<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1999
REGISTRATION NO. 333--84525
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NEUBERGER BERMAN INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6282 06-1523639
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
605 Third Avenue
New York, NY 10158
Tel: (212) 476-9000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
C. Carl Randolph, Esq.
General Counsel
NEUBERGER BERMAN INC.
605 Third Avenue
New York, NY 10158
Tel: (212) 476-9000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Ralph Arditi, Esq. Richard R. Howe, Esq.
George E.B. Maguire, Esq. Sullivan & Cromwell
Debevoise & Plimpton 125 Broad Street
875 Third Ave. New York, NY 10004-2498
New York, NY 10022 Tel: (212) 558-4000
Tel: (212) 909-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 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. / /
--------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
Subject to Completion. Dated September 14, 1999.
[LOGO]
7,250,000 Shares
NEUBERGER BERMAN INC.
Common Stock
-------------
This is an initial public offering of shares of common stock of Neuberger
Berman Inc. This prospectus relates to an offering of 6,250,000 shares in the
United States. In addition, 1,000,000 shares are being offered outside the
United States in an international offering.
Neuberger Berman is offering 3,030,303 of the shares to be sold in the
offerings. The selling stockholders identified in this prospectus are offering
an additional 4,219,697 shares. Neuberger Berman will not receive any of the
proceeds from the sale of the shares being sold by the selling stockholders.
It is currently estimated that the initial public offering price per share
will be between $31.00 and $35.00. Neuberger Berman intends to list the common
stock on the New York Stock Exchange under the symbol "NEU".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
------------- -------------
<S> <C> <C>
Initial public offering price.................................. $ $
Underwriting discount.......................................... $ $
Proceeds, before expenses, to Neuberger Berman................. $ $
Proceeds, before expenses, to the selling stockholders......... $ $
</TABLE>
To the extent that the underwriters sell more than 7,250,000 shares of
common stock, the underwriters have the option to purchase up to an additional
1,087,500 from the selling stockholders at the initial public offering price
less the underwriting discount.
------------------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC. CIBC WORLD MARKETS
DONALDSON, LUFKIN & JENRETTE SCHRODER & CO. INC.
------------
Prospectus dated , 1999.
<PAGE>
[DESCRIPTION OF INSIDE FRONT COVER ARTWORK]
[The Neuberger Berman logo is at the top of the page]
Assets Under Management
[Beneath this text appear two pie charts presenting the following data:]
<TABLE>
<S> <C>
At December 31, 1994
Mutual Fund and Institutional 74%
Private Asset Management 26%
100% = $28.6 billion
At June 30, 1999
Mutual Fund and Institutional 64%
Private Asset Management 36%
100% = $56.8 billion
</TABLE>
Net Income before Principal Compensation
[Beneath this text appear two pie charts presenting the following data:]
<TABLE>
<S> <C>
Twelve Months Ended December 31, 1994
Mutual Fund and Institutional 41%
Professional Securities Services 8%
Private Asset Management 51%
100% = $151.0 million
Six Months Ended June 30, 1999
Mutual Fund and Institutional 36%
Professional Securities Services 6%
Private Asset Management 58%
100% = $156.8 million
</TABLE>
Growth in Net Income before Principal Compensation
[Beneath this text appears a bar chart presenting the following data:]
<TABLE>
<S> <C>
(in millions)
1994 $151.0
1995 $186.1
1996 $229.1
1997 $298.7
1998 $320.1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN THE COMMON STOCK DISCUSSED UNDER
"RISK FACTORS" ON PAGES 10-15. OUR BUSINESS IS CONDUCTED BY NEUBERGER BERMAN,
LLC AND NEUBERGER BERMAN MANAGEMENT INC.
NEUBERGER BERMAN
OUR BUSINESS
We are an independent investment advisory firm providing our clients with a
broad array of investment strategies and products. We were founded by Roy R.
Neuberger in 1939 to be a premier provider of investment products and services
to high net worth individuals. We have built upon the qualities that have made
us successful in the high net worth market to establish a strong presence in the
mutual fund and institutional marketplaces.
Our goal is to provide highly personalized service and superior investment
advice and returns to all of our clients. We believe that our dedication to
serving the individual needs of our clients distinguishes us from many of our
competitors. We have developed a reputation and recognized brand name for our
demonstrated commitment to these principles.
We seek to provide our clients with access to our investment products and
services through the distribution channel most appropriate to serve their needs.
Today, in addition to individuals and wealthy families, our clients include
corporations, insurance companies, pension funds, foundations and endowments.
Our principal business segments include:
- Private Asset Management;
- Mutual Fund and Institutional; and
- Professional Securities Services.
Our assets under management and net income before principal compensation
have grown through varying market conditions. From December 31, 1989 to June 30,
1999, our assets under management increased from $17.8 billion to $56.8 billion.
From December 31, 1989 to December 31, 1998, our net income before principal
compensation increased from $111.5 million to $320.1 million.
Since we derive our revenue principally from fees and commissions based on
our assets under management, we believe our net income before principal
compensation is more stable as compared to other financial institutions. In
addition, we believe our business has attractive margins since
- more than 75% of our assets under management are held in equity accounts,
which carry higher fees than fixed income accounts;
- approximately 58% of our net income before principal compensation is
derived from our higher-margin Private Asset Management business; and
- we have effectively leveraged our franchise and infrastructure to enhance
profitability by developing complementary businesses such as our
professional investor clearing services and by generating commission
revenue from recipients of our research (an activity that we refer to as
research sales).
We are committed to attracting and retaining the best people. In connection
with the offerings, we will make awards under our defined contribution plan to
substantially all of our employees other than principals. After the offerings
these employees will own approximately 8.5% of our common stock, and our
principals will own approximately 77.0%.
PRINCIPAL BUSINESS SEGMENTS
PRIVATE ASSET MANAGEMENT. Our Private Asset Management business represented
36% of our assets under management and 58% of our net income before principal
compensation as of and for the six-month period ended
3
<PAGE>
June 30, 1999. We are a premier provider of investment advisory, trust and
customized services to high net worth investors, that is, individuals, wealthy
families and smaller institutions with at least $500,000 to invest. This
business is marked by long-term client loyalty, sometimes spanning several
generations. Our Private Asset Management business has grown rapidly, with
assets under management growing from $7.3 billion as of December 31, 1994 to
$20.5 billion as of June 30, 1999, representing a compound annual rate of 25.6%.
MUTUAL FUND AND INSTITUTIONAL. Our Mutual Fund and Institutional business
represented 64% of our assets under management and 36% of our net income before
principal compensation as of and for the six-month period ended June 30, 1999.
We provide investment management, distribution and administrative services to
our family of 41 Neuberger Berman mutual funds. In addition, as of June 30,
1999, we provide advisory services to 15 mutual funds sponsored by third
parties. We participate in wrap fee accounts through our relationships with nine
sponsors of wrap fee programs, including three of the four largest programs.
Through wrap fee programs, these institutions--generally larger broker-
dealers--offer a full range of money management services to their clients for an
all-inclusive fee. We also participate in over 100 strategic alliances with:
- third-party administrators for defined contribution plans,
- insurance companies,
- mutual fund "supermarkets" that offer investors the opportunity to invest
through a single brokerage account in a broad range of mutual funds
sponsored by a variety of asset management firms,
- broker-dealers, and
- banks.
As of June 30, 1999, we managed $22.7 billion in mutual fund and wrap accounts.
We provide advisory services to over 250 corporations, pension funds,
foundations and endowments through separate accounts or commingled funds. As of
June 30, 1999, we managed $13.6 billion in institutional accounts.
PROFESSIONAL SECURITIES SERVICES. Our Professional Securities Services
business represented 6% of our net income before principal compensation for the
six-month period ended June 30, 1999. Our research sales group makes our
research reports available to third-party investment advisers and professional
investors. Our professional investor clearing services group provides prime
brokerage services to private investment partnerships, registered investment
advisers and family offices. It also provides correspondent clearing services to
introducing brokers. We believe the Professional Securities Services business
enhances our margins and diversifies our earnings stream.
4
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED DECEMBER MONTHS ENDED JUNE
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
ASSETS UNDER MANAGEMENT:
Private Asset Management.................... $ 7,349 $ 9,491 $ 12,050 $ 15,553 $ 17,905 $ 17,806 $ 20,504
Mutual Fund and Institutional............... 21,300 28,833 32,310 37,958 37,682 41,283 36,260
Total................................... $ 28,649 $ 38,324 $ 44,360 $ 53,511 $ 55,587 $ 59,089 $ 56,764
(IN THOUSANDS)
NET INCOME BEFORE PRINCIPAL COMPENSATION: (1)
Private Asset Management.................... $ 76,546 $ 86,373 $ 104,557 $ 135,802 $ 164,833 $ 80,465 $ 90,491
Mutual Fund and Institutional............... 62,199 77,275 95,709 127,730 131,644 74,283 56,108
Professional Securities Services............ 12,230 22,444 28,860 35,134 23,618 14,880 10,172
Total................................... $ 150,975 $ 186,092 $ 229,126 $ 298,666 $ 320,095 $ 169,628 $ 156,771
</TABLE>
- ------------------------
(1) Historically, we have distributed substantially all of our net income to
our principals as capital distributions and dividends. Principals who
provided services to Neuberger Berman mutual funds were also paid through
compensation expense. As a result, our earnings and compensation and
benefits expense have not fully reflected payments for services rendered by
our principals and understate the expected operating costs to be incurred by
us after the offerings. Following the offerings, Neuberger Berman will fully
reflect payments for services rendered by our principals in compensation and
benefits expense. For financial information that includes pro forma
compensation and benefits expense as if payments for services rendered by
our principals had been fully reflected, see "Pro Forma Combined Financial
Statements (Unaudited)".
OUR INVESTMENT PROCESS AND RESEARCH
We believe our investment ideas and in-house research conducted by our
portfolio managers and analysts differentiate us from our competitors. All of
our portfolio managers in the Private Asset Management and Mutual Fund and
Institutional businesses perform fundamental research and are supported by our
centralized research department. We currently have over 120 investment
professionals including portfolio managers and research analysts. Many of our
portfolio managers began their careers in securities research at Neuberger
Berman or with other investment management firms. In total, our investment
professionals cover 40 industries and over 1,000 companies.
STRATEGY
CAPITALIZE ON OPPORTUNITIES IN THE GROWING HIGH NET WORTH MARKET. Managing
wealth is one of the fastest growing segments of the financial services
industry. According to the Merrill Lynch/Gemini Consulting World Wealth Report
1999, the high net worth market in North America, defined as individuals with
more than $1 million in liquid financial assets, totaled $6.9 trillion in 1998
and is expected to grow at an annual compound growth rate of 9.4% through 2003
to $10.8 trillion. With our brand name and our commitment to personalized
service, we believe that we are well positioned to take advantage of growth in
this market. Our two principal initiatives to generate growth are:
- EXPAND OUR NATIONAL SALES AND CLIENT SERVICE FORCE. We intend to grow our
26-person national sales force by more than 50%, to 40 sales
professionals, by the end of 2000. For the first six months of 1999, our
sales force added $290 million in new assets under management. As this
sales force increases in number and years of experience, we expect that it
will add substantially more assets under management.
- ADD INVESTMENT TEAMS WITH PRE-EXISTING CLIENT RELATIONSHIPS. This year,
through July 1999, three investment teams have joined our firm. They have
added approximately $200 million in assets under management and are
expected to add
5
<PAGE>
an additional $700 million in assets under management by year end. By
adding investment teams, we will expand our investment capabilities and
increase our assets under management and related net income.
EXPAND MUTUAL FUND AND RETAIL DISTRIBUTION CAPABILITIES. We have realized
significant growth in our mutual funds from the addition of new distribution
channels. We believe that further opportunities for growth will result from the
following initiatives:
- DEFINED CONTRIBUTION PLAN ADMINISTRATORS. We expect growth from our
existing relationships with defined contribution plan administrators and
seek to establish new relationships. As of June 30, 1999, we had strategic
alliances with 77 administrators of defined contribution plans.
- PROVIDERS OF VARIABLE INSURANCE PRODUCTS. We also seek to expand our
relationships with insurance companies that offer variable annuity and
variable life insurance products that invest in our mutual funds. As of
June 30, 1999, we had relationships with 38 insurance companies offering
these variable products, including five of the top 10 sellers of variable
annuities in 1998.
- BUILD WRAP FEE PROGRAM PARTICIPATION. Over the past two years, we have
added Salomon Smith Barney and Morgan Stanley Dean Witter to our wrap fee
equity programs. Today, we manage assets for nine sponsors of wrap fee
programs, including three of the four largest programs. We expect
significant growth from these relationships.
- INTERNET DISTRIBUTION. Our Internet distribution channel allows mutual
fund investors to access account information, view prospectuses, download
applications, and buy, sell and exchange shares in Neuberger Berman funds.
We believe that our e-commerce strategy positions us to take advantage of
the growing volume of online investment activity.
FURTHER DIVERSIFY PRODUCT AND SERVICE OFFERINGS. We seek to complement our
existing product offerings through the internal development or acquisition of
new investment capabilities. In the past, we have relied primarily on our
domestic equity products. Currently we offer equity, international equity,
balanced, domestic and international fixed income and money market products.
Historically, we have primarily followed the "value" style of investing
principally in companies whose stock prices are below the market average, based
on earnings, book value or other financial measures. Now, a number of our
portfolio managers also follow the "growth" style of investing principally in
companies whose earnings are growing or are expected to grow at a rate in excess
of the market average. We believe these products will provide additional growth
in assets under management by attracting new clients and through cross-selling
to existing clients.
ENHANCE PROFIT MARGINS BY GROWING PROFESSIONAL SECURITIES SERVICES. We seek
to generate incremental revenues without a commensurate increase in expenses by
continuing to expand our professional securities services to third parties.
PURSUE STRATEGIC ACQUISITION AND JOINT VENTURE OPPORTUNITIES. In addition
to adding investment teams, we will evaluate strategic acquisitions of, or joint
ventures with, companies that would add new product and services offerings,
investment capabilities or distribution channels for our clients. In addition,
we believe the ability to offer shares of our publicly traded common stock will
facilitate those acquisitions.
OUR HEADQUARTERS
Our headquarters are located at 605 Third Avenue, New York, NY 10158,
telephone (212) 476-9000.
6
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common stock:
Offered by Neuberger Berman............................................ 3,030,303 shares
Offered by selling stockholders........................................ 4,219,697 shares
Total.............................................................. 7,250,000 shares
U.S offering............................................................. 6,250,000 shares
International offering................................................... 1,000,000 shares
Total.............................................................. 7,250,000 shares
Common stock to be outstanding after the offerings:
Shares to be outstanding after the incorporation transactions.......... 42,727,273 shares
Shares to be contributed to the defined contribution plan (1).......... 4,242,424 shares
Shares offered by Neuberger Berman..................................... 3,030,303 shares
Shares to be outstanding after the offerings........................... 50,000,000 shares
</TABLE>
- ------------------------
(1) We will contribute these shares to our defined contribution plan at or
shortly after the completion of the offerings. The defined contribution plan
is described under "Management-- Executive Compensation--Defined
Contribution Plan". We expect to record a substantial pre-tax loss in the
fourth quarter of 1999 in connection with the initial contribution to the
defined contribution plan and other transactions as described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Subsequent Events".
------------------------
<TABLE>
<S> <C>
Voting Rights................................ Holders of common stock will have one vote
per share.
Dividend Policy.............................. Our board of directors intends to declare
quarterly dividends on the common stock and
expects that the first quarterly dividend
will be $.10 per share and that it will be
declared in the fourth quarter of 1999. For a
discussion of the factors that affect the
determination by our board of directors to
declare dividends as well as other matters
concerning our dividend policy, see "Dividend
Policy".
Use of Proceeds.............................. We estimate that we will receive net proceeds
from the offerings of $91 million. We will
use the net proceeds we receive to repay the
$15 million subordinated note held by NB
Associates, LLC, which is wholly owned by the
Neuberger Berman principals, and
approximately $76 million of short-term
borrowings. We will not receive any proceeds
from the sale of shares by the selling
stockholders. The NB Associates subordinated
note is described under "Certain
Relationships and Related Transactions--The
NB Associates Subordinated Note".
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Risk Factors................................. For a discussion of factors you should
consider before buying shares of common
stock, see "Risk Factors".
Proposed New York Stock Exchange Symbol...... "NEU"
</TABLE>
------------------------
INCORPORATION AND RELATED TRANSACTIONS
Immediately prior to the consummation of the offerings, we will complete a
number of transactions to convert to corporate form. These transactions are
described under "Certain Relationships and Related Transactions--The Exchange".
In connection with the offerings we will also:
- contribute 4,242,424 shares of common stock to our defined contribution
plan;
- contribute $10 million in cash to the Neuberger Berman Foundation, a newly
formed charitable foundation; and
- use a portion of the net proceeds to repay the $15 million subordinated
note held by NB Associates, LLC, which is owned by the Neuberger Berman
principals.
The Neuberger Berman Foundation and the subordinated note are described under
"Certain Relationships and Related Transactions". Our defined contribution plan
is described under "Management--Executive Compensation--Defined Contribution
Plan". We expect to record a substantial pre-tax loss in the fourth quarter of
1999 in connection with the contribution of shares to the defined contribution
plan and the cash contribution to the Neuberger Berman Foundation as described
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Subsequent Events".
CHANGES IN SENIOR MANAGEMENT
Effective upon the consummation of the incorporation transactions, Jeffrey
B. Lane will become president and chief executive officer of the firm and
Lawrence Zicklin, who has served as managing principal and chief executive
officer of the firm, will serve as the non-executive chairman of our board of
directors. Mr. Lane has served as chief administrative officer of the firm since
July, 1998 and, before then, served as Vice Chairman of Travelers Group Inc.
We believe that the firm will be strengthened by the addition of senior
management experienced in the operation of public companies. We do not
anticipate any changes in the firm's investment strategies and philosophies as a
result of these management changes. Our senior management is described under
"Management--Directors and Executive Officers."
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The summary historical combined financial data presented below are derived
from our combined financial statements and accompanying notes. Our combined
financial statements as of December 31, 1997 and 1998 and for the years ended
December 31, 1996, 1997 and 1998 have been audited by Arthur Andersen LLP,
independent public accountants. These combined financial statements, together
with our unaudited combined financial statements as of June 30, 1999 and for the
six months ended June 26, 1998 and June 30, 1999, are included elsewhere in this
prospectus. The results for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for our full fiscal year.
The summary historical combined income statement data presented below for
the years ended December 31, 1994 and 1995 have been derived from audited
combined financial statements that are not included in this prospectus.
The summary pro forma data presented below are based on historical combined
financial information which has been derived from our combined financial
statements and accompanying notes included elsewhere in this prospectus. These
pro forma data give effect to the incorporation transactions, the initial
contribution to the defined contribution plan, the offerings and the other
matters described under "Pro Forma Combined Financial Statements (Unaudited)".
These pro forma data are not necessarily indicative of the results that would
have been achieved had the incorporation transactions, the offerings and related
matters occurred in the prior periods or of the results that may be achieved in
the future.
The data presented below should be read in conjunction with "Pro Forma
Combined Financial Statements (Unaudited)" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined
financial statements and accompanying notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR
THE
SIX MONTHS
AS OF OR FOR THE YEAR ENDED DECEMBER ENDED JUNE
----------------------------------------------------- ---------------
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS UNDER MANAGEMENT (UNAUDITED):............ $ 28,649 $ 38,324 $ 44,360 $ 53,511 $ 55,587 $ 56,764
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues after interest expense........... $ 281,997 $ 340,332 $ 416,114 $ 502,525 $ 574,136 $ 283,415
Net income before principal compensation
(1)......................................... $ 150,975 $ 186,092 $ 229,126 $ 298,666 $ 320,095 $ 156,771
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA (UNAUDITED): (2)
Pro forma pre-tax net income.................. -- -- -- -- $ 257,759 $ 119,138
Pro forma after-tax net income................ -- -- -- -- $ 146,149 $ 67,551
Pro forma earnings per share (3).............. -- -- -- -- $ 2.92 $ 1.35
Pro forma stockholders' equity................ -- -- -- -- -- $ 254,199
SELECTED RATIOS (UNAUDITED):
Profit margin before principal compensation... 54% 55% 55% 59% 56% 55%
Pro forma pre-tax profit margin............... -- -- -- -- 45% 42%
Pro forma after-tax profit margin............. -- -- -- -- 25% 24%
</TABLE>
- ------------------------------
(1) Historically, we have distributed substantially all of our net income to our
principals as capital distributions and dividends. Principals who provided
services to Neuberger Berman mutual funds were also paid through
compensation expense. As a result our earnings and compensation and benefits
expense have not fully reflected payments for services rendered by our
principals and understate the expected operating costs to be incurred by us
after the offerings. Following the offerings, Neuberger Berman will fully
reflect payments for services rendered by our principals in compensation and
benefits expense. For financial information that includes pro forma
compensation and benefits expense as if payments for services rendered by
our principals had been fully reflected, see "Pro Forma Combined Financial
Statements (Unaudited)".
(2) See "Pro Forma Combined Financial Statements (Unaudited)" for information
concerning pro forma adjustments.
(3) Calculated based on 50,000,000 shares outstanding after giving effect to the
pro forma adjustments described under "Pro Forma Combined Financial
Statements (Unaudited)", including the sale of 3,030,303 shares of common
stock by Neuberger Berman Inc. and the initial contribution of 4,242,424
shares of common stock to the defined contribution plan.
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A NUMBER OF RISKS, SOME OF WHICH,
INCLUDING MARKET, OPERATIONAL, LEGAL AND REGULATORY RISKS, COULD BE SUBSTANTIAL
AND ARE INHERENT IN OUR BUSINESSES. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
INFORMATION ABOUT THESE RISKS, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE BUYING SHARES OF COMMON STOCK.
A DECLINE IN THE PRICES OF SECURITIES COULD LEAD TO A DECLINE IN OUR ASSETS
UNDER MANAGEMENT, REVENUES AND EARNINGS
A large portion of our revenue -- approximately 66% for the year ended
December 31, 1998 and 65% for the six months ended June 30, 1999 -- is derived
from investment advisory contracts with our clients. Under these contracts, the
investment advisory fee we receive is typically based on the market value of
assets under management. Accordingly, a decline in the prices of securities
generally may cause our revenues and income to decline by:
- causing the value of our assets under management to decrease, which would
result in lower investment advisory fees; or
- causing our clients to withdraw funds in favor of investments they
perceive offer greater opportunity or lower risk, which would also result
in lower investment advisory fees.
If our revenues decline without a commensurate reduction in our expenses, our
net income will be reduced.
Declines in securities prices could be the result of several factors
including economic downturn in the U.S. or foreign markets, political events,
defaults by major financial institutions or adverse public or investor
perceptions. The increases in our aggregate assets under management, revenues
and net income from 1993 through 1997 resulted in part from rising prices of
securities. Other factors being constant, decreasing securities prices would
have the opposite effect.
WE COULD LOSE CLIENTS AND SUFFER A DECLINE IN OUR REVENUES AND EARNINGS IF THE
INVESTMENTS WE CHOOSE PERFORM POORLY, REGARDLESS OF THE TREND IN THE PRICES OF
SECURITIES
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 advisory fees;
- our ability to attract funds from existing and new clients might diminish;
or
- firms with which we have strategic alliances may terminate their
relationships with us, and future strategic alliances may be unavailable.
If our revenues decline without a commensurate reduction in our expense, our net
income will be reduced.
Even when securities prices are rising, performance can be affected by
investment style. In each year from 1995 through 1998, growth stocks
outperformed value stocks as measured by the S&P/BARRA growth and value indices.
Because of our historical emphasis on the value style of investing, our clients'
portfolios were less invested in growth stocks. The difference was most
pronounced in 1998, when we experienced loss of institutional accounts and
increased redemptions of shares of the Neuberger Berman mutual funds. While we
are seeking to diversify our investing styles of investing, our value style
remains predominant.
10
<PAGE>
OUR CLIENTS CAN REMOVE THE ASSETS WE MANAGE ON SHORT NOTICE
Our investment advisory and administrative contracts are generally
terminable at will or upon 30 to 60 days' notice, and mutual fund investors may
redeem their investments in the funds at any time without prior notice.
Institutional and individual clients, and firms with which we have strategic
alliances, can terminate their relationship with us, reduce the aggregate amount
of assets under management, or shift their funds to other types of accounts with
different rate structures for any of a number of reasons, including investment
performance, changes in prevailing interest rates and financial market
performance. In a declining stock market the pace of mutual fund redemptions
could accelerate. Poor performance relative to other investment management firms
tends to result in decreased purchases of fund shares, increased redemptions of
fund shares, and the loss of institutional or individual accounts or strategic
alliances. The decrease in revenues that could result from any such event could
have a material adverse effect on our business.
OUR CONVERSION TO CORPORATE FORM MAY ADVERSELY AFFECT OUR ABILITY TO RECRUIT,
RETAIN AND MOTIVATE KEY EMPLOYEES
Our ability to attract and retain clients and mutual fund shareholders is
highly dependent on our ability to attract and retain highly skilled investment
management, research, client service, legal, fiduciary and sales professionals.
The market for such professionals is very competitive and has grown more so
in recent periods as the investment management industry has experienced
substantial growth. Our policy has been to provide our professionals with
compensation and benefits that we believe to be competitive with other leading
investment management firms. We intend to continue this policy following the
offerings and provide our employees with substantial ownership of our common
stock. These arrangements, however, may not be as effective a retention method
as the opportunity, which existed prior to the offerings, to become a principal
of our firm.
While we have historically experienced little turnover among our
professionals, we cannot be sure that we will continue to be successful in
retaining our key personnel or in attracting highly qualified professionals. The
loss of key personnel could have a material adverse effect on our business. We
do not maintain any "key person" insurance on any of our personnel.
THE INVESTMENT MANAGEMENT BUSINESS IS INTENSELY COMPETITIVE
The investment management business is intensely competitive, with
competition based on a variety of factors including:
- the range of products offered;
- brand recognition and business reputation;
- investment performance;
- the continuity of client relationships and of assets under management;
- the quality of service provided to clients;
- the level of fees and commissions charged for services;
- the level of commissions and other compensation paid;
- the level of expenses paid to financial intermediaries related to
administration and/or distribution; and
- financial strength.
We compete in all aspects of our business with a large number of investment
management firms, commercial banks, investment banks, broker-dealers, insurance
companies and other financial institutions. A number of factors serve to
increase our competitive risks:
- A number of our competitors have greater capital and other resources, and
offer more comprehensive lines of products and services, than we do.
11
<PAGE>
- The recent trend toward consolidation within the investment management
industry, and the securities industry in general, has served to increase
the size and strength of a number of our competitors.
- There are relatively few barriers to entry by new investment management
firms, and the successful efforts of new entrants into our various lines
of business, including major banks, insurance companies and other
financial institutions, have resulted in increased competition.
- Other industry participants will from time to time seek to recruit our
investment professionals and other employees away from us.
- Our competitors are seeking to expand market share in the products and
services we offer or intend to offer in the future. We describe this trend
in more detail in "Business--Competition".
This competitive pressure may reduce our revenues and earnings.
WE DEPEND ON ACCESSING CLIENTS THROUGH INTERMEDIARIES
Our ability to market our mutual funds and subadvisory services is highly
dependent on access to the client base of national and regional securities
firms, banks, insurance companies, defined contribution plan administrators and
other intermediaries which generally offer competing investment products. To a
lesser extent, our Private Asset Management business depends on referrals from
accountants, lawyers, financial planners and other professional advisors.
Although we have historically been successful in gaining access to these
channels, we cannot be sure that we will continue to be able to do so. The
inability to have this access could have a material adverse effect on our
business.
OUR FIRM IS SUBJECT TO EXTENSIVE REGULATION; VIOLATIONS OF REGULATORY
REQUIREMENTS COULD IMPAIR OUR ABILITY TO OPERATE OR RESULT IN FINES OR DAMAGE
TO OUR REPUTATION
As with all investment management companies and broker-dealers, we and our
mutual fund business are heavily regulated. Noncompliance with applicable
statutes or regulations could result in sanctions including:
- the revocation of licenses to operate certain businesses;
- the suspension or expulsion from a particular jurisdiction or market of
our business organizations or key personnel;
- the imposition of fines and censures; and
- reputational loss.
Any of these events could have a material adverse effect on our business.
The principal regulatory considerations applicable to our business are described
under "Business-- Regulation".
OUR BUSINESS IS HEAVILY DEPENDENT UPON COMPUTER-BASED SYSTEMS TO PROCESS
TRANSACTIONS; SYSTEMS FAILURES MAY DISRUPT OUR BUSINESS AND LIMIT OUR GROWTH
Our business is highly dependent on communications and information systems
and those of our key service vendors. Any failure or interruption of such
systems could have a material adverse effect on our operating results.
Operational risk arises from mistakes made in the confirmation or settlement of
transactions or from the improper recording or accounting of transactions. We
are highly dependent on our ability to process a large number of transactions on
a daily basis, and rely heavily on financial, accounting and other data
processing systems. If any of these do not function properly, we could suffer
financial loss, business disruption, liability to clients, regulatory
intervention or damage to our reputation. If systems are unable to
12
<PAGE>
accommodate an increasing volume of transactions, our ability to expand could be
affected. Although we have back-up systems in place, we cannot be sure that any
such systems failure or interruption, whether caused by a fire, other natural
disaster, power or telecommunications failure, act of war or otherwise will not
occur, or that back-up procedures and capabilities in the event of any such
failure or interruption will be adequate.
OUR COMPUTER SYSTEMS AND THOSE OF THIRD PARTIES MAY NOT ACHIEVE YEAR 2000
READINESS
Many existing computer systems and microprocessors use only two digits to
identify a year in the date field, which assumes that the first two digits of
the year are always "19". As a result, beginning on January 1, 2000, computers
that are not "Year 2000" compliant may interpret the year as "1900" instead of
"2000". Systems that calculate, compare or sort data using the incorrect date
(including non-information technology equipment and systems) may malfunction.
We are significantly dependent upon the proper functioning of our own
computer systems. A failure of our systems to be Year 2000 compliant would have
a material adverse effect on our business. For example, failure could lead to
incomplete or inaccurate accounting, recording or processing of trades in
securities and other assets, cause settlement of trades to fail, or generate
erroneous results. Unless remedied, potential risks include business
interruption or shutdown, regulatory action, financial loss, reputational harm
and legal liability.
We also depend on the proper functioning of computer and non-information
technology systems of third parties. These parties may include trading
counterparties, financial intermediaries and vendors that provide
telecommunication services and other utilities. As part of our Year 2000
preparedness program, we assess counterparties, intermediaries and vendors that
are major service providers, to determine the extent of their Year 2000
preparedness. While we have attempted to obtain sufficient information from
these parties as to their Year 2000 preparedness to ascertain the effectiveness
of their efforts, we are not in a position to verify the accuracy or
completeness of the information we receive. As a result, we are dependent on the
willingness and ability of third parties to address and disclose their Year 2000
difficulties.
The following problems could occur if third parties with whom we interact
have Year 2000 difficulties that are not remedied:
- disruption of essential services upon which we depend, such as
telecommunications and electrical problems;
- receipt of inaccurate information that would impair our ability to perform
critical data functions; or
- failed trade settlements.
Uncertainty among investors about the success of Year 2000 remediation
efforts may cause market participants to reduce the level of their market
activity temporarily, as they assess the effectiveness of these efforts. There
may be a reduction in client and general market activity and an increase in
mutual fund redemptions for a short period of time before and after January 1,
2000. We cannot predict the impact that these kinds of reductions may have on
our business.
We may be exposed to litigation as a result of Year 2000 problems. This
could arise from problems relating to our own internal systems or to external
systems on which we depend. In addition, litigation could arise from problems
involving companies in which our clients or the mutual funds we manage hold
investments.
For a description of our Year 2000 program, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure". Our Year 2000 program may not be effective and estimates of the
costs and timing for its completion may not be accurate.
13
<PAGE>
THE SECURITIES BROKERAGE BUSINESS HAS INHERENT RISKS
The securities brokerage business is, by its nature, subject to numerous and
substantial risks, particularly in volatile or illiquid markets, and in markets
influenced by sustained periods of low or negative economic growth, including
the risk of losses resulting from the ownership of securities, trading,
principal activities, counterparty failure to meet commitments, client fraud,
employee errors, misconduct and fraud (including unauthorized transactions by
traders), failures in connection with the processing of securities transactions
and litigation. Our trading activities for our own account are limited.
Therefore, the principal risks of trading are those relating to counterparty
failure and unauthorized trading. We have risk management procedures and
internal controls to address these risks but we cannot be certain that these
procedures and controls will prevent losses from occurring.
WE WILL BE EFFECTIVELY CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS WHOSE INTERESTS
MAY DIFFER FROM THOSE OF OTHER STOCKHOLDERS
After giving effect to the sale of the shares of common stock sold in the
offerings, the Neuberger Berman principals and certain family limited
partnerships and trusts formed by them will beneficially own in the aggregate
77.0% of our outstanding common stock. Neuberger Berman Inc. has entered into a
Stockholders Agreement with the principals and these affiliated entities
providing that:
- before every stockholders' meeting, the principals and their affiliates
will take a separate preliminary vote on all the issues that will be
presented at the stockholders' meeting, and
- all shares held by them must be voted as a block in accordance with the
majority of shares voted in such preliminary vote.
As a result, the principals and their affiliates will control our board of
directors, and, therefore, our business, policies and affairs including certain
corporate transactions that require stockholder approval, such as mergers and
sales of our assets. See "Certain Relationships and Related Transactions--
Stockholders Agreement". The control exerted by the principals and their
affiliates and the transfer restrictions in the Stockholders Agreement could
preclude any unsolicited acquisition of Neuberger Berman and, consequently,
adversely affect the market price of the common stock or prevent our
stockholders from realizing a premium on their shares.
PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE AN
ACQUISITION OF NEUBERGER BERMAN AND PREVENT OUR STOCKHOLDERS FROM REALIZING A
PREMIUM ON THEIR SHARES
Our organizational documents contain provisions that may discourage a third
party from making a proposal to acquire us. For example, the Board of Directors
may, without the consent of stockholders, issue preferred stock with greater
voting rights than our common stock. In addition, the Delaware corporation law
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our voting stock. See "Description of Capital
Stock" for a more detailed description of our capital stock and relevant
Delaware corporation law. These provisions could preclude any unsolicited
acquisition of Neuberger Berman and, consequently, adversely affect the market
price of the common stock or prevent our stockholders from realizing a premium
on their shares.
OUR SHARE PRICE MAY DECLINE DUE TO THE LARGE NUMBER OF SHARES ELIGIBLE FOR
FUTURE SALE
Upon completion of the offerings and the initial contribution of shares of
common stock to our defined contribution plan, 50,000,000 shares of common stock
will be issued and outstanding. Of these shares, 77.0% will be owned
beneficially by the Neuberger Berman principals and their affiliates. Sales, or
the possibility of sales, of substantial amounts of
14
<PAGE>
common stock by the principals and their affiliates may materially adversely
affect the market price of the common stock prevailing from time to time. The
principals and their affiliates have entered into the Stockholders Agreement
which generally provides that shares of common stock cannot be sold for two
years after the offerings and which also places restrictions on the subsequent
disposition of shares received in the incorporation transactions. The
restrictions on the disposition of shares contained in the Stockholders
Agreement can be waived by our board of directors or its designee without notice
to or consent of our stockholders. After the expiration of a 180-day "lock-up"
period to which all of the Neuberger Berman principals and their affiliates will
be subject pursuant to the underwriting agreement entered into in connection
with the offerings, the principals and their affiliates will in general be
entitled to dispose of their shares, subject to Rule 144 under the Securities
Act and the Stockholders Agreement. See "Certain Relationships and Related
Transactions--Stockholders Agreement", "Shares Eligible for Future Sale" and
"Underwriting" for more details on shares eligible for future sale.
OUR COMMON STOCK MAY EXPERIENCE EXTREME PRICE FLUCTUATIONS AND MAY TRADE AT
PRICES BELOW THE INITIAL PUBLIC OFFERING PRICE
The market price for shares of the common stock may fluctuate based upon a
number of factors including, but not limited to, the perceived prospects of
Neuberger Berman and the investment management business in general, differences
between our actual financial and operating results and those expected by
investors and analysts or changes in general economic or market conditions. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. As a result of these fluctuations, the
common stock may trade at prices below the initial public offering price.
YOU WILL EXPERIENCE DILUTION IN THE BOOK VALUE OF YOUR COMMON STOCK IF YOU
PURCHASE COMMON STOCK IN THE OFFERINGS
Purchasers of common stock in the offerings will experience immediate and
substantial dilution in the net tangible book value of their common stock. At an
assumed initial public offering price of $33.00 per share (the midpoint of the
initial public offering price range set forth on the cover of this prospectus),
purchasers of shares in the offerings will experience dilution in net tangible
book value of $27.92 per share, as more fully described under "Dilution".
WE EXPECT TO RECORD A SUBSTANTIAL PRE-TAX LOSS IN THE FOURTH QUARTER OF FISCAL
1999
We expect to record a net pre-tax loss in the fourth quarter of fiscal 1999
due to the irrevocable contribution of $140 million of shares to our defined
contribution plan, a $10 million cash contribution to the Neuberger Berman
Foundation and cash severance payments of $2 million. This loss is offset by a
$64 million net tax asset. For a more detailed account of the expected pre-tax
loss, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Subsequent Events".
15
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $33.00 per share, which is the
midpoint of the initial public offering price range set forth on the cover of
this prospectus, we will receive net proceeds from the offerings of $91 million,
after deducting estimated underwriting discounts and other expenses payable by
us. We will use all of the net proceeds we receive to repay:
- the $15 million subordinated note held by NB Associates, LLC due September
1, 2000 on which interest accrues at a rate of 6.75% per annum and is
payable quarterly; and
- approximately $76 million of short-term borrowings used for working
capital with varying maturities and an estimated weighted average interest
rate of 5.50% per annum.
The NB Associates subordinated note is held by NB Associates, LLC, which is
owned by the Neuberger Berman principals. The subordinated note is described
under "Certain Relationships and Related Transactions--The NB Associates
Subordinated Note".
We will not receive any proceeds from the sale of shares by the selling
stockholders. We have agreed to assume the costs of the offerings, other than
the underwriting discount in respect of shares sold by the selling stockholders,
and to pay certain fees and expenses in connection with the sale of shares by
the selling stockholders.
DIVIDEND POLICY
Our board of directors intends to declare quarterly dividends on the common
stock. We expect that the first quarterly dividend payment will be $.10 per
share (an annual amount of $.40 per share), which is expected to be declared in
the fourth quarter of 1999. The declaration and payment of dividends by
Neuberger Berman is subject to the discretion of our board of directors. Our
board of directors will take into account such matters as general economic and
business conditions, our strategic plans, our financial results and condition,
contractual, legal and regulatory restrictions on the payment of dividends by us
and our subsidiaries, and such other factors as our board of directors may
consider to be relevant. Neuberger Berman is a holding company, and, as such,
our ability to pay dividends is subject to the ability of our subsidiaries to
provide the necessary cash.
16
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of Neuberger
Berman, LLC, its subsidiaries and Neuberger Berman Management Inc. as of June
30, 1999:
- on an actual basis;
- on a pro forma basis as if the incorporation transactions, the initial
contribution of 4,242,424 shares of common stock to our defined
contribution plan (at an assumed value of $140 million, based on the
midpoint of the initial public offering price range set forth on the cover
of this prospectus), the refinancing of $35 million of the subordinated
liability, the cash contribution of $10 million to the Neuberger Berman
Foundation and the recognition of a net tax asset described under "Pro
Forma Combined Financial Statements (Unaudited)" had occurred on June 30,
1999; and
- as adjusted for the sale of 3,030,303 shares of common stock by Neuberger
Berman Inc. in the offerings at an initial public offering price of $33.00
per share (the midpoint of the initial public offering price range set
forth on the cover of this prospectus) and the application of the net
proceeds of the offerings received by Neuberger Berman Inc.
This table should be read in conjunction with "Pro Forma Combined Financial
Statements (Unaudited)" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA AS
ADJUSTED FOR THE
ACTUAL PRO FORMA OFFERINGS
---------- ----------- ----------------
(UNAUDITED, IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Subordinated Liability(1)........................................... $ 50,000 $ 50,000 $ 35,000
Principals' Capital and Stockholders' Equity:
Principals' Capital of Neuberger Berman, LLC...................... 100,000 -- --
Common Stock, par value $.01 per share, of Neuberger Berman
Management Inc.; 34,484 shares authorized; 12,500 shares issued
and outstanding, historical; no shares issued and outstanding,
pro forma; no shares issued and outstanding, pro forma as
adjusted for the offerings...................................... -- --
Common Stock, par value $.01 per share, of Neuberger Berman Inc.;
250,000,000 shares authorized; no shares issued and outstanding,
historical; 46,969,697 shares issued and outstanding, pro forma;
50,000,000 issued and outstanding, pro forma as adjusted for the
offerings(2).................................................... -- 470 500
Preferred Stock, par value $.01 per share, of Neuberger Berman
Inc.; 5,000,000 shares authorized; no shares issued and
outstanding, historical; pro forma; or pro forma as adjusted for
the offerings................................................... -- -- --
Paid-in capital................................................... 2,876 242,406 333,376
Retained earnings................................................. 6,323 (79,677) (79,677)
---------- ----------- ----------------
Total principals' capital and stockholders' equity.............. 109,199 163,199 254,199
---------- ----------- ----------------
Total capitalization............................................ $ 159,199 $ 213,199 $ 289,199
---------- ----------- ----------------
---------- ----------- ----------------
</TABLE>
- --------------------------
(1) The subordinated liability is comprised of a $50 million subordinated note
issued to NB Associates, LLC (Actual); subordinated notes of $35 million and
$15 million issued to The Travelers Insurance Company and NB Associates,
LLC, respectively (Pro Forma); and a subordinated note of $35 million issued
to The Travelers Insurance Company (Pro Forma as Adjusted for the
Offerings). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Subsequent Events" and "Certain Relationships and
Related Transactions--The NB Associates Subordinated Note".
(2) Does not include 10,000,000 shares of common stock issuable under our
long-term incentive plan and 200,000 shares of common stock issuable under
directors stock incentive plan. These plans are described under
"Management--Compensation of Directors--Directors Stock Incentive Plan" and
"--Executive Compensation--Long-Term Incentive Plan". We do not intend to
issue any shares of common stock or rights to acquire shares of common stock
under these plans in connection with the offerings.
17
<PAGE>
DILUTION
As of June 30, 1999, the pro forma net tangible book value of Neuberger
Berman, after giving effect to the incorporation transactions, the initial
contribution of 4,242,424 shares of common stock to our defined contribution
plan and the cash contribution of $10 million to the Neuberger Berman Foundation
was approximately $163,199,000 or approximately $3.47 per share of common stock.
"Pro forma net tangible book value" per share represents the amount of Neuberger
Berman's total consolidated tangible assets minus total combined liabilities,
divided by the shares of common stock outstanding on a pro forma basis after
giving effect to the incorporation transactions, the contribution to the defined
contribution plan and the cash contribution of $10 million to the Neuberger
Berman Foundation, but before giving effect to the sale of the shares offered in
the offerings. After giving effect to the sale by Neuberger Berman of 3,030,303
shares of common stock in the offerings at an assumed initial public offering
price of $33.00 per share (the midpoint of the initial public offering price
range set forth on the cover of this prospectus) and after deducting estimated
underwriting discounts and offering expenses payable by Neuberger Berman of
$9,000,000, the pro forma net tangible book value of Neuberger Berman as of June
30, 1999 would have been approximately $254,199,000, or approximately $5.08 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $1.61 per share of common stock to existing stockholders
and an immediate dilution in net tangible book value of $27.92 per share of
common stock to new investors purchasing common stock in the offerings at the
assumed initial public offering price.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $ 33.00
Pro forma net tangible book value per share before giving effect to the
offerings (1).......................................................... $ 3.47
Increase in net tangible book value per share attributable to the
offerings (2).......................................................... 1.61
---------
Pro forma net tangible book value per share after the offerings (1)........ 5.08
---------
Net tangible book value dilution per share to new investors (3)............ $ 27.92
---------
---------
</TABLE>
- ------------------------
(1) Does not include 10,000,000 shares of common stock issuable under our
long-term incentive plan and 200,000 shares of common stock issuable under
our directors stock incentive plan. These plans are described under
"Management--Compensation of Directors--Directors Stock Incentive Plan" and
"--Executive Compensation--Long-Term Incentive Plan". We do not intend to
issue any shares of common stock or rights to acquire shares of common stock
under these plans in connection with the offerings.
(2) After deducting the underwriting discounts and estimated expenses paid by
Neuberger Berman in the offerings.
(3) Dilution is determined by subtracting pro forma net tangible value per share
from the assumed initial public offering price paid by a new investor.
The following table summarizes, on a pro forma basis at the assumed initial
public offering price, as of June 30, 1999, the difference between the number of
shares of common stock purchased, the total consideration paid and the average
price per share paid by the existing stockholders and by new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 46,969,697 93.9% $ 109,199,000 52.2% $ 2.32
New Investors 3,030,303 6.1 100,000,000 47.8 33.00
----------- ----- ------------- ----- -----------
Total.......................... 50,000,000 100.0% $ 209,199,000 100.0% $ 4.18
----------- ----- ------------- ----- -----------
----------- ----- ------------- ----- -----------
</TABLE>
18
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The pro forma combined financial statements presented below are based on
historical combined financial information which has been derived from the
combined financial statements and accompanying notes included elsewhere in this
prospectus. The combined financial statements present the financial condition
and results of operations of Neuberger Berman, LLC, its subsidiaries and
Neuberger Berman Management Inc. on a combined basis, because these entities
operate under common management and common ownership. These entities will be
consolidated using reorganization accounting upon the completion of the
incorporation transactions, in which the principals of Neuberger Berman, LLC and
the stockholders of Neuberger Berman Management Inc. will exchange their
ownership interests for 42,727,273 shares of our common stock. Our consolidated
financial statements will be retroactively restated to show the effect of this
reorganization.
The pro forma combined financial statements below give effect to:
- the incorporation transactions described under "Incorporation and Related
Transactions";
- the initial contribution of 4,242,424 shares of common stock to our
defined contribution plan;
- an adjustment to compensation and benefits to principals (historically,
our principals have shared in the net income of the firm based upon their
ownership interests; we have implemented new employment agreements for our
principals which will become effective upon the completion of the
offerings);
- an adjustment to compensation and benefits to nine employee portfolio
managers (we have implemented new employment agreements with respect to
these employee portfolio managers which will become effective upon the
completion of the offerings);
- a provision for corporate income taxes (historically, Neuberger Berman,
LLC and Neuberger Berman Management Inc. were not subject to Federal
income taxes; following the completion of the incorporation transactions,
we will be subject to Federal, state and local income taxes);
- the refinancing of $35 million of the $50 million subordinated note held
by NB Associates, LLC as of June 30, 1999;
- the cash contribution of $10 million to the Neuberger Berman Foundation;
- the recognition of a net tax asset of $64 million; and
- the offerings of 3,030,303 shares of common stock and the repayment of the
remaining balance of the subordinated note held by NB Associates, LLC and
of short-term borrowings from the net proceeds we receive;
These items are collectively referred to as the "Pro Forma Adjustments".
The pro forma combined statements of income do not give effect to the
contribution of shares of common stock to our defined contribution plan or the
cash contribution of $10 million to the Neuberger Berman Foundation because of
their non-recurring nature. The pro forma combined statements of income are
presented as if the other Pro Forma Adjustments had occurred on January 1, 1998.
The pro forma combined statement of financial condition is presented as if the
Pro Forma Adjustments, including the non-recurring items, had occurred on June
30, 1999. These pro forma combined financial statements are not necessarily
indicative of the results that would have been achieved had the Pro Forma
Adjustments occurred on these dates or that may be achieved in the future.
The pro forma combined financial statements and accompanying notes should be
read in conjunction with "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined
financial statements and accompanying notes included elsewhere in this
prospectus.
19
<PAGE>
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
AS OF JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 46,604 $ (10,000)(1)
91,000(2)
(29,000)(3)
(42,000)(3)
35,000(4)
(35,000)(4)
(15,000)(5) $ 41,604
Cash and securities segregated for the exclusive benefit
of clients.............................................. 569,663 569,663
Cash and securities deposited with clearing
organizations........................................... 3,623 3,623
Securities purchased under agreements to resell........... 96,400 96,400
Receivable from brokers, dealers and clearing
organizations........................................... 1,757,489 1,757,489
Receivable from clients................................... 521,314 521,314
Securities owned, at market value......................... 17,343 17,343
Fees receivable........................................... 12,017 12,017
Furniture, equipment and leasehold improvements, at cost,
net..................................................... 27,121 27,121
Other assets.............................................. 19,035 64,000(6) 83,035
----------- ------------- -----------
Total assets.......................................... $ 3,070,609 $ 59,000 $3,129,609
----------- ------------- -----------
----------- ------------- -----------
LIABILITIES, PRINCIPALS' CAPITAL AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans.............................................. $ 29,000 $ (29,000)(3) $ --
Securities sold under agreements to repurchase.......... 101,913 101,913
Payable to brokers, dealers and clearing
organizations......................................... 1,102,863 (42,000)(3) 1,060,863
Payable to clients...................................... 1,571,609 1,571,609
Securities sold but not yet purchased, at market
value................................................. 18,542 18,542
Other liabilities and accrued expenses.................. 51,780 51,780
Payable to principals................................... 35,703 35,703
----------- ------------- -----------
2,911,410 (71,000) 2,840,410
----------- ------------- -----------
Subordinated liability.................................. 50,000 35,000(4)
(35,000)(4)
(15,000)(5) 35,000
----------- ------------- -----------
Principals' capital and stockholders' equity:
Principals' capital....................................... 100,000 (100,000)(7) --
Pro forma common stock, $.01 par value; 250,000,000 shares
authorized, 50,000,000 issued and outstanding........... --
428(7)
42(8)
30(2) 500
Paid-in capital........................................... 2,876 99,572(7)
139,958(8)
90,970(2) 333,376
Retained earnings......................................... 6,323 (140,000)(8)
(10,000)(1)
64,000(6) (79,677)
----------- ------------- -----------
Total principals' capital and stockholders' equity...... 109,199 145,000 254,199
----------- ------------- -----------
Total liabilities, principals' capital and stockholders'
equity................................................ $ 3,070,609 $ 59,000 $3,129,609
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
(see accompanying notes)
20
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Investment advisory and administrative fees..... $ 378,838 $ 378,838
Commissions..................................... 145,969 145,969
Interest........................................ 164,781 164,781
Principal transactions in securities............ 5,983 5,983
Clearance fees.................................. 11,311 11,311
Other income.................................... 4,584 4,584
----------- ------------ -----------
Gross revenues.............................. 711,466 711,466
Interest expense................................ 137,330 $ (4,252)(9)
1,446 (10 134,524
----------- ------------ -----------
Net revenues after interest expense......... 574,136 2,806 576,942
----------- ------------ -----------
OPERATING EXPENSES:
Employee compensation and benefits.............. 139,693 (2,396) 11)
(9,960) 12)
87,004 (13 214,341
Information technology.......................... 15,155 15,155
Rent and occupancy.............................. 12,493 12,493
Brokerage, clearing and exchange fees........... 12,437 12,437
Advertising and sales promotion................. 14,955 14,955
Distribution and fund administration............ 12,432 12,432
Professional fees............................... 12,546 12,546
Depreciation and amortization................... 8,761 8,761
Other expenses.................................. 25,569 (9,506) 14) 16,063
----------- ------------ -----------
Total operating expenses.................... 254,041 65,142 319,183
----------- ------------ -----------
Net income before principal compensation and
provision for income taxes................ 320,095 (62,336) 257,759
Principal compensation.......................... 35,144 (35,144) 15) --
----------- ------------ -----------
Net income before provision for income
taxes..................................... 284,951 (27,192) 257,759
Provision for income taxes...................... -- 111,610 (14 111,610
----------- ------------ -----------
Net income.................................. $ 284,951 $ (138,802) $ 146,149
----------- ------------ -----------
----------- ------------ -----------
Shares outstanding.............................. 50,000,000
-----------
-----------
Basic and diluted earnings per share (16)....... $ 2.92
-----------
-----------
</TABLE>
(see accompanying notes)
21
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
----------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Investment advisory and administrative fees..... $ 184,398 $ 184,398
Commissions..................................... 74,248 74,248
Interest........................................ 76,739 76,739
Principal transactions in securities............ 5,115 5,115
Clearance fees.................................. 5,214 5,214
Other income.................................... 2,854 2,854
----------- ------------- -------------
Gross revenues................................ 348,568 348,568
Interest expense................................ 65,153 $ (2,157)(9)
(169)(10) 62,827
----------- ------------- -------------
Net revenues after interest expense........... 283,415 2,326 285,741
----------- ------------- -------------
OPERATING EXPENSES:
Employee compensation and benefits.............. 71,065 (1,325)(11)
45,836 (13 115,576
Information technology.......................... 8,730 8,730
Rent and occupancy.............................. 6,557 6,557
Brokerage, clearing and exchange fees........... 6,679 6,679
Advertising and sales promotion................. 6,123 6,123
Distribution and fund administration............ 5,514 5,514
Professional fees............................... 4,934 4,934
Depreciation and amortization................... 4,891 4,891
Other expenses.................................. 12,151 (4,552)(14) 7,599
----------- ------------- -------------
Total operating expenses...................... 126,644 39,959 166,603
----------- ------------- -------------
Net income before principal compensation and
provision for income taxes.................. 156,771 (37,633) 119,138
Principal compensation.......................... 15,690 (15,690)(15) --
----------- ------------- -------------
Net income before provision for income
taxes....................................... 141,081 (21,943) 119,138
Provision for income taxes...................... -- 51,587 (14 51,587
----------- ------------- -------------
Net income.................................... $ 141,081 $ (73,530) $ 67,551
----------- ------------- -------------
----------- ------------- -------------
Shares outstanding.............................. 50,000,000
-------------
-------------
Basic and diluted earnings per share (16)....... $ 1.35
-------------
-------------
</TABLE>
(see accompanying notes)
22
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(1) Adjustment to reflect the cash contribution of $10 million to the Neuberger
Berman Foundation.
(2) Adjustment to reflect the sale of 3,030,303 shares of common stock by
Neuberger Berman in the offerings, including the receipt of $91 million of
net proceeds in the offerings.
(3) Adjustment to reflect the use of $71 million of net proceeds received from
the offerings to repay $29 million of bank loans and $42 million of payable
to brokers, dealers and clearing organizations as of June 30, 1999.
(4) Adjustment to reflect the refinancing of $35 million of the subordinated
note held by NB Associates, LLC as of June 30, 1999. On September 1, 1999,
Neuberger Berman, LLC entered into a subordinated loan agreement with The
Travelers Insurance Company whereby Travelers loaned $35 million to
Neuberger Berman, LLC in the form of a subordinated liability. The Company
used the proceeds of the loan to retire $35 million of the $50 million
subordinated note issued to NB Associates, LLC.
(5) Adjustment to reflect the use of $15 million of net proceeds from the
offerings to repay the remaining balance of the subordinated note held by NB
Associates, LLC as of June 30, 1999.
(6) Adjustment to reflect an addition to retained earnings related to the
recognition of a net tax asset of $64.0 million under Statement of Financial
Accounting Standards No. 109 at an effective tax rate of approximately 43%.
The components of this net asset are (i) a benefit of $59.7 million related
to the initial irrevocable contribution of 4,242,424 shares of common stock
to the defined contribution plan and (ii) a benefit of $4.3 million related
to the cash contribution of $10 million to the Neuberger Berman Foundation.
(7) Adjustment to reflect recapitalization for the incorporation transactions,
including the receipt of 42,727,273 shares by the principals.
(8) Adjustment to reflect the initial irrevocable non-cash contribution of
4,242,424 shares of common stock to the defined contribution plan at or
shortly after the completion of the offerings assuming that the fair value
of the shares contributed is equal to the assumed initial public offering
price of $33.00 per share (the mid point of the range set forth on the cover
of this prospectus). This non-cash contribution will be recognized at its
fair market value on the date it is made in accordance with Statement of
Financial Accounting Standards No. 87.
(9) Adjustment to reflect the decrease in actual interest expense incurred from
August 31, 1998 (date of issuance) related to the repayment of $15 million
of the NB Associates subordinated note. In addition, adjustment reflects the
reversal of a portion of actual interest expense incurred on short-term
borrowings (e.g., bank loans, payable to brokers, dealers and clearing
organizations). To determine the amount of the short-term interest expense
reversal, a monthly average of daily short-term amounts borrowed was
analyzed. Borrowings with higher interest rates were repaid first. If the
monthly average of subordinated liability and daily short-term borrowings
exceeded $91 million, interest expense attributable to amounts borrowed in
excess of $91 million was not included in the adjustment. Correspondingly,
if the monthly average of subordinated liability and daily short-term
borrowings was less than $91 million, only the actual interest expense
incurred was included in the adjustment. The monthly average of the
subordinated liability and daily short-term borrowings assumed to be repaid
for the period January 1, 1998 to August 31, 1998 is $86.6 million and from
September 1, 1998 to December 31, 1998 is $45.8 million. The monthly average
of the subordinated liability and daily short-term borrowings assumed to be
repaid for the period January 1, 1999 to June 30, 1999 is $81.5 million.
