer the potential for
significantly greater absolute returns than our traditional
investment products. We generally structure these products as
commingled investment vehicles and limit the amount of capital we
will accept from investors. To date, we have created four
alternative investment products.
Alternative Investment Products
<TABLE>
<CAPTION>
At December 31,
----------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
------ ---- ---- ---- ------
<CAPTION>
($ in millions)
<S> <C> <C> <C> <C> <C>
BAI................................................ $ -- $101 $359 $243 $ 173
Obsidian........................................... -- -- 44 246 582
Anthracite......................................... -- -- -- -- 181
Magnetite.......................................... -- -- -- -- 1,000
------ ---- ---- ---- ------
Total.............................................. $ -- $101 $403 $489 $1,936
====== ==== ==== ==== ======
</TABLE>
BlackRock Asset Investors. BAI was created in 1994 to target
opportunities we perceived in the rapidly changing real estate
financing markets. We structured BAI as a closed-end 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 is privately offered
to institutional and high net worth investors, from whom we
raised $1 billion to be invested by the fourth quarter of 1999.
Investment Process
Our investment process emphasizes a highly-disciplined team approach,
rather than a star system, use of our extensive proprietary risk management
systems and analytics, 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
31
<PAGE>
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. Rather, 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
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.
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 product specialties.
. Risk Management. BlackRock has a longstanding commitment to the
development and use of extensive risk management systems as an
integral part of our disciplined investment process. 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 risk-adjusted 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 systems, used in our
fixed income and liquidity businesses, provide 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 entry 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.
32
<PAGE>
. 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 to our Intranet.
. Investment Performance. We believe that our disciplined investment
process is critical to achieving our performance objectives.
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, Lipper, Inc. and others maintain mutual fund data and
report performance relative to indices and peers.
. 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.
BlackRock Core Composite
7-years ended December 31, 1998
Standard
Deviation Return
--------- ------
BlackRock......................... 4.17 8.25
Universe.......................... 4.73 8.07
Index............................. 4.44 7.64
TempFund
10-years ended December 31, 1998
Standard
Deviation Return
--------- ------
TempFund.......................... 1.81 5.69
Index............................. 1.83 5.51
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<PAGE>
. Equity performance is illustrated with the Lipper quartile
rankings of the equity BlackRock Funds, which represent more than
80% of our equity assets under management. For the 1-year period
ended December 31, 1998, six of our equity funds ranked in the
first quartile.
BlackRock Funds Portfolios
Lipper Quartile Ranking* as of December 31, 1998
<TABLE>
<CAPTION>
1-Year 3-Year 5-Year
------ ------ ------
<S> <C> <C> <C>
U.S. Growth
Large Cap Growth......................................... 1 1 2
Mid-Cap Growth........................................... 1 NA NA
Small Cap Growth......................................... 1 2 1
Micro-Cap................................................ NA NA NA
U.S. Value
Large Cap Value.......................................... 3 3 2
Mid-Cap Value............................................ 4 NA NA
Small Cap Value.......................................... 3 2 2
International
International Equity..................................... 2 3 3
International Small Cap.................................. 2 NA NA
International Emerging Markets........................... 4 4 NA
Other
Index Equity............................................. 1 2 3
Select Equity............................................ 1 1 1
Balanced................................................. 1 1 1
</TABLE>
- --------
* The Lipper rankings and percentiles are from Lipper Analytic Services, 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 open-end and
closed-end mutual funds. We believe that our success in growing assets under
management reflects our comprehensive approach to client service. 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 and analytics to
develop products and to enhance client service by customizing reports and, in
the case of institutional clients, delivering them efficiently over the
Internet.
. Separate Accounts. We have increased separate account assets under
management from $18 billion at year-end 1994 to $69 billion at
year-end 1998, which represents a compound annual growth of 41%.
Asset growth reflects additional assets from existing clients and
new client assignments. We distribute separate accounts and
alternative investment products principally through the direct
marketing efforts of our account management group, which included
35 professionals as of December 31, 1998. These employees focus
primarily on three client bases: tax-exempt, taxable and
international institutions. Alternative investment products are
used to expand investment options offered to existing clients and
to gain access to relatively untapped segments of the investor
universe.
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<PAGE>
Separate Account Clients
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
($ in millions)
<S> <C> <C> <C> <C> <C>
Tax-exempt.............................. $ 4,926 $ 8,133 $12,766 $19,529 $25,765
Taxable................................. 11,900 20,048 23,658 27,898 37,008
International........................... 831 1,420 1,168 3,616 6,339
------- ------- ------- ------- -------
Total................................... $17,657 $29,601 $37,592 $51,043 $69,112
======= ======= ======= ======= =======
</TABLE>
Tax-exempt. Our tax-exempt clients consist primarily of defined
benefit and defined contribution plans. As of December 31, 1998,
115 pension plans maintained separate accounts with us. Last
year, assets managed for tax-exempt investors increased by over
$6 billion or 32%. 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 December 31, 1998, we
managed $37.0 billion in assets for taxable clients, which
represented a $9.1 billion or 33% increase from the prior year.
We are one of the largest independent managers of insurance
company assets with more than $22 billion under management as of
December 31, 1998. 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 15 countries. We have been active in
these markets since BFM was formed and, as of December 31, 1998,
we managed over $6.3 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 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 $62 billion at
year-end 1998, which represents compound annual growth of more
than 15%. Approximately $50 billion, or more than 80%, of our
mutual fund assets
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<PAGE>
are managed in our two open-end fund families, BlackRock Funds and
Provident Institutional Funds. We also manage 21 publicly-traded
closed-end funds and several short-term investment funds
("STIFs"). Our funds group is responsible for wholesaling to PNC,
third party broker-dealers and other intermediaries. The funds
group also conducts direct calling efforts for our institutional
funds and develops and implements marketing, product management,
branding and media relations strategies designed to enhance client
service and distribution across all channels.
