SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only as permitted by Rule
14a-6(e)(2))
Alliance Capital Management Holding L.P.
----------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Units
of Alliance Capital Management Holding L.P. ("Alliance Holding"), each
unit representing an assignment of a beneficial interest in a
corresponding limited partnership interest in Alliance Holding
(2) Aggregate number of securities to which transaction applies:
40,800,000
----------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$46.66. The price per unit was calculated pursuant to Exchange Act Rule
0-11, by taking the average of the high and low prices of the Alliance
Holding units as reported on the New York Stock Exchange on Friday, July
21, 2000.
(4) Proposed maximum aggregate value of transaction:
$1,903,728,000
-------------------------------------
(5) Total fee paid: $380,746
----------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:______________________________________________
(2) Form, schedule or registration statement no.:________________________
(3) Filing party:________________________________________________________
(4) Date filed:__________________________________________________________
Proxy Statement for Alliance Capital Management Holding L.P. Special Meeting
YOUR VOTE IS VERY IMPORTANT
Dear Alliance Holding Unitholder:
As previously announced, Alliance Capital Management L.P. ("Alliance
Capital") has agreed to acquire the business of Sanford C. Bernstein Inc. and
its subsidiaries (collectively, "Bernstein") for $1.4754 billion in cash and
40.8 million units of limited partnership interest of Alliance Capital.
Alliance Capital is a Delaware limited partnership in which Alliance Holding
currently owns approximately a 35.3% interest.
In connection with that acquisition, we are pleased to invite you to
attend a special meeting of unitholders of Alliance Capital Management Holding
L.P. ("Alliance Holding"), to be held on o, o, 2000, at o a.m., at 1345 Avenue
of the Americas, 41st Floor, New York, New York 10105.
At the special meeting, you will be asked to consider and vote on the
possible issuance from time to time of up to 40.8 million Alliance Holding
units in exchange for Alliance Capital units to be issued to Bernstein in
connection with the acquisition.
We will also ask you to consider and vote on the approval and adoption of
amendments to Alliance Holding's 1997 Long Term Incentive Plan (the "1997
Plan") providing for the increase by 25 million of the Alliance Holding units
authorized for issuance thereunder and the extension of the term of the 1997
Plan during which awards may be made to July 26, 2010.
The enclosed materials include notice of the special meeting, the proxy
statement (which describes in greater detail the business to be transacted at
the special meeting) and a voting instruction form for you to complete and
return to Alliance Holding.
I and the other members of the Board of Directors have voted to recommend
that Alliance Holding unitholders approve the issuance from time to time of
Alliance Holding units in exchange for Alliance Capital units and the
amendments to Alliance Holding's 1997 Plan. We urge you to vote in favor of
each proposal being presented.
It is important that your Alliance Holding units be represented at the
meeting whether or not you are able to attend in person. Accordingly, please
return the enclosed voting instruction form as soon as possible to ensure your
Alliance Holding units are represented at the special meeting. Alternatively,
you may either call the toll-free telephone number listed on the voting
instruction form or use the internet to vote by following the enclosed
instructions. If you do attend the special meeting, you may withdraw your
voting instruction should you wish to vote in person.
/s/ Dave H. Williams
---------------------------
Dave H. Williams
Chairman of the Board
Alliance Capital Management Corporation
We are first mailing this proxy statement and accompanying voting instruction
form to Alliance Holding unitholders on or about o, 2000.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
Time: o a.m., New York City time
Date: o, 2000
Place: Alliance Capital Management L.P.
1345 Avenue of the Americas
41(st) Floor
New York, New York 10105
Purpose:
o Vote on the possible issuance of up to 40.8 million units (subject to
adjustment, as described in the attached Proxy Statement) of Alliance
Capital Management Holding L.P. ("Alliance Holding") from time to time
in exchange for units of Alliance Capital Management L.P. ("Alliance
Capital") to be issued to Sanford C. Bernstein Inc. and its
subsidiaries (collectively, "Bernstein") in connection with the
acquisition by Alliance Capital of the Bernstein business.
o Vote on the approval and adoption of amendments to Alliance Holding's
1997 Long Term Incentive Plan providing for the increase by 25 million
(subject to adjustment, as described in the attached Proxy Statement)
of the Alliance Holding units authorized for issuance thereunder and
the extension of the term of the 1997 Long Term Incentive Plan during
which awards may be made to July 26, 2010.
o Conduct other business if properly raised.
You may revoke the voting instructions you submit at any time prior to the
vote at the special meeting. The general partner of Alliance Holding has set o,
2000 as the record date for determining the unitholders entitled to notice of
and to vote at the special meeting or any adjournments thereof. Only
unitholders of record at the close of business on o, 2000 will be entitled to
vote at the special meeting.
We invite all Alliance Holding unitholders to attend the special meeting
in person.
Your vote is very important. Whether or not you expect to attend, in order
to ensure that your interests are represented, please:
o sign, date and mail promptly the enclosed voting instruction form in
the enclosed envelope, OR
o call the toll-free telephone number listed on the voting instruction
form, OR
o use the internet to vote by following the instructions included with
the enclosed voting instruction form.
If you have any questions or need assistance in completing your voting
instructions, please contact o, the firm assisting us with the solicitation of
voting instructions, at o.
By Order of the General Partner
/s/ David R. Brewer, Jr.
------------------------------------------
David R. Brewer, Jr.
Senior Vice President, General Counsel and Secretary
Alliance Capital Management Corporation
New York, New York
o, 2000
TABLE OF CONTENTS
Page
----
SUMMARY......................................................................1
The Companies.............................................................1
Alliance Capital and Alliance Holding..................................1
Bernstein..............................................................1
Recommendation to Alliance Holding Unitholders............................1
Required Vote.............................................................2
The Acquisition by Alliance Capital of the Bernstein
Business...............................................................2
The Acquisition........................................................2
Other Aspects of the Acquisition.......................................2
Reasons for the Acquisition............................................3
Conditions to the Closing..............................................3
Material Federal Income Tax Consequences...............................3
Opinion of Financial Advisor...........................................3
Accounting Treatment...................................................3
Amendments to the 1997 Plan...............................................3
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF
BERNSTEIN.................................................................4
SUMMARY UNAUDITED PRO FORMA FINANCIAL
INFORMATION...............................................................5
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS..................................................................7
PURPOSE OF THIS PROXY STATEMENT..............................................8
PROPOSAL NO. 1 -- ISSUANCE OF ALLIANCE HOLDING UNITS IN CONNECTION WITH THE
ACQUISITION OF BERNSTEIN....................................................8
Reasons For Unitholder Vote...............................................8
Acquisition Overview......................................................9
Background of the Acquisition..........................................9
Terms of the Acquisition..............................................10
Reasons for the Acquisition...........................................12
Alliance Capital Senior Management Team...............................13
Factors Considered by, and Recommendation of, the General
Partner.............................................................13
Rights of Alliance Holding Unitholders................................15
Material Federal Income Tax Consequences..............................15
Regulatory Matters....................................................16
Accounting Treatment..................................................17
Selected Financial Data.....................................................18
Bernstein Selected Historical Consolidated
Financial Data........................................................18
Alliance Capital Selected Historical Consolidated Financial
Data..................................................................19
Alliance Holding Selected Historical Consolidated Financial
Data..................................................................21
Alliance Capital and Alliance Holding Selected Unaudited Pro
Forma Financial Data...................................................5
Capitalization..............................................................24
Alliance Capital and Alliance Holding Unaudited Pro Forma Condensed
Financial Statements.....................................................25
Alliance Capital Unaudited Pro Forma Condensed Statement of Financial
Condition ............................................................31
Alliance Capital Unaudited Pro Forma Condensed Statement of Income.......32
Alliance Holding Unaudited Pro Forma Condensed Statement of Financial
Condition ............................................................27
Alliance Holding Unaudited Pro Forma Condensed Statement of Income.......28
Notes to Unaudited Pro Forma Condensed Financial Statements..............35
Financial Advisers..........................................................37
The Blackstone Group.....................................................37
Salomon Smith Barney.....................................................43
Information Concerning Alliance Holding.....................................44
Bernstein Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................45
Introduction.............................................................45
Operating Environment....................................................45
Results of Operations....................................................45
Summary Operating Results................................................46
Net Revenues by Client Group.............................................47
Private Client...........................................................47
Institutional Asset Management...........................................49
Institutional Services...................................................50
Other Revenues (Net).....................................................51
Operating Expenses.......................................................51
Provision for Taxes......................................................53
Statement of Financial Condition.........................................53
Liquidity and Capital Resources..........................................53
Distribution Policy and Market for Bernstein Common
Stock.................................................................54
Recent Accounting Developments...........................................54
Regulated Subsidiaries...................................................54
The Bernstein Business......................................................55
Overview.................................................................55
Private Clients..........................................................55
Institutional Asset Management...........................................56
Institutional Services...................................................57
Bernstein's Disciplined Approach to
Investing.............................................................58
Competition..............................................................59
Regulation...............................................................59
Legal Matters............................................................60
Properties...............................................................60
Transaction Agreements......................................................61
The Acquisition Agreement................................................61
The Purchase and Sale.................................................61
Representations and Warranties........................................61
Certain Covenants.....................................................63
Conditions to the Closing of the Acquisition..........................67
Termination, Amendment and Waiver.....................................68
Summary of Bernstein's Liquidity Rights..................................69
Purchase Agreement....................................................69
Transfer Restrictions.................................................69
Limited Partnership Agreements........................................69
Registration Rights...................................................70
Adjustment in the Number of Alliance Holding
Units Issued on Exchange............................................70
Equity Issuance to AXA Financial......................................71
Board and Committee Representation....................................71
Employment Agreements.................................................71
Voting Agreements.....................................................72
PROPOSAL NO. 2 -- AMENDMENTS TO THE 1997 LONG TERM INCENTIVE
PLAN......................................................................74
The Alliance Holding 1997 Long Term Incentive
Plan..................................................................74
Alliance Holding Units Presently Authorized Under the 1997
Plan................................................................74
Material Features of the 1997 Plan....................................74
Eligible Participants.................................................75
Amendment to the 1997 Plan............................................75
Discussion of Certain Federal Income Tax
Consequences........................................................76
Executive Compensation...................................................78
Option Grants in 1999.................................................79
Aggregated Option Exercises in 1999 and 1999 Year-End Option
Values..............................................................80
Compensation Agreements with Certain Executive
Officers............................................................81
Certain Employee Benefit Plans........................................81
THE SPECIAL MEETING.........................................................83
Matters Relating to the Meeting.......................................83
Vote Required to Approve the Proposals................................84
Voting Instructions...................................................84
Other Business; Adjournments..........................................85
Solicitation of Voting Instruction Forms..............................85
No Appraisal Rights...................................................85
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................86
Principal Security Holders............................................86
Management............................................................86
WHERE YOU CAN FIND MORE
INFORMATION...............................................................91
FINANCIAL STATEMENTS SUPPLEMENT...........................................F-1
ANNEX A -- OPINION OF FINANCIAL ADVISER....................................A-1
SUMMARY
You should read the following summary together with the more detailed
information regarding Alliance Holding and Bernstein, the issuance of the
Alliance Holding units, the amendments to Alliance Holding 1997 Long Term
Incentive Plan and the financial statements and notes, all of which appear
elsewhere or are incorporated by reference in this proxy statement.
The Companies
Alliance Capital and Alliance Holding
Alliance Capital Management L.P. ("Alliance Capital") is one of the nation's
largest investment advisers, providing diversified investment management
services to institutional clients and high net worth individuals and, through
various opportunities for investment, to individual investors. At June 30,
2000, Alliance Capital had total client assets under management of
approximately $388 billion.
In October 1999, Alliance Capital Management Holding L.P. ("Alliance Holding")
reorganized by transferring its business to Alliance Capital, a newly formed
limited partnership, in exchange for all of Alliance Capital's units of limited
partnership interest. Since the reorganization, Alliance Capital has conducted
the diversified investment management services business formerly conducted by
Alliance Holding, and Alliance Holding's business activities have consisted of
holding Alliance Capital units and engaging in related activities. Alliance
Holding is a registered investment adviser under the Investment Company Act of
1940, and its units are publicly traded on the NYSE. Alliance Capital units do
not trade on any exchange and are subject to significant restrictions on
transfer that are designed to prevent Alliance Capital from being classified as
a publicly-traded partnership, and taxed as a corporation, for federal tax
purposes. As a publicly-traded partnership, Alliance Holding remains subject to
a 3.5% federal tax on its proportionate share of Alliance Capital's gross
business income, while Alliance Capital, a private partnership, is not subject
to the 3.5% federal tax. Alliance Capital Management Corporation, an indirect,
wholly owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable Life"), is the common general partner of Alliance Capital
and Alliance Holding.
At June 30, 2000, AXA Financial, Inc. ("AXA Financial") directly and indirectly
owned approximately 62.5% of the issued and outstanding Alliance Capital units
and approximately 2.1% of the issued and outstanding Alliance Holding units.
Bernstein
Sanford C. Bernstein Inc., together with its subsidiaries (collectively,
"Bernstein"), is a global investment research and investment management
company. At June 30, 2000, its total assets under management were approximately
$81.3 billion. Bernstein takes a disciplined, research-intensive approach to
investing in the global capital markets in order to deliver long-term
investment returns with controlled risk. Bernstein implements its investment
approach by creating and maintaining separate accounts over which it exercises
investment discretion that is tailored to the individual investment needs and
objectives of each of its clients through a broad array of investment products
and services. For a more detailed description of the Bernstein business, see
"The Bernstein Business" below.
Recommendation to Alliance Holding Unitholders
The general partner's board of directors recommends that Alliance Holding's
unitholders vote "FOR":
(1) the proposal to possibly issue from time to time up to 40.8 million
Alliance Holding units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights") in exchange for
Alliance Capital units to be issued to Bernstein in connection with
Alliance Capital's acquisition of the Bernstein business, and
(2) the proposed amendments to the 1997 Long Term Incentive Plan.