23
<PAGE>
(10) Adjustment to reflect a change in interest expense related to the
refinancing of $35 million of the NB Associates subordinated note. For the
year ended December 31, 1998, this pro forma adjustment increased interest
expense by $1,446,000, as interest on the subordinated liability was
computed as if (i) the Travelers subordinated note had been outstanding as
of January 1, 1998 and (ii) $35 million of the NB Associates subordinated
note, which was issued on September 1, 1998, was not outstanding during the
same period. Historical interest expense from September 1, 1998 through
December 31, 1998 was $787,000 versus pro forma interest expense of $718,000
during the same period; pro forma interest expense from January 1, 1998
through August 31, 1998 was $1,515,000.
For the six months ended June 30, 1999, this pro forma adjustment decreased
interest expense by $169,000, as the historical interest rate paid on the NB
Associates subordinated note was higher than the interest rate on the
Travelers subordinated note.
(11) Adjustment to reflect a change in compensation for nine employee portfolio
managers who will be paid based on employment agreements, which will be
effective at the time of the offerings. As a result, a decrease to
compensation expense of $2.4 million for the year ended December 1998 and
$1.3 million for the six months ended June 1999 has been reflected on the
pro forma combined statements of income.
(12) Adjustment to reduce employee compensation and benefits in respect of
compensation and benefits paid during the year ended December 31, 1998 to
eleven employees who were admitted as principals during 1998 (a pro forma
compensation expense in respect of these eleven employees has been included
in the $87.0 million pro forma compensation adjustment described in note
13). No employees were admitted as principals during the six months ended
June 30, 1999.
(13) Because Neuberger Berman Inc. has operated as a partnership, there is no
actual historical measure of the compensation and benefits that would have
been paid, in corporate form, to the principals for services rendered in
fiscal 1998 and for the six months ended June 30, 1999. Accordingly, the pro
forma combined financial statements reflect compensation amounts, based on
new employment agreements for principals, which will be effective upon the
completion of the offerings. The majority of the compensation expense to
principals under these agreements is formula based. For those principals
whose compensation is not formula based, their compensation under these
agreements has been determined and approved by the Executive Committee based
upon a study using competitive market data conducted by an outside
consultant giving consideration to the individuals' position,
responsibilities and expected performance levels. The pro forma adjustment
for principals' compensation and benefits for the year ended December 31,
1998 and the six months ended June 30, 1999 has been determined as if the
new employment agreements had been in place during these periods, and, for
principals whose compensation is formula based, by applying the formula to
actual results for the periods, and, for other principals, based upon the
approved compensation arrangement established pursuant to their agreements.
As a result of the offerings, there are several principals who will be
retiring from Neuberger Berman upon completion of the offerings and will not
be providing any future services to Neuberger Berman as employees.
Therefore, for these principals no adjustment to determine compensation and
benefits has been made to the pro forma combined statements of income.
(14) Adjustment to reflect a pro forma provision for Federal, state and local
income taxes for Neuberger Berman Inc. in corporate form at an effective tax
rate of approximately 43% and to reverse actual unincorporated business tax
and state and local taxes included in "Other expenses" on the pro forma
combined statements of income.
(15) Principal compensation was adjusted to reverse actual amounts previously
paid.
24
<PAGE>
(16) Pro forma basic and diluted earnings per share was calculated by dividing
pro forma net income by 50,000,000 shares of common stock. Except for the
initial contribution of
4,242,424 shares of common stock to the defined contribution plan, we do not
intend to issue any shares of common stock or rights to acquire shares of
common stock under our employee compensation plans in connection with the
offerings.
25
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
Our business is conducted by Neuberger Berman, LLC, its subsidiaries and
Neuberger Berman Management Inc., and our combined financial statements present
the financial condition and results of operations of their combined businesses.
The selected historical combined financial data presented below are derived from
our combined financial statements and their notes. Our combined financial
statements as of December 31, 1997 and 1998 and for the years ended December 31,
1996, 1997 and 1998 have been audited by Arthur Andersen LLP, independent public
accountants. These financial statements, together with our unaudited combined
financial statements as of June 30, 1999 and for the six months ended June 26,
1998 and June 30, 1999, are included elsewhere in this prospectus. The results
for the six months ended June 30, 1999 are not necessarily indicative of the
results to be expected for our full fiscal year.
The selected historical combined income statement and balance sheet data
presented below as of December 31, 1994, 1995 and 1996 and for the years ended
December 31, 1994 and 1995 have been derived from audited combined financial
statements that are not included in this prospectus.
The pro forma data presented below are based on historical combined
financial information which has been derived from our combined financial
statements and accompanying notes included elsewhere in this prospectus. These
pro forma data give effect to the Pro Forma Adjustments described under "Pro
Forma Combined Financial Statements (Unaudited)". These pro forma data are not
necessarily indicative of the results that would have been achieved had the Pro
Forma Adjustments occurred in the prior periods or of the results that may be
achieved in the future.
The data presented below should be read in conjunction with "Pro Forma
Combined Financial Statements (Unaudited)" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined
financial statements and their notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER JUNE
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS UNDER MANAGEMENT (UNAUDITED):.............. $ 28,649 $ 38,324 $ 44,360 $ 53,511 $ 55,587 $ 59,089 $ 56,764
(IN THOUSANDS)
INCOME STATEMENT DATA:
REVENUES:
Investment advisory and administrative fees..... $ 176,486 $ 207,888 $ 260,775 $ 327,898 $ 378,838 $ 194,401 $ 184,398
Commissions..................................... 83,231 96,400 109,621 124,911 145,969 67,845 74,248
Interest........................................ 79,712 119,713 143,928 154,280 164,781 79,753 76,739
Clearance fees.................................. 5,925 7,893 8,152 8,332 11,311 4,886 5,214
Other income.................................... 3,095 11,726 13,436 11,634 10,567 5,076 7,969
Gross revenues................................ 348,449 443,620 535,912 627,055 711,466 351,961 348,568
Interest expense................................ 66,452 103,288 119,798 124,530 137,330 66,095 65,153
Net revenues after interest expense........... 281,997 340,332 416,114 502,525 574,136 285,866 283,415
(IN THOUSANDS)
OPERATING EXPENSES:
Employee compensation and benefits.............. 76,461 87,816 106,431 114,617 139,693 65,146 71,065
Information technology.......................... 9,602 11,245 12,954 13,642 15,155 7,429 8,730
Rent and occupancy.............................. 8,252 8,613 9,189 9,882 12,493 5,685 6,557
Brokerage, clearing and exchange fees........... 9,359 10,108 11,319 12,727 12,437 5,363 6,679
Advertising and sales promotion................. 6,113 7,763 12,732 14,915 14,955 7,035 6,123
Distribution and fund administration............ 3,590 5,433 7,105 10,031 12,432 6,370 5,514
Professional fees............................... 2,669 3,718 4,486 5,165 12,546 4,187 4,934
Depreciation and amortization................... 3,386 4,151 5,576 6,445 8,761 3,151 4,891
Income tax expense.............................. 5,554 7,397 8,851 8,857 9,506 4,805 4,552
Other expenses.................................. 6,036 7,996 8,345 7,578 16,063 7,067 7,599
Total operating expenses...................... 131,022 154,240 186,988 203,859 254,041 116,238 126,644
Net income before principal compensation(1)... $ 150,975 $ 186,092 $ 229,126 $ 298,666 $ 320,095 $ 169,628 $ 156,771
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
AS OF OR
FOR THE
SIX MONTHS
AS OF OR FOR THE YEAR ENDED DECEMBER ENDED JUNE
---------------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA
(UNAUDITED):(2)
Pro forma pre-tax net
income................ -- -- -- -- $ 257,759 $ 119,138
Pro forma after-tax net
income................ -- -- -- -- $ 146,149 $ 67,551
Pro forma earnings per
share (3)............. -- -- -- -- $ 2.92 $ 1.35
Pro forma stockholders'
equity................ -- -- -- -- -- $ 254,199
SELECTED RATIOS
(UNAUDITED):
Profit margin before
principal
compensation.......... 54% 55% 55% 59% 56% 55%
Pro forma pre-tax profit
margin................ -- -- -- -- 45% 42%
Pro forma after-tax
profit margin......... -- -- -- -- 25% 24%
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............. $1,542,931 $2,019,476 $2,446,811 $2,410,213 $3,829,435 $3,070,609
Assets related to
broker-dealer
activities(4)......... 1,456,951 1,892,257 2,327,522 2,243,573 3,719,932 2,965,832
Total liabilities
excluding subordinated
liabilities........... 1,410,180 1,911,707 2,288,811 2,251,182 3,670,236 2,911,410
Total subordinated
liabilities........... 95,000 70,000 -- -- 50,000 50,000
Total liabilities......... 1,505,180 1,981,707 2,288,811 2,251,182 3,720,236 2,961,410
Liabilities related to
broker-dealer
activities(5)......... 1,448,244 1,895,920 2,210,097 2,138,656 3,607,434 2,873,927
Total principals' capital
and stockholders
equity.................. $ 37,751 $ 37,769 $ 158,000 $ 159,031 $ 109,199 $ 109,199
</TABLE>
- ------------------------
(1) Historically, we have distributed substantially all of our net income to our
principals as capital distributions and dividends. Principals who provided
services to Neuberger Berman mutual funds were also paid through
compensation expense. As a result, our earnings and compensation and
benefits expense have not fully reflected payments for services rendered by
our principals and understate the expected operating costs to be incurred by
us after the offerings. Following the offerings, Neuberger Berman will fully
reflect payments for services rendered by our principals in compensation and
benefits expense. For financial information that includes pro forma
compensation and benefits expense as if payments for services rendered by
our principals had been fully reflected, see "Pro Forma Combined Financial
Statements (Unaudited)".
(2) See "Pro Forma Combined Financial Statements (Unaudited)" for information
concerning the Pro Forma Adjustments.
(3) Calculated based on 50,000,000 shares outstanding after giving effect to the
Pro Forma Adjustments, including the sale of 3,030,303 shares of common
stock by Neuberger Berman Inc. and the initial contribution of 4,242,424
shares of common stock to the defined contribution plan.
(4) Includes cash and securities segregated for the exclusive benefit of
clients, cash and securities deposited with clearing organizations,
securities purchased under agreements to resell, receivable from brokers,
dealers and clearing organizations, receivable from clients and securities
owned (at market value).
(5) Includes bank loans, securities sold under agreements to repurchase, payable
to brokers, dealers and clearing organizations, payable to clients,
securities sold but not yet purchased (at market value) and subordinated
liabilities.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR COMBINED
FINANCIAL STATEMENTS AND THEIR NOTES, THE PRO FORMA FINANCIAL INFORMATION AND
THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
We are an independent investment advisory and securities firm organized in
three business segments.
- Private Asset Management;
- Mutual Fund and Institutional; and
- Professional Securities Services.
All references to 1996, 1997 and 1998 refer to the calendar year. All
references to the six months ended June 1998 and June 1999 refer to our
six-month fiscal periods ended June 26, 1998 and June 30, 1999.
BUSINESS ENVIRONMENT
Over the past five years, the investment management industry has experienced
growth in assets under management resulting from a number of favorable economic
conditions including:
- Strong returns in the equity markets;
- Strong growth in U.S. gross national product (GNP);
- Low interest rates; and
- Low inflation.
U.S. equity returns (as measured by the S&P 500 index) exceeded 20% for each
of the years ending December 31, 1995 through December 31, 1998. However, this
period of strong returns in the equity markets did not affect all categories of
equity investments uniformly. For example, throughout this period, growth stocks
outperformed value stocks as tracked by the S&P/BARRA growth index and value
index. This trend was especially pronounced in 1998. Also in that year, large
capitalization stocks outperformed small and medium capitalization stocks. These
market conditions created an environment in which large-cap growth funds and
large-cap index funds captured the vast majority of new mutual fund assets.
During this period, our Private Asset Management segment grew substantially.
We believe this growth resulted from significant wealth creation combined with a
rising equity market. In addition, the diversity of our Private Asset Management
investment styles, the nature of the high net worth investor market (which is
more relationship-driven) and our ability to provide our clients customized
services allowed us to capitalize on the favorable economic conditions.
Our Mutual Fund and Institutional business, on the other hand, has recently
experienced a decline in assets under management following a period of
consistent growth from the beginning of 1995 through June 30, 1998. This
business has historically emphasized a value style of investing, which is
generally characterized by investment in securities which have relatively low
valuations, as measured by ratios such as price-to-earnings, price-to-book and
price-to-cash flows. In addition, some of our portfolios target small to
mid-capitalization stocks. As a result of our value focus and the business
environment, certain of our mutual funds and separate accounts have periodically
underperformed growth oriented funds, the S&P 500 index and the Russell 1000
Value Index over the past five years.
Specifically, Neuberger Berman Guardian Portfolio, a large capitalization
value fund and our largest mutual fund portfolio, performed poorly relative to
the Russell 1000 Value Index from December 31, 1995 through September 30, 1998
and significantly underperformed the S&P 500 and large capitalization growth
styles in 1998. At December 31, 1995 Neuberger Berman Guardian Portfolio had
assets of $5.3 billion, representing 45% of Neuberger Berman mutual fund assets,
and at June 30, 1999 had assets of $5.5 billion, representing 26% of Neuberger
Berman mutual fund assets. In addition,
28
<PAGE>
Neuberger Berman Partners Portfolio, a mid to large-cap value product, and
Neuberger Berman Genesis Portfolio, a small-cap product, had performance below
their respective benchmarks. As a result, beginning in mid-1998, we experienced
a reversal in assets under management from net cash inflows to net cash outflows
in our mutual fund business. The sharp downturn in the U.S. equity market in
August 1998 accelerated these cash outflows. Our mutual fund business had net
cash outflows of $788 million for the year ended December 31, 1998 and $2.3
billion for the six months ended June 30, 1999. Similar factors negatively
affected our institutional asset management business which had net cash outflows
of $1.4 billion for the year ended December 31, 1998 and $1.4 billion for the
six months ended June 30, 1999.
In response, we have taken the following steps.
- In September 1998, we hired a seasoned portfolio manager with 17 years of
investment experience, including six years managing a large capitalization
value fund, to co-manage Neuberger Berman Guardian Portfolio. Since the
beginning of the fourth quarter 1998, the performance of the Guardian
Portfolio has improved significantly, and its volatility has decreased.
- Shortly thereafter, we hired a portfolio manager with 17 years of
investment experience to work as co-manager of Neuberger Berman Partners
Portfolio, which has performed well over the nine months ended June 30,
1999. This manager also co-manages Neuberger Berman Regency Portfolio, a
mid-cap value mutual fund product launched in June 1999.
- About this time, we hired a portfolio manager with eight years of
investment experience in our Boston-based growth equity group as
co-manager of Neuberger Berman Millennium Portfolio. That product, which
began operations in October 1998, has expanded our product line in the
small-cap growth area, and has delivered strong performance.
- We also hired a portfolio manager with 21 years of investment experience
to help manage a substantial number of large-cap equity institutional
accounts.
- Finally, we have diversified our product offering to include a broader
universe of investment styles.
We believe our ability to attract talented portfolio managers was critical
to our ability to address these issues. Since the beginning of April 1999, value
indices have generally outperformed growth indices for the first time since
1994, and the Russell 2000 (a small-cap index) has significantly outperformed
the S&P 500 index. We believe our initiatives, together with these recent
trends, will be favorable over time to growth in assets under management in our
Mutual Fund and Institutional business.
RESULTS OF OPERATIONS
Our revenues are recorded in the business segments in which they are earned.
Our operating expenses include direct expenses, such as employee compensation
and benefits, information technology and rent and occupancy, which are charged
to the business segment in which they are incurred. Our operating expenses also
include indirect expenses, such as general and administrative, research and
execution and clearance expenses. These expenses are allocated to each business
segment based upon various methodologies determined by management, which have
been consistently applied for the last six years. General and administrative
expenses are allocated pro rata based on direct expenses, research expenses are
allocated pro rata based on assets under management and execution and clearance
expenses are allocated pro rata based on the number of transactions and shares.
We derive our revenues primarily from fees for investment advisory and
administrative services provided to our private asset management, mutual fund,
institutional and wrap fee clients. Our investment advisory and administrative
fees are generally based on the
29
<PAGE>
total market value and composition of assets under management. As a result,
fluctuations in financial markets and client asset additions and withdrawals
have a direct effect on our revenues and our net income. Our fees vary with the
type of assets managed, with higher fees earned on actively managed equity
accounts and lower fees earned on fixed income and cash management accounts.
As a broker-dealer, we earn commission revenue by executing equity
securities transactions for our Private Asset Management, Mutual Fund and
Institutional clients as well as for third parties in professional investor
clearing services and research sales transactions. The majority of our
commissions are earned from transactions for our Private Asset Management
clients. Our commission revenue may fluctuate based on general market
conditions. We also earn clearance fees for the execution of securities
transactions for various introducing brokers.
We also generate income by managing cash balances available as a result of
our broker-dealer activities. The three principal areas from which our net
interest income is generated are treasury management (managing overnight cash
balances), securities lending activities, and from client cash and margin
balances, primarily for professional investor clearing services and private
asset management clients. We evaluate these activities by focusing on net
interest income. Net interest income fluctuates based on general market
conditions, prevailing interest rates and the amount of client cash and margin
balances.
Our largest operating expense is employee compensation and benefits, the
largest components of which are compensation for our portfolio managers and
sales personnel (which is based largely on commissions and fees) and for our
information technology groups.
Historically, because we have operated as a partnership, substantially all
payments to our principals have been accounted for as distributions from
principals' capital and not recorded as compensation expense. Accordingly, our
compensation and benefits will increase after the offerings, since, as a
corporation, we will include these payments to our principals in compensation
and benefits expense. Historically, aggregate levels of employee compensation
and benefits were directly affected from one year to the next by the promotion
of one or more employees to principal. At the time of promotion, such employees'
compensation from Neuberger Berman ceased and instead they generally received
distributions of net income directly from capital. Following the offerings, the
distinction between employees and principals will end.
Federal income taxes have not been provided against our net income because,
prior to the offerings, Neuberger Berman, LLC, as a limited liability company,
has not been subject to U.S. Federal and state income taxes. Principals of
Neuberger Berman, LLC were individually liable for such taxes. The earnings of
Neuberger Berman, LLC have been subject to the 4% New York City unincorporated
business tax. In addition, Neuberger Berman Management Inc., as an S
corporation, has been subject to certain state and local taxes. For information
on the pro forma effective tax rate of Neuberger Berman Inc. under corporate
form, see "Pro Forma Combined Financial Statements (Unaudited)".
Our operating expenses have increased as a result of numerous factors,
including:
- Higher employee compensation and benefits related to increased staffing.
We have hired additional portfolio managers for both our asset management
segments and additional sales professionals for all our segments, and have
increased headcount in information technology, marketing and trust and
custody services.
- Increased technology expenses. We have made a number of hardware and
software investments to provide better services to our investment
professionals. These investments include a new network, client accounting
and telecommunication systems, and a comprehensive electronic investment
library. We are currently enhancing both
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our Internet and intranet websites, which will create new opportunities
for existing lines of businesses.
- Building our infrastructure. In recent years, we have increased the number
of regional offices and expanded our New York facilities. We have taken
additional floors at our New York headquarters to accommodate increased
staff, moved to a new facility for our New York back office clearing
operations and established a fully equipped office facility for our
professional investor clearing services clients.
We have made investments in these initiatives despite decreases in revenues
related to our Mutual Fund and Institutional segment, with an eye towards
building for the future.
The following is a summary of assets under management, revenue and expense
data by business segment:
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE MONTHS
YEAR ENDED DECEMBER ENDED JUNE
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN MILLIONS)
ASSETS UNDER MANAGEMENT:
Private Asset Management............. $ 12,050 $ 15,553 $ 17,905 $ 17,806 $ 20,504
Mutual Fund and Institutional........ 32,310 37,958 37,682 41,283 36,260
--------- --------- --------- --------- ---------
$ 44,360 $ 53,511 $ 55,587 $ 59,089 $ 56,764
(IN THOUSANDS)
NET REVENUES AFTER INTEREST EXPENSE:
Private Asset Management............. $ 161,845 $ 198,421 $ 237,933 $ 116,807 $ 129,127
Mutual Fund and Institutional........ 185,428 230,852 258,344 133,181 115,449
Professional Securities Services..... 68,841 73,252 77,859 35,878 38,839
--------- --------- --------- --------- ---------
$ 416,114 $ 502,525 $ 574,136 $ 285,866 $ 283,415
(IN THOUSANDS)
OPERATING EXPENSES:
Private Asset Management............. $ 57,288 $ 62,619 $ 73,100 $ 36,342 $ 38,636
Mutual Fund and Institutional........ 89,719 103,122 126,700 58,898 59,341
Professional Securities Services..... 39,981 38,118 54,241 20,998 28,667
--------- --------- --------- --------- ---------
$ 186,988 $ 203,859 $ 254,041 $ 116,238 $ 126,644
(IN THOUSANDS)
NET INCOME BEFORE PRINCIPAL
COMPENSATION: (1)
Private Asset Management............. $ 104,557 $ 135,802 $ 164,833 $ 80,465 $ 90,491
Mutual Fund and Institutional........ 95,709 127,730 131,644 74,283 56,108
Professional Securities Services..... 28,860 35,134 23,618 14,880 10,172
--------- --------- --------- --------- ---------
$ 229,126 $ 298,666 $ 320,095 $ 169,628 $ 156,771
</TABLE>
- ------------------------
(1) Historically, we have distributed substantially all of our net income to our
principals as capital distributions and dividends. Principals who provided
services to Neuberger Berman mutual funds were also paid through
compensation expense. As a result, our earnings and compensation and
benefits expense have not fully reflected payments for services rendered by
our principals and understate the expected operating costs to be incurred by
us after the offerings. Following the offerings, Neuberger Berman will fully
reflect payments for services
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rendered by our principals in compensation and benefits expense. For
financial information that includes pro forma compensation and benefits
expense as if payments for services rendered by our principals had been
fully reflected, see "Pro Forma Combined Financial Statements (Unaudited)".
The following is a summary of changes in assets under management in our
Private Asset Management and Mutual Fund and Institutional segments:
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED
DECEMBER MONTHS ENDED JUNE
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN MILLIONS)
PRIVATE ASSET MANAGEMENT:
Assets under management beginning of
period.................................. $ 9,491 $ 12,050 $ 15,553 $ 15,553 $ 17,905
Net additions (withdrawals)............... 617 (66) 76 351 309
Market appreciation....................... 1,942 3,569 2,276 1,902 2,290
--------- --------- --------- --------- ---------
Total increase.......................... 2,559 3,503 2,352 2,253 2,599
Assets under management end of period..... $ 12,050 $ 15,553 $ 17,905 $ 17,806 $ 20,504
MUTUAL FUND AND INSTITUTIONAL:
Assets under management beginning of
period.................................. $ 28,833 $ 32,310 $ 37,958 $ 37,958 $ 37,682
Net additions (withdrawals)............... (145) 352 (2,173) 425 (3,766)
Market appreciation....................... 3,622 5,296 1,897 2,900 2,344
--------- --------- --------- --------- ---------
Total increase (decrease)............... 3,477 5,648 (276) 3,325 (1,422)
Assets under management end of period..... $ 32,310 $ 37,958 $ 37,682 $ 41,283 $ 36,260
TOTAL:
Assets under management beginning of
period.................................. $ 38,324 $ 44,360 $ 53,511 $ 53,511 $ 55,587
Net additions (withdrawals)............... 472 286 (2,097) 776 (3,457)
Market appreciation....................... 5,564 8,865 4,173 4,802 4,634
--------- --------- --------- --------- ---------
Total increase.......................... 6,036 9,151 2,076 5,578 1,177
Assets under management end of period..... $ 44,360 $ 53,511 $ 55,587 $ 59,089 $ 56,764
</TABLE>
OVERVIEW
JUNE 1999 COMPARED TO JUNE 1998. Our net revenues after interest expense
decreased by $2.5 million for the six-month period ended June 1999 to $283.4
million, a reduction of 0.9% compared to the same period in 1998. Strong results
in Private Asset Management and Professional Securities Services were offset by
a significant decrease in Mutual Fund and Institutional due to the lower level
of assets under management in that segment resulting from net asset withdrawals.
Net revenue growth was strong in Private Asset Management, increasing $12.3
million or 10.5%, reflecting asset growth from our national sales force as well
as market appreciation. Net revenues after interest expense in Mutual Fund and
Institutional decreased $17.7 million or 13.3% as a result of reduced average
assets under management. Net revenues after interest expense in Professional
Securities Services increased by $3.0 million or 8.3% as higher commissions and
increased revenues from market making activities more than offset a reduction in
net interest income due to lower client margin balances.
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Our operating expenses increased $10.4 million during the period, an
increase of 9.0% to $126.6 million over the same period in 1998. This resulted
from an increase of $5.9 million or 9.1% in employee compensation and benefits
to $71.1 million due to the hiring of new portfolio managers, other investment
professionals and information technology personnel. Depreciation and
amortization increased $1.7 million or 55.2% to $4.9 million due to leasehold
write-offs and to capital expenditures on telecommunications and
technology-related equipment. Brokerage, clearing and exchange fees increased
$1.3 million or 24.5% primarily due to higher transaction volumes in Private
Asset Management and Professional Securities Services.
Net income before principal compensation decreased $12.9 million or 7.6% to
$156.8 million.
1998 COMPARED TO 1997. Our net revenues after interest expense were $574.1
million in 1998, an increase of $71.6 million or 14.3% compared to 1997. Net
revenue growth was strong in Private Asset Management, which increased $39.5
million or 19.9% to $237.9 million due to additional assets under management and
higher commissions from equity securities transactions. Notwithstanding net
asset withdrawals in the second half of 1998, net revenues after interest
expense in Mutual Fund and Institutional increased $27.5 million or 11.9% to
$258.3 million as a result of higher average assets under management, which
peaked in the second quarter of 1998. Net revenues after interest expense for
Professional Securities Services were higher by $4.6 million or 6.3% due to a
$3.0 million or 35.8% increase in clearance fees and a $3.7 million or 13.7%
increase in commissions primarily from increased market activity.
Our operating expenses were $254.0 million in 1998, an increase of $50.2
million or 24.6% over 1997. This was primarily due to increased employee
compensation and benefits and professional fee expenses. Employee compensation
and benefits increased $25.1 million or 21.9% due to the hiring of new portfolio
managers and sales professionals and to increased headcount in information
technology and marketing. Professional fees increased $7.4 million or 142.9% due
to higher investment technology expenditures including Year 2000-related
initiatives. This increase included non-recurring charges of $4.1 million
resulting from a proposed initial public offering that was subsequently
withdrawn due to market conditions. Distribution and fund administration
expenses increased $2.4 million or 23.9% as a direct result of increased average
assets under management. Rent and occupancy expenses increased $2.6 million or
26.4%, reflecting additional office space to accommodate higher staffing levels
and new regional offices as well as our New York back office facility.
Net income before principal compensation increased $21.4 million or 7.2% to
$320.1 million.
1997 COMPARED TO 1996. Our net revenues after interest expense were $502.5
million in 1997, an increase of $86.4 million or 20.8% compared to 1996. Net
revenue growth was strong in both the Private Asset Management and the Mutual
Fund and Institutional segments. This was due to increased average assets under
management from net asset additions, which generated investment advisory and
administration fees that were higher by $66.4 million or 25.5%. Additionally,
commissions from these two segments increased by $14.3 million or 17.1% compared
to 1996. Professional Securities Services contributed net revenues after
interest expense of $73.3 million, an increase of $4.4 million or 6.4%. This
increase was primarily comprised of net interest income from the treasury
management of overnight cash balances.
Our operating expenses were $203.9 million in 1997, an increase of $16.9
million or 9.0% compared to 1996. Employee compensation and benefits expense
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increased $8.2 million or 7.7% which resulted from an increase in sales
professionals, higher compensation in professional investor clearing services
and research sales and an increase in general employment levels. Distribution
and fund administration expenses increased $2.9 million or 41.2% as a direct
result of increased average assets under management. Advertising and sales
promotion increased $2.2 million or 17.1% as a result of a national television
campaign to promote our brand name.
Net income before principal compensation increased $69.5 million or 30.4%,
to $298.7 million.
PRIVATE ASSET MANAGEMENT
JUNE 1999 COMPARED TO JUNE 1998. Private Asset Management achieved net
revenues after interest expense of $129.1 million for the six-month period ended
June 1999, an increase of $12.3 million or 10.5% compared to the same period in
1998. All major revenue components of this segment exhibited strong growth
during the period. Investment advisory fees increased to $79.6 million, an
increase of $7.0 million or 9.7% because of increased average assets under
management. Commissions increased to $48.0 million, an increase of $4.9 million
or 11.5% as a result of generally strong and volatile equity markets. Net
interest income increased $0.4 million or 31.5% to $1.5 million.
Operating expenses rose to $38.6 million, an increase of $2.3 million or
6.3% compared to the same period in 1998. This was primarily due to $1.1 million
in advertising, sales promotion and marketing, principally for a new print and
media campaign targeting our high net worth clients.
1998 COMPARED TO 1997. Private Asset Management achieved net revenues after
interest expense of $237.9 million for 1998, an increase of $39.5 million or
19.9% compared to 1997. Investment advisory fees increased to $145.6 million, an
increase of $28.8 million or 24.6% because of increased average assets under
management. Commissions increased to $89.7 million, an increase of $11.2 million
or 14.2% due to the increased volume of transactions.
Operating expenses rose to $73.1 million, an increase of $10.5 million or
16.7% compared to 1997. This was primarily due to an increase in employee
compensation and benefits of $4.6 million or 17.3%, principally for portfolio
managers and sales professionals. Information technology increased $1.0 million
or 23.4%, which was largely attributable to the development and implementation
of a new client accounting system. The allocation of indirect expenses, which
include general and administrative, increased $2.1 million or 7.7%.
1997 COMPARED TO 1996. Private Asset Management achieved net revenues after
interest expense of $198.4 million for 1997, an increase of $36.6 million or
22.6% compared to 1996. Investment advisory fees increased to $116.8 million, an
increase of $25.4 million or 27.8% because of increased average assets under
management. Commissions increased to $78.5 million, an increase of $10.3 million
or 15.1% due to the increased volume of transactions.
Operating expenses rose to $62.6 million, an increase of $5.3 million or
9.3% compared to 1996. Employee compensation and benefits remained relatively
stable, with an increase of only $0.8 million or 2.9%. In addition, other
expenses included clearing and execution which rose by $1.2 million or 17.9%,
due to increased transaction charges.
MUTUAL FUND AND INSTITUTIONAL
JUNE 1999 COMPARED TO JUNE 1998. Mutual Fund and Institutional achieved net
revenues after interest expense of $115.4 million for the six-month period ended
June 1999, a reduction of $17.7 million or 13.3% compared to the same period in
1998. Investment advisory and administrative fees decreased $11.8 million or
14.5% for mutual funds and $5.7 million or 14.3% for institutional as a result
of decreased average assets under management due to net asset withdrawals.
Operating expenses remained relatively stable, increasing by $0.4 million or
less than
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<PAGE>
1% to $59.3 million. Information technology and professional fees increased,
offset by a decrease in distribution and fund administration expenses.
1998 COMPARED TO 1997. Mutual Fund and Institutional achieved net revenues
after interest expense of $258.3 million, an increase of $27.5 million or 11.9%
compared to 1997. Mutual fund investment advisory and administrative fees
increased $24.5 million or 18.7% compared to 1997 due to higher average assets
under management, notwithstanding net asset withdrawals in the second half of
1998. Institutional investment advisory and administrative fees decreased $3.1
million or 3.9% compared to 1997 due to a decrease in average assets under
management. Commissions increased $6.1 million or 32.0% primarily from increased
transactions in the mutual fund business.
Operating expenses rose to $126.7 million, an increase of $23.6 million or
22.9% over 1997. Employee compensation and benefits increased $12.1 million or
31.5% because of the hiring of new portfolio managers, sales professionals and
information technology personnel. Advertising and sales promotion increased by
$10.8 million or 108.9%, as a result of a national television campaign to
promote our brand name. Distribution and fund administration expenses increased
$2.4 million or 23.9% to $12.4 million, as a result of increased average assets
under management.
1997 COMPARED TO 1996. Mutual Fund and Institutional achieved net revenues
after interest expense of $230.9 million, an increase of $45.4 million or 24.5%
compared to 1996 as a result of a substantial increase in average assets under
management. Both businesses in this segment exhibited strong net revenue growth
during the year, with investment advisory and administrative fees increasing
$37.3 million or 39.8% for Mutual Funds and $3.8 million or 5.0% for
Institutional. Commissions increased $3.9 million or 25.9% primarily from
increased transactions in the mutual fund business.
Operating expenses rose to $103.1 million, an increase of $13.4 million or
14.9% compared to 1996. Employee compensation and benefits increased $2.8
million or 7.9% due to general increases in employment levels. Distribution and
fund administration expenses increased $2.9 million or 41.2%, as a direct result
of increased average assets under management. Advertising and sales promotion
decreased $4.4 million or 30.7%. The allocation of indirect expenses, which
include general and administrative, increased $10.6 million or 52.2%.
PROFESSIONAL SECURITIES SERVICES.
JUNE 1999 COMPARED TO JUNE 1998. Professional Securities Services achieved
net revenues after interest expense of $38.8 million for the six-month period
ended June 1999, an increase of $3.0 million or 8.3% compared to the same period
in 1998. Commission income increased $1.6 million or 11.9% to $15.4 million.
This resulted from an increase in commission revenues from our professional
investor clearing services of $1.0 million or 17.4% and research sales
activities of $0.6 million or 8.1%. Trading revenues from our over-the-counter
market making activities increased by $1.1 million or 43.3%.
Operating expenses rose to $28.7 million, an increase of $7.7 million or
36.5% compared to 1998. Employee compensation and benefits increased $2.9
million or 42.7%. Trust services compensation increased $1.1 million or 98.6%
due to a significant increase in professional staff. We are investing in this
area in order to build for the future. Information technology increased $0.7
million or 32.7% due to initiatives in professional investor clearing services.
In addition, during the six-month period ended June 1999, we incurred interest
expense of $1.7 million in connection with the $50 million subordinated note
issued to NB Associates, LLC. During the same period in 1998, there was no
corresponding liability or expense.
1998 COMPARED TO 1997. Professional Securities Services achieved net
revenues after interest expense of $77.9 million for 1998, an increase of $4.6
million or 6.3% compared to 1997. Commission income increased
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$3.7 million or 13.7%. This resulted primarily from increases in professional
investor clearing services activities of $2.8 million or 24.7% and research
sales activities of $0.8 million or 5.3%. Clearance fees rose $3.0 million or
35.8% due to increased market activity. This was partially offset by a $2.5
million reduction in net interest income from our securities lending activities
of $0.7 million or 14.4% and the treasury management of overnight cash balances
of $1.8 million or 16.9%.
Operating expenses increased to $54.2 million for 1998, an increase of $16.1
million or 42.3% compared to 1997. Employee compensation and benefits increased
to $16.9 million, up $3.4 million or 24.8%, principally as a result of increases
in employment levels for the servicing of professional investor clearing
services clients and compensation for a corporate officer. Information
technology increased $1.4 million or 44.0% as a result of new initiatives in
professional investor clearing services. Also included in operating expenses
were the non-recurring charges of $4.1 million resulting from the proposed
initial public offering that was withdrawn due to market conditions.
1997 COMPARED TO 1996. Professional Securities Services achieved net
revenues after interest expense of $73.3 million for 1997, an increase of $4.4
million or 6.4% compared to 1996. Net interest income increased $4.8 million or
21.7% due to a $3.6 million or 50.8% increase on treasury management of
overnight cash balances. Commission income increased $1.0 million or 4.0%,
primarily from research sales. This was partially offset by a $2.5 million or
28.8% decrease in trading revenues from our over-the-counter market making
activities.
Operating expenses decreased to $38.1 million, down $1.9 million or 4.7%
compared to 1996 due to a decrease of $2.6 million in other corporate expenses.
This was partially offset by a $1.4 million or 11.6% increase in employee
compensation and benefits resulting from performance related payouts in
professional investor clearing services and research sales.
CAPITAL RESOURCES AND LIQUIDITY
Our investment advisory business does not require us to maintain significant
capital balances. However, as a result of our broker-dealer activities, our
balance sheet includes higher levels of assets and liabilities than is typical
for an investment adviser of our size. Our broker-dealer activities provide
financing, trade execution, clearing and custody services for clients of our
Private Asset Management, Mutual Fund and Institutional and Professional
Securities Services businesses.
Our financial condition is highly liquid with the significant majority of
our assets readily convertible to cash. Receivables from and payables to
brokers, dealers and clearing organizations represent either current open
transactions that settle within a few days or the activity of securities lending
that is collateralized and normally can be closed out within a few days.
Receivables from and payables to our clients arise in the normal course of
business in connection with cash and margin securities transactions. Client
receivables are secured by securities held as collateral.
We continuously analyze our liquidity and maintain lines of credit well in
excess of anticipated liquidity requirements. We have $410 million in lines of
credit, of which $150 million is committed. At June 30, 1999, $231 million of
the uncommitted, and $150 of the committed, lines of credit were unused and
available.
It is our policy to continuously monitor and evaluate the adequacy of our
capital. We have consistently maintained net capital in excess of the regulatory
requirements prescribed by the SEC and other regulatory authorities. At June 30,
1999, our regulatory net capital exceeded the minimum requirement by $102
million. We believe that our cash flow from operations and existing committed
and uncommitted lines of credit, as well as the net proceeds of the offerings,
will be more than adequate to meet our debt and other obligations as they come
due and anticipated capital requirements.
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SUBSEQUENT EVENTS
Immediately prior to the offerings, Neuberger Berman, LLC and Neuberger
Berman Management Inc. intend to distribute to their principals and stockholders
substantially all net income and dividends not previously distributed.
In connection with the offerings, we will record the following non-recurring
items in the fourth quarter of 1999:
- the initial irrevocable contribution of an estimated $140 million of
shares of common stock to the defined contribution plan (as described
under "Management--Executive Compensation--Defined Contribution Plan");
- a $10 million cash contribution to the Neuberger Berman Foundation (as
described under "Certain Relationships and Related Transactions--Neuberger
Berman Foundation");
- the recognition of a net tax asset of $64 million relating to these two
contributions; and
- $2 million in cash severance payments to several employees.
As a result, we expect to record a substantial pre-tax loss in the fourth
quarter of 1999.
On September 1, 1999, The Travelers Insurance Company loaned Neuberger
Berman, LLC $35 million pursuant to a subordinated promissory note. This amount
is payable on September 1, 2004. Interest accrues on the unpaid principal amount
of the loan at a floating rate adjusted quarterly based on the three-month LIBOR
rate plus 75 basis points and is payable quarterly. This loan was approved by
the New York Stock Exchange, and the unpaid principal amount is available to
Neuberger Berman, LLC in computing net capital under the SEC's net capital rule.
Under the subordinated loan agreement with Travelers, Neuberger Berman, LLC is
required to maintain minimum net capital of at least two and one-half times the
amount of net capital required under the SEC's net capital rule. This
requirement would have been $54 million as of June 30, 1999, which exceeded
minimum net capital by $32 million. The proceeds of the loan were used to retire
$35 million of the $50 million subordinated note held by NB Associates. See
"Certain Relationships and Related Transactions--The NB Associates Subordinated
Note".
YEAR 2000 READINESS DISCLOSURE
Neuberger Berman has recognized the need to upgrade, modify or replace
portions of our information technology systems in order to satisfy all Year 2000
issues. Many computer systems in use today were designed and developed using two
digits rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00". This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken.
In June 1997, we initiated a comprehensive Year 2000 project. This project
is based on a six-phase approach that includes: awareness, inventory,
assessment, remediation, testing and contingency planning. A Y2K committee meets
on a monthly basis to review progress of the project and coordinate Y2K
activities. The committee includes representatives from senior management,
information services, selected business units, internal audit and legal and
compliance.
We completed our inventory and assessment phases in September 1998. The
remediation of our technical infrastructure and internally developed systems was
completed in the first quarter of 1999.
We have tracked the progress of our key vendors, financial intermediaries
and trading counterparties throughout the course of our Year 2000 project. As
part of the inventory and assessment phases we attempted to identify and contact
vendors and business counterparties that present a risk of a Year 2000 adverse
impact. The responses received from these third parties have been evaluated as
they are received to determine risk potential and to determine what actions may
be required. Vendor responses included
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discussions of Year 2000 readiness of current products and/or services and
indicated, if upgrades or service enhancements were necessary, the cost of such
upgrades or enhancements and the date they would be available. Responses from
financial intermediaries and trading counterparties contained overviews of their
Year 2000 projects and status reports on assessment, code renovation, internal
and point-to-point testing and contingency planning. The depth at which we track
the progress of third parties is directly related to how important the third
parties are to us. The third parties that are critical to us indicated that they
have achieved or will achieve Year 2000 readiness on a timely basis.
Testing is the most critical phase of the Year 2000 project. The process may
require up to 50% of the time and resources available. Our approach has been to
first address our internal technology infrastructure and then integrate testing
with third parties. We completed internal testing in June 1999 and no Year 2000
problems were revealed that remain outstanding. We expect to complete external
testing in August 1999.
We have also participated in various industry-wide tests, such as the
"Streetwide" test coordinated by the Securities Industry Association in March
and April 1999 in which more than 400 firms participated. Other tests
coordinated by the Securities Industries Association in which we participated
included the Market Data Test, Securities Lending Test and the National
Securities Clearing Corporation testing for the Automated Customer Account
Transfer Service. Additionally, we participated in the Year 2000 testing
organized by the Futures Industry Association. In the Securities Industry
Association "Streetwide" test, we experienced no Year 2000 related problem with
our internal systems. We did experience one Year 2000 related problem with an
external vendor, the correction to which is being implemented. We encountered no
internal or external Year 2000 related problems which remain unresolved with any
of the other tests.
We substantially completed our contingency planning in March 1999, subject
to continuing review and revision of those plans. Our contingency plans are
designed to ensure the continued operation of the systems and functions
supporting our primary business processes if a Year 2000 problem occurs. We have
created a Coordination and Communication Center to manage the changeover weekend
from December 31, 1999 through January 3, 2000, as well as a detailed Event
Management Plan that lays out anticipated responses to specific system failures,
if any. We have arranged for critical technical employees and project managers
to be on site and on call during the changeover weekend. As of September 30,
1999, we will "freeze" our computer systems, thereby restricting changes to
programs and existing hardware. This is intended to stabilize our systems for
the upcoming date change. Finally, we plan to make additional electronic and
hard copy back-ups of critical data such as client and mutual fund shareholder
status and securities transactions.
We have incurred and expect to continue to incur expenses allocable to
internal staff, as well as costs for outside consultants, to complete the
remediation and testing of internally developed systems and the replacement and
testing of third-party products and services, including non-technology products
and services, in order to achieve Year 2000 compliance. We currently estimate
that these costs will total $3.7 million, of which approximately $3.2 million
has been spent to date. These estimates include the cost of technology personnel
and those non-technology personnel involved in our Year 2000 effort. The
remaining cost of our Year 2000 program is expected to be incurred in 1999 and
early 2000. The Year 2000 program costs will continue to be funded through
operating cash flow. These costs are expensed as incurred. We do not expect that
the costs associated with implementing our Year 2000 program will have a
material adverse effect on our results of operations, financial condition,
liquidity or capital resources.
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The costs of the Year 2000 program and the date on which we plan to complete
the Year 2000 modifications are based on current estimates, which reflect
numerous assumptions about future events, including the continued availability
of resources, the timing and effectiveness of third-party remediation plans and
other factors. We can give no assurance that these estimates will be achieved,
and actual results could differ materially from our plans. Specific factors that
might cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct relevant computer source codes and embedded chip technology, the
results of internal and external testing and the timeliness and effectiveness of
remediation efforts of third parties.
ACCOUNTING DEVELOPMENT
We intend to change our depreciation method for furniture and equipment
purchased subsequent to the third quarter of 1999 from various accelerated
methods to the straight line method of depreciation. The impact of this change
in accounting principle is not anticipated to have a material effect on our
financial condition or results of operations.
39
<PAGE>
BUSINESS
OVERVIEW
We are an independent investment advisory firm providing our clients with a
broad array of investment strategies and products. We were founded by Roy R.
Neuberger in 1939 to be a premier provider of investment products and services
to high net worth individuals. We have built upon the qualities that have made
us successful in the high net worth market to establish a strong presence in the
mutual fund and institutional marketplaces.
Our goal is to provide highly personalized service and superior investment
advice and returns to all of our clients. We believe that our dedication to
serving the individual needs of our clients distinguishes us from many of our
competitors. We have developed a reputation and recognized brand name for our
demonstrated commitment to these principles.
We seek to provide our clients with access to our investment products and
services through the distribution channel most appropriate to serve their needs.
Today, in addition to individuals and wealthy families, our clients include
corporations, insurance companies, pension funds, foundations and endowments.
Our principal business segments include:
- Private Asset Management;
- Mutual Fund and Institutional; and
- Professional Securities Services.
Our assets under management and net income before principal compensation
have grown through varying market conditions. From December 31, 1989 to June 30,
1999, our assets under management increased from $17.8 billion to $56.8 billion.
From December 31, 1989 to December 31, 1998, our net income before principal
compensation increased from $111.5 million to $320.1 million.
Since we derive our revenue principally from fees and commissions based on
our assets under management, we believe our net income before principal
compensation is more stable as compared to other financial institutions. In
addition, we believe our business has attractive margins since
- more than 75% of our assets under management are held in equity accounts,
which carry higher fees than fixed income accounts;
- approximately 58% of our net income before principal compensation is
derived from our higher-margin Private Asset Management business; and
- we have effectively leveraged our franchise and infrastructure to enhance
profitability by developing complementary businesses such as our
professional investor clearing services and by generating commission
revenue from recipients of our research (an activity that we refer to as
research sales).
We are committed to attracting and retaining the best people. In connection
with the offerings, we will make awards under our defined contribution plan to
substantially all of our employees other than principals. After the offerings
these employees will own approximately 8.5% of our common stock, and our
principals will own approximately 77.0%.
Our assets under management, net revenues after interest expense and net
income before principal compensation have grown in recent years. This growth is
shown by business segment on the following table:
40
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED DECEMBER MONTHS ENDED JUNE
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
ASSETS UNDER MANAGEMENT:
Private Asset Management.................... $ 7,349 $ 9,491 $ 12,050 $ 15,553 $ 17,905 $ 17,806 $ 20,504
Mutual Fund and Institutional
Mutual funds.............................. 7,314 11,814 15,312 21,184 21,263 24,267 20,834
Institutional............................. 12,819 15,751 15,610 15,227 14,748 15,377 13,551
Wrap fee.................................. 1,167 1,268 1,388 1,547 1,671 1,639 1,875
Total..................................... $ 28,649 $ 38,324 $ 44,360 $ 53,511 $ 55,587 $ 59,089 $ 56,764
(IN THOUSANDS)
NET REVENUES AFTER INTEREST EXPENSE:
Private Asset Management.................... $ 120,978 $ 135,155 $ 161,845 $ 198,421 $ 237,933 $ 116,807 $ 129,127
Mutual Fund and Institutional
Mutual funds.............................. 51,912 74,763 105,109 146,268 176,856 91,025 79,469
Institutional............................. 61,245 67,045 73,417 77,273 73,209 37,859 32,111
Wrap fee.................................. 7,067 6,452 6,902 7,311 8,279 4,297 3,869
Professional Securities Services............ 40,795 56,917 68,841 73,252 77,859 35,878 38,839
Total..................................... $ 281,997 $ 340,332 $ 416,114 $ 502,525 $ 574,136 $ 285,866 $ 283,415
(IN THOUSANDS)
NET INCOME BEFORE PRINCIPAL COMPENSATION: (1)
Private Asset Management.................... $ 76,546 $ 86,373 $ 104,557 $ 135,802 $ 164,833 $ 80,465 $ 90,491
Mutual Fund and Institutional............... 62,199 77,275 95,709 127,730 131,644 74,283 56,108
Professional Securities Services............ 12,230 22,444 28,860 35,134 23,618 14,880 10,172
Total..................................... $ 150,975 $ 186,092 $ 229,126 $ 298,666 $ 320,095 $ 169,628 $ 156,771
</TABLE>
- ------------------------
(1) Historically, we have distributed substantially all of our net income to our
principals as capital distributions and dividends. Principals who provided
services to Neuberger Berman mutual funds were also paid through
compensation expense. As a result, our earnings and compensation and
benefits expense have not fully reflected payments for services rendered by
our principals and understate the expected operating costs to be incurred by
us after the offerings. Following the offerings, Neuberger Berman Inc. will
fully reflect payments for services rendered by our principals in
compensation and benefits expense. For financial information that includes
pro forma compensation and benefits expense as if payments for services
rendered by our principals had been fully reflected, see "Pro Forma Combined
Financial Statements (Unaudited)".
OUR INVESTMENT PROCESS AND RESEARCH
We believe our investment ideas and in-house research conducted by our
portfolio managers and analysts differentiate us from our competitors. Our
nearly 100 portfolio managers generally base their decisions on fundamental
analysis, attempting to make knowledgeable judgments about the investment merits
of industry groups and, even more importantly, specific companies. Many of our
senior portfolio managers began their careers in securities research at
Neuberger Berman or with other investment management firms; several are former
heads of research at Neuberger Berman or elsewhere.
A centralized research department supports all of our investment
professionals. Organized by industry for the most part, these security analysts
are responsible for understanding developments within the companies and
industries they follow. To do this, they meet with senior managements of
companies they follow and interview customers and competitors. In some cases,
they employ specialized consultants, and develop earnings and cash flow
estimates. At present, there are 16 analysts in our Research Department,
supported by 12 research assistants. In addition to this centralized Research
Department, many of our investment groups employ dedicated analysts who focus on
41
<PAGE>
securities of particular interest to their specific investment approach. In
total, over 120 investment professionals cover 40 industries and over 1,000
companies.
We believe that the sharing of investment ideas across investment groups is
a key factor supporting our investment results. To this end, our analysts and
portfolio managers conducted more than 800 meetings with companies in our
offices in the 12 months ended June 30, 1999. These meetings serve as a
springboard for frequent discussions about individual securities throughout our
firm.
In addition, our portfolio managers and analysts have web-based access to a
comprehensive electronic investment library, called NBiPortal. We believe this
powerful support function further enables our investment professionals to
perform sophisticated and timely company and industry analysis.
PRIVATE ASSET MANAGEMENT
Neuberger Berman was founded as an investment firm for wealthy individuals.
The Private Asset Management business -- which provides asset management
services to individuals, wealthy families and smaller institutions that
generally have at least $500,000 to invest -- remains one of our principal
pursuits.
As of June 30, 1999, our Private Asset Management business managed $20.5
billion in assets in over 12,000 individual accounts, including assets managed
for clients of our three trust company subsidiaries. For the year ended December
31, 1998, our Private Asset Management business produced $237.9 million in net
revenues after interest expense, representing 41.4% of the firm's total net
revenues after interest expense. We generate significant commission revenue as
broker for almost all listed equity trades on behalf of our Private Asset
Management clients. The Private Asset Management assets under management grew at
a compound annual rate of 25.6% between December 31, 1994 and June 30, 1999.
The following table shows, for our Private Asset Management business, assets
under management, number of accounts and net revenues after interest expense:
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER JUNE
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
ASSETS UNDER MANAGEMENT....................... $ 7,349 $ 9,491 $ 12,050 $ 15,553 $ 17,905 $ 17,806 $ 20,504
Number of accounts............................ 8,278 8,865 9,555 10,446 11,482 11,091 12,161
(IN THOUSANDS)
NET REVENUES AFTER INTEREST EXPENSE:
Investment advisory and administrative
fees...................................... $ 67,005 $ 72,711 $ 91,423 $ 116,816 $ 145,578 $ 72,546 $ 79,587
Commissions................................. 52,203 60,555 68,209 78,518 89,705 43,082 48,026
Net interest income......................... 1,746 1,883 2,211 3,087 2,580 1,140 1,499
Other income................................ 24 6 2 -- 70 39 15
Total................................... $ 120,978 $ 135,155 $ 161,845 $ 198,421 $ 237,933 $ 116,807 $ 129,127
</TABLE>
EXPANSION OF OUR PRIVATE ASSET MANAGEMENT BUSINESS
We believe that the high net worth market offers significant growth
opportunities for us. According to the Merrill Lynch/Gemini Consulting World
Wealth Report 1999, the high net worth market in North American, defined as
individuals with more than $1 million in liquid financial assets, totaled $6.9
trillion in 1998 and is expected to grow at an annual compound growth rate of
9.4% through 2003 to $10.8 trillion. This large and growing market is generally
fragmented, regionalized and underpenetrated by independent portfolio managers
like ourselves that focus primarily on personalized asset management. We believe
that our Private Asset Management business is well positioned to attract and
retain clients in this market because of our respected brand name, our ability
to meet the individual needs of our Private Asset Management clients and our
ability to provide estate and financial
42
<PAGE>
planning, trust administration and fiduciary services through our trust company
operations.
We currently obtain new clients from three sources:
TRADITIONAL MARKETING EFFORTS. Traditionally, the Private Asset Management
business generates new business through referrals from existing clients and
marketing efforts by individual portfolio managers.
DEDICATED NATIONAL SALES AND CLIENT SERVICE FORCE. We continue to expand
our dedicated Private Asset Management sales group, which accounted for $290
million in new assets under management in the first half of 1999.
- Formed in 1986, this group currently consists of 26 sales professionals
working in New York and regional offices in Atlanta, Boston, Chicago,
Dallas, Los Angeles, Miami, San Francisco, and West Palm Beach, with 15
sales professionals and five regional offices added in the last three
years. We expect to add five new regional offices by the end of the year
2000, in Houston, Philadelphia, west Florida, Seattle and the Washington,
D.C. area. We also expect to increase the number of sales professionals by
more than 50%, to 40 sales professionals, by the end of the year 2000. Our
sales professionals average industry experience of 16 years and many have
advanced business, accounting or law degrees.
- The primary focus of this sales group is to build long-term relationships
based on continuity and trust. Turnover is relatively low among the sales
professionals, resulting in relationships with the same clients covering
many years.
- We believe that channeling sales and client services through our dedicated
sales group has increased client acquisition capabilities, strengthened
existing client relationships and further promoted our brand name among
the professional network of high net worth advisors and has enabled the
portfolio managers to have more time to focus on managing the accounts of
existing clients.
ATTRACTING INVESTMENT PROFESSIONALS. We actively seek to identify, evaluate
and attract experienced individual investment professionals and small investment
management groups to join our firm. We can provide these professionals and
groups research, trust and custody services and back office clearing
capabilities. This year, through July 1999, three investment teams have joined
our firm. They have added approximately $200 million in assets under management
and, based upon their relationships with clients, are expected to convert to
assets under management, by year end, an additional $700 million in client
assets now receiving Neuberger Berman custody and brokerage services. By adding
investment teams, we will expand our investment capabilities and increase our
assets under management and related net income.
SERVICES TO PRIVATE ASSET MANAGEMENT CLIENTS
CUSTOMIZED INVESTMENT ADVISORY SERVICES. We believe that our dedication to
serving the individual needs of clients distinguishes us from many of our
competitors. Through close individual contact with high net worth clients, our
portfolio managers can tailor individual portfolios specifically to address
clients' investment goals, income requirements, capital preservation needs, tax
objectives and social considerations. We also offer clients estate planning,
trust administration and safe-keeping of investment securities. In addition to
standard SIPC insurance coverage, supplemental coverage of up to $100 million
per client is provided for all clients whose accounts are carried by the firm.
We believe that we have excellent relationships with our Private Asset
Management clients; this business is marked by long-term client loyalty,
sometimes spanning several generations.
Recently, we expanded the number of clients who use more than one portfolio
manager at our firm. We believe that our ability to offer portfolio managers
with different money management styles gives us a distinct advantage in
significantly reducing the need for clients to diversify their assets among more
43
<PAGE>
than one investment management firm. As of June 30, 1999, there were over 200
Private Asset Management relationships using two or more portfolio managers with
different investment styles at the firm.
TRUST COMPANIES. Through our three trust companies in New York, Delaware
and Florida, we provide an integrated approach to wealth management through
estate, income, financial and retirement planning, trust administration,
fiduciary and other services to our clients nationally. The mission of our trust
companies is to win and retain individuals' trust and confidence so that they
commit major aspects of the management and administration of their family's,
company's, or employees' wealth to our trust companies over decades. We believe
that our ability to offer trust and custody services to our Private Asset
Management clients increases the firm's value to them. By helping attract and
retain clients, we expect that our trust companies will contribute to the
stability of our relationships over time.
To accomplish this mission, the trust companies offer independent advice,
fiduciary and planning talent and experience, customized services and account
structures, access to our many portfolio managers, and the ability to combine
recordkeeping of those investment portfolios with portfolios managed by outside
managers. They provide specialized services designed to address the needs of
clients:
- HIGH NET WORTH INDIVIDUALS. The trust companies provide unbiased advice on
tax planning and investment policy to high net worth individuals, wealthy
families and family offices, combined with multijurisdictional trust,
partnership and estate administration services. They also provide
oversight, performance measurement and consolidated statements of
investments managed by Neuberger Berman and non-Neuberger Berman portfolio
managers.
- FOR PROFIT INSTITUTIONS. The trust companies deliver flexible, qualified
and nonqualified employee benefit plan trustee services to corporations
and other for profit institutions.
- CHARITIES. The trust companies offer custom-made planned giving program
investment and administration services to charities.
The trust companies obtain their clients from our existing client base, the
Private Asset Management sales force and the trust companies' own sales efforts.
We expect to open trust companies and offices within the next several years in
certain states where Private Asset Management offices are either currently open
or planned, such as Texas and California.