Mutual Fund Assets
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
($ in millions)
BlackRock Funds........................ $10,038 $13,670 $17,846 $22,129 $24,231
Provident Institutional Funds.......... 16,421 15,496 16,230 20,278 25,368
Closed-end funds....................... 7,080 7,953 7,881 8,114 7,756
STIFs.................................. 1,495 2,339 3,165 3,849 4,333
------- ------- ------- ------- -------
Total.................................. $35,034 $39,458 $45,122 $54,370 $61,688
======= ======= ======= ======= =======
</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 23 wholesalers and
securing more than 200 broker agreements. Through these efforts,
we have established BlackRock Funds as the 17th 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 distribution bases 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. 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 December
31, 1998, 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
36
<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 December 31, 1998, 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, proprietary risk management systems and analytics.
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 the 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 December 31, 1998, we
provided these services to 10 clients, including 4 relationships that we added
in 1998. In total, we provide analyses with respect to more than $400 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.
37
<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 the 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 mutual fund companies, integrated asset and
investment management firms, insurance companies, banks, brokerage firms and
other financial institutions that offer products which have features and
investment objectives similar to those offered by BlackRock. Many of the
investment management firms with which BlackRock competes are subsidiaries of
large diversified financial companies and many others are much larger in terms
of assets under management and revenues and, accordingly, have much larger
sales organizations and marketing budgets. Historically, BlackRock has competed
primarily on the basis of the long-term performance of many of our funds. We
believe BlackRock's asset management services are differentiated by our highly
disciplined investment process, our extensive commitment to risk management
systems, and the quality of our client services. Moreover, BlackRock has taken
steps to substantially increase our distribution channels, brand name awareness
and marketing efforts. Although there can be no assurance that BlackRock will
be successful in these efforts, our net sales of mutual funds have increased
significantly over the past year, and BlackRock's strategy is to continue to
devote significant additional resources to our sales and marketing efforts.
The market for providing investment management services to institutional
and high net worth separate accounts is also highly competitive. Selection of
investment advisers by U.S. institutional investors is often subject to a
screening process and to favorable recommendations by investment industry
consultants. Many of these investors require their investment advisors to have
a successful and sustained performance record, often five years or longer, and
also to focus on one and three year performance records. Over the past five
years, BlackRock has succeeded in significantly growing aggregate assets under
management. At the current time, BlackRock believes that our investment
performance record would be attractive to potential new institutional and high
net worth clients, and BlackRock has decided to devote additional resources to
the institutional and high net worth investor market. No assurance can be
given, however, that BlackRock's efforts to obtain new business will be
successful.
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<PAGE>
Employees
At December 31, 1998, BlackRock had 586 full-time employees, including 91
professionals in the portfolio management group, 147 professionals in risk
management and analytics, 106 professionals in the separate account and funds
marketing and client service areas and 82 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, shareholders 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 ("CFTC") 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
("NFA"). The CFTC and NFA administer a comparable regulatory 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
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<PAGE>
Association of Securities Dealers ("NASD"). 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 may apply 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 non-U.S. activities, the Federal Reserve. The OCC will only approve
activities and investments that are legally permissible for a national bank or
that are part of or incidental to the business of banking, 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'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.
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 would 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
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<PAGE>
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;
. 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.
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<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, Walter E. Gregg, Jr., Helen
P. Pudlin and James E. Rohr, are currently executive officers and/or directors
of PNC. 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 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....... 62 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 BFM 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 or 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 in 1983 and was
elected to the additional post of 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 (a predecessor to 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 and vice
chairman of the bank in 1983. Mr. O'Brien is a director of Bell Atlantic Corp.
and Hilb, Rogal & Hamilton Co.
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<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
as 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, adding the title of assistant secretary in 1976. He was
elected senior vice president, treasurer and chief counsel-regulatory
reporting/acquisition in 1983, and executive vice president, finance and
administration, for PNC in 1989 and Vice Chairman in 1999.
Helen P. Pudlin, director, is senior vice president and general counsel
of PNC. Ms. Pudlin joined Provident National Bank as general counsel in 1989
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 and became a managing general counsel in 1993 and named
senior vice president and general counsel of PNC and PNC Bank later in 1993.
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 of BlackRock
and a member of the management committee and co-head of the infrastructure
operating committee. Prior to joining BlackRock, 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.
(a predecessor to BlackRock) in 1997, Mr. Connolly was managing director and
general counsel of New England Funds, L.P.
Committees of the Board of Directors
BlackRock has established an executive committee, a compensation
committee and a nominating committee. An audit committee comprised solely of
independent directors will be established after the offerings.
have been appointed as the initial members of the executive committee.
have been appointed as the initial members of the compensation
committee. have been appointed as the initial members of the nominating
committee. 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.
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.
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<PAGE>
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 1999 stock award and
incentive plan and will establish the compensation for BlackRock's executive
officers. 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 establish other committees from time to time to
facilitate the management of the business and affairs of BlackRock.
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.
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.
44
<PAGE>
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 co-head of the funds group and the
funds operating committee and a member of the 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 is 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.
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<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
<TABLE>
<CAPTION>
Long-term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------- ---------------------- -------
Number of
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) Option/SARs Payouts Compensation
------------------ ---- ------ ----- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Laurence D. Fink........ 1998 $ $ $ $ $ $ $
Chairman and Chief
Executive Officer
Ralph L. Schlosstein.... 1998 $ $ $ $ $ $ $
President
Robert S. Kapito........ 1998 $ $ $ $ $ $ $
Vice Chairman
Paul L. Audet........... 1998 $ $ $ $ $ $ $
Chief Financial Officer
Robert P. Connolly...... 1998 $ $ $ $ $ $ $
General Counsel
</TABLE>
PNC Stock Options and Stock Appreciation Rights
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.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
% of Total
Number of Options/SARs Grant
Securities Granted to Date
Underlying PNC Employees Exercise Present
Options/SARs 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 become 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.
(2) The dollar values listed in this column are based upon the Black-Scholes
option pricing model.
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<PAGE>
Exercise of PNC Options and Stock Appreciation Rights
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/SAR Exercises in Last Fiscal Year, and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired on Value Unexercised Options/SARs In-the-Money Options/SARs
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 Long-Term Incentive Award Plan
Mr. Audet, the only BlackRock executive officer who participated during
the last fiscal year in PNC's long-term incentive plan, held 13,500 shares of
restricted common stock with an aggregate dollar value at December 31, 1998 of
$729,844. The per share price used to calculate this value was $54.0625, the
average of the high and low sale price of a share of PNC's common stock on the
NYSE on December 31, 1998.