Required Vote
Pursuant to NYSE rules, the affirmative vote of a majority of the votes cast
at the special meeting is necessary to approve (1) the possible issuance from
time to time of up to 40.8 million Alliance Holding units (subject to
adjustment, as described in "Transaction Agreements - Summary of Bernstein's
Liquidity Rights") in exchange for Alliance Capital units to be issued to
Bernstein in connection with Alliance Capital's acquisition of the Bernstein
business and (2) the proposed amendments to the 1997 Long Term Incentive Plan.
For a more detailed description of the special meeting, the voting
requirements and the voting procedures, see "The Special Meeting" below.
The Acquisition by Alliance Capital of the Bernstein Business
The Acquisition
Pursuant to an acquisition agreement dated as of June 20, 2000 among Alliance
Capital, Alliance Holding, Bernstein and Bernstein Technologies Inc. ("BTI"), a
wholly owned subsidiary of Bernstein, Alliance Capital has agreed to acquire the
Bernstein business for $1.4754 billion in cash and 40.8 million Alliance Capital
units (subject to adjustment, as described in "Transaction Agreements-Summary of
Bernstein's Liquidity Rights"). For a more detailed description of the
acquisition and related transactions, see "Acquisition Overview" and
"Transaction Agreements - The Acquisition Agreement" below.
Other Aspects of the Transaction
Pursuant to the acquisition agreement and other related transaction agreements:
o Alliance Capital has agreed to adopt a deferred compensation plan pursuant
to which Alliance Capital will invest $96 million per annum for 3 years
from closing to be represented by phantom awards and/or to fund open
market purchases of Alliance Holding units or money market funds, in each
case for the benefit of certain Bernstein individuals who will be
employees of Alliance Capital after the closing (see "Transaction
Agreements -- The Acquisition Agreement -- Certain Covenants");
o Alliance Capital and AXA Financial have agreed to provide Bernstein
liquidity rights with respect to the Alliance Capital units Bernstein will
acquire as consideration for the acquisition, including a right to put up
to 20% of such Alliance Capital units to AXA Financial each year beginning
on the second anniversary and ending on the tenth anniversary of the
closing date and the option to exchange, subject to Bernstein's compliance
with the transfer restrictions set forth in Alliance Capital's limited
partnership agreement, such Alliance Capital units for Alliance Holding
units, and Alliance Holding has agreed to provide Bernstein with demand
registration rights (see "Transaction Agreements-- Summary of Bernstein's
Liquidity Rights");
o On June 21, 2000 AXA Financial purchased from Alliance Capital 32,619,775
newly issued Alliance Capital units for $1.6 billion, and Alliance Capital
will use the proceeds primarily to finance the cash portion of the
acquisition price (see "Transaction Agreements -- Equity Issuance to AXA
Financial");
o AXA Financial has agreed to cause Messrs. Lewis A. Sanders, Chairman and
Chief Executive Officer of Bernstein, and Roger Hertog, Bernstein's
President, to be elected to the general partner's board of directors (see
"Transaction Agreements -- Board and Committee Representation");
o Five top executives at Bernstein, including Messrs. Sanders and Hertog,
have each executed employment agreements with Alliance Capital, which will
become effective upon closing (see "Transaction Agreements -- Employment
Agreements");
o Bernstein and its principal shareholders have agreed to (1) not vote in
favor of the approval of any other proposal to acquire the Bernstein
business or any corporate action the consummation of which would prevent
or delay the consummation of the acquisition and related transactions and
(2) refrain from soliciting third party offers to acquire the Bernstein
business (see "Transaction Agreements -- Voting Agreements"); and
o On July 20, 2000, Bernstein's shareholders approved and adopted the
acquisition agreement and the transactions contemplated thereby by the
requisite vote.
2
Reasons for the Acquisition
Alliance Capital and Alliance Holding believe that the acquisition will, among
other things:
o Create one of the world's premier investment research organizations;
o Position Alliance Capital in the rapidly growing high net worth segment of
the asset management industry;
o Enable Alliance Capital to market research directly to a broad
cross-section of institutions around the world through Bernstein's
institutional services business;
o Create significant cross-selling opportunities;
o Increase long-term revenue and earnings growth;
o Protect Alliance Capital's earnings in an investment environment that is
hostile to Alliance Capital's growth-oriented investment style; and
o Provide accretion to Alliance Capital and Alliance Holding unitholders.
For a more detailed discussion, see "Acquisition Overview - Reasons for the
Acquisition" below.
Conditions to the Closing
The obligations of both Alliance Capital and Bernstein to close the
transactions contemplated by the acquisition agreement depends upon meeting a
number of conditions, including the following:
o the approval of Alliance Holding unitholders of Proposal No. 1;
o Alliance Capital's reasonable satisfaction that Bernstein has maintained
at least 75% of its client revenue base as of May 31, 2000; and
o receipt of regulatory approvals and consents from Bernstein's clients and
other third parties.
The parties are working to close the acquisition by the fourth quarter of
2000. For a more detailed description of the closing conditions, see
"Transaction Agreements - The Acquisition Agreement - Conditions to the
Closing of the Acquisition" below.
Material Federal Income Tax Consequences
The general partner believes, after consultation with outside counsel and its
review of outside counsel's tax opinion, that Alliance will not lose its status
as a "grandfathered" publicly traded partnership as a result of the acquisition
of the Bernstein business. Neither the issuance of Alliance Capital units
pursuant to the acquisition nor the issuance of Alliance Holding units in
exchange for Alliance Capital units issued to Bernstein will be a taxable event
to Alliance Capital, Alliance Holding or Alliance Holding unitholders. For a
more detailed discussion of the material federal income tax consequences of the
acquisition, see "Acquisition Overview - Material Federal Income Tax
Consequences."
Opinion of Financial Advisor
On June 20, 2000, The Blackstone Group L.P. delivered its oral and written
opinion to the board of directors of Alliance Capital Management Corporation,
the common general partner of Alliance Capital and Alliance Holding, to the
effect that the total consideration of $1.4754 billion in cash and 40.8 million
Alliance Capital units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights") to be paid by Alliance
Capital as consideration for its acquisition of the Bernstein business was fair
from a financial point of view to Alliance Capital.
The full text of the written opinion of Blackstone sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with the opinion. The opinion of Blackstone does not constitute a
recommendation to any unitholder of Alliance Holding as to how such unitholder
should vote at the special meeting.
The opinion of Blackstone dated June 20, 2000 is included in this proxy
statement as Annex A. We encourage you to read this opinion.
Accounting Treatment
Alliance Capital's acquisition of the Bernstein business will be accounted for
as a "purchase" for financial reporting and accounting purposes, in accordance
with generally accepted accounting principles. See "Acquisition Overview -
Accounting Treatment" below.
Amendments to the 1997 Plan
Alliance Holding proposes to amend the 1997 Long Term Incentive Plan by
increasing by 25 million (subject to adjustment, as described below in "The
Alliance Holding 1997 Long Term Incentive Plan -- Alliance Holding Units
Presently Authorized Under the 1997 Plan") the number of Alliance Holding units
authorized for issuance under the 1997 Plan and by extending the term during
which awards may be made to July 26, 2010. See "Proposal No. 2 - Amendments to
the 1997 Long Term Incentive Plan" below.
3
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF BERNSTEIN
The summary historical consolidated income statement data set forth below
have been derived from the consolidated financial statements and notes of
Bernstein. Bernstein's consolidated financial statements have been audited by
Ernst & Young LLP, independent accountants, as of December 31, 1999 and 1998
and for the years ended December 31, 1999, 1998 and 1997. These financial
statements are included elsewhere in this proxy statement, together with the
report thereon of Ernst & Young LLP. The summary historical consolidated income
statement data set forth below for the years ended December 31, 1996 and 1995
have been derived from Bernstein's audited financial statements that are not
included in this proxy statement. Bernstein's financial data for 1997 and prior
years are not consolidated because Bernstein operated during such periods
through one corporation.
The summary historical consolidated income statement data set forth below
for the three months ended March 31, 2000 and 1999 have been derived from
Bernstein's unaudited condensed consolidated financial statements that, in the
opinion of Bernstein's management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The interim
results set forth below for the three months ended March 31, 2000 may not be
indicative of results for the full year.
The summary consolidated financial data should be read in conjunction with
"Bernstein Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Alliance Capital and Alliance Holding Unaudited Pro
Forma Condensed Financial Statements" and the consolidated financial statements
of Bernstein and their notes.
For the
Three Months
Ended March 31, For the Years Ended December 31,
---------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(unaudited) (in thousands)
Income Statement Data:
Net revenues...................... $211,277 $206,781 $826,420 $770,639 $599,285 $452,009 $345,111
-------- -------- -------- -------- -------- -------- --------
Income before income taxes(1)..... 84,611 100,141 391,313 385,813 289,555 196,988 132,754
Income taxes(2)................... 3,646 4,206 19,188 20,250 21,945 14,954 10,714
-------- -------- -------- -------- -------- -------- --------
Net income........................ $80,965 $95,935 $372,125 $365,563 $267,610 $182,034 $122,040
======== ======== ======== ======== ======== ======== ========
- ---------
(1) As a "subchapter S" corporation, Bernstein distributed annually to its
shareholders, almost all of whom were and continue to be employees, a
substantial portion of its net income as a return on such shareholder's
investment in common stock of Bernstein. When these employee shareholders
become employees of Alliance Capital following the acquisition, Alliance
Capital will increase their compensation to a level greater than that
reflected in the historical compensation and benefits amounts. For
additional information concerning these increases, see "Acquisition
Overview -- Terms of the Acquisition" and "Alliance Capital and Alliance
Holding Unaudited Pro Forma Condensed Financial Statements."
(2) As a "subchapter S" corporation, Bernstein was not subject to federal
income taxes but was subject to certain state and local taxes.
4
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
Alliance Capital and Alliance Holding
Selected Unaudited Pro Forma Financial Data
We have set forth below selected unaudited pro forma financial data of
Alliance Capital and Alliance Holding for the three months ended March 31, 2000,
for the three months ended March 31, 1999 and for the year ended December 31,
1999. This pro forma data has been derived from the unaudited pro forma
condensed financial statements of Alliance Capital and Alliance Holding and
includes the assumptions described under "Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements".
This pro forma data reflects the effects of the reorganization and the
exchange offer (described under "Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements") as if such transactions
occurred on January 1, 1999 (for income statement purposes). Because the
reorganization and the exchange offer were effective as of October 29, 1999 and
are already reflected in the historical financial statements for Alliance
Capital and Alliance Holding as of and for the three months ended March 31,
2000, pro forma adjustments for these periods are not required.
In addition, this pro forma data reflects the effects of Alliance
Capital's proposed acquisition of the Bernstein business as if such transaction
occurred on March 31, 2000 (for statement of financial condition purposes) and
January 1, 1999 (for income statement purposes). This pro forma data does not
purport to represent what the financial position or results of operations of
Alliance Capital and Alliance Holding would actually have been if the
reorganization, the exchange offer and the acquisition of the Bernstein
business had occurred on these dates, or to be indicative of the future
financial position or results of operations of Alliance Capital and Alliance
Holding. You should read this pro forma data in conjunction with the
consolidated financial statements of Alliance Capital and Alliance Holding set
forth in their respective Form 10-Q for the quarter ended March 31, 2000 and
their respective Annual Report on Form 10-K for the year ended December 31,
1999, each of which are incorporated by reference into this proxy statement,
and with the information under "Alliance Capital and Alliance Holding Unaudited
Pro Forma Condensed Financial Statements".
Pro Forma Alliance Capital
Historical Alliance Capital After Bernstein Acquisition
-------------------------------------------------- -------------------------------------
For the Three Months For the Year For the Three Months For the Year
Ended Ended Ended Ended
March 31, December 31, March 31, December 31,
----------------------------------- ------------ -------------------- ------------
Alliance
Alliance Alliance Capital
Capital Holding Combined
2000 1999(1) 1999(1) 2000(3) 1999(2,3) 1999(2,3)
---------------- ---------------- --------- ------- --------- ---------
(unaudited) (in thousands, except for per unit data)
Income statement data:
Total revenues................. $548,406 $419,743 $1,869,305 $762,260 $626,524 $2,695,725
Income before income taxes..... 181,112 115,355 528,820 222,099 168,168 730,822
Net income..................... 171,150 98,054 461,649 199,426 146,297 640,869
Net income per unit:
Basic net income per unit...... $0.99 $0.57 $2.67 $0.81 $0.59 $2.59
======== ======== ========== ======== ======== ==========
Diluted net income per unit.... $0.95 $0.55 $2.59 $0.78 $0.58 $2.54
======== ======== ========== ======== ======== ==========
Basic weighted average units
outstanding..................... 171,469 170,561 171,155 244,889 243,981 244,575
======== ======== ========== ======== ======== ==========
Diluted weighted average units
outstanding..................... 178,860 175,591 176,308 252,280 249,011 249,728
======== ======== ========== ======== ======== ==========
Cash distributions per unit..... $0.815 $0.540 $2.550 $0.930 $0.730 $3.120
======== ======== ========== ======== ======== ==========
March 31, March 31,
2000 2000
---------- ----------
Balance sheet data:
Total assets................... $1,809,982 $7,630,896
Debt and long-term obligations. 553,618 649,618
Partners' capital.............. 530,452 3,992,852
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the operations of Alliance
Holding prior to the reorganization of its business effective October 29,
1999 and Alliance Capital thereafter.
(2) After reorganization and exchange offer pro forma adjustments.
(3) After Bernstein acquisition pro forma adjustments.