MUTUAL FUND AND INSTITUTIONAL
Our Mutual Fund and Institutional business provides advisory services to
mutual funds, institutional clients and wrap fee programs. The Mutual Fund and
Institutional business offers a wide range of investment products including
large-cap, mid-cap and small-cap equity products, incorporating value-oriented
or growth-oriented investment philosophies, as well as international and
socially responsive investing. This business segment also offers balanced, fixed
income and money market products.
44
<PAGE>
The following table shows, for our Mutual Fund and Institutional business,
assets under management and net revenues after interest expense:
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED DECEMBER MONTHS ENDED JUNE
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS UNDER MANAGEMENT:
Mutual funds................................ $ 7,314 $ 11,814 $ 15,312 $ 21,184 $ 21,263 $ 24,267 $ 20,834
Institutional............................... 12,819 15,751 15,610 15,227 14,748 15,377 13,551
Wrap fee.................................... 1,167 1,268 1,388 1,547 1,671 1,639 1,875
Total..................................... $ 21,300 $ 28,833 $ 32,310 $ 37,958 $ 37,682 $ 41,283 $ 36,260
(IN THOUSANDS)
NET REVENUES AFTER INTEREST EXPENSE:
Investment advisory and administrative
fees...................................... $ 109,481 $ 135,179 $ 169,326 $ 210,376 $ 231,792 $ 121,551 $ 104,038
Commissions................................. 10,388 12,350 15,260 19,205 25,352 11,018 10,838
Net interest income......................... 32 46 28 18 13 5 11
Other income................................ 323 685 814 1,253 1,187 607 562
Total..................................... $ 120,224 $ 148,260 $ 185,428 $ 230,852 $ 258,344 $ 133,181 $ 115,449
</TABLE>
MUTUAL FUND MANAGEMENT
In 1950, Neuberger Berman organized one of the first no load mutual funds in
the United States. As of June 30, 1999, we managed $20.8 billion in mutual fund
assets invested in our 41 Neuberger Berman funds based on 23 separate investment
portfolios that span the entire range of the firm's investment strategies, and
we advised or subadvised 15 mutual funds sponsored by third parties. The assets
under management in the Neuberger Berman funds and the advised or subadvised
funds grew at a compound annual rate of 26.2% between December 31, 1994 and June
30, 1999.
The following table shows assets under management for the Neuberger Berman
funds and the funds sponsored by third parties that are advised or subadvised by
Neuberger Berman, as well as sales of fund shares (net of redemptions) for the
Neuberger Berman funds:
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED DECEMBER MONTHS ENDED JUNE
--------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS UNDER MANAGEMENT:
Equity funds...................... $ 5,471 $ 9,772 $ 13,282 $ 19,097 $ 18,599 $ 21,808 $ 17,880
Balanced funds.................... 179 203 173 162 178 180 164
Fixed income funds................ 933 953 809 789 858 825 805
Money market funds................ 731 886 1,048 1,136 1,628 1,454 1,985
Total........................... $ 7,314 $ 11,814 $ 15,312 $ 21,184 $ 21,263 $ 24,267 $ 20,834
(IN MILLIONS)
NET NEW SALES OF FUND SHARES........ $ 699 $ 2,187 $ 1,590 $ 2,419 $ (788) $ 1,031 $ (2,333)
</TABLE>
S&P 500 returns exceeded 20% per year during each of 1995, 1996, 1997 and
1998. This extraordinary performance led to rapid growth for the mutual fund
industry in general and for Neuberger Berman in particular. Throughout this
period, however, growth stocks generally outperformed value stocks and large
capitalization stocks generally outperformed medium and small capitalization
stocks. These factors were especially pronounced in 1998. As a result, new
investments in mutual funds flowed increasingly into large capitalization growth
stock funds and large capitalization index funds that attempted to match the
performance of the major market averages. Given our primary focus on value-style
mutual funds, this trend, which continued during the first half of 1999, has
been unfavorable for us.
Specifically, Neuberger Berman Guardian Portfolio, a large capitalization
value fund and our largest mutual fund portfolio, performed poorly relative to
other value funds from December 31, 1995 through September 30,
45
<PAGE>
1998 and significantly underperformed the S&P 500 and large capitalization
growth styles in 1998.
At December 31, 1995, Neuberger Berman Guardian Portfolio had assets of $5.3
billion, representing 45% of Neuberger Berman mutual fund assets, and at June
30, 1999 had assets of $5.5 billion, representing 26% of Neuberger Berman mutual
fund assets. In addition, Neuberger Berman Partners Portfolio and Neuberger
Berman Genesis Portfolio, which each had produced favorable returns in 1996 and
1997, had below-average years in 1998.
These factors resulted in a loss of assets under management by our mutual
fund business beginning in mid-1998. The sharp downturn in the stock market in
the late summer and fall of 1998 accelerated these outflows. In response, we
have added several experienced portfolio managers to our existing staff and
broadened our mutual fund product line as follows:
- In September 1998, we hired a seasoned portfolio manager with 17 years of
investment experience, including six years managing a large capitalization
value fund, to co-manage Neuberger Berman Guardian Portfolio, which had
been most severely hit by net outflows. Since the beginning of the fourth
quarter 1998, the performance of this portfolio has improved
significantly, and its volatility has decreased.
- Another portfolio manager with 17 years of investment experience joined
the mid-cap value group. He and two other portfolio managers co-manage
Neuberger Berman Partners Portfolio, which has performed well over the
nine months ended June 30, 1999. This team also manages Neuberger Berman
Regency Portfolio, a mid-cap value mutual fund product launched in June
1999.
- A third seasoned portfolio manager joined our growth equity group in
Boston, where he co-manages Neuberger Berman Millennium Portfolio. That
product, which began operations in October 1998, has expanded our product
line in the small-cap growth area, and has delivered strong performance.
We also continue to add analytical strength to our growth team in Boston.
The Neuberger Berman fund shareholders appear to have recognized these
changes, and the level of mutual fund share redemptions has slowed considerably.
EXPANSION OF THE MUTUAL FUND BUSINESS. Our core strategy is to increase
mutual fund assets under management. We are focused on targeting different
segments of the investor population and offering products and services specific
to their needs. We will continue to introduce new product offerings to meet the
needs of our mutual fund shareholder base. For example, we filed a registration
statement for a large-cap growth fund in August 1999, and we expect to launch
the fund by year end. Furthermore, we will continue to promote our brand name
through national advertising and promotional activities to reach new mutual fund
shareholders.
Neuberger Berman fund shares are made available to investors through
multiple channels and strategic alliances.
- DIRECT SALES. Neuberger Berman funds have traditionally been sold directly
to shareholders, without a sales load. Fund shares are marketed through
television and print advertising and through direct mail solicitations
principally to existing shareholders.
- DEFINED CONTRIBUTION PLANS. As of June 30, 1999, we had strategic
alliances with 77 administrators of defined contribution plans (such as
401(k), 403(b) and nonqualified deferred compensation plans). These
alliances allow Neuberger Berman, as investment adviser, and these
administrators, as recordkeepers and plan participant service providers,
to perform the task each party is best suited to carry out. The Neuberger
Berman funds have experienced significant growth through these alliances
in recent years without capital investment by us for the development and
maintenance of these
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<PAGE>
administrative services. Our defined contribution plan assets under
management in mutual funds grew at a compound annual rate of 40.1% from
$1.1 billion at December 31, 1994 to $5.0 billion at June 30, 1999.
- VARIABLE INSURANCE PRODUCTS. As of June 30, 1999, we also had
relationships with 38 insurance companies that offer variable annuity and
variable life insurance products that may be invested, at the direction of
policy holders, in Neuberger Berman funds. These relationships included
five of the top ten sellers of variable annuities in 1998. The amount
invested directly in Neuberger Berman funds that provide investment
options for variable insurance products grew at a compound annual rate of
22.1% from $900 million at December 31, 1994 to $2.2 billion at June 30,
1999.
- MUTUAL FUND SUPERMARKETS. Neuberger Berman was at the forefront of
participating in networks for making mutual fund shares available through
mutual fund supermarkets. Neuberger Berman fund shares are currently made
available through 14 such services as of June 30, 1999. These services
offer investors the opportunity to invest through a single brokerage
account in a broad range of mutual funds sponsored by a variety of asset
management firms.
- INTERNET SALES. Through our Internet site, mutual fund investors can
access account information and buy, sell and exchange Neuberger Berman
fund shares. Our Internet site also has Neuberger Berman fund prospectuses
and applications, daily share prices, performance, articles and
educational materials for mutual fund investors. A portion of the Internet
site contains information for investment professionals.
- OTHER INTERMEDIARIES. As of June 30, 1999, Neuberger Berman fund shares
were also sold through 35 broker-dealers and 23 banks.
In our strategic alliances with these third parties, we generally pay the
third parties for recordkeeping, sub-accounting or other services that they
perform with respect to assets that are invested, either directly or indirectly,
in the Neuberger Berman Funds.
ADDITIONAL SERVICES TO MUTUAL FUNDS. We provide a range of additional
services to our own Neuberger Berman funds, as well as to mutual funds sponsored
by third parties.
- SUB-ADVISORY SERVICES. We began providing subadvisory services to mutual
funds that are managed or sponsored by third parties in 1994. Since
entering this business, the assets under management that we subadvise have
grown to $1.7 billion. From May 1998 through June 30, 1999, we became
subadviser to ten new funds. Of these new funds, three were retail load
funds, which provide us with the opportunity to access new distribution
channels. Our institutional sales force is focusing on subadvisory
services as a potential area of continued growth.
- ADMINISTRATIVE AND BROKERAGE SERVICES. In addition to investment advisory
and sub-advisory fees, we also generate income from administrative and
service fees for accounting services, general administration of mutual
funds (such as coordinating board meetings, compliance programs and
prospectus and semi-annual report production) and shareholder services.
Also, approximately 47% of the commissions paid by the Neuberger Berman
funds for the six months ended June 30, 1999 were paid to us for executing
listed equity trades as broker.
SERVICES TO AND COMMUNICATIONS WITH MUTUAL FUND INVESTORS. We continue to
take steps to enhance the quality and range of services provided to our mutual
fund investors.
- FUND ADVISORY SERVICE. We launched this service, which is designed for the
affluent shareholder/prospect base and the retirement market, in July
1999. This nondiscretionary investment advisory program offers
professional advice to
47
<PAGE>
mutual fund investors seeking to build and monitor a customized portfolio
of mutual funds from well-known fund groups, including Neuberger Berman
funds and mutual funds sponsored by third parties. It also provides these
investors consolidated statements, "one-stop" transactions and a variety
of mutual fund investment options. We intend to market this service
through our internal mutual fund shareholder base, intra-company client
referrals, advertising, Internet and public relations efforts.
- SHAREHOLDER COMMUNICATIONS. The firm recently redesigned and simplified
the Neuberger Berman fund prospectuses and unified its corporate identity
across our mutual fund distribution channels. We intend next to redesign
and simplify our mutual fund annual reports, newsletters and account
applications in order to communicate more effectively with our retail
shareholders.
- CALL CENTER TECHNOLOGY. Shareholder service has recently been enhanced by
call center technology that equips shareholder servicing representatives
with a suite of integrated applications. These applications are designed
to permit our representatives to process transactions more efficiently,
thereby increasing their productivity and shareholder satisfaction. These
technological enhancements will provide comprehensive information on our
shareholders, enabling our shareholder servicing representatives to better
address the needs of the caller and to identify potential opportunities to
sell additional mutual fund shares.
MASTER-FEEDER STRUCTURE. The Neuberger Berman funds are organized in a
master-feeder structure in which, as of June 30, 1999, shares of 41 feeder
funds, invested in 23 master funds, were sold to investors. Through this
structure, one or more feeder funds invest all of their assets in a master fund,
which, in turn, invests in a single portfolio of securities. Each feeder fund
may be adapted through separate contractual arrangements to address the
particular distribution, administration or other services requirements that may
be appropriate for different groups of investors. This structure allows us to
achieve certain economies of scale, operating efficiencies and marketing
flexibility. The diagram below shows the master/feeder structure for certain
Neuberger Berman fund equity products, and the additional channels now available
compared to our historical dependence on direct sales of our mutual funds.
NEUBERGER BERMAN MASTER/FEEDER STRUCTURE
(EXAMPLE USING CERTAIN EQUITY PRODUCTS):
[LOGO]
INSTITUTIONAL ASSET MANAGEMENT
Neuberger Berman manages domestic, international and global equity,
balanced, fixed income and cash management separate account portfolios for over
250 U.S. institutional clients, including but not limited to:
- defined benefit and defined contribution plans for corporations and
municipalities;
- Taft-Hartley plans;
- insurance companies;
- endowments and foundations; and
- hospital and health care organizations.
48
<PAGE>
The following table shows, for our institutional asset management business,
assets under management and number of accounts:
<TABLE>
<CAPTION>
AS OF THE
SIX MONTHS ENDED
AS OF THE YEAR ENDED DECEMBER JUNE
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS UNDER MANAGEMENT: (1)
Equity............................................ $ 5,904 $ 7,512 $ 8,162 $ 9,113 $ 7,798 $ 8,838 $ 7,385
Fixed income...................................... 4,076 6,066 5,250 5,161 5,988 5,494 4,884
Cash management................................... 2,839 2,173 2,198 953 962 1,045 1,282
Total......................................... $ 12,819 $ 15,751 $ 15,610 $ 15,227 $ 14,748 $ 15,377 $ 13,551
Number of accounts.................................... 459 486 471 498 492 510 491
</TABLE>
- ------------------------
(1) Balanced accounts are reflected in their equity and fixed income components.
STRATEGIES FOR THE INSTITUTIONAL ASSET MANAGEMENT BUSINESS. Our
institutional equity accounts are predominantly invested in value stocks. The
pronounced outperformance of growth stocks in 1998, coupled with some managed
accounts that underperformed value benchmarks, has led to a loss of assets.
Nonetheless, we believe that our strategy of diversifying our product line,
coordinating our selling efforts and separating our direct sales and client
servicing teams has positioned the firm for future growth in institutional asset
management.
- DIVERSIFICATION OF INVESTMENT STYLES AND EXPANDED SALES THROUGH
CONSULTANTS. A significant portion of our institutional accounts is
attributable to relationships with pension consulting firms. These
consultants typically evaluate investment advisers based on their
classification of investment styles which generally include various
methods of equity investing and market capitalization ranges. We have
diversified the investment styles of our advisory services offered to
institutional investors, and we currently offer equity products employing
small-cap, mid-cap and large-cap value investing styles, and within the
past two years have added small-cap and mid-cap growth investing styles.
We entered the fixed income business in 1983. We manage fixed income
accounts using several different investment strategies for our clients,
including cash management portfolios, limited maturity portfolios,
municipal bonds, broad investment grade portfolios, and opportunistic core
and international portfolios. We have recently added a high yield
capability. As a stand-alone business the fixed income group adds a degree
of stability and diversification to our equity assets. Performance for
many of our strategies has been extremely competitive. Cross-selling
efforts between our fixed income and equity capabilities have helped us
attract and retain clients.
There is generally a lead time between the development of a particular
investment capability and its acceptance and subsequent recommendations by
consultants. Since certain capabilities, including growth equity and high
yield fixed-income, have been introduced to consultants only recently, we
believe that sales may increase as these capabilities become recognized
and accepted by consultants. Since January 1, 1998, we added accounts from
institutional investors that were advised by a total of 16 pension
consulting firms.
- COORDINATED DIRECT SELLING EFFORTS. Our institutional sales group pursues
an intensive direct calling effort focused on plan sponsors. These sales
efforts to institutional investors have traditionally been pursued
independently of our sales activities related to the Neuberger
49
<PAGE>
Berman funds. Because institutional investors, particularly defined
contribution plans, are now an important source of sales by mutual funds,
we have coordinated previously separate sales activities for institutional
and mutual fund investors under common leadership.
- SEPARATION OF SALES AND CLIENT SERVICING TEAMS. In addition, we have
recently separated our institutional sales team from our client servicing
team. As third parties become a more significant part of the mutual fund
business, we have established a separate client servicing team aimed at
direct contact with the ultimate investor. We believe that this separation
of individual responsibility will enhance our abilities both to increase
the sales of an expanded product line and to better service our clients.
TRUST SERVICES. Our trust company subsidiaries enable us to provide a
pooled investment product which may be attractive to certain clients. In
addition, these subsidiaries provide corporate retirement plan trustee services
including investment of assets, transmittal of trust information to
recordkeepers and plan sponsors, and distribution of funds. Services are also
provided to non-profit organizations for 403(b) and other retirement plans.
BROKERAGE. Approximately 44% of the commissions paid by institutional
clients for the six months ended June 30, 1999 were paid to Neuberger Berman for
executing listed equity trades as broker.
WRAP FEE MANAGEMENT
Neuberger Berman acts as investment adviser to more than 5,500 accounts
through nine wrap fee programs sponsored by third party banks and brokerage
firms. Wrap fee programs -- which are designed to meet the needs of individuals
and smaller institutions -- offer comprehensive investment management services
under a single fee structure covering all charges, including investment
management, brokerage, custody, recordkeeping and reporting.
Prior to 1996, our participation in wrap fee programs was limited primarily
to providing fixed income and balanced products in programs with Merrill Lynch
and other sponsors. In 1997, we added Morgan Stanley Dean Witter to our existing
relationships and in 1998, joined the fiduciary services wrap program of Salomon
Smith Barney. As a result, we now have relationships with three of the four
largest sponsors of wrap fee programs and have begun to offer through these wrap
fee programs a range of equity products, including mid-cap and large-cap value
products and mid-cap growth products. We believe that these developments offer
the opportunity for significant growth through increased participation in wrap
fee programs. We maintain a national sales and service force organized
specifically for these programs.
The following table shows, for our wrap fee business, assets under
management and number of accounts:
<TABLE>
<CAPTION>
AS OF THE
SIX
MONTHS
ENDED
AS OF THE YEAR ENDED DECEMBER JUNE
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) 1994 1995 1996 1997 1998 1998
- -------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
ASSETS UNDER MANAGEMENT:
Equity.................................................... $ 9 $ 36 $ 126 $ 255 $ 389 $ 371
Balanced.................................................. 623 688 725 775 674 747
Fixed income.............................................. 535 544 537 517 608 521
Total................................................. $ 1,167 $ 1,268 $ 1,388 $ 1,547 $ 1,671 $ 1,639
Number of accounts............................................ 4,918 4,511 4,685 4,842 5,325 5,268
<CAPTION>
<S> <C>
(IN MILLIONS) 1999
- -------------------------------------------------------------- ---------
ASSETS UNDER MANAGEMENT:
Equity.................................................... $ 491
Balanced.................................................. 639
Fixed income.............................................. 745
Total................................................. $ 1,875
Number of accounts............................................ 5,567
</TABLE>
50
<PAGE>
PROFESSIONAL SECURITIES SERVICES
Neuberger Berman generates additional income by marketing services to third
party investment advisers and professional investors. These services include
professional investor clearing services, research sales, market maker trading
and trust services. Because these services are based upon the capabilities and
resources developed for our other asset management businesses, we can generally
provide these services at modest incremental cost.
The net revenue after interest expense for the Professional Securities
Services business for the year ended December 31, 1998 was $77.9 million. This
is made up of professional investor clearing services, 53%, research sales, 24%,
and other activities, 23%. Net revenue after interest expense for the six months
ended June 30, 1999 was $38.8 million in total. This is comprised of
professional investor clearing services, 52%, research sales, 27%, and other
activities, 21%.
PROFESSIONAL INVESTOR CLEARING SERVICES. Neuberger Berman has been providing
professional investor clearing services for over 30 years. As of June 30, 1999,
Neuberger Berman provided prime brokerage to 48 private investment partnerships,
registered investment advisers and family offices and correspondent clearing
services to 12 introducing brokers.
- These services include trade execution, custody, clearance and settlement,
margin financing and the borrowing of securities to meet short sale
obligations, portfolio reporting and consulting advice regarding
communications and information technology required to operate a small
financial concern. We also provide certain clients use of a fully-equipped
Neuberger Berman office facility.
- These services are actively marketed through select market channels. We
also seek to cross-sell certain of the firm's other services, including
research sales and trust and custody services.
These services resulted in net revenues after interest expense of $41.3
million for the year ended December 31, 1998 and $20.1 million for the six
months ended June 30, 1999. These net revenues consisted primarily of
commissions, clearance fees and net interest income.
RESEARCH SALES. Our centralized research department regularly prepares and
updates research reports for our Private Asset Management and our Mutual Fund
and Institutional businesses. Twelve sales professionals in our research sales
group make these research reports available to almost 200 third-party investment
managers. If these third-party managers decide to buy or sell securities based
on this research, they usually place their trades through us, although they have
no obligation to do so. Our research sales group includes seven traders who
execute these brokerage transactions. Through our corporate relationships, we
participate in public offerings of securities (we do not participate in such
offerings, however, for our advisory clients).
These efforts resulted in commissions and other income of $19.0 million for
the year ended December 31, 1998 and $10.5 million for the six months ended June
30, 1999.
OTHER ACTIVITIES. Professional Securities Services also includes the
following additional activities:
- As of June 30, 1999, we acted as market maker for almost 200 securities
traded on the over-the-counter market, buying or selling such securities
as principal. We impose strict limits on our trading desk and individual
traders to limit risk. Our monthly average net long positions in our
market making activities were $1.4 million during the year ended December
31, 1998 and $1.8 million during the six months ended June 30, 1999.
- We provide custody and record keeping services to clients of our three
trust companies.
- We generate additional net revenue after interest expense by managing cash
51
<PAGE>
available to us as a result of our broker-dealer activities.
These activities resulted in principal transactions in securities,
administrative fees and net interest income of $17.6 million for the year ended
December 31, 1998 and $8.2 million for the six months ended June 30, 1999.
The following table shows our net revenues after interest expense derived
from our Professional Securities Services business:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE YEAR ENDED DECEMBER ENDED JUNE
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES AFTER INTEREST EXPENSE:
Administrative fees............................... $ -- $ -- $ 26 $ 706 $ 1,468 $ 304 $ 773
Commissions....................................... 20,640 23,498 26,152 27,188 30,912 13,745 15,384
Net interest income............................... 11,473 14,495 21,891 26,645 24,858 12,513 10,076
Clearance fees.................................... 5,925 7,893 8,152 8,332 11,311 4,886 5,214
Other income...................................... 2,757 11,031 12,620 10,381 9,310 4,430 7,392
Total......................................... $ 40,795 $ 56,917 $ 68,841 $ 73,252 $ 77,859 $ 35,878 $ 38,839
</TABLE>
INTERNET STRATEGY
We view Internet technology and electronic commerce as powerful forces that
will create new opportunities to enhance our existing lines of business as well
as develop new business opportunities for the firm. At the present time, our
website delivers critical information and account services to our varied client
base. For example, our direct mutual fund clients have the ability to query
their account, conduct transactions, obtain timely fund data and calculate
hypothetical plans involving investing for college and retirement. Our
institutional clients and intermediaries have password secured areas where
research information, quarterly portfolio commentaries and daily account
information can be obtained.
INFORMATION TECHNOLOGY
Technology plays a vital role in the initiatives of our various businesses.
We are firmly committed to the ongoing use of technology throughout our
organization, whether developed internally or purchased from quality vendors.
Our Information Services department has grown to comprise more than 10% of our
employees as of June 30, 1999. Many significant systems and software have been
deployed over the years. We have developed a staff with depth and a valuable
understanding of our businesses. Our mission is to provide quality, responsive,
information and technological support for services that can be broadly
categorized as:
- enhancing client service;
- enabling informed money management decisions; and
- facilitating overall efficiency and control.
We are constantly working closely with our portfolio managers to provide
information that can be tailored to meet the needs of a diverse client base.
Over the years many systems have been purchased or developed enabling our
portfolio managers to make informed decisions. Working closely with a major
market data vendor, we were one of the first firms to enable portfolio managers
to have secure access to their accounts and market data information, on a real
time basis, while traveling away from the office. We have just finished
replacing our physical research library with a gateway on our intranet internal
website, called NBiPortal. The customizable application enables our portfolio
managers and research staff to obtain individual security profiles, opinions,
analyses, message boards, regulatory filings and other information from over 100
Internet sites.
In addition, we have enhanced our mutual fund call center technology to
equip our shareholder servicing representatives with integrated applications
that are expected to
52
<PAGE>
enhance productivity and shareholder satisfaction.
Technology has been a key factor in allowing certain businesses of Neuberger
Berman to grow efficiently. For example, our back office clearing operations are
now processing more than twice the number of trades per year processed in 1992
with minimal staff additions.
COMPETITION
The investment management business is intensely competitive, with
competition based on a variety of factors including:
- the range of products offered;
- brand recognition and business reputation;
- investment performance;
- the continuity of client relationships and of assets under management;
- the quality of service provided to clients;
- the level of fees and commissions charged for services in response to
competitive conditions;
- the level of commissions and other compensation paid;
- the level of expenses paid to financial intermediaries related to
administration and/or distribution; and
- financial strength.
We compete in all aspects of our business with a large number of investment
management firms, commercial banks, investment banks, broker-dealers, insurance
companies and other financial institutions. Several factors serve to increase
our competitive risks:
- A number of our competitors have greater capital and other resources, and
offer more comprehensive lines of products and services, than we do.
- The recent trend toward consolidation within the investment management
industry and the securities industry in general has served to increase the
size and strength of a number of our competitors.
- There are relatively few barriers to entry by new investment management
firms, and the successful efforts of new entrants into our various lines
of business, including major banks, insurance companies and other
financial institutions, have resulted in increased competition.
- Our competitors are seeking to expand market share in the products and
services we offer or intend to offer in the future.
- The financial intermediaries who make available certain of our products
also make available numerous competing products, including products
sponsored by the firms that employ such financial intermediaries.
We expect that other industry participants will from time to time seek to
recruit our investment professionals and other employees away from us. The loss
of key professionals could have a material adverse effect on us.
At the end of 1998, there were approximately 7,500 registered open-end
investment companies, of varying sizes and investment policies. The shares of
such funds are currently being offered to the public both on a load basis (that
is, subject to a sales commission) and no-load basis (that is, not subject to a
sales commission). Competition for sales of mutual fund shares is influenced by
various factors, including:
- investment performance in terms of attaining the stated objectives of the
particular funds and in terms of fund yields and total returns;
- advertising and sales promotional efforts; and
- type and quality of services.
In addition to competition from other mutual fund managers and investment
advisers, Neuberger Berman and the mutual fund industry generally compete with
investment alternatives offered by insurance
53
<PAGE>
companies, commercial banks, broker-dealers and other financial institutions.
REGULATION
Our business and the securities industry in general are subject to extensive
regulation in the United States at both the federal and state level, as well as
by self-regulatory organizations. The securities and commodities industry is one
of the nation's most extensively regulated industries. The SEC is responsible
for carrying out the federal securities laws and serves as a supervisory body
for all investment advisers to mutual funds, as well as for national securities
exchanges and associations. The regulation of broker-dealers has to a large
extent been delegated by the federal securities laws to self-regulatory
organizations. These self-regulatory organizations include all the national
securities and commodities exchanges and the NASD. Subject to approval by the
SEC and the Commodity Futures Trading Commission, the self-regulatory
organizations adopt rules that govern the industry and conduct periodic
examinations of the operations of Neuberger Berman, LLC and Neuberger Berman
Management Inc. In addition, these subsidiaries are subject to regulation under
the laws of the 50 states, the District of Columbia and certain foreign
countries in which they are registered to conduct securities, investment
banking, insurance or commodities business.
Both Neuberger Berman, LLC and Neuberger Berman Management Inc. are
registered as investment advisers with the SEC. As registered advisers, each is
subject to the requirements of the Investment Advisers Act, and the SEC's
regulations thereunder. Such requirements relate to, among other things,
recordkeeping and reporting requirements, disclosure requirements, limitations
on agency cross and principal transactions between an adviser and advisory
clients, as well as general anti-fraud prohibitions. Moreover, both Neuberger
Berman, LLC and Neuberger Berman Management Inc. and the mutual funds managed by
Neuberger Berman are subject to the Investment Company Act and the SEC's
regulations thereunder. The Investment Company Act regulates the relationship
between a mutual fund and its investment adviser and prohibits or severely
restricts principal transactions and joint transactions.
Neuberger Berman, LLC is registered with the Commodity Futures Trading
Commission as a commodity pool operator, commodity trading advisor and futures
commission merchant. Neuberger Berman, LLC's commodity futures and options
activities are also regulated by the National Futures Association. Neuberger
Berman, LLC limits its futures and options activities to those permitted by the
Commodity Futures Trading Commission to be provided with reduced disclosure and
other requirements to certain eligible clients.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales practices, market making and trading among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure of securities firms, recordkeeping and the conduct of directors,
officers and employees. Violation of applicable regulations can result in the
revocation of broker-dealer licenses, the imposition of censures or fines and
the suspension or expulsion of a firm, its officers or employees.
As registered broker-dealers, Neuberger Berman, LLC and Neuberger Berman
Management Inc. are each subject to certain net capital requirements under the
Securities Exchange Act of 1934; Neuberger Berman, LLC is also a member of the
New York Stock Exchange. The net capital requirements, which specify minimum net
capital requirements for registered broker-dealers, are designed to measure the
financial soundness and liquidity of broker-dealers. Neuberger Berman, LLC and
Neuberger Berman Management Inc. are also subject to "Risk Assessment Rules"
imposed by the SEC which require, among other things, that certain
broker-dealers maintain and preserve certain information, describe risk
management policies and procedures and report on the financial condition of
certain affiliates whose financial and securities activities are reasonably
likely to have material
54
<PAGE>
impact on the financial and operational condition of the broker-dealers.
Neuberger Berman, LLC's trust company subsidiaries are supervised by
relevant state banking authorities, which regulate such matters as policies and
procedures relating to conflicts of interest, account administration and overall
governance and supervisory procedures. Neuberger Berman Trust Company, a
non-depository trust company chartered under the New York Banking Law, is
subject to oversight by the New York State Banking Department. Neuberger Berman
Trust Company of Delaware, a non-depository limited purpose trust company
chartered under the Delaware Banking Code, is subject to oversight by the State
Bank Commissioner of the State of Delaware. Neuberger Berman Trust Company of
Florida, a Florida corporation authorized to engage in trust business chartered
under the Florida Banking Law, is subject to oversight by the Comptroller of the
Department of Banking and Finance of the State of Florida.
In addition to being regulated in the United States, our business is subject
to regulation by various foreign governments and regulatory bodies. Neuberger
Berman, LLC is registered with and subject to regulation by the Ontario
Securities Commission, the Alberta Securities Commission and the British
Columbia Securities Commission. Foreign regulations govern all aspects of the
investment business, including regulatory capital, sales and trading practices,
use and safekeeping of client funds and securities, recordkeeping, margin
practices and procedures, registration standards, reporting and disclosure. To
the extent that Neuberger Berman or its subsidiaries determine to engage in
securities activities in other jurisdictions, such additional regulations may
apply.
Additional legislation and regulations, including those relating to the
activities of investment advisers and broker-dealers, changes in rules
promulgated by the SEC or other U.S. or foreign regulatory authorities and
self-regulatory organizations or changes in the interpretation or enforcement of
existing laws and rules may adversely affect our manner of operation and
profitability. Our businesses may be materially affected not only by regulations
applicable to us as an investment adviser or broker-dealer, but also by
regulations of general application.
LEGAL MATTERS
In the normal course of business, we are subject to various legal
proceedings. However, in management's opinion, there are no legal proceedings
pending against us or any of our subsidiaries that would have a material adverse
effect on our financial position, results of operations or liquidity.
INTELLECTUAL PROPERTY
We regard the Neuberger Berman name as material to our business and have
made applications for trademark registrations of the name "Neuberger Berman". We
currently hold trademark registrations of the name "Neuberger & Berman" and
trademark registrations relating to the Neuberger Berman funds.
OFFICES
Our executive office is located in leased office space at 605 Third Avenue,
New York, New York. We also have leased premises at 55 Water Street and at 600
Third Avenue, New York, New York. A growth equity portfolio management group
operates alongside sales personnel in office space leased in Boston,
Massachusetts. We have also leased premises for regional sales offices in
Atlanta, Georgia; Chicago, Illinois; Los Angeles and San Francisco, California;
Dallas, Texas; Columbia, Maryland; and Miami and West Palm Beach, Florida.
Neuberger Berman Trust Company of Delaware leases office space in Wilmington,
Delaware. We do not own any real property. We consider these arrangements to be
adequate for our present needs.
EMPLOYEES
As of June 30, 1999, we employed 1,066 people (1,136 including principals).
None of our employees are subject to any collective bargaining agreements. We
believe we have good relations with our employees.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning our directors and executive
officers. We anticipate appointing additional directors over time who will not
be employees of Neuberger Berman or affiliated with management.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ------------------------------------------------------------
<S> <C> <C>
Lawrence Zicklin....... 63 Chairman and Director
Richard A. Cantor...... 66 Vice Chairman and Director
Marvin C. Schwartz..... 58 Vice Chairman and Director
Jeffrey B. Lane........ 57 President, Chief Executive Officer and Director
Michael M. Kassen...... 46 Executive Vice President, Chief Investment Officer and
Director
Robert Matza........... 43 Executive Vice President, Chief Administrative Officer and
Director
Heidi L. Schneider..... 46 Executive Vice President and Director
Peter E. Sundman....... 40 Executive Vice President and Director
Philip Ambrosio........ 43 Senior Vice President and Chief Financial Officer
</TABLE>
All directors are elected annually to serve until our next meeting of
stockholders and thereafter until their successors are elected and qualified.
Executive officers are appointed by and serve at the pleasure of our board of
directors. A brief biography of each director and executive officer follows.
LAWRENCE ZICKLIN will be the non-executive Chairman of the Board of
Directors of Neuberger Berman Inc. upon completion of the offerings. Since 1975,
Mr. Zicklin has served as the Managing Principal and Chief Executive Officer of
Neuberger Berman, LLC (Managing Partner of its predecessor until 1996) and,
since 1974, has been a Director of Neuberger Berman Management Inc. He joined
our organization in 1969.
RICHARD A. CANTOR will be the non-executive Vice Chairman and a Director of
Neuberger Berman Inc. upon completion of the offerings. Since 1991, Mr. Cantor
has overseen our mutual fund and institutional business and, since 1996, has
served as Executive Principal of Neuberger Berman, LLC. He has also been a
Director of Neuberger Berman Management Inc. since 1988 and its Chairman since
1991. He joined our organization in 1973.
MARVIN C. SCHWARTZ is Vice Chairman and a Director of Neuberger Berman Inc.
Mr. Schwartz joined our organization in January 1961. He has been a senior
portfolio manager in the Private Asset Management business since 1967. Mr.
Schwartz was a Director of Neuberger Berman Management Inc. from December 1990
to April 1996.
JEFFREY B. LANE is President, Chief Executive Officer and a Director of
Neuberger Berman Inc. Since joining our organization in July 1998, Mr. Lane has
served as Chief Administrative Officer of Neuberger Berman, LLC. Mr. Lane is
also a Director of Neuberger Berman Trust Company. He was previously employed by
Primerica Corp. (subsequently known as Travelers Group Inc.) from February 1990
until July 1998, where he served in several capacities, including President of
Primerica Holdings from February 1990 to February 1991, Vice Chairman of Smith
Barney (then a subsidiary of Primerica) from February 1991 through December
1995, and Vice Chairman of Travelers Group from January 1996 to July 1998.
MICHAEL M. KASSEN is Executive Vice President, Chief Investment Officer and
a Director of Neuberger Berman Inc. Mr. Kassen joined our organization in June
1990. He has been a senior portfolio manager in the mutual fund and
institutional business since 1990. In addition, he has served as a Vice
President of Neuberger Berman Management Inc. since
56
<PAGE>
June 1990 and as a Director of Neuberger Berman Management Inc. since April
1996.
ROBERT MATZA is Executive Vice President, Chief Administrative Officer and a
Director of Neuberger Berman Inc. Upon completion of the offerings, Mr. Matza
will become head of the Professional Securities Services business. Mr. Matza
joined our organization in April 1999 as Operations Principal. He was previously
Vice President and Deputy Treasurer of Citigroup, Inc. (formerly known as
Travelers Group Inc.) from October 1998 to April 1999 and Vice President and
Treasurer of Travelers Group Inc. from July 1996 to October 1998. Mr. Matza was
previously employed by Lehman Brothers Inc. and Lehman Brothers Holdings Inc.
where he served in several capacities, including Chief Financial Officer and
Member of the Corporate Management Committee of Lehman Brothers Holdings Inc.
from January 1994 to July 1996, Chief Financial Officer and a Director of Lehman
Brothers Inc. from January 1994 to July 1996, and Managing Director of Lehman
Brothers Inc. from 1992 to July 1996.
HEIDI L. SCHNEIDER is Executive Vice President and a Director of Neuberger
Berman Inc. Upon completion of the offerings, Mrs. Schneider will become the
head of the Private Asset Management business. Mrs. Schneider is also a Director
of Neuberger Berman Trust Company. She joined our organization in January 1986
and, since then, has directed our Private Asset Management national sales and
client service force.
PETER E. SUNDMAN is Executive Vice President and a Director of Neuberger
Berman Inc. Upon completion of the offerings, Mr. Sundman will become head of
the Mutual Fund and Institutional business. Mr. Sundman joined our organization
in February 1988. He has served as a Senior Vice President of Neuberger Berman
Management Inc. since January 1996 and was in charge of mutual fund
institutional sales. Mr. Sundman was the Director of Institutional Services of
Neuberger Berman Management Inc. from February 1988 to January 1996.
PHILIP AMBROSIO is Senior Vice President and Chief Financial Officer of
Neuberger Berman Inc. Mr. Ambrosio joined our organization in October 1983. He
has served as Controller of Neuberger Berman, LLC since April 1985 and as
Controller of Neuberger Berman Management Inc. since January 1999.
There are no family relationships between any of the executive officers or
directors of Neuberger Berman.
COMMITTEES OF THE BOARD
Our board of directors will have an Audit Committee. The Audit Committee
will consist of Messrs. Kassen and Matza and at least two directors who are not
employed by Neuberger Berman or affiliated with management. One of the directors
who is not affiliated with Neuberger Berman or management will be chairman of
the Audit Committee. The Audit Committee will:
- recommend the firm to be appointed as independent accountants to audit our
financial statements and to perform services related to the audit;
- review the scope and results of the audit with the independent
accountants;
- consider the adequacy of our internal accounting and control procedures;
and
- review any non-audit services to be performed by the independent
accountants, and consider the effect of such services on the accountants'
independence.
Our board of directors will also have a Compensation Committee. The
Compensation Committee will consist of Messrs. Lane and Matza and at least two
directors who are not employed by Neuberger Berman or affiliated with
management. One of the directors who is not affiliated with Neuberger Berman or
management will be Chairman of the Compensation Committee. The Compensation
Committee will oversee the compensation and benefits of our management and
employees.
The Compensation Committee will establish a subcommittee composed solely of
57
<PAGE>
directors who are not affiliated with Neuberger Berman or management. This
subcommittee will be responsible for:
- reviewing and making recommendations as to the compensation of our Chief
Executive Officer, our four other most highly compensated executive
officers and any other individuals whose compensation the Compensation
Committee anticipates may become subject to Section 162(m) of the Internal
Revenue Code;
- approving any awards of stock or options to those of our directors who are
employees of Neuberger Berman and to other individuals who are "officers"
of Neuberger Berman for purposes of Section 16 of the Exchange Act; and
- administering certain elements of our annual performance incentive plan
(described below).
In the remainder of this prospectus, when we refer to the board of directors or
the Compensation Committee, we are referring to our board of directors or to the
subcommittee of the Compensation Committee where Section 162(m) of the Internal
Revenue Code or Section 16 of the Exchange Act would require that action be
taken by the full board of directors or the subcommittee rather than the
Compensation Committee.
Our board of directors may from time to time establish other committees to
facilitate the management of Neuberger Berman.
COMPENSATION OF DIRECTORS
Our directors who are not officers or employees of Neuberger Berman will
receive an annual retainer fee of $25,000, payable in quarterly installments.
Directors who are officers or employees of Neuberger Berman will not receive any
additional compensation for serving as a director. We will reimburse all
directors for reasonable and necessary expenses they incur in performing their
duties as directors.
DIRECTORS STOCK INCENTIVE PLAN
Before the completion of the offerings, we will adopt a stock incentive plan
for members of our board of directors who are not employees of Neuberger Berman.
Directors who are employees of Neuberger Berman will not be eligible to
participate in the directors stock incentive plan. The following is a
description of the material terms of the directors stock incentive plan. You
should, however, refer to the exhibits that are a part of the registration
statement for a copy of the directors stock incentive plan. See "Available
Information".
DISCRETIONARY AWARDS. Our board of directors may award an eligible director
shares of common stock or options to purchase shares of common stock, which, in
each case, may be fully vested at the time of grant or may be subject to such
vesting or other restrictions, and having such other terms and conditions, as
the board of directors determines appropriate.
DEFERRED COMPENSATION. The directors stock incentive plan will permit an
eligible director to elect to defer receipt of all or any part of his or her
annual retainer fee payable with respect to a calendar year following the year
in which the election is made. A director who elects to defer fees will be
credited with a number of "phantom" shares of common stock equal to the amount
of the deferred fee divided by the fair market value per share of common stock
on the date the fee would otherwise have been payable (rounded to the nearest
100th of a share). If any dividends other than stock dividends are paid on the
common stock, the director will be credited with additional phantom shares of
common stock equal to the dividend that would have been paid on the director's
phantom shares divided by the fair market value per share of common stock on the
dividend payment date. The board of directors will adjust the number of phantom
shares credited to a director if there is a change in the number or kind of
outstanding shares of common stock by reason of any recapitalization,
reorganization, merger, consolidation, stock split or any similar
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change affecting the common stock (including a stock dividend).
A director who elects to defer any portion of his or her fees will also
elect whether (i) the aggregate amounts credited will be distributed wholly in
cash, in the greatest number of whole shares of common stock (with any
fractional interest payable in cash) or a combination of cash and whole shares,
(ii) the distribution will commence immediately following the date he or she
ceases to be a director or on the first business day of any calendar year
following the calendar year in which he or she ceases to be a director and (iii)
the distribution will be in one lump-sum payment or in such number of annual
installments (not to exceed ten) as he or she may designate. A director may also
elect to receive a distribution of all or any portion of the amounts with which
he or she has been credited as of a date at least one full year after the date
when he or she initially elected to defer fees, but any director who does so
will cease to be eligible to make any additional deferrals for the two
immediately following calendar years.
A director to whom phantom shares of common stock have been credited will
have only the rights of a general unsecured creditor of Neuberger Berman and
will have no rights as a stockholder of Neuberger Berman with respect to phantom
shares with which he or she has been credited until the common stock underlying
the phantom shares is delivered.
SHARE LIMITATION; ADMINISTRATIVE MATTERS; ETC. A maximum of 200,000 shares
may be issued under the directors stock incentive plan, subject to appropriate
adjustments in the event of certain corporate transactions, including
reorganizations, stock dividends and stock splits. Options awarded under the
directors stock incentive plan will generally not be assignable or transferable
other than by will or by the laws of descent and distribution, except for
certain transfers to the director's family members or to entities of which the
director or his or her family members are the sole beneficiaries or owners, and
all awards and rights will be exercisable during the life of the director only
by the director or his or her legal representative. The board of directors may
permit a director to defer the receipt of shares he or she might otherwise
receive upon exercise of an option, upon such terms and conditions as the board
of directors determines appropriate. The directors stock incentive plan will not
have a stated term. The directors stock incentive plan will be administered, and
may be amended or terminated by, the board of directors; however, no amendment
or termination of the plan may adversely affect the rights of any director
participating in the plan without his or her consent.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of the
material U.S. federal income tax consequences generally arising with respect to
options awarded and the deferral of fees under the directors stock incentive
plan.
The award of an option will create no tax consequences for the director
receiving the option or Neuberger Berman. When a director exercises an option,
he or she will generally recognize ordinary income equal to the difference
between the exercise price and the fair market value of the shares acquired on
the date of exercise, and Neuberger Berman generally will be entitled to a tax
deduction in the same amount. A director who defers retainer fees will generally
not recognize ordinary income with respect to deferred fees when they are so
deferred, but will generally recognize ordinary income equal to the amount of
the cash or the fair market value of shares distributed in the year in which the
cash or shares are distributed. Neuberger Berman generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
DIRECTOR STOCK OWNERSHIP GUIDELINES
We believe that the interests of our non-employee directors should be
aligned with the interests of our stockholders. To this end, we may adopt stock
ownership guidelines for our non-employee directors that will require them to
make an investment in our common stock.
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EXECUTIVE COMPENSATION
Before the offerings, our officers and other employees were employees and/or
principals of Neuberger Berman Management Inc. or Neuberger Berman, LLC. Our
executive officers, and those other individuals who were principals, were
stockholders or members of Neuberger Berman Management Inc. or Neuberger Berman,
LLC and received most of their compensation as a share of our net income through
capital distributions and dividends. In connection with the offerings, we
undertook a study of the compensation programs and practices that Neuberger
Berman should have as a public company. We obtained the services of independent
compensation consultants who provided independent analyses, viewpoints and
guidance with respect to prevailing compensation levels and practices of other
comparable public firms.
Based upon this study, we sought to establish a compensation system for our
executive officers and other key employees that would:
- provide for total compensation that is comparable to our competitors, to
enable us to recruit and retain talented individuals who have been, and
will be in the future, critical to our long-term growth and profitability;
and
- enhance our growth and profitability as a whole and motivate and reward
individual performance by providing compensation that includes a
significant variable element that takes into account, as appropriate, our
overall success and achievement of our strategic objectives, as well as
individual performance.
We also took into account available data relating to comparable firms.
In general, compensation for our executive officers and other key employees
will consist of base salary, annual bonus awards (a portion of which may be
payable in restricted stock) and long-term incentive awards of options or
restricted stock that may be made from time to time under our long-term
incentive plan.
To implement certain of our compensation arrangements, before we complete
the offerings, we will adopt an annual performance incentive plan, a deferred
compensation plan, a long-term incentive plan and a defined contribution plan.
The material terms of these plans are described below. You should, however,
refer to the exhibits that are a part of the registration statement for copies
of these plans. See "Available Information".
We may repurchase shares of common stock on the open market from time to
time in order to minimize the potential dilutive effect of equity awards under
these plans, to the extent we have available cash.
ANNUAL PERFORMANCE INCENTIVE PLAN
Each year the Compensation Committee will establish target incentive bonuses
for participants in the annual performance incentive plan and will select the
performance criteria for that year for a participant or group of participants
from among the following:
- earnings per share growth;
- revenue growth;
- growth in assets under management;
- controlling expenses; and/or
- relative investment and/or financial performance versus a peer group of
companies.
The actual bonus payable to a participant, which may equal, exceed or be less
than the target bonus, will be determined based on whether the applicable
performance targets are met, exceeded or not met, and may be decreased or
increased based on individual performance and contributions, or such other
factors as the Compensation Committee may deem appropriate.
The Compensation Committee will have the right, in its discretion, to pay to
any participant an annual bonus based on individual performance or any other
criteria that the Committee deems appropriate and, in connection with the hiring
of any person or otherwise, the Compensation Committee may
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provide for a minimum bonus amount in any calendar year, regardless of whether
performance objectives are attained.
Bonuses will generally be payable as soon as practicable after the
Compensation Committee certifies that the applicable performance criteria have
been obtained, or, in the case of bonuses that are not tied to such performance
criteria, at such time as the Compensation Committee determines, and will
generally be payable only if the participant remains employed with Neuberger
Berman. If a participant in the plan dies or becomes disabled prior to the
payment of the bonus with respect to the year in which he or she dies or becomes
disabled, the Compensation Committee may award to the participant (or his or her
estate or legal representative) all or such pro rata portion of the bonus that
would otherwise have been payable as it determines appropriate.
The Compensation Committee may require that a portion of a participant's
annual incentive bonus will be payable in restricted stock or options awarded
under our long-term incentive plan. Shares of restricted stock will generally
vest over four years, and may be awarded at a discount from fair market value at
the time of award in order to reflect the impact on the value of the stock of
the restrictions and the risk of forfeiture related to this vesting requirement.
Dividends will be payable on unvested shares of restricted stock.
The annual performance incentive plan will be administered by our board of
directors or the Compensation Committee, which may delegate its authority except
to the extent that it relates to the compensation of our Chief Executive
Officer, our four other most highly compensated executive officers or any other
individual whose compensation the board of directors or the Compensation
Committee believes may become subject to Section 162(m) of the Code. The
determination of the Compensation Committee on all matters relating to the
annual performance incentive plan will be final and binding.
The annual performance incentive plan will generally be effective for 1999
and each of calendar years 2000, 2001 and 2002. Our board of directors or the
Compensation Committee may at any time amend, suspend, discontinue or terminate
the annual performance incentive plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of the
material U.S. federal income tax consequences generally arising with respect to
the annual performance incentive plan.
A participant in the annual performance incentive plan will generally
recognize ordinary income equal to the cash bonus he or she receives in the year
it is paid or made available, and we will generally be entitled to a deduction
of the same amount in the year to which the bonus relates. (If a portion of a
participant's annual bonus is paid in restricted stock or options under the
long-term incentive plan, the federal income tax consequences to us and the
participant will generally be as described below under the description of the
long-term incentive plan.)
Section 162(m) of the Internal Revenue Code generally limits the ability of
a public corporation to deduct compensation greater than $1,000,000 paid with
respect to a particular year to an individual who is, on the last day of that
year, the corporation's chief executive officer or one of its four other most
highly compensated executive officers, other than compensation that is
"performance related" within the meaning of Section 162(m). Under a special rule
that applies to corporations that become public through an initial public
offering, this limitation generally will not apply to compensation that is paid
pursuant to the annual performance incentive plan before the first meeting of
our stockholders in 2003 at which directors will be elected.
DEFERRED COMPENSATION PLAN
In general, the deferred compensation plan will permit participants in our
annual performance incentive plan, as well as other employees selected by the
Compensation Committee to participate in the deferred compensation plan, to
elect to defer receipt of
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all or any part of their annual incentive bonus or a portion of their salary
payable with respect to the calendar year following the year in which the
election to participate is made. Amounts that a participant defers under the
plan will, at the election of the participant be credited to (i) a "stock
account" and will be deemed to be invested in phantom shares of common stock
and/or (ii) one or more "phantom investment fund accounts" and will be deemed
invested in one or more of the mutual funds selected by the Compensation
Committee from among those mutual funds that we manage.
A participant whose deferred compensation is credited to a stock account
will be credited with a number of phantom shares of common stock equal to the
amount of the deferred compensation so credited divided by the fair market value
per share of common stock on the date the compensation would otherwise have been
payable (rounded to the nearest 100th of a share) and may also receive
supplemental phantom shares (which may be subject to vesting). If any dividends
other than stock dividends are paid on the common stock, the participant's stock
account will be credited with additional phantom shares of common stock equal to
the dividend that would have been paid on the phantom shares in his or her stock
account divided by the fair market value per share of common stock on the
dividend payment date. The board of directors will adjust the number of phantom
shares credited to a participant's stock account if there is a change in the
number or kind of outstanding shares of common stock by reason of any
recapitalization, reorganization, merger, consolidation, stock split or any
similar change affecting the common stock (including a stock dividend).
Subject to such rules and administrative procedures as the Compensation
Committee may establish from time to time, participants will be able to request
how their deferred compensation will be deemed invested from among the stock
account and the available phantom investment funds, although the Compensation
Committee will not be required to follow any such request.
A participant in the deferred compensation plan will file a written election
with respect to the timing and manner of distribution of the aggregate amount,
if any, credited to his or her accounts at any time. A participant may elect to
receive a distribution from his or her account in a single lump-sum payment, or
in such number of annual installments (not to exceed ten) as he or she may
designate. Subject to such limitations as the Compensation Committee may impose,
a participant may also elect to receive a distribution of all or a portion of
the amounts credited to his or her accounts as of a date at least one full year
after the date he or she initially elected to defer compensation, but any
participant who does so will cease to be eligible to make any additional
deferrals for the two immediately following calendar years. In addition, the
Compensation Committee may permit a participant to elect to receive a
distribution of all or a portion of the amounts credited to his or her accounts
if the participant suffers an unforeseen personal hardship.
If a participant does not make a distribution election, or if the election
does not apply to the entire balance in the accounts, the balance in the
participant's accounts will be distributed in a single lump-sum payment as soon
as administratively possible after the first business day of the calendar year
immediately following the year of separation from employment. In the case of any
distribution being made in annual installments, each installment after the first
installment will be paid as soon as administratively possible after the first
business day of each calendar year following the year in which the first
installment is paid until the entire amount subject to such installment
distribution election has been paid. If a participant dies before payment of all
amounts credited to the participant's accounts has been completed, the total
unpaid balance then credited to his or her account will be paid to his or her
designated beneficiaries or estate in a single lump-sum payment as of the first
business day of the first calendar month commencing after the date of the
participant's death, or as soon thereafter as administratively
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possible. A participant's interest or rights in the deferred compensation plan
will generally not be assignable or transferable other than by will or by the
laws of descent and distribution, and rights will be exercisable during the life
of the participant only by the participant or his or her legal representative.
A participant in the deferred compensation plan will have only the rights of
a general unsecured creditor of Neuberger Berman and will have no rights with
respect to his or her accounts as a stockholder of Neuberger Berman or of any of
the mutual funds in which deferred compensation is deemed invested.
The deferred compensation plan will be administered by the Compensation
Committee, which may delegate all or a portion of its authority. The
determination of the Compensation Committee on all matters relating to the
deferred compensation plan will be final and binding. The deferred compensation
plan does not have a fixed term. Our board of directors or the Compensation
Committee may at any time amend, suspend, discontinue or terminate the deferred
compensation plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of the
material U.S. federal income tax consequences generally arising with respect to
the deferred compensation plan. A participant will generally not recognize
ordinary income with respect to the deferred compensation when it is so
deferred, but will generally recognize ordinary income equal to the amount of
any cash distributed to the participant in the calendar year in which it is
distributed. We generally will be entitled to a deduction in an amount equal to
the ordinary income recognized by the participant.
LONG-TERM INCENTIVE PLAN
TYPES OF AWARDS. The long-term incentive plan provides for the award of (1)
stock options, including incentive stock options (within the meaning of Section
422 of the Internal Revenue Code); (2) restricted stock and restricted units;
(3) incentive stock and incentive units; and (4) deferred stock units.
ELIGIBILITY. Awards may be made to any director, officer or employee of
Neuberger Berman, including any prospective employee, and to any consultant or
advisor to Neuberger Berman selected by the Compensation Committee. The number
of employees participating in the long-term incentive plan will vary from year
to year.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN. Initially, 10,000,000 shares of
common stock will be authorized to be issued under the long-term incentive plan.
If shares subject to an award under the plan cease to be subject to such award
as a result of forfeiture or if an award otherwise terminates without a payment
being made to the participant in the form of common stock, the shares will again
be available for future award under the long-term incentive plan. If there is a
change in the number or kind of outstanding shares of common stock by reason of
any recapitalization, reorganization, merger, consolidation, stock split or any
similar change affecting the common stock, the Compensation Committee may make
appropriate adjustments to the type and number of shares covered by options and
other awards then outstanding under the long-term incentive plan, the exercise
price of outstanding options and the shares that remain available for award
under the plan.
LIMITATIONS ON AWARDS. The maximum number of shares of common stock with
respect to which options may be granted to any one person in 1999 is 1,000,000
and, in each fiscal year that follows, is 110% of the maximum number of shares
applicable for the preceding fiscal year.
ADMINISTRATION. The long-term incentive plan will be administered by the
Compensation Committee, which may delegate its authority except to the extent
that it relates to the compensation of our Chief Executive Officer, our four
other most highly compensated executive officers or any other individual whose
compensation the board of directors or Compensation Committee believes may
become subject to Section 162(m) of the Code. The Compensation Committee will
have
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the authority to construe, interpret and implement the long-term incentive plan
and any agreements evidencing any awards under the plan, and to prescribe, amend
and rescind rules and regulations relating to the plan. The determination of the
Compensation Committee on all matters relating to the long-term incentive plan
or any award agreement will be final and binding.
STOCK OPTIONS. The Compensation Committee may grant options to purchase
shares of common stock that are either "qualified," which includes those awards
that satisfy the requirements of Section 422 of the Internal Revenue Code for
incentive stock options, or "nonqualified," which includes those awards that are
not intended to satisfy the requirements of Section 422 of the Internal Revenue
Code. Under the terms of the long-term incentive plan, the exercise price of the
options will, unless the Compensation Committee determines otherwise, not be
less than the fair market value of the common stock at the time of grant. The
exercise price of the option is payable in cash or its equivalent or, as
permitted by the Compensation Committee, by exchanging shares of common stock
owned by the participant, or by a combination of the foregoing.
The options will generally have a term of ten years, unless the Compensation
Committee specifies a shorter term, and, unless the Compensation Committee
otherwise determines, will become exercisable in three equal installments on
each of the second, third and fourth anniversary of the date of grant. If an
option holder ceases employment with Neuberger Berman as a result of the
holder's (i) death, (ii) disability, (iii) early retirement with the consent of
the Compensation Committee or (iv) normal retirement, the holder (or his or her
beneficiary or legal representative) may exercise any option, regardless of
whether then exercisable, for a period of one year (or such greater or lesser
period as determined by the Compensation Committee at or after grant), but in no
event after the date the option otherwise expires. If an option holder's
employment is terminated for any other reason, all of his or her options will
immediately terminate, regardless of whether then exercisable (unless determined
otherwise by the Compensation Committee at the time of or following the date of
grant).