PNC Defined Benefit or Actuarial Plan
Mr. Audet, the only BlackRock executive officer who participates in PNC's
defined benefit plan, would receive estimated total annual benefits (including
those payable by both supplemented non-qualified pension plans) upon retirement
at age 65 equal to $320,939. The benefits have been projected assuming that (a)
Mr. Audet's salary remains constant until retirement; 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 each of its managing directors, including all members of its management
committee, designed to retain their services through compensation and equity
arrangements. Generally, these agreements are due to expire on December 31,
2002.
BlackRock intends to enter into amended and restated employment
agreements with these executives which will become effective when the offerings
are completed. These employment agreements provide for compensation for each
executive in the form of (i) an annual base salary and (ii) an annual bonus in
an amount determined by BlackRock. The employment agreements entered into with
Messrs. Fink and Schlosstein and certain other key employees of BlackRock also
provide that BlackRock's chief executive officer and a majority of the members
of its management committee will manage the day-to-day operations of BlackRock.
The employment agreements do not provide for the payment of any compensation or
severance to the executive following the termination of the agreement.
BlackRock and each executive have the right to terminate his or her
employment agreement at any time, provided that in the event the executive's
employment is terminated by BlackRock without cause (as defined below) or Good
Reason (as defined below), or due to the death or disability of the executive,
all unvested shares of stock owned by that executive will immediately vest. In
the event an executive is terminated by BlackRock with Cause or Good Reason, or
the executive voluntarily terminates his or her employment with
47
<PAGE>
BlackRock for any reason other than deficient opportunity (as defined below),
BlackRock will purchase the shares of unvested stock held by the executive at a
purchase price equal to the lower of (i) the market value of the stock and (ii)
the price paid by the executive for the stock.
For purposes of the employment agreements, "cause" means the occurrence
or existence with respect to the executive of: (i) a material breach by the
executive of any written policies of BlackRock or an affiliate of BlackRock
required by law or established to maintain compliance with applicable law, (ii)
any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct
by the executive against BlackRock or an affiliate of BlackRock or any client
of BlackRock or an affiliate of a client of BlackRock, (iii) conviction of the
executive for the commission of a felony or (iv) entry of any order against the
executive by any governmental body having regulatory authority with respect to
our business or the business of any of our subsidiaries, which order relates to
or arises out of the executive's employment relationship with BlackRock or a
subsidiary of BlackRock. "Good reason" means as the failure of the executive to
substantially perform any material assigned duties (other than by reason of
death or disability or, in the case of Messrs. Fink and Schlosstein and certain
other key employees of BlackRock, deficient opportunity). "Deficient
opportunity" occurs if (i) the executive does not have duties and reporting
responsibilities in BlackRock which are substantially equivalent to those as of
the beginning of his or her term of employment or (ii) the executive's
principal work location is relocated beyond a specified geographic area.
The employment agreements provide that upon a change of control of PNC
(as defined below under "Certain Relationships and Related Transactions--IPO
Agreement--Change in Control of PNC") that causes the fundamental economics of
BlackRock's business and prospects to be materially and adversely impacted and
that has not been consented to by BlackRock's chief executive officer and a
majority of its management committee members, PNC or its successor will be
obligated to offer to purchase all of the capital stock, whether previously
vested or unvested, of all of the management executives, and to offer to
purchase all of the capital stock held by public shareholders, at a price equal
to the "fair value" (as defined below under "Certain Relationships and Related
Party Transactions--IPO Agreement--Changes in Control of PNC") of the stock.
The employment agreements also provide that each executive will not
during and after the term of employment, (i) disclose or use any confidential
or proprietary information of BlackRock except in the ordinary course of his or
her employment, (ii) during the term and for one year after, solicit any
existing or potential clients of BlackRock, (iii) during the term and for one
year after, employ or offer to employ any other employee of BlackRock, (iv)
during the term and for all times after, disparage BlackRock or any of its
employees or officers and (v) in the case of the agreements with Messrs. Fink
and Schlosstein and certain other key executives of BlackRock, during the term
and for nine months after the term, unless the executive's employment was
terminated without cause or good reason or because of the executive's death or
disability, engage in a business activity which is in competition with any
business activity conducted by BlackRock. These restrictions lapse upon the
termination of the employment agreements following a change in control of PNC.
See "Certain Relationships and Related Transactions--IPO Agreement--Change in
Control of PNC."
Compensation of Directors
Directors who are also employees of BlackRock or PNC will receive no
remuneration for serving as directors or committee members. Non-employee
directors will receive total compensation of $ per year. Non-employee
directors will receive an additional fee of $ per year for serving as
chairperson of a board committee.
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.
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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 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, consisting of two or more persons each
of whom shall be an "outside director" within the meaning of Section 162(m) and
a "nonemployee director" within the meaning of Rule 16b-3. 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 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, all stock options and stock appreciation rights will
become exercisable in the event of a "change in control" of BlackRock. 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.
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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. The compensation committee can
accelerate the lapsing of all or any portion of any outstanding restrictions on
the restricted stock. In addition, all restrictions affecting the awarded
shares or units will lapse in the event of a "change in control" of BlackRock.
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, or in any individual case, 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.
Outstanding awards
On , 1999, BlackRock granted to stock options to
acquire shares of class A common stock at an exercise price of $ .
These stock options vest .
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Deferred Compensation Plan
BlackRock has adopted the deferred compensation plan, effective as of
, 1999, with respect to its eligible employees and directors.
The purpose of the deferred compensation plan is to recognize the value
to BlackRock of the past and present services of individuals covered by the
deferred compensation plan, to encourage participants to increase their
ownership in common stock and to encourage and assure their continued service
with BlackRock. The deferred compensation plan is intended to constitute an
unfunded, unsecured plan of deferred compensation for a select group of
management, directors or highly compensated employees. The principal features
of the deferred compensation plan are described below. The description of the
deferred compensation plan set forth herein is qualified in its entirety by
reference to the text of the deferred compensation plan.
The deferred compensation plan will be administered by the compensation
committee. The compensation committee will supervise the administration and
enforcement of the deferred compensation plan according to its terms and
provisions. The compensation committee will have such powers as are necessary
to accomplish the purposes of the deferred compensation plan.