5
Pro Forma Alliance Holding
Historical Alliance Holding After Bernstein Acquisition
-------------------------------------------------- -------------------------------------
For the Three Months For the Year For the Three Months For the Year
Ended Ended Ended Ended
March 31, December 31, March 31, December 31,
----------------------------------- ------------ -------------------- ------------
Alliance Capital Alliance Holding
2000 1999(1) 1999(1) 2000(3) 1999(2,3) 1999(2,3)
---------------- ---------------- ------- ------- --------- ---------
(unaudited) (in thousands, except for per unit data)
(unaudited) (in thousands, except for per unit data)
Income statement data:
Equity in earnings of
Alliance Capital.............. $71,151 $ -- $52,665 $58,116 $42,006 $185,103
Total revenues................... 71,151 419,743 1,491,155 58,116 42,006 185,103
Income before income taxes....... 71,151 115,355 446,484 58,116 42,006 185,103
Net income....................... 65,926 98,054 382,842 52,953 37,659 166,798
Net income per unit:
Basic net income per unit........ $0.92 $0.57 $2.61 $0.74 $0.53 $2.34
======= ======= ========= ======= ======= =========
Diluted net income per unit...... $0.88 $0.55 $2.53 $0.71 $0.52 $2.29
======= ======= ========= ======= ======= =========
Basic weighted average
units outstanding............. 71,599 170,561 154,520 71,599 70,761 71,354
======= ======= ========= ======= ======= =========
Diluted weighted average
units outstanding............. 78,990 175,591 159,673 78,990 75,791 76,270
======= ======= ========= ======= ======= =========
Cash distributions per unit....... $0.74 $0.54 $2.49 $0.85 $0.66 $2.86
======= ======= ========= ======= ======= =========
March 31, March 31,
2000 2000
---------------- -------
Balance sheet data:
Total assets..................... $256,718 $256,718
Debt and long-term obligations... -- --
Partners' capital................ 249,003 249,003
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the consolidated operations of
Alliance Holding prior to the reorganization of its business effective
October 29, 1999 and the use of the equity method of reporting thereafter.
(2) After reorganization and exchange offer pro forma adjustments.
(3) After Bernstein acquisition pro forma adjustments.
6
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We believe that certain statements contained in this proxy statement under
"Summary", and "Proposal No. 1--Issuance of Alliance Holding Units in
Connection with the Acquisition of Bernstein", in addition to certain
statements contained elsewhere in this proxy statement or contained in
documents incorporated by reference herein, are forward-looking statements.
These forward-looking statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future
results expressed or implied by the forward-looking statements. Significant
risks include, but are not limited to, the following:
o the performance of financial markets,
o the investment performance of our sponsored investment products and
separately managed accounts,
o general economic conditions,
o failure to successfully integrate the Bernstein business,
o competitive conditions, and
o government regulations, including changes in tax rates.
We caution readers to carefully consider these risks.
7
PURPOSE OF THIS PROXY STATEMENT
We are furnishing this proxy statement and the accompanying notice of
special meeting and form of voting instruction form to you in connection with
the solicitation of voting instructions by the board of directors of Alliance
Capital Management Corporation, the common general partner of Alliance Capital
and Alliance Holding, for Alliance Holding units to be voted at the special
meeting of Alliance Holding unitholders to be held on [Day], [Date], 2000, and
any and all adjournments thereof.
At the special meeting, you will be asked to consider and vote upon
proposals to:
(1) approve the possible issuance of up to 40.8 million (subject to
adjustment, as described in "Transaction Agreements - Summary of
Bernstein's Liquidity Rights") Alliance Holding units from time to
time in exchange for Alliance Capital units to be issued to Bernstein
in connection with the acquisition by Alliance Capital of the
Bernstein business; and
(2) approve the amendments to Alliance Holding's 1997 Long Term Incentive
Plan providing for the increase by 25 million (subject to adjustment,
as described in "Proposal No. 2 - Amendment to the 1997 Long Term
Incentive Plan - The Alliance Holding 1997 Long Term Incentive Plan")
of the Alliance Holding units authorized for issuance thereunder and
the extension of the term of the 1997 Plan to July 26, 2010.
PROPOSAL NO. 1 -- ISSUANCE OF ALLIANCE HOLDING UNITS
IN CONNECTION WITH THE ACQUISITION OF BERNSTEIN
Pursuant to an acquisition agreement dated as of June 20, 2000 among
Alliance Capital, Alliance Holding, Bernstein and BTI, Alliance Capital has
agreed to acquire the Bernstein business for $1.4754 billion cash and 40.8
million Alliance Capital units (subject to adjustment, as described in
"Transaction Agreements-Summary of Bernstein's Liquidity Rights"). In
connection with the acquisition and pursuant to the terms and subject to the
conditions set forth in the acquisition agreement and the purchase agreement
dated as of June 20, 2000 among Alliance Capital, Bernstein and AXA Financial,
the indirect parent of the common general partner of Alliance Capital and
Alliance Holding, Alliance Capital has agreed to allow Bernstein to exchange
from time to time the Alliance Capital units Bernstein will receive as
acquisition consideration for Alliance Holding units. The exchanges could
result in the issuance of Alliance Holding units exceeding 20% of the total
number of Alliance Holding units currently outstanding.
Reasons For Unitholder Vote
It is the policy of the New York Stock Exchange, which lists the Alliance
Holding units, to require unitholder approval of a transaction if the present
or potential issuance of newly issued Alliance Holding units or securities
exchangeable or convertible into such Alliance Holding units could result in an
increase of 20% or more in the number of outstanding Alliance Holding units. As
of o, 2000, there were o Alliance Holding units outstanding. The number of
Alliance Holding units proposed possibly to be issued from time to time in
exchange for Alliance Capital units to be issued to Bernstein in connection
with Alliance Capital's acquisition of the Bernstein business is 40.8 million
(subject to adjustment, as described in "Transaction Agreements - Summary of
Bernstein's Liquidity Rights"), thereby representing, in the aggregate, a
number of Alliance Holding units in excess of 20% of the outstanding Alliance
Holding units.
Alliance Holding unitholders are being asked to approve the possible
issuance from time to time of up to 40.8 million (subject to adjustment, as
described in "Transaction Agreements - Summary of Bernstein's Liquidity
Rights") Alliance Holding units in connection with the transaction described
above. If the required vote is obtained and the proposal is adopted, we will
cause the Alliance Holding units issued from time to time in exchange for
Alliance Capital units to be listed on the NYSE.
8
The approval by Alliance Holding's unitholders of the possible issuance of
Alliance Holding units in connection with the exchange described above is a
condition to closing under the acquisition agreement. Failure by the Alliance
Holding unitholders to approve such issuance constitutes a ground for
termination of the acquisition agreement.
Acquisition Overview
Background of the Acquisition
A representative of Salomon Smith Barney, Inc. arranged a dinner on March
9, 2000 for Bruce W. Calvert, Vice Chairman and Chief Executive Officer of the
general partner, and Lewis A. Sanders, Chairman and Chief Executive Officer of
Bernstein, for an introductory conversation regarding a possible combination of
the two businesses. At the end of the dinner, Messrs. Calvert and Sanders
agreed that a combination of the two businesses might be beneficial and agreed
that additional conversations and meetings should take place.
On March 21, 2000, Mr. Calvert met with Roger Hertog, Bernstein's
President. Mr. Calvert again expressed an interest in a combination of the
Bernstein and Alliance Capital businesses.
On April 5, 2000, Messrs. Calvert, John D. Carifa, President and Chief
Operating Officer of the general partner, and Dave H. Williams, the Chairman of
the Board of the general partner's board of directors, met with Messrs. Sanders
and Hertog to continue preliminary discussions about a possible transaction.
The parties' discussion touched on the premium that both companies place on
research excellence and the strength of the research capabilities a combined
business would have, what each organization would contribute to the combination
in both the near- and longer-term, including areas where the organizations'
businesses are complementary, and the possible allocation of management
responsibilities and Board composition. Alliance Capital began evaluating the
Bernstein business and the potential for strategic benefits that could be
realized from a business combination.
On April 18, 2000, Messrs. Calvert, Carifa, Williams, Sanders and Hertog
again met to discuss the principal terms of a proposed acquisition, including
acquisition consideration and the financial and operating implications of a
combined organization.
In late April and early May, representatives of Alliance Capital and
Bernstein continued to meet informally to discuss a number of important aspects
of a possible acquisition, including structural issues, the terms and
conditions of compensation to be provided by Alliance Capital for the benefit
of eligible Bernstein employees who would become employees of Alliance Capital
upon consummation of the acquisition, the strategic advantages a combined
business would have in global markets and the investment performance a combined
business could achieve.
On May 11, 2000, the parties executed reciprocal confidentiality
agreements.
On May 16, 2000, representatives of both organizations, including
financial and legal advisors, met to discuss structural issues, the terms for
the proposed acquisition and the composition of the expected senior management
of the combined business.
Thereafter, Alliance Capital, AXA Financial, Bernstein and their advisors
met frequently to discuss the details of the acquisition and related
transactions, including structural issues, the amount and type of acquisition
consideration and issues related to the liquidity of the Alliance Capital units
that Bernstein would acquire at closing. During this time, the parties
continued conducting their documentary and management due diligence.
On June 9, 2000, Alliance Capital delivered a first draft of the
acquisition agreement to Bernstein and its advisors. In the following days, the
parties, including the estate of Zalman C. Bernstein, a Bernstein shareholder,
and AXA Financial, exchanged drafts and comments on the various transaction
agreements, and they and their advisors participated in meetings and telephone
conversations to negotiate the provisions of all transaction documents.
9
On June 20, 2000, at a special meeting of the board of directors of the
general partner, the entire board reviewed the proposed terms and conditions of
the acquisition and related transactions in conjunction with Alliance Capital's
management, Alliance Capital's financial advisors, The Blackstone Group L.P.,
Alliance Capital's legal advisors, Davis Polk & Wardwell, and representatives
of AXA Financial. The board considered the presentation by Alliance Capital's
management of the terms of the transaction, the financial and strategic
implications of the acquisition and the proposed financing of the cash portion
of the acquisition consideration and the comments of Davis Polk & Wardwell on
both the board's duties in approving the acquisition and the financing thereof
and the terms and conditions of the acquisition agreement and other transaction
agreements. In connection with this review, the board also received the opinion
of The Blackstone Group as to the fairness from a financial point of view of
the consideration offered to Bernstein for the Bernstein business. After due
consideration, the board approved the acquisition and related transactions and
authorized the general partner to submit to a vote of the Alliance Holding
unitholders the possible issuance from time to time of up to 40.8 million
Alliance Holding units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights") in exchange for an equal
number of Alliance Capital units to be issued to Bernstein upon closing. The
board also authorized the general partner to proceed with the acquisition and
related transactions.
On June 20, 2000, the parties executed definitive agreements in connection
with the acquisition and financing and issued a press release announcing the
acquisition, financing and related transactions.
On June 21, 2000, pursuant to the terms of the financing agreement dated
as of June 20, 2000 between Alliance Capital and AXA Financial, AXA Financial
purchased 32,619,775 newly issued Alliance Capital units for $1.6 billion. The
price per Alliance Capital unit was $49.05, calculated in accordance with
section 4.02(e) of the Alliance Capital limited partnership agreement based on
the five day average of the last reported sales price of an Alliance Holding
unit on the NYSE. Alliance Capital will use the proceeds primarily to finance
the cash portion of the acquisition price.
On July 20, 2000, Bernstein held a meeting of its shareholders at which
Bernstein's shareholders approved and adopted the acquisition agreement and the
transactions contemplated thereby by the requisite vote.
Terms of the Acquisition
In connection with the acquisition, the parties entered into the
acquisition agreement and other related transaction agreements. Pursuant to
these agreements:
o Alliance Capital has agreed to acquire the Bernstein business through
a series of transactions for a total value not to exceed $1.4754
billion in cash (plus any additional cash that may be paid under the
balance sheet purchase price adjustment) and 40.8 million Alliance
Capital units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights") (see
"Transaction Agreements -- The Acquisition Agreement");
o Alliance Capital has agreed to adopt a deferred compensation plan
pursuant to which Alliance Capital will invest $96 million per annum
for 3 years from closing to be represented by phantom awards and/or
to fund open market purchases of Alliance Holding units or money
market funds, in each case for the benefit of certain individuals who
are stockholders and principals of Bernstein as of the closing date
and their replacements, if any, and who will be employees of Alliance
Capital after the closing (see "Transaction Agreements -- The
Acquisition Agreement -- Certain Covenants");
o Alliance Capital has agreed to establish a committee consisting of
Messrs. Lewis A. Sanders, Chairman and Chief Executive Officer of
Bernstein, and Roger Hertog, Bernstein's President, and any other
Bernstein individuals nominated as provided in the acquisition
agreement, to make awards under such deferred compensation plan
referred to above (see "Transaction Agreements -- The Acquisition
Agreement -- Certain Covenants");
10
o Alliance Capital has agreed that the aggregate base cash compensation
(in addition to compensation paid under the deferred compensation
plan) for eligible Bernstein employees who were shareholders of
Bernstein as of the closing date will be $24.55 million for each of
the first three years from the closing date (representing
approximately a $2 million increase over such Bernstein employees'
2000 base cash compensation) (see "Transaction Agreements -- The
Acquisition Agreement -- Certain Covenants");
o Alliance Capital has agreed to establish, for each of the first three
years following the closing date, a $15 million incentive
compensation bonus pool for the exclusive benefit of specified
Bernstein employees who were participants in Bernstein's Principals'
Profit-Sharing Pool as of closing (Alliance Capital will not be
assuming any obligation Bernstein has under its Principals' Profit-
Sharing Pool) (see "Transaction Agreements -- The Acquisition
Agreement -- Certain Covenants");
o Alliance Capital has the right to not close the acquisition if
Bernstein fails to maintain at least 75% of its client revenue base
as of May 31, 2000 (see "Transaction Agreements -- The Acquisition
Agreement -- Conditions to the Closing of the Acquisition");
o The amount of cash and number of Alliance Capital units that
Bernstein will receive at the closing of the acquisition will be
reduced by up to 15% if Bernstein's client revenue base at closing
(including Bernstein clients that have consented to the acquisition
and excluding Bernstein clients that have not consented to the
acquisition) is less than 90% of Bernstein's client revenue base as
of May 31, 2000, excluding changes in market value subsequent to May
31, 2000;
o Alliance Capital and AXA Financial have agreed to provide Bernstein
specified liquidity rights with respect to the Alliance Capital units
Bernstein will acquire as consideration for the acquisition,
including a right, upon notice and subject to specified terms and
conditions, to put up to 20% of such Alliance Capital units to AXA
Financial each year beginning on the second anniversary and ending on
the tenth anniversary of the closing date and the option to exchange
each year, up to specified limits and subject to Bernstein's
compliance with the transfer restrictions set forth in Alliance
Capital's limited partnership agreement, such Alliance Capital units
for Alliance Holding units, and Alliance Holding has agreed to
provide Bernstein with demand registration rights (see "Transaction
Agreements -- Summary of Bernstein's Liquidity Rights");
o On June 21, 2000 AXA Financial purchased from Alliance Capital
32,619,775 newly issued Alliance Capital units for $1.6 billion, and
Alliance Capital will use the proceeds primarily to finance the cash
portion of the acquisition price (see "Transaction Agreements --
Equity Issuance to AXA Financial");
o Alliance Capital has agreed to appoint Messrs. Sanders and Hertog to
its Management Compensation Committee (see "Transaction Agreements --
Board and Committee Representation");
o AXA Financial has agreed to cause Messrs. Sanders and Hertog to be
elected to the general partner's board of directors (see "Transaction
Agreements -- Board and Committee Representation");
o Five top executives at Bernstein, including Messrs. Sanders and
Hertog, have agreed to specified terms and conditions of employment
with Alliance Capital after the closing (see "Transaction Agreements
-- Employment Agreements"); and
o On July 20, 2000, Bernstein held a meeting of its shareholders at
which its shareholders approved and adopted the acquisition agreement
and the transactions contemplated thereby by the requisite vote.