The Compensation Committee may permit a participant to deliver shares of
common stock to exercise an option, and may provide that, if a participant does
so when the market value of the common stock exceeds the exercise price of the
option, he or she will be automatically granted new options for the number of
shares delivered to exercise the option ("reload options"). Reload options will
be subject to the same terms and conditions as the related option except that
the exercise price will be the fair market value on the date the reload option
is granted and such reload options will not be exercisable for six months.
RESTRICTED STOCK AND RESTRICTED UNITS. The Compensation Committee may award
restricted stock and restricted units. For purposes of the long-term incentive
plan, restricted stock is an award of common stock and a restricted unit is a
contractual right to receive common stock (or cash based on the fair market
value of common stock). These awards will be subject to such terms and
conditions, if any, as the Compensation Committee deems appropriate. Unless
otherwise determined by the Compensation Committee, participants will be
entitled to receive either currently or at a future date, dividends or other
distributions paid with respect to restricted stock and, if and to the extent
determined by the Compensation Committee, either will be credited with or
receive currently an amount equal to dividends paid with respect to the
corresponding number of shares covered by restricted units. Restricted stock and
restricted units will generally become vested and nonforfeitable and the
restriction period will lapse pro rata on the second, third and fourth
anniversaries of the date of grant unless the Compensation Committee determines
otherwise. If a participant's employment terminates because of death,
disability, early retirement (with the Compensation Committee's consent) or
normal retirement during the period in which the transfer of shares is
restricted, the restricted
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stock or restricted units will become vested and nonforfeitable as to that
percentage of the shares based upon the days worked as a percentage of total
days in the restricted period (or such greater percentage as the Compensation
Committee may determine). Unless nonforfeitable on the date of termination or
otherwise determined by the Compensation Committee, a restricted stock or
restricted unit award will be forfeited on termination of employment.
INCENTIVE STOCK AND INCENTIVE UNITS. The Compensation Committee may also
award incentive stock and incentive units. For purposes of the long-term
incentive plan, incentive stock is an award of common stock and an incentive
unit is a contractual right to receive common stock (or cash based on fair
market value of common stock). These awards will be contingent upon the
attainment, in whole or in part, of certain performance objectives over a period
to be determined by the Compensation Committee. With regard to a particular
performance period, the Compensation Committee will have the discretion, subject
to the long-term incentive plan's terms, to determine the terms and conditions
of awards, including the performance objectives to be achieved during the
performance measurement period and the determination of whether and to what
degree the specified objectives have been attained. Unless otherwise determined
by the Compensation Committee, participants will be entitled to receive, either
currently or at a future date, all dividends and other distributions paid with
respect to the incentive stock and, if and to the extent determined by the
Compensation Committee, either to be credited with or receive currently an
amount equal to dividends paid with respect to the corresponding number of
shares covered by the incentive units. If a participant's employment terminates
because of death, disability, early retirement (with the Compensation
Committee's consent) or normal retirement during the performance measurement
period, an award of incentive stock or incentive units will become vested and
nonforfeitable as to that percentage of the award that would have been earned
based on the attainment of performance objectives for the days worked as a
percentage of total days in the performance period (or such greater percentage
as the Compensation Committee may determine). Unless the Compensation Committee
determines otherwise, any incentive stock or incentive unit award will be
forfeited on termination of employment.
DEFERRED STOCK. The Compensation Committee may award deferred stock units,
which confer upon a participant the right to receive shares of common stock at
the end of a specified deferral period. To the extent determined by the
Compensation Committee, and upon such terms and conditions as the Compensation
Committee may determine, a participant who elects to defer compensation under
the deferred compensation plan in a stock account may also receive supplemental
deferred stock units. Deferred stock units carry no voting rights until the
shares have been issued. The Compensation Committee will determine whether any
dividend equivalents attributable to deferred units are to be paid currently or
credited to the participant's account and deemed reinvested in deferred stock
units. Deferred stock units and dividend equivalents with respect thereto are
fully vested at all times. Unless the Compensation Committee provides otherwise,
supplemental stock units and dividend equivalents with respect thereto will vest
in equal installments on each of the second, third and fourth anniversary of the
date the corresponding deferred amount would have been paid and free standing
stock units and dividend equivalents with respect thereto will become fully
vested on the third anniversary of the corresponding common stock in lieu of
cash award.
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NONTRANSFERABILITY OF AWARDS. Awards under the long-term incentive plan
will generally not be assignable or transferable other than by will or by the
laws of descent and distribution, and all awards and rights will be exercisable
during the life of the participant only by the director or his or her legal
representative. The Compensation Committee may, upon such terms and conditions
as it determines appropriate, permit transfers to the participant's family
members or to entities of which the participant or his or her family members are
the sole beneficiaries or owners.
STATUS OF PARTICIPANTS. The participants in the long-term incentive plan
will be unsecured general creditors of Neuberger Berman. Unless otherwise
provided in an award agreement, a participant will have no rights as a
stockholder with respect to any shares covered by any award until the underlying
shares are delivered. An award will not confer on a participant any right to
continued employment. Unless otherwise required by law or determined by the
Compensation Committee, awards under the long-term incentive plan will not be
taken into account for purposes of any other compensation or benefit plan or
arrangement of Neuberger Berman.
TAX WITHHOLDING. Neuberger Berman will be entitled to withhold from any
payment any required withholding or other taxes, and may require that the
participant provide sufficient funds to Neuberger Berman to satisfy any required
withholding tax obligations before we will deliver any shares or make any other
payment to the participant. The Compensation Committee may permit a participant
to satisfy any required withholding tax obligations by delivering shares of
common stock previously owned by the participant or by withholding a number of
shares of common stock otherwise deliverable to the participant, in each case
having a fair market value at the time equal to the amount of the required
withholding taxes, and upon such other terms and conditions as the Compensation
Committee determines appropriate.
TERM AND AMENDMENT. The long-term incentive plan will have a 10 year term.
The board of directors or the Compensation Committee may amend, suspend or
terminate the long-term incentive plan. The expiration of the term of the plan,
or any amendment, suspension or termination will not adversely affect any
outstanding award held by a participant without the consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of the
material U.S. federal income tax consequences generally arising with respect to
awards under the long-term incentive plan.
The grant of an option will give rise to no tax consequences for the
participant or us. Upon exercising an option, other than an incentive stock
option, the participant will generally recognize ordinary income equal to the
difference between the exercise price and the fair market value of the shares
acquired on the date of exercise, and we generally will be entitled to a tax
deduction in the same amount. A participant generally will not recognize taxable
income upon exercising an incentive stock option and we will not be entitled to
any tax deduction with respect to an incentive stock option if the participant
holds the shares for the applicable periods specified in the Internal Revenue
Code.
With respect to other awards, upon the payment of cash or the issuance of
shares or other property that is either not restricted as to transferability or
not subject to a substantial risk of forfeiture, the participant will generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property delivered. Neuberger Berman will be entitled to a deduction in
an amount equal to the ordinary income recognized by the participant.
DEFINED CONTRIBUTION PLAN
The defined contribution plan is not intended to be qualified under Section
401(a) of the Internal Revenue Code, and is not subject to the Employee
Retirement Income Security Act of 1974.
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ELIGIBILITY AND PARTICIPATION. Our board of directors or the Compensation
Committee will select the employees to participate in the defined contribution
plan.
CONTRIBUTIONS. We will make an initial irrevocable contribution to the
Defined Contribution Plan Trust, the trust underlying the defined contribution
plan, of 4,242,424 shares of common stock at or shortly after the completion of
the offerings. We may contribute additional shares of common stock or cash to
the Defined Contribution Plan Trust from time to time in our sole discretion. We
currently intend to make ongoing contributions to the defined contribution plan
and to reallocate forfeitures under the defined contribution plan to
participants.
ALLOCATION OF CONTRIBUTIONS. An account in the name of each participant and
a separate, unallocated account to which any forfeitures of common stock will be
credited pending reallocation to participants will be established. The
Compensation Committee will designate the number of shares of common stock
allocable to the account of each participant. Any common stock remaining in the
unallocated account as of the last day of each plan year due to forfeitures and
any distributions received on common stock credited to the unallocated account
will be reallocated among the accounts of participants who are employed by us on
the last day of each plan year pro rata to each such participant's share of our
contributions, for that plan year, or on such other formulaic basis as the
Compensation Committee may determine.
VOTING OF COMMON STOCK. All shares of common stock in the Defined
Contribution Plan Trust will generally be voted by the trustee in accordance
with the instructions of the participants to whom shares have been allocated.
DIVIDENDS. Any cash dividends on shares of common stock allocated to a
participant's account will be distributed to each participant after the end of
the calendar quarter in which such dividend is received.
VESTING AND DISTRIBUTION. With respect to the initial contribution of
common stock to the defined contribution plan, the right to receive shares of
common stock allocated to a participant's account generally will become vested,
and the common stock generally will be distributable, in three equal
installments on each of the second, third and fourth anniversaries of the date
of contribution if the participant satisfies certain conditions and the
participant's employment with Neuberger Berman has not been terminated, with
certain exceptions for termination due to death or following a change in control
as described below.
With respect to contributions to the defined contribution plan other than
the initial contribution, the Compensation Committee may determine the dates on
which the right to receive common stock (or cash) allocated to a participant's
account will vest and be distributable.
ADMINISTRATION OF THE DEFINED CONTRIBUTION PLAN. The defined contribution
plan will be administered by our board of directors or the Compensation
Committee, which may delegate its authority. All determinations by the board of
directors or the Compensation Committee under the plan will be conclusive and
binding.
AMENDMENTS. Subject to limitations with respect to contributions previously
made to the defined contribution plan, our board of directors or the
Compensation Committee may modify, alter, amend or terminate the defined
contribution plan or the Defined Contribution Plan Trust. No modification or
amendment of the defined contribution plan may be made which would cause or
permit any part of the assets of the Defined Contribution Plan Trust to be used
for, or diverted to, purposes other than for the exclusive benefit of
participants or their beneficiaries, or which would cause any part of the assets
of the Defined Contribution Plan Trust to revert to or become the property of
Neuberger Berman.
LIMIT ON LIABILITY. All distributions under the defined contribution plan
will be paid or provided solely from the assets of the Defined Contribution Plan
Trust and Neuberger Berman will have no responsibility or liability to any
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participant or beneficiary relating to the common stock or other assets of the
Defined Contribution Plan Trust. The agreement establishing the Defined
Contribution Plan Trust will provide that no creditor of Neuberger Berman will
have any rights to the assets of the Defined Contribution Plan Trust.
U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description
of the material U.S. federal income tax consequences generally arising with
respect to participation in the defined contribution plan. A participant in the
defined contribution plan will recognize ordinary income upon the vesting of
shares of common stock allocated to such participant's account in an amount
equal to the fair market value of the vested shares. Neuberger Berman will
generally be entitled to a deduction equal to the fair market value of the
shares at the time of the contribution in the taxable year in which the
participant recognizes income under the defined contribution plan in respect of
the vesting of shares of common stock.
CHANGE IN CONTROL.
If there is a "change in control", all outstanding awards under the
directors stock incentive plan, the long-term incentive plan and the defined
contribution plan will generally become fully vested and any restrictions or
limitations will lapse, and a participant in the deferred compensation plan will
be entitled to receive all amounts credited to his or her accounts. In addition,
we will be deemed to have satisfied any performance criteria established under
the annual incentive plan for the year in which the change in control occurs at
the target level or such higher level as our board of directors (as constituted
immediately prior to the change in control) determines appropriate.
Notwithstanding the foregoing, awards under the long-term incentive plan and the
defined contribution plan will not become fully vested and any restrictions or
limitations will not lapse as a result of a change of control if our board of
directors (as constituted immediately prior to the change in control) determines
that we will continue to honor the outstanding awards or that our successor will
grant to participants substitute awards that will have terms no less favorable
than the original awards to which they relate, and, in each case, awards held by
a participant will become fully vested, and any restrictions will lapse, if the
participant's employment is terminated following the change in control other
than for "cause" or the participant terminates his or her employment for "good
reason". Whether a participant's employment is terminated other than for cause
or the participant has terminated employment for good reason will be determined
by Neuberger Berman.
In connection with a change in control, our board (as constituted
immediately prior to the change in control) may provide that each outstanding
vested award will be canceled in exchange for a payment of cash equal to the
value of the shares covered by any outstanding award (in the case of any option,
less the exercise price for the shares covered by the option) or that the
participants will receive the shares covered by outstanding awards and, in the
case of options, have a reasonable opportunity to exercise their options upon or
in connection with the transaction giving rise to the change in control.
For these purposes, a "change in control" means the occurrence of any of the
following events:
- the members of our board of directors at the beginning of any consecutive
twenty-four calendar month period (the "incumbent directors") cease for
any reason other than death to constitute at least a majority of the board
of directors, provided that any director whose election, or nomination for
election by our stockholders, was approved by a vote of at least a
majority of those members of the board of directors then still in office
and who were members of the board of directors at the beginning of such
twenty-four calendar month period, other than as a result of a proxy
contest, or any agreement arising out of an actual or threatened proxy
contest, will be treated as an incumbent director for these purposes;
- any person or group of persons, but excluding Neuberger Berman, any
subsidiary of Neuberger Berman or any
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employee benefit plan of Neuberger Berman or any subsidiary of Neuberger
Berman, is or becomes the beneficial owner, directly or indirectly, of
securities of Neuberger Berman representing 20% or more of the combined
voting power of our then outstanding securities;
- our stockholders approve a definitive agreement for the merger or other
business combination of Neuberger Berman with or into another entity, or
the sale or other disposition of all or substantially all of our assets to
any other entity, provided, in each case, that (1) a majority of the
directors of the other entity were not directors of Neuberger Berman
immediately prior to the merger transaction in question, (2) our
stockholders immediately prior to the transaction in question owned a
percentage of the voting power in the other entity that is less than
one-half of the percentage of the voting power they own in Neuberger
Berman, and (3) the transaction in question has been consummated; or
- the purchase of common stock pursuant to any tender or exchange offer made
by any person or group of persons, other than Neuberger Berman, any
subsidiary of Neuberger Berman or an employee benefit plan of Neuberger
Berman or any subsidiary of Neuberger Berman, for 20% or more of our
common stock.
A "change in control" will not be deemed to occur in the event we file for
bankruptcy, liquidation or reorganization under the United States Bankruptcy
Code.
"Cause" includes, among other things, the participant's conviction of
certain misdemeanors or felonies, violation of applicable laws and violation of
any policy of Neuberger Berman, including policies with respect to
confidentiality.
"Good reason" means a materially adverse alteration in the participant's
position or in the nature or status of the participant's responsibilities from
those in effect immediately prior to the change in control, a material reduction
in the participant's aggregate annual compensation opportunity (other than a
reduction that is part of a general reduction affecting similarly situated
employees), or certain relocations of a participant's principal place of
employment.
OTHER BENEFIT PLANS AND ARRANGEMENTS
We maintain other defined contribution plans consisting of an employee
profit-sharing plan and a money purchase pension plan covering all full-time and
qualifying part-time employees (as defined in the applicable plan) who have
completed one year of continuous service. Contributions to the plans, which in
the case of our profit-sharing plan are at our discretion, are determined
annually but do not exceed the amount permitted under the Code as a deductible
expense.
We may establish additional compensation or other benefit plans for our
employees in the future.
THE EMPLOYEE INITIAL PUBLIC OFFERING AWARDS
At or shortly after the completion of the offerings, we will make an initial
irrevocable contribution of 4,242,424 shares of common stock to our defined
contribution plan. Dividends paid on shares allocated to participants will be
distributed currently.
We will record a non-cash compensation expense of $140 million related to
the initial irrevocable contribution of shares of common stock to the defined
contribution plan. This non-cash expense will be recognized on the date it is
funded in accordance with Statement of Financial Accounting Standards No. 87.
We will make awards under the defined contribution plan to substantially all
our employees other than the Neuberger Berman principals.
EMPLOYMENT AGREEMENT
Neuberger Berman is entering into employment agreements with each principal
who will be actively employed following the offerings, including each principal
who is an executive officer. Each employment agreement has an initial term
extending through December 31, 2000 (thereafter no set term),
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requires each continuing principal to devote his or her entire working time to
the business and affairs of Neuberger Berman and generally may be terminated at
any time by either that principal or Neuberger Berman on 90 days' prior written
notice.
ANTICIPATED COMPENSATION IN 2000
Neuberger Berman Inc. was formed in August 1998, and has had no business
operations or employees. Prior to the consummation of the offerings, our
executive officers were members and stockholders of Neuberger Berman, LLC and
Neuberger Berman Management Inc. and received most of their compensation as a
share of our net income through capital distributions and dividends. After the
consummation of the offerings, our executive officers will, in general, receive
compensation consisting of base salary and annual bonus awards and may receive
long-term incentive awards of options or restricted stock. Accordingly, amounts
received as distributions by our executive officers prior to the offerings
cannot meaningfully be compared to the salary based compensation that will be in
effect after the offerings. See "--Executive Compensation" and the pro forma
combined financial statements (unaudited) and accompanying notes included
elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation anticipated to be earned by
our Chief Executive Officer and our four other most highly compensated executive
officers for all services rendered to Neuberger Berman and its subsidiaries for
the year ending December 31, 2000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND PRINCIPAL POSITION SALARY TARGET-BONUS(1)
- ---------------------------------------------------------------------------------- ------------ ----------------
<S> <C> <C>
Jeffrey B. Lane, President and Chief Executive Officer............................ $ 1,000,000 $ 2,000,000
Michael M. Kassen, Executive Vice President and Chief Investment Officer.......... 750,000 1,750,000
Robert Matza, Executive Vice President and Chief Administrative Officer........... 500,000 1,000,000
Heidi L. Schneider, Executive Vice President...................................... 750,000 1,250,000
Peter E. Sundman, Executive Vice President........................................ 500,000 1,000,000
</TABLE>
- ------------------------
(1) Reflects target bonuses for 2000. Actual bonuses may be higher or lower
depending on actual results. See "--Annual Performance Incentive Plan."
The following table sets forth the compensation paid by the firm to our
former Chief Executive Officer and each of our four other highest paid officers
for all services rendered to the firm and its subsidiaries for the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION 1998 ACTUAL COMPENSATION(1)
- -------------------------------------------------------------------------------------- -----------------------------
<S> <C>
Lawrence Zicklin, Chief Executive Officer and Chairman of the Board of Directors...... $ 11,186,000
Richard A. Cantor, President and Chief Operating Officer.............................. 9,254,000
Jeffrey B. Lane, Executive Vice President and Chief
Administrative Officer.............................................................. 1,777,000
Vincent T. Cavallo, Senior Vice President and Chief Financial Officer................. 2,072,000
C. Carl Randolph, Senior Vice President, General Counsel and Secretary................ 1,498,000
</TABLE>
- --------------------------
(1) The amounts in the table represent compensation for 1998 only and consist of
(1) distributions to each named executive of net income earned by Neuberger
Berman, LLC in 1998 (other than amounts representing interest paid on
invested capital), (2) dividends distributed to each named executive by
Neuberger Berman Management Inc. in respect of 1998 and (3) amounts paid as
compensation expense by Neuberger Berman in respect of 1998 to Messrs.
Zicklin, Cantor and Lane. Amounts paid to Mr. Lane as compensation expense
consisted of a guaranteed fixed payment of $1,580,000 denominated as a
bonus. Messrs. Cavallo and Randolph did not receive amounts paid by
Neuberger Berman as compensation expense.
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SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock by:
- each director of Neuberger Berman and each of our executive officers named
in the summary compensation table on the preceding page;
- all directors and executive officers of Neuberger Berman as a group; and
- each person owning beneficially more than 5% of the outstanding shares of
the common stock.
Beneficial ownership is shown as of the date of this prospectus:
- after giving effect to the incorporation transactions and the initial
contribution of shares of common stock to our defined contribution plan,
but without giving effect to the offerings; and
- as adjusted to reflect the sale of the shares of common stock in the
offerings.
No executive officer of Neuberger Berman is selling shares of common stock in
the offerings.
For purposes of this table, we have assumed that 46,969,697 shares of common
stock are outstanding prior to the completion of the offerings and 50,000,000
shares of common stock are outstanding after the offerings, assuming that the
underwriters' options to purchase additional shares are not exercised. The
shares of common stock assumed to be outstanding prior to the offerings includes
42,727,273 shares to be issued in the incorporation transactions and 4,242,424
shares that we will contribute to our defined contribution plan at, or shortly
after, the completion of the offerings.
For purposes of this table, "beneficial ownership" is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant
to which a person or group of persons is deemed to have "beneficial ownership"
of any shares of common stock that such person has the right to acquire within
60 days after the date of this prospectus. For purposes of computing the
percentage of outstanding shares of common stock held by each person or group of
persons named above, any shares which such person or persons has the right to
acquire within 60 days after the date of this prospectus are deemed to be
outstanding but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS (1) AFTER THE OFFERINGS (1)
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ----------------------------------- ------------ ----------------- ------------ -----------------
Lawrence Zicklin (2)............... 1,590,349 3.4% 1,590,349 3.2%
Richard A. Cantor (3).............. 1,474,731 3.1% 1,474,731 2.9%
Jeffrey B. Lane.................... 536,107 1.1% 536,107 1.1%
Michael M. Kassen (4).............. 1,198,347 2.6% 1,198,347 2.4%
Robert Matza....................... 321,464 * 321,464 *
Marvin C. Schwartz (5)............. 5,666,219 12.1% 4,937,411 9.9%
Heidi L. Schneider (6)............. 609,977 1.3% 609,977 1.2%
Peter E. Sundman (7)............... 324,777 * 324,777 *
All directors and executive
officers
as a group (8 persons)........... 11,721,971 25.0% 10,993,163 22.0%
Management Stockholders (8)........ 42,727,273 91.0% 38,507,576 77.0%
</TABLE>
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- ------------------------
* Less than 1%.
(1) Does not include 10,000,000 shares of common stock issuable under our
long-term incentive plan and 200,000 shares of common stock issuable under
our directors stock incentive plan. These plans are described under
"Management--Compensation of Directors--Directors Stock Incentive Plan" and
"--Executive Compensation--Long-Term Incentive Plan".
(2) Includes 768,525 shares held by Zicklin Associates, L.P., with respect to
which Mr. Zicklin has sole voting and investment control as the sole
stockholder of its sole general partner.
(3) Includes 1,187,756 shares held by Cantor Associates, L.P., with respect to
which Mr. Cantor has sole voting and investment control as the sole
stockholder of its sole general partner.
(4) Includes 337,804 shares held by Kassen Associates, L.P., with respect to
which Mr. Kassen has sole voting and investment control as the sole
stockholder of its sole general partner.
(5) Includes (a) prior to the offering, 2,281,801 shares and, after the
offering, 1,917,397 shares held by Schwartz CS Associates, L.P., with
respect to which Mr. Schwartz has sole voting and investment control as the
sole stockholder of its sole general partner, and (b) prior to the offering,
2,281,801 shares and, after the offering, 1,917,397 shares held by Schwartz
ES Associates, L.P., with respect to which Mr. Schwartz has sole voting and
investment control as the sole stockholder of its sole general partner.
(6) Includes 65,340 shares held by Steiger Associates, L.P., with respect to
which Mrs. Schneider has sole voting and investment control as the sole
stockholder of its sole general partner.
(7) Includes 130,788 shares held by Sundman Associates, L.P., with respect to
which Mr. Sundman has sole voting and investment control as the sole
stockholder of its sole general partner.
(8) All of the Neuberger Berman principals and their affiliated family limited
partnerships and trusts are parties to the Stockholders Agreement, which
will become effective upon consummation of the incorporation transactions,
pursuant to which each principal and affiliate has agreed to vote his, her
or its shares in accordance with a majority of the shares held by all of the
principals and affiliates voting in a preliminary vote. See "Certain
Relationships and Related Transactions--Stockholders Agreement--Voting". The
business address of each of the parties to the Stockholders Agreement is (a)
in the case of each principal, 605 Third Avenue, New York, New York 10158,
and (b) in the case of each of the affiliates, c/o Neuberger Berman Trust
Company of Delaware, 919 Market Street, Suite 506, Wilmington, Delaware
19801.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE EXCHANGE
Our business is conducted by Neuberger Berman, LLC and Neuberger Berman
Management Inc., which are wholly owned by the Neuberger Berman principals. The
principals have formed Neuberger Berman Inc. to be a holding company for
Neuberger Berman, LLC and Neuberger Berman Management Inc. and allow for the
issuance of the common stock in the offerings.
Neuberger Berman Inc. was organized as a Delaware corporation on August 13,
1998 and has had no business operations. Prior to the completion of the
offerings, the Neuberger Berman principals and Neuberger Berman Inc. will engage
in a series of transactions (the "Exchange") in which:
- the principals will contribute all of their limited liability company
interests in Neuberger Berman, LLC to Neuberger Berman Inc. in exchange
for shares of common stock; and
- a subsidiary formed by Neuberger Berman Inc. will merge into Neuberger
Berman Management Inc., with Neuberger Berman Management Inc. surviving
the merger, and the principals will receive shares of common stock of
Neuberger Berman Inc. in exchange for their Neuberger Berman Management
Inc. shares.
Immediately following the Exchange, the Neuberger Berman principals will be our
sole stockholders. Neuberger Berman will thereafter operate as a holding company
and will indirectly own all the entities that are presently owned by either
Neuberger Berman, LLC or Neuberger Berman Management Inc. The Exchange will not
result in a change of control of either Neuberger Berman, LLC or Neuberger
Berman Management Inc.
Neuberger Berman, LLC, a Delaware limited liability company, is an
investment adviser and a securities broker-dealer. On November 1, 1996,
Neuberger & Berman, L.P., a New York limited partnership, converted to a
Delaware limited liability company and, immediately thereafter, ceased doing
business as a broker-dealer and investment adviser and was dissolved. Neuberger
Berman, LLC, the successor limited liability company, was organized under the
name Neuberger & Berman, LLC. As a result of the conversion, Neuberger Berman,
LLC assumed all of Neuberger & Berman, L.P.'s existing obligations, assets and
liabilities and succeeded to all of its existing rights. The conversion did not
result in any change in the ownership, management, or business operations of the
firm, or in any change of control. Neuberger & Berman, LLC changed its name to
Neuberger Berman, LLC on November 16, 1998. Neuberger & Berman Management
Incorporated changed its name to Neuberger Berman Management Inc. on November 9,
1998.
The Neuberger Berman principals have agreed to indemnify us for taxes
imposed on or with respect to Neuberger Berman, LLC or Neuberger Berman
Management Inc. for periods prior to the completion of the Exchange. We have
agreed to pay to the principals any tax refunds received in respect of these
prior periods.
STOCKHOLDERS AGREEMENT
The Neuberger Berman principals, certain family limited partnerships and
trusts formed by them (their "Family Affiliates") and Neuberger Berman Inc. have
entered into a Stockholders Agreement that will become effective upon the
completion of the Exchange. The Stockholders Agreement will govern transfers and
voting of the shares of common stock received by the principals and Family
Affiliates in the Exchange (the "Founder Shares").
TRANSFER RESTRICTIONS
The Stockholders Agreement prohibits any transfers of Founder Shares by the
principals or their Family Affiliates prior to January 1, 2002 except in limited
circumstances noted below. Thereafter, the principals and their Family
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Affiliates may transfer their Founder Shares only as follows:
(a) (1) In each calendar year beginning on January 1, 2002, each principal
and his or her Family Affiliates may transfer in the aggregate up to 10%
of the aggregate number of Founder Shares initially received by them in
the Exchange (plus, in 2002, a number of Founder Shares equal to the
amount, if any, by which 15% of the aggregate number of Founder Shares
initially received by them in the Exchange exceeds the aggregate number
of Founder Shares sold by them in the offerings).
(2) Founder Shares eligible to be transferred in any calendar year but
not transferred may be transferred at any time thereafter without
restriction.
(3) Notwithstanding (1) and (2) above, during the three years following
the date on which a principal's employment with Neuberger Berman
terminates (the "Employment Termination Date"), that principal and his
or her Family Affiliates may not transfer any Founder Shares other than
their Founder Shares that were eligible to be transferred but were not
transferred before the Employment Termination Date.
(b) Notwithstanding paragraph (a) above, each principal and his or her
Family Affiliates must at all times continue to hold at least 30% of the
aggregate number of Founder Shares initially received by them in the
Exchange until the third anniversary of the principal's Employment
Termination Date.
Notwithstanding paragraphs (a) and (b) above, if a principal's Employment
Termination Date occurs prior to January 1, 2003 for any reason other than
death, disability or termination by Neuberger Berman without cause, that
principal and his or her Family Affiliates may not transfer any Founder Shares
prior to January 1, 2007. On and after January 1, 2007, that principal and his
or her Family Affiliates may in any calendar year transfer in the aggregate a
maximum of 20% of the aggregate amount of Founder Shares held by them on the
principal's Employment Termination Date. The number of Founder Shares eligible
for transfer in any one calendar year but not transferred may be added to the
number otherwise eligible to be transferred in any future year.
Notwithstanding the foregoing, if a principal's employment with Neuberger
Berman terminates due to disability or death, the principal (or his or her
estate) and his or her Family Affiliates may transfer their Founder Shares
without restriction. In addition, our board of directors or a body designated by
our board of directors has the authority to make exceptions to any or all of the
transfer restrictions contained in the Stockholders Agreement and may permit or
cause other persons to become party to the agreement.
VOTING
Prior to any vote of our stockholders, the Stockholders Agreement provides
for a separate, preliminary vote of the principals and their Family Affiliates
(and any additional stockholders who have agreed with us to vote their shares of
common stock in accordance with the Stockholders Agreement) on each matter upon
which a vote of the stockholders is proposed to be taken. In this preliminary
vote, the participating stockholders may vote all of the shares currently owned
by them in such manner as each may determine in his, her or its sole discretion.
Each must then vote all of their Founder Shares in accordance with the vote of
the majority of the shares of common stock present (in person or by proxy) and
voting in such preliminary vote.
Each principal and Family Affiliate will grant to our secretary (or other
officer designated by the secretary) an irrevocable proxy to vote his, her or
its Founder Shares in order to give effect to the voting provisions. The right
and obligation of a principal and his or her Family Affiliates to vote in
accordance with the Stockholders Agreement will terminate on that principal's
Employment Termination Date.
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CALL RIGHT
The Stockholders Agreement provides that we may repurchase the Founder
Shares of a principal and his or her Family Affiliates if the principal engages
in "Harmful Activity" at any time during his or her employment or during the
first three years after leaving. "Harmful Activity" includes:
- soliciting or accepting business from any person or institution who was a
client or prospective client of Neuberger Berman during the year prior to
the departure of the principal (or, in the case of an action taken during
employment, during the prior year);
- soliciting or accepting business from any financial intermediary (or any
employee of a financial intermediary) with which the principal had
business contact during the year prior to his or her departure (or, in the
case of an action taken during employment, during the prior year);
- employing or soliciting for employment employees or consultants of
Neuberger Berman;
- using (other than in seeking new employment) the investment performance
record of any mutual fund or client account with which the principal was
associated during his or her employment;
- using or disclosing confidential information of Neuberger Berman; and
- publicly disparaging our firm or our principals.
If our board of directors or a body designated by our board of directors
determines in good faith that a principal has engaged in Harmful Activity, we
may purchase from that principal the excess of the number of Founder Shares
received by the principal and his or her Family Affiliates in the Exchange over
the number of Founder Shares that the principal and his or her Family Affiliates
could have transferred prior to the date on which the principal initially
engaged in Harmful Activity. If a principal does not hold sufficient Founder
Shares, we may purchase Founder Shares from his or her Family Affiliates pro
rata in accordance with their then current holdings. The purchase price of any
Founder Shares we purchase in this manner will be $2.00 per share.
TRANSFER ADMINISTRATION AND DISTRIBUTIONS
The certificates representing the Founder Shares beneficially owned by each
principal and Family Affiliate will be registered in the name of Neuberger
Berman or our nominee and held in our custody at our principal office. During
any period in which we are in dispute with any principal regarding his or her
obligations under the Stockholders Agreement, the Exchange Agreement or the
Non-Competition Agreement, we will not release for transfer any Founder Shares
of that principal or his or her Family Affiliates or distribute to them any
dividends or distributions received in respect of their Founder Shares.
AMENDMENTS AND TERM
The Stockholders Agreement may be amended by our board of directors or a
body designated by our board of directors, provided that any amendment that
materially adversely affects the principals or Family Affiliates (or any group
of principals or Family Affiliates) (other than any amendment to cure any
ambiguity in the agreement) must be approved by the principals and Family
Affiliates holding a majority of the Founder Shares then subject to the
agreement. The agreement will terminate on the earlier to occur of (i) the first
date on which there are no principals or Family Affiliates who remain bound by
its terms and (ii) the date on which we agree with principals and Family
Affiliates who are then bound by its terms to terminate the agreement.
NON-COMPETITION AGREEMENT
The Neuberger Berman principals have also entered into a Non-Competition
Agreement that will become effective upon the closing of the Exchange. Each
principal has agreed:
- not to compete with us while they are employed by us or during the three
years following their Employment Termination Date; and
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- to take all actions (before or after their Employment Termination Date)
reasonably requested by our board of directors or a body designated by our
board of directors to maintain the business, goodwill and business
relationship with any of our clients with whom he or she worked during the
term of his or her employment.
The obligation not to compete will not apply to a principal that is
terminated by Neuberger Berman without cause.
NEUBERGER BERMAN FOUNDATION
After the consummation of the offerings, we will make a $10 million cash
contribution to the Neuberger Berman Foundation, a charitable foundation. This
newly-formed entity will conduct charitable initiatives for Neuberger Berman.
The Neuberger Berman Foundation is subject to federal tax rules that prohibit it
from engaging in any act of self-dealing or any activities that result in an
impermissible benefit to private persons. While the Neuberger Berman Foundation
has no specific intention to contribute to organizations with which Neuberger
Berman's executive officers or directors are affiliated, the Neuberger Berman
Foundation may in the future make contributions to educational and other
organizations with which Neuberger Berman's directors or executive officers are
involved.
THE NB ASSOCIATES SUBORDINATED NOTE
In 1998, NB Associates, LLC, which is wholly owned by the Neuberger Berman
principals, loaned Neuberger Berman, LLC $50 million pursuant to a subordinated
promissory note. On September 1, 1999, $35 million of this note was repaid with
proceeds received from the issuance of a subordinated note issued by Neuberger
Berman, LLC to The Travelers Insurance Company, the original $50 million note
was cancelled and a new $15 million subordinated note, due on September 1, 2000,
was issued to NB Associates, LLC. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Subsequent Events."
Interest accrues on the unpaid principal amount of the loan at a rate of
6.75% per annum and is payable quarterly. This loan was approved by the New York
Stock Exchange, and the unpaid principal amount is available to Neuberger
Berman, LLC in computing net capital under the SEC's net capital rule. Neuberger
Berman, LLC's obligation to repay the outstanding principal amount may be
suspended if, at any time, Neuberger Berman, LLC fails to meet applicable net
capital requirements imposed by the New York Stock Exchange. The maturity of the
subordinated note will be automatically extended for successive terms of one
year, unless at least seven months prior to the maturity date, NB Associates
notifies us in writing that the maturity will not be extended.
SELLING STOCKHOLDERS
The following table sets forth certain information provided to us by the
selling stockholders regarding themselves and their beneficial ownership of our
common stock. Beneficial ownership is shown as of the date of this prospectus:
- after giving effect to the Exchange and the initial contribution of shares
of common stock to our defined contribution plan, but without giving
effect to the offerings; and
- as adjusted to reflect the sale of the shares of common stock in the
offerings.
No executive officer of Neuberger Berman is selling shares of common stock in
the offerings.
Pursuant to the Stockholders Agreement, Neuberger Berman or its nominee is
the record holder of all of the shares of common stock set forth on the table.
Except as set forth in the footnotes to the table, each selling stockholder has
informed us that he or she has sole voting and investment power with respect to
his or her shares of common stock. The sale of shares of
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common stock by the selling stockholders in the offerings will not result in a
change in our control.
For purposes of this table, we have assumed that 46,969,697 shares of common
stock are outstanding prior to the completion of the offerings and 50,000,000
shares of common stock are outstanding after the offerings, assuming that the
underwriters' options to purchase additional shares are not exercised. The
shares of common stock assumed to be outstanding prior to the offerings includes
42,727,273 shares to be issued in the Exchange and 4,242,424 shares that we will
contribute to our defined contribution plan at, or shortly after, the completion
of the offerings.
For purposes of this table, "beneficial ownership" is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant
to which a person or group of persons is deemed to have "beneficial ownership"
of any shares of common stock that such person has the right to acquire within
60 days after the date of this prospectus. For purposes of computing the
percentage of outstanding shares of common stock held by each person or group of
persons named above, any shares which such person or persons has the right to
acquire within 60 days after the date of this prospectus are deemed to be
outstanding but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS (1) NUMBER OF AFTER THE OFFERINGS (1)
------------------------------- SHARES BEING ---------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- -------------- --------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Herbert W. Ackerman(2)............. 353,935 * 45,524 308,411 *
Robert J. Appel(3)................. 1,874,925 4.0% 211,787 1,663,138 3.3%
Howard R. Berlin(4)................ 783,811 1.7% 93,480 690,331 1.4%
Jeffrey Bolton(5).................. 584,924 1.2% 55,570 529,354 1.1%
Vincent T. Cavallo(6).............. 353,935 * 39,697 314,238 *
Robert W. D'Alelio................. 429,613 * 15,987 413,626 *
Salvatore D'Elia................... 194,973 * 25,078 169,895 *
Stanley Egener(7).................. 1,052,174 2.2% 135,335 916,839 1.8%
Michael N. Emmerman................ 261,766 * 33,670 228,096 *
Robert D. English.................. 337,614 * 43,425 294,189 *
Jack M. Ferraro.................... 254,865 * 32,782 222,083 *
Gregory P. Francfort(8)............ 836,104 1.8% 99,717 736,387 1.5%
Howard L. Ganek(9)................. 1,119,224 2.4% 143,959 975,265 2.0%
Robert I. Gendelman................ 580,958 1.2% 74,725 506,233 1.0%
Theodore P. Giuliano(10)........... 436,610 * 56,159 380,451 *
Mark R. Goldstein(11).............. 260,573 * 31,974 228,599 *
Lee H. Idleman..................... 262,410 * 33,752 228,658 *
Alan L. Jacobs..................... 383,292 * 49,300 333,992 *
Kenneth M. Kahn.................... 212,483 * 2,652 209,831 *
Michael W. Kamen(12)............... 425,601 * 50,359 375,242 *
Mark P. Kleiman.................... 836,427 1.8% 107,584 728,843 1.5%
Lee P. Klingenstein(13)............ 192,043 * 24,701 167,342 *
Irwin Lainoff(14).................. 995,350 2.1% 118,709 876,641 1.8%
Joseph R. Lasser(15)............... 254,864 * 32,782 222,082 *
Richard S. Levine.................. 502,237 1.1% 39,967 462,270 *
Christopher J. Lockwood............ 467,362 1.0% 60,114 407,248 *
Lawrence Marx III(16).............. 538,660 1.1% 69,285 469,375 *
Robert R. McComsey................. 484,687 1.0% 57,805 426,882 *
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS (1) NUMBER OF AFTER THE OFFERINGS (1)
------------------------------- SHARES BEING ---------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- -------------- --------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Martin McKerrow(17)................ 305,492 * 39,293 266,199 *
Martin E. Messinger(18)............ 995,349 2.1% 128,025 867,324 1.7%
Beth W. Nelson..................... 898,305 1.9% 115,543 782,762 1.6%
Roy R. Neuberger(19)............... 192,920 * 23,008 169,912 *
Harold J. Newman(20)............... 339,423 * 40,481 298,942 *
Daniel P. Paduano(21).............. 783,811 1.7% 100,817 682,994 1.4%
Norman H. Pessin................... 115,206 * 14,818 100,388 *
Leslie M. Pollack(22).............. 585,128 1.2% 69,784 515,344 1.0%
William A. Potter(23).............. 233,346 * 30,014 203,332 *
Janet W. Prindle................... 893,989 1.9% 106,620 787,369 1.6%
C. Carl Randolph................... 215,129 * 27,671 187,458 *
Kevin L. Risen..................... 369,930 * 47,582 322,348 *
Daniel H. Rosenblatt............... 324,396 * 25,793 298,603 *
J. Curt Schnackenberg.............. 214,988 * 27,652 187,336 *
Marvin C. Schwartz(24)............. 5,666,219 12.1% 728,808 4,937,411 9.9%
Jennifer K. Silver................. 387,686 * 46,237 341,449 *
Kent C. Simons..................... 771,588 1.6% 99,245 672,343 1.3%
R. Edward Spilka(25)............... 551,419 1.2% 70,926 480,493 1.0%
Gloria H. Spivak................... 213,863 * 25,506 188,357 *
Bernard Z. Stein................... 131,773 * 15,716 116,057 *
Fred Stein......................... 320,455 * 41,218 279,237 *
Eleanor Moore Sterne............... 355,059 * 45,669 309,390 *
Stephanie J. Stiefel(26)........... 281,317 * 3,579 277,738 *
Philip A. Straus................... 128,772 * 16,563 112,209 *
The Strauss 1998 Trust(27)......... 270,438 * 43,189 227,249 *
Allan D. Sutton(28)................ 218,797 * 27,547 191,250 *
The Sutton 1998 GST Trust(29)...... 19,165 * 3,061 16,104 *
Richard J. Sweetnam Jr............. 435,424 * 16,445 418,979 *
Judith M. Vale..................... 878,576 1.9% 104,782 773,794 1.5%
David I. Weiner(30)................ 627,381 1.3% 74,824 552,557 1.1%
Dietrich Weismann(31).............. 2,292,418 4.9% 273,402 2,019,016 4.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) Does not include 10,000,000 shares of common stock issuable under our long
term incentive plan and 200,000 shares of common stock issuable under our
directors stock incentive plan. These plans are described under
"Management--Compensation of Directors--Directors Stock Incentive Plan" and
"--Executive Compensation--Long-Term Incentive Plan".
(2) Includes (a) prior to the offerings, 285,061 shares held by Herbert W.
Ackerman Associates, L.P., with respect to which Mr. Ackerman has sole
voting and investment control as the sole stockholder of its sole general
partner, (b) 45,524 shares offered by Herbert W. Ackerman Associates, L.P.
in the offerings and (c) after the offerings, 239,537 shares held by Herbert
W. Ackerman Associates L.P.
(3) Includes (a) prior to the offerings, 211,410 shares held by Appel
Associates, L.P., with respect to which Mr. Appel has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
168,091 shares offered by Appel Associates, L.P. in the offerings and (c)
after the offerings, 43,319 shares held by Appel Associates, L.P.
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(4) Includes (a) prior to the offerings, 441,900 shares held by Berlin
Associates L.P., with respect to which Mr. Berlin has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
93,480 shares offered by Berlin Associates, L.P. in the offerings and (c)
after the offerings, 348,420 shares held by Berlin Associates, L.P.
(5) Includes 117,775 shares held by Bolton Associates, L.P., with respect to
which Mr. Bolton has sole voting and investment control as the sole
stockholder of its sole general partner.
(6) Includes (a) prior to the offerings, 285,061 shares held by Cavallo
Associates, L.P., with respect to which Mr. Cavallo has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
39,697 shares offered by Cavallo Associates, L.P. in the offerings and (c)
after the offerings, 245,364 shares held by Cavallo Associates, L.P.
(7) Includes (a) prior to the offerings, 282,193 shares held by Egener
Associates, L.P., with respect to which Mr. Egener has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
72,087 shares offered by Egener Associates, L.P. in the offerings and (c)
after the offerings, 210,106 shares held by Egener Associates, L.P.
(8) Includes (a) prior to the offerings, 224,243 shares held by Francfort 1998
Grantor Retained Annuity Trust, with respect to which Mr. Francfort, as
trustee, has sole voting control and shares investment control with Patricia
Francfort and Neuberger Berman Trust Company of Delaware, (b) 72,148 shares
offered by Francfort 1998 Grantor Retained Annuity Trust in the offerings
and (c) after the offerings, 152,095 shares held by Francfort 1998 Grantor
Retained Annuity Trust.
(9) Includes (a) prior to the offerings, 108,172 shares held by Ganek
Associates, L.P., with respect to which Mr. Ganek has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
43,104 shares offered by Ganek Associates, L.P. in the offerings and (c)
after the offerings, 65,068 shares held by Ganek Associates, L.P.
(10) Includes (a) prior to the offerings, 79,121 shares held by Giuliano
Associates, L.P., with respect to which Mr. Giuliano has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
6,466 shares offered by Giuliano Associates, L.P. in the offerings and (c)
after the offerings, 72,655 shares held by Giuliano Associates, L.P.
(11) Includes (a) prior to the offerings, 58,763 shares held by Goldstein
Associates, L.P., with respect to which Mr. Goldstein has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
3,997 shares offered by Goldstein Associates, L.P. in the offerings and (c)
after the offerings, 54,766 shares held by Goldstein Associates, L.P.
(12) Includes 68,556 shares held by Kamen Associates, L.P., with respect to
which Mr. Kamen has sole voting and investment control as the sole
stockholder of its sole general partner.
(13) Includes (a) prior to the offerings, 154,672 shares held by Klingenstein
Associates, L.P., with respect to which Mr. Klingenstein has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
24,701 shares offered by Klingenstein Associates, L.P. in the offerings and
(c) after the offerings, 129,971 shares held by Klingenstein Associates,
L.P.
(14) Includes (a) prior to the offerings, 240,498 shares held by Lainoff
Associates, L.P., with respect to which Mr. Lainoff has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
79,935 shares offered by Lainoff Associates, L.P. in the offerings and (c)
after the offerings, 160,563 shares held by Lainoff Associates, L.P.
(15) Includes 170,989 shares held by Lasser Associates, L.P., with respect to
which Mr. Lasser has sole voting and investment control as the sole
stockholder of its sole general partner.
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(16) Includes (a) prior to the offerings, 281,996 shares held by Lawrence Marx
III Associates, L.P., with respect to which Mr. Marx has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
69,285 shares offered by Lawrence Marx III Associates, L.P. in the offerings
and (c) after the offerings, 212,711 shares held by Lawrence Marx III
Associates, L.P.
(17) Includes (a) prior to the offerings, 55,360 shares held by McKerrow
Associates, L.P., with respect to which Mr. McKerrow has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
4,068 shares offered by McKerrow Associates, L.P. in the offerings and (c)
after the offerings, 51,292 shares held by McKerrow Associates, L.P.
(18) Includes (a) prior to the offerings, 574,870 shares held by Messinger
Associates, L.P., with respect to which Mr. Messinger has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
128,025 shares offered by Messinger Associates, L.P. in the offerings and
(c) after the offerings, 446,845 shares held by Messinger Associates, L.P.
(19) Includes (a) prior to the offerings, 155,379 shares held by Neuberger
Associates, L.P., with respect to which Mr. Neuberger has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
23,008 shares offered by Neuberger Associates, L.P. in the offerings and (c)
after the offerings, 132,371 shares held by Neuberger Associates, L.P.
(20) Includes (a) prior to the offerings, 164,024 shares held by Newman
Associates, L.P., with respect to which Mr. Newman has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
26,988 shares offered by Newman Associates, L.P. in the offerings and (c)
after the offerings, 137,036 shares held by Newman Associates, L.P.
(21) Includes 631,285 shares held by Paduano Associates, L.P., with respect to
which Mr. Paduano has sole voting and investment control as the sole
stockholder of its sole general partner.
(22) Includes (a) prior to the offerings, 306,322 shares held by Pollack 1998
Grantor Retained Annuity Trust, with respect to which Mr. Pollack, as
trustee, has sole voting control and shares investment control with Yvonne
S. Pollack and Neuberger Berman Trust Company of Delaware, (b) 69,784 shares
offered by Pollack 1998 Grantor Retained Annuity Trust in the offerings and
(c) after the offerings, 236,538 shares held by Pollack 1998 Grantor
Retained Annuity Trust.
(23) Includes 67,658 shares held by Potter Associates, L.P., with respect to
which Mr. Potter has sole voting and investment control as the sole
stockholder of its sole general partner.
(24) Includes (a) prior to the offerings, 2,281,801 shares held by Schwartz CS
Associates, L.P. and 2,281,801 shares held by Schwartz ES Associates, L.P.,
with respect to which Mr. Schwartz has sole voting and investment control as
the sole stockholder of their sole general partners, (b) 364,404 shares
offered by Schwartz CS Associates, L.P. and 364,404 shares offered by
Schwartz ES Associates, L.P., in the offerings and (c) after the offerings,
1,917,397 shares held by Schwartz CS Associates, L.P. and 1,917,397 shares
held by Schwartz ES Associates L.P.
(25) Includes (a) prior to the offerings, 106,588 shares held by Robert Edward
Spilka 1998 Grantor Retained Annuity Trust, with respect to which Mr.
Spilka, as trustee, has sole voting control and shares investment control
with Linda Galarza Spilka and Neuberger Berman Trust Company of Delaware,
(b) 20,586 shares offered by Robert Edward Spilka 1998 Grantor Retained
Annuity Trust in the offerings and (c) after the offerings, 86,002 shares
held by Robert Edward Spilka 1998 Grantor Retained Annuity Trust.
(26) Includes 22,658 shares held by Stiefel Associates, L.P., with respect to
which Ms. Stiefel has sole voting and investment control as the sole
stockholder of its general partner.
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(27) Voting and investment control are shared by Barbara Strauss and Neuberger
Berman Trust Company of Delaware, as trustees.
(28) Includes (a) prior to the offerings, 172,491 shares held by Allan D. Sutton
1998 Grantor Retained Annuity Trust, with respect to which Mr. Sutton, as
trustee, has sole voting control and shares investment control with Anita
Sutton and Neuberger Berman Trust Company of Delaware, (b) 27,547 shares
offered by Allan D. Sutton 1998 Grantor Retained Annuity Trust in the
offerings and (c) after the offerings, 144,944 shares held by Allan D.
Sutton 1998 Grantor Retained Annuity Trust.
(29) Voting and investment control are shared by Nancy Sutton Finley, Peggy Lynn
Sutton and Neuberger Berman Trust Company of Delaware, as trustees.
(30) Includes (a) prior to the offerings, 75,794 shares held by Weiner 1998
Grantor Retained Annuity Trust, with respect to which Mr. Weiner, as
trustee, has sole voting control and shares investment control with Laurie
L. Weiner, Bintoar Palar and Neuberger Berman Trust Company of Delaware, (b)
19,984 shares offered by Weiner 1998 Grantor Retained Annuity Trust in the
offerings and (c) after the offerings, 55,810 shares held by Weiner 1998
Grantor Retained Annuity Trust.
(31) Includes (a) prior to the offerings, 1,107,795 shares held by Weismann
Associates, L.P., with respect to which Mr. Weismann has sole voting and
investment control as the sole stockholder of its sole general partner, (b)
273,402 shares offered by Weismann Associates, L.P. in the offerings and (c)
after the offerings, 834,393 shares held by Weismann Associates, L.P.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock does not purport to be
complete and is qualified in its entirety by reference to applicable Delaware
law and to the provisions of our certificate of incorporation and by-laws.
Copies of the forms of certificate of incorporation and by-laws have been filed
as exhibits to the registration statement of which this prospectus forms a part.
Our authorized capital stock consists of 255,000,000 shares, each with a par
value of $.01 per share, of which:
- 250,000,000 are designated as common stock; and
- 5,000,000 are designated as preferred stock.
COMMON STOCK
After giving effect to the Exchange, there will be 42,727,273 shares of
common stock outstanding. All of these shares will be held of record by one
stockholder as nominee for the Neuberger Berman principals and their Family
Affiliates, as required by the Stockholders Agreement.
VOTING RIGHTS. Each holder of common stock is entitled to one vote per
share on all matters to be voted on by stockholders. Holders of common stock are
not entitled to any cumulative voting rights.
DIVIDEND RIGHTS. Subject to the preferential rights of any holders of any
outstanding series of preferred stock and restrictions set forth in our credit
facilities and restrictions, if any, imposed by other indebtedness outstanding
from time to time, the holders of common stock will be entitled to such
dividends and distributions, whether payable in cash or otherwise, as may be
declared from time to time by our board of directors from legally available
funds. See "Dividend Policy".
OTHER RIGHTS. Upon our liquidation, dissolution or winding up, the holders
of shares of common stock would be entitled to share PRO RATA in the
distribution of all of our assets remaining available for distribution after
satisfaction of all of our liabilities and the payment of the liquidation
preference of any outstanding preferred stock. The holders of common stock have
no preemptive or other subscription rights to purchase shares of common stock,
nor are they entitled to the benefits of any sinking fund provisions. No share
of common stock issued in connection with or outstanding prior to the offerings
is subject to any further call or assessment.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock, none of which are outstanding. Our board of directors has the authority
to issue shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any unissued
shares of preferred stock and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders. We have no present plans to issue any of the preferred
stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
We believe that the ability of our board of directors to issue one or more
series of preferred stock will provide us with flexibility in structuring
possible future acquisitions and in meeting other corporate needs that might
arise. Our board of directors, without stockholder approval, can issue preferred
stock with voting and conversion rights which could adversely affect the voting
power of the holders of common stock. Although our board of directors has no
current intention of doing so, it could issue one or more series of preferred
stock that could, depending on the terms of such series, impede the completion
of a merger, tender offer or other takeover attempt. Our board of directors will
make any determination to issue such shares based on its judgment as to the best
interests of
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Neuberger Berman and its stockholders. Our board of directors, in so acting,
could issue preferred stock having terms that could discourage a potential
acquiror from making, without first negotiating with our board of directors, an
acquisition attempt through which such acquiror may be able to change the
composition of our board of directors, including 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.
ANTI-TAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Some provisions of our certificate of incorporation and by-laws, applicable
law and the Stockholders Agreement could make the acquisition of Neuberger
Berman by means of a tender offer, a proxy contest or otherwise more difficult.
As described above, our certificate of incorporation authorizes our board of
directors to designate and issue preferred stock. Other provisions in the
certificate of incorporation and in our by-laws impose procedural and other
requirements that may be deemed to have anti-takeover effects. These provisions
include the inability of our stockholders to take any action without a meeting
or to call special meetings of stockholders, certain advance notice procedures
for nominating candidates for election as directors and for submitting proposals
for consideration at stockholders' meetings, and limitations on the ability to
remove directors. Further, our stockholders can amend our by-laws and certain
provisions of our certificate of incorporation only with a two-thirds majority
vote. Additionally, the Stockholders Agreement requires all Neuberger Berman
principals and their Family Affiliates to vote their shares in accordance with a
preliminary vote conducted solely among these stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to section 203 of the Delaware General Corporation Law, which
prohibits a public Delaware corporation from engaging in a "business
combination" with a stockholder that is an "interested stockholder" for a period
of three years after the date of the transaction in which the stockholder became
an interested stockholder unless:
(i) prior to such date, our board of directors approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder; or
(ii) upon becoming an interested stockholder, the stockholder then owned at
least 85% of the voting stock, as defined in section 203; or
(iii) subsequent to the date on which the stockholder became an interested
stockholder, the business combination is approved by both our board of
directors and by holders of at least 66 2/3% of our outstanding voting
stock, excluding shares owned by the interested stockholder.
For these purposes, the term "business combination" includes mergers, asset
sales and other similar transactions with an "interested stockholder". An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
American Stock and Transfer & Trust Company has been appointed as the
transfer agent and registrar for the shares of common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offerings, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the perception that substantial sales may occur, could adversely affect the
prevailing market price of the common stock. After completion of the offerings,
there will be 50,000,000 shares of common stock outstanding. Of these shares,
the 7,250,000 shares of common stock sold in the offerings (8,337,500 shares if
the underwriters' options to purchase additional shares are exercised in full)
will be freely transferable without restriction under the Securities Act, except
by persons who may be deemed to be our affiliates. All the remaining shares of
common stock ("Restricted Shares") may not be sold unless they are registered
under the Securities Act or are sold pursuant to an exemption from registration,
including an exemption contained in Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who beneficially owns
"restricted securities" may not sell those securities until they have been
beneficially owned for at least one year. Thereafter, the person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
(1) 1% of the then outstanding shares of common stock (approximately 500,000
shares after the offerings); and
(2) the average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the date on
which notice of the sale is filed with the SEC.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about Neuberger
Berman and may be effected only through unsolicited brokers' transactions.
A person who is not deemed an "affiliate" of Neuberger Berman at any time
during the 90 days preceding a sale would (but for the Stockholders Agreement
described above and the "lock-up" arrangements described below) be entitled to
sell his, her or its Restricted Shares under Rule 144 without regard to the
volume or other limitations described above, provided that two years have
elapsed since the Restricted Shares were acquired from Neuberger Berman or an
affiliate of Neuberger Berman.
Neuberger Berman and the selling stockholders have agreed that, during the
period beginning from the date of this prospectus and continuing to and
including the date 180 days after the date of this prospectus, we and they will
not, directly or indirectly, offer, sell, contract to sell or otherwise dispose
of any shares of common stock or any securities of Neuberger Berman which are
substantially similar to the shares of the common stock or which are convertible
into or exchangeable for securities which are substantially similar to the
shares of common stock (other than, in our case, pursuant to our existing
employee compensation plans) without the prior written consent of the
representatives of the underwriters, except for the shares of common stock
offered in connection with the offerings. In addition, the Stockholders
Agreement places significant restrictions on the transfer of shares of common
stock received through the Exchange by the Neuberger Berman principals and their
Family Affiliates. See "Certain Relationships and Related Transactions--
Stockholders Agreement".