Directors and officers of BlackRock earning cash compensation of at least
may participate in the deferred compensation plan. Until 2000,
however, directors and otherwise eligible officers may become participants in
the deferred compensation plan only if so designated by the compensation
committee. For the initial period ending 2000, the compensation committee
has designated , and as participants.
Under the deferred compensation plan, participants may voluntarily elect
to defer all or a portion of their salaries and/or annual bonuses or, in the
case of participants who are directors, of their annual fees. An election to
defer must generally be made prior to the beginning of the fiscal year in which
it will be earned; once made, the election is generally irrevocable for the
first calendar year with respect to which the election is made. Amounts
deferred are credited to each participant's account.
The deferred amounts will be deemed to be invested, pursuant to the
election of the participant, in the Fund or such other funds as the
compensation committee may from time to time make available. Investment
designations for current and future deferred amounts may be changed, subject to
the terms and conditions of the deferred compensation plan. Additional
restrictions may apply to investment decisions of participants who are subject
to the reporting requirements of Section 16(a) of the Exchange Act. At least
annually, the compensation committee will determine the net income or loss
equivalents of each fund for the period elapsed since the preceding valuation
date and allocate the equivalents to participant's account.
Each deferral election will indicate the time and form of payment for the
amounts to be deferred during the applicable fiscal year, including any net
income or loss equivalents allocated to the deferred amounts. Salaries, bonuses
and/or fees may not be deferred for more than five years. Distributions will be
made in cash to the participant at the time irrevocably selected on the
deferral form, or, in the event of the participant's death, to the
participant's beneficiary. Early withdrawals are subject to a 10% penalty,
except in the event of unforeseeable financial emergencies. BlackRock may defer
payment of all or any portion of a distribution that it determines is likely
not to be deductible by BlackRock under applicable income tax provisions.
Each participant or beneficiary will be an unsecured general creditor
with respect to any payments due and owing to such participant under the
deferred compensation plan.
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The compensation committee may amend, and the board of directors may
amend or terminate, the deferred compensation plan at any time, except that no
amendment may be made that would impair the rights of a participant with
respect to amounts already deferred or otherwise allocated to his account.
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 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 three-year 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, 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 three-year performance
periods and different goals may be applicable to different divisions or other
operational segments.
Before any awards for a particular three-year 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.
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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 three-year 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 three-year 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 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 three-year
performance period to three-year 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 Code, and to
provide participants with the tax advantages provided by Section 423. A total
of 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.
The Employee Stock Purchase Plan will be administered by the compensation
committee. The compensation committee may make rules and regulations and
establish procedures for the administration of the Employee Stock Purchase Plan
as it deems appropriate.
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 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.
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 fair market
value of the shares of class A common stock which may be purchased by any
employee during any calendar year may not exceed $25,000.
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:
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. 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 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 elections, 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 Nonemployee 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.
Under the director plan, a maximum of shares of class A common stock
may be distributed to outside directors. Only outside directors are eligible to
participate in the director plan. Currently, outside directors serve on the
board of directors. The director plan will be administered 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.
Awards under the director plan will only be transferable by outside directors
by the laws of descent and distribution.
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.
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OWNERSHIP OF THE COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of December 31, 1998; 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 46 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 ( persons)
</TABLE>
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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
managing 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 of 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 Shareholders Agreement. The Shareholders Agreement restricts
transfer of BFM employee shares until restrictions are ratably removed on
December 31, 2000, 2001 and 2002, or earlier in certain situations. The
Shareholders 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--Shareholders 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
Shareholders 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 financing charge of one percent per
month.
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).
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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. 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.
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 December 31, 1998, clients of PNC affiliated entities maintained
approximately $19.5 billion of investments in the BlackRock Funds, which
represents approximately 81% 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. 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 for the years ended December 31, 1996, 1997 and 1998 were $19.6 million,
$27.3 million and $53.0 million, respectively. The increase in expense for 1998
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.
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 $197 million at December 31, 1998, included $150 million
outstanding on a $175 million revolving line of credit facility with PNC Bank
and a $47 million unsecured note due through 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 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. 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.
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BlackRock participates in the PNC tax sharing policy. The policy
provides, among other things, that the consolidated federal tax liability for
all 80% or more owned subsidiaries of PNC will generally be allocated to each
subsidiary based on their separately calculated liability. The policy also
provides that State and Municipal income tax liabilities will be determined as
if the PNC subsidiary had filed a separate return. In the event that a state or
municipality imposes income or franchise taxes on a consolidated, combined or
unitary basis, the liability will be equitably allocated to those subsidiaries
whose business operations generated the liability. As a result of the sale of a
30% equity interest to certain employees of BFM in 1998, PNC files a separate
consolidated federal tax return for PNC Asset Management, Inc., the entity in
which PNC holds its investment and reports consolidated results of operations
for BlackRock.
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 we will not, without PNC's prior written
consent, which it may withhold in its sole and absolute discretion, issue any
shares of common stock or any rights, warrants or options to acquire our common
stock. This concept was specifically rejected last Friday. The IPO Agreement
further 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"), if we
propose to issue common stock, PNC will be entitled, but not required, to
purchase a number of shares of common stock so that PNC would continue to
maintain the same proportionate economic and voting rights after the issuance
as it had before the issuance of common 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 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
The IPO Agreement provides that if there is a change in control of PNC,
as defined below, at any time following the offerings until the Trigger Date,
under certain circumstances PNC or its successor would be required to offer to
purchase all of our outstanding capital stock not held by PNC or its successor
(i.e., stock held by public stockholders and employee stockholders) at a "fair
value" to be determined in the manner described below. PNC or its successor
would only be required to make such a purchase following a change in control of
PNC if the fundamental economics of our business and prospects at that time
would be materially and adversely affected as a result of the change in control
of PNC and our chief executive officer and a majority of the other members of
our management committee do not consent to the change in control of PNC. If the
change in control of PNC would enhance or would not materially and adversely
impact the fundamental economics of the business and prospects or is consented
to by our chief executive officer and a majority of the other members of our
management committee, neither PNC nor its successor will have any obligation to
purchase our capital stock that it does not own.
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. Our fair value
will be determined by reference to the trading value of our common stock prior
to the announcement of the change in control of PNC.
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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 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.
