<PAGE>
As Filed Pursuant to Rule 424(b)(4)
Reg. No. 333-84525
[LOGO]
7,250,000 Shares
NEUBERGER BERMAN INC.
Common Stock
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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.
Neuberger Berman will 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.
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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.
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<TABLE>
<CAPTION>
Per Share Total
----------- -------------
<S> <C> <C>
Initial public offering price...................................... $ 32.00 $ 232,000,000
Underwriting discount.............................................. $ 2.08 $ 15,080,000
Proceeds, before expenses, to Neuberger Berman..................... $ 29.92 $ 90,666,666
Proceeds, before expenses, to the selling stockholders............. $ 29.92 $ 126,253,334
</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
October 13, 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.
------------
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Prospectus dated October 6, 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.
NEUBERGER BERMAN
OUR BUSINESS
We are an independent investment advisor and, through our subsidiaries, we
provide our clients with a broad array of investment strategies and products. We
conduct our business through Neuberger Berman, LLC and Neuberger Berman
Management Inc., both of which are registered investment advisers and
broker-dealers. Neuberger Berman, LLC is also a member of the New York Stock
Exchange. Our structure is described under "Business-- Our Structure".
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.
At September 30, 1999, we had assets under management of $51.5 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
3
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our continuing principals will own approximately 72.3%.
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 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.
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<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>
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(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
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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
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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).......... 4,264,344 shares
Shares offered by Neuberger Berman..................................... 3,030,303 shares
Shares to be outstanding after the offerings........................... 50,021,920 shares
</TABLE>
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(1) We will contribute these shares to our defined contribution plan at or
shortly before 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 will receive net proceeds from the
offerings of $89 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 $74 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>
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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 4,264,344 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
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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.................. -- -- -- -- $ 257,654 $ 119,097
Pro forma after-tax net income................ -- -- -- -- $ 146,090 $ 67,528
Pro forma earnings per share (3).............. -- -- -- -- $ 2.92 $ 1.35
Pro forma stockholders' equity................ -- -- -- -- -- $ 249,999
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 50,021,920 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 4,264,344
shares of common stock to the defined contribution plan.
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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. From June 30, 1999 to September 30, 1999, our assets
under management decreased from $56.8 billion to $51.5 billion. Most of this
decrease resulted from a decrease in securities prices.
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.
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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 continuing Neuberger Berman principals and certain family limited
partnerships and trusts formed by them will beneficially own in the aggregate
72.3% 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 continuing 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 continuing 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, 50,021,920 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.
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
the initial public offering price of $32.00 per share, purchasers of shares in
the offerings will experience dilution in net tangible book value of $27.00 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 $136 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
$62 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
Based upon the initial public offering price of $32.00 per share, we will
receive net proceeds from the offerings of $89 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 $74 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 4,264,344 shares of common stock to our defined
contribution plan (at a value of $136 million, based upon the initial
public offering price of $32.00 per share), 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 the initial public offering price of
$32.00 per share 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; 12,668 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; 46,991,617 shares issued and outstanding, pro forma;
50,021,920 shares 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................................................... 2,876 238,865 327,335
Retained earnings................................................. 6,323 (77,836) (77,836)
---------- ----------- ----------------
Total principals' capital and stockholders' equity.............. 109,199 161,499 249,999
---------- ----------- ----------------
Total capitalization............................................ $ 159,199 $ 211,499 $ 284,999
---------- ----------- ----------------
---------- ----------- ----------------
</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 4,264,344 shares of common stock to our defined contribution
plan and the cash contribution of $10 million to the Neuberger Berman Foundation
was approximately $161,499,000 or approximately $3.44 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 the initial public offering price of
$32.00 per share and after deducting underwriting discounts and offering
expenses payable by Neuberger Berman of approximately $8 million, the pro forma
net tangible book value of Neuberger Berman as of June 30, 1999 would have been
approximately $249,999,000, or approximately $5.00 per share of common stock.
This represents an immediate increase in pro forma net tangible book value of
$1.56 per share of common stock to existing stockholders and an immediate
dilution in net tangible book value of $27.00 per share of common stock to new
investors purchasing common stock in the offerings at the initial public
offering price.
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................... $ 32.00
Pro forma net tangible book value per share before giving effect to the
offerings (1).......................................................... $ 3.44
Increase in net tangible book value per share attributable to the
offerings (2).......................................................... 1.56
---------
Pro forma net tangible book value per share after the offerings (1)........ 5.00
---------
Net tangible book value dilution per share to new investors (3)............ $ 27.00
---------
---------
</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 initial public offering price paid by a new investor.