No prediction can be made as to the effect, if any, that market sales of
Restricted Shares or the availability of such Restricted Shares for such sales
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the common stock and could impair our future ability to raise capital through an
offering of our equity securities. See "Risk Factors--Our Share Price May
Decline Due to the Large Numbers of Shares Eligible for Future Sale".
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VALIDITY OF SHARES
The validity of the shares of common stock will be passed upon for Neuberger
Berman and the Selling Stockholders by Debevoise & Plimpton, New York, New York
and for the underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The audited combined financial statements of Neuberger Berman, LLC and
subsidiaries and Neuberger Berman Management Inc. included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
AVAILABLE INFORMATION
Upon completion of the offerings, Neuberger Berman will be required to file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any documents filed by us at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our filings with the SEC are also available to the public through the
SEC's Internet site at http://www.sec.gov and through the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which our common stock
is listed. After the offerings, we expect to provide annual reports to our
stockholders that include financial information reported on by our independent
public accountants.
We have filed a registration statement on Form S-1 with the SEC. This
prospectus is a part of the registration statement and does not contain all of
the information in the registration statement. Whenever a reference is made in
this prospectus to a contract or other document of Neuberger Berman, please be
aware that such reference is not necessarily complete and that you should refer
to the exhibits that are a part of the registration statement for a copy of the
contract or other document. You may review a copy of the registration statement
at the SEC's public reference room in Washington, D.C., as well as through the
SEC's Internet site.
85
<PAGE>
UNDERWRITING
Neuberger Berman, the selling stockholders and the underwriters for the U.S.
offering (the "U.S. underwriters") named below have entered into an underwriting
agreement with respect to the shares being offered in the United States. Subject
to certain conditions, each U.S. underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc., CIBC World
Markets Corp., Donaldson, Lufkin & Jenrette Securities Corporation and Schroder
& Co. Inc. are the representatives of the U.S. underwriters.
<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
- -------------------------------------------------------- ------------------
<S> <C>
Goldman, Sachs & Co.....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
Morgan Stanley & Co. Incorporated.......................
Salomon Smith Barney Inc................................
Bear, Stearns & Co. Inc. ...............................
CIBC World Markets Corp.................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Schroder & Co. Inc. ....................................
----------
Total................................................. 6,250,000
----------
----------
</TABLE>
------------------
If the U.S. underwriters sell more shares than the total number set forth in
the table above, the U.S. underwriters have an option to buy up to an additional
937,500 shares from the selling stockholders to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the U.S. underwriters will severally purchase shares in approximately
the same proportion as set forth in the table above.
Neuberger Berman and the selling stockholders will sell the shares to the
underwriters at a per share price of $ , which represents a $ (or %)
discount from the initial public offering price set forth on the cover page of
this prospectus. This discount is the underwriters' compensation. The following
table shows the per share and total underwriting discounts and commissions to be
paid to the U.S. underwriters by Neuberger Berman and the selling stockholders.
In the case of the selling stockholders, such amounts are shown assuming both no
exercise and full exercise of the U.S. underwriters' option to purchase 937,500
additional shares.
<TABLE>
<CAPTION>
Paid by Neuberger Berman Inc.
-------------------------------
<S> <C>
Per Share.................................. $
Total...................................... $
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
---------------------------
No Exercise Full Exercise
------------ -------------
<S> <C> <C>
Per Share............................... $ $
Total................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover page of this
prospectus. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to $ per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares are
not sold at the initial public offering price,
86
<PAGE>
the representatives may change the offering price and the other selling terms.
Neuberger Berman and the selling stockholders have entered into an
underwriting agreement with the underwriters for the sale of 1,000,000 shares
outside of the United States. The terms and conditions of both offerings are the
same and the sale of shares in both offerings are conditioned on each other.
Goldman Sachs International, Merrill Lynch International, Morgan Stanley & Co.
International Limited, Salomon Brothers International Limited, Bear, Stearns
International Limited, CIBC World Markets International Limited, Donaldson,
Lufkin & Jenrette International and J. Henry Schroder & Co. Limited are
representatives of the underwriters for the international offering outside of
the United States. The selling stockholders have granted the international
underwriters an option similar to that described above to purchase up to an
aggregate of an additional 150,000 shares.
Neuberger Berman, the selling stockholders, and all of the directors and
executive officers of Neuberger Berman, have agreed not to dispose of or hedge
any of their common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co., and except pursuant to
existing employee compensation plans. See "Shares Available for Future Sale" for
a discussion of certain transfer restrictions.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among Neuberger Berman and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Neuberger Berman's historical performance, estimates of the
business potential and earnings prospects of Neuberger Berman, an assessment of
Neuberger Berman's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
Neuberger Berman intends to list the common stock on the New York Stock
Exchange under the symbol "NEU". In order to meet one of the requirements for
listing the common stock on the New York Stock Exchange, the underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offerings are in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the New York
Stock Exchange, in the over-the-
counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Neuberger Berman estimates that total expenses of the offerings, excluding
underwriting discounts and commissions, will be approximately $2,100,000.
87
<PAGE>
Neuberger Berman and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
Goldman, Sachs & Co. has in the past provided, and may in the future from
time to time provide investment banking and financial advisory services to
Neuberger Berman for which Goldman, Sachs & Co. has in the past received, and
may in the future receive, customary fees.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside of the
United States, to persons located in the United States.
Since two subsidiaries of Neuberger Berman Inc., Neuberger Berman, LLC and
Neuberger Berman Management Inc., are members of the NASD, this offering is
being made pursuant to the applicable provisions of NASD Conduct Rule 2720. That
rule requires that the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter", as defined by the NASD.
Goldman, Sachs & Co. has served in that capacity and performed due diligence
investigations and reviewed and participated in the preparation of the
registration statement of which this prospectus forms a part. Goldman, Sachs &
Co. will receive $10,000 from Neuberger Berman as compensation for such role. No
NASD member may make sales to a discretionary account without the prior specific
written approval of the customer.
88
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES AND
NEUBERGER BERMAN MANAGEMENT INC.
Report of Independent Public Accountants................................................................... F-2
Combined Statements of Financial Condition as of December 31, 1997 and 1998 (audited) and as of June 30,
1999 (unaudited)......................................................................................... F-3
Combined Statements of Income for the Years Ended December 1996, 1997 and 1998 (audited) and the Six Months
Ended June 1998 and June 1999 (unaudited)................................................................ F-4
Combined Statements of Changes in Principals' Capital and Stockholders' Equity for the Years Ended December
1996, 1997 and 1998 (audited) and the Six Months Ended June 1999 (unaudited)............................. F-5
Combined Statements of Cash Flows for the Years Ended December 1996, 1997 and 1998 (audited) and the Six
Months Ended June 1998 and June 1999 (unaudited)......................................................... F-6
Notes to Combined Financial Statements..................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Principals and Stockholders of Neuberger Berman, LLC and subsidiaries and
Neuberger
Berman Management Inc.:
We have audited the accompanying combined statements of financial condition
of Neuberger Berman, LLC and subsidiaries and Neuberger Berman Management Inc.
as of December 31, 1997 and 1998, and the related combined statements of income,
changes in principals' capital and 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 the Company'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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neuberger Berman, LLC and
subsidiaries and Neuberger Berman Management Inc. as of December 31, 1997 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/Arthur Andersen LLP
New York, New York
February 16, 1999
F-2
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
COMBINED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ------------
<S> <C> <C> <C>
1997 1998 1999
---------- ---------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 103,446 $ 50,383 $ 46,604
Cash and securities segregated for the exclusive benefit of
clients...................................................... 220,062 657,278 569,663
Cash and securities deposited with clearing organizations...... 3,628 3,591 3,623
Securities purchased under agreements to resell................ 284,435 496,769 96,400
Receivable from brokers, dealers and clearing organizations.... 1,185,719 2,223,870 1,757,489
Receivable from clients........................................ 539,627 326,235 521,314
Securities owned, at market value.............................. 10,102 12,189 17,343
Fees receivable................................................ 13,198 13,070 12,017
Furniture, equipment and leasehold improvements, at cost, net
of accumulated depreciation and amortization of $19,712,
$19,169 and $19,493 at December 31, 1997 and 1998 and June
30, 1999, respectively....................................... 22,023 25,194 27,121
Other assets................................................... 27,973 20,856 19,035
---------- ---------- ------------
Total assets............................................... $2,410,213 $3,829,435 $3,070,609
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES, PRINCIPALS' CAPITAL AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans................................................... $ 10,000 $ 25,000 $ 29,000
Securities sold under agreements to repurchase............... 289,416 488,159 101,913
Payable to brokers, dealers and clearing organizations....... 582,395 1,368,971 1,102,863
Payable to clients........................................... 1,218,749 1,624,894 1,571,609
Securities sold but not yet purchased, at market value....... 38,096 50,410 18,542
Other liabilities and accrued expenses....................... 46,756 59,138 51,780
Payable to principals........................................ 65,770 53,664 35,703
---------- ---------- ------------
2,251,182 3,670,236 2,911,410
---------- ---------- ------------
Subordinated liability....................................... -- 50,000 50,000
---------- ---------- ------------
Commitments and contingencies.................................. -- -- --
Principals' capital and stockholders' equity:
Principals' capital.......................................... 150,000 100,000 100,000
Common stock, $.01 par value; 34,484 shares authorized,
12,500, 12,668 and 12,500 issued and outstanding as of
December 31, 1997 and 1998 and June 30, 1999,
respectively...............................................
Paid-in capital.............................................. 2,742 2,876 2,876
Retained earnings............................................ 6,289 6,323 6,323
---------- ---------- ------------
Total principals' capital and stockholders' equity......... 159,031 109,199 109,199
---------- ---------- ------------
Total liabilities, principals' capital and stockholders'
equity................................................... $2,410,213 $3,829,435 $3,070,609
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
F-3
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER JUNE
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Investment advisory and administrative
fees................................. $ 260,775 $ 327,898 $ 378,838 $ 194,401 $ 184,398
Commissions............................ 109,621 124,911 145,969 67,845 74,248
Interest............................... 143,928 154,280 164,781 79,753 76,739
Principal transactions in securities... 10,758 7,838 5,983 2,702 5,115
Clearance fees......................... 8,152 8,332 11,311 4,886 5,214
Other income........................... 2,678 3,796 4,584 2,374 2,854
--------- --------- --------- --------- ---------
Gross revenues....................... 535,912 627,055 711,466 351,961 348,568
Interest expense....................... 119,798 124,530 137,330 66,095 65,153
--------- --------- --------- --------- ---------
Net revenues after interest
expense............................ 416,114 502,525 574,136 285,866 283,415
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Employee compensation and benefits..... 106,431 114,617 139,693 65,146 71,065
Information technology................. 12,954 13,642 15,155 7,429 8,730
Rent and occupancy..................... 9,189 9,882 12,493 5,685 6,557
Brokerage, clearing and exchange
fees................................. 11,319 12,727 12,437 5,363 6,679
Advertising and sales promotion........ 12,732 14,915 14,955 7,035 6,123
Distribution and fund administration... 7,105 10,031 12,432 6,370 5,514
Professional fees...................... 4,486 5,165 12,546 4,187 4,934
Depreciation and amortization.......... 5,576 6,445 8,761 3,151 4,891
Income taxes........................... 8,851 8,857 9,506 4,805 4,552
Other expenses......................... 8,345 7,578 16,063 7,067 7,599
--------- --------- --------- --------- ---------
Total operating expenses............. 186,988 203,859 254,041 116,238 126,644
--------- --------- --------- --------- ---------
Net income before principal
compensation....................... 229,126 298,666 320,095 169,628 156,771
Principal compensation............... 27,045 33,684 35,144 19,925 15,690
--------- --------- --------- --------- ---------
Net income........................... $ 202,081 $ 264,982 $ 284,951 $ 149,703 $ 141,081
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
F-4
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
COMBINED STATEMENTS OF CHANGES IN PRINCIPALS' CAPITAL
AND STOCKHOLDERS' EQUITY
(SIX MONTHS ENDED JUNE 30, 1999 UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPALS' COMMON PAID-IN RETAINED TOTAL
CAPITAL STOCK CAPITAL EARNINGS COMBINED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
December 31, 1995................ $ 30,000 $ -- $ 742 $ 7,027 $ 37,769
Capital contributions.............. 120,000 -- -- -- 120,000
Capital distributions and
dividends........................ (185,389) -- -- (16,461) (201,850)
Net income......................... 185,389 -- -- 16,692 202,081
----------- ----------- ----------- ----------- -----------
ENDING BALANCE,
December 31, 1996................ 150,000 -- 742 7,258 158,000
Capital contributions.............. 9,196 -- -- -- 9,196
Capital withdrawals................ (9,196) -- -- -- (9,196)
Capital distributions and
dividends........................ (230,639) -- -- (35,312) (265,951)
Common stock issuance.............. -- -- 2,000 -- 2,000
Net income......................... 230,639 -- -- 34,343 264,982
----------- ----------- ----------- ----------- -----------
ENDING BALANCE,
December 31, 1997................ 150,000 -- 2,742 6,289 159,031
Capital contributions.............. 12,660 -- -- -- 12,660
Capital withdrawals................ (62,660) -- -- -- (62,660)
Capital distributions and
dividends........................ (247,509) -- -- (37,408) (284,917)
Common stock issuance.............. -- -- 134 -- 134
Net income......................... 247,509 -- -- 37,442 284,951
----------- ----------- ----------- ----------- -----------
ENDING BALANCE,
December 31, 1998................ 100,000 -- 2,876 6,323 109,199
Capital contributions.............. 525 -- -- -- 525
Capital withdrawals................ (525) -- -- -- (525)
Capital distributions and
dividends........................ (126,245) -- -- (14,836) (141,081)
Net income......................... 126,245 -- -- 14,836 141,081
----------- ----------- ----------- ----------- -----------
ENDING BALANCE, June 30, 1999...... $ 100,000 $ -- $ 2,876 $ 6,323 $ 109,199
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
F-5
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER JUNE
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 202,081 $ 264,982 $ 284,951 $ 149,703 $ 141,081
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization.......................... 5,576 6,445 8,761 3,151 4,891
(Increase) decrease in operating assets-
Cash and securities segregated for the exclusive
benefit of clients................................... 150,847 (88,058) (437,216) (89,172) 87,615
Cash and securities deposited with clearing
organizations........................................ (1,371) (473) 37 (23) (32)
Securities purchased under agreements to resell........ (76,264) (208,171) (212,334) 23,016 400,369
Receivable from brokers, dealers and clearing
organizations........................................ (475,277) 457,950 (1,038,151) (314,944) 466,381
Receivable from clients................................ (51,726) (71,079) 213,392 (26,964) (195,079)
Securities owned, at market value...................... 18,526 (6,220) (2,087) (2,294) (5,154)
Fees receivable........................................ (2,344) (3,797) 128 (1,502) 1,053
Other assets........................................... 15,618 (1,375) 7,117 4,883 1,821
Increase (decrease) in operating liabilities-
Bank loans............................................. 5,000 (29,000) 15,000 174,000 4,000
Securities sold under agreements to repurchase......... 58,715 219,153 198,743 (36,397) (386,246)
Payable to brokers, dealers and clearing
organizations........................................ 445,825 (179,628) 786,576 413,206 (266,108)
Payable to clients..................................... (127,958) (77,973) 406,145 (211,137) (53,285)
Securities sold but not yet purchased, at market
value................................................ 2,595 (3,993) 12,314 32,420 (31,868)
Other liabilities and accrued expenses................. 2,037 7,567 12,382 2,690 (7,358)
--------- --------- ---------- --------- ---------
Net cash provided by operating activities................ 171,880 286,330 255,758 120,636 162,081
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Payments for purchases of furniture, equipment and
leasehold improvements............................... (6,399) (9,531) (11,932) (5,756) (6,818)
--------- --------- ---------- --------- ---------
Cash used in investing activity...................... (6,399) (9,531) (11,932) (5,756) (6,818)
--------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contributions.................... 120,000 9,196 12,660 8,410 525
Payments for capital withdrawals....................... -- (9,196) (62,660) (8,410) (525)
Payments for capital distributions and dividends....... (210,960) (239,706) (297,023) (159,959) (159,042)
Common stock issuance.................................. -- 2,000 134 134 --
Proceeds from subordinated liability................... -- -- 50,000 -- --
Repayment of subordinated liabilities.................. (70,000) -- -- -- --
--------- --------- ---------- --------- ---------
Net cash used in financing activities................ (160,960) (237,706) (296,889) (159,825) (159,042)
--------- --------- ---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 4,521 39,093 (53,063) (44,945) (3,779)
CASH AND CASH EQUIVALENTS, beginning of period........... 59,832 64,353 103,446 103,446 50,383
--------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 64,353 $ 103,446 $ 50,383 $ 58,501 $ 46,604
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest............................................. $ 120,449 $ 128,220 $ 138,042 $ 66,734 $ 65,263
Taxes................................................ 8,211 9,277 3,450 3,061 1,276
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these statements.
F-6
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The Combined Financial Statements include the accounts of Neuberger Berman,
LLC and subsidiaries ("NB, LLC"), a Delaware limited liability company, and
Neuberger Berman Management Inc. ("NBMI"), a New York corporation (collectively,
the "Company"). The Company's wholly owned subsidiaries are Neuberger Berman
Trust Company, a New York corporation, Neuberger Berman Trust Company of
Delaware, a Delaware corporation, Neuberger Berman Trust Company of Florida, a
Florida corporation, and Neuberger & Berman Agency Incorporated, a New York
corporation. Material intercompany transactions and balances have been
eliminated in combination.
Neuberger Berman Inc. ("NBI") plans to sell shares of its common stock in an
initial public offering, which will result in new stockholders owning a portion
of NBI. Prior to the offering, the principals of NB, LLC and the stockholders of
NBMI (collectively, the "principals") will exchange their ownership interests
for shares of NBI (the "Exchange"). The percentage ownership interest of the
principals in each of the combining entities are the same and will be the same
immediately after the Exchange. The Combined Financial Statements present the
financial condition and results of operations of NB, LLC and NBMI on a combined
basis, as the entities operate under common management and there is identical
common ownership. The Company's Combined Financial Statements do not include the
financial condition and results of operations of NB Associates, LLC
("Associates"), a Delaware limited liability company, which is commonly owned by
the principals and was established to make a subordinated loan to the Company
(see Note 7).
The Company is a registered investment adviser providing investment
management services to high net worth clients, mutual funds and institutional
clients. As a registered investment adviser, the Company manages equity, fixed
income, balanced, socially responsive, and international portfolios for
individuals, families, endowments, foundations, trusts, employee benefit plans,
and advises the Neuberger Berman family of funds. As a registered broker-dealer,
the Company executes securities transactions for its clients and others and
provides prime brokerage and correspondent clearing services to other firms.
2. UNAUDITED INTERIM COMBINED FINANCIAL INFORMATION
The interim combined financial information as of June 30,1999 and for the
six months ended June 26, 1998 and June 30, 1999 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations for such periods. The results for the
interim period ended June 30, 1999 are not necessarily indicative of the results
to be obtained for a full fiscal year.
3. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The Combined Financial Statements are prepared in
accordance with generally accepted accounting principles. The preparation of the
financial statements requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Management does not
believe that actual results will differ materially from these estimates.
F-7
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES TRANSACTIONS--Securities owned and securities sold but not yet
purchased are valued at market. Principal transactions in securities and the
related revenues and expenses are recorded on a trade date basis. Client
transactions in securities and the related commission income are recorded on a
settlement date basis, which is not materially different from trade date.
CASH AND CASH EQUIVALENTS--For purposes of the Combined Statements of
Financial Condition, the Company considers all investments in money market funds
to be cash equivalents.
INVESTMENT ADVISORY AND ADMINISTRATIVE FEES--The majority of investment
advisory fees earned from institutional and high net worth clients are charged
or billed to accounts quarterly based upon the account's net asset value at the
beginning of a quarter. Investment advisory and administrative fees earned from
the Company's mutual fund business (the "Funds") are charged monthly to the
Funds based upon average daily net assets under management.
DEPRECIATION AND AMORTIZATION--Leasehold improvements are amortized using
the straight-line method over the lesser of the economic life of the improvement
or the life of the lease. Depreciation of furniture and equipment is computed by
various methods over the useful life of the asset.
COLLATERALIZED FINANCING TRANSACTIONS--Securities purchased and sold under
agreements to resell and repurchase, respectively, as well as securities
borrowed and loaned for which cash is deposited or received, are treated as
collateralized financing transactions and are recorded at contract amount.
COLLATERAL--The Company continues to report assets as owned when they are
pledged as collateral in secured financing arrangements and the secured party
cannot sell or repledge the assets or the Company can substitute collateral or
otherwise redeem it on short notice. The Company continues not to report
securities received as collateral in secured financing arrangements because the
debtor typically has the right to substitute or redeem the collateral on short
notice.
PAYABLE TO PRINCIPALS--The Company accrues substantially all undistributed
net income as payable to principals.
ACCOUNTING DEVELOPMENTS--In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. SFAS No. 133 is effective prospectively on
January 1, 2001 for calendar year companies. The impact of the provisions of
SFAS No. 133 is not anticipated to have a material effect on the financial
condition or results of operations of the Company.
The Company intends to change its depreciation method for furniture and
equipment purchased subsequent to the third quarter of 1999 from various
accelerated methods to the straight line method of depreciation. The impact of
this change in accounting principle is not anticipated to have a material effect
on the financial condition or results of operations of the Company.
F-8
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM AND PAYABLE TO CLIENTS
Receivable from and payable to clients represent amounts due from or to
clients of the Company in connection with cash and margin securities
transactions. Amounts receivable are collateralized by clients' securities held
by NB, LLC and by others for delivery to NB, LLC, the value of which is not
reflected in the accompanying Combined Financial Statements.
5. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING
ORGANIZATIONS
As of December 31, 1997 and 1998, amounts receivable from and payable to
brokers, dealers and clearing organizations include approximately $1,173 million
and $2,203 million of securities borrowed and $555 million and $1,347 million of
securities loaned, respectively. Certain stock loan transactions are entered
into for financing purposes. The interest expense incurred on these transactions
was $2,396,000 and $341,000 for the year ended December 31, 1998, and the six
months ended June 30, 1999 (unaudited), respectively.
6. BANK LOANS
As of December 31, 1997 and 1998 and June 30, 1999 (unaudited), bank loans
represent unsecured short-term borrowings payable to commercial banks and bear
weighted average interest at rates of 5.73%, 5.76% and 5.01%, respectively. For
the years ended December 31, 1996, 1997 and 1998, and the six months ended June
30, 1999 (unaudited), interest expense incurred on these borrowings was
approximately $1,591,000, $2,486,000, $4,142,000 and $1,243,000, respectively.
7. SUBORDINATED LIABILITY
During 1998, the principals of the Company withdrew $50 million of capital
and invested it in the newly formed entity, Associates. Associates is owned by
the principals in the same proportion as the Company. Concurrently, Associates
loaned the $50 million to the Company in the form of a subordinated liability.
The subordinated liability matures on September 1,1999 and bears interest at
6.75% per annum. This subordinated liability has been approved by the New York
Stock Exchange to be included as capital for the purpose of computing net
capital under SEC rule 15c3-1.
Interest expense for the year ended December 31, 1998 incurred on the
subordinated liability was $1,137,000.
On March 30, 1999, the Company extended the maturity on the subordinated
liability to September 1, 2000 (unaudited).
8. NET INCOME BEFORE PRINCIPAL COMPENSATION
The Company has historically distributed substantially all of its net income
to its principals in the form of capital distributions and dividends. Certain
principals of NBMI were also paid through compensation expense, which is
presented as principal compensation in the accompanying Combined Statements of
Income.
F-9
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. NET CAPITAL
NB, LLC and NBMI, as registered broker-dealers and member firms of the New
York Stock Exchange, Inc. and the National Association of Securities Dealers,
Inc., respectively, are subject to the Uniform Net Capital Rule 15c3-1 of the
Securities and Exchange Commission, which requires that broker-dealers maintain
a minimum level of net capital, as defined. As of December 31, 1997 and 1998 and
June 30, 1999 (unaudited), NB, LLC and NBMI had combined net capital in the
aggregate of $141,220,677, $147,159,692 and $124,293,793, respectively, which
exceeded their combined requirements by $122,060,287, $125,137,104 and
$102,412,266, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space under lease agreements expiring on various
dates through 2013. These operating leases are subject to escalation based on
increases in costs incurred by the lessor. Minimum rentals, excluding
escalation, under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER (000'S OMITTED)
- ----------------------------------------------------------- ---------------
<S> <C>
1999....................................................... $ 10,570
2000....................................................... 11,000
2001....................................................... 11,000
2002....................................................... 10,905
2003....................................................... 10,106
Thereafter................................................. 35,637
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$7,878,901, $8,282,073 and $9,939,073, respectively.
The Company has satisfied margin requirements with clearing organizations by
obtaining letters of credit in favor of the clearing organizations. Open
unsecured letters of credit as of December 31, 1997 and 1998 and June 30, 1999
(unaudited) were $7,500,000, $9,000,000 and $14,312,000, respectively. Unused
committed lines of credit were $150,000,000 as of December 31, 1997 and 1998 and
June 30, 1999 (unaudited).
In the normal course of business, the Company is subject to various legal
proceedings. In the opinion of management, based on discussions with legal
counsel, the resolution of pending proceedings will not have a material adverse
effect on the financial condition or results of operations of the Company.
11. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans consisting of an employee
profit-sharing plan and a money purchase pension plan covering all full-time
employees and qualifying part-time employees who have completed one year of
continuous service, as defined. Contributions to the plans, which are at the
discretion of management, are determined annually but do not exceed the amount
permitted under the Internal Revenue Code as a deductible expense. Contributions
to the
F-10
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
plans for the years ended December 31, 1996, 1997 and 1998 were $6,625,601,
$7,225,518 and $7,626,106, respectively.
12. TAXES
Federal income taxes have not been provided on the net income of NB, LLC, as
principals are individually liable for their own tax payments, except NB, LLC is
subject to New York City unincorporated business tax ("UBT"). NBMI elected to be
taxed as an S Corporation and, as such, income tax expense represents state and
local taxes.
The following represents the components of taxes included in income taxes on
the combined statements of income (000's omitted):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER JUNE
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
UBT............................................... $ 7,630 $ 6,157 $ 7,136 $ 3,240 $ 3,463
State and local................................... 1,221 2,700 2,370 1,565 1,089
--------- --------- --------- --------- ---------
$ 8,851 $ 8,857 $ 9,506 $ 4,805 $ 4,552
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all financial instruments carried at contract value, such as
receivable and payable to clients, brokers and dealers, repurchase agreements
and fees receivable, approximate market value due to their relatively short-term
nature or variable market rates of interest.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
In the normal course of business, the Company enters into various debt and
equity transactions as principal or agent. The execution, settlement and
financing of these transactions can result in off-balance sheet risk or
concentrations of credit risk.
The Company has a high net worth and institutional client base. The Company
records client securities transactions on a settlement date basis, which is
generally three business days after trade date. The Company is exposed to
off-balance sheet risk of loss on unsettled transactions in the event clients
and other counterparties are unable to fulfill contractual obligations.
The Company's policy is to continuously monitor its exposure to market and
counterparty risk through the use of a variety of credit exposure, position and
financial reporting and control procedures. In addition, the Company has a
policy of reviewing the credit standing, where applicable, of each
broker-dealer, client and other counterparty with which it conducts business.
The Company monitors the market value of collateral and requests and receives
additional collateral when required.
F-11
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK (CONTINUED)
For transactions in which the Company extends credit to clients and
non-clients, the Company seeks to control the risks associated with these
activities by requiring clients and non-clients to maintain margin collateral in
compliance with various regulatory and internal guidelines. The Company monitors
required margin levels daily and, pursuant to such guidelines, requests the
deposit of additional collateral, or reduces securities positions when
necessary. The Company's policy is to take possession of securities purchased
under agreements to resell.
SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", and SFAS No. 119, "Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments", require the disclosure of notional or
contractual amounts and other information about derivative financial instruments
that give rise to off-balance sheet risk. Notional amounts discussed below are
indicative only of the volume of activity. Notional amounts should not be
interpreted as a measure of actual market or credit risk; to do so could be
materially misleading.
As part of its prime brokerage clearing business, the Company writes covered
over-the-counter ("OTC") put options on listed equity securities with certain of
its prime brokerage clients. Market risk is mitigated as the options are
generally deep in the money and covered by an equivalent number of securities
sold but not yet purchased. The notional amounts of options sold were
approximately $36,031,000, $49,549,000 and $18,069,000 at December 31, 1997 and
1998 and June 30, 1999 (unaudited), respectively.
A summary of the fair value of OTC options included in the Combined
Statements of Financial Condition appears below. Averages are based on
quarter-end balances (000's omitted):
<TABLE>
<CAPTION>
LIABILITIES
------------------------
<S> <C> <C>
FAIR VALUE AVERAGE
----------- -----------
Option contracts:
December 31, 1997..................................... $ 7,798 $ 6,276
December 31, 1998..................................... $ 8,647 $ 9,828
June 30, 1999 (unaudited)............................. $ 2,394 $ 6,672
</TABLE>
The Company's net gain from such activity was approximately $1,165,000,
$1,940,000 and $941,000 for the years ended December 31, 1997 and 1998 and for
the six months ended June 30, 1999 (unaudited), respectively.
15. SEGMENT INFORMATION
The Company has elected to adopt early SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". This Statement introduces a
new approach to presenting
F-12
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION (CONTINUED)
reportable segments based upon how "chief decision makers" organize segments.
The following tables represent summarized information by operating segment
(000's omitted):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1996
----------------------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL
PRIVATE ASSET MUTUAL FUND AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
------------- ----------------- ------------- ---------
Investment advisory and
administrative fees............ $ 91,423 $ 169,326 $ 26 $ 260,775
Commissions...................... 68,209 15,260 26,152 109,621
Net interest income.............. 2,211 28 21,891 24,130
Principal transactions in
securities..................... -- 65 10,693 10,758
Clearance fees................... -- -- 8,152 8,152
Other income..................... 2 749 1,927 2,678
------------- ----------------- ------------- ---------
Net revenues after interest
expense........................ 161,845 185,428 68,841 416,114
Operating expenses............... 57,288 89,719 39,981 186,988
------------- ----------------- ------------- ---------
Net income before principal
compensation................... 104,557 95,709 28,860 229,126
Principal compensation........... -- 27,045 -- 27,045
------------- ----------------- ------------- ---------
Net income....................... $ 104,557 $ 68,664 $ 28,860 $ 202,081
------------- ----------------- ------------- ---------
------------- ----------------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL
PRIVATE ASSET MUTUAL FUND AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
------------- ----------------- ------------- ---------
Investment advisory and
administrative fees............ $ 116,816 $ 210,376 $ 706 $ 327,898
Commissions...................... 78,518 19,205 27,188 124,911
Net interest income.............. 3,087 18 26,645 29,750
Principal transactions in
securities..................... -- 238 7,600 7,838
Clearance fees................... -- -- 8,332 8,332
Other income..................... -- 1,015 2,781 3,796
------------- ----------------- ------------- ---------
Net revenues after interest
expense........................ 198,421 230,852 73,252 502,525
Operating expenses............... 62,619 103,122 38,118 203,859
------------- ----------------- ------------- ---------
Net income before principal
compensation................... 135,802 127,730 35,134 298,666
Principal compensation........... -- 33,684 -- 33,684
------------- ----------------- ------------- ---------
Net income....................... $ 135,802 $ 94,046 $ 35,134 $ 264,982
------------- ----------------- ------------- ---------
------------- ----------------- ------------- ---------
</TABLE>
F-13
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL
PRIVATE ASSET MUTUAL FUND AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
------------- ----------------- ------------- ---------
Investment advisory and
administrative fees............ $ 145,578 $ 231,792 $ 1,468 $ 378,838
Commissions...................... 89,705 25,352 30,912 145,969
Net interest income.............. 2,580 13 24,858 27,451
Principal transactions in
securities..................... 3 9 5,971 5,983
Clearance fees................... -- -- 11,311 11,311
Other income..................... 67 1,178 3,339 4,584
------------- ----------------- ------------- ---------
Net revenues after interest
expense........................ 237,933 258,344 77,859 574,136
Operating expenses............... 73,100 126,700 54,241 254,041
------------- ----------------- ------------- ---------
Net income before principal
compensation................... 164,833 131,644 23,618 320,095
Principal compensation........... -- 35,144 -- 35,144
------------- ----------------- ------------- ---------
Net income....................... $ 164,833 $ 96,500 $ 23,618 $ 284,951
------------- ----------------- ------------- ---------
------------- ----------------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 1998 (UNAUDITED)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL
PRIVATE ASSET MUTUAL FUND AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
------------- ----------------- ------------- ---------
Investment advisory and
administrative fees............ $ 72,546 $ 121,551 $ 304 $ 194,401
Commissions...................... 43,082 11,018 13,745 67,845
Net interest income.............. 1,140 5 12,513 13,658
Principal transactions in
securities..................... -- 86 2,616 2,702
Clearance fees................... -- -- 4,886 4,886
Other income..................... 39 521 1,814 2,374
------------- ----------------- ------------- ---------
Net revenues after interest
expense........................ 116,807 133,181 35,878 285,866
Operating expenses............... 36,342 58,898 20,998 116,238
------------- ----------------- ------------- ---------
Net income before principal
compensation................... 80,465 74,283 14,880 169,628
Principal compensation........... -- 19,925 -- 19,925
------------- ----------------- ------------- ---------
Net income....................... $ 80,465 $ 54,358 $ 14,880 $ 149,703
------------- ----------------- ------------- ---------
------------- ----------------- ------------- ---------
</TABLE>
F-14
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 1999 (UNAUDITED)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL
PRIVATE ASSET MUTUAL FUND AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
------------- ----------------- ------------- ---------
Investment advisory and
administrative fees............ $ 79,587 $ 104,038 $ 773 $ 184,398
Commissions...................... 48,026 10,838 15,384 74,248
Net interest income.............. 1,499 11 10,076 11,586
Principal transactions in
securities..................... -- 66 5,049 5,115
Clearance fees................... -- -- 5,214 5,214
Other income..................... 15 496 2,343 2,854
------------- ----------------- ------------- ---------
Net revenues after interest
expense........................ 129,127 115,449 38,839 283,415
Operating expenses............... 38,636 59,341 28,667 126,644
------------- ----------------- ------------- ---------
Net income before principal
compensation................... 90,491 56,108 10,172 156,771
Principal compensation........... -- 15,690 -- 15,690
------------- ----------------- ------------- ---------
Net income....................... $ 90,491 $ 40,418 $ 10,172 $ 141,081
------------- ----------------- ------------- ---------
------------- ----------------- ------------- ---------
</TABLE>
Due to the nature of the securities business, it is impractical to separate
assets related to reportable business segments.
16. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1997 and 1998, the Company earned
approximately $10,535,000, $13,969,000 and $19,779,000, respectively, in
brokerage commissions from the Funds.
Certain principals of the Company are officers and/or trustees of the Funds.
The Company also reimbursed certain Funds for expenses during the years ended
December 31, 1996, 1997 and 1998 of approximately $1,816,000, $1,503,000 and
$1,502,000, respectively, to the extent that such Funds exceeded their specified
expense limitations.
17. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1999, The Travelers Insurance Company loaned NB, LLC $35
million pursuant to a subordinated promissory note. This amount is payable on
September 1, 2004. Interest accrues on the unpaid principal amount of the loan
at a floating rate adjusted quarterly based on the three-month LIBOR rate plus
75 basis points and is payable quarterly. This loan was approved by the New York
Stock Exchange, and the unpaid principal amount is available to NB, LLC in
computing net capital under SEC Rule 15c3-1. The proceeds of the loan were used
to retire $35 million of subordinated debt outstanding held by Associates.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Pro Forma Combined Financial
Statements (Unaudited).............. 19
Selected Historical Combined Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 40
Management............................ 56
Security Ownership by Management and
Principal Stockholders.............. 71
Certain Relationships and Related
Transactions........................ 73
Selling Stockholders.................. 76
Description of Capital Stock.......... 82
Shares Eligible for Future Sale....... 84
Validity of Shares.................... 85
Experts............................... 85
Available Information................. 85
Underwriting.......................... 86
Index to Combined Financial
Statements.......................... F-1
</TABLE>
--------------
Through and including , 1999 (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 an underwriter and with respect to an unsold allotment or
subscription.
7,250,000 Shares
NEUBERGER BERMAN INC.
Common Stock
-------------
[LOGO]
-------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
DONALDSON, LUFKIN & JENRETTE
SCHRODER & CO. INC.
Representatives of the underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered in the Offerings
other than underwriting discounts and commissions. Neuberger Berman Inc. (the
"Company") has agreed to bear these expenses in connection with the sale of
shares by the Company and by the Selling Stockholders.
<TABLE>
<S> <C>
SEC Registration fee........................................................... $ 81,124
National Association of Securities Dealers filing fee.......................... 29,681
New York Stock Exchange listing fee............................................ 205,300
Accounting fees and expenses................................................... 200,000
Legal fees and expenses........................................................ 1,000,000
Printing and engraving......................................................... 350,000
Transfer Agent's fees.......................................................... 30,000
Miscellaneous expenses......................................................... 203,895
----------
Total.......................................................................... $2,100,000
----------
----------
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the
corporation's best interests, and, for criminal proceedings, had no reasonable
cause to believe his or her conduct was illegal. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his or her duty. Where a present
or former officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such person actually and reasonably incurred.
Article VI of the Company's by-laws provides for indemnification by the
Company of its directors and officers to the full extent permitted by the
Delaware law.
Pursuant to specific authority granted by Section 102 of the DGCL, Article
VII of the Company's certificate of incorporation contains the following
provision regarding limitation of liability of directors and officers:
"(VII) No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his or her fiduciary duty as
a director, provided that nothing
II-1
<PAGE>
contained in this Certificate of Incorporation shall eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law, (c)
under Section 174 of the General Corporation Law of the State of Delaware or (d)
for any transaction from which the director derived an improper personal
benefit".
Reference is hereby made to Section 8 of the Underwriting Agreement filed as
Exhibit 1.1 hereto, for certain indemnification arrangements.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three-year period ended August 4, 1999, the registrant sold the
following securities without registration under the Securities Act:
On August 2, 1999, the registrant, the Neuberger Berman principals and their
Family Affiliates entered into a definitive agreement (the "Plan of Merger and
Exchange Agreement") providing for the Exchange pursuant to which the principals
and their Family Affiliates will receive by way of exchange or merger, as the
case may be, shares of common stock. These issuances of common stock to a
limited number of sophisticated investors are exempt from the registration
provisions of the Securities Act in reliance on Regulation D under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
(a) Attached hereto are the following exhibits:
<TABLE>
<C> <S>
1.1*** Form of Underwriting Agreement
1.2*** Form of International Underwriting Agreement
2.1* Plan of Merger and Exchange Agreement, dated as of August 2, 1999, by and among
Neuberger Berman Inc., Neuberger Berman, LLC, the members of Neuberger Berman,
LLC, Neuberger Berman Management Inc., the stockholders of Neuberger Berman
Management Inc. and Neuberger Berman Sub Inc., a New York corporation
3.1* Certificate of Incorporation
3.2* By-Laws
4.1 Specimen of Common Stock Certificate
4.2* Stockholders Agreement, dated as of August 2, 1999, by and among Neuberger
Berman Inc. and the stockholders named therein
5.1 Opinion of Debevoise & Plimpton as to the legality of the securities being
registered
10.1** 1999 Neuberger Berman Inc. Directors Stock Incentive Plan
10.2 1999 Neuberger Berman Inc. Long-Term Incentive Plan
10.3** 1999 Neuberger Berman Inc. Annual Incentive Plan
10.4 1999 Neuberger Berman Inc. Deferred Compensation Plan
10.5 Neuberger Berman Inc. Employee Defined Contribution Stock Incentive Plan
10.6* Non-Competition Agreement, dated as of August 2, 1999, by and among Neuberger
Berman Inc. and the stockholders named therein
10.7* Form of Employment Agreement, dated August 2, 1999, between Neuberger Berman,
LLC and each continuing principal
10.8 Subordinated Loan Agreement, dated August 31, 1998, between Neuberger Berman,
LLC and NB Associates, LLC
10.9 First Amendment, dated March 30, 1999, to Subordinated Loan Agreement, dated
August 31, 1998, between Neuberger Berman, LLC and NB Associates, LLC
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Second Amendment, dated September 1, 1999, to Subordinated Loan Agreement, dated
August 31, 1998, between Neuberger Berman, LLC and NB Associates, LLC
10.11 $15,000,000 Promissory Note due September 1, 2000, issued by Neuberger Berman,
LLC to NB Associates, LLC on September 1, 1999
10.12 Subordinated Note Purchase Agreement, dated September 1, 1999, between Neuberger
Berman, LLC and The Travelers Insurance Company
10.13 $10,000,000 Floating Rate Subordinated Note due September 1, 2004, issued by
Neuberger Berman, LLC to Tral & Co. on September 1, 1999
10.14 $25,000,000 Floating Rate Subordinated Note due September 1, 2004, issued by
Neuberger Berman, LLC to Tral & Co. on September 1, 1999
21.1* Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature page)
27* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed on August 4, 1999.
** Previously filed on September 3, 1999.
*** To be filed by amendment.
(b) Attached hereto are the following schedules: None.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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 SEC 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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 requirement of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement (Registration
No. 333-84525) to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on September 14, 1999.
<TABLE>
<S> <C> <C>
NEUBERGER BERMAN INC.
/s/ JEFFREY B. LANE
-----------------------------------------
Name: Jeffrey B. Lane
Title: President and Chief Executive
Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ LAWRENCE ZICKLIN* Chairman of the Board of
- ------------------------------ Directors September 14, 1999
Lawrence Zicklin
/s/ RICHARD A. CANTOR* Vice Chairman and Director
- ------------------------------ September 14, 1999
Richard A. Cantor
/s/ MARVIN C. SCHWARTZ* Vice Chairman and Director
- ------------------------------ September 14, 1999
Marvin C. Schwartz
President, Chief Executive
/s/ JEFFREY B. LANE Officer and Director
- ------------------------------ (Principal Executive September 14, 1999
Jeffrey B. Lane Officer)
/s/ MICHAEL M. KASSEN* Executive Vice President,
- ------------------------------ Chief Investment Officer September 14, 1999
Michael M. Kassen and Director
/s/ ROBERT MATZA* Executive Vice President,
- ------------------------------ Chief Administrative September 14, 1999
Robert Matza Officer and Director
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ HEIDI L. SCHNEIDER* Executive Vice President
- ------------------------------ and Director September 14, 1999
Heidi L. Schneider
/s/ PETER E. SUNDMAN* Executive Vice President
- ------------------------------ and Director September 14, 1999
Peter E. Sundman
Senior Vice President and
/s/ PHILIP AMBROSIO* Chief Financial Officer
- ------------------------------ (Principal Financial and September 14, 1999
Philip Ambrosio Accounting Officer)
</TABLE>
*By: /s/ JEFFREY B. LANE
- ------------------------
Jeffrey B. Lane
Attorney-in-fact**
- ------------------------
** Pursuant to the power of attorney filed as part of the signature page to the
Registration Statement on Form S-1, No. 333-84525, filed August 4, 1999.
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1*** Form of Underwriting Agreement
1.2*** Form of International Underwriting Agreement
2.1* Plan of Merger and Exchange Agreement, dated as of August 2, 1999, by and among Neuberger
Berman Inc., Neuberger Berman, LLC, the members of Neuberger Berman, LLC, Neuberger Berman
Management Inc., the stockholders of Neuberger Berman Management Inc. and Neuberger Berman Sub
Inc., a New York corporation
3.1* Certificate of Incorporation
3.2* By-Laws
4.1 Specimen of Common Stock Certificate
4.2* Stockholders Agreement, dated as of August 2, 1999, by and among Neuberger Berman Inc. and the
stockholders named therein
5.1 Opinion of Debevoise & Plimpton as to the legality of the securities being registered
10.1** 1999 Neuberger Berman Inc. Directors Stock Incentive Plan
10.2 1999 Neuberger Berman Inc. Long-Term Incentive Plan
10.3** 1999 Neuberger Berman Inc. Annual Incentive Plan
10.4 1999 Neuberger Berman Inc. Deferred Compensation Plan
10.5 Neuberger Berman Inc. Employee Defined Contribution Stock Incentive Plan
10.6* Non-Competition Agreement, dated as of August 2, 1999, by and among Neuberger Berman Inc. and
the stockholders named therein
10.7* Form of Employment Agreement, dated August 2, 1999, between Neuberger Berman, LLC and each
continuing principal
10.8 Subordinated Loan Agreement, dated August 31, 1998, between Neuberger Berman, LLC and NB
Associates, LLC
10.9 First Amendment, dated March 30, 1999, to Subordinated Loan Agreement, dated August 31, 1998,
between Neuberger Berman, LLC and NB Associates, LLC
10.10 Second Amendment, dated September 1, 1999, to Subordinated Loan Agreement, dated August 31,
1998, between Neuberger Berman, LLC and NB Associates, LLC
10.11 $15,000,000 Promissory Note due September 1, 2000, issued by Neuberger Berman, LLC to NB
Associates, LLC on September 1, 1999
10.12 Subordinated Note Purchase Agreement, dated September 1, 1999, between Neuberger Berman, LLC
and The Travelers Insurance Company
10.13 $10,000,000 Floating Rate Subordinated Note due September 1, 2004, issued by Neuberger Berman,
LLC to Tral & Co. on September 1, 1999
10.14 $25,000,000 Floating Rate Subordinated Note due September 1, 2004, issued by Neuberger Berman,
LLC to Tral & Co. on September 1, 1999
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
21.1* Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature page)
27* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed on August 4, 1999.
** Previously filed on September 3, 1999.
*** To be filed by amendment.
II-7
<PAGE>
Exhibit 4.1
COMMON STOCK
[Vignette]
[Neuberger Berman logo]
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY
CUSIP 641234 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
Neuberger Berman Inc.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.01
EACH OF THE COMMON STOCK OF
Neuberger Berman Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate, properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[NEUBERGER BERMAN INC. CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
<PAGE>
AUTHORIZED SIGNATURE
/s/ C. Carl Randolph
SECRETARY
/s/ Jeffrey B. Lane
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEUBERGER BERMAN INC.
The Corporation will furnish without charge to each shareholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ___________ Custodian ____________
(Cust.) (Minor)
under Uniform Gifts to Minors Act ________
(State)
Additional abbreviations may be used though not in the above list.
For value received, _________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------
- ------------------------
<PAGE>
- ----------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE.
- ------------------
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, ____________
SIGNATURE(S) GUARANTEED:
- -----------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 5.1
[Letterhead of Debevoise & Plimpton]
September 14, 1999
Neuberger Berman Inc.
605 Third Avenue
New York, NY 10158
Neuberger Berman Inc.
Registration Statement on Form S-1
----------------------------------
Dear Sirs:
We have acted as counsel to Neuberger Berman Inc, a Delaware
corporation (the "Registrant"), in connection with a Registration Statement on
Form S-1 (File No. 333-84525 (the "Registration Statement") filed by the
Registrant with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Act"), relating to an
offering (the "Offering") of shares of the Registrant's Common Stock, par value
$.01 per share (the "Common Stock"), by the Registrant and certain stockholders
of the Registrant (such shares of Common Stock, including any shares that may be
sold upon exercise of underwriters' over-allotment options and any additional
shares that may be registered in accordance with Rule 462(b) under the Act for
sale in the Offering, the "Shares").
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents,
<PAGE>
Neuberger Berman Inc. September 14, 1999
certificates and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
We are of the opinion that once the Registration Statement relating
to the Shares has become effective under the Act and the Shares have been duly
issued and sold as contemplated by the Registration Statement, the Shares will
be validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part thereof and to the incorporation by
reference of this opinion and consent as exhibits to any registration statement
filed in accordance with Rule 462(b) under the Act relating to the Offering. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Draft--September 9, 1999
1999 NEUBERGER BERMAN INC.
LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSES
The purposes of the 1999 Neuberger Berman Inc. Long-Term Incentive
Plan (the "Plan") is to foster and promote the long-term financial success of
the Company and materially increase shareholder value by (A) motivating
superior performance by means of performance-related incentives, (B) encouraging
and providing for the acquisition of an ownership interest in the Company by
Employees and (C) enabling the Company to attract and retain the services of
outstanding employees upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
ARTICLE II
DEFINITIONS
2.1 CERTAIN DEFINITIONS. Capitalized terms used herein without
definition shall have the respective meanings set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ADJUSTMENT EVENT" means any stock dividend, stock split, share
combination, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares
or other similar event affecting the Common Stock of the Company.
"AWARD" means any Option, Restricted Stock, Restricted Unit,
Incentive Stock, Incentive Unit, Deferred Share, Supplemental Unit or
any combination thereof, including Awards combining two or more types
of Awards in a single grant.
"BOARD" means the Board of Directors of the Company.
<PAGE>
"CAUSE" means any of:
(a) the Participant's having been convicted of, or entered a
plea of NOLO CONTENDERE to, a crime that constitutes a felony or
a misdemeanor involving fraud, false statements or misleading
omissions, perjury, embezzlement, bribery, forgery or
counterfeiting or other similar crime (or an equivalent charge in
jurisdictions that do not use such designations);
(b) the willful failure by the Participant (other than due
to physical or mental illness) to perform substantially his
duties as an employee of the Company or any Subsidiary after
reasonable notice to the Participant of such failure;
(c) the Participant's violation of any securities or
commodities laws, any rules or regulations issued pursuant to
such laws, or the rules and regulations of any securities or
commodities exchange or association of which the Company or any
of its Subsidiaries or affiliates is a member;
(d) the Participant's violation of any Company policy
concerning hedging or confidential or proprietary information, or
material violation of any other Company policy as in effect from
time to time;
(e) the Participant's engaging in any act or making any
statement which impairs, impugns, denigrates, disparages or
negatively reflects upon the name, reputation or business
interests of the Firm; or
(f) the Participant's engaging in any conduct that is
injurious to the Company or any Subsidiary; or
(g) the breach by the Participant of any written covenant or
agreement with the Company or any Subsidiary not to disclose any
information pertaining to the Company or any Subsidiary or not to
compete or interfere with the Company or any Subsidiary.
The determination as to whether "Cause" has occurred shall
be made by the Committee. The Committee shall also have the
authority to waive the consequences under the Plan of the
existence or occurrence of any of the events, acts or
omissions constituting "Cause."
2
<PAGE>
"CHANGE IN CONTROL" means the occurrence of any of the following
events:
(a) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the "INCUMBENT
DIRECTORS") cease for any reason other than due to death to
constitute at least a majority of the members of the Board,
provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote
of at least a majority of the members of the Board then still in
office who were members of the Board at the beginning of such
twenty-four calendar month period other than as a result of a
proxy contest, or any agreement arising out of an actual or
threatened proxy contest, shall be treated as an Incumbent
Director; or
(b) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d)(2) of the Act), but excluding
the Company, any Subsidiary or any employee benefit plan of the
Company or any Subsidiary becomes the "beneficial owner" (as
defined in Rule 13(d)-3 under the Act), directly or indirectly,
of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities; or
(c) the stockholders of the Company shall approve a
definitive agreement (I) for the merger or other business
combination of the Company with or into another corporation, a
majority of the directors of which were not directors of the
Company immediately prior to the merger and in which the
stockholders of the Company immediately prior to the effective
date of such merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of the
voting power they owned in the Company immediately prior to such
transaction or (II) for the sale or other disposition of all or
substantially all of the assets of the Company to any other
entity; PROVIDED, in each case, that such transaction shall have
been consummated; or
(d) the purchase of Common Stock pursuant to any tender or
exchange offer made by any "person," including a "group" (as such
terms are used in Sections 13(d) and 14(d)(2) of the Act), other
than the Company, any Subsidiary, or an employee benefit plan of
the Company or any Subsidiary, for 20% or more of the Common
Stock of the Company.
3
<PAGE>
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to occur in the event the Company files for bankruptcy,
liquidation or reorganization under the United States Bankruptcy Code.
"CHANGE IN CONTROL PRICE" means the highest price per Share
offered in conjunction with any transaction resulting in a Change in
Control (as determined in good faith by the Committee (as constituted
before the Change in Control) if any part of the offered price is
payable other than in cash) or, in the case of a Change in Control
occurring solely by reason of a change in the composition of the
Board, the highest Fair Market Value of the Stock on any of the 30
trading days immediately preceding the date on which a Change in
Control occurs.
"CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"COMMITTEE" means the Compensation Committee of the Board, or
when section 162(m) of the Code or Rule 16b promulgated under the Act
would require action to be taken by a committee of "outside directors"
or "Non-Employee Directors," as the case may be, the "Committee" shall
be deemed to refer to a subcommittee of the Compensation Committee
that consist of two or more members meeting such requirements, or the
full Board in the absence of such a subcommittee.
"COMMON STOCK" means the common stock of the Company, par value
$0.01 per share.
"COMPANY" means Neuberger Berman Inc., a Delaware corporation,
and any successor thereto.
"DEFERRED SHARE" means the deferred share units that confer upon a
Participant the right to receive shares of Common Stock at the end of a
specified deferral period as set forth in Article VIII .
"DISABILITY" means a total disability within the meaning of any
long-term disability plan maintained for the benefit of the Participant
or, if the Participant is not covered by such a disability plan, then
as determined by the Committee.
"DIVIDEND EQUIVALENTS" means dividends paid by the Company with
respect to Shares corresponding to Awards awarded under the Plan.
4
<PAGE>
"EMPLOYEE" means any officer or employee of the Company or any
Subsidiary.
"EXECUTIVE OFFICER" means those persons who are officers of the
Company within the meaning of Rule 16a-1(f) promulgated under the Act.
"FAIR MARKET VALUE" means, as of any date of determination, the
closing price of a Share on the New York Stock Exchange (or on such
other recognized market or quotation system on which the trading
prices of Common Stock are traded or quoted at the relevant time). In
the event that there are no Common Stock transactions reported on such
exchange or system on such date, Fair Market Value shall mean the
closing price of a Share on the immediately preceding day on which
Common Stock transactions were so reported. Notwithstanding the
foregoing, with respect to any Award which becomes effective upon the
closing of the Initial Public Offering, Fair Market Value shall mean
the initial price at which a Share is offered to the public pursuant
to the Initial Public Offering.
"INCENTIVE STOCK" shall mean an award of Common Stock that is
forfeitable until the completion of specified Performance Criteria as
provided for in Section 7.1.
"INCENTIVE UNIT" shall mean a contractual right to receive Common
Stock (or cash based on the Fair Market Value of Common Stock) until the
completion of specified Performance Criteria as provided for in Section
7.1.
"INITIAL PUBLIC OFFERING" shall mean the first offering of the
Common Stock to the general public pursuant to an underwritten public
offering.
"NORMAL RETIREMENT" means a termination of the Participant's
employment under circumstances that the Committee determines as qualifying
as retirement at normal retirement age for purposes of the Plan and not
inconsistent with the treatment of the Participant under other Company
plans.
"OPTION" means the right to purchase Common Stock at a stated
price for a specified period of time.
"PARTICIPANT" means any director, Employee, or prospective
Employee of, or any consultant or advisor to, the Company designated
by the Committee to receive an Award under the Plan.
5
<PAGE>
"PERFORMANCE PERIOD" means each calendar year or multi-year cycle
as determined by the Committee.
"PERIOD OF RESTRICTION" means the period during which a
Restricted Stock or Restricted Unit is subject to forfeiture.
"PLAN" means this 1999 Neuberger Berman Inc. Long-Term Incentive
Plan, as the same may be amended from time to time.
"QUALIFYING TERMINATION OF EMPLOYMENT" means a termination of a
Participant's employment with the Company or any of its Subsidiaries
by reason of the Participant's death, Disability, early retirement
with the consent of the Committee or Normal Retirement.
"RESTRICTED STOCK" means an award of Common Stock made pursuant
to Section 6.1 that is forfeitable by the Participant until the
completion of a specified period of future service or until otherwise
determined by the Committee or in accordance with the terms of the
Plan.
"RESTRICTED UNIT" means a contractual right to receive Common Stock,
or cash based on the Fair Market Value of Common Stock, made pursuant to
Section 6.1 that is forfeitable by the Participant until the completion of
a specified period of future service or until otherwise determined by the
Committee or in accordance with the terms of the Plan.
"RETIREMENT" means termination of a Participant's employment on
or after the Normal Retirement Date or, with the Committee's approval,
on or after any early retirement date established under any retirement
plan maintained by the Company, or any Subsidiary in which the
Participant participates.
"SHARE" means a share of Common Stock.
"SUBSIDIARY" means any corporation in which the Company owns,
directly or indirectly, stock representing 50% or more of the voting
power of all classes of stock entitled to vote and any other business
organization, regardless of form, in which the Company possesses
directly or indirectly 50% or more of the total combined equity
interests in such organization.
2.2 ADDITIONAL DEFINITIONS.
"ALTERNATIVE AWARD" has the meaning given in Section 9.2.
6
<PAGE>
"DEFERRED AMOUNT" has the meaning given in Section 8.1.
"ISOS" has the meaning given in Section 5.1.
"NSOS" has the meaning given in Section 5.1.
"PERFORMANCE RESTRICTION" has the meaning given in Section 7.2(a).
"PERMITTED TRANSFEREES" has the meaning given in Section 12.1.
"RELOAD OPTIONS" has the meaning given in Section 5.4.
"SUPPLEMENTAL UNIT" has the meaning given in Section 8.1.