Limitation on BlackRock Business Activities
We have agreed in the IPO Agreement that as long as PNC, or a successor
company, or a PNC subsidiary owns any of our capital stock, or the capital
stock of any successor entity to us, we are prohibited from directly or
indirectly owning any asset or engaging in any activity if to do so would mean
that we or PNC would be in violation of any applicable federal banking law or
any rule, regulation, policy or order of any federal banking regulator which
has regulatory jurisdiction over us or PNC. We have further agreed to take any
action necessary to ensure compliance with the foregoing provision, including,
without limitation, obtaining approval from or filing an application or notice
with one or more federal banking regulators. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Certain Business
Activities."
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 certain financial information regarding BlackRock and
our subsidiaries;
. provide PNC copies of all quarterly and annual financial
information and other reports and documents we intend to file with
the SEC prior to such filings, as well as final copies upon
filing;
. provide PNC with copies of our budgets and financial projections,
as well as the opportunity to meet with our management to discuss
such budgets and projections;
. consult with PNC regarding the timing and content of earnings
releases; and
. cooperate fully, and cause our accountants to cooperate fully,
with PNC in connection with any of its public filings.
Auditors and Audits; Annual Statements and Accounting. 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 under the
equity method of accounting, we will:
. provide to PNC and its auditors all information required for PNC
to meet its schedule for the filing and distribution of its
financial statements; make available to PNC and its auditors work
papers related to the annual audit of BlackRock as well as access
to the personnel who perform the annual audit and our
subsidiaries' books and records so that PNC and its auditors may
conduct reasonable audits relating to our financial statements;
and adhere to certain accounting standards specified by PNC;
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. notify and consult with PNC regarding any changes to our
accounting principles; and
. make any changes to our accounting estimates and principles
requested by PNC which are necessary to the proper presentation of
PNC's financial statements in accordance with generally accepted
accounting principles ("GAAP").
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
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.
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.
Registration Rights Agreement
PNC and our employees who hold shares of class B common stock could not
freely sell such shares without registration under the Securities Act.
Accordingly, we have entered into a Registration Rights Agreement (as amended
from time to time, the "Registration Rights Agreement") with PNC and our
employee shareholders to provide them with certain registration rights relating
to the shares of our class B common stock that they hold. Any shares of class B
common stock sold by PNC or any employee shareholder under the Registration
Rights Agreement will be converted to shares of class A common stock. 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 those shares of
our class B common stock that are held by PNC and shares of class B common
stock held by our employee shareholders that are not subject to restrictions or
transfer immediately following the offerings and any restricted shares of class
B or class A common stock that PNC or our employee shareholders acquire in the
future.
Demand Registrations. PNC or employee shareholders holding a majority in
interest of the class B common stock held by all employee shareholders may
request registration (each a "Demand Registration") under the Securities Act of
all or any portion of our shares covered by the Registration Rights Agreement
and we will be obligated to register such shares as requested by PNC or the
employee shareholders.
. Terms of Each Offering. PNC or the employee shareholders 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;
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(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 proposal or plans by our company to engage in certain
material transactions, provided, however, that we may exercise this
right only once in any 12-month period.
. Priority on Demand Registrations. Other parties, including us, can
participate in any Demand Registration only if all of the securities
PNC and our employee shareholders propose to include in such
registration are so included.
Piggyback Registrations. The Registration Rights Agreement also provides
for certain "piggyback" registration rights for PNC and our employee
shareholders. 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 shareholders
and include in such registration all shares of our stock which PNC or our
employee shareholders request to be included (each, a "Piggyback
Registration").
. Priority on Piggyback Registrations. If a Piggyback Registration is
being made on our behalf and the underwriters advise us that cutbacks
are necessary, we must include in such registration:
. first, the securities we propose to offer;
. second, the securities requested to be included by PNC and our
employee shareholders; and
. third, any other securities requested to be included in such
registration.
If a Piggyback Registration is being made on behalf of other holders of
our securities and the underwriters advise us that cutbacks are necessary, we
must include in such registration:
. first, the securities requested to be included therein by the
holders requesting such registration and the securities
requested to be included therein by PNC and our employee
shareholders, pro rata among such holders and PNC and our
employee shareholders on the basis of the number of securities
owned by each such holder; and
. second, any other securities requested to be included in such
registration.
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 shareholders for the fees and
disbursements of their outside counsel as well as out-of-pocket expenses
incurred in connection with any such registration.
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Indemnification. The Registration Rights Agreement contains customary
indemnification and contribution provisions by us for the benefit of PNC, our
employee shareholders and any underwriters and by PNC and our employee
shareholders for the benefit of us and any underwriters with respect to
information provided by PNC or our employee shareholders.
Transfer. PNC and our employee shareholders 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 shareholders 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 shares of class B
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
shareholder, when such shares become eligible for sale pursuant to
Rule 144(k) under the Securities Act, or any successor provision.
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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 benefits 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
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. 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
Except in certain circumstances described below, if a holder of shares of
class B common stock attempts to transfer any shares to another person, each
share of class B common stock will automatically be converted into one share of
class A common stock, and the transferee then will be treated for all purposes
as having become a record owner of the class A common stock issuable upon such
conversion. The only transfers of class B common stock which will not result in
automatic conversion into class A common stock are the following:
. any transfer of shares of class B common stock by a holder of
class B common stock to any person who, prior to the transfer,
already held shares of class B common stock (a "Permitted
Transferee");
. any transfer of class B common stock held by PNC or a PNC
Transferee to any one person if such person will thereby hold a
least a majority of the voting power of our common stock;
. any transfer of 5% or more of the then outstanding shares of class
B common stock by a holder of class B common stock to any one
person; or
. any transfer of shares of class B common stock by our employee
stockholders to the estate, personal representative or certain
family members of the employee stockholder, or to certain entities
which hold economic interests for the benefit of any such persons,
as described below in "Shareholders Agreement."
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. 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.
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Shareholders 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 Shareholders Agreement since January 31,
1998. These parties will enter into an Amended and Restated Shareholders
Agreement which will become effective when the offerings are completed. In the
Amended Shareholders Agreement, BlackRock, PNC and the employee Shareholders
have agreed to certain matters regarding the corporate governance and
operations of BlackRock, certain restrictions that will be applicable to the
shares of class B common stock held by the employee stockholders and certain
rights and arrangements if any holder of class B shares proposes to sell or
otherwise dispose of any of his, her or its class B shares. Except for the
restrictions imposed by the Amended Shareholders Agreement, the rights and
privileges attaching to the shares of class B common stock held by the employee
stockholders are identical to those attaching to other shares of class B common
stock.