The following table summarizes, on a pro forma basis at the 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............ 46,991,617 93.9% $ 109,199,000 53.0% $ 2.32
New Investors 3,030,303 6.1 96,969,696 47.0 32.00
----------- ----- ------------- ----- -----------
Total.......................... 50,021,920 100.0% $ 206,168,696 100.0% $ 4.12
----------- ----- ------------- ----- -----------
----------- ----- ------------- ----- -----------
</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 4,264,344 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 $62 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)
88,500(2)
(29,000)(3)
(42,000)(3)
35,000(4)
(35,000)(4)
(15,000)(5) $ 39,104
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 62,300(6) 81,335
----------- ------------- -----------
Total assets.......................................... $ 3,070,609 $ 54,800 $3,125,409
----------- ------------- -----------
----------- ------------- -----------
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, 50,021,920 issued and outstanding........... --
427(7)
43(8)
30(2) 500
Paid-in capital........................................... 2,876 99,573(7)
136,416(8)
88,470(2) 327,335
Retained earnings......................................... 6,323 (136,459)(8)
(10,000)(1)
62,300(6) (77,836)
----------- ------------- -----------
Total principals' capital and stockholders' equity...... 109,199 140,800 249,999
----------- ------------- -----------
Total liabilities, principals' capital and stockholders'
equity................................................ $ 3,070,609 $ 54,800 $3,125,409
----------- ------------- -----------
----------- ------------- -----------
</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 $ (4,147)(9)
1,446 (10 134,629
----------- ------------ -----------
Net revenues after interest expense......... 574,136 2,701 576,837
----------- ------------ -----------
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 (62,441) 257,654
Principal compensation.......................... 35,144 (35,144) 15) --
----------- ------------ -----------
Net income before provision for income
taxes..................................... 284,951 (27,297) 257,654
Provision for income taxes...................... -- 111,564 (14 111,564
----------- ------------ -----------
Net income.................................. $ 284,951 $ (138,861) $ 146,090
----------- ------------ -----------
----------- ------------ -----------
Shares outstanding.............................. 50,021,920
-----------
-----------
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 $ (2,116)(9)
(169)(10) 62,868
----------- ------------- -------------
Net revenues after interest expense........... 283,415 2,285 285,700
----------- ------------- -------------
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 (37,674) 119,097
Principal compensation.......................... 15,690 (15,690)(15) --
----------- ------------- -------------
Net income before provision for income
taxes....................................... 141,081 (21,984) 119,097
Provision for income taxes...................... -- 51,569 (14 51,569
----------- ------------- -------------
Net income.................................... $ 141,081 $ (73,553) $ 67,528
----------- ------------- -------------
----------- ------------- -------------
Shares outstanding.............................. 50,021,920
-------------
-------------
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 $88.5 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 $62.3 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 $58.0 million related
to the initial irrevocable contribution of 4,264,344 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
4,264,344 shares of common stock to the defined contribution plan at or
shortly before the completion of the offerings assuming that the fair value
of the shares contributed is equal to the initial public offering price of
$32.00 per share. 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 $88.5 million, interest expense attributable to amounts borrowed in
excess of $88.5 million was not included in the adjustment. Correspondingly,
if the monthly average of subordinated liability and daily short-term
borrowings was less than $88.5 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 $84.6 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 $79.8 million.
(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,
23
<PAGE>
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.
(16) Pro forma basic and diluted earnings per share was calculated by dividing
pro forma net income by 50,021,920 shares of common stock. Except for the
initial contribution of
4,264,344 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.
24
<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>
25
<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................ -- -- -- -- $ 257,654 $ 119,097
Pro forma after-tax net
income................ -- -- -- -- $ 146,090 $ 67,528
Pro forma earnings per
share (3)............. -- -- -- -- $ 2.92 $ 1.35
Pro forma stockholders'
equity................ -- -- -- -- -- $ 249,999
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 50,021,920 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 4,264,344
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.
26
<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,
27
<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 for 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
28
<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
29
<PAGE>
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
30
<PAGE>
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 (120) 76 351 309
Market appreciation....................... 1,942 3,623 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) (139) (2,173) 360 (3,766)
Market appreciation....................... 3,622 5,787 1,897 2,965 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 (259) (2,097) 711 (3,457)
Market appreciation....................... 5,564 9,410 4,173 4,867 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.
31
<PAGE>
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, 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
increased $8.2 million or 7.7% which resulted
32
<PAGE>
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
33
<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
$2.1 million or 18.2%, 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
increased $1.9 million or 19.0%. The allocation of indirect expenses, which
include general and administrative, increased $4.3 million or 17.4%.
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
34
<PAGE>
$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.
35
<PAGE>
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 $136 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 $62 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
36
<PAGE>
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.
37
<PAGE>
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.
38
<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.
At September 30, 1999, we had assets under management of $51.5 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
continuing principals will own approximately 72.3%.
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:
39
<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 STRUCTURE
We conduct our business through Neuberger Berman, LLC and Neuberger Berman
Management Inc., both of which are registered investment advisers and broker-
dealers. Neuberger Berman, LLC is also a member of the New York Stock Exchange.