2.3 GENDER AND NUMBER. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
ARTICLE III
POWERS OF THE COMMITTEE
3.1 POWER TO GRANT. The Committee shall determine the Participants
to whom Awards shall be granted, the type or types of Awards to be granted
and the terms and conditions of any and all such Awards. The Committee may
establish different terms and conditions for different types of Awards, for
different Participants receiving the same type of Award and for the same
Participant for each Award such Participant may receive, whether or not
granted at different times.
3.2 ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan, including, without limitation, determining which
Participants receive Awards, what kind of Awards are made under the Plan and
for what number of shares, and the other terms and conditions of each such
Award. The Committee shall have the responsibility of construing and
interpreting the Plan and of establishing and amending such rules and
regulations as it may deem necessary or desirable for the proper
administration of the Plan. Any decision or action taken or to be taken by
the Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the greatest extent permitted by applicable law, be
within its absolute discretion (except as otherwise specifically provided
herein) and shall be conclusive and binding upon the Company and its
Subsidiaries, all Participants and any person claiming under or through any
Participant. No term of this
7
<PAGE>
Plan relating to ISOs shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify the Plan under section 422 of the Code.
3.3 DELEGATION BY THE COMMITTEE. The Committee may delegate its
authority under this Plan; PROVIDED that the Committee shall in no event
delegate its authority with respect to the compensation of the Chief Executive
Officer of the Company, the four most highly compensated executive officers (as
determined under Section 162(m) of the Code and regulations thereunder) of the
Company and any other individual whose compensation the Board or Committee
reasonably believes may become subject to Section 162(m) of the Code.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 NUMBER. Subject to the provisions of this Article IV, the number
of Shares subject to Awards under the Plan may not exceed 10,000,000 Shares,
plus any Shares that, after the effective date of the Plan, become available for
Awards under this Plan in accordance with Section 4.2 below. Without limiting
the generality of the foregoing, whenever Shares are received by the Company in
connection with the exercise of or payment for any Award granted under the Plan
only the net number of Shares actually issued shall be counted against the
foregoing limit. The Shares to be delivered under the Plan may consist, in
whole or in part, of treasury stock or authorized but unissued Common Stock not
reserved for any other purpose.
4.2. CANCELED, TERMINATED, OR FORFEITED AWARDS. Any Shares subject
to any Award granted hereunder which for any reason is canceled, terminated or
otherwise settled without the issuance of any Common Stock after the effective
date of this Plan shall be available for further Awards under the Plan.
4.3. ADJUSTMENT IN CAPITALIZATION. In the event of any Adjustment
Event such that an adjustment is required to preserve, or to prevent enlargement
of, the benefits or potential benefits made available under this Plan, then the
Committee shall, in such manner as the Committee shall deem equitable, adjust
any or all of (A) the number and kind of Shares which thereafter may be awarded
or optioned and sold under the Plan (including, without termination, adjusting
the limits on the number and types of certain Awards that may be made under the
Plan), (B) the number and kinds of Shares subject to outstanding Options and
other Awards and (C) the grant, exercise or conversion price with respect to any
of the foregoing. In addition, the Committee may make provisions for a cash
payment
8
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to a Participant or a person who has an outstanding Option or other Award.
The number of Shares subject to any Option or other Award shall always be a
whole number.
ARTICLE V
STOCK OPTIONS
5.1 GRANT OF OPTIONS. The Committee shall have the power to grant
Options that are "incentive stock options" within the meaning of section 422 of
the Code ("ISOS") or that are non-statutory stock options ("NSOS") to any
Participant and to determine (A) the number of ISOs and the number of NSOs to be
granted to each Participant and (B) the other terms and conditions of such
Awards. An Option shall be an NSO unless otherwise specified by the Committee
at the time of grant. The maximum number of Shares with respect to which
Options may be granted to any one Participant in any calendar year shall be
1,000,000, in the case of 1999, and in the case of any subsequent year, 110% of
the maximum permitted for the immediately preceding calendar year. Each Option
shall be evidenced by an Option agreement that shall specify (A) the type of
Option granted, (B) the number of Shares to which the Option pertains, (C) the
exercise price, (D) the period in which the Option may be exercised and (E) such
terms and conditions not inconsistent with the Plan as the Committee shall
determine.
5.2 EXERCISE PRICE. Unless otherwise determined by the Committee,
Options granted pursuant to the Plan shall have an exercise price that is not
less than the Fair Market Value of a Share on the date the Option is granted.
5.3 EXERCISABILITY. Unless otherwise determined by the Committee,
Options awarded under the Plan shall vest and become exercisable in three equal
annual installments commencing on the second anniversary of the date such
Options are granted, subject to the Participant's continuous employment with the
Company or a Subsidiary from the date of grant through the applicable vesting
date. No Option shall be exercisable for more than 10 years after the date on
which it is granted.
5.4 PAYMENT. The Committee shall establish procedures governing the
exercise of Options. Without limiting the generality of the foregoing, the
Committee may provide that payment of the exercise price may be made (A) in cash
or its equivalent, (B) by exchanging Shares owned by the optionee (which are
not the subject of any pledge or other security interest), (C) through an
arrangement with a broker approved by the Company whereby payment of the
exercise price is accomplished with the proceeds of the sale of Common Stock or
(D) by any combination of the foregoing; PROVIDED that the combined value of all
cash and cash equivalents paid and the Fair Market Value of any such Common
Stock so tendered to the Company, valued as of the date of such tender, is
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at least equal to such exercise price. No Shares shall be delivered pursuant
to any exercise of an Option unless arrangements satisfactory to the
Committee have been made to assure full payment of the exercise price
therefor and any required withholding or other similar taxes or governmental
charges. Upon such terms and conditions as the Committee may establish from
time to time, a Participant may be permitted to defer the receipt of Shares
otherwise deliverable upon exercise of an Option.
5.5 RELOAD OPTIONS. The Committee may provide that a Participant (or,
if applicable, his or her Permitted Transferee) who delivers Shares that have
been owned by such Participant (or Permitted Transferee) for any minimum period
of time specified by the Committee to exercise an Option (when the Fair Market
Value of Common Stock exceeds the exercise price of such Option) will
automatically be granted new Options ("RELOAD OPTIONS") for a number of Shares
equal to the number of Shares so delivered. Unless the Committee determines
otherwise, such Reload Options will be subject to the same terms and conditions
(including the same expiration date) as the related Option except (A) that the
exercise price shall initially be equal to the Fair Market Value of a Share on
the date such Reload Option is granted and (B) such Reload Option shall not be
exercisable prior to the six month anniversary of the date of grant and,
thereafter, shall be exercisable in full.
5.6 TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee at or after the date of grant, in the event a Participant's employment
terminates by reason of a Qualifying Termination of Employment, the Participant
(or the Participant's beneficiary or legal representative) may exercise any
Options (regardless of whether then exercisable) until the earlier of (A) the
twelve-month anniversary of the date of such termination of employment and (B)
the date such Options would otherwise expire but for the operation of this
Section 5.6. Unless otherwise determined by the Committee at or after the date
of grant, in the event a Participant's employment terminates for any reason
other than a Qualifying Termination of Employment, any Option granted to such
Participant, whether or not then exercisable, shall be forfeited and cancelled
as of the date of such termination of employment.
5.7 BUYOUT. The Committee may at any time offer to buy out an Option
previously granted for a payment in cash, based on such terms and conditions as
the Committee shall establish and communicate to the optionee at the time that
such offer is made.
ARTICLE VI
RESTRICTED STOCK AND RESTRICTED UNITS
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6.1 GRANT OF RESTRICTED STOCK AND RESTRICTED UNITS. The Committee
shall have the power to grant Restricted Stock or Restricted Units to any
Participant and to determine (A) the number of Shares of Restricted Stock and
the number of Restricted Units to be granted to each Participant, (B) the
Restriction Period(s) and (B) the other terms and conditions of such Awards. The
Committee shall require that the stock certificates evidencing any Restricted
Stock or Restricted Units be held in the custody of the Secretary of the Company
until the Period of Restriction lapses, and that, as a condition of any
Restricted Stock or Restricted Unit award, the Participant shall have delivered
a stock power, endorsed in blank, relating to the Share covered by such award.
Each grant of Restricted Stock or Restricted Units shall be evidenced by a
written agreement setting forth the terms of such Award.
6.2 VESTING OF RESTRICTED STOCK AND RESTRICTED. Unless otherwise
determined by the Committee at or after the date of grant, Restricted Stock or
Restricted Units granted pursuant to Section 6.1 shall vest and become
nonforfeitable, and the Period of Restriction with respect to such Restricted
Stock or Restricted Units will lapse, in three equal annual installments
commencing on the second anniversary of the date of grant.
6.3 DIVIDEND EQUIVALENTS. (a) RESTRICTED STOCK. Unless otherwise
determined by the Committee at the time of grant, Participants holding
outstanding Restricted Stock shall be entitled to receive currently all
Dividend Equivalents paid with respect to such Shares of Restricted Stock.
(b) RESTRICTED UNITS. The Committee will determine whether and to
what extent to credit to the account of, or to pay currently to, each
recipient of a Restricted Unit, any Dividend Equivalents. To the extent
provided by the Committee at or after the date of grant, any cash Dividend
Equivalents credited to a Participant's account shall be deemed to have been
invested in Shares on the record date established for the related dividend
and, accordingly, a number of Restricted Units shall be credited to such
Participant's account equal to the greatest whole number which may be
obtained by dividing (I) the value of such Dividend Equivalent on the record
date by (II) the Fair Market Value of a Share on such date. Any additional
Restricted Units credited in respect of Dividend Equivalents shall become
vested and nonforfeitable, if at all, on the same terms and conditions as are
applicable in respect of the Restricted Units with respect to which such
Dividend Equivalents were payable.
6.4 TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee at or after the date of grant, in the event a Participant's
employment terminates by reason of a Qualifying Termination of Employment
during the Period of Restriction, a pro rata portion of any Shares related to
a Restricted Stock or Restricted Unit held by such Participant shall become
nonforfeitable, based upon the percentage of which the
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numerator is the portion of the Period of Restriction that expired prior to
the Participant's termination and the denominator is the number of days in
the Period of Restriction. Unless otherwise determined by the Committee at or
after the date of grant, in the event a Participant's employment terminates
for any reason other than a Qualifying Termination of Employment during the
Period of Restriction, any Restricted Stock or Restricted Units held by such
Participant shall be forfeited and cancelled as of the date of such
termination of employment.
6.5 SETTLEMENT OF RESTRICTED UNITS. Unless the Committee determines
otherwise at or after the date of grant, when a Restriction Period with respect
to an Award of Restricted Units lapses and the Restricted Units become vested
and nonforfeitable, the Participant shall receive (I) one Share for each such
Restricted Unit (including additional Restricted Units credited in respect of
Dividend Equivalents) or (II) if the Committee so determines, the Committee may
direct the Company to pay to the Participant the Fair Market Value of such
Shares as of such payment date.
ARTICLE VII
INCENTIVE AWARDS
7.1 GRANT OF INCENTIVE STOCK AND INCENTIVE UNITS. The Committee
shall have the authority to grant Incentive Stock or Incentive Units to any
Participant and to determine (A) the number of Incentive Stock and the number
of Incentive Units to be granted to each Participant, (B) the the
restrictions pursuant to which such Award is subject to forfeiture by reason
of the Performance Restriction established by the Committee pursuant to
Section 7.2 not being met in whole or in part and (C) the other terms and
conditions of such Awards. Each grant of Incentive Stock or Incentive Units
shall be evidenced by a written agreement setting forth the terms of such
Award.
7.2 PERFORMANCE RESTRICTION. (a) Within 90 days after each
Performance Period begins (or such other date as may be required or permitted
under Section 162(m), if applicable), the Committee shall establish the
performance objective or objectives for the applicable Performance Period
that must be satisfied in order for an Award to be vested and nonforfeitable
(the "PERFORMANCE RESTRICTION"). Any such Performance Restriction will be
based upon the relative or comparative achievement of one or more of the
following criteria, as determined by the Committee: (I) earnings per share on
the Company's Common Stock; (II) growth in the Company's revenue; (III)
growth in the Company's assets under management; (IV) increase in the
Company's net income; (V) return on shareholder's equity; (VI) controlling
expenses; and (VII) relative performance versus a peer group of companies.
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(b) The Performance Restriction related to Incentive Stock or
Incentive Units shall lapse upon the determination by the Committee that the
objective or objectives for the applicable Performance Period have been
attained, in whole or in part. The Committee may provide at the time of grant
that in the event the objective or objectives are attained in part, a
specified portion (which may be zero) of the Award will vest and become
nonforfeitable and the remaining portion shall be forfeited.
7.3 DIVIDEND EQUIVALENTS. (a) INCENTIVE STOCK. Unless otherwise
determined by the Committee at or after the date of grant, Participants
granted Incentive Stock shall be entitled to receive cash Dividend
Equivalents currently.
(b) INCENTIVE UNITS. The Committee will determine whether and to
what extent to credit to the account of, or to pay currently to, each
recipient of an Incentive Unit, any Dividend Equivalents. To the extent
provided by the Committee at or after the date of grant, any cash Dividend
Equivalents with respect to the Incentive Units credited to a Participant's
account shall be deemed to have been invested in Shares on the record date
established for the related dividend and, accordingly, a number of Incentive
Units, as the case may be, shall be credited to such Participant's account
equal to the greatest whole number which may be obtained by dividing (I) the
value of such Dividend Equivalent on the record date by (II) the Fair Market
Value of a Share on such date. Any additional Incentive Unit credited in
respect of Dividend Equivalents shall become vested and nonforfeitable, if at
all, on the same terms and conditions as are applicable in respect of the
Incentive Unit with respect to which such Dividend Equivalents were payable.
7.4 TERMINATION OF EMPLOYMENT. Unless the Committee otherwise
determines at or after the date of grant, in the event that a Participant's
Employment terminates by reason of a Qualifying Termination of Employment
during the Performance Period, any award of Incentive Stock or Incentive
Units shall become vested and nonforfeitable at the end of the Performance
Period as to that number of such Incentive Stock or Incentive Units, as the
case may be, that is equal to that percentage, if any, of such Award that
would have been earned had the Participant's employment not so terminated
prior to the expiration of the Performance Period times a fraction, the
numerator of which is the number of days employed during the Performance
Period and the denominator of which is the total number of days during the
Performance Period. Unless otherwise determined by the Committee at or after
the date of grant, in the event a Participant's employment terminates for any
reason other than a Qualifying Termination of Employment during the
Performance Period, any Incentive Stock or Incentive Units held by such
Participant shall be forfeited and cancelled as of the date of such
termination of employment.
7.5 SETTLEMENT OF INCENTIVE UNITS. Unless the Committee determines
otherwise at or after the date of grant, when a Performance Restriction with
respect to an Award of
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Incentive Units lapses and the Incentive Units become vested and
nonforfeitable, the Participant shall receive (I) one Share for each such
Incentive Unit (including additional Incentive Units credited in respect of
Dividend Equivalents) or (II) if the Committee so determines, the Committee
may direct the Company to pay to the Participant the Fair Market Value of
such Shares as of such payment date.
ARTICLE VIII
DEFERRED SHARES
8.1 DEFERRED SHARE AWARDS. The Committee shall have the authority
to grant Deferred Shares to any Participant and to determine (I) the number
of Deferred Shares granted to each Participant, (II) the date such Deferred
Shares shall become vested and (III) the date such Deferred Shares will be
payable to the Participant. In addition, on such date or dates as shall be
established by the Committee and subject to such terms and conditions as the
Committee shall determine, a Participant may be permitted to elect to defer
receipt of all or a portion of his annual compensation and/or annual
incentive bonus ("DEFERRED AMOUNT") payable by the Company or a Subsidiary
and receive in lieu thereof a number of Deferred Shares equal to the greatest
whole number which may be obtained by dividing (I) the Deferred Amount by
(II) the Fair Market Value of a Share on the date such compensation or bonus
would otherwise have been payable to the Participant. No Shares will be
issued at the time an award of Deferred Shares is made and the Company shall
not be required to set aside a fund for the payment of any such award. The
Company will establish a separate account for the Participant and will record
in such account the number of Deferred Shares awarded to the Participant. To
the extent the Committee so determines, a Participant who elects to defer
receipt of his or her compensation or bonus and receive Deferred Shares shall
receive that number of supplemental Deferred Shares ("SUPPLEMENTAL UNITS")
equal to the greatest whole number which may be obtained by dividing (I) such
percentage of the Deferred Amount as is determined by the Committee by (II)
the Fair Market Value of a Share on the date of grant. Each grant of Deferred
Shares and Supplemental Units shall be evidenced by a written agreement
setting forth the terms of such Award.
8.2 VESTING OF DEFERRED SHARES AND SUPPLEMENTAL UNITS. The portion
of each Deferred Shares, together with any Dividend Equivalents credited with
respect thereto, shall be fully vested at all times. Unless the Committee
provides otherwise at or after the date of grant, the Supplemental Units,
together with any Dividend Equivalents credited with respect thereto, will
become vested in full on the fifth anniversary of the date the corresponding
Deferred Amount would have been paid absent the Participant's election to
defer receipt thereof, subject to the Participant's continuous employment
with the Company or a Subsidiary through such vesting date.
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8.3 DIVIDEND EQUIVALENTS. The Committee will determine whether and
to what extent Dividend Equivalents will be credited to the account of, or
paid currently to, a recipient of a Deferred Shares or Supplemental Units.
To the extent provided by the Committee at or after the date of grant, any
cash Dividend Equivalents with respect to the Deferred Shares an Supplemental
Units deemed credited to a Participant's account shall be deemed to have been
invested in Shares on the record date established for the related dividend
and, accordingly, a number of Deferred Shares or Supplemental Units, as the
case may be, shall be credited to such Participant's account equal to the
greatest whole number which may be obtained by dividing (I) the amount of
such Dividend Equivalent on the record date by (II) the Fair Market Value of
a Share on such date.
8.4 TERMINATION OF EMPLOYMENT. Unless the Committee otherwise
determines at or after the date of grant, in the event that a Participant's
employment terminates by reason of a Qualifying Termination of Employment
during the Performance Period, any Supplemental Units (and related Dividend
Equivalents) granted to a Participant shall become vested and nonforfeitable.
Unless otherwise determined by the Committee at or after the date of grant,
in the event a Participant's employment terminates for any reason other than
a Qualifying Termination of Employment during the Performance Period, any
Supplemental Units (and related Dividend Equivalents) held by such
Participant shall be forfeited and cancelled as of the date of such
termination of employment. In the event that a Participant's employment is
terminated for Cause (or, following the date the Participant's employment
terminates, the Committee determines that circumstances exist such that the
Participant's employment could have been terminated for Cause), any
Supplemental Units (and related Dividend Equivalents) granted to such
Participant, whether or not then vested, shall be forfeited and cancelled as
of the date of such termination of employment.
8.5 SETTLEMENT OF DEFERRED SHARES. Unless the Committee
determines otherwise at or after the date of grant, a Participant shall
receive as of the date of such Participant's termination of employment (or
such other date as may be elected by the Participant in accordance with the
rules and procedures of the Committee) (I) one Share for each Deferred Share
credited to such Participant's account and (II) subject to Section 8.4, one
Share for each Supplemental Unit that shall have become vested. The
Committee may provide in the Award agreement applicable to any Deferred
Shares or Supplemental Units that, in lieu of issuing Shares, the Committee
may direct the Company to pay to the Participant the Fair Market Value of
such Shares as of such payment date.
ARTICLE IX
CHANGE IN CONTROL
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9.1 ACCELERATED VESTING AND PAYMENT. Subject to the provisions of
Sections 9.2 below, in the event of a Change in Control, each Option shall
be, at the discretion of the Committee, either canceled in exchange for a
payment in cash of an amount equal to the excess, if any, of the Change in
Control Price over the exercise price for such Option, or fully exercisable
regardless of the exercise schedule otherwise applicable to such Option and
all other Awards shall become nonforfeitable and be immediately transferable
or payable, as the case may be.
9.2 ALTERNATIVE AWARDS. Notwithstanding Section 9.1, no cancellation,
acceleration of exercisability, vesting, cash settlement or other payment shall
occur with respect to any Award or any class of Awards if the Committee
reasonably determines in good faith prior to the occurrence of a Change in
Control that such Award or Awards shall be honored or assumed, or new rights
substituted therefor (such honored, assumed or substituted award an "ALTERNATIVE
AWARD"), by a Participant's employer (or the parent or a Subsidiary of such
employer) immediately following the Change in Control, PROVIDED that any such
Alternative Award must:
(i) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days of the Change in Control;
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or
better than the rights, terms and conditions applicable under such Award,
including, but not limited to, an identical or better exercise or vesting
schedule and identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Award
(determined at the time of the Change in Control);
(iv) have terms and conditions which provide that in the event that
the Participant's employment is involuntarily terminated or constructively
terminated, any conditions on a Participant's rights under, or any
restrictions on transfer or exercisability applicable to, each such
Alternative Award shall be waived or shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's base salary
or a Participant's incentive compensation opportunity or a material reduction
in the Participant's responsibilities, in either case without the
Participant's written consent.
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ARTICLE X
STOCKHOLDER RIGHTS
A Participant (or a Permitted Transferee) shall have no rights as a
stockholder with respect to any Shares covered by an Award until he or she shall
have become the holder of record of such Share(s), and no adjustments shall be
made for dividends in cash or other property or distribution or other rights in
respect to any such Shares, except as otherwise specifically provided for in
this Plan.
ARTICLE XI
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board at any time may terminate or suspend the Plan, and from time
to time may amend or modify the Plan, PROVIDED that no amendment, modification,
or termination of the Plan shall in any manner adversely affect any Award
theretofore granted under the Plan, without the consent of the Participant.
Unless earlier terminated, the Plan shall terminate on December 31 of the tenth
year following the year in which the Initial Public Offering occurs.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 NONTRANSFERABILITY OF AWARDS. No Award shall be assignable or
transferable except by will or the laws of descent and distribution; PROVIDED
that the Committee may permit (on such terms and conditions as it shall
establish) a Participant to transfer an Award for no consideration to the
Participant's child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, any person sharing the Participant's household (other
than a tenant or employee), a trust in which these persons have more than fifty
percent of the beneficial interest, a foundation in which these persons (or the
Participant) control the management of assets, and any other entity in which
these persons (or the Participant) own more than fifty percent of the voting
interests ("PERMITTED TRANSFEREES"). Except to the extent required by law, no
right or interest of any Participant shall be subject to any lien, obligation or
liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during the Participant's
lifetime only by such Participant or, if applicable, his or her Permitted
Transferee(s). The rights of a Permitted Transferee shall be limited to the
rights conveyed to such Permitted Transferee,
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who shall be subject to and bound by the terms of the agreement or agreements
between the Participant and the Company.
12.2 BENEFICIARY DESIGNATION. Each Participant under the Plan may
from time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be
paid or by whom any right under the Plan is to be exercised in case of his
death. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to or exercised by
the Participant's surviving spouse, if any, or otherwise to or by his or her
estate.
12.3 NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the
Plan shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor to
confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary. No Employee shall have a right to be selected as
a Participant, or, having been so selected, to receive any future Awards.
12.4 TAX WITHHOLDING. The Company shall have the right to deduct
from all amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards
under this Plan. In the case of any Award satisfied in the form of Shares, no
shares shall be issued unless and until arrangements satisfactory to the
Committee shall have been made to satisfy any withholding tax obligations
applicable with respect to such Award. Without limiting the generality of
the foregoing, the Company shall have the right to retain, or the Committee
may, subject to such terms and conditions as it may establish from time to
time, permit Participants to elect to tender, Shares (including Shares
issuable in respect of an Award) to satisfy, in whole or in part, the amount
required to be withheld (but no greater amount).
12.5 COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Plan,
the granting and exercising of Awards thereunder, and the other obligations
of the Company under the Plan, shall be subject to all applicable Federal and
State laws, rules, and regulations, and to such approvals by any regulatory
or governmental agency as may be required, and to any rules or regulations of
any exchange on which the Shares are listed. The Company, in its discretion,
may postpone the granting and exercising of Awards, the issuance or delivery
of Shares under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock
exchange listing or registration or qualification of such Shares or other
required action under any Federal or State law, rule, or regulation and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection
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with the issuance or delivery of Shares in compliance with applicable laws,
rules, and regulations. The Company shall not be obligated by virtue of any
provision of the Plan to recognize the exercise of any Award or to otherwise
sell or issue Shares in violation of any such laws, rules, or regulations;
and any postponement of the exercise or settlement of any Award under this
provision shall not extend the term of such Awards, and neither the Company
nor its directors or officers shall have any obligation or liability to the
Participant with respect to any Award (or Shares issuable thereunder) that
shall lapse because of such postponement.
12.6 INDEMNIFICATION. Each person who is or shall have been a
member of the Committee or of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which he may
be made a party or in which he may be involved by reason of any action taken
or failure to act under the Plan and against and from any and all amounts
paid by him in settlement thereof, with the Company's approval, or paid by
him in satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and
defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive and shall be independent of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or By-laws, by contract, as a matter of law, or
otherwise.
12.7 LEGEND. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock prior to the expiration
of the Period of Restriction, such certificate shall be registered in the
name of the Participant and shall bear the following (or similar) legend:
"The shares of stock represented by this certificate are subject to
the terms and conditions contained in the 1999 Neuberger Berman Inc.
Long-Term Incentive Plan and the Award Agreement, dated as of
_______________________________, between the Company and the Participant,
and may not be sold, pledged, transferred, assigned, hypothecated or
otherwise encumbered in any manner (except as provided in Section 12.1 of
the Plan or in such Award Agreement) until _______________."
Upon the lapse of the Period of Restriction with respect to such Restricted
Stock, the Company shall issue or have issued in exchange for those
certificates previously issued new share certificates without the legend
described herein in respect of any shares that have become vested.
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12.8 EFFECTIVE DATE. The Plan shall be effective as of the date of
the Initial Public Offering.
12.9 NO LIMITATION ON COMPENSATION. Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to pay
compensation to its employees, in cash or property, in a manner which is not
expressly authorized under the Plan.
12.10 DEFERRALS. The Committee may postpone the exercising of Awards,
the issuance or delivery of Stock under any Award or any action permitted under
the Plan to prevent the Company or any Subsidiary from being denied a Federal
income tax deduction with respect to any Award other than an ISO.
12.11 GOVERNING LAW. The Plan shall be construed in accordance with
and governed by the laws of the State of New York, without reference to
principles of conflict of laws which would require application of the law of
another jurisdiction, except to the extent that the corporate law of the State
of Delaware specifically and mandatorily applies.
12.12 NO IMPACT ON BENEFITS. Except as may otherwise be specifically
stated under any employee benefit plan, policy or program, no amount payable in
respect of any Award shall be treated as compensation for purposes of
calculating an Employee's right under any such plan, policy or program.
12.13 NO CONSTRAINT ON CORPORATE ACTION. Nothing in this Plan shall
be construed (A) to limit, impair or otherwise affect the Company's right or
power to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell, or transfer all or any part of its business or assets or (B) to
limit the right or power of the Company, or any Subsidiary to take any action
which such entity deems to be necessary or appropriate.
12.14 HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
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Draft--August 1, 1999
1999 NEUBERGER BERMAN INC.
DEFERRED COMPENSATION PLAN
ARTICLE I
PURPOSES
The purposes of the 1999 Neuberger Berman Inc. Deferred Compensation
Plan (the "PLAN") are to enable the Company and its Subsidiaries to attract,
retain, motivate and reward the best qualified executive officers and key
employees by providing them with the opportunity to earn, and defer receipt of,
competitive compensation and bonuses directly linked to the Company's
performance.
ARTICLE II
DEFINITIONS
2.1. DEFINITIONS. Unless the context requires otherwise, or
otherwise defined in this Plan, capitalized terms used herein shall have the
meanings set forth in the 1999 Neuberger Berman Inc. Annual Incentive Plan.
2.2. GENDER AND NUMBER. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
ARTICLE III
ADMINISTRATION
The Committee (or its delegate or delegates) shall administer and
interpret the Plan. Any determination made by the Committee under the Plan
shall be final and conclusive. The Committee may employ such legal counsel,
consultants and agents (including counsel or agents who are employees of the
Company or a Subsidiary) as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
or agent and any computation received from such consultant or agent. All
expenses incurred in the administration of the Plan, including, without
limitation, for the engagement of any counsel, consultant or agent, shall be
paid by the Company. No member or former member of the Board or the Committee
shall be
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liable for any act, omission, interpretation, construction or determination
made in connection with the Plan other than as a result of such individual's
willful misconduct.
ARTICLE IV
ELIGIBILITY
Each participant in the 1999 Neuberger Berman Inc. Annual Incentive
Plan, as well as other key employees selected by the Committee to participate in
the Plan (the "PARTICIPANT") shall be eligible to participate in the Plan. The
Secretary of the Company shall provide a copy of the Plan to each Participant
together with a form of letter which may be used by the Participant to notify
the Company of his election to participate in the Plan.
ARTICLE V
DEFERRAL ELECTION
5.1. BONUS DEFERRAL ELECTION. On or before December 31st of any
calendar year, a Participant may elect to defer receipt of all or any part of
any annual bonus payable in United States currency for services performed during
such year which, but for such election, is expected to be paid to him in the
next following calendar year.
5.2. SALARY DEFERRAL ELECTION. On or before December 31st of any
calendar year, a Participant may elect to defer receipt of all or any part of
that portion of his annual base salary payable in United States currency in the
following calendar year which exceeds the sum of (I) the Social Security wage
base with respect to old age, survivor and disability income taxes in effect for
such following calendar year and (II) $10,000. Notwithstanding the foregoing, a
Participant who (X) receives an annual base salary in United States currency in
excess of the sum of (I) and (II) above and (Y) is not subject to withholding
for old age survivor and disability employment taxes under U.S. law may elect to
defer receipt of all or a portion of his annual base salary for the following
calendar year which is payable in United States currency (together with the
bonus deferral election described in Section 5.1, a "DEFERRAL ELECTION").
5.3. FORM AND DURATION OF DEFERRAL ELECTION. A Deferral Election
shall be made by written notice filed on a designated form with the Secretary of
the Company. The minimum amount that each Participant may defer under the Plan
for each year shall be $5,000 (or such other amount as the Committee shall
determine). Any such Deferral Election shall continue in effect (including with
respect to compensation payable for subsequent calendar years) unless and until
the Participant revokes or modifies such
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Deferral Election by written notice on a designated form filed with the
Secretary of the Company. Any such revocation or modification of a Deferral
Election shall become effective only with respect to compensation payable in
calendar years following receipt of such revocation or modification by the
Secretary of the Company.
5.4. RENEWAL. A Participant who has revoked an election to
participate in the Plan may file a new Deferral Election to defer compensation
payable in the calendar year following the year in which such election is filed.
ARTICLE VI
STOCK ACCOUNT AND INVESTMENT FUND ACCOUNT
6.1. ESTABLISHMENT OF STOCK ACCOUNT AND INVESTMENT FUND ACCOUNT. The
Company shall maintain a separate memorandum account established to record the
deferral of compensation that is deemed to be invested in notional Shares (the
"STOCK ACCOUNT") and a separate memorandum account established to record the
deferral of compensation that is deemed to be invested in one or more mutual
funds selected by the Committee (the "INVESTMENT FUND ACCOUNT", and, together
with the Stock Account, the "ACCOUNTS") for each Participant who has made a
Deferral Election, and shall make additions to and subtractions from such
Accounts as provided in this Article VI.
6.2. ADDITIONS TO ACCOUNTS. (a) At the time a Participant makes a
Deferral Election pursuant to Article V, the Participant shall, by written
notice filed with the Secretary of the Company, also elect whether the deferred
amounts shall be credited to the Stock Account or the Investment Fund Account.
If a Participant fails to make a valid election with respect to any portion of
his Deferral Election (or if such election ceases to be effective for any
reason), such Participant shall be deemed to have elected to have his entire
Deferral Election deemed invested in the Stock Account.
(b) Compensation allocated to a Participant's Accounts pursuant to
this Article VI shall be credited to such Accounts as of the date such
compensation would otherwise have been paid to the Participant.
6.3. INVESTMENT FUND ACCOUNT ELECTION. (a) Each Participant shall
from time to time designate on a form approved by the Secretary of the Company
the mutual funds that shall determine the investment experience with respect to
such Participant's Investment Fund Account. The Secretary of the Company may,
in his discretion, (I) establish minimum amounts (in terms of dollar amounts or
a percentage of a Participant's Account), which may be allocated to any mutual
fund, (II) preclude any Participant who is an executive officer of the Company
from designating any mutual fund which invests primarily in securities issued by
the Company, (III) establish rules regarding the time at
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which any such election (or any change in such election permitted under
Section 6.3(b) shall become effective), and (IV) permit different
designations with respect to a Participant's existing Investment Fund Account
balance and amounts to be credited to such Investment Fund Account under
Section 6.2 after the date the election form is filed with the Secretary of
the Company. If a Participant fails to make a valid election with respect to
any portion of his Investment Fund Account (or if any such election ceases to
be effective for any reason), such Participant shall be deemed to have
elected to have his entire Investment Fund Account deemed invested in the
mutual fund which the Secretary of the Company determines generally to have
the least risk of loss of principal.
(b) CHANGE IN DESIGNATION OF MUTUAL FUND. Effective as of the first
business day of the calendar quarter commencing more than 10 business days after
the proper form is filed with the Secretary of the Company (or such other time
as the Secretary of the Company shall permit), a Participant may change the
mutual funds designated with respect to all or any portion of his Investment
Fund Account. Any such change shall comply with all rules applicable with
respect to any initial designation of such mutual funds.
(c) CREDITING OF AMOUNTS TO THE INVESTMENT FUND ACCOUNT. As of the
last day of each calendar quarter (or such other time as the Secretary of the
Company shall establish from time to time), each Participant's Investment Fund
Account shall be credited or debited, as the case may be, with an amount equal
to the net investment gain or loss which such Participant would have realized
had he actually invested in each mutual fund an amount equal to the portion of
his Investment Fund Account designated as deemed invested in such mutual fund
during that calendar quarter (or such other period as may have been established
by the Secretary of the Company).
(d) NO ACTUAL INVESTMENT. Notwithstanding anything else in this
Section 6.3 to the contrary, no amount standing to the credit of any
Participant's Investment Fund Account shall be set aside or invested in any
actual fund on behalf of such Participant; provided, however, that, nothing in
this Section 6.3 shall be deemed to preclude the Company from making investments
for its own account in any mutual funds (whether directly or through a grantor
trust) to assist it in meeting its obligations to the Participants hereunder.
6.4. STOCK ACCOUNT ELECTION. Any compensation deferred pursuant to a
Deferral Election credited to the Stock Account shall be deemed to be invested
in a number of notional Shares of the Company (the "PHANTOM STOCK") equal to the
quotient of (I) the amount of such fees divided by (II) the Fair Market Value on
the date the compensation would have been payable. In addition, the Committee
may provide that a Participant's Stock Account shall be credited with additional
shares of Phantom Stock, subject to such terms and conditions as the Committee
shall determine. Whenever a dividend other than a dividend payable in the form
of Shares is declared with respect to the Shares, the number of
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Phantom Stock in the Participant's Stock Account shall be increased by the
number of Phantom Stock determined by dividing (I) the product of (A) the
number of Phantom Stock in the Participant's Stock Account on the related
dividend record date and (B) the amount of any cash dividend declared by the
Company on a Share (or, in the case of any dividend distributable in property
other than Shares, the per share value of such dividend, as determined by the
Company for purposes of income tax reporting) by (II) the Fair Market Value
on the related dividend payment date. In the case of any dividend declared
on Shares which is payable in Shares, the Participant's Stock Account shall
be increased by the number of Phantom Stock equal to the product of (I) the
number of Phantom Stock credited to the Participant's Stock Account on the
related dividend record date and (II) the number of Shares (including any
fraction thereof) distributable as a dividend on a Share. In the event of
any change in the number or kind of outstanding Shares by reason of any
Adjustment Event affecting the Shares, other than a stock dividend as
provided above, the Board shall make an appropriate adjustment in the number
of Phantom Stock credited to the Participant's Stock Account. Fractional
Phantom Stock shall be credited, but shall be rounded to the nearest
hundredth percentile, with amounts equal to or greater than .005 rounded up
and amounts less than .005 rounded down.
ARTICLE VII
DISTRIBUTION FROM ACCOUNTS
7.1. (a) DISTRIBUTION ELECTION. Each Participant shall file with
the Secretary of the Company a written election (a "Distribution Election") with
respect to the timing and manner of distribution of the aggregate amount, if
any, credited to his Accounts at any time. A Participant may elect to receive a
distribution from his Account in one lump-sum payment, or in such number of
annual installments (not to exceed ten) as the Participant may designate.
Subject to such limitations as the Committee shall impose, a Participant may
also elect to receive all or a portion of the aggregate amount credited to his
Accounts as of a date at least one full year after the date the Participant
makes a Deferral Election, PROVIDED, HOWEVER, that such Participant shall not
make any further Deferral Election for the two immediately following calendar
years. If a distribution election is not made or if such election does not
apply to the entire balance in such Accounts, the balance in the Participant's
Accounts shall be distributed in a single lump-sum payment as soon as
administratively possible after the first business day of the calendar year
immediately following the year of separation from employment. In the case of
any distribution being made in annual installments, each installment after the
first installment shall be paid as soon as administratively possible after the
first business day of each calendar year following the year in which such first
installment is paid until the entire amount subject such installment
Distribution Election shall have been paid.
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(b) AMENDMENT OF DISTRIBUTION ELECTION. A Participant may, at any
time during active employment, elect to change the time at which distributions
from his Accounts will commence; PROVIDED, HOWEVER, that no such election shall
be effective unless at least one full calendar year elapses between (I) the date
as of which such election is filed and (II) the date as which such distribution
will commence under such election. If a Participant receives any distribution
from his Accounts while still eligible to make deferrals hereunder, the
Secretary of the Company may suspend the Participant's right to defer additional
amounts to Accounts during such calendar year in accordance with Article V.
(c) HARDSHIP WITHDRAWAL. Notwithstanding Section 7.1(a), the
Committee, in its sole discretion, may permit a Participant to elect to receive
a distribution of all or a portion of the amounts credited to the Participant's
Accounts if the Participant suffers an unforseen personal hardship, as
determined by the Committee.
(d) DISTRIBUTION UPON PARTICIPANT'S DEATH. Notwithstanding Section
7.1(a), if a Participant dies prior to the distribution of the entire amount
credited to the Participant's Accounts, the total unpaid balance then credited
to the Participant's Accounts shall be paid to the Participant's beneficiary (as
determined by Article VIII) in a single lump-sum payment as of the first
business day of the first calendar month commencing after the date of the
Participant's death, or as soon thereafter as administratively possible.
(e) CHANGE IN CONTROL. Notwithstanding Section 7.1(a), in the event
of a Change in Control, a Participant shall be entitled to a distribution of all
amounts then credited to his account.
7.2. AMOUNT OF INSTALLMENT PAYMENTS. Where the Participant receives
the balance of his Accounts in annual installments, the amount of each
installment shall be approximately equal to the product of (I) the balance
credited to such Accounts on the date of such payment and (II) a fraction, the
numerator of which is one (1) and the denominator of which is the total number
of installments remaining to be paid at that time.
ARTICLE VIII
DESIGNATION OF BENEFICIARY
A Participant may designate a beneficiary or beneficiaries (which may
be an entity other than a natural person) to receive any payments to be made
upon the Participant's death pursuant to Section 7.1(d) hereof. At any time,
and from time to time, any such designation may be changed or canceled by the
Participant without the consent of any beneficiary. Any such designation,
change or cancellation must be made by written
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notice filed with the Secretary of the Company. If a Participant designates
more than one beneficiary, any payments to such beneficiaries made pursuant
to Section 7.1(d) shall be made in equal shares unless the Participant has
designated otherwise, in which case the payments shall be made in the shares
designated by the Participant. If no beneficiary has been named by a
Participant, payment shall be made to the Participant's spouse or, if the
Participant has no spouse at the time of his death, to the Participant's
estate.
ARTICLE IX
AMENDMENT AND TERMINATION
The Committee may, at any time, amend or terminate the Plan; provided
no such amendment or termination shall impair the rights of a Participant with
respect to amounts then credited to his Account under the Plan.
ARTICLE X
RIGHTS AS A STOCKHOLDER
A Participant shall have no rights with respect to the Participant's
Accounts as a shareholder of the Company or of any of the mutual funds and no
adjustments shall be made for dividends in cash or other property or
distribution or other rights in respect to any Shares or mutual funds, except as
otherwise specifically provided for in this Plan.
ARTICLE XI
MISCELLANEOUS
11.1. UNFUNDED PLAN. The Company shall not be obligated to fund its
liabilities under the Plan, the Accounts established for each Participant
electing deferment shall not constitute trusts, and a Participant shall have no
claim against the Company or its assets other than as an unsecured general
creditor. Without limiting the generality of the foregoing, the Participant's
claim at any time shall be for the amount credited to such Participant's
Accounts at such time. Notwithstanding the forgoing, the Company may establish
a grantor trust or purchase securities to assist it in meeting its obligations
hereunder; provided, however, that in no event shall any Participant have any
interest in such trust or property other than as an unsecured general creditor.
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11.2. NON-ALIENATION. The right of a Participant to receive a
distribution of the value of such Participant's Account payable pursuant to the
Plan shall not be subject to assignment or alienation other than by will or by
the laws of decent and distribution.
11.3. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Plan shall
be construed to give any Participant the right to continue in the employ of the
Company or any of its subsidiaries.
11.4. LEGAL FEES. In the event that any Participant (or the
beneficiary or legal representative of such Participant) shall make demand for
payment of benefits due under the terms of the Plan and prevail as to any
material aspect of such claim, the Company shall pay all of the Participant's
expenses in conjunction with pursuing such claim (including, without limitation,
legal fees) and interest on the amount due from the date of such demand in an
amount equal to the greater of (I) the amount of earnings credited to the
Participant's Account hereunder or (II) 10% per annum compounded semi-annually.
11.5. COMMITTEE DETERMINATION FINAL. Each determination,
interpretation or other action made or taken pursuant to the provisions of this
Plan by the Committee shall be final and binding for all purposes and upon all
persons, including, without limitation, the Company, the directors, officers and
other employees of the Company, the Participants and their respective heirs,
executors, administrators, personal representatives and other successors in
interest.
11.6. NO LIMIT ON CORPORATE ACTION. The existence of this Plan shall
not affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issuance of bonds, debentures, preferred or
prior preference stocks ahead of or affecting Common Stock, the dissolution or
liquidation of the Company or any sale or transfer of all or part of its assets
or business, or any other corporate act or proceeding.
11.7. WITHHOLDING TAXES. The Company shall have the right to make
such provisions as it deems necessary or appropriate to satisfy any obligations
it may have to withhold federal, state or local income or other taxes incurred
by reason of any distribution under the Plan.
11.8. SEVERABILITY OF PROVISIONS. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provision had not been included.
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11.9. INCAPACITY. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Board, the Company and other parties with
respect thereto.
11.10. GOVERNING LAW. The Plan shall be construed in accordance with
and governed by the laws of the State of [New York], without reference to
principles of conflict of laws which would require application of the law of
another jurisdiction, except to the extent that the corporate law of the State
of Delaware specifically and mandatorily applies.
11.11. HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
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Draft--September 2, 1999
NEUBERGER BERMAN INC.
EMPLOYEE DEFINED CONTRIBUTION STOCK INCENTIVE PLAN
The purposes of this Neuberger Berman Inc. Employee Defined
Contribution Stock Incentive Plan is to provide certain select employees of
Neuberger Berman Inc. with an ownership interest in the equity of the Company
and its Subsidiaries with an ownership interest in the Company and to align
the interests of those employees with those of the Company's shareholders.
The Plan is not intended to be qualified under Section 401(a) of the
Internal Revenue Code, as amended, and is not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE I
DEFINITIONS
1.1. CERTAIN DEFINITIONS. Capitalized terms used herein without
definition shall have the respective meanings set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ACCOUNT" means a Participant's Stock Account or the Unallocated
Stock Account, or both, as the context requires.
"BENEFICIARY" means the person or persons (including a trust or
estate) who are entitled to receive any benefit payable hereunder by
reason of the death of a Participant, as designated pursuant to
Section 9.1.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means any of:
(a) the Participant's having been convicted of, or entered a
plea of NOLO CONTENDERE to, a crime that constitutes a felony or
a misdemeanor involving fraud, false statements or misleading
omissions, perjury, embezzlement,
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bribery, forgery or counterfeiting or other similar crime (or an
equivalent charge in jurisdictions that do not use such
designations);
(b) the willful failure by the Participant (other than due
to physical or mental illness) to perform substantially his
duties as an employee of the Company or any Subsidiary after
reasonable notice to the Participant of such failure;
(c) the Participant's violation of any securities or
commodities laws, any rules or regulations issued pursuant to
such laws, or the rules and regulations of any securities or
commodities exchange or association of which the Company or any
of its Subsidiaries or affiliates is a member;
(d) the Participant's violation of any Company policy
concerning hedging or confidential or proprietary information, or
material violation of any other Company policy as in effect from
time to time;
(e) the Participant's engaging in any act or making any
statement which impairs, impugns, denigrates, disparages or
negatively reflects upon the name, reputation or business
interests of the Company or any of its Subsidiaries; or
(f) the Participant's engaging in any conduct that is
injurious to the Company or any Subsidiary; or
(g) the breach by the Participant of any written covenant or
agreement with the Company or any Subsidiary not to disclose any
information pertaining to the Company or any Subsidiary or not to
compete or interfere with the Company or any Subsidiary.
The determination as to whether "Cause" has occurred shall
be made by the Committee. The Committee shall also have the
authority to waive the consequences under the Plan of the
existence or occurrence of any of the events, acts or
omissions constituting "Cause."
"CHANGE IN CONTROL" means the occurrence of any of the following
events:
(a) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the "INCUMBENT
DIRECTORS") cease for any reason other than due to death to
constitute at least a majority of the members of the Board,
provided that any director whose election, or
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nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the members of
the Board then still in office who were members of the Board at
the beginning of such twenty-four calendar month period other
than as a result of a proxy contest, or any agreement arising
out of an actual or threatened proxy contest, shall be treated
as an Incumbent Director; or
(b) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d)(2) of the Act), but excluding
the Company, any Subsidiary or any employee benefit plan of the
Company or any Subsidiary becomes the "beneficial owner" (as
defined in Rule 13(d)-3 under the Act), directly or indirectly,
of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities; or
(c) the stockholders of the Company shall approve a
definitive agreement (i) for the merger or other business
combination of the Company with or into another corporation, a
majority of the directors of which were not directors of the
Company immediately prior to the merger and in which the
stockholders of the Company immediately prior to the effective
date of such merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of the
voting power they owned in the Company immediately prior to such
transaction or (ii) for the sale or other disposition of all or
substantially all of the assets of the Company to any other
entity; PROVIDED, in each case, that such transaction shall have
been consummated; or
(d) the purchase of Common Stock pursuant to any tender or
exchange offer made by any "person," including a "group" (as such
terms are used in Sections 13(d) and 14(d)(2) of the Act), other
than the Company, any Subsidiary, or an employee benefit plan of
the Company or any Subsidiary, for 20% or more of the Common
Stock of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to occur in the event the Company files for bankruptcy,
liquidation or reorganization under the United States Bankruptcy
Code.
"CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
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"COMMITTEE" means the Compensation Committee of the Board, or
when section 162(m) of the Code or Rule 16b promulgated under the Act
would require action to be taken by a committee of "outside directors"
or "Non-Employee Directors," as the case may be, the "Committee" shall
be deemed to refer to a subcommittee of the Compensation Committee
that consist of two or more members meeting such requirements, or the
full Board in the absence of such a subcommittee.
"COMPANY" means Neuberger Berman Inc., a Delaware corporation,
and any successor thereto.
"EMPLOYEE" means any officer or employee of the Company or any
Subsidiary.
"FAIR MARKET VALUE" means, with respect to a share of Stock on
any day, the fair market value as determined in accordance with a
valuation methodology approved by the Committee.
"INITIAL PUBLIC OFFERING" shall mean the first offering of the
Common Stock to the general public pursuant to an underwritten public
offering.
"IPO CONTRIBUTION" means the initial ___ shares of Stock
contributed to the Plan at the time of or promptly following the date
of the consummation of the Initial Public Offering.
"IPO DISTRIBUTION DATE" means the first day of each Window Period
that begins on or immediately follows each of the second, third and
fourth anniversaries of the date of the consummation of the Initial
Public Offering.
"PARTICIPANT" means an Employee who is designated as a
Participant by the Committee pursuant to Article II.
"PLAN" shall mean this Neuberger Berman Inc. Employee Defined
Contribution Stock Incentive Plan, as described herein and as
hereinafter amended.
"PLAN YEAR" shall mean any calendar year or part thereof
beginning on the Effective Date.
"STOCK" means the common stock of the Company, par value $0.01
per share.
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"STOCK ACCOUNT" means the separate account established in the
name of each Participant under Section 4.1 to hold Stock that has been
allocated to such Participant and any distributions received with
respect to such Stock.
"SUBSIDIARY" means any corporation in which the Company owns,
directly or indirectly, stock representing 50% or more of the voting
power of all classes of stock entitled to vote and any other business
organization, regardless of form, in which the Company possesses
directly or indirectly 50% or more of the total combined equity
interests in such organization.
"TRUST" means the legal entity created by the Trust Agreement.
"TRUST AGREEMENT" means the agreement, dated as of the Effective
Date, by and between the Company and the Trustee, including any
amendments thereto, setting forth the rights and obligations of the
parties thereto in respect of the contributions to and distributions
from the Trust, and the establishment and administration of the
Accounts pursuant to the Plan.
"TRUSTEE" means any corporation, individual or individuals who
shall accept the appointment as trustee to execute the duties of the
trustee pursuant to the Trust Agreement.
"UNALLOCATED STOCK ACCOUNT" means a separate account established
under Section 4.1 to hold Stock pending the allocation and
reallocation of such Stock to the Stock Accounts of Participants, and
any distributions received with respect to such Stock.
"WINDOW PERIOD" means a period designated by the Committee during
which employees of the the Company generally are permitted to purchase
or sell shares of Stock.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Each Employee designated by the Committee shall become a
Participant in the Plan on the date he or she is so designated. A
Participant shall remain a Participant until the date he or she receives a
distribution of the entire vested portion of his or her Stock Account or, if
earlier, the date such Participant's interest in his or her Stock Account is
forfeited in accordance with Article V.
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ARTICLE III
CONTRIBUTIONS
On the Effective Date, the Company shall establish the Trust and
irrevocably contribute the IPO Contribution to the Trust. The Company may
contribute additional shares of Stock or cash to the Trust from time to time
at its sole discretion.
ARTICLE IV
ALLOCATION OF CONTRIBUTIONS
4.1. ESTABLISHMENT OF ACCOUNTS. There shall be established a
Stock Account in the name of each Participant and a separate account (the
Unallocated Stock Account) to which any forfeitures occurring hereunder shall
be credited pending allocation to Participants. The Accounts shall also hold
any distributions with respect to any shares of Stock held therein until such
distributions are payable pursuant to the Plan.
4.2. ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The Committee shall
in its sole discretion designate the number of shares of Stock allocable to
the Stock Account of each Participant with respect to the IPO Contribution.
With respect to each contribution other than the IPO Contribution, the
Committee shall designate the number of shares of Stock (or the amount of
cash) allocable to the Stock Account of each Participant on a formulaic basis
as determined by the Committee in its sole discretion. Any Stock and
distributions in respect of Stock in the Unallocated Stock Account as of the
last day of each Plan Year shall be allocated among the Stock Accounts of
each Participant who is an employee on the last day of such Plan Year in the
proportion that each such Participant's allocation in respect of the
Company's contributions for such Plan Year bears to the allocations of such
contributions for all Participants who are employees on the last day of such
Plan Year, or on such other formulaic basis as determined by the Committee in
its sole discretion.
4.3. VOTING OF STOCK; TENDER OR EXCHANGE OFFERS. With respect to
Stock allocated to Participants' Stock Accounts, each Participant shall be
entitled to instruct the Trustee, on a confidential basis (A) as to the
manner in which the Trustee's voting rights will be exercised with respect to
any matter which involves the voting of such Stock allocated to the
Participant's Stock Account, and (B) in the event of a tender or exchange
offer for all or substantially all of the Stock of the Company, whether such
Stock shall be tendered or exchanged by the Trustee. Without limiting the
foregoing, the Trust Agreement shall provide that the Trustee shall have no
discretion and shall be required to vote, tender or exchange shares of Stock
held by the Trust as follows: (A) shares of Stock allocated to a
Participant's Stock Account shall be voted, tendered or exchanged, as
applicable, in accordance with any instructions received from such
Participant or such
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Participant's authorized representative pursuant to a duly executed power of
attorney or similar instrument, (B) shares of Stock held in a Participant's
Stock Account with respect to which the Trustee does not receive instructions
shall not be voted, tendered or exchanged, as applicable, and (C) shares of
Stock held in the Unallocated Stock Account shall be voted, tendered or
exchanged, as applicable, in the same proportion as the shares of Stock
allocated to Participants' Stock Accounts with respect to which instructions
are received by the Trustee are voted, tendered or exchanged.
ARTICLE V
VESTING
5.1. VESTING OF IPO CONTRIBUTION. Except as otherwise provided in
this Article V, a Participant shall vest on each IPO Distribution Date in
one-third of his or her Stock Account attributable to the IPO Contribution
(subject to rounding in the discretion of the Committee to avoid the vesting
of fractional shares of Stock).
5.2. SPECIAL RULE FOR IPO CONTRIBUTION.
(a) DEATH OF A PARTICIPANT. Notwithstanding any other provision
of this Plan , provided that a Participant's Stock Account has not previously
been forfeited, such Participant shall be 100% vested in the portion of his
or her Stock Account attributable to the IPO Contribution upon the death of
such Participant.
(b) CHANGE IN CONTROL. Except as provided in the next sentence,
in the event of a Change in Control, provided that a Participant's Stock
Account has not previously been forfeited, such Participant shall be 100%
vested in the portion of his or her Stock Account attributable to the IPO
Contribution upon such Change in Control. Notwithstanding the foregoing, no
acceleration of vesting shall occur if the Committee reasonably determines in
good faith prior to the occurrence of a Change in Control that such award or
awards shall be honored or assumed following such Change in Control; PROVIDED
that (A) following such Change in Control the shares held in the Trust with
respect to the IPO Contribution shall be of a class that is traded on an
established securities market, or which will be so traded within 60 days of
the Change in Control, (B) such Participant's rights and entitlements with
respect to the Participant's Stock Account will be substantially equivalent
to or better than the rights, terms and conditions provided herein
(including, but not limited to, an identical or better exercise or vesting
schedule and identical or better timing and methods of payment), (C) the
Participant's Stock Account will have substantially equivalent economic value
(determined at the time of the Change in Control) and (D) the Participant
will be 100% vested in the event that the Participant's employment is
involuntarily terminated or constructively terminated. For this purpose, a
constructive
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termination shall mean a termination by a Participant following a material
reduction in the Participant's base salary or a Participant's incentive
compensation opportunity or a material reduction in the Participant's
responsibilities, in either case without the Participant's written consent.
5.3. FORFEITURE AND REALLOCATION OF IPO CONTRIBUTION. Unless the
Committee determines otherwise, and except under the circumstances specified
in Section 5.2, a Participant's unvested Stock in his or her Stock Account
attributable to the IPO Contribution shall be forfeited and such Stock shall
not be distributable to such Participant if:
(a) prior to the relevant IPO Distribution Date:
(i) such Participant's employment with the Company or any of
its Subsidiaries is terminated for any reason, or such Participant
is no longer actively employed with the Company or any of its
Subsidiaries (except as provided in Section 5.2); or
(ii) with respect to such Participant, any of the events that
constitute Cause has occurred; or
(b) such Participant fails to certify to the Company in accordance
with procedures established by the Committee, with respect to any
relevant IPO Distribution Date that such Participant has complied, or
the Committee determines that such Participant in fact as of such date
has not complied, with all the terms and conditions of the Plan. By
accepting the distribution of Stock (or cash) under the Plan, such
Participant shall be deemed to have represented and certified at such
time that he or she has complied with all the terms and conditions of
the Plan.
In the event that Stock in a Participant's Stock Account attributable to the
IPO Contribution is forfeited by reason of this Section 5.3, such forfeited
Stock shall be reallocated to other Participants' Stock Accounts in
accordance with Section 4.2, and the Committee shall specify the terms and
conditions (including timing) under which each such Participant shall vest in
such reallocated amounts.
5.4. VESTING OF ONGOING CONTRIBUTIONS. With respect to each Plan
contribution (other than the IPO Contribution), the Committee shall specify
the terms and conditions (including timing) under which a Participant shall
vest in any or all of his or her Account attributable to such contributions
(or forfeitures of such contributions reallocated to such Participant).
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ARTICLE VI
DISTRIBUTIONS
Section 6.1. GENERAL.(a) Except as provided below and in Section
9.10, all amounts and all shares of Stock credited to the Stock Account in
which a Participant has vested under Article V shall be promptly
distributable to such Participant (or, if applicable, his or her
Beneficiary), and shall be subject to the provisions of Sections 9.8 and 9.9.
(b) Any cash dividends on shares of Stock allocated to a
Participant's Stock Account on the record date for such dividend shall be
distributed to such Participant as soon as practicable following the end of
the calendar quarter in which such dividend is received without regard to
whether such Participant is vested in the Stock in respect of which such
dividend is received. No interest shall be payable on any dividends
allocated to a Participant's Stock Account but not yet distributed.