Bernstein and its principal shareholders have agreed to (1) not vote
in favor of the approval of any other proposal to acquire the
Bernstein business or any corporate action the consummation of which
would prevent or delay the consummation of the acquisition and
related transactions and (2) refrain from soliciting third party
offers to acquire the Bernstein business (see "Transaction Agreements
-- Voting Agreements").
11
Reasons for the Acquisition
Alliance Capital and Alliance Holding believe that the acquisition will:
o Create one of the world's premier investment research organizations.
Research excellence has long been the cornerstone of efforts to
provide superior performance for clients at both Alliance Capital and
Bernstein. The general partner believes the combined business will
have one of the premier equity and fixed income investment research
capabilities in the world, with 250 research analysts around the
globe.
o Enable Alliance Capital to gain global market share by expanding its
product line to include value offerings.
Enhanced research capability and greater product breadth - globally
recognized growth and value capabilities - will enable Alliance
Capital to compete effectively for virtually any investment
management assignment anywhere in the world. Alliance Capital is a
recognized leader in the growth style of investment, and Bernstein is
broadly recognized as one of the premier value-oriented investment
managers.
o Position Alliance Capital in the rapidly growing high net worth
segment of the asset management industry.
Bernstein has a strong position in high net worth asset management,
which will be greatly enhanced by the addition of Alliance Capital's
growth-oriented investment capabilities to that product array.
o Enable Alliance Capital to market research directly to a broad
cross-section of institutions around the world through Bernstein's
institutional services business.
o Create significant cross-selling opportunities.
In addition to adding Alliance Capital's growth-oriented investment
services to the Bernstein private client business, Alliance Capital
should be able to cross-sell Alliance Capital and Bernstein products
to the organizations' respective institutional clients. And, in a
value-oriented investment environment, Alliance Capital should be
able to sell Bernstein's products through its mutual fund
distribution channels.
o Enable the development of turnkey products for institutional and
retail clients desiring a complete investment service, including
growth and value (domestic and international, large cap and small
cap) and asset allocation.
o Increase long-term revenue and earnings growth as a result of the
above factors.
o Protect Alliance Capital's earnings in an investment environment that
is hostile to Alliance Capital's growth-oriented investment style.
A significant portion of Alliance Capital's revenues and earnings
derive from portfolios that are managed in a growth-oriented
investment style. In recent years, growth stocks have significantly
outperformed value stocks, creating a favorable climate for Alliance
Capital. For example, for the five-year period ending December 31,
1999, the Russell 1000 Growth index returned 32.4% per annum, while
the Russell 1000 Value index returned 23.1% per annum. Thus, in a
period where value outperforms growth, the Alliance-Bernstein
combination should have better growth characteristics than Alliance
Capital would alone.
12
o Provide accretion to Alliance Capital and Alliance Holding
unitholders
Based on the estimated financial results of the combined business,
although amortization of goodwill from the acquisition is expected to
result in dilution of approximately 11% to 13% to net earnings per
unit, the transaction is expected to be accretive to distributions
per unit by approximately 5% in 2001.
o Create a company that shares long-term organizational values.
Alliance Capital and Bernstein share a number of important long-term
organizational values, including an emphasis on high client
satisfaction and research excellence. Both companies also are wholly
dedicated to achieving high investment performance for their
respective clients, believe in and have a long history of providing
clarity of investment philosophy and process to clients and have
exceptional continuity of senior management and among key investment
professionals. Both organizations are also very aware and respectful
of each other's accomplishments.
Alliance Capital Senior Management Team
Following the acquisition, Alliance Capital will appoint a six-member
management executive committee to manage the combined business's day to day
activities. The executive committee will be comprised of Messrs. Calvert,
Carifa, Williams and Alfred Harrison, Vice Chairman of the general partner,
each from Alliance, and Messrs. Sanders and Hertog, each from Bernstein.
Messrs. Sanders and Hertog will be elected to the board of directors of
Alliance Capital's general partner at the closing of the acquisition.
Factors Considered by, and Recommendation of, the General Partner
The board of directors of the general partner held a meeting on June 20,
2000. After due consideration, the board approved the acquisition agreement,
the financing agreement, the other transaction agreements and the transactions
contemplated thereby and determined to recommend that Alliance Holding
unitholders vote for the approval of the possible issuance from time to time of
up to 40.8 million Alliance Holding units (subject to adjustment, as described
in "Transaction Agreements - Summary of Bernstein's Liquidity Rights") in
exchange for Alliance Capital units issued to Bernstein in connection with
Alliance Capital's acquisition of the Bernstein business.
In approving the acquisition agreement, the financing agreement, the other
transaction agreements and the transactions contemplated thereby and in making
its recommendation, the general partner consulted with Alliance Capital's
management as well as its outside legal counsel and tax and financial advisers,
and considered the following material factors:
o the reasons described above under "Reasons for the Acquisition";
o information concerning the business, assets, capital structure,
financial performance and condition and prospects of Alliance Capital
and Bernstein, focusing in particular on the quality and strength of
Bernstein's assets and the compatibility of the two organizations'
operations;
o the results of the due diligence review of Bernstein conducted by
Alliance Capital's management and its financial and legal advisors;
o the composition and strength of the expected senior management of the
combined business;
13
o the likelihood of the enhancement of the strategic position of the
combined business beyond that which Alliance Capital could achieve on
its own;
o the expected increases in cash flow and distributions per unit;
o the challenges of combining the businesses and cultures of two major
organizations of this size, the attendant risks of not achieving the
expected financial and operating benefits or improvement in
distributions per unit, the possible loss of institutional clients
due to overlap, the risk of not achieving the financial benefits of
the transaction in a market environment favorable to the growth style
of investing and the risk of diverting management focus and resources
from other strategic opportunities and from operational matters for
an extended period of time;
o the analyses and presentation of The Blackstone Group L.P., and the
oral and written opinion rendered by The Blackstone Group L.P. on June
20, 2000 that, as of that date, and based upon the considerations and
subject to the assumptions and limitations set forth in its opinion,
the consideration to be paid for the acquisition of the Bernstein
business is fair from a financial point of view to Alliance Capital
(see a description of The Blackstone Group L.P.'s opinion under the
heading "Financial Advisers--The Blackstone Group");
o the terms and conditions of the acquisition agreement, including the
amount and form of the consideration, the parties' representations
and warranties, covenants and agreements, the conditions to their
respective obligations, the size of the termination fee and the
circumstances in which it is payable and the ability of Bernstein to
negotiate with third parties that make acquisition proposals and to
accept superior proposals (see "Transaction Agreements -- The
Acquisition Agreement);
o the ability to finance the cash portion of the acquisition price
through a sale to AXA Financial of Alliance Capital units;
o the terms and conditions of the other transaction agreements,
including the transfer restrictions imposed on the Alliance Capital
units Bernstein is to acquire as consideration for the acquisition
(see "Transaction Agreements");
o the intended federal income tax consequences of the acquisition and
the related transactions; and
o the proposed election to the general partner's board of directors of
Messrs. Sanders and Hertog.
In view of the number and wide variety of factors considered in connection
with its evaluation of the acquisition and the complexity of these matters, the
general partner's board of directors did not find it practicable to, nor did it
attempt to, quantify, rank or otherwise assign relative weights to the specific
factors that it considered. In addition, the board of directors did not
undertake to make any specific determination as to whether any particular
factor was favorable or unfavorable to the board of directors' ultimate
determination or assign any particular weight to any factor, but conducted an
overall analysis of the factors described above, including through discussions
with and questioning of Alliance Capital's management and management's analysis
of the proposed acquisition based on information received from Alliance
Capital's legal, financial and tax advisors. In considering the factors
described above, individual members of the general partner's board of directors
may have given different weight to different factors. The general partner's
board of directors considered all these factors together and, on the whole,
considered them to be favorable to, and to support, its determination.
The general partner's board of directors recommends to Alliance Holding's
unitholders that they vote "FOR" the proposal to possibly issue from time to
time up to 40.8 million Alliance Holding units (subject to adjustment, as
described in "Transaction Agreements - Summary of Bernstein's Liquidity
Rights") in exchange for Alliance Capital units to be issued to Bernstein in
connection with Alliance Capital's acquisition of the Bernstein business.
14
Rights of Alliance Holding Unitholders
The issuance of Alliance Holding units in exchange for the Alliance
Capital units to be issued to Bernstein in connection with Alliance Capital's
acquisition of the Bernstein business will not affect the rights of existing
Alliance Holding unitholders. Any Alliance Holding units so issued will have
terms identical to those of then outstanding Alliance Holding units, other than
any special classes or series of limited partnership interests or units related
thereto which may be issued after the date hereof.
Material Federal Income Tax Consequences
Alliance Holding is currently a "grandfathered" publicly-traded partnership
for federal tax purposes. As a result of being "grandfathered", Alliance Holding
is subject to a 3.5% federal income tax on its gross business income, rather
than the 35% federal corporate tax on net income. It is the general partner's
intention to conduct the combined business after the closing of the acquisition
in such a manner as to assure that certain categories of income will not exceed
15% of Alliance Capital's gross revenues. Based on that intention, and its
consultation with outside counsel and review and that the value of certain
assets will not exceed 15% of the value of Alliance Capital's total assets of
outside counsel's tax opinion (which opinion is required pursuant to Alliance
Capital's limited partnership agreement), the general partner believes that
Alliance Holding will not lose its status as a "grandfathered" publicly traded
partnership, and thus will not become subject to federal corporate income tax,
as a result of the acquisition of the Bernstein business and the possible
issuance from time to time of Alliance Holding units in exchange for Alliance
Capital units to be issued to Bernstein at closing. However, no ruling has been
obtained from the Internal Revenue Service ("IRS") with respect to these
transactions, and there is no assurance that the IRS will agree.
The following discussion is based on the Internal Revenue Code, Treasury
regulations, judicial decisions and administrative rulings as of the date of
this proxy statement, all of which are subject to change, including changes
with retroactive effect, and assumes that Alliance Capital and Alliance Holding
are each treated as a partnership for federal income tax purposes. The
discussion addresses only beneficial owners of Alliance Holding units (referred
to in this section as "Alliance Holding Unitholders") who hold such Alliance
Holding units as capital assets. This discussion does not address any state,
local or foreign tax consequences.
You are urged to consult your own tax adviser concerning the particular
United States federal, state and local tax consequences to you, as well any
other tax consequences particular to you, of the transactions described herein
and of the continued ownership of Alliance Holding units.
Federal Tax Consequences to Alliance Capital, Alliance Holding and
Alliance Holding Unitholders of the Acquisition of the Bernstein Business.
Pursuant to the acquisition agreement and as described more fully above,
Bernstein will transfer certain assets representing Bernstein's business to
Alliance Capital and to a newly-created limited liability company wholly owned
by Alliance Capital. Bernstein will receive Alliance Capital units and cash.
This transaction will not be taxable to Alliance Capital, Alliance Holding or
the Alliance Holding Unitholders. The portion of Bernstein assets received in
exchange for Alliance Capital units will have a basis to Alliance Capital, in
the aggregate, equal to Bernstein's historic basis in those assets, and the
portion of Bernstein assets acquired for cash will have a basis, in the
aggregate, equal to such cash consideration.
The issuance of Alliance Capital units to AXA Financial pursuant to the
financing agreement between Alliance Capital and AXA Financial will not be a
taxable transaction to Alliance Capital, Alliance Holding or the Alliance
Holding Unitholders.
15
Federal Tax Consequences to Alliance Holding Unitholders of the Exercise
of Bernstein's Liquidity Rights
Neither the issuance by Alliance Holding of Alliance Holding units in
exchange for Alliance Capital units to be issued by Bernstein as acquisition
consideration nor the exercise of Bernstein's Put rights (as summarized in
"Transaction Agreements -- Summary of Bernstein's Liquidity Rights") will be a
taxable event to Alliance Capital, Alliance Holding or Alliance Holding
Unitholders.
Federal Tax Consequences of the Ownership of Alliance Holding Units
The tax consequences of holding an Alliance Holding unit after the
acquisition by Alliance Capital of the Bernstein business and after the
issuance of Alliance Holding units in exchange for Alliance Capital units to be
received by Bernstein as acquisition consideration will be identical to the tax
consequences of holding an Alliance Holding unit prior to such transactions.