Neuberger Berman, LLC and Neuberger Berman Management Inc. are 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. Prior to the consummation of the offerings, we will complete a number of
transactions so that:
- Neuberger Berman Inc. will own 100% of Neuberger Berman, LLC and Neuberger
Berman Management Inc., and
- the Neuberger Berman principals will own Neuberger Berman Inc.
These transactions are described under "Certain Relationships and Related
Transactions--The Exchange".
OUR INVESTMENT PROCESS AND RESEARCH
We believe our investment ideas and in-house research conducted by our
portfolio managers and analysts differentiate us from
40
<PAGE>
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
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.
41
<PAGE>
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 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
42
<PAGE>
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
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
43
<PAGE>
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.
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.
44
<PAGE>
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, 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
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<PAGE>
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 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
46
<PAGE>
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 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
47
<PAGE>
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 June 30, 1999, 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
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<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, composed of directors
who are not employed by Neuberger Berman or affiliated with management. 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
directors who are not affiliated with Neuberger
57
<PAGE>
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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<PAGE>
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 4,264,344 shares of common stock at or shortly before 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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<PAGE>
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 before the completion of the offerings, we will make an
initial irrevocable contribution of 4,264,344 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 $136 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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<PAGE>
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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<PAGE>
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 46,991,617 shares of common
stock are outstanding prior to the completion of the offerings and 50,021,920
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 4,264,344
shares that we will contribute to our defined contribution plan at, or shortly
before, 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)........ 40,018,653 85.2% 36,141,521 72.3%
</TABLE>
71
<PAGE>
- ------------------------
* 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 continuing 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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<PAGE>
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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<PAGE>
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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<PAGE>
- 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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<PAGE>
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 46,991,617 shares of common
stock are outstanding prior to the completion of the offerings and 50,021,920
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 4,264,344 shares that we will
contribute to our defined contribution plan at, or shortly before, 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 1.9%
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>
77
<PAGE>
<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 * 26,758 192,039 *
The Sutton 1998 GST Trust(29)...... 19,165 * 3,850 15,315 *
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)
211,410 shares offered by Appel Associates, L.P. in the offerings and (c)
after the offerings, no shares held by Appel Associates, L.P.
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<PAGE>
(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)
73,226 shares offered by Egener Associates, L.P. in the offerings and (c)
after the offerings, 208,967 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) 65,043 shares
offered by Francfort 1998 Grantor Retained Annuity Trust in the offerings
and (c) after the offerings, 159,200 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)
54,213 shares offered by Ganek Associates, L.P. in the offerings and (c)
after the offerings, 53,959 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)
8,132 shares offered by Giuliano Associates, L.P. in the offerings and (c)
after the offerings, 70,989 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)
3,000 shares offered by Goldstein Associates, L.P. in the offerings and (c)
after the offerings, 55,763 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)
100,536 shares offered by Lainoff Associates, L.P. in the offerings and (c)
after the offerings, 139,962 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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<PAGE>
(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 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.
(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)
26,987 shares offered by Newman Associates, L.P. in the offerings and (c)
after the offerings, 137,037 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) 23,000 shares offered by Robert Edward Spilka 1998 Grantor Retained
Annuity Trust in the offerings and (c) after the offerings, 83,588 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.
(27) Voting and investment control are shared by Barbara Strauss and Neuberger
Berman Trust Company of Delaware, as trustees.
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<PAGE>
(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) 26,758 shares
offered by Allan D. Sutton 1998 Grantor Retained Annuity Trust in the
offerings and (c) after the offerings, 145,733 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)
25,134 shares offered by Weiner 1998 Grantor Retained Annuity Trust in the
offerings and (c) after the offerings, 50,660 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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<PAGE>
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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<PAGE>
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 Transfer & Trust Company has been appointed as the transfer
agent and registrar for the shares of common stock.
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<PAGE>
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 50,021,920 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 500,219
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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<PAGE>
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.
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<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..................................... 1,093,750
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................. 1,093,750
Morgan Stanley & Co. Incorporated....................... 1,093,750
Salomon Smith Barney Inc................................ 1,093,750
Bear, Stearns & Co. Inc. ............................... 468,750
CIBC World Markets Corp................................. 468,750
Donaldson, Lufkin & Jenrette Securities Corporation..... 468,750
Schroder & Co. Inc. .................................... 468,750
----------
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 $29.92, which represents a $2.08 (or 6.5%)
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.................................. $ 2.08
Total...................................... $ 5,433,646
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
----------------------------
No Exercise Full Exercise
------------- -------------
<S> <C> <C>
Per Share............................. $ 2.08 $ 2.08
Total................................. $ 7,566,354 $ 9,516,354
</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 $1.25 per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
86
<PAGE>
underwriters to certain other brokers or dealers at a discount of up to $0.10
per share from the initial public offering price. If all the shares are not sold
at the initial public offering price, 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.
87
<PAGE>
Neuberger Berman estimates that total expenses of the offerings, excluding
underwriting discounts and commissions, will be approximately $2,100,000.
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 12,668 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................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 39
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 October 31, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