ARTICLE VII
ADMINISTRATION OF PLAN
7.1. THE COMMITTEE. The Committee shall be responsible for the
administration of the Plan, including, without limitation, determining which
Participants receive Awards, what kind of Awards are made under the Plan and
for what number of shares, and the other terms and conditions of each such
Award. The Committee shall have the responsibility of construing and
interpreting the Plan and of establishing and amending such rules and
regulations as it may deem necessary or desirable for the proper
administration of the Plan. Any decision or action taken or to be taken by
the Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the greatest extent permitted by applicable law, be
within its absolute discretion (except as otherwise specifically provided
herein) and shall be conclusive and binding upon the Company and its
Subsidiaries, all Participants and any person claiming under or through any
Participant.
7.2. DELEGATION BY THE COMMITTEE. The Committee may delegate its
authority under this Plan; PROVIDED that the Committee shall in no event
delegate its authority with respect to the compensation of the Chief
Executive Officer of the Company, the four most highly compensated executive
officers (as determined under Section 162(m) of the Code and regulations
thereunder) of the Company and any other individual whose compensation the
Board or Committee reasonably believes may become subject to Section 162(m)
of the Code.
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ARTICLE VIII
AMENDMENT, TERMINATION, ETC.
The Board reserves the right at any time and from time to time to
modify, alter, amend, suspend, discontinue and terminate the Plan or the
Trust Agreement; PROVIDED that, no such modification, alteration, amendment,
suspension, discontinuance or termination shall materially adversely affect,
without their consent, the rights of Participants under this Plan with
respect to contributions previously made except that the Board reserves the
right to (a) accelerate the vesting of Participants' Stock Accounts and in
its discretion provide that Stock distributed from such Stock Accounts may
not be transferable until the Distribution Dates as of which such Stock would
have otherwise become vested (and that in respect of such Stock the
Participants may remain subject to the repayment obligations of Section 9.11
in the circumstances under which the Stock would not have been distributed
pursuant to Section 5.3) and (b) make distributions to Participants upon the
termination of the Plan. Notwithstanding the foregoing, no modification,
alteration, amendment or termination of the Plan may be made which would
cause or permit any part of the assets of the Trust to be used for, or
diverted to, purposes other than for the exclusive benefit of Participants or
their Beneficiaries, or which would cause any part of the assets of the Trust
to revert to or become the property of the Company or any of its Subsidiaries.
ARTICLE IX
MISCELLANEOUS
9.1. DESIGNATION OF BENEFICIARIES. A Participant may designate,
in accordance with procedures established by the Committee, a Beneficiary or
Beneficiaries to receive all or part of the amounts payable hereunder in the
event of such Participant's death. A designation of a Beneficiary may be
replaced by a new designation or may be revoked by a Participant at any time
in accordance with procedures established by the Committee. In the event of
a Participant's death, the amounts payable hereunder with respect to which a
designation of Beneficiary has been made shall be paid in accordance with the
Plan to such designated Beneficiary or Beneficiaries. Any amounts payable
upon death and not subject to such designation shall be distributed to the
Participant's estate. If there is any question as to the legal right of any
Beneficiary to receive payment of amounts hereunder, the amounts in question
may be paid to the Participant's estate, in which event the Company and its
Subsidiaries shall have no further liability to anyone with respect to such
amounts. A Beneficiary shall have no rights under the Plan other than the
right, subject to the immediately preceding sentence, to receive such
amounts, if any, as may be payable under this Section 9.1.
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9.2. NONASSIGNABILITY. No rights granted to any Participant or
any Beneficiary under the Plan (including any interest in the Accounts) may
be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise
disposed of (including through the use of any cash-settled instrument) (each
such action being hereinafter referred to as an "assignment"), whether
voluntarily or involuntarily, other than by will or by the laws of descent
and distribution. Any assignment in violation of the provisions of this
Section 9.2 shall be void. All the terms of this Plan shall be binding upon
such permitted successors and assigns.
9.3. NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the
Plan shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor to
confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary. No Employee shall have a right to be selected as
a Participant, or, having been so selected, to receive any future Awards.
9.4. LIMIT ON LIABILITY. No person shall have any right or
interest in the Plan and/or the Trust other than as provided herein. The
Trust assets shall under no circumstances be available to the creditors of
the Company. All distributions under the Plan shall be paid or provided
solely from the Trust assets, and the Company shall have no responsibility or
liability to any Participant or Beneficiary relating to the Stock or other
assets contributed to the Trust. Any final distribution to any Participant
or Beneficiary in accordance with the provisions of the Plan shall be in full
satisfaction of all claims against the Trust, the Trustee, the Committee, the
Board, the Company and its Subsidiaries and its employees with respect to the
Plan or Trust.
9.5. GOVERNING LAW. The Plan shall be construed in accordance with
and governed by the laws of the State of New York, without reference to
principles of conflict of laws which would require application of the law of
another jurisdiction, except to the extent that the corporate law of the
State of Delaware specifically and mandatorily applies.
9.6. TAXES AND WITHHOLDING.(a) Upon a Participant's vesting in all
or any portion of his or her Stock Account, or in connection with any
distribution or other event that gives rise to a federal or other
governmental tax withholding obligation relating to the Plan (including,
without limitation, FICA tax), the Trustee shall be entitled to require that
the Participant remit cash in an amount sufficient in the opinion of the
Trustee and the Committee to satisfy such withholding obligation.
Alternatively, if the event giving rise to the withholding obligation
involves a transfer of shares of Stock, then, at the discretion of the
Committee, the Participant may elect to satisfy the withholding obligation
described above by (i) remitting cash, (ii) instructing the Trustee to
withhold shares of Stock or tendering previously owned shares of Stock (in
each case having a Fair Market Value equal to the amount of tax to be
withheld) or (iii) any other mechanism as may be required
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<PAGE>
or appropriate to conform with local tax and other rules. For this purpose,
Fair Market Value shall be determined as of the date on which the amount of
tax to be withheld is determined (and any fractional share amount may be
settled in cash). If the Participant does not satisfy the withholding
obligation in accordance with any of the methods described above in this
Section 9.6(a), the Trustee may cause such withholding taxes to be deducted
or withheld from the vested portion of the Participant's Stock Account or any
payment or distribution to the Participant pursuant to the Plan, and the
Company or any of its Subsidiaries may deduct or withhold (or cause to be
deducted or withheld) such taxes from any other payment or distribution by
the Company or any of its Subsidiaries to the Participant.
(b) The Trustee may transfer to the Company any amounts (cash
or shares of Stock) withheld or received from the Participant pursuant to
Section 9.6(a). Any deduction of shares of Stock from the Participant's
Stock Account by the Trustee pursuant to this section 9.8 shall be treated as
a distribution from the Trust to such Participant and an election by the
Participant to have such shares of Stock applied to satisfy the withholding
obligation.
(c) No Participant may make an election pursuant to section
83(b) of the Code with respect to his or her interest in the Trust, any
shares of Stock or any other property held by the Trust.
9.7. RIGHT OF OFFSET. The Committee shall have the right to
direct the Trustee to withhold distribution of the vested portion of a
Participant's Stock Account until the Participant settles any outstanding
amounts such Participant then owes to the the Company or any of its
Subsidiaries.
9.8. CONSENTS AND LEGENDS. The vesting and distribution to a
Participant of any shares of Stock may be conditioned on the receipt to the full
satisfaction of the Committee of (a) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or under any
federal, state or local law, or law, rule or regulation of a jurisdiction
outside the United States,(b) any and all written agreements and representations
by the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that any such listing, qualification or
registration be made,(c) any and all other consents, clearances and approvals in
respect of a plan action by any governmental or other regulatory body or any
stock exchange or self-regulatory agency that the Committee may determine to be
necessary or advisable and (d) any and all consents or authorizations required
to comply with, or required to be obtained under, applicable local law or
otherwise required by the Committee. Nothing herein shall require the Company
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Inc. to list, register or qualify the shares of Stock on any securities
exchange. The Compamy may affix to any stock certificate (or other document
or evidence of ownership) representing shares of Stock distributed under the
Plan any legend that the Committee determines in its sole discretion to be
necessary or advisable (including to reflect any restrictions to which a
Participant may be subject under a separate agreement with the Company). The
Company may advise the transfer agent to place a stop order against any
legended shares of Stock.
9.9. FORFEITURE AND REPAYMENT AFTER ERRONEOUS VESTING. If,
following any date on which a Participant becomes vested in all or any
portion of his or her Stock Account (the "erroneously vested portion"), the
Committee determines that all terms and conditions of the Plan were not
satisfied on the relevant vesting date, such Participant or former
Participant shall cease to be vested in, and shall forfeit, such erroneously
vested portion, and the Trust shall be entitled to receive, and such
Participant or former Participant shall be obligated to pay the Trust
immediately upon demand therefor the Fair Market Value of any Shares
(determined as of the date of vesting) and the amount of any cash delivered
in respect of any distribution of the erroneously vested portion, without
reduction for any Shares (or cash) applied to satisfy withholding tax or
other obligations in respect of such erroneous vesting event.
9.10. EFFECTIVE DATE. The Plan shall be effective as of the date
of the Initial Public Offering.
9.11. SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions of
this Plan is finally held to be invalid, illegal or unenforceable (whether in
whole or in part), such provision shall be deemed modified to the extent, but
only to the extent, of such invalidity, illegality or unenforceability and
the remaining provisions shall not be affected thereby; provided, that if any
of the provisions of this Plan is finally held to be invalid, illegal, or
unenforceable because it exceeds the maximum scope determined to be
acceptable to permit such provision to be enforceable, such provision shall
be deemed to be modified to the minimum extent necessary to modify such scope
in order to make such provision enforceable hereunder. The Plan contains the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written
or oral with respect to the subject matter hereof.
9.12. EXPENSES. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and the Trust shall be
paid by the Company to the extent not paid from the cash dividends held in
the Unallocated Stock Account. All taxes imposed on the Trust related to
income credited to or attributable to Trust assets shall be
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<PAGE>
paid from such assets and charged against the Stock Account to which the
income is allocated as though it were payable directly to the Participant.
9.13. NO THIRD PARTY BENEFICIARIES. Except as expressly provided
herein, the Plan shall not confer on any person other than the the Company
and its Subsidiaries and any Participant any rights or remedies thereunder.
9.14. NO IMPACT ON BENEFITS. Except as may otherwise be
specifically stated under any employee benefit plan, policy or program, no
amount payable in respect of any Award shall be treated as compensation for
purposes of calculating an Employee's right under any such plan, policy or
program.
9.15. NO CONSTRAINT ON CORPORATE ACTION. Nothing in this Plan
shall be construed (A) to limit, impair or otherwise affect the Company's
right or power to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, or to merge or consolidate, or
dissolve, liquidate, sell, or transfer all or any part of its business or
assets or (B) to limit the right or power of the Company, or any Subsidiary
to take any action which such entity deems to be necessary or appropriate.
9.16. SUCCESSORS AND ASSIGNS. The terms of this Plan shall be
binding upon and inure to the benefit of the Company each of its Subsidiaries
that adopts the Plan and its and their successors and assigns.
9.17. HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan
effective as of ______, 1999 by Neuberger Berman Inc. it has caused the same
to be signed by its duly authorized officer this ______ day of ______, 1999.
NEUBERGER BERMAN INC.
By:
-----------------------------------
Name:
Title:
14
<PAGE>
Exhibit 10.8
NYSE CSA FORM 1D
SUBORDINATED LOAN AGREEMENT - CASH
THIS AGREEMENT is entered into this 31 day of August 1998 between NB Associates,
LLC (the "Lender") and Neuberger & Berman, LLC (the "Organization").
1. GENERAL - Subject to the terms and conditions hereinafter set
forth, the Organization promises to pay to the Lender or assigns, on September
1, 1999 (the "Scheduled Maturity Date") (the last day of the month at least 1
year and not more than 10 years from the date thereof) at the principal office
of the Organization, the principal sum of FIFTY MILLION DOLLARS ($50,000,000)
and to pay interest on such unpaid principal amount quarterly at a rate of 6.75%
per annum from the date hereof, and has delivered to the Lender a Promissory
Note, dated the date hereof, evidencing the loan made hereunder (the "Note"). By
written notice delivered to the Organization at its principal office and to the
New York Stock Exchange, Inc. (the "Exchange") no sooner than 6 months from the
date hereof, the Lender may accelerate such payment date to the last business
day of a calendar month not less than 6 months after the receipt of such notice
by both the Organization and the Exchange, but the right of the Lender to
receive payment of the principal amount hereof and interest shall remain
subordinate as hereinafter provided.
2. SUSPENDED REPAYMENT
The Organization's obligation to pay the principal amount hereof on
the Scheduled Maturity Date or any accelerated maturity date shall be suspended
and the obligation shall not mature for any period of time during which after
giving effect to such payment (together with (a) the payment of any other
obligation of the Organization payable at or prior to the payment hereof and (b)
the return of any Secured Demand Note and the Collateral therefor held by the
Organization and returnable at or prior to the payment hereof).
(i) in the event that the Organization is not operating pursuant to
the alternative net capital requirement provided for in
paragraph (a)(1)(ii) of Rule 15c3-1 (the "Rule") under the
Securities Exchange Act of 1934, as amended (the "Act"), the
aggregate indebtedness of the Organization would exceed 1200
percent of its net capital as those terms are defined in the
Rule or any successor rule as in effect at the time payment is
to be made, or such other percent as may be made applicable to
the Organization at the time of such
<PAGE>
Exhibit 10.8
payment by the New York Stock Exchange, Inc. (the "Exchange") or
the Securities and Exchange Commission (the "SEC"), or
(ii) in the event that the Organization is operating pursuant to such
alternative net capital requirement, the net capital of the
Organization would be less than 5 percent (or such other percent
as may be made applicable to the Organization at the time of
such payment by the Exchange or the SEC) of aggregate debit
items computed in accordance with Exhibit A to Rule 15c3- 3
under the Act or any successor rule as in effect at such time,
or
(iii) in the event that the Organization is registered as a futures
commission merchant under the Commodity Exchange Act (the
"CEA"), the net capital of the Organization (as defined in the
CEA or the regulations thereunder as in effect at the time of
such payment) would be less than 6 percent (or such other
percentum as may be made applicable to the Organization at the
time of such payment by the Commodity Futures Trading Commission
(the "CFTC") of the funds required to be segregated pursuant to
the CEA and the regulations thereunder, and the foreign futures
or foreign options secured amount less the market value of
commodity options purchased by customers on or subject to the
rules of a contract market or a foreign board of trade
(provided, however, the deduction for each customer shall be
limited to the amount of customer funds in such customer's
account(s) and foreign futures and foreign options secured
amounts), or the Organization's net capital would be less than
the minimum capital requirement as defined by the DSRO, or
(iv) the Organization's net capital, as defined in the Rule or any
successor rule as in effect at the time of such payment would be
less than 120 percent (or such other percent as may be made
applicable to the Organization at the time of such payment by
the Exchange or the SEC) of the minimum dollar amount required
by the Rule as in effect at such time (or such other dollar
amount as may be made applicable to the Organization at the time
of such payment by the Exchange or the SEC), or
(v) in the event that the Organization is registered as a futures
commission merchant under the CEA and if its net capital, as
defined in the CEA or the regulations thereunder as in effect at
the time of such payment, would be less than 120 percent (or
such other percent as may be made applicable to the Organization
at the time of such payment by the CFTC) of the minimum
<PAGE>
Exhibit 10.8
dollar amount required by the CEA or the regulations thereunder
as in effect at such time (or such other dollar amount as may be
made applicable to the Organization at the time of such payment
by the CFTC), or
(vi) in the event that the Organization is subject to the provisions
of Paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule, the net
capital of the Organization would be less than the amount
required to satisfy the 1000 percent test (or such other
percentum test as may be made applicable to the Organization at
the time of such payment by the Exchange or the SEC) stated in
such applicable paragraph,
(the net capital necessary to enable the Organization to avoid such suspension
of its obligation to pay the principal amount hereof being hereinafter referred
to as the "Applicable Minimum Capital") and during any such suspension the
Organization shall, as promptly as consistent with the protection of its
customers, reduce its business to a condition whereby the principal amount
hereof with accrued interest thereon could be paid (together with (a) the
payment of any other obligation of the Organization payable at or prior to the
payment hereof and (b) the return of any Secured Demand Note and the Collateral
therefor held by the Organization and returnable at or prior to the payment
hereof) without the Organization's net capital being below the Applicable
Minimum Capital, at which time the Organization shall repay the principal amount
thereof plus accrued interest thereon on not less than five days' prior written
notice to the Exchange. The aggregate principal amount outstanding pursuant to
this Agreement shall mature on the first day at which under this paragraph the
Organization has an obligation to pay the principal amount hereof. If pursuant
to the terms hereof the Organization's obligation to pay the principal amount
hereof is suspended and does not mature, the Organization (and the Lender
recognizes) and agree that, if its obligation to pay the principal amount hereof
is ever suspended for a period of six months or more, it will promptly take
whatever steps are necessary to effect a rapid and orderly complete liquidation
of its business. If payment is made of all or any part of the principal hereof
on the Scheduled Maturity Date or any accelerated maturity date and if
immediately after any such payment the Organization's net capital is less than
the Applicable Minimum Capital, the Lender agrees irrevocably (whether or not
such Lender had any knowledge or notice of such fact at the time of any such
payment) to repay to the Organization, its successors or assigns, the sum so
paid, to be held by the Organization pursuant to the provisions hereof as if
such payment had never been made; provided, however, that any suit for the
recovery of any such payment must be commenced within two years of the date of
such payment.
3. SUBORDINATION OF OBLIGATIONS
<PAGE>
Exhibit 10.8
The Lender irrevocably agrees that the obligations of the
Organization under this Agreement with respect to the payment of principal and
interest are and shall be fully and irrevocably subordinate in right of payment
and subject to the prior payment or provision for payment in full of all claims
of all other present and future creditors of the Organization whose claims are
not similarly subordinated (claims hereunder shall rank pari passu with claims
similarly subordinated) and to claims which are now or hereafter expressly
stated in the instruments creating such claims to be senior in right of payment
to the claims of the class of this claim arising out of any matter occurring
prior to the date on which the Organization's obligation to make such payment
matures consistent with the provisions hereof. In the event of the appointment
of a receiver or trustee of the Organization or in the event of its insolvency,
liquidation pursuant to the Securities Investor Protection Act of 1970 ("SIPA")
or otherwise, its bankruptcy, assignment for the benefit of creditors,
reorganization whether or not pursuant to bankruptcy laws, or any other
marshalling of the assets and liabilities of the Organization, the holder hereof
shall not be entitled to participate or share, ratably or otherwise, in the
distribution of the assets of the Organization until all claims of all other
present and future creditors of the Organization, whose claims are senior
hereto, have been fully satisfied, or adequate provision has been made therefor.
4. PERMISSIVE PREPAYMENT
With the prior written approval of the Exchange, the Organization
may, at its option, make Prepayment of all or any portion of the principal
amount hereof to the Lender prior to the Scheduled Maturity Date at any time
subsequent to one year from the effective date of this agreement. No Prepayment
shall be made, however, if after giving effect thereto (and to all other
payments of principal of outstanding subordination agreements of the
Organization, including the return of any Secured Demand Note and the Collateral
therefor held by the Organization, the maturity or accelerated maturity of which
are scheduled to occur within six months after the date such Prepayment is to
occur pursuant to the provisions of this paragraph, or on or prior to the
Scheduled Maturity Date for payment of the principal amount hereof disregarding
this paragraph, whichever date is earlier) without reference to any projected
profit or loss of the Organization.
(i) in the event that the Organization is not operating pursuant to
the alternative net capital requirement provided for in
paragraph (a)(1)(ii) of the Rule, the aggregate indebtedness of
the Organization would exceed 1000 percent of its net capital as
those terms are defined in the Rule or any successor rule as in
effect at the time such Prepayment is to be made (or such other
percent as
<PAGE>
Exhibit 10.8
may be made applicable at such time to the Organization by the
Exchange or the SEC), or
(ii) in the event that the Organization is operating pursuant to such
alternative net capital requirement, the net capital of the
Organization would be less than 5 percent (or such other percent
as may be made applicable to the Organization at the time of
such Prepayment by the Exchange or the SEC) of aggregate debit
items computed in accordance with Exhibit A to Rule 15c3-3 under
the Act or any successor rule as in effect at such time, or
(iii) in the event that the Organization is registered as a futures
commission merchant under the CEA, the net capital of the
Organization (as defined in the CEA or the regulations
thereunder as in effect at the time of such Prepayment) would be
less than 7 percent (or such other percent as may be made
applicable to the Organization at the time of such Prepayment by
the CFTC) of the funds required to be segregated pursuant to the
CEA and the regulations thereunder, and the foreign futures or
foreign options secured amount less the market value of
commodity options purchased by customers of the Organization on
or subject to the rules of a contract market or a foreign board
of trade (provided, however, the deduction for each customer
shall be limited to the amount of customer funds in such
customer's account(s) and foreign futures and foreign options
secured amounts) or the Organization's net capital would be less
than the minimum capital requirement as defined by the DSRO, or
(iv) the Organization's net capital, as defined in the Rule or any
successor rule as in effect at the time of such Prepayment,
would be less than 120 percent (or such other percent as may be
made applicable to the Organization at the time of such
Prepayment by the Exchange or the SEC) of the minimum dollar
amount required by the Rule as in effect at such time (or such
other dollar amount as may be made applicable to the
Organization at the time of such Prepayment by the Exchange or
the SEC), or
(v) in the event that the Organization is registered as a futures
commission merchant under the CEA, its net capital, as defined
in the CEA or the regulations thereunder as in effect at the
time of such Prepayment would be less than 120 percent (or such
other percent as may be made applicable to the Organization at
the time of such Prepayment by the CFTC) of the minimum dollar
amount required by the CEA or the regulations thereunder
<PAGE>
Exhibit 10.8
as in effect at such time or such other dollar amount as may be
made applicable to the Organization at the time of such
Prepayment by the CFTC, or
(vi) in the event that the Organization is subject to the provisions
of paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule, the net
capital of the Organization would be less than the amount
required to satisfy the 1000 percent test (or such other percent
test as may be made applicable to the Organization at the time
of such Prepayment by the Exchange or the SEC) stated in such
applicable paragraph, or
If Prepayment is made of all or any part of the principal hereof prior to the
Scheduled Maturity Date and if the Organization's net capital is less than the
amount required to permit such Prepayment pursuant to the foregoing provisions
of this Paragraph, the Lender agrees irrevocably (whether or not such Lender had
any knowledge or notice of such fact at the time of such Prepayment) to repay
the Organization, its successors or assigns, the sum so paid to be held by the
Organization pursuant to the provisions hereof as if such Prepayment had never
been made; provided, however, that any suit for the recovery of any such
Prepayment must be commenced within two years of the date of such Prepayment.
5. ACCELERATION IN EVENT OF INSOLVENCY
The Organization's obligation to pay the unpaid principal amount
hereof shall forthwith mature, together with interest accrued thereon, in the
event of any receivership, insolvency, liquidation pursuant to SIPA or
otherwise, bankruptcy, assignment for the benefit of creditors, reorganization
whether or not pursuant to bankruptcy laws, or any other marshalling of the
assets and liabilities of the Organization; but payment of the same shall remain
subordinate as hereinabove set forth.
6. EFFECT OF DEFAULT
Default in any payment hereunder, including the payment of interest,
shall not accelerate the maturity hereof except as herein specifically provided,
and the obligation to make payment shall remain subordinated as herein above set
forth.
7. NOTICE OF MATURITY OR ACCELERATED MATURITY
<PAGE>
Exhibit 10.8
The organization shall immediately notify the Examining Authority for
such broker or dealer, if, after giving effect to all Payments of Payment
Obligations (as that term is defined in (a)(2)(iv) of Appendix D of the Rule)
under subordination agreements then outstanding that are then due or mature
within the following six months without reference to any projected profit or
loss of the broker or dealer either the aggregate indebtedness of the broker or
dealer would exceed 1200 percent of its net capital or its net capital would be
less than 120 percent of the minimum dollar amount required by the Rule, or, in
the case of a broker or dealer operating pursuant to paragraph (a)(1)(ii) of the
Rule, its net capital would be less than 5 percent of aggregate debit items
computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any
successor rule as in effect at such time, or, if registered as a futures
commission merchant, 6 percent of the funds required to be segregated pursuant
to the Commodity Exchange Act and the regulations thereunder (less the market
value of commodity options purchased by option customers on or subject to the
rules of a contract market, each such deduction not to exceed the amount of
funds in the option customer's account), if greater, or less than 120 percent of
the minimum dollar amount required by paragraphs (a)(1)(ii) of the Rule.
8. NON-LIABILITY OF EXCHANGE
The Lender irrevocably agrees that the loan evidenced hereby is not
being made in reliance upon the standing of the Organization as a member
organization of the Exchange or upon the Exchange's surveillance of the
Organization's financial position or its compliance with the Constitution, Rules
and practices of the Exchange. The Lender has made such investigation of the
Organization and its partners, officers, directors and stockholders as the
Lender deems necessary and appropriate under the circumstances. The Lender is
not relying upon the Exchange to provide any information concerning or relating
to the Organization and agrees that the Exchange has no responsibility to
disclose to the Lender any information concerning or relating to the
Organization which it may now, or at any future time, have. The Lender agrees
that neither the Exchange, its Special Trust Fund, nor any director, officer,
trustee nor employee of the Exchange or said Trust Fund shall be liable to the
Lender with respect to this agreement or the repayment of the loan evidenced
hereby or of any interest thereon.
9. STATUS OF PROCEEDS
The proceeds hereof shall be dealt with in all respects as capital of
the Organization, shall be subject to the risks of its business, and may be
deposited in an account or accounts in the Organization's name in any bank or
trust company.
<PAGE>
Exhibit 10.8
10. FUTURES COMMISSION MERCHANTS
If the Organization is a futures commission merchant, as that term is
defined in the CEA, the Organization agrees, consistent with the requirements of
Section 1.17(h) of the regulations of the CFTC (17 CFR 1.17(h)), that:
(a) whenever prior written notice by the Organization to the
Exchange is required pursuant to the provisions of this
agreement, the same prior written notice shall be given by the
Organization to (i) the CFTC at its principal office in
Washington, DC, Attention Chief Accountant of Division of
Trading and Markets, and/or (ii) the commodity exchange of which
the organization is a member and which is then designated by the
CFTC as the Organization's designated self-regulatory
organization (the "DSRO"), and
(b) whenever prior written consent, permission or approval of the
Exchange is required pursuant to the provisions of this
agreement, the Organization shall also obtain the prior written
consent, permission or approval of the CFTC and/or of the DSRO,
and
(c) whenever the Organization receives written notice of
acceleration of maturity pursuant to the provisions of this
agreement, the Organization shall promptly give written notice
thereof to the CFTC at the address stated and/or to the DSRO.
11. DEFINITION OF ORGANIZATION
The term "Organization" as used in this agreement shall include the
Organization, its heirs, executors, administrators, successors and assigns.
12. EFFECT OF EXCHANGE MEMBERSHIP TERMINATION
Upon termination of the Organization as a member organization of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term "Examining Authority" shall refer to the
regulatory body having responsibility for inspecting or examining the
Organization for compliance with financial responsibility requirements under
Section 9(c) of SIPA and Section 17(d) of the Act.
13. UPON WHOM BINDING
<PAGE>
Exhibit 10.8
The provision of this agreement shall be binding upon the Lender, his
or its heirs, executors, administrators, successors and assigns and upon the
Organization.
14. ARBITRATION
Any controversy arising out of or relating to this agreement shall be
submitted to and settled by arbitration pursuant to the Constitution and Rules
of the Exchange. The Organization and the Lender shall be conclusively bound by
such arbitration.
15. EFFECTIVE DATE
This agreement shall be effective from the date on which it is
approved by the Exchange and shall not be modified or amended without the prior
written approval of the Exchange.
16. ENTIRE AGREEMENT
This instrument and the Note together embody the entire agreement
between the Organization and the Lender and no other evidence of such agreement
has been or will be executed without the prior written consent of the Exchange.
17. GOVERNING LAW
This agreement shall be deemed to have been made under, and shall be
governed by, the laws of the State of New York in all respects.
18. CANCELLATION
This agreement shall not be subject to cancellation by either party,
unless the new York Stock Exchange agrees in writing to such cancellation 30
days in advance.
19. NO RIGHT OF SET-OFF
The Lender agrees that it is not taking and will not take or assert
as security for the payment of the loan any security interest in or lien upon,
whether created by contract, statute or otherwise, any property of the
Organization or any property in which the Organization may have an interest,
which is or at any time may be in the possession or subject to the control of
the Lender. The Lender hereby waives, and further agrees that it will not seek
to obtain payment of the note in whole or in any part by exercising any right
<PAGE>
Exhibit 10.8
of set-off it may assert or possess whether created by contract, statute or
otherwise. Any agreement between the organization and the Lender (whether in the
nature of a general loan and collateral agreement, a security or pledge
agreement or otherwise) shall be deemed amended hereby to the extent necessary
so as not to be inconsistent with the provision of this paragraph.
20. *|_| Check this box if you wish to incorporate the following
optional provision:
The Scheduled Maturity Date hereof in each year, without further
action by either the lender or Organization shall be extended an additional
year, unless on or before the day SEVEN MONTHS preceding the Scheduled Maturity
Date then in effect, the lender shall notify the Organization in writing, with a
written copy to the New York Stock Exchange, Inc., that such Scheduled Maturity
Date shall not be extended.
IN WITNESS HEREOF the parties hereto have set their hands and seals this 31st
day of August, 1998.
By: Neuberger & Berman, LLC By: NB Associates, LLC
/s/ Lawrence Zicklin /s/ C. Carl Randolph
Title: Managing Principal Title: Secretary
(Organization) (Lender)
<PAGE>
Exhibit 10.9
FIRST AMENDMENT TO
SUBORDINATED LOAN AGREEMENT -- CASH
OF NEUBERGER & BERMAN, LLC
This first amendment to the Subordinated Loan Agreement -- Cash,
dated August 31, 1998 (the "Subordinated Loan Agreement"), between NB
Associates, LLC (the "Lender") and Neuberger & Berman, LLC (the "Organization")
is made on March 30, 1999. Capitalized terms not otherwise defined herein shall
have the meanings specified in the Subordinated Loan Agreement.
WHEREAS, the Lender and the Organization desire to amend the
Subordinated Loan Agreement in order to extend the Scheduled Maturity Date
specified in the Subordinated Loan Agreement;
WHEREAS, the Organization has changed its name to Neuberger Berman,
LLC and desires to reflect such name change in the Subordinated Loan
Agreement; and
WHEREAS, the Lender and the Organization are required to seek the
prior written approval of the Exchange to such amendment.
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. AMENDMENT. The Subordinated Loan Agreement is amended as
follows effective as of the date hereof.
(a) The Scheduled Maturity Date specified in "Section 1.
GENERAL" shall be extended from September 1, 1999 to September 1, 2000 and
the Promissory Note referred to in Rider B shall be amended and dated
March 30, 1999 instead of August 31, 1998.
(b) The Scheduled Maturity Date of the Subordinated Note
Agreement in each year, without further action by either the Lender or the
Organization, shall be extended an additional year, unless on or before
the day seven months preceding the Scheduled Maturity Date then in effect,
the Lender shall notify the Organization in writing, with a written copy
to the New York Stock Exchange, Inc., that such Scheduled Maturity Date
shall not be extended.
<PAGE>
SECTION 2. CHANGE OF NAME. References to Neuberger & Berman, LLC in
the Subordinated Loan Agreement shall be deemed to be references to Neuberger
Berman, LLC.
SECTION 3. This amendment shall be deemed to have been made under,
and shall be governed by, the laws of the State of New York in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed and the parties hereto have set their hands and seals
this 30th day of March, 1999.
By: Neuberger Berman, LLC By: NB Associates, LLC
/s/ Lawrence Zicklin /s/ C. Carl Randolph
(Organization) (Lender)
<PAGE>
Exhibit 10.10
SECOND AMENDMENT TO
SUBORDINATED LOAN AGREEMENT -- CASH
OF NEUBERGER BERMAN, LLC
This second amendment to the Subordinated Loan Agreement - Cash, dated
August 31, 1998, as amended by the First Amendment to the Subordinated Loan
Agreement - Cash, dated March 30, 1999 (the "NB Loan Agreement"), between NB
Associates, LLC (the "Lender") and Neuberger Berman, LLC (formerly named
"Neuberger & Berman, LLC"; the "Organization" or the "Company") is hereby made
on September 1, 1999. Capitalized terms not otherwise defined herein shall have
the meanings specified in the NB Loan Agreement.
WHEREAS, the Company desires to prepay, and the Lender desires to
accept, prepayment of $35,000,000 of the principal amount specified in
"Section 1. GENERAL" of the NB Loan Agreement;
WHEREAS, the Lender and the Company desire to amend the NB Loan
Agreement in order to change the principal amount specified in "Section 1.
GENERAL" from "FIFTY MILLION DOLLARS ($50,000,000)" to "FIFTEEN
MILLION DOLLARS ($15,000,000)";
WHEREAS, the Lender and the Company desire to cancel the promissory note
referred to in "Section 1. GENERAL" of the NB Loan Agreement (the "1999
Note") and to issue a new promissory note replacing the 1999 Note in the
amount of $15,000,000 (the "New 1999 Note");
WHEREAS, the Lender and the Company are required to seek the prior
written approval of the Exchange to such prepayment and such amendment to
the NB Loan Agreement;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
<PAGE>
SECTION 1.AMENDMENT. The NB Loan Agreement is amended as follows
effective as of the date hereof:
(a) The principal sum specified in "Section 1. GENERAL" shall be
changed from "FIFTY MILLION DOLLARS ($50,000,000)" to "FIFTEEN MILLION
DOLLARS ($15,000,000)".
SECTION 2.This Second Amendment shall be deemed to have been made under,
and shall be governed by, the laws of the State of New York in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed and the parties hereto have set their hands and seals as of this
1st day of September, 1999.
NEUBERGER BERMAN, LLC NB ASSOCIATES, LLC
(Company) (Lender)
By: /s/ Vincent Cavallo By: /s/ C. Carl Randolph
<PAGE>
Exhibit 10.11
[COPY]
PROMISSORY NOTE
$15,000,000 DATED SEPTEMBER 1, 1999
NEW YORK, NEW YORK
1. FOR VALUE RECEIVED, NEUBERGER BERMAN, LLC, a Delaware limited
liability company (the "Borrower"), promises to pay to the order of NB
ASSOCIATES, LLC, a Delaware limited liability company (the "Lender"), the
principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) on September 1, 2000 or
such other scheduled maturity date as is in effect under the Subordinated Loan
Agreement referred to below, unless previously paid in full, and to pay interest
on such unpaid principal amount on the dates and at the rates specified in the
Subordinated Loan Agreement. Payments of principal and interest are to be made
to the Lender at the place specified pursuant to the Subordinated Loan
Agreement, in the lawful money of the United States of America.
2. This Note, which replaces and supersedes the note dated March 30,
1999 which has been canceled and is of no further force and effect, evidences
the loan made under, and is entitled to the benefits of, the Subordinated Loan
Agreement - Cash, dated as of August 31, 1998, as amended by the First Amendment
to the Subordinated Loan Agreement - Cash, dated as of March 30, 1999, and the
Second Amendment to the Subordinated Loan Agreement - Cash, dated September 1,
1999 (the "Subordinated Loan Agreement"), by and between the Borrower and the
Lender. Terms defined in such Subordinated Loan Agreement are used herein with
the same meanings. The Subordinated Loan Agreement is a satisfactory
subordination agreement within the meaning of Rule 15c3-1d of the Securities and
Exchange Commission adopted under the Securities Exchange Act of 1934, as
amended. Reference is made to such Subordinated Loan Agreement for provisions
relating to the prepayment, both optional and mandatory, and the acceleration or
deferral of maturity hereof. This Note is subordinated in right of payment to
certain claims against the Borrower as provided by the subordination provisions
contained in the Subordinated Loan Agreement.
3. The Borrower hereby authorizes the Lender to annotate the
Schedule attached to this Note to reflect the principal amount hereunder that
has been prepaid, which annotations shall, in the absence of manifest error, be
conclusive; PROVIDED that failure to make such annotation with respect to any
prepayment or conversion shall
<PAGE>
2
not affect the obligation of the Borrower under the Subordinated Loan Agreement
or this Note.
4. The Borrower hereby waives presentment, demand, notice of
dishonor, protest and notice of protest.
5. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
NEUBERGER BERMAN, LLC
[COPY -- /s/ C. Carl Randolph -- COPY]]
<PAGE>
3
- --------------------------------------------------------------------------------
Schedule to Promissory Note
- --------------------------------------------------------------------------------
Unpaid Balance of
Date Loan Made Amount of Amount of Principal Amount Notation
or Prepaid Loan Made Loan Prepaid Under the Agreement Made by
---------- --------- ------------ ------------------- -------
- --------------------------------------------------------------------------------
September 1, 1999 $15,000,000.00 $15,000,000.00
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.12
EXECUTION COPY
================================================================================
NEUBERGER BERMAN, LLC
Floating Rate Subordinated Notes due September 1, 2004
------------------------------------
SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------
September 1, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. THE NOTES.................................................................1
1.1. Authorization of Notes.........................................1
1.2. Interest Rate and Reset Procedures for the Notes...............1
1.3. Certain Defined Terms and Procedures...........................2
2. SALE AND PURCHASE OF NOTES................................................4
3. CLOSING...................................................................4
4. CONDITIONS TO CLOSING.....................................................4
4.1. Representations and Warranties.................................5
4.2. Performance; No Default........................................5
4.3. Compliance Certificates........................................5
4.4. Opinions of Counsel............................................5
4.5. Purchase Permitted by Applicable Law, etc......................6
4.6. Proceedings and Documents......................................6
4.7. Payment of Special Counsel Fees................................6
4.8. Private Placement Number.......................................6
4.9. Changes in Organizational Structure............................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................6
5.1. Organization; Power and Authority..............................7
5.2. Authorization, etc.............................................7
5.3. Disclosure.....................................................7
5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates.....................................................8
5.5. Financial Statements...........................................8
5.6. Compliance with Laws, Other Instruments, etc...................9
5.7. Governmental Authorizations, etc...............................9
5.8. Litigation; Observance of Agreements, Statutes and Orders......10
5.9. Taxes..........................................................10
5.10. Title to Property; Leases.....................................10
5.11. Licenses, Permits, Y2K, etc...................................11
5.12. Compliance with ERISA.........................................12
5.13. Private Offering by the Company...............................13
5.14. Use of Proceeds; Margin Regulations...........................13
5.15. Existing Indebtedness; Loans to Principals....................13
5.16. Foreign Assets Control Regulations, etc.......................14
5.17. Status Under Investment Company Act and Certain Other
Statutes......................................................14
6. REPRESENTATIONS OF THE PURCHASER..........................................14
6.1. Purchase of Notes..............................................14
6.2. Source of Funds................................................15
7. INFORMATION AS TO COMPANY.................................................16
7.1. Financial and Business Information.............................16
7.2. Officer's Certificate..........................................20
<PAGE>
7.3. Inspection.....................................................20
8. PREPAYMENT OF THE NOTES...................................................21
8.1. Optional Prepayments With Exchange Approval....................21
8.2. Notice of Prepayment...........................................23
8.3. Allocation of Partial Prepayments..............................23
8.4. Maturity; Surrender, etc.......................................24
8.5. Purchase of Notes..............................................24
8.6. Make-Whole Amount..............................................24
9. AFFIRMATIVE COVENANTS.....................................................25
9.1. Compliance with Law............................................25
9.2. Insurance......................................................26
9.3. Maintenance of Properties......................................26
9.4. Payment of Taxes and Claims....................................26
9.5. Corporate Existence, etc.......................................27
9.6. Advisers Act Registration......................................27
10. NEGATIVE COVENANTS.......................................................27
10.1. Maintenance of Financial Conditions...........................27
10.2. Loans to Principals...........................................28
10.3. Merger, Consolidation, etc....................................28
10.4. Transactions with Affiliates..................................29
11. REMEDIES ON EVENTS OF ACCELERATION, EVENTS OF DEFAULT, ETC...............29
11.1. Events of Acceleration and Events of Default Defined..........29
11.2. Action if Event of Acceleration...............................32
11.3. Action if Event of Default....................................32
11.4. Maturity; Payment.............................................32
11.5. Suspension of Payments........................................33
11.6. Other Remedies................................................35
11.7. Rescission....................................................36
11.8. No Waivers or Election of Remedies, Expenses, etc.............36
12. [Intentionally Omitted]..................................................36
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES............................36
13.1. Registration of Notes.........................................36
13.2. Transfer and Exchange of Notes................................37
13.3. Replacement of Notes..........................................37
14. PAYMENTS ON NOTES........................................................38
14.1. Place of Payment..............................................38
14.2. Home Office Payment...........................................38
15. EXPENSES, ETC............................................................39
15.1. Transaction Expenses..........................................39
15.2. Survival......................................................40
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.............40
(ii)
<PAGE>
17. AMENDMENT AND WAIVER.....................................................40
17.1. Requirements..................................................40
17.2. Solicitation of Holders of Notes..............................40
17.3. Binding Effect, etc...........................................41
17.4. Notes held by Company, etc....................................41
18. NOTICES..................................................................42
19. REPRODUCTION OF DOCUMENTS................................................42
20. CONFIDENTIAL INFORMATION.................................................43
21. SUBORDINATION............................................................44
22. MISCELLANEOUS............................................................44
22.1. Successors and Assigns........................................44
22.2. Construction..................................................45
22.3. Waiver of Jury Trial..........................................45
22.4. Payments Due on Non-Business Days.............................45
22.5. Severability..................................................45
22.6. Accounting Terms..............................................45
22.7. Counterparts..................................................46
22.8. Governing Law.................................................46
22.9. Futures Commission Merchants..................................46
22.10. Effect of Exchange Membership Termination....................46
22.11. Arbitration..................................................47
22.12. Effective Date; No Modification Without Exchange Approval....47
22.13. Cancellation.................................................47
22.14. No Right of Set-Off..........................................47
22.15. Non-Liability of Exchange....................................47
Exhibit 1 -- Form of Floating Rate Subordinated Note due September 1,
2004
Exhibit 4.4(a)(1) -- Form of Opinion of Special Counsel for the Company
Exhibit 4.4(a)(2) -- Form of Opinion of General Counsel of the Company
Exhibit 4.4(b) -- Form of Opinion of Special Counsel for the Purchaser
Schedule A -- Name and Addresses of Purchaser
Schedule B -- Defined Terms
Schedule 5.3 -- Disclosure Documents
Schedule 5.4 -- Subsidiaries
Schedule 5.5 -- Financial Statements
Schedule 5.8 -- Litigation
Schedule 5.11 -- Licenses, etc.
Schedule 5.15 -- Existing Indebtedness and Loans to Principals
(iii)
<PAGE>
NEUBERGER BERMAN, LLC
605 Third Avenue
New York, NY 10158-3698
Floating Rate Subordinated Notes due September 1, 2004
September 1, 1999
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Ladies and Gentlemen:
NEUBERGER BERMAN, LLC, a Delaware limited liability company
(the "COMPANY"), agrees with you as follows:
1. THE NOTES.
1.1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $35,000,000
aggregate principal amount of its Floating Rate Subordinated Notes due September
1, 2004 (the "NOTES"), such notes to be substantially in the form set out in
Exhibit 1. As used herein, the term "NOTES" shall mean all notes originally
delivered pursuant to this Agreement and all notes delivered in substitution or
exchange for any such note and, where applicable, shall include the singular
number as well as the plural. Certain capitalized and other terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
1.2. INTEREST RATE AND RESET PROCEDURES FOR THE NOTES.
Each Note shall bear interest from the date of issue, payable
quarterly on each Interest Payment Date in each year, at a rate per annum
(computed on the basis of actual days elapsed and a year of 360 days) equal to
the Adjusted LIBOR Rate as in effect for the applicable Interest Period until
the principal thereof shall become due and payable and shall bear interest on
demand on any overdue principal or overdue Make-Whole Amount, if any, and on any
overdue installment of interest at the Default Rate.
At least one Business Day before the date of the Closing, the
Company will give notice to you, specifying the LIBOR Rate for the Initial
Interest Period, which shall be determined with respect to the date of the
Closing as if that date were a Reset Date, and the resulting Adjusted LIBOR Rate
on
<PAGE>
2
the Notes for the Initial Interest Period. On each Reset Date the Company
shall determine the LIBOR Rate for the Interest Period then commencing and will
give notice (by telephone or facsimile to such person as the Calculation Holder
may from time to time specify for such purpose), together with a copy of the
appropriate Bloomberg Financial Markets Newscreen or other display as specified
in the definition of "LIBOR Rate" below, to the Calculation Holder specifying
the LIBOR Rate as so determined, which shall apply absent manifest error. If the
Calculation Holder, by notice to the Company (which notice shall be given within
one Business Day after the Reset Date), objects to such determination on the
grounds of manifest error, the LIBOR Rate as determined by the Calculation
Holder shall be final and binding upon the Company absent manifest error.
Forthwith and in any event within two Business Days after each Reset Date the
Company will give written notice to the holders of the Notes specifying the
LIBOR Rate and the resulting Adjusted LIBOR Rate on the Notes for the Interest
Period commencing on that Reset Date and stating whether the Calculation Holder
determined (or confirmed the Company's determination of) the LIBOR Rate for that
Interest Period. If for any reason the Company and the Calculation Holder fail
to determine the LIBOR Rate for any Interest Period, the determination of the
LIBOR Rate by any other institutional investor holder of a Note (acting in place
of the Calculation Holder if necessary) and specified in a written notice to the
Company shall be final and binding upon the Company and the holders of the Notes
absent manifest error, provided that in case more than one such institutional
investor holder gives such a written notice and the LIBOR Rate in such notices
is not the same rate, the LIBOR Rate shall be the rate agreed upon by such other
institutional investor holders as specified in a subsequent notice to the
Company (delivered not later than one Business Day from the date of the later of
the notices referred to above), which rate shall be final and binding as
aforesaid.
1.3. CERTAIN DEFINED TERMS AND PROCEDURES.
For purposes of determining the applicable interest rate on
the Notes, the following terms have the following meanings (and certain matters
will be determined in accordance with procedures as specified below):
"ADJUSTED LIBOR RATE" means with respect to any Interest
Period a rate per annum equal to the LIBOR Rate for such Interest
Period plus 0.75% (75 basis points).
"CALCULATION HOLDER" means the institutional investor holding
the highest unpaid principal amount of Notes at the time outstanding
and willing to serve in such capacity. The Travelers Insurance Company
shall act as the Calculation Holder, until the Company receives written
notice to the contrary.
<PAGE>
3
"DESIGNATED MATURITY" means for any Reset Date a period of
three months corresponding to the Interest Period commencing on such
Reset Date.
"INITIAL INTEREST PERIOD" means the period commencing on and
including the date of the Closing and ending on (but excluding)
December 1, 1999.
"INTEREST PERIOD" means the Initial Interest Period and
thereafter a period commencing on and including a Reset Date and ending
on (but excluding) the next succeeding Interest Payment Date.
Notwithstanding the foregoing, if any Interest Payment Date is not a
London Banking Day, such Interest Period shall be extended to the next
day that is a London Banking Day and if there is no numerically
corresponding date in the appropriate month, such Interest Period shall
end on the last London Banking Day of such month.
"LIBOR RATE" means for the Initial Interest Period the rate
specified in the notice from the Company given pursuant to Section 1.2;
and means for any Reset Date the rate (rounded upwards, if necessary,
to the next 1/16 of 1%) for deposits in U.S. Dollars for a period of
the Designated Maturity and in a Representative Amount which appears on
the Bloomberg Financial Markets Newscreen display designated as Index
Page 3745 (British Bankers Association LIBOR Rates), or the equivalent
display provided by Bloomberg Financial Markets News, as of 11:00 a.m.,
London time, on the date that is two London Banking Days preceding that
Reset Date; and if such rate does not appear on the Bloomberg Newscreen
display designated as Index Page 3745 (British Bankers Association
LIBOR Rates), or such other equivalent display, the rate for that Reset
Date will be the rate (rounded upwards, if necessary, to the next 1/16
of 1%) at which deposits in U.S. dollars are offered in accordance with
the procedures described below, by the Reference Banks to prime banks
in the London interbank market, in each case, at approximately 11:00
a.m., London time, on the day that is two London Banking Days preceding
that Reset Date for a period of the Designated Maturity commencing on
that Reset Date and in a Representative Amount. The Company will
request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, the rate for that Reset Date will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested,
the rate for that Reset Date will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Calculation
Holder, at approximately 11:00 a.m., New York City time, on that Reset
Date for loans in U.S. dollars to leading European banks for a period
of the Designated
<PAGE>
4
Maturity commencing on that Reset Date and in a Representative Amount.
"LONDON BANKING DAY" means any day other than Saturday or
Sunday or a day on which commercial banks are required or authorized by
law to be closed in London, England.
"REFERENCE BANKS" means four major banks in the London
interbank market selected by the Company and reasonably acceptable to
the Calculation Holder.
"REPRESENTATIVE AMOUNT" means an amount that is comparable to
the unpaid principal amount of the Notes at the relevant time.
"RESET DATE" means the first day of each Interest Period after
the Initial Interest Period.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in the aggregate principal amount
of $35,000,000 at the purchase price of 100% of the principal amount thereof.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you
shall occur at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, NY 10019 at 10:00 a.m., New York time, at a closing (the "Closing") on
September 1, 1999 or on such other Business Day thereafter as may be agreed upon
by the Company and you. At the Closing the Company will deliver to you the Notes
to be purchased by you in the form of a single Note (or such greater number of
Notes in denominations of at least $100,000 as you may request prior to the
Closing) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds to the Company's account number
092-55405 at Citibank, N.A., ABA number 021000089, for further credit to account
number 005-00000.
If at the Closing the Company shall fail to tender such Notes
to you as provided above in this Section 3, or any of the conditions specified
in Section 4 shall not have been fulfilled to your satisfaction, you shall, at
your election, be relieved of all further obligations under this Agreement,
without thereby waiving any rights you may have by reason of such failure or
such nonfulfillment.
<PAGE>
5
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing (including without limitation
by obtaining the approval of the Exchange and the National Futures Association
referred to in Section 5.7) and after giving effect to the issue and sale of the
Notes (and the application of the proceeds thereof as contemplated by Section
5.14) no Default or Event of Default or Event of Acceleration shall have
occurred and be continuing.
4.3. COMPLIANCE CERTIFICATES.
(A) OFFICER'S CERTIFICATE. The Company shall have delivered to
you an Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(B) SECRETARY'S CERTIFICATE. The Company shall have delivered
to you a certificate of the Secretary or an Assistant Secretary of the Company
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the Notes
and this Agreement.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Debevoise &
Plimpton, special counsel for the Company, and C. Carl Randolph, Esq., General
Counsel of the Company, substantially in the respective forms set forth in
Exhibits 4.4(a)(1) and 4.4(a)(2) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably request
(and the Company hereby instructs its counsel to deliver such opinions to you)
and (b) from Willkie Farr & Gallagher, your special counsel in connection with
such transactions, substantially in the form set forth in Exhibit
<PAGE>
6
4.4(b) and covering such other matters incident to such transactions as you may
reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (a) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including without limitation
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (c) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. PROCEEDINGS AND DOCUMENTS.
All proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company
shall have paid at or before the Closing the reasonable fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to the Company at least two
Business Days prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
4.9. CHANGES IN ORGANIZATIONAL STRUCTURE.
The Company shall not have changed its jurisdiction of
organization or been a party to any merger or consolidation or succeeded to all
or any substantial part of the liabilities of any other entity at any time
following the date of the most recent financial statements referred to in
Schedule 5.5.
<PAGE>
7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified to conduct business and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company has all requisite power and
authority to own or hold under lease the properties it purports to own or hold
under lease, to transact the business it transacts and proposes to transact, to
execute and deliver this Agreement and the Notes and to perform the provisions
hereof and thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Notes have been duly authorized by all
requisite action on the part of the Company, and this Agreement constitutes, and
upon execution and delivery thereof each Note will constitute, a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3. DISCLOSURE.
The Company has delivered to you the documents, certificates
and other writings described in Schedule 5.3 (the "DISCLOSURE DOCUMENTS"). Taken
as a whole, and together with this Agreement, the Disclosure Documents fairly
describe, in all material respects, the general nature of the business and
principal properties of the Company and its Subsidiaries. This Agreement, the
Disclosure Documents, and the financial statements listed in Schedule 5.5, taken
as a whole, do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading
in light of the circumstances under which they were made, provided that to the
extent any information contained in the Disclosure Documents constitutes a
forecast or projection, the Company represents only that it acted in good faith
and utilized a method of calculation the Company believes to be reasonable, and
such forecast or projection was based on information the Company believed to be
accurate at the time in the preparation of such
<PAGE>
8
information, but the same may not be predictive of actual results. Since
December 31, 1998, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any Subsidiary
except as disclosed in the Disclosure Documents and other changes that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Company that could
reasonably be expected to have a Material Adverse Effect that has not been set
forth herein or in the Disclosure Documents or in the other documents,
certificates and other writings delivered to you by or on behalf of the Company
specifically for use in connection with the transactions contemplated hereby.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.4 contains a complete and correct lists of the
Company's (i) Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary, (ii) Affiliates, other than Subsidiaries,
and (iii) principals, members of the Executive Committee, directors and senior
officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien securing Indebtedness.
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified to conduct business and is in good standing in each jurisdiction in
which such qualification is required by law, other than those jurisdictions as
to which the failure to be so qualified or in good standing, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect. Each such Subsidiary has all requisite power and authority to own or
hold under lease the properties it purports to own or hold under lease and to
transact the business it transacts and proposes to transact. No Subsidiary is a
party to, or otherwise subject to any legal restriction or any agreement (other
than this Agreement, the agreements listed on Schedule 5.4 and customary
limitations imposed by corporate law statutes) restricting the ability of such
Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Company or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of such
Subsidiary.
<PAGE>
9
5.5. FINANCIAL STATEMENTS.
The Company has delivered to you copies of the financial
statements of the Company alone and the consolidated financial statements of the
Company and its Subsidiaries listed in Schedule 5.5. All of said financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the financial position of the Company and
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the results of its consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to the absence of
footnotes and normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws or other organizational document, or any other agreement or instrument
to which the Company or any Subsidiary is bound or by which the Company or any
Subsidiary or any of their respective properties may be bound or affected,
having a value of at least $15,000,000, other than the consent to waiver of
conditions under the Credit Agreement, dated as of August 29, 1996, as amended
and restated, between the Company and The Chase Manhattan Bank, which consent
will be obtained prior to the Closing, (ii) conflict with or result in a breach
of any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (iii) violate any provision of any statute or other
rule or regulation of any Governmental Authority or the Exchange applicable to
the Company or any Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Notes.
The execution, delivery and performance by the Company of this
Agreement and the Notes require the prior written approval of (a) the New York
Stock Exchange, Inc. (the "EXCHANGE") in order for the proceeds of the sale of
the Notes to be included as capital for purposes of computing net capital of
<PAGE>
10
the Company under the Net Capital Rule and (b) the National Futures Association,
which approvals shall have been duly obtained and be in full force and effect on
or before the date of the Closing.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Subsidiary or any property of the
Company or any Subsidiary in any court or before any arbitrator of any kind or
before or by any Governmental Authority or the Exchange or the NASD, that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation of any Governmental Authority or the Exchange or the NASD, which
default or violation, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
5.9. TAXES.
The Company and its Subsidiaries have filed all material tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) currently
payable without penalty or interest, (b) the amount of which is not individually
or in the aggregate Material or (c) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which the Company or a Subsidiary, as the case may be, has
established adequate reserves in accordance with GAAP. The Company knows of no
basis for any other tax or assessment that could reasonably be expected to have
a Material Adverse Effect. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes for
all fiscal periods are adequate.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, including all such properties
<PAGE>
11
reflected in the most recent audited consolidated balance sheet referred to in
Section 5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this Agreement.
All leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
5.11. LICENSES, PERMITS, Y2K, ETC.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
proprietary software, service marks, trademarks and trade names, or
rights thereto, that individually or in the aggregate are Material,
without known conflict with the rights of others;
(b) to the best knowledge of the Company, no product of the
Company infringes in any material respect any license, permit,
franchise, authorization, patent, copyright, proprietary software,
service mark, trademark, trade name or other right owned by any other
Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, proprietary
software, service mark, trademark, trade name or other right owned or
used by the Company or any of its Subsidiaries.
The Company and its Subsidiaries have (a) initiated a review
and assessment of all areas within their respective businesses and operations
that could reasonably be expected to be adversely affected by the Year 2000
Problem, (b) developed a plan and timetable for addressing the Year 2000 Problem
on a timely basis, and (c) to date, implemented that plan substantially in
accordance with that timetable. The Company reasonably believes that all
computer applications that are material to the businesses and operations of the
Company and its Subsidiaries will on a timely basis be Year 2000 Compliant,
except to the extent that a failure to be so could not reasonably be expected to
have a Material Adverse Effect. The Company does not believe that the costs to
be incurred after the date of this Agreement in order to address Year 2000
problems of the Company and its Subsidiaries will be Material. As used in this
Agreement, the term "YEAR 2000 COMPLIANT" means all computer applications that
are material to the businesses and operations of the Company and its
Subsidiaries will on a timely basis be able to perform properly date-sensitive
functions involving all dates on and after January 1, 2000; and the term "YEAR
2000 PROBLEM" means the
<PAGE>
12
risk that computer applications used by the Company or any of its Subsidiaries
may be unable to recognize and perform properly date-sensitive functions
involving certain dates on and after January 1, 2000.