The character of each item of Alliance Capital's income, gain, loss, deduction
and credit will flow through to Alliance Holding and, in turn, to you as a
holder of Alliance Holding units. Gain or loss that you recognize on a sale of
Alliance Holding units will generally be capital gain or loss and will be
long-term if your holding period for the Alliance Holding units was more than
one year on the date of the sale. However, to the extent that the proceeds from
your sale of Alliance Holding units are attributable to "unrealized
receivables" (including rights to payment for services rendered, as well as
certain other property or "inventory items"), you will recognize ordinary
income or loss on the sale. It is possible for you to have ordinary income in
respect of "unrealized receivables" or "inventory items" even though you
recognize an overall capital loss on a sale of Alliance Holding units. For this
purpose, the aggregate amortization deductions you have claimed with respect to
Alliance Holding's and Alliance Capital's intangible assets (including
intangibles acquired from Bernstein) will constitute "unrealized receivables".
Regulatory Matters
Antitrust Matters.
U.S. Antitrust. The acquisition of the Bernstein business by Alliance
Capital is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"). On o, 2000, Alliance
Capital and Bernstein each filed the required Notification and Report Forms
under the HSR Act with the Federal Trade Commission ("FTC") and the Antitrust
Division of the United States Department of Justice. Alliance Capital requested
early termination of the applicable waiting period under the HSR Act.
Notwithstanding the expiration of the waiting period relating to the
acquisition under the HSR Act, at any time before or after the completion of
the acquisition, either the Antitrust Division or the FTC could take any action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the acquisition.
Private parties and the state attorneys general may also bring actions under
the U.S. antitrust laws depending on the circumstances. Although Alliance
Capital and Bernstein believe that the acquisition is legal under the U.S.
antitrust laws, there can be no assurance that a challenge to the transaction
on antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful.
European Union. Both Alliance Capital and Bernstein conduct business in
England, a member state of the European Union. The European Union Merger
Regulation requires notification of and approval by the European Commission of
specific mergers or acquisitions involving parties with aggregate worldwide
sales and individual European Union sales exceeding given thresholds before the
mergers or acquisitions are implemented. If the thresholds under the European
Union Merger Regulations are not met, the United Kingdom merger control regime
under the Fair Trading Act 1973 may apply to the acquisition. Alliance Capital
and Bernstein are currently in the process of reviewing whether these or other
filings or approvals may be required or desirable under European Union
regulations or the Fair Trading Act 1973.
Other Laws. Alliance Capital and Bernstein conduct operations in
Australia, Canada and certain other countries where regulatory filings,
notifications or approvals with applicable commissions and other authorities
may be required or advisable in connection with completion of the merger.
Alliance Capital and Bernstein are currently in the process of reviewing
whether other filings or approvals may be required or desirable in these other
jurisdictions. See
16
"Transaction Agreements -- The Acquisition Agreement -- Conditions to the
Closing of the Acquisition".
Investment Advisory and Broker-Dealer Matters
Bernstein is an investment adviser subject to extensive regulation at both
the federal and state level. As a registered investment adviser under the
Investment Advisers Act of 1940, Bernstein is subject to regulations that cover
various aspects of the Bernstein business.
Under the Investment Advisers Act, every investment advisory agreement
between Bernstein and its clients must expressly provide that such agreement
may not be assigned by Bernstein without the client's consent. Under the
Investment Company Act of 1940 (the "Investment Company Act"), every investment
advisory agreement between Bernstein and its registered investment company
clients must provide for that agreement's automatic termination upon
assignment. Pursuant to rules adopted under each of these acts, a transaction
is an assignment if it results in a change of actual control or management of
an investment adviser. The acquisition of the Bernstein business by Alliance
Capital will be an assignment for purposes of both the Investment Advisers Act
and the Investment Company Act because the acquisition will cause a change of
control or management of an investment adviser. The acquisition will also
create an assignment under certain client agreements as a matter of state law.
Bernstein will, therefore, seek the consent of its clients with respect to the
acquisition. On July 20, 2000, the board of directors of Sanford C. Bernstein
Fund, Inc. approved new advisory agreements with Alliance Capital, each
substantially identical in form to the existing advisory agreements, to take
effect upon consummation of the acquisition. The shareholders of the Fund will
vote on the agreements on September 25, 2000. Bernstein has also initiated the
process of soliciting consents from its non-fund clients.
The acquisition of Bernstein's broker-dealer business is subject to the
prior approval of, among others, the NYSE, the National Association of
Securities Dealers, Inc. and certain states in which Sanford C. Bernstein &
Co., Inc. is registered as a broker-dealer. Filings are also required with
other self-regulatory organizations and clearing corporations of which Sanford
C. Bernstein & Co., Inc. is a member. Bernstein has initiated discussion
regarding the acquisition with most of these regulators.
Accounting Treatment
Alliance Capital's acquisition of the Bernstein business will be accounted
for as a "purchase" for financial reporting and accounting purposes, in
accordance with generally accepted accounting principles. After the closing
date, the results of operations of the Bernstein business will be included in
the consolidated financial statements of Alliance Capital. The purchase price
will be allocated based on the fair value of the assets acquired and the
liabilities assumed by Alliance Capital on the closing date. Any excess of the
purchase price over fair value of the tangible assets acquired and liabilities
assumed from Bernstein by Alliance Capital will be allocated to intangible
assets, including goodwill. Intangible assets will be amortized as expense over
an assumed period of twenty years on a straight-line basis. See "Summary
Unaudited Pro Forma Financial Information."
17
Selected Financial Data
Bernstein
Selected Historical Consolidated Financial Data
The selected historical consolidated income statement and balance sheet
data set forth below have been derived from the consolidated financial
statements and notes of Bernstein. Bernstein's consolidated financial
statements have been audited by Ernst & Young LLP, independent accountants, as
of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998
and 1997. These financial statements are included elsewhere in this proxy
statement, together with the report thereon of Ernst & Young LLP. The selected
historical consolidated income statement and balance sheet data set forth below
as of December 31, 1997, 1996 and 1995 and for the years ended December 31,
1996 and December 31, 1995 have been derived from Bernstein's financial
statements that are not included in this proxy statement. Bernstein's financial
data for 1997 and prior years are not consolidated because Bernstein operated
during such periods through one corporation.
The selected historical consolidated income statement and balance sheet
data set forth below as of and for the three months ended March 31, 2000 and
1999 been derived from Bernstein's unaudited condensed consolidated financial
statements that, in the opinion of Bernstein's management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. The interim results set forth below for the three months
ended March 31, 2000 may not be indicative of results for the full year.
The selected historical consolidated financial data should be read in
conjunction with "Bernstein Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements" and the consolidated
financial statements of Bernstein and their notes.
As of or for the
Three Months As of or for
Ended March 31, the Years Ended December 31,
--------------------- ------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(unaudited) (in thousands, except as otherwise indicated)
Income Statement Data:
Net revenues................. $211,277 $206,781 $826,420 $770,639 $599,285 $452,009 $345,111
-------- -------- -------- -------- -------- -------- --------
Income before income taxes(1) 84,611 100,141 391,313 385,813 289,555 196,988 132,754
Income taxes(2).............. 3,646 4,206 19,188 20,250 21,945 14,954 10,714
-------- -------- -------- -------- -------- -------- --------
Net income................... $80,965 $95,935 $372,125 $365,563 $267,610 $182,034 $122,040
======== ======== ======== ======== ======== ======== ========
Distributions to shareholders $72,882 $87,622 $467,500 $331,569 $243,507 $173,437 $116,599
Balance Sheet Data:
Total assets................. $2,525,844 $2,449,532 $2,494,518 $2,786,435 $1,977,720 $1,607,575 $1,105,673
Long-term borrowings......... 130,000 0 130,000 0 0 0 0
Total liabilities............ 2,487,859 2,315,754 2,464,373 2,660,477 1,886,781 1,540,440 1,047,384
Shareholders' equity......... 37,985 133,778 30,145 125,958 90,939 67,135 58,289
Total liabilities and
shareholders' equity....... $2,525,844 $2,449,532 $2,494,518 $2,786,435 $1,977,720 $1,607,575 $1,105,673
Assets Under Management
(in millions) (unaudited).... $84,856 $78,376 $89,614 $80,070 $71,109 $52,223 $38,505
- ---------
(1) As a "subchapter S" corporation, Bernstein distributed annually to its
shareholders, almost all of whom were and continue to be employees, a
substantial portion of its net income as a return on such shareholder's
investment in common stock of Bernstein. When these employee shareholders
become employees of Alliance Capital following the acquisition, Alliance
Capital will increase their compensation to a level greater than that
reflected in the historical compensation and benefits amounts. For
additional information concerning these increases, see "Acquisition
Overview -- Terms of the Acquisition" and "Alliance Capital and Alliance
Holding Unaudited Pro Forma Condensed Financial Statements".
(2) As a "subchapter S" corporation, Bernstein was not subject to federal
income taxes but was subject to certain state and local taxes.
18
Alliance Capital
Selected Historical Consolidated Financial Data
Effective as of October 29, 1999, Alliance Holding reorganized by
transferring its business to Alliance Capital, a newly formed limited
partnership, in exchange for all of Alliance Capital's units of limited
partnership interest. Following the reorganization, Alliance Capital recorded
the transferred assets and assumption of liabilities at the amounts reflected
in Alliance Holding's books and records on the date of transfer. Since the
reorganization, Alliance Capital has conduced the diversified investment
management services business formerly conducted by Alliance Holding, and
Alliance Holding's business activities have consisted of holding Alliance
Capital units and engaging in related activities. Alliance Holding is a
registered investment adviser under the Investment Company Act, and its units
are publicly traded on the New York Stock Exchange. Alliance Capital units do
not trade on any exchange and are subject to significant restrictions on
transfer that are designed to prevent Alliance Capital from being classified as
a publicly-traded partnership, and taxed as a corporation, for federal tax
purposes. As a publicly-traded partnership, Alliance Holding remains subject to
a 3.5% federal tax on its proportionate share of Alliance Capital's gross
business income, while Alliance Capital, a private partnership, is not subject
to the 3.5% federal tax.
As part of the reorganization, Alliance Holding offered each Alliance
Holding unitholder the opportunity to exchange Alliance Holding units for
Alliance Capital units on a one-for-one basis. As a result of this exchange
offer, Alliance Holding owned approximately 72.3 million, or approximately 42%,
of the issued and outstanding Alliance Capital units at December 31, 1999.
Subsequent to the reorganization and exchange offer, Alliance Holding's
principal sources of income and cash flow are attributable to its ownership of
Alliance Capital units.
We have set forth below selected summary consolidated historical financial
data of Alliance Capital and Alliance Holding as of and for the three months
ended March 31, 2000 and for the three months ended March 31, 1999,
respectively. The financial information for each of the years in the five-year
period ended December 31, 1999 reflects the operations of Alliance Holding prior
to the reorganization of its business effective October 29, 1999 and Alliance
Capital thereafter. This data should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements of Alliance Capital set
forth in its Form 10-Q for the quarterly period ended March 31, 2000 and in its
Annual Report on Form 10-K for the year ended December 31, 1999, which are
incorporated by reference into this proxy statement. Alliance Capital's
consolidated financial statements and notes should be read in conjunction with
the consolidated financial statements and notes of Alliance Holding set forth in
its Quarterly Report on Form 10-Q for the three months ended March 31, 2000 and
Annual Report on Form 10-K for the year ended December 31, 1999, which are
incorporated by reference into this proxy statement.
For the Three Months
Ended March 31, For the Years Ended December 31,
---------------------- ---------------------------------------------------------------
Historical
Alliance Alliance Combined Alliance
Capital Holding Alliance Capital(1) Holding(1)
2000 1999 1999 1998 1997 1996 1995
-------- -------- ---------------- ------ ---------- ------ ------
(unaudited) (in thousands, except for per unit data,
and unless otherwise indicated)
Income statement data:
Total revenues......................... $548,406 $419,743 $1,869,305 $1,324,056 $975,336 $788,517 $639,255
Income before income taxes............. 181,112 115,355 528,820 348,712 147,762 207,590 167,011
Net income............................. 171,150 98,054 461,649 292,916 128,956 193,346 155,387
Net income per unit(2,3):
Basic net income per unit.............. $0.99 $0.57 $2.67 $1.71 $0.76 $1.15 $0.95
======== ======== ========== ========== ======== ======== ========
Diluted net income per unit............ $0.95 $0.55 $2.59 $1.66 $0.74 $1.13 $0.94
======== ======== ========== ========== ======== ======== ========
Diluted net income per unit
excluding impact of performance fees.. $0.92 $0.47 $2.24 $1.53 $0.63 $1.07 $0.88
======== ======== ========== ========== ======== ======== ========
Diluted net income per unit before
reduction in value of intangible
assets(7)............................. $0.95 $0.55 $2.59 $1.66 $1.44 $1.13 $0.94
======== ======== ========== ========== ======== ======== ========
Diluted net income per unit
excluding impact of NAGIT(8).......... $0.82 $0.55 $2.59 $1.66 $0.74 $1.13 $0.94
======== ======== ========== ========== ======== ======== ========
Cash distributions per unit(2)(4)....... $0.815 $0.540 $2.550 $1.620 $1.400 $1.095 $0.910
======== ======== ========== ========== ======== ======== ========
March 31, 2000 December 31,
-------------- ---------------------------------------------------------
Balance sheet data: 1999 1998 1997 1996 1995
------ ------ ------ ------ -------
Total assets.................................... $1,809,982 $1,661,061 $1,132,592 $784,460 $725,897 $575,058
Debt and long-term obligations (5).............. 553,618 491,004 238,089 130,429 52,629 30,839
Partners' capital .............................. 530,452 552,667 430,273 398,051 476,020 406,709
Assets under management (in millions) (6)........ $394,246 $368,321 $286,659 $218,654 $182,792 $146,521
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the consolidated operations of
Alliance Holding prior to the reorganization of its business effective
October 29, 1999 and Alliance Capital thereafter.