The Amended Shareholders Agreement provides that at least four directors
on the BlackRock board of directors will be designated by PNC and that at least
two BlackRock directors shall be designated by the BlackRock management
committee. Accordingly, the employee stockholders have agreed to vote their
shares of class B common stock for four PNC nominees in elections of directors.
PNC has also agreed, subject to applicable law and its fiduciary duties, to
vote its shares of class B common stock for two BlackRock management committee
nominees in elections of directors.
Under the terms of the Amended Shareholders Agreement, employees
generally may not transfer their class B shares, except for certain limited
transfers to permit employees to engage in estate planning. However, one-third
of the class B shares held by the employee stockholders will no longer be
subject to this transfer restriction as of December 31, 2000. The second third
will no longer be subject to this restriction as of December 31, 2001. The
final third will no longer be subject to this restriction as of December 31,
2002. Upon the death or disability of an employee or under certain
circumstances when an employee is terminated by us, all of such employee's
class B shares will no longer be subject to this restriction on transfer. Any
transfers of employees' class B shares made in violation of the terms of the
Amended Shareholders Agreement are null and void.
Any class B shares held by any employee stockholder or valid transferee
of any employee stockholder that are still subject to a restriction on transfer
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 Shareholders Agreement provides that any proposed transfer or
disposition of class B common stock by PNC, or any transfer or disposition of
unrestricted employee shares by employee stockholders or valid transferees,
will be subject to a right of first refusal and in certain circumstances,
rights to participate in the proposed transfer or disposition 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 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 or disposition
apply if a holder of class B common stock proposes to transfer to
a third party shares constituting more than 5% of the
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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 or disposition are not applicable to transfers of shares of class B
common stock among PNC affiliates.
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.
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 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.
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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--
Restrictions on Business Combinations."
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 so long as PNC or a PNC Transferee owns
50% of more 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 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 this attempt
might be beneficial to BlackRock and some, or a
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<PAGE>
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
bylaws provide that of the six directors currently in office, four directors
are to be designated by PNC, including its affiliates and two directors are to
be designated by a majority of our employee stockholders holding shares of
class B common stock. The certificate of incorporation provides 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 all
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. This means that
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
Shareholders Agreement. See "--Shareholders Agreement."
Committees
The bylaws provide that, to the extent permitted by applicable law or
stock exchange policy,
. prior to the Trigger Date, a majority of all of the directors on
the committees of the board of directors will be directors
designated by PNC or by a PNC Transferee, 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, after having been sent 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 and other matters which may
significantly affect the economic interests of PNC or of a PNC Transferee,
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 business activities, proposed changes in auditors
and dividend declarations, may only be acted upon or put into effect by the
affirmative vote of 80% of the board of directors.
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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 or a PNC Transferee.
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 any of the capital stock of BlackRock, or any successor company, BlackRock
or its successor entity may not own 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 or a PNC Transferee. Effective as of
the Trigger Date, the power of any 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.
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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 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.
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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 voting stock representing 25% or more of the votes entitled to
be cast by the holders of all the then outstanding voting stock. For purposes
of this section, "PNC" will include PNC as well as its affiliates and any PNC
Transferee. These provisions serve to determine and delineate the respective
rights and duties of BlackRock, PNC and certain of their respective directors,
officers and employees, in anticipation that:
. directors, officers, and/or employees of PNC may serve as
directors of BlackRock;
. PNC engages in and is expected to continue to engage in lines of
business that are the same, 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 certificate of incorporation provides that:
. no such agreement will be void or voidable solely due to the
nature of the parties thereto,
. no such agreement, or the performance thereof, will be considered
contrary to any fiduciary duty of PNC, as the controlling
stockholder of BlackRock, or of any directors, officers and/or
employees, and
. the parties to any such agreement will 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 BlackRock, and will be deemed
not to have derived an improper personal benefit from the
agreement, if one or more of the following conditions are
satisfied:
(1)the agreement was entered into before the offerings and
is continued in effect after that time; or
(2)the agreement or transaction was approved or ratified,
after being made aware of the material facts of the relationship
between BlackRock and PNC and the material terms and facts of the
agreement or transaction, by:
(a)BlackRock's board, by affirmative vote of a
majority of directors who are not Interested Persons, as
defined in BlackRock's certificate of incorporation,
(b)by a committee of BlackRock's board consisting of
members who are not Interested Persons, by affirmative vote
of a majority of such members, or
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(c)by one or more officers or employees of BlackRock who
is not an Interested Person and who was authorized by
BlackRock's Board or committee thereof as specified in
clauses (a) and (b) above or, in the case of an employee, to
whom the authority has been delegated by an officer to whom
the authority to approve or ratify the agreement or
transaction has been so delegated; or
(3)the agreement or transaction was fair to BlackRock as of
the time it was entered into by BlackRock; or
(4)the agreement or transaction was approved or ratified by
affirmative vote of a majority of the shares of capital stock
entitled to vote thereon and who do vote thereon, excluding PNC and
any Interested Person in respect of such agreement or transaction.
The provisions of our certificate of incorporation with regard to such
transactions and/or corporate opportunities will terminate at such time as
when PNC ceases to be the owner of voting stock representing 25% or more of
the votes entitled to be cast by the holders of all the then outstanding
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.
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 symbol " ."
Transfer Agent and Registrar
The transfer agent and registrar for the class A common stock is
.
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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" (as that term is
defined in Rule 144) will be subject to the resale limitations of Rule 144. The
shares of class A and class B and common stock owned by PNC and our
other existing stockholders are "restricted securities" as defined in Rule 144
under the Securities Act, and 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 class of common stock then outstanding or the
average weekly trading volume in the class of 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 "Management--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 ("Merrill Lynch"), 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
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exchangeable for common stock, whether now earned or subsequently
acquired or to which 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 days from the date of this prospectus, without the prior written
consent of Merrill Lynch, 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.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is
acting as representative (the "U.S. Representative") 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. Underwriter Shares
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
------
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. Representative has 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.