5.12. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "benefit liabilities"
has the meaning specified in Section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in Section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected post retirement benefit obligation
(determined as of the last day of the Company's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
Section 4980B of the Code) of the Company and its Subsidiaries is not Material.
(e) With respect to each employee benefit plan, if any,
disclosed by you in writing to the Company in accordance with Section 6.2(c),
neither the Company nor any "affiliate" of
<PAGE>
13
the Company (as defined in Section V(c) of the QPAM Exemption) has at this time,
nor has exercised at any time during the immediately preceding year, the
authority to appoint or terminate the "QPAM" (as defined in Part V of the QPAM
Exemption) disclosed by you to the Company pursuant to Section 6.2(c) as manager
of any of the assets of any such plan or to negotiate the terms of any
management agreement with such QPAM on behalf of any such plan, and the Company
is not an "affiliate" (as so defined) of such QPAM. The Company is not a party
in interest with respect to any employee benefit plan disclosed by you in
accordance with Section 6.2(b) or 6.2(e). The execution and delivery of this
Agreement and the issuance and sale of the Notes at the Closing hereunder will
not involve any prohibited transaction (as such term is defined in Section
406(a) of ERISA and Section 4975(c)(1)(A)-(D) of the Code), that could subject
the Company or any holder of a Note to any tax or penalty on prohibited
transactions imposed under said Section 4975 of the Code or by Section 502(i) of
ERISA. The representation by the Company in the preceding sentence of this
Section 5.12(e) is made in reliance upon and subject to the accuracy of your
representation in Section 6.2 as to the source of the funds used to pay the
purchase price of the Notes to be purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you and not more than five other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the net proceeds of the sale of the
Notes for general corporate purposes, including the repayment of Subordinated
Liabilities owed to NB Associates, LLC and other outstanding Indebtedness; and
such proceeds shall be dealt with in all respects as capital of the Company,
shall be subject to the risks of its business, and may be deposited in an
account or accounts in the Company's name in any bank or trust company. None of
the transactions contemplated by this Agreement (including without limitation
the direct or indirect use of the proceeds from the sale of the Notes hereunder)
will involve a violation of Section 7 of the Exchange Act, including without
limitation Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221) or Regulation X or Regulation T of said Board (12 CFR 220).
<PAGE>
14
5.15. EXISTING INDEBTEDNESS; LOANS TO PRINCIPALS.
Schedule 5.15 sets forth a complete and correct list of all
outstanding Indebtedness of the Company and its Subsidiaries (including
Subordinated Liabilities as indicated therein) as of May 31, 1999, since which
date there has been no Material change in the amounts, interest rates, sinking
funds, installment payments or maturities of the Indebtedness of the Company or
its Subsidiaries. Neither the Company nor any Subsidiary is in default, and no
waiver of default is currently in effect, in the payment of any principal or
interest on any Indebtedness of the Company or such Subsidiary, and no event or
condition exists with respect to any such Indebtedness of the Company or any
Subsidiary that would permit (or that with the giving of notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
Schedule 5.15 also sets forth a complete and correct list of
all outstanding loans by the Company to its principals as of the date hereof.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER INVESTMENT COMPANY ACT AND CERTAIN OTHER STATUTES.
Neither the Company nor any Subsidiary is required to be
registered under the Investment Company Act of 1940, as amended, or subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
The Company is duly registered with the SEC under the
Investment Advisers Act of 1940, as amended (the "ADVISERS ACT"), and the rules
and regulations of the SEC thereunder and there does not exist any proceeding,
or any facts or circumstances known to the Company the existence of which could
lead to any proceeding, which could reasonably be expected to adversely affect
such registration of the Company with the SEC.
<PAGE>
15
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE OF NOTES.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "SOURCE") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account", as
such term is defined in Prohibited Transaction Exemption ("PTE") 95-60
(issued July 12, 1995), and there is no plan with respect to which the
aggregate amount of such general account's reserves and liabilities for
the contracts held by or on behalf of such plan and all other plans
maintained by the same employer (and affiliates thereof as defined in
Section V(a)(1) of PTE 95-60) or by the same employee organization (in
each case determined in accordance with PTE 95-60) exceeds or will
exceed 10% of the total of all reserves and liabilities of such general
account (determined in accordance with PTE 95-60, exclusive of separate
account liabilities, plus any applicable surplus) as of the date of the
Closing; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or
<PAGE>
16
"QPAM" (within the meaning of Part V of the QPAM Exemption), no
employee benefit plan's assets that are included in such investment
fund, when combined with the assets of all other employee benefit plans
established or maintained by the same employer or by an affiliate
(within the meaning of Section V(c)(1) of the QPAM Exemption) of such
employer or by the same employee organization and managed by such QPAM,
exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans
whose assets are included in such investment fund have been disclosed
to the Company in writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
Subject to the last paragraph of this Section 7.1, the Company
shall deliver to each holder of Notes that is an Institutional Investor:
(a) QUARTERLY STATEMENTS -- within 55 days (or following an
initial public offering of securities of the Company or one of its
Affiliates, 45 days) after the end of each quarterly fiscal period in
each fiscal year of the Company (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of
(i) a statement of financial condition of the Company
as at the end of such quarter, and
(ii) statements of income, changes in principals'
capital, changes in subordinated
<PAGE>
17
liabilities and cash flows of the Company, for such quarter
and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the Company and its results of operations and cash flows,
subject to the absence of footnotes and to changes resulting from
year-end adjustments, provided that delivery within two Business Days
of filing with the SEC of copies of the Company's Quarterly Focus
Report prepared in compliance with the requirements therefor and filed
with the SEC shall be deemed to satisfy the requirements of this
Section 7.1(a);
(b) ANNUAL STATEMENTS -- within 70 days (or, following an
initial public offering of securities of the Company or one of its
Affiliates, 60 days) after the end of each fiscal year of the Company,
duplicate copies of
(i) a statement of financial condition of the Company
and its Subsidiaries as at the end of such year, and
(ii) consolidated statements of income, changes in
principals' capital, changes in subordinated liabilities and
cash flows of the Company, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by
(A) an opinion thereon of independent public
accountants of recognized national standing, which opinion
shall state that such financial statements present fairly, in
all material respects, the financial position of the Company
and its results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for
such opinion in the circumstances, and
(B) a certificate of such accountants stating that
they have read this Agreement and stating further whether, in
making their audit, they have become aware of any condition or
event that then constitutes a Default or an Event of Default,
and, if
<PAGE>
18
they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it
being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in
accordance with generally accepted auditing standards or did
not make such an audit);
provided that the delivery within two Business Days of filing with the
SEC of the Company's Annual Audit Report on Form X-17 A-5 for such
fiscal year prepared in accordance with the requirements therefor and
filed with the SEC, together with the accountant's certificate
described in clause (B) above, shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of each FOCUS Report, Annual Audit Report,
amendment to Form ADV or amendment to Form BD of the Company and each
other regular or periodic report, in any case as filed by the Company
or any Subsidiary with the SEC, the Exchange or any other securities
exchange and of all press releases and other written statements made
available generally by the Company or any Subsidiary to the public
concerning developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default, or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
Section 11(f), a written notice specifying the nature and period of
existence thereof and what action the Company is taking or proposes to
take with respect thereto;
(e) ERISA MATTERS -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in Section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under Section 4042 of ERISA
<PAGE>
19
for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation (including without limitation any correspondence with the
SEC regarding the Company's activities under the Advisers Act) that
could reasonably be expected to have a Material Adverse Effect; and
(g) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
The Company will also immediately notify each holder of a Note
and the Examining Authority for the Company if, after giving effect to all
payments of Payment Obligations (as that term is defined in paragraph (a)(2)(iv)
of Appendix D of the Rule) under this Agreement, the Notes and other
subordination agreements then outstanding that are then due or mature within the
following six months, but without reference to any projected profit or loss of
the Company, either the aggregate indebtedness of the Company would exceed 1200%
of its Net Capital or its Net Capital would be less than 120% of the minimum
dollar amount required by the Rule, or, in case the Company is then operating
pursuant to paragraph (a)(1)(ii) of the Rule, its Net Capital would be less than
5% of aggregate debit items completed in accordance with Exhibit A to Rule
15c3-3 under the Exchange Act or any successor rule as in effect at such time,
or, if registered as a futures commission merchant, 6% of the funds
<PAGE>
20
required to be segregated pursuant to the Commodity Exchange Act (the "CEA") and
the regulations thereunder (less the market value of commodity options purchased
by option customers on or subject to the rules of a contract market, each such
deduction not to exceed the amount of funds in the option customer's account),
if greater, or less than 120% of the minimum dollar amount required by paragraph
(a)(1)(ii) of the Rule.
Notwithstanding the foregoing and any other provision of this
Agreement, the Company will not be required to provide any holder of a Note with
either (a) the client lists of the Company and its Affiliates, or the identity
of any such clients, or (b) information regarding the compensation of Company
personnel.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1 and 10.2 during the
quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then
in existence); and
(b) DEFAULT -- a statement that such Senior Financial Officer
has reviewed the relevant terms hereof and has made, or caused to be
made, under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or Event of
Acceleration or, if any such condition or event existed or exists
(including, without limitation, any such event or condition resulting
from the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence
thereof and what action the Company shall have taken or proposes to
take with respect thereto.
<PAGE>
21
7.3. INSPECTION.
Subject to the last paragraph of Section 7.1, the Company
shall permit the representatives of each holder of Notes that is an
Institutional Investor:
(a) NO DEFAULT -- if no Default or Event of Default or Event
of Acceleration then exists, at the expense of such holder and upon
reasonable prior notice to the Company, to visit the principal
executive office of the Company, to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with the Company's
officers, and (with the consent of the Company, which consent will not
be unreasonably withheld) its independent public accountants, and (with
the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and
each Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing; and
(b) DEFAULT -- if a Default or Event of Default or Event of
Acceleration then exists, at the expense of the Company, to visit and
inspect any of the offices or properties of the Company or any
Subsidiary, to examine all their respective books of account, records,
reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their
respective officers, employees and independent public accountants (and
by this provision the Company authorizes said accountants to discuss
the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
In addition to the payment of the entire unpaid principal
amount of the Notes at the Scheduled Maturity Date for the Notes (subject to
Section 21), the Company may make optional prepayments in respect of the Notes
as hereinafter provided.
8.1. OPTIONAL PREPAYMENTS WITH EXCHANGE APPROVAL.
The Company may, at its option, upon notice as provided in
Section 8.2, subject to the prior approval of the Exchange and in accordance
with and subject to such other terms and conditions as may be prescribed from
time to time by the Net Capital Rule (including Appendix D thereto), the
Exchange, the SEC, the CFTC, the DSRO and any other Governmental Authority
having jurisdiction over the Company with respect to such matters, prepay all,
or from time to time any part of, the Notes (in a minimum amount of $1,000,000
and otherwise in multiples of $100,000) at the principal amount so prepaid,
together with interest accrued thereon to the date of such prepayment, plus the
Make-Whole
<PAGE>
22
Amount for the Notes determined for the prepayment date with respect to such
principal amount, provided that no such prepayment may be made before the
expiration of one year from the date of the Closing.
No Prepayment of the notes pursuant to this Section 8.1 shall
be made if after giving effect thereto (and to all other payments of principal
of outstanding subordination agreements of the Company, including the return of
any Secured Demand Note and the Collateral therefor held by the Company, the
maturity or accelerated maturity of which are scheduled to occur within six
months after the date OF such Prepayment of the notes, or on or prior to the
Scheduled Maturity Date, whichever date is earlier), without reference to any
projected profit or loss of the Company:
(a) in the event that the Company is not operating pursuant to
the alternative net capital requirement provided for in paragraph
(a)(1)(ii) of the Rule, the aggregate indebtedness of the Company would
exceed 1000% of its net capital as those terms are defined in the Rule
or any successor rule as in effect at the time such prepayment is to be
made (or such other percentage as may be made applicable at such time
to the Company by the Exchange or the SEC); or
(b) in the event that the Company is operating pursuant to
such alternative net capital requirement, the net capital of the
Company would be less than 5% (or such other percentage as may be made
applicable to the Company at the time of such prepayment by the
Exchange or the SEC) of aggregate debit items computed in accordance
with Exhibit A to Rule 15c3-3 under the Exchange Act or any successor
rule as in effect at such time; or
(c) in the event that the Company is registered as a futures
commission merchant under the CEA, the net capital of the Company (as
defined in the CEA or the regulations thereunder as in effect at the
time of such prepayment) would be less than 7% (or such other
percentage as may be made applicable to the Company by the CFTC at the
time of such prepayment) of the funds required to be segregated
pursuant to the CEA and the regulations thereunder, and the foreign
futures or foreign options secured amount less the market value of
commodity options purchased by customers of the Company on or subject
to the rules of a contract market or a foreign board of trade (provided
that the deduction for each customer shall be limited to the amount of
customer funds in such customer's account(s) and of foreign futures and
foreign options secured amounts) or the Company's net capital would be
less than the minimum capital requirement as defined by the DSRO; or
(d) the Company's net capital, as defined in the Rule or any
successor rule as in effect at the time of such
<PAGE>
23
prepayment, would be less than 120% (or such other percentage as may be
made applicable to the Company at the time of such prepayment by the
Exchange or the SEC) of the minimum dollar amount required by the Rule
as in effect at such time (or such other dollar amount as may be made
applicable to the Company at the time of such prepayment by the
Exchange or the SEC); or
(e) in the event that the Company is registered as a futures
commission merchant under the CEA, its net capital, as defined in the
CEA or the regulations thereunder as in effect at the time of such
prepayment would be less than 120% (or such other percentage as may be
made applicable to the Company at the time of such prepayment by the
CFTC) of the minimum dollar amount required by the CEA or the
regulations thereunder as in effect at such time or such other dollar
amount as may be made applicable to the Company at the time of such
prepayment by the CFTC; or
(f) in the event that the Company is subject to the provisions
of paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule, the net capital of
the Company would be less than the amount required to satisfy the 1000%
test (or such other percentage test as may be made applicable to the
Company by the Exchange or the SEC at the time of such prepayment)
stated in such applicable paragraph.
If any such prepayment is made of all or any part of the
unpaid principal amount of the Notes prior to the Scheduled Maturity Date and if
the Company's Net Capital is less than the amount required to permit such
prepayment pursuant to the foregoing provisions of this Section 8.1, you agree
irrevocably (whether or not you had any knowledge or notice of such fact at the
time of such prepayment) to repay the Company, its successors or assigns, the
sum so paid to be held by the Company pursuant to the provisions hereof as if
such prepayment had never been made, provided that any suit for the recovery of
any such prepayment must be commenced within two years of the date of such
prepayment.
8.2. NOTICE OF PREPAYMENT.
The Company will give each holder of Notes written notice of
each optional prepayment under Section 8.1 not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice shall
specify the date fixed for such prepayment (which shall be a Business Day), the
aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of Notes (if any) held by such holder to be prepaid (determined
in accordance with Section 8.2) and the interest to be paid on the prepayment
date with respect to such principal amount being prepaid, and shall state that
such prepayment is subject to satisfaction of the conditions to such prepayment
contained in the second paragraph of Section 8.1.
<PAGE>
24
Each such notice of prepayment shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole Amount
for the Notes due in connection with such prepayment (calculated as if the date
of such notice were the date of the prepayment), setting forth the details of
such computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of the Notes a certificate of a Senior Financial Officer
(i) specifying the calculation of such Make-Whole Amount as of the specified
prepayment date and (ii) certifying that the conditions to such prepayment
contained in the second paragraph of Section 8.1 have been satisfied as of the
date of such certificate.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of a partial prepayment of the Notes pursuant to
Section 8.1, the principal amount of the Notes to be prepaid shall be allocated
among all the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
<PAGE>
25
"CALLED PRINCIPAL" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.1 or
has become or is declared to be immediately due and payable pursuant to
Section 11.4, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, .50% (50 basis points) over the yield to
maturity implied by (i) the yields reported, as of 10:00 A.M. (New York
City time) on the second Business Day preceding the Settlement Date
with respect to such Called Principal, on the Bloomberg Financial
Markets Newscreen PX1 (or the equivalent screen provided by Bloomberg
Financial Markets News) for actively traded U.S. Treasury securities
having a maturity equal to the remaining life of such Called Principal
as of such Settlement Date, or (ii) if such yields are not reported as
of such time or the yields reported as of such time are not
ascertainable (including by way of interpolation), the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the remaining life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with a maturity closest to and
greater than the remaining life and (2) the actively traded U.S.
Treasury security with a maturity closest to and less than the
remaining life.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if (i) no payment of such Called
Principal were made prior to its scheduled due date and (ii) such Note
bore a fixed rate of interest of 7.59% per annum until the Scheduled
Maturity Date, provided that if such Settlement
<PAGE>
26
Date is not a date on which interest payments are due to be made under
the terms of the Notes, then the amount of the next succeeding
scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such
Settlement Date pursuant to Section 8.1 or 11.4.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.1 or has become or is declared to be immediately
due and payable pursuant to Section 11.4, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including without limitation Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.2. INSURANCE.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the
<PAGE>
27
business carried on in connection therewith may be properly conducted at all
times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Company will and will cause each of its Subsidiaries to
file all material tax returns required to be filed in any jurisdiction and to
pay and discharge all taxes shown to be due and payable on such returns and all
other taxes, assessments, governmental charges, or levies imposed on them or any
of their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
9.5. CORPORATE EXISTENCE, ETC.
Except as permitted by Section 10.3, the Company will at all
times preserve and keep in full force and effect its existence as a limited
liability company. The Company will at all times preserve and keep in full force
and effect the corporate existence of each of its Subsidiaries (unless merged
into the Company or a Subsidiary) and all rights and franchises of the Company
and its Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect.
9.6. ADVISERS ACT REGISTRATION.
The Company will at all times maintain its registration with
the SEC under the Advisers Act and the rules and regulations of the SEC
thereunder.
<PAGE>
28
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. MAINTENANCE OF FINANCIAL CONDITIONS.
The Company will not at any time permit
(a) the aggregate unpaid principal amount of its Subordinated
Liabilities (including the Notes) to exceed 50% of its Total Capital,
(b) its Total Ownership Equity to be less than $90,000,000, or
(c) its Net Capital to be less than 2.5 times its Required Net
Capital.
As used herein: the term "SUBORDINATED LIABILITIES" means all
Indebtedness (including Indebtedness owed to NB Associates, LLC) of the Company
that has been approved by the Exchange to be included as capital for purposes of
the Net Capital Rule; the term "TOTAL OWNERSHIP EQUITY" means at any date total
ownership equity qualified for net capital by the Company (as would be shown on
such date on line 3500 of the Company's Focus Report); and the term "TOTAL
CAPITAL" means at any date the sum of Total Ownership Equity plus Subordinated
Liabilities (as would be shown on such date on line 3530 of the Company's Focus
Report); the term "NET CAPITAL" means at any date the net capital of the Company
(as would be shown on such date on line 3750 of the Company's Focus Report); and
the term "REQUIRED NET CAPITAL" means at any date the minimum net capital
required to be maintained by the Company (as would be shown on such date on line
3760 of the Company's Focus Report).
10.2. LOANS TO PRINCIPALS.
The Company will not at any time permit the aggregate unpaid
principal amount of its unsecured loans to its principals to exceed $5,000,000.
10.3. MERGER, CONSOLIDATION, ETC.
The Company will not consolidate with or merge with any other
Person or convey, transfer or lease all or substantially all of its assets in a
single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer or
lease substantially all of the assets of the Company as an entirety, as
the case may be,
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29
shall be a solvent corporation or limited liability company organized
and existing under the laws of the United States or any State thereof
(including the District of Columbia), and, if the Company is not such
corporation or limited liability company, (i) such corporation or
limited liability company shall have executed and delivered to each
holder of any Notes its assumption of the due and punctual performance
and observance of each covenant and condition of this Agreement and the
Notes and (ii) shall have caused to be delivered to each holder of any
Notes an opinion of nationally recognized independent counsel, or other
independent counsel reasonably satisfactory to the Majority Holders, to
the effect that all agreements or instruments effecting such assumption
are enforceable in accordance with their terms and comply with the
terms hereof; and
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any successor that
shall theretofore have become such in the manner prescribed in this Section 10.3
from its liability under this Agreement or the Notes.
10.4. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Subsidiary to
enter into directly or indirectly any Material transaction or group of related
transactions that collectively are Material (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Subsidiary),
except (a) in the ordinary course of and pursuant to the reasonable requirements
of the Company's or such Subsidiary's business (including without limitation any
agreement or arrangement in respect of any investment company registered under
the Investment Company Act of 1940, as amended, and advised by the Company or
any Affiliate) and upon fair and reasonable terms no less favorable to the
Company or such Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate and (b) loans to principals permitted
by Section 10.2. It is expressly understood that (i) the Company may continue to
make good faith allocations of revenues and expenses among certain of its
Affiliates, and (ii) the Company and all or certain of its Affiliates may
determine to enter into a reorganization or other transaction or series of
transactions culminating in an initial public offering of securities of the
Company or any Affiliate, and nothing in this Section 10.4 shall prevent any
such allocation, reorganization or other transaction.
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30
11. REMEDIES ON EVENTS OF ACCELERATION, EVENTS OF DEFAULT, ETC.
11.1. EVENTS OF ACCELERATION AND EVENTS OF DEFAULT DEFINED.
The occurrence of any of the events specified in paragraphs
(a) through (h) below shall constitute an "EVENT OF ACCELERATION" with respect
to the Notes and the occurrence of any of the events specified in paragraphs (i)
and (j) below shall constitute an "EVENT OF DEFAULT":
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 7.1(d) or Sections 10.1 to 10.4,
inclusive, and in the case of Sections 10.1 and 10.4, such default is
not remedied within 30 days; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the Company obtains knowledge of such
default; or
(e) any representation or warranty made in writing by or on
behalf of the Company of the Company or by any officer of the Company
in this Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness (other than the Notes) that is outstanding in an aggregate
principal amount of at least $15,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary is
in default in the performance of or compliance with any term of any
evidence of any Indebtedness outstanding in an aggregate principal
amount of at least $15,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has become,
or has been declared (or one or more Persons are entitled to declare
such
<PAGE>
31
Indebtedness to be), due and payable before its stated maturity or
before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition
(other than the passage of time or the right of the holder of
Indebtedness outstanding in an aggregate principal amount of at least
$15,000,000 to convert such Indebtedness into equity interests or a
sale of assets or other transaction that is permitted if made in
connection with a repayment of Indebtedness), (x) the Company or any
Subsidiary has become obligated to purchase or repay such Indebtedness
before its regular maturity or before its regularly scheduled dates of
payment, or (y) one or more Persons have the right to require the
Company or any Subsidiary so to purchase or repay such Indebtedness,
provided that any default or obligation of a Subsidiary of the Company
described in this paragraph (f) could reasonably be expected to have a
material adverse effect on the ability of the Company to perform its
obligations under this Agreement and the Notes; or
(g) a final judgment or judgments for the payment of money
aggregating in excess of $15,000,000 are rendered against one or more
of the Company and its Subsidiaries which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 60 days after the expiration of such stay,
provided that such judgment or judgments against one or more
Subsidiaries of the Company could reasonably be expected to have a
material adverse effect on the ability of the Company to perform its
obligations under this Agreement and the Notes; or
(h) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under Section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA Section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed $5,000,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan
that provides post-employment welfare
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32
benefits in a manner that would increase the liability of the Company
or any Subsidiary thereunder; and any such event or events described in
clauses (i) through (vi) above, either individually or together with
any other such event or events, could reasonably be expected to have a
Material Adverse Effect and, with respect to any ERISA Affiliate could
reasonably be expected to have a material adverse effect on the ability
of the Company to perform its obligations under this Agreement and the
Notes; or
(i) the Company or any Subsidiary (i) is generally not paying,
or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement
or any other petition in bankruptcy, for liquidation pursuant to SIPA
or otherwise or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(j) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any Subsidiary, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving
a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any such Subsidiary, or any
such petition shall be filed against the Company or any such Subsidiary
and such petition shall not be dismissed within 60 days.
As used in paragraph (h) above, the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
11.2. ACTION IF EVENT OF ACCELERATION.
(a) Subject at all times to the limitations of Sections 11.5
and 21, if an Event of Acceleration has occurred and is continuing, the Majority
Holders may at any time at their option provide notice to the Company and the
Exchange or the Examining Authority, declaring all the Notes then outstanding to
be due and payable at the time specified in such notice. Such notice may not be
delivered prior to six months from the date of
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33
the Closing and no Note may be accelerated prior to the last Business Day of a
calendar month not less than six months after the receipt of such notice by both
the Company and the Exchange. Payments of the principal and interest on the
Notes shall remain subordinate as provided herein.
(b) Subject at all times to the limitations of Sections 11.5
and 21, if any Event of Acceleration described in paragraph (a) or (b) of
Section 11.1 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Acceleration may at any time, at
its or their option, provide notice to the Company and the Exchange or the
Examining Authority, declaring all the Notes held by it or them to be due and
payable at the time specified in such notice. Such notice may not be delivered
prior to six months from the date of the Closing and no Note may be accelerated
prior to the last Business Day of a calendar month not less than six months
after the receipt of such notice by both the Company and the Exchange.
11.3. ACTION IF EVENT OF DEFAULT.
If an Event of Default has occurred, all the Notes then
outstanding shall automatically become immediately due and payable, subject to
the limitations of Sections 11.5 and 21.
11.4. MATURITY; PAYMENT.
Upon any Note becoming due and payable under this Section 11,
after the giving of notice and lapse of time specified in Section 11.2, such
Note will forthwith mature and the entire unpaid principal amount of such Note,
plus (x) all accrued and unpaid interest thereon and (y) solely upon the
occurrence of an Event of Default, the Make-Whole Amount determined in respect
of such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided) and that the provision for payment of a
Make-Whole Amount by the Company in the event that the Notes are prepaid or are
accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
11.5. SUSPENSION OF PAYMENTS.
The obligation of the Company to pay the principal amount of
any Notes or any portion thereof shall be suspended and shall not mature for
such period of time and subject to such terms and conditions as may be
prescribed from time to time by the Net Capital Rule (including Appendix D
thereto), the
<PAGE>
34
Exchange, the SEC, the CFTC, the DSRO and any other competent Governmental
Authority. The Company's obligation to pay the unpaid principal amount of the
notes on the Scheduled Maturity Date, or upon earlier acceleration of the notes,
shall be suspended and such notes shall not mature for any period of time during
which after giving effect to such payment (together with (i) the payment of any
other indebtedness of the Company payable at or prior to the payment of such
notes and (ii) the return of any Secured Demand Note and the Collateral therefor
held by the Company and returnable at or prior to the payment hereof):
(a) in the event that the Company is not operating pursuant to
the alternative net capital requirement provided for in paragraph
(a)(1)(ii) of the Net Capital Rule, the aggregate indebtedness of the
Company would exceed 1200% of its net capital (as those terms are
defined in the Net Capital Rule as in effect at the time payment is to
be made), or such other percentage as may be made applicable to the
Company at the time of such payment by the Exchange or the SEC; or
(b) in the event that the Company is operating pursuant to
such alternative net capital requirement, the net capital of the
Company would be less than 5% (or such other percentage as may be made
applicable to the Company at the time of such payment by the Exchange
or the SEC) of aggregate debit terms computed in accordance with
Exhibit A to Rule 15c3-3 under the Exchange Act or any successor rule
as in effect at such time; or
(c) in the event that the Company is registered as a futures
commission merchant under the CEA, the net capital of the Company (as
defined in the CEA or the regulations thereunder as in effect at the
time of such payment) would be less than 6% (or such other percentage
as may be made applicable to the Company at the time of such payment by
the Commodity Futures Trading Commission (the "CFTC") of the funds
required to be segregated pursuant to the CEA and the regulations
thereunder, and the foreign futures or foreign options secured amount
less the market value of commodity options purchased by customers on or
subject to the rules of a contract market or a foreign board of trade
(provided that the deduction for each customer shall be limited to the
amount of customer funds in such customer's account(s) and foreign
futures and foreign options secured amounts), or the Company's net
capital would be less than the minimum capital requirement as defined
by the DSRO; or
(d) the Company's net capital, as defined in the Net Capital
Rule or any successor rule as in effect at the time of such payment,
would be less than 120% (or such other percentage as may be made
applicable to the Company at the time of such payment by the Exchange
or the SEC) of the
<PAGE>
35
minimum dollar amount as may be made applicable to the Company by the
Exchange or the SEC at the time of such Scheduled Maturity Date or
earlier acceleration); or
(e) in the event that the Company is registered as a futures
commission merchant under the CEA and if its net capital, as defined in
the CEA or the regulations thereunder as in effect at the time of the
Scheduled Maturity Date or earlier acceleration, would be less than
120% (or such other percentage as may be made applicable to the Company
at the time of the Scheduled Maturity Date or earlier acceleration by
the CFTC) of the minimum dollar amount required by the CEA or the
regulations thereunder as in effect at such time (or such other dollar
amount as may be made applicable to the Company at the time of the
Scheduled Maturity Date or earlier acceleration by the CFTC); or
(f) in the event that the Company is subject to the provisions
of Paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule, the net capital of
the Company would be less than the amount required to satisfy the 1000%
test (or such other percentage test as may be made applicable to the
Company by the Exchange or the SEC at the time of the Scheduled
Maturity Date or earlier acceleration) stated in such applicable
paragraph;
(the net capital necessary to enable the Company to avoid such suspension of its
obligation to pay the unpaid principal amount of the Notes is called the
"APPLICABLE MINIMUM CAPITAL") and during any such suspension the Company shall,
as promptly as consistent with the protection of its customers, reduce its
business to a condition whereby the unpaid principal amount of the Notes could
be paid (together with (i) the payment of any other obligation of the Company
payable at or prior to the payment hereof and (ii) the return of any secured
demand note and the collateral therefor held by the Company and returnable at or
prior to the payment of the Notes) without the Company's net capital being below
the Applicable Minimum Capital, at which time the Company shall repay the unpaid
principal amount of the Notes on not less than five days' prior written notice
to the Exchange. The Notes shall mature on the first day at which under this
Section 11.5 the Company has an obligation to pay the unpaid principal amount
thereof.
If pursuant to the terms of this Section 11 the Company's
obligation to repay the Notes is suspended and does not mature, the Company
agrees (and each holder of a Note by acceptance thereof recognizes) that if the
Company's obligation to repay the Notes is ever suspended for a period of six
months or more, the Company will promptly take whatever steps are necessary to
effect a rapid and orderly complete liquidation of its business.
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36
If payment is made of all or any part of the Notes on the
Scheduled Maturity Date or any accelerated maturity date and if immediately
after any such payment the Company's net capital is less than the Applicable
Minimum Capital, each holder of a Note by acceptance thereof agrees irrevocably
(whether or not such holder had any knowledge or notice of such fact at the time
of any such payment) to repay to the Company, its successors or assigns, the sum
so paid, to be held by the Company pursuant to the provisions hereof as if such
payment had never been made; provided, however, that any suit for the recovery
of any such payment must be commenced within two years of the date of such
payment.
11.6. OTHER REMEDIES.
If any Default or Event of Default or Event of Acceleration
has occurred and is continuing, and irrespective of whether any Notes have
become or have been declared immediately due and payable under Section 11.3, the
holder of any Note at the time outstanding may, subject to Section 22.11 and the
other limitations set forth in this Agreement, proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise. For the avoidance of doubt, it is
expressly understood and agreed that no remedy shall entitle the holder of any
Note to any payment or any other remedy in respect of such Note not otherwise
permitted under the restrictions on prepayment of Notes set forth in Section
8.1, the requirements for suspension of payments set forth in Section 11.5 and
the subordination provisions of Section 21.
11.7. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to Section 11.2 or 11.3, the Majority Holders, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Events of Acceleration and Defaults, other
than the non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes. No rescission and annulment under this Section
11.7 will extend to or affect any subsequent Event of Default or Event of
Acceleration or Default or impair any right consequent thereon.
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37
11.8. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 11, including without
limitation reasonable attorneys' fees, expenses and disbursements.
12. [INTENTIONALLY OMITTED]
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), within five
Business Days thereafter the Company shall execute and deliver, at the Company's
expense (except as provided below), one or more new Notes (as requested by the
holder thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request. Each such new Note shall be
dated and bear interest from the date to which interest shall have been paid on
the
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38
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than
$1,000,000, provided that if necessary to enable the registration of transfer by
a holder of its entire holding of Notes, one Note may be in a denomination of
less than $1,000,000. Any transferee, by its acceptance of a Note registered in
its name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.
You agree that the Company shall not be required to register
the transfer of any Note to any Person (other than your nominee in a transfer
not involving a change of beneficial ownership of a Note) unless the Company
receives from the transferee in connection with such transfer a representation
or other assurances reasonably satisfactory to the Company that the transferee
is a Permitted Transferee. You shall not be liable for any damages in connection
with any such representation or assurances provided to the Company by any
transferee. Any transferee of a Note, by the acceptance of such Note, shall be
deemed to have agreed to be bound by the provisions of this paragraph.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original purchaser or another holder of a
Note with a minimum net worth of at least $35,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
within five Business Days thereafter the Company at its own expense shall
execute and deliver, in lieu thereof, a new Note, dated and bearing interest
from the date to which interest shall have been paid on such lost, stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.
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39
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, premium, if
any, and interest becoming due and payable on the Notes shall be made at the
principal office of Citibank, N.A. in New York City. The Company may at any
time, by notice to each holder of a Note, change the place of payment of the
Notes so long as such place of payment shall be either the principal office of
the Company in New York City or the principal office of a bank or trust company
in New York City.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all reasonable fees and expenses of Willkie
Farr & Gallagher, your special counsel in connection with such transactions, and
all costs and expenses incurred by you and each other holder of a Note in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including without limitation: (a) the costs and expenses incurred in
enforcing or
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40
defending (or determining whether or how to enforce or defend) any rights under
this Agreement or the Notes or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a holder of any Note, and (b) the
costs and expenses, including financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of the Company or any Subsidiary or in
connection with any work-out or restructuring of the transactions contemplated
hereby and by the Notes. The Company will pay, and will save you and each other
holder of a Note harmless from, all claims in respect of any fees, costs or
expenses if any, of brokers and finders (other than those retained by you).
In furtherance of the foregoing, on the date of the Closing
the Company will pay or cause to be paid the reasonable fees and disbursements
and other charges (including estimated unposted disbursements and other charges
as of the date of the Closing, which will be reconciled after the Closing) of
your special counsel which are reflected in the statement of such special
counsel submitted to the Company at least two Business Days prior to the date of
the Closing. The Company will also pay, promptly upon receipt of supplemental
statements therefor, reasonable additional fees, if any, and disbursements and
charges of such special counsel in connection with the transactions hereby
contemplated (including disbursements and other charges unposted as of the date
of the Closing to the extent such disbursements exceed estimated amounts paid as
aforesaid).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
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41
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Majority Holders, and in every case the prior written approval
of the Exchange as provided in Section 22.12, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5 or 6 (or any defined
term as it is used therein), will be effective as to you unless consented to by
you in writing, and (b) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding, (i) subject to the
provisions of Section 11 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or change the rate
or the time of payment or method of computation of interest or of the Make-Whole
Amount on, the Notes, (ii) change the percentage of the principal amount of the
Notes the holders of which are required to consent to any such amendment or
waiver, or (iii) amend any of Sections 8, 11.1(a), 11.1(b), 11.2, 11.6, 11.7,
11.8, 17, 20 or 21.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes of any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
<PAGE>
42
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Note nor any delay in exercising any rights hereunder or under any
Note shall operate as a waiver of any rights of any holder of such Note. As used
herein, the term "THIS AGREEMENT" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Robert Matza, with a
copy to
<PAGE>
43
Debevoise & Plimpton
555 13th Street, N.W.
Suite 1100E
Washington, D.C. 20004
or at such other address as the Company shall have specified to the
holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL
INFORMATION" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement (including in connection with any
inspection pursuant to Section 7.3) that was clearly marked or labeled or
otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any Person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
<PAGE>
44
adopted by you in good faith to protect confidential information of third
parties delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, principals, trustees, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by your Notes), (ii)
your financial advisors and other professional advisors whose duties require
them to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 20, (iii) any other holder of any
Note, (iv) any Institutional Investor that is a Permitted Transferee to which
you sell or offer to sell such Note or any part thereof or any participation
therein (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20), (v)
any Person from which you offer to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default or Event of Acceleration has
occurred and is continuing, to the extent you may in good faith reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under your Notes
and this Agreement. Each holder of a Note, by its acceptance of a Note, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
Section 20 as though it were a party to this Agreement. On reasonable request by
the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
21. SUBORDINATION.
You (and each holder of a Note by acceptance thereof)
irrevocably agree that payment of principal of and Make-Whole Amounts, if any,
and interest on the Notes are and shall be fully and irrevocably subordinate in
right of payment and subject to the prior payment or provision for payment in
full of all claims of all other present and future creditors of the Company
whose claims are not similarly subordinated prior to the date on which the
Company's obligation to make such payment matures consistent
<PAGE>
45
with the provisions hereof. The Notes shall rank pari passu with all other
Indebtedness or other borrowings of the Company the proceeds of which are
included in the Company's Net Capital pursuant to the Net Capital Rule. The
Notes are intended to be subordinated to all other debt in the manner and with
the effect set forth in the provisions of Appendix D to the Rule, and this
Agreement is intended to qualify as a satisfactory Subordination Agreement under
such Appendix D.
In the event of the appointment of a receiver or trustee of
the Company or in the event of its insolvency, liquidation pursuant to the
Securities Investor Protection Act of 1970 ("SIPA") or otherwise, its
bankruptcy, assignment for the benefit of creditors, reorganization whether or
not pursuant to bankruptcy laws, or any other marshalling of the assets and
liabilities of the Company, no holder of a Note shall be entitled to participate
or share, ratably or otherwise, in the distribution of the assets of the Company
until all claims of all other present and future creditors of the Company, whose
claims are senior to the Notes, have been fully satisfied, or adequate provision
has been made therefor.
22. MISCELLANEOUS.
22.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including without limitation any
subsequent holder of a Note) whether so expressed or not.
22.2. CONSTRUCTION.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.3. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO WAIVES TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH OR THEREWITH.
<PAGE>
46
22.4. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding (but without limiting the requirement in Section 8.1 that notice
of any optional prepayment specify a Business Day as the date fixed for such
prepayment), any payment of principal of or Make-Whole Amount (if any) or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day.
22.5. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the fullest extent permitted by applicable law) not
invalidate or render unenforceable such provision in any other jurisdiction.
22.6. ACCOUNTING TERMS.
All accounting terms used herein which are not expressly
defined in this Agreement have the meanings respectively given to them in
accordance with GAAP. Except as otherwise specifically provided herein, all
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements with respect thereto
shall be prepared in accordance with GAAP. Except as otherwise specifically
provided herein, any consolidated financial statement or financial computation
shall be done in accordance with GAAP; and, if at the time that any such
statement or computation is required to be made the Company shall not have any
Subsidiary, such terms shall mean a financial statement or a financial
computation, as the case may be, with respect to the Company only.
22.7. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.8. GOVERNING LAW.
This Agreement and the Notes shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York.
<PAGE>
47
22.9. FUTURES COMMISSION MERCHANTS.
If the Company is a futures commission merchant, as that term
is defined in the CEA, the Company agrees, consistent with the requirements of
Section 1.17(h) of the regulations of the CFTC (17 CFR 1.17(H)), that:
(a) whenever prior written notice by the Company to the
Exchange is required pursuant to the provisions of this Agreement, the
same prior written notice shall be given by the Company to (i) the CFTC
at its principal office in Washington, DC, attention Chief Accountant
of Division of Trading and Markets, and/or (ii) the commodity exchange
of which the Company is a member and which is then designated by the
CFTC as the Company's designated self-regulatory organization (the
"DSRO");
(b) whenever prior written consent, permission or approval of
the Exchange is required pursuant to the provisions of this Agreement,
the Company shall also obtain the prior written consent, permission or
approval of the CFTC and/or of the DSRO; and
(c) whenever the Company receives written notice of
acceleration of maturity pursuant to the provisions of this agreement,
the Company shall promptly give written notice thereof to the CFTC at
the address stated and/or to the DSRO.
22.10. EFFECT OF EXCHANGE MEMBERSHIP TERMINATION.
Upon termination of the Company as a member organization of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term "EXAMINING AUTHORITY" means the regulatory body
having responsibility for inspecting or examining the Company for compliance
with financial responsibility requirements under Section 9(c) of SIPA and
Section 17(D) of the Exchange Act.
22.11. ARBITRATION.
Any controversy arising out of or relating to this Agreement
shall be submitted to and settled by arbitration pursuant to the Constitution
and Rules of the Exchange. The Company and all holders of the Note shall be
conclusively bound by such arbitration.
22.12. EFFECTIVE DATE; NO MODIFICATION WITHOUT EXCHANGE APPROVAL.
This Agreement shall be effective from the date on which it is
approved by the Exchange and shall not be modified or amended without the prior
written approval of the Exchange.
<PAGE>
48
22.13. CANCELLATION.
This Agreement shall not be subject to cancellation by either
party, unless the Exchange agrees in writing to such cancellation 30 days in
advance.
22.14. NO RIGHT OF SET-OFF.
You agree that you are not taking and will not take or assert
as security for the payment of the Notes any security interest in or Lien upon,
whether created by contract, statute or otherwise, any property of the Company
or any property in which the Company may have an interest, which is or at any
time may be in your possession or subject to your control. You hereby waive, and
further agree that you will not seek to obtain payment of the Notes in whole or
in any part by exercising any right of set-off you may assert or possess whether
created by contract, statute or otherwise. Any agreement between the Company and
you (whether in the nature of a general loan and collateral agreement, a
security or pledge agreement or otherwise) shall be deemed amended hereby to the
extent necessary so as not to be inconsistent with the provision of this
Section.
22.15. NON-LIABILITY OF EXCHANGE.
You irrevocably agree that your purchase of Notes hereunder is
not being made in reliance upon the standing of the Company as a member
organization of the Exchange or upon the Exchange's surveillance of the
Company's financial position or its compliance with the Constitution, Rules and
practices of the Exchange. You have made such investigation of the Company and
its principals, members, officers and directors as you deem necessary and
appropriate under the circumstances. You are not relying upon the Exchange to
provide any information concerning or relating to the Company and you agree that
the Exchange has no responsibility to disclose to you any information concerning
or relating to the Company which it may now, or at any future time, have. You
agree that neither the Exchange, its Special Trust Fund, nor any director,
officer, trustee nor employee of the Exchange or said Trust Fund shall be liable
to you with respect to this Agreement or the repayment of the Notes.
<PAGE>
49
If you are in agreement with the foregoing, please sign the
form of agreement in the space below provided on a counterpart of this Agreement
and return it to the Company, whereupon the foregoing shall become a binding
agreement between you and the Company.
Very truly yours,
NEUBERGER BERMAN, LLC
By /s/ C. Carl Randolph
------------------------------------
Title: General Counsel and Principal
The foregoing is hereby agreed to as of the date thereof.
THE TRAVELERS INSURANCE COMPANY, for itself and one of its
separate accounts
By /s/ Pamela Westmoreland
--------------------------------
Title: Investment Officer
<PAGE>
SCHEDULE A
This Schedule A shows the addresses of the Purchaser under the
foregoing Subordinated Note Purchase Agreement and the principal amounts of
Notes to be purchased by the Purchaser individually and on behalf of a separate
account.
ADDRESSES OF THE TRAVELERS INSURANCE COMPANY
(1) All payments on account of the Notes shall be made by wire transfer of
federal or other immediately available funds, to:
- in the case of a Note in the principal amount of
$25,000,000 (I/N/O TRAL & CO)
The Travelers Insurance Company - Consolidated Private Placement
Account No. 910-2-587434
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081
ABA No. 021000021
- in the case of a Note in the principal amount of
$10,000,000 (I/N/O TRAL & CO)
The Travelers Insurance Company - Separate Account TLAC
No. 910-2-739365
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081
ABA No. 021000021
in each case with sufficient information (including interest rate and
maturity) to identify the issue to which the payment relates and the
source and application of such funds, including the amount of
principal, interest and premium and the PPN: 64125@ AA 2
(2) All notices with respect to payment:
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Attn: Investment Group - Cashier 10PB
fax: 860-277-2299
<PAGE>
(3) All other communications:
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Attn: Investment Group - Private Placements 9PB
fax: 860-277-5243
(4) Tax Identification No.: 06-0566090
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:
"ADJUSTED LIBOR RATE" is defined in Section 1.3.
"ADVISERS ACT" is defined in Section 5.17.
"AFFILIATE" means, at any time, (a) with respect to any Person
(including without limitation the Company), any other Person that at such time
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, such first Person, and (b) with
respect to the Company, any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York City are required or authorized
to be closed.
"CALCULATION HOLDER" is defined in Section 1.3.
"CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means with respect to any
Person, all outstanding obligations of such Person in respect of Capital Leases,
taken at the capitalized amount thereof accounted for as indebtedness in
accordance with GAAP.
"CEA" is defined Section 7.1.
"CFTC" is defined in Section 11.5.
"CLOSING" is defined in Section 3.
<PAGE>
2
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"COMPANY" means Neuberger Berman, LLC, a Delaware limited
liability company.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"DEFAULT" means an event or condition the occurrence or
existence of which would, with the giving of notice or the lapse of time, or
both, become an Event of Default or Event of Acceleration.
"DEFAULT RATE" means for the Notes that rate of interest that
equal to 2% above the Adjusted LIBOR Rate from time to time.
"DESIGNATED MATURITY" is defined in Section 1.3.
"DSRO" is defined in Section 22.9.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any regulated materials into the environment,
including but not limited to those related to hazardous substances or wastes,
air emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 414 of the Code.
"EVENT OF ACCELERATION" is defined in Section 11.1.
"EVENT OF DEFAULT" is defined in Section 11.1.
"EXAMINING AUTHORITY" is defined in Section 22.10.
"EXCHANGE" is defined in Section 5.7.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.
<PAGE>
3
"FOCUS REPORT" means SEC Form X-17 A-5 (Financial and
Operational Combined Uniform Single Report), or any successor form of the SEC
pursuant to the Exchange Act.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including without limitation
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other
<PAGE>
4
obligations that are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of equity interests that are mandatorily
redeemable at the option of the holder prior to the maturity of the
Notes,
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business and not overdue but including all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property),
(c) its Capitalized Lease Obligations,
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities),
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money),
(f) Swaps of such Person, and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (f) above.
Indebtedness of any Person shall include all obligations of such person of the
character described in clauses (a) through (g) above to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP, but shall not include (i)
any secured indebtedness other than as described in paragraph (d) above, (ii)
any margin loan arrangement, or (iii) any securities lending arrangement.
"INITIAL INTEREST PERIOD" is defined in Section 1.3.
<PAGE>
5
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding (together with one or more of its
Affiliates) more than 2% of the aggregate principal amount of the Notes then
outstanding, and (c) any bank, trust company, savings and loan association,
fraternal benefit society or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.
"INTEREST PAYMENT DATE" means each March 1, June 1, September
1 and December 1 commencing on December 1, 1999.
"INTEREST PERIOD" is defined in Section 1.3.
"LIBOR RATE" is defined in Section 1.3.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LONDON BANKING DAY" is defined in Section 1.3.
"MAJORITY HOLDERS" means, at any time, the holder or holders
of at least a majority in unpaid principal amount of the Notes at the time
outstanding.
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets, properties or prospects of the
Company and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or properties
of the Company and its Subsidiaries taken as a whole, (b) the ability of the
Company to perform its obligations under this Agreement and the Notes or (c) the
validity or enforceability of this Agreement or the Notes.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"NASD" means the National Association of Securities Dealers.
"NET CAPITAL" is defined in Section 10.1.
<PAGE>
6
"NET CAPITAL RULE" or the "RULE" means Rule 15c3-1 of the SEC
under the Exchange Act or any successor rule as in effect at the time.
"NOTES" is defined in Section 1.1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PERMITTED TRANSFEREE" means (a) any original purchaser of a
Note, (b) any bank, trust company, savings and loan association, fraternal
benefit society or insurance company and (c) any other financial institution,
any pension plan, any investment company, any broker or dealer, or any other
similar financial institution or entity regardless of legal form, provided that
for purposes of this clause (c) there shall be excluded any person (i)
registered as an investment adviser under the Advisers Act and (ii) engaged in
an investment management business in the United States in direct competition
with the Company.
"PERSON" or "person" means an individual, partnership,
corporation, limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in Section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, inchoate or otherwise.
"PTE" is defined in Section 6.2.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued on March 13, 1984 by the United States Department of Labor.
"REFERENCE BANKS" is defined in Section 1.3.
"REPRESENTATIVE AMOUNT" is defined in Section 1.3.
<PAGE>
7
"REQUIRED NET CAPITAL" is defined in Section 10.1.
"RESET DATE" is defined in Section 1.3.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company with responsibility for the administration of
the relevant portion of this Agreement.
"SCHEDULED MATURITY DATE" means September 1, 2004 (the stated
maturity date of the Notes).
"SEC" means the Securities and Exchange Commission or any
successor thereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SIPA" is defined in Section 21.3.
"SUBORDINATED LIABILITIES" is defined in Section 10.1.
"SUBSIDIARY" means, as to any Person, any corporation or other
business entity a majority of the combined voting power of all Voting Stock of
which is owned by such Person or one or more of its Subsidiaries or such Person
and one or more of its Subsidiaries. Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the
Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"TOTAL CAPITAL" is defined in Section 10.1.
"TOTAL EQUITY OWNERSHIP " is defined in Section 10.1.
<PAGE>
8
"VOTING STOCK" means, with respect to any Person, any shares
of stock or other equity interests of any class or classes of such Person whose
holders are entitled under ordinary circumstances (irrespective of whether at
the time stock or other equity interests of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
to vote for the election of a majority of the directors, managers, trustees or
other governing body of such Person.
<PAGE>
Exhibit 10.13
NEUBERGER BERMAN, LLC
FLOATING RATE SUBORDINATED NOTE DUE SEPTEMBER 1, 2004
No. R-2 New York, New York
$10,000,000 September 1, 1999
PPN: 64125@ AA 2
FOR VALUE RECEIVED, the undersigned, NEUBERGER BERMAN, LLC
(the "Company"), a Delaware limited liability company, hereby promises to pay to
TRAL & CO, or registered assigns, the principal sum of TEN MILLION DOLLARS on
September 1, 2004, with interest (computed on the basis of actual days elapsed
and a year of 360 days) on the unpaid balance thereof (a) from the date hereof,
payable on each Interest Payment Date (as defined below), at a rate per annum
for the Interest Period ending on such Interest Payment Date equal to the
Adjusted LIBOR Rate (as the terms Interest Period and Adjusted LIBOR Rate are
defined in the Note Purchase Agreement referred to below) as determined in
respect of such Interest Period pursuant to such Note Purchase Agreement, until
the principal hereof shall have become due and payable, and (b) on any overdue
payment of principal, any overdue payment of interest and any overdue payment of
any Make-Whole Amount (as defined in such Note Purchase Agreement), payable on
each Interest Payment Date as aforesaid (or on demand at the option of the
holder hereof) at a rate per annum from time to time equal to 2% above the
Adjusted LIBOR Rate (as so defined).
As used herein the term "Interest Payment Date" means each
March 1, June 1, September 1 and December 1.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at said principal office of Citibank, N.A. in New York City or
at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of the Floating Rate Subordinated Notes
issued pursuant to the Subordinated Note Purchase Agreement dated as of
September 1, 1999 (as from time to time amended, the "Note Purchase Agreement")
between the Company and the Purchaser named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
Pursuant to the Note Purchase Agreement the Company is
required to give written notice to the holder of this Note of the
<PAGE>
LIBOR Rate for each Interest Period as determined on the Reset Date (as defined
in the Note Purchase Agreement) for such Interest Period. The LIBOR Rate and
Adjusted LIBOR Rate for each Interest Period shall be endorsed by the holder of
this Note on the schedule attached hereto or any continuation thereof prior to
any transfer of this Note.
The Note Purchase Agreement is a satisfactory subordination
agreement within the meaning of Rule 15c3-1d of the Securities and Exchange
Commission adopted under the Securities Exchange Act of 1934, as amended.
Reference is made to the Note Purchase Agreement for provisions relating to the
prepayment, both optional and mandatory, and the acceleration or deferral of
maturity hereof. Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are subordinated, to the extent specified in the Note
Purchase Agreement, to all claims of or to the present and future creditors of
the Company whose claims are not similarly subordinated and to claims which are
now or hereafter expressly stated to be senior in right of payment to this Note
and claims that are similarly subordinated arising out of any matter prior to
the date which the Company's obligation to make such payment of principal,
Make-Whole Amount or interest matures, all as provided in the Note Purchase
Agreement.
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company may make optional prepayments of principal, in
whole or from time to time in part, at the times and on the terms specified in
the Note Purchase Agreement, but not otherwise.
If an Event of Default or Event of Acceleration, as defined in
the Note Purchase Agreement, occurs and is continuing, the principal of this
Note may be declared or otherwise become due and payable in the manner, at the
price (including any applicable premium or Make-Whole Amount) and with the
effect provided in the Note Purchase Agreement.
-2-
<PAGE>
This Note shall be construed and enforced in accordance with,
and the rights of the Company and the holder hereof shall be governed by, the
laws of the State of New York.
NEUBERGER BERMAN, LLC
By /s/ C. Carl Randolph
--------------------------------------
Title: General Counsel and Principal
-3-
<PAGE>
Exhibit 10.14
NEUBERGER BERMAN, LLC
FLOATING RATE SUBORDINATED NOTE DUE SEPTEMBER 1, 2004
No. R-1 New York, New York
$25,000,000 September 1, 1999
PPN: 64125@ AA 2
FOR VALUE RECEIVED, the undersigned, NEUBERGER BERMAN, LLC
(the "Company"), a Delaware limited liability company, hereby promises to pay to
TRAL & CO, or registered assigns, the principal sum of TWENTY-FIVE MILLION
DOLLARS on September 1, 2004, with interest (computed on the basis of actual
days elapsed and a year of 360 days) on the unpaid balance thereof (a) from the
date hereof, payable on each Interest Payment Date (as defined below), at a rate
per annum for the Interest Period ending on such Interest Payment Date equal to
the Adjusted LIBOR Rate (as the terms Interest Period and Adjusted LIBOR Rate
are defined in the Note Purchase Agreement referred to below) as determined in
respect of such Interest Period pursuant to such Note Purchase Agreement, until
the principal hereof shall have become due and payable, and (b) on any overdue
payment of principal, any overdue payment of interest and any overdue payment of
any Make-Whole Amount (as defined in such Note Purchase Agreement), payable on
each Interest Payment Date as aforesaid (or on demand at the option of the
holder hereof) at a rate per annum from time to time equal to 2% above the
Adjusted LIBOR Rate (as so defined).
As used herein the term "Interest Payment Date" means each
March 1, June 1, September 1 and December 1.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at said principal office of Citibank, N.A. in New York City or
at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of the Floating Rate Subordinated Notes
issued pursuant to the Subordinated Note Purchase Agreement dated as of
September 1, 1999 (as from time to time amended, the "Note Purchase Agreement")
between the Company and the Purchaser named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
<PAGE>
Pursuant to the Note Purchase Agreement the Company is
required to give written notice to the holder of this Note of the LIBOR Rate for
each Interest Period as determined on the Reset Date (as defined in the Note
Purchase Agreement) for such Interest Period. The LIBOR Rate and Adjusted LIBOR
Rate for each Interest Period shall be endorsed by the holder of this Note on
the schedule attached hereto or any continuation thereof prior to any transfer
of this Note.
The Note Purchase Agreement is a satisfactory subordination
agreement within the meaning of Rule 15c3-1d of the Securities and Exchange
Commission adopted under the Securities Exchange Act of 1934, as amended.
Reference is made to the Note Purchase Agreement for provisions relating to the
prepayment, both optional and mandatory, and the acceleration or deferral of
maturity hereof. Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are subordinated, to the extent specified in the Note
Purchase Agreement, to all claims of or to the present and future creditors of
the Company whose claims are not similarly subordinated and to claims which are
now or hereafter expressly stated to be senior in right of payment to this Note
and claims that are similarly subordinated arising out of any matter prior to
the date which the Company's obligation to make such payment of principal,
Make-Whole Amount or interest matures, all as provided in the Note Purchase
Agreement.
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company may make optional prepayments of principal, in
whole or from time to time in part, at the times and on the terms specified in
the Note Purchase Agreement, but not otherwise.
If an Event of Default or Event of Acceleration, as defined in
the Note Purchase Agreement, occurs and is continuing, the principal of this
Note may be declared or otherwise become due and payable in the manner, at the
price (including any applicable premium or Make-Whole Amount) and with the
effect provided in the Note Purchase Agreement.
-2-
<PAGE>
This Note shall be construed and enforced in accordance with,
and the rights of the Company and the holder hereof shall be governed by, the
laws of the State of New York.
NEUBERGER BERMAN, LLC
By /s/ C. Carl Randolph
------------------------------------
Title: General Counsel and Principal
-3-
<PAGE>
Exhibit 23.1
CONSENT OF ARTHUR ANDERSEN
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 16, 1999 (and to all references to our firm) included in or made
part of this Amendment No. 3 to the Registration Statement (Registration
No. 333-84525).
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
New York, New York
September 14, 1999