(2) Alliance Holding unit and per Alliance Holding unit amounts for all
periods prior to the two-for-one Alliance Holding unit split in 1998 have
been restated.
(3) Net income per unit amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No.128,
Earnings per Share.
(4) Alliance Capital and Alliance Holding are required to distribute all of
their Available Cash Flow, as defined in the Alliance Capital and Alliance
Holding limited partnership agreements.
(5) Includes debt and non-current accrued expenses under employee benefit
plans.
(6) Assets under management exclude certain non-discretionary advisory
relationships and include 100% of the assets managed by unconsolidated
affiliates.
(7) 1997 includes $121 million to reduce the recorded value of goodwill and
contracts associated with the acquisition of assets and liabilities of
Cursitor Holdings, L.P. and the stock of Cursitor Holdings Limited.
(8) The period ended March 31, 2000 includes a $22.5 million non-cash gain
related to the settlement of the Alliance North American Government Income
Trust, Inc. ("NAGIT") litigation.
20
Alliance Holding
Selected Historical Consolidated Financial Data
Effective as of October 29, 1999, Alliance Holding reorganized by
transferring its business to Alliance Capital, a newly formed limited
partnership, in exchange for all of Alliance Capital's units of limited
partnership interest. Following the reorganization, Alliance Capital recorded
the transferred assets and assumption of liabilities at the amounts reflected
in Alliance Holding's books and records on the date of transfer. Since the
reorganization, Alliance Capital has conducted the diversified investment
management services business formerly conducted by Alliance Holding, and
Alliance Holding's business activities have consisted of holding Alliance
Capital units and engaging in related activities. Alliance Holding is a
registered investment adviser under the Investment Company Act, and its units
are publicly traded on the New York Stock Exchange. Alliance Capital units do
not trade on any exchange and are subject to significant restrictions on
transfer that are designed to prevent Alliance Capital from being classified as
a publicly-traded partnership, and taxed as a corporation, for federal tax
purposes. As a publicly-traded partnership, Alliance Holding remains subject to
a 3.5% federal tax on its proportionate share of Alliance Capital's gross
business income, while Alliance Capital, a private partnership, is not subject
to the 3.5% federal tax.
As part of the reorganization, Alliance Holding offered each Alliance
Holding unitholder the opportunity to exchange Alliance Holding units for
Alliance Capital units on a one-for-one basis. As a result of this exchange
offer, Alliance Holding owned approximately 72.3 million, or approximately 42%,
of the issued and outstanding Alliance Capital units at December 31, 1999.
Subsequent to the reorganization and exchange offer, Alliance Holding's
principal sources of income and cash flow are attributable to its ownership of
Alliance Capital units.
We have set forth below selected summary consolidated historical financial
data of Alliance Holding for the three months ended March 31, 2000, for the
three months ended March 31, 1999 and for each of the years in the five-year
period ended December 31, 1999. This data should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements of Alliance Holding set
forth in its Form 10-Q for the quarterly period ended March 31, 2000 and in its
Annual Report on Form 10-K for the year ended December 31, 1999, which are
incorporated by reference into this proxy statement. Alliance Holding's
consolidated financial statements and notes should be read in conjunction with
the consolidated financial statements and notes of Alliance Capital set forth in
its Quarterly Report on Form 10-Q for the three months ended March 31, 2000 and
Annual Report on Form 10-K for the year ended December 31, 1999, which are
incorporated by reference into this proxy statement.
21
For the Three Months
Ended March 31, For the Years Ended December 31,
---------------------- ----------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per unit data,
(unaudited) and unless otherwise indicated)
Income statement data:
Equity in earnings of Alliance Capital.. $71,151 $ -- $ 52,665 $ -- $ -- $ -- $ --
Total revenues.......................... 71,151 419,743 1,491,155 1,324,056 975,336 788,517 639,255
Income before income taxes.............. 71,151 115,355 446,484 348,712 147,762 207,590 167,011
Net income.............................. 65,926 98,054 382,842 292,916 128,956 193,346 155,387
Net income per Alliance Holding unit:(2,3)
Basic net income per unit............... $0.92 $0.57 $2.61 $1.71 $0.76 $1.15 $0.95
======== ======== ========= ========= ======== ======== ========
Diluted net income per unit............. $0.88 $0.55 $2.53 $1.66 $0.74 $1.13 $0.94
======== ======== ========= ========= ======== ======== ========
Diluted net income per unit excluding
impact of performance fees............ $0.85 $0.47 $2.20 $1.53 $0.63 $1.07 $0.88
======== ======== ========= ========= ======== ======== ========
Diluted net income per unit before
reduction in value of intangible
assets(7)............................. $0.88 $0.55 $2.53 $1.66 $1.44 $1.13 $0.94
======== ======== ========= ========= ======== ======== ========
Diluted net income per unit
excluding impact of NAGIT(8).......... $0.75 $0.55 $2.53 $1.66 $0.74 $1.13 $0.94
======== ======== ========= ========= ======== ======== ========
Cash distributions per Alliance
Holding unit(2)(4)...................... $0.740 $0.540 $2.490 $ 1.620 $1.400 $1.095 $0.910
======== ======== ========= ========= ======== ======== ========
March 31, 2000 For the Years Ended December 31,
------------------ ------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Balance sheet data:
Total assets............................ $256,718 $272,060 $1,132,592 $784,460 $725,897 $575,058
Debt and long-term obligations(5)....... -- -- 238,089 130,429 52,629 30,839
Partners' capital....................... 249,003 265,608 430,273 398,051 476,020 406,709
Assets under management (in millions)(6)... $ -- $ -- $ 286,659 $218,654 $182,792 $146,521
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the consolidated operations of
Alliance Holding prior to the reorganization of its business effective
October 29, 1999 and the use of the equity method of reporting thereafter.
(2) Alliance Holding unit and per Alliance Holding unit amounts for all
periods prior to the two-for-one Alliance Holding unit split in 1998 have
been restated.
(3) Net income per Alliance Holding unit amounts prior to 1997 have been
restated as required to comply with Statement of Financial Accounting
Standards No. 128, Earnings per Share.
(4) Alliance Holding is required to distribute all of its Available Cash Flow,
as defined in the Alliance Holding limited partnership agreement, to its
limited partners and unitholders.
(5) Includes debt and non-current accrued expenses under employee benefit
plans.
(6) Assets under management exclude certain non-discretionary advisory
relationships and include 100% of the assets managed by unconsolidated
affiliates.
(7) 1997 includes $121 million to reduce the recorded value of goodwill and
contracts associated with the acquisition of assets and liabilities of
Cursitor Holdings, L.P. and the stock of Cursitor Holdings Limited.
(8) The period ended March 31, 2000 includes a $0.13 per unit non-cash gain
related to the settlement of the Alliance North American Government Income
Trust, Inc. ("NAGIT") litigation.
22
Alliance Capital and Alliance Holding
Selected Unaudited Pro Forma Financial Data
We have set forth below selected unaudited pro forma financial data of
Alliance Capital and Alliance Holding as of and for the three months ended March
31, 2000, for the three months ended March 31, 1999 and for the year ended
December 31, 1999. This pro forma data has been derived from the unaudited pro
forma condensed financial statements of Alliance Capital and Alliance Holding
and includes the assumptions described under "Alliance Capital and Alliance
Holding Unaudited Pro Forma Condensed Financial Statements".
This pro forma data reflects the effects of the reorganization and the
exchange offer (described under "Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements") as if such transactions
occurred on January 1, 1999 (for income statement purposes). Because the
reorganization and the exchange offer were effective as of October 29, 1999 and
are already reflected in the historical financial statements for Alliance
Capital and Alliance Holding as of and for the three months ended March 31,
2000, pro forma adjustments for these periods are not required.
In addition, this pro forma data reflects the effects of Alliance
Capital's proposed acquisition of the Bernstein business as if such transaction
occurred on March 31, 2000 (for statement of financial condition purposes) and
January 1, 1999 (for income statement purposes). This pro forma data does not
purport to represent what the financial position or results of operations of
Alliance Capital and Alliance Holding would actually have been if the
reorganization, the exchange offer and the acquisition of the Bernstein
business had occurred on these dates, or to be indicative of the future
financial position or results of operations of Alliance Capital and Alliance
Holding. You should read this pro forma data in conjunction with the
consolidated financial statements of Alliance Capital and Alliance Holding set
forth in their respective Form 10-Q for the quarter ended March 31, 2000 and
their respective Annual Report on Form 10-K for the year ended December 31,
1999, each of which are incorporated by reference into this proxy statement,
and with the information under "Alliance Capital and Alliance Holding Unaudited
Pro Forma Condensed Financial Statements".
Pro Forma Alliance Capital
Historical Alliance Capital After Bernstein Acquisition
-------------------------------------------------- -------------------------------------
For the Three Months For the Year For the Three Months For the Year
Ended Ended Ended Ended
March 31, December 31, March 31, December 31,
----------------------------------- ------------ -------------------- ------------
Alliance
Alliance Alliance Capital
Capital Holding Combined
2000 1999(1) 1999(1) 2000(3) 1999(2,3) 1999(2,3)
---------------- ---------------- --------- ------- --------- ---------
(unaudited) (in thousands, except for per unit data)
Income statement data:
Total revenues................. $548,406 $419,743 $1,869,305 $762,260 $626,524 $2,695,725
Income before income taxes..... 181,112 115,355 528,820 222,099 168,168 730,822
Net income..................... 171,150 98,054 461,649 199,426 146,297 640,869
Net income per unit:
Basic net income per unit...... $0.99 $0.57 $2.67 $0.81 $0.59 $2.59
======== ======== ========== ======== ======== ==========
Diluted net income per unit.... $0.95 $0.55 $2.59 $0.78 $0.58 $2.54
======== ======== ========== ======== ======== ==========
Basic weighted average units
outstanding..................... 171,469 170,561 171,155 244,889 243,981 244,575
======== ======== ========== ======== ======== ==========
Diluted weighted average units
outstanding..................... 178,860 175,591 176,308 252,280 249,011 249,728
======== ======== ========== ======== ======== ==========
Cash distributions per unit..... $0.815 $0.540 $2.550 $0.930 $0.730 $3.120
======== ======== ========== ======== ======== ==========
March 31, March 31,
2000 2000
------------ -----------
Balance sheet data:
Total assets................... $1,809,982 $7,630,896
Debt and long-term obligations. 553,618 649,618
Partners' capital.............. 530,452 3,992,852
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the operations of Alliance
Holding prior to the reorganization of its business effective October 29,
1999 and Alliance Capital thereafter.
(2) After reorganization and exchange offer pro forma adjustments.
(3) After Bernstein acquisition pro forma adjustments.
23
Pro Forma Alliance Holding
Historical Alliance Holding After Bernstein Acquisition
-------------------------------------------------- -------------------------------------
For the Three Months For the Year For the Three Months For the Year
Ended Ended Ended Ended
March 31, December 31, March 31, December 31,
----------------------------------- ------------ -------------------- ------------
Alliance Capital Alliance Holding
2000 1999(1) 1999(1) 2000(3) 1999(2,3) 1999(2,3)
---------------- ---------------- ------- ------- --------- ---------
(unaudited) (in thousands, except for per unit data)
(unaudited) (in thousands, except for per unit data)
Income statement data:
Equity in earnings of
Alliance Capital.............. $71,151 $ -- $52,665 $58,116 $42,006 $185,103
Total revenues................... 71,151 419,743 1,491,155 58,116 42,006 185,103
Income before income taxes....... 71,151 115,355 446,484 58,116 42,006 185,103
Net income....................... 65,926 98,054 382,842 52,953 37,659 166,798
Net income per Alliance Holding unit:
Basic net income per unit........ $0.92 $0.57 $2.61 $0.74 $0.53 $2.34
======= ======= ========= ======= ======= =========
Diluted net income per unit...... $0.88 $0.55 $2.53 $0.71 $0.52 $2.29
======= ======= ========= ======= ======= =========
Basic weighted average
units outstanding............. 71,599 170,561 154,520 71,599 70,761 71,354
======= ======= ========= ======= ======= =========
Diluted weighted average
units outstanding............. 78,990 175,591 159,673 78,990 75,791 76,270
======= ======= ========= ======= ======= =========
Cash distributions per Alliance
Holding unit.................. $0.74 $0.54 $2.49 $0.85 $0.66 $2.86
======= ======= ========= ======= ======= =========
March 31, March 31,
2000 2000
---------------- -------
Balance sheet data:
Total assets..................... $256,718 $256,718
Debt and long-term obligations... -- --
Partners' capital................ 249,003 249,003
- ---------
(1) As discussed in Notes 1 and 2 to the consolidated financial statements,
the financial information above reflects the consolidated operations of
Alliance Holding prior to the reorganization of its business effective
October 29, 1999 and the use of the equity method of reporting thereafter.
(2) After reorganization and exchange offer pro forma adjustments.
(3) After Bernstein acquisition pro forma adjustments.
24
Capitalization
The following table sets forth the capitalization of Alliance Capital and
Alliance Holding on a historical basis, and the capitalization of Alliance
Capital and Alliance Holding on a pro forma basis, in each case as of March
31, 2000. The pro forma presentations reflect the effects of Alliance
Capital's proposed acquisition of the Bernstein business as if it were
completed on March 31, 2000. The pro forma adjustments and related
assumptions are described under "Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements".