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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. 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."
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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. 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. Representative 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. Representative 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 " ". 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 , 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 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.
77
<PAGE>
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.
Representative may reduce that short position by purchasing class A common
stock in the open market. The U.S. Representative may also elect to reduce any
short position by exercising all or part of the over-allotment options
described above.
The U.S. Representative may also impose a penalty bid on Underwriters and
selling group members. This means that if the U.S. Representative purchases
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. Representative 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 distributes
BlackRock Funds and provides stockholder services in connection with those
funds in the ordinary course of business, for which it receives customary
compensation.
78
<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 periods 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.
79
<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,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents................................... $ 69,085 $113,450
Accounts receivable
Advisory and administration fees.......................... 28,632 47,611
BlackRock Asset Investors (BAI)........................... 7,214 58,599
Investments (cost: $5,891 in 1997 and $2,349 in 1998)....... 5,915 2,515
Property and equipment, net................................. 7,037 12,252
Goodwill (less accumulated amortization of $27,309 in 1997
and $36,962 in 1998)....................................... 213,563 203,910
Receivable from affiliate................................... 1,868 446
Other assets................................................ 2,193 2,001
-------- --------
Total assets................................................ 335,507 440,784
======== ========
Liabilities and stockholders' equity
Note and loan payable to affiliates......................... 225,232 197,000
Accrued compensation
Employees................................................. 40,424 65,523
BAI incentive compensation................................ 8,308 44,806
Accounts payable and accrued liabilities
Affiliate................................................. 7,926 16,478
Other..................................................... 5,053 7,627
Accrued interest payable to affiliates...................... 1,658 1,175
Other liabilities........................................... 1,943 1,984
-------- --------
Total liabilities........................................... 290,544 334,593
-------- --------
Stockholders' equity
Common stock, no par value, 400,000 shares authorized,
164,000 and 199,300 shares issued, respectively.......... -- --
Additional paid--in capital............................... 15,091 53,105
Retained earnings......................................... 29,872 53,286
Treasury stock, at cost, 207 shares......................... -- (200)
-------- --------
Total stockholders' equity.................................. 44,963 106,191
-------- --------
Total liabilities and stockholders' equity.................. $335,507 $440,784
======== ========
</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>
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue
Investment advisory and administration fees
Mutual funds.................................. $ 87,189 $117,977 $162,487
Separate accounts............................. 43,069 62,985 101,352
BAI........................................... 6,061 13,867 61,199
Other income
Affiliate..................................... 3,000 3,000 3,000
Other......................................... 7,159 7,644 11,444
-------- -------- --------
Total revenues.................................. 146,478 205,473 339,482
-------- -------- --------
Expenses
Employee compensation and benefits.............. 53,703 73,217 109,741
BAI incentive compensation...................... 3,525 9,688 44,806
Fund administration and servicing costs--
affiliates..................................... 19,611 27,278 52,972
General and administration
Affiliate..................................... 7,559 3,900 4,666
Other......................................... 16,941 25,864 34,030
Amortization of goodwill........................ 9,603 9,653 9,653
Closed-end fund offering costs.................. -- -- 4,252
-------- -------- --------
Total expenses.................................. 110,942 149,600 260,120
-------- -------- --------
Operating income................................ 35,536 55,873 79,362
Non-operating income (expense)
Interest and divided income..................... 1,877 3,117 1,995
Interest expense--affiliates.................... (19,975) (20,249) (13,347)
-------- -------- --------
(18,098) (17,132) (11,352)
-------- -------- --------
Income before income taxes...................... 17,438 38,741 68,010
Income taxes.................................... 8,475 16,655 32,395
-------- -------- --------
Net income...................................... $ 8,963 $ 22,086 $ 35,615
======== ======== ========
Earnings per share
Basic......................................... $ 183.04
========
Diluted....................................... $ 182.44
========
Weighted average shares outstanding
Basic......................................... 194,578
========
Diluted....................................... 195,215
========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Unaudited pro forma data
Income before income taxes, as reported..................... $68,010
Pro forma interest adjustment for debt repayment............
Pro forma adjustment to 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
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Total
Paid-In Retained Treasury Stockholders'
Capital Earnings Stock Equity
---------- -------- -------- -------------
<S> <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
======= ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BLACKROCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................... $ 8,963 $ 22,086 $ 35,615
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization.................. 11,700 12,151 12,852
Discount on issuance of restricted stock....... -- -- 1,737
Changes in operating assets and liabilities:
(Increase) in accounts receivable............ (9,204) (7,484) (70,364)
Decrease (increase) in receivable from
affiliate................................... (1,487) (325) 1,422
Decrease (increase) in other assets.......... (1,019) (358) 192
Increase in accrued compensation............. 10,424 16,723 61,597
Increase in accounts payable and accrued
liabilities................................. 2,282 6,516 11,126
(Decrease) in accrued interest payable to
affiliates.................................. (3,419) (536) (483)
Increase (decrease) in other liabilities..... (317) (1,578) 41
------- -------- --------
Cash provided from operating activities.......... 17,923 47,195 53,735
------- -------- --------
Cash flows from investing activities
Purchases of property and equipment.............. (4,155) (2,165) (8,414)
(Purchase)/sale of investments................... 474 (790) 3,400
------- -------- --------
Cash used by investing activities................ (3,681) (2,955) (5,014)
------- -------- --------
Cash flows from financing activities
Net borrowings from/(repayment of) note and loan
payable to affiliates........................... 19,876 (30,627) (28,232)
Issuance of restricted stock..................... -- -- 34,214
Capital contribution from PNC.................... -- -- 2,063
Purchase of treasury stock....................... -- -- (200)
Forgiveness of intercompany allocations.......... 920 -- 99
Dividend of intercompany allocations............. -- (9,795) --
Dividends to PNC................................. -- -- (12,300)
------- -------- --------
Cash provided by (used in) financing activities.. 20,796 (40,422) (4,356)
------- -------- --------
Net increase in cash and cash equivalents........ 35,038 3,818 44,365
Cash and cash equivalents, beginning of year..... 30,229 65,267 69,085
------- -------- --------
Cash and cash equivalents, end of year........... $65,267 $ 69,085 $113,450
======= ======== ========
Supplemental disclosures
Cash paid for interest........................... $28,239 $ 20,780 $ 13,683
======= ======== ========
Cash paid for income taxes....................... $ 2,759 $ 4,730 $ 25,983
======= ======== ========
</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.
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 Regulation D 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
F-8
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (continued)
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 Regulation D 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.
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.
F-9
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (continued)
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 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.
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, effective January 1, 2000, SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires BlackRock to recognize all financial derivatives,
F-10
<PAGE>
BLACKROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements (continued)
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.
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 shareholders 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"), the terms of which have not been determined.
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 reflects
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 has not determined whether it will continue to file
consolidated and unitary returns with PNC and its subsidiaries. However, it if
does file on a consolidated and unitary basis, BlackRock intends to compute its
income tax provision after the Offering as if it filed on a stand-alone basis.
BlackRock's tax provision for the year ended December 31, 1998 is expected to
approximate the provision BlackRock would have paid on a stand-alone basis.
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
[BlackRock Logo]
Class A Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
, 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 May 13, 1999
PROSPECTUS
Shares
[BlackRock Logo]
Class A Common Stock
------------
This is BlackRock, Inc.'s initial public offering of its class A common
stock. 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. After the pricing of the
offering, we expect that the class A common stock will trade on The New York
Stock Exchange under the symbol " ."
Following the offering, we will have two classes of authorized common
stock--class A common stock and class B common stock. 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 entitles its holder to
one vote and each share of class B common stock entitles its holder to five
votes on all matters submitted to a vote of our 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.
------------
Merrill Lynch 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
-----
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") is acting as representative (the "U.S. Representative").
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 International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares
75
<PAGE>
[International-Alternate Page]
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 offer 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
76
<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. Representative 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. Representative 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 " ". 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 , 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.
Representative may reduce that short position by purchasing class A common
stock in the open market. The U.S. Representative may also elect to reduce any
short position by exercising all or part of the over-allotment options
described above.
The U.S. Representative may also impose a penalty bid on Underwriters and
selling group members. This means that if the U.S. Representative purchases
shares of class A common stock in the open market to
77
<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. Representative 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 distributes
BlackRock Funds and provides stockholder services in connection with those
funds in the ordinary course of business, for which it receives customary
compensation.
78
<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
[BlackRock Logo]
Class A Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch 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>
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* To be supplied by amendment
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII 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 as a director,
except for liability:
. for any breach of the director's duty of loyalty to BlackRock or
its stockholders;
. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
. in respect of certain unlawful dividend payments or stock
redemptions or repurchases; or
. for any transaction from which the director derived an improper
personal benefit.
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 V of
BlackRock's bylaws provides for indemnification by BlackRock of its officers
and certain non-officer employees under certain circumstances against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
reasonably 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 an officer or
employee of BlackRock if such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of
BlackRock, and, with respect to criminal actions or proceedings, if such person
had no reasonable cause to believe his or her conduct was unlawful.
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.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
See Note 1 to "Notes to BlackRock's Consolidated Financial Statements --
Significant Accounting Policies--Formation Transactions."
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 and Restated Shareholders' 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 Sharing and Indemnification Agreement between the Registrant and
PNC Bank, N.A.*
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 Stock Purchase Plan.*
10.7 --Form of Employment Agreement.*
10.8 --Line of Credit Agreement, dated February 28, 1996, between PNC Bank,
N.A. and BlackRock Financial Management, Inc.*
10.9 --Line of Credit Agreement, dated March 1, 1995, between PNC Bank,
N.A. and BlackRock Financial Management, Inc.*
10.10 --Form of Initial Public Offering Agreement among the Registrant, PNC
Bank Corp. and PNC Asset Management, Inc.*
10.11 --Form of Registration Rights Agreement among the Registrant, PNC
Asset Management, Inc. and certain holders of class B common stock of
the Registrant.*
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 (included on page II-4).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(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.
II-2
<PAGE>
(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
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of New York, New York on the 13th day of May,
1999.
BLACKROCK, INC.
/s/ Laurence D. Fink
By: _________________________________
Laurence D. Fink
Chairman of the Board of
Directors and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph L. Schlosstein, Paul L. Audet and Robert
P. Connolly, his true and lawful attorney-in-fact and agent, each acting alone,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign the Registration Statement
to be filed in connection with the public offerings of ordinary shares of
BlackRock, Inc. and any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and the other
documents in connection therewith, with the Securities and Exchange Commission,
granting into said attorney-in-fact and agent, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact or his substitutes, each acting alone, may
lawfully do or cause to be done by virtue thereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
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 May 13, 1999
____________________________________ Directors and Chief
Laurence D. Fink Executive Officer (Principal
Executive Officer)
/s/ Paul L. Audet Managing Director, Chief May 13, 1999
____________________________________ Financial Officer (Principal
Paul L. Audet Financial and Accounting
Officer)
/s/ Ralph L. Schlosstein Director and President May 13, 1999
____________________________________
Ralph L. Schlosstein
/s/ Thomas H. O'Brien Director May 13, 1999
____________________________________
Thomas H. O'Brien
/s/ James E. Rohr Director May 13, 1999
____________________________________
James E. Rohr
/s/ Walter E. Gregg, Jr. Director May 13, 1999
____________________________________
Walter E. Gregg, Jr.
/s/ Helen P. Pudlin Director May 13, 1999
____________________________________
</TABLE> Helen P. Pudlin
II-5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to 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 and the related Prospectus of BlackRock, Inc. to be filed on or about May
13, 1999.
/s/ Ernst & Young LLP
New York, New York
May 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 113,450
<SECURITIES> 2,515
<RECEIVABLES> 106,656
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,252
<DEPRECIATION> 12,219
<TOTAL-ASSETS> 440,784
<CURRENT-LIABILITIES> 0
<BONDS> 197,000
0
0
<COMMON> 53,105
<OTHER-SE> 53,086
<TOTAL-LIABILITY-AND-EQUITY> 440,784
<SALES> 339,482
<TOTAL-REVENUES> 339,482
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 260,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,347
<INCOME-PRETAX> 68,010
<INCOME-TAX> 32,395
<INCOME-CONTINUING> 35,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,615
<EPS-PRIMARY> 183.04
<EPS-DILUTED> 182.44
</TABLE>