March 31, 2000
----------------------------------------------------------
Alliance Capital Alliance Holding
------------------------- --------------------------
Historical Pro Forma Historical Pro Forma
---------- ----------- ---------- -----------
(in thousands)
Noncurrent liabilities:
Noncurrent portion of employee
compensation and benefits......... $121,002 $217,002 $ -- $ --
Noncurrent portion of debt........... 48,000 48,000 -- --
---------- ----------- ---------- -----------
Total noncurrent liabilities......... 169,002 265,002 -- --
Partners' capital....................... 530,452 3,992,852 249,003 249,003
Total capitalization................. $699,454 $4,257,854 $249,003 $249,003
========== =========== ========== ===========
25
Alliance Capital and Alliance Holding
Unaudited Pro Forma Condensed Financial Statements
Effective as of October 29, 1999, Alliance Holding reorganized by
transferring its business to Alliance Capital, a newly formed limited
partnership, in exchange for all of Alliance Capital's units of limited
partnership interest. Following the reorganization, Alliance Capital recorded
the transferred assets and assumption of liabilities at the amounts reflected
in Alliance Holding's books and records on the date of transfer. Since the
reorganization, Alliance Capital has conducted the diversified investment
management services business formerly conducted by Alliance Holding, and
Alliance Holding's business activities have consisted of holding Alliance
Capital units and engaging in related activities. Alliance Holding is a
registered investment adviser under the Investment Company Act, and its units
are publicly traded on the New York Stock Exchange. Alliance Capital units do
not trade on any exchange and are subject to significant restrictions on
transfer that are designed to prevent Alliance Capital from being classified as
a publicly-traded partnership, and taxed as a corporation, for federal tax
purposes. As a publicly-traded partnership, Alliance Holding remains subject to
a 3.5% federal tax on its proportionate share of Alliance Capital's gross
business income, while Alliance Capital, a private partnership, is not subject
to the 3.5% federal tax.
As part of the reorganization, Alliance Holding offered each Alliance
Holding unitholder the opportunity to exchange Alliance Holding units for
Alliance Capital units on a one-for-one basis. As a result of this exchange
offer, Alliance Holding owned approximately 72.3 million, or approximately 42%,
of the issued and outstanding Alliance Capital units at December 31, 1999.
Subsequent to the reorganization and exchange offer, Alliance Holding's
principal sources of income and cash flow are attributable to its ownership of
Alliance Capital units.
The following unaudited pro forma condensed consolidated financial
statements of Alliance Capital and Alliance Holding as of March 31, 2000 and
for the three months ended March 31, 2000 and 1999 and for the year ended
December 31, 1999, respectively, are derived from the consolidated financial
statements of Alliance Capital and Alliance Holding set forth in their
respective Annual Report on Form 10-K for the year ended December 31, 1999,
which are incorporated by reference into this proxy statement, and Bernstein's
consolidated financial statements, which are included in this proxy statement
beginning on page F-1. The Alliance Capital and Alliance Holding pro forma
financial statements reflect the effects of the reorganization of Alliance
Holding's business effective as of October 29, 1999 and the exchange offer
completed by Alliance Holding as of October 29, 1999 (each transaction
described herein) as if such transactions occurred on January 1, 1999 (for
income statement purposes). Because the reorganization and the exchange offer
were effective as of October 29, 1999 and are already reflected in the
historical financial statements for Alliance Capital and Alliance Holding as of
and for the three months ended March 31, 2000, pro forma adjustments for
these periods are not required.
In addition, the Alliance Capital and Alliance Holding pro forma financial
statements reflect the effects of Alliance Capital's proposed acquisition of
the Bernstein business as if such transaction occurred on March 31, 2000 (for
statement of financial condition purposes) and January 1, 1999 (for income
statement purposes). The pro forma financial statements do not purport to
represent what the financial position or results of operations of Alliance
Capital and Alliance Holding would actually have been if the acquisition, the
reorganization and the exchange offer had occurred on these dates, or to be
indicative of the future financial position or results of operations of
Alliance Capital and Alliance Holding. You should read these pro forma
financial statements and notes in conjunction with Alliance Capital's and
Alliance Holding's consolidated financial statements and notes.
Alliance Capital's consolidated financial statements and notes should be
read in conjunction with the consolidated financial statements and notes of
Alliance Holding and Alliance Holding consolidated financial statements and
notes should be read in conjunction with the consolidated financial statements
and notes of Alliance Capital set forth in their respective Quarterly Report on
Form 10-Q for the three months ended March 31, 2000 and Annual Report on Form
10-K for the year ended December 31, 1999, which are incorporated by reference
into this proxy statement.
Pursuant to the acquisition agreement, Alliance Capital has agreed to
acquire the Bernstein business through a series of transactions for a total
value not to exceed $1.4754 billion in cash (plus any additional cash that may
be paid under the balance sheet purchase price adjustment) and 40.8 million
Alliance Capital units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights").
In connection with the acquisition, Alliance Capital has agreed to adopt a
deferred compensation plan pursuant to which Alliance Capital will invest $96
million per annum for 3 years from closing to be represented by phantom awards
and/or to fund open market purchases of Alliance Holding units or money market
funds, in each case for the benefit of certain individuals who are stockholders
and principals of Bernstein as of the closing date and their replacements, if
any, and who will be employees of Alliance Capital after the closing. Alliance
Capital has also agreed that
26
the aggregate base cash compensation (in addition to compensation paid under the
deferred compensation plan) for eligible Bernstein employees who were
shareholders of Bernstein as of the closing date will be $24.55 million for each
of the first three years from the closing date (representing approximately a $2
million increase over such Bernstein employees' 2000 base cash compensation)
(see "Transaction Agreements -- The Acquisition Agreement -- Certain
Covenants"). Alliance Capital has agreed to establish, for each of the first
three years following the closing date, a $15 million incentive compensation
bonus pool for the exclusive benefit of specified Bernstein employees who were
participants in Bernstein's Principals' Profit-Sharing Pool as of closing
(Alliance Capital will not be assuming any obligation Bernstein has under its
Principals' Profit-Sharing Pool) (see "Transaction Agreements -- The
Acquisition Agreement -- Certain Covenants").
On June 21, 2000, pursuant to a financing agreement between AXA Financial
and Alliance Capital, AXA Financial purchased from Alliance Capital 32,619,775
newly issued Alliance Capital units for $1.6 billion. Alliance Capital will use
the proceeds primarily to finance the cash portion of the acquisition price.
Alliance Capital Management Corporation, an indirect wholly owned
subsidiary of AXA Financial, is the common general partner of both Alliance
Holding and Alliance Capital. AXA Financial is the beneficial owner of
approximately 2% of Alliance Holding's outstanding units and approximately 62%
of Alliance Capital's outstanding units which, including the general
partnership interests, equates to an economic interest of approximately 64% in
Alliance Capital at June 30, 2000.
The transaction will be accounted for under the purchase method of
accounting. The transaction is subject to the receipt of various regulatory
approvals, the maintenance of a minimum Bernstein client revenue base and the
affirmative vote of Alliance Holding unitholders, as described in this proxy
statement. On July 20, Bernstein received the requisite vote of its
shareholders approving and adopting the acquisition agreement and the
transaction contemplated thereby. The transaction is expected to close in the
fourth quarter 2000.
27
Alliance Capital
Unaudited Pro Forma Condensed Statement of Financial Condition
March 31, 2000
(in thousands, except per unit amounts)
Pro Forma
Alliance Capital
Historical Historical Pro Forma After Bernstein
Alliance Capital Bernstein (8) Adjustments Acquisition
---------------- ------------- ----------- ----------------
Assets:
Cash and cash equivalents.................... $82,984 $114,061 $124,600 (1,2) $321,645
United States Treasury Bills, at market
value (cost $956,868)...................... -- 966,769 (133,185) (2) 833,584
Receivables:
Brokers and dealers........................ 302,278 1,200,441 1,502,719
Clients.................................... -- 140,439 140,439
Fees....................................... 256,161 46,974 303,135
Investments, available-for-sale.............. 135,746 -- 135,746
Furniture, equipment and leasehold
improvements, net.......................... 140,016 33,019 173,035
Intangible assets, net....................... 98,600 -- 3,303,655 (2) 3,402,255
Deferred sales commissions, net.............. 671,143 -- 671,143
Other investments............................ 63,229 -- 63,229
Other assets................................. 59,825 24,141 83,966
---------- ---------- ---------- ----------
Total assets................................. $1,809,982 $2,525,844 $3,295,070 $7,630,896
========== ========== ========== ==========
Liabilities, Shareholders' Equity and
Partners' Capital:
Liabilities:
Payables:
Brokers and dealers...................... $ -- $751,844 $751,844
Clients.................................. -- 1,442,174 1,442,174
Alliance mutual funds.................... $361,479 -- 361,479
Accounts payable and accrued expenses...... 212,928 40,346 $28,150 (2) 281,424
Accrued compensation and benefits.......... 270,486 50,613 45,387 (2,4) 366,486
Payable to shareholders.................... 72,882 (72,882) (2)
Debt....................................... 432,616 130,000 (130,000) (2) 432,616
Minority interest in consolidated
subsidiaries............................. 2,021 -- 2,021
---------- ---------- ---------- ----------
Total liabilities........................ 1,279,530 2,487,859 (129,345) 3,638,044
---------- ---------- ---------- ----------
Shareholders' equity and partners' capital. 530,452 37,985 3,424,415 (1,2,4) 3,992,852
Total liabilities, shareholders' equity and
partners' capital............................ $1,809,982 $2,525,844 $3,295,070 $7,630,896
========== ========== ========== ==========
Book value per unit or share outstanding..... $3.04 $382.15 $46.18 $16.08
========== ========== ========== ==========
Units or shares outstanding.................. 172,484 99 73,420 (1,2) 245,904
========== ========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
28
Alliance Capital
Unaudited Pro Forma Condensed Statement of Income
For the Three Months Ended March 31, 2000
(in thousands, except per unit/share amounts)
Pro Forma
Alliance Capital
Historical Historical Pro Forma After Bernstein
Alliance Capital Bernstein (8) Adjustments Acquisition
---------------- ------------- ----------- ----------------
Revenues:
Investment advisory and services fees............ $374,190 $149,922 $ -- $524,112
Distribution revenues............................ 147,240 -- -- 147,240
Institutional services........................... -- 55,059 -- 55,059
Shareholder servicing fees....................... 19,358 -- -- 19,358
Other, net....................................... 7,618 6,296 2,577 (9) 16,491
-------- -------- -------- --------
548,406 211,277 2,577 762,260
-------- -------- -------- --------
Expenses:
Employee compensation and benefits............... 128,645 95,033 4,905 (5,6) 228,583
Promotion and servicing:
Distribution plan payments to financial
intermediaries............................... 113,902 -- -- 113,902
Amortization of deferred sales commissions..... 50,702 -- -- 50,702
Other.......................................... 33,947 9,544 -- 43,491
General and administrative....................... 48,854 22,089 -- 70,943
Interest......................................... 14,122 -- -- 14,122
Amortization of intangible assets................ 975 -- 41,296 (3) 42,271
Litigation adjustment, net....................... (23,853) -- -- (23,853)
-------- -------- -------- --------
367,294 126,666 46,201 540,161
-------- -------- -------- --------
Income (loss) before income taxes................. 181,112 84,611 (43,624) 222,099
Income taxes...................................... 9,962 3,646 9,065 (7) 22,673
-------- -------- -------- --------
Net income (loss)................................. $171,150 $80,965 $(52,689) $199,426
======== ======== ======== ========
Basic net income per unit/share................... $0.99 $814.54 $0.81
======== ======== ========
Diluted net income per unit/share................. $0.95 $814.54 $0.78
======== ======== ========
Basic weighted average units outstanding/shares... 171,469 99 73,420 (1,2) 244,889
======== ======== ======== ========
Diluted weighted average units outstanding/shares. 178,860 99 73,420 (1,2) 252,280
======== ======== ======== ========
Distributions..................................... $141,994 $72,882 $231,000
======== ======== ========
Distributions per unit/share...................... $0.815 $733.21 $0.930
======== ======== ========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
29
Alliance Capital
Unaudited Pro Forma Condensed Statement of Income
For the Three Months Ended March 31, 1999
(in thousands, except per unit/share amounts)
Pro Forma
Reorganization Alliance Capital Pro Forma
Historical and After Alliance
Combined Exchange Offer Reorganization Bernstein Capital After
Alliance Pro Forma and Exchange Historical Pro Forma Bernstein
Capital Adjustments(A) Offer Bernstein(8) Adjustments Acquisition
---------- -------------- ---------------- ---------- ----------- -------------
Revenues:
Investment advisory
and services fees............... $305,418 $ -- $305,418 $147,950 $ -- $453,368
Distribution revenues............. 93,612 -- 93,612 -- -- 93,612
Institutional services............ -- -- -- 53,589 -- 53,589
Shareholder servicing fees........ 13,297 -- 13,297 -- -- 13,297
Other, net........................ 7,416 -- 7,416 5,242 -- 12,658
-------- -------- -------- -------- -------- --------
419,743 -- 419,743 206,781 -- 626,524
-------- -------- -------- -------- -------- --------
Expenses:
Employee compensation
and benefits.................... 118,279 -- 118,279 80,696 6,032 (5,6) 205,007
Promotion and servicing:..........
Distribution plan payments to
financial intermediaries...... 77,825 -- 77,825 -- -- 77,825
Amortization of deferred
sales commissions............. 34,681 -- 34,681 -- -- 34,681
Other........................... 26,803 -- 26,803 7,334 -- 34,137
General and administrative........ 42,336 -- 42,336 18,610 -- 60,946
Interest.......................... 3,501 -- 3,501 -- -- 3,501
Amortization of intangible
assets.......................... 963 -- 963 -- 41,296 (3) 42,259
-------- -------- -------- -------- -------- --------
304,388 -- 304,388 106,640 47,328 458,356
-------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (benefit)................. 115,355 -- 115,355 100,141 (47,328) 168,168
Income taxes (benefit)............ 17,301 (10,075) (B) 7,226 4,206 10,439 (7) 21,871
-------- -------- -------- -------- -------- --------
Net income (loss)................. $98,054 $(10,075) $108,129 $95,935 $(57,767) $146,297
======== ======== ======== ======== ======== ========
Basic net income per unit........... $0.57 $0.63 $964.17 $0.59
======== ======== ======== ========
Diluted net income per unit......... $0.55 $0.61 $964.17 $0.58
======== ======== ======== ========
Basic weighted average units/
shares outstanding.................. 170,561 170,561 100 73,420 (1,2) 243,981
======== ======== ======== ======== ========
Diluted weighted average units/
shares outstanding.................. 175,591 175,591 100 73,420 (1,2) 249,011
======== ======== ======== ======== ========
Distributions....................... $93,316 $103,684 $87,622 $180,287
======== ======== ======== ========
Distributions per unit/share........ $0.54 $0.60 $880.14 $0.73
======== ======== ======== ========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
30
Alliance Capital
Unaudited Pro Forma Condensed Statement of Income
For the Year Ended December 31, 1999
(in thousands, except per unit/share amounts)
Pro Forma
Reorganization Alliance Capital Pro Forma
Historical and After Alliance
Combined Exchange Offer Reorganization Historical Bernstein Capital After
Alliance Pro Forma and Exchange Bernstein Pro Forma Bernstein
Capital Adjustments(A) Offer (8) Adjustments Acquisition
---------- -------------- ---------------- ---------- ----------- -------------
Revenues:
Investment advisory
and services fees............... $1,331,758 $ -- $1,331,758 $602,352 $ -- $1,934,110
Distribution revenues............. 441,772 -- 441,772 -- -- 441,772
Institutional services............ -- -- -- 198,412 -- 198,412
Shareholder servicing fees........ 62,332 -- 62,332 -- -- 62,332
Other, net........................ 33,443 -- 33,443 25,656 -- 59,099
---------- ---------- ---------- ---------- --------- ----------
1,869,305 -- 1,869,305 826,420 -- 2,695,725
---------- ---------- ---------- ---------- --------- ----------
Expenses:
Employee compensation
and benefits.................... 508,566 -- 508,566 324,578 24,127 (5,6) 857,271
Promotion and servicing:
Distribution plan payments to
financial intermediaries...... 338,676 -- 338,676 -- -- 338,676
Amortization of deferred
sales commissions............. 163,942 -- 163,942 -- -- 163,942
Other........................... 118,110 -- 118,110 32,825 -- 150,935
General and administrative........ 184,754 -- 184,754 77,704 -- 262,458
Interest.......................... 22,585 -- 22,585 -- -- 22,585
Amortization of intangible
assets.......................... 3,852 -- 3,852 -- 165,184 (3) 169,036
---------- ---------- ---------- ---------- --------- ----------
1,340,485 -- 1,340,485 435,107 189,311 1,964,903
---------- ---------- ---------- ---------- --------- ----------
Income (loss) before income
taxes (benefit)................. 528,820 -- 528,820 391,313 (189,311) 730,822
Income taxes (benefit)............ 67,171 (33,104) (B) 34,067 19,188 36,698 (7) 89,953
---------- ---------- ---------- ---------- --------- ----------
Net income (loss)................. $461,649 $(33,104) $494,753 $372,125 $(226,009) $640,869
========== ========== ========== ========== ========= ==========
Basic net income per unit/share..... $2.67 $2.86 $3,740 $2.59
========== ========== ========= ==========
Diluted net income per unit/share... $2.59 $2.78 $3,740 $2.54
========== ========== ========= ==========
Basic weighted average units/
shares outstanding................ 171,155 171,155 100 73,420 (1,2) 244,575
========== ========== ========== ========= ==========
Diluted weighted average units/
shares outstanding................ 176,308 176,308 100 73,420 (1,2) 249,728
========== ========== ========== ========= ==========
Distributions....................... $441,783 $474,887 $467,500 $764,204
========== ========== ========== ==========
Distributions per unit/share........ $2.550 $2.740 $4,698 $3.120
========== ========== ========= ==========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
31
Alliance Holding
Unaudited Pro Forma Condensed Statement of Financial Condition
March 31, 2000
(in thousands, except per unit amounts)
Pro Forma
Bernstein Alliance Holding
Historical Pro Forma After Bernstein
Alliance Holding Adjustments Acquisition
---------------- ----------- ----------------
Assets:
Fees receivable................................. $2,272 $ -- $2,272
Investment in Alliance Capital ................. 254,446 -- 254,446
--------- --------- ---------
Total assets.................................. $256,718 $ -- $256,718
========= ========= =========
Liabilities and Partners' Capital:
Liabilities:
Payable to Alliance Capital..................... $1,823 $ -- $1,823
Accounts payable and accrued expenses........... 5,892 5,892
--------- --------- ---------
Total liabilities............................. 7,715 -- 7,715
--------- --------- ---------
Partners' capital................................ 249,003 -- 249,003
--------- --------- ---------
Total liabilities and partners' capital.......... $256,718 $ -- $256,718
========= ========= =========
Book value per unit outstanding.................. $3.45 $ -- $3.45
========= ========= =========
Units outstanding................................ 72,095 -- 72,095
========= ========= =========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
32
Alliance Holding
Unaudited Pro Forma Condensed Statement of Income
For the Three Months Ended March 31, 2000
(in thousands, except per unit amounts)
Pro Forma
Bernstein Alliance Holding
Historical Pro Forma After Bernstein
Alliance Holding Adjustments Acquisition
---------------- ----------- ----------------
Revenues:
Equity in earnings of Alliance Capital......... $71,151 $(13,035) (10) $58,116
Expenses:....................................... -- -- --
-------- -------- --------
Income (loss) before income taxes (benefit)... 71,151 (13,035) 58,116
Income taxes (benefit).......................... 5,225 (62) (11) 5,163
-------- -------- --------
Net income (loss)............................... $65,926 $(12,973) $52,979
======== ======== ========
Basic net income per unit....................... $0.92 $0.74
======== ========
Diluted net income per unit..................... $0.88 $0.71
======== ========
Basic weighted average units outstanding........ 71,599 71,599
======== ========
Diluted weighted average units outstanding...... 78,990 78,990
======== ========
Distributions................................... $53,511 $61,281
======== ========
Distributions per unit.......................... $0.74 $0.85
======== ========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
33
Alliance Holding
Unaudited Pro Forma Condensed Statement of Income
For the Three Months Ended March 31, 1999
(in thousands, except per unit amounts)
Pro Forma
Reorganization Alliance Pro Forma
and Holding After Alliance
Historical Exchange Offer Reorganization Bernstein Holding After
Alliance Pro Forma and Exchange Pro Forma Bernstein
Holding Adjustments (A) Offer Adjustments Acqusition
---------- --------------- -------------- ----------- -------------
Revenues:
Equity in earnings of Alliance Capital..... $ -- $44,418 (Ci) $44,418 $(2,412) (10) $42,006
Investment advisory and services fees...... 305,418 (305,418) -- -- --
Distribution revenues...................... 93,612 (93,612) -- -- --
Shareholder servicing fees................. 13,297 (13,297) -- -- --
Other, net................................. --
7,416 (7,416) --
--------- --------- --------- --------- ---------
419,743 (375,325) 44,418 (2,412) 42,006
--------- --------- --------- --------- ---------
Expenses:
Employee compensation and benefits......... 118,279 (118,279) -- -- --
Promotion and servicing: -- -- --
Distribution plan payments to
financial intermediaries................ 77,825 (77,825) -- -- --
Amortization of deferred sales
commissions............................. 34,681 (34,681) -- -- --
Other..................................... 26,803 (26,803) -- -- --
General and administrative................. 42,336 (42,336) -- -- --
Interest................................... 3,501 (3,501) -- -- --
Amortization of intangible assets.......... 963 (963) -- -- --
--------- --------- --------- --------- ---------
304,388 (304,388) -- -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes (benefit). 115,355 (70,937) 44,418 (2,412) 42,006
Income taxes (benefit)...................... 17,301 (17,301) 4,139 208 (11) 4,347
4,139 (Cii)
--------- --------- --------- --------- ---------
Net income (loss)........................... $98,054 $(57,775) $40,279 $(2,620) $37,659
========= ========= ========= ========= =========
Basic net income per unit................... $0.57 $0.57 $0.53
========= ========= =========
Diluted net income per unit................. $0.55 $0.55 $0.52
========= ========= =========
Basic weighted average units outstanding.... 170,561 70,761 70,761
========= ========= =========
Diluted weighted average units outstanding.. 175,591 75,791 75,791
========= ========= =========
Distributions............................... $93,316 $38,277 $46,784
========= ========= =========
Distributions per unit...................... $0.54 $0.54 $0.66
========= ========= =========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
34
Alliance Holding
Unaudited Pro Forma Condensed Statement of Income
For the Year Ended December 31, 1999
(in thousands, except per unit amounts)
Pro Forma
Reorganization Alliance Pro Forma
and Holding After Alliance
Historical Exchange Offer Reorganization Bernstein Holding After
Alliance Pro Forma and Exchange Pro Forma Bernstein
Holding Adjustments (A) Offer Adjustments Acqusition
---------- --------------- -------------- ----------- -------------
Revenues:
Equity in earnings of Alliance
Capital............................... $ 52,665 $ 151,673 (Ci) $204,338 $(19,235) (10) $185,103
Investment advisory and services
fees.................................. 1,007,503 (1,007,503) -- -- --
Distribution revenues................... 354,161 (354,161) -- -- --
Shareholder servicing fees.............. 50,696 (50,696) -- -- --
Other, net.............................. 26,130 (26,130) -- -- --
---------- ---------- ---------- ---------- ----------
1,491,155 (1,286,817) 204,338 (19,235) 185,103
---------- ---------- ---------- ---------- ----------
Expenses:
Employee compensation and
benefits.............................. 370,795 (370,795) -- -- --
Promotion and servicing: -- --
Distribution plan payments to
financial intermediaries............. 274,920 (274,920) -- -- --
Amortization of deferred sales
commissions.......................... 132,713 (132,713) -- -- --
Other................................. 94,934 (94,934) -- -- --
General and administrative.............. 151,369 (151,369) -- -- --
Interest................................ 16,729 (16,729) -- -- --
Amortization of intangible assets....... 3,211 (3,211) -- -- --
---------- ---------- ---------- ---------- ----------
1,044,671 (1,044,671) -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
(benefit)................................ 446,484 (242,146) 204,338 (19,235) 185,103
Income taxes (benefit)................... 63,642 (59,029) 18,218 87 (11) 18,305
13,605 (Cii)
---------- ---------- ---------- ---------- ----------
Net income (loss)........................ $382,842 $(196,722) $186,120 $(19,322) $166,798
========== ========== ========== ========== ==========
Basic net income per unit................ $2.61 $2.61 $2.34
========== ========== ==========
Diluted net income per unit.............. $2.53 $2.53 $2.29
========== ========== ==========
Basic weighted average units outstanding. 154,520 71,354 71,354
========== ========== ==========
Diluted weighted average units
outstanding.............................. 159,673 76,270 76,270
========== ========== ==========
Distributions............................ $345,443 $177,672 $204,073
========== ========== ==========
Distributions per unit................... $2.49 $2.49 $2.86
========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Financial Statements.
35
Notes to Unaudited Pro Forma Condensed Financial Statements
Reorganization and Exchange Offer
(A) To reflect the transfer of the business of Alliance Holding to
Alliance Capital in exchange for all of the units and the general
partnership interest in Alliance Capital. Alliance Capital recorded
the transferred assets and liabilities at the amounts reflected in
Alliance Holding's books and records on the date of transfer.
Excluded from the transfer from Alliance Holding to Alliance Capital
is the liability for the federal tax on Alliance Holding's gross
business income.
(B) To reflect Alliance Capital as a private partnership that is not
subject to a federal tax of 3.5% on partnership gross business income
of $10,075,000 and $33,104,000 for the three months ended March
31, 1999 and ten months ended October 31, 1999, respectively.
(C) Pro forma adjustments to the Alliance Holding statement of income
consist of the following:
(i) To record Alliance Holding's share in the net income of Alliance
Capital accounted for under the equity method. Alliance
Holding's equity in earnings of Alliance Capital equates to the
pro forma net income of Alliance Capital less the general
partner's 1% interest multiplied by Alliance Holding's ownership
share of 30.54% for the year ended December 31, 1999.
(ii) To record the 3.5% federal tax on Alliance Holding's pro rata
share of Alliance Capital's gross business income.
Bernstein Acquisition -- Alliance Capital
(1) To record the issuance of 32,619,775 Alliance Capital units to AXA
Financial for $1.6 billion in cash.
(2) As consideration for its acquisition of the Bernstein business,
Alliance Capital has agreed to pay Bernstein $1.4754 billion in cash
(plus any additional cash that may be paid under the balance sheet
purchase price adjustment) and 40.8 million (subject to adjustment as
described in "Transaction Agreements - Summary of Bernstein's
Liquidity Rights") Alliance Capital units with an aggregate value of
$1.9584 billion (based on assumed per unit price of $48). The purchase
price will be allocated based on the fair value, approximately
$160,145,000, of the assets acquired and the liabilities assumed by
Alliance Capital on the closing date, with the difference recorded as
intangible assets. In addition, certain transaction costs are assumed
to be $30 million. Certain assets and liabilities are being retained
by Sanford C. Bernstein Inc.
(3) To record the amortization of intangible assets associated with the
Bernstein acquisition. The estimated useful life of intangible assets
is assumed to be 20 years.
(4) To record a $96 million liability for amounts to be awarded to
certain Bernstein employees and their replacements, if any, in
connection with the initial award under the deferred compensation
plan. The vesting schedule is one-third annually thereafter for each
award, subject to certain acceleration events.
(5) To record the vesting on the deferred compensation plan awards, $32
million annually, according to the terms of the vesting schedule and
incentive compensation to be awarded, $15 million annually for three
year period, to certain Bernstein employees under incentive
compensation plan.
(6) To record the incremental effect on employee compensation for
employment agreements entered into by certain Bernstein employees and
the elimination of Bernstein's Principals' Profit-Sharing Pool:
(a) For employee agreements, approximately $1.0 million, $1.5
million and $6.1 million for the three months ended March 31,
2000 and 1999 and for the year ended December 31, 1999,
respectively.
(b) For Bernstein's Principals' Profit-Sharing Pool, reduced by
approximately $7.9 million, $7.2 million and $28.9 million for
the three months ended March 31, 2000 and 1999 and for the year
ended December 31, 1999, respectively.
36
(7) To record the income tax effect of pro forma adjustments and the
application of federal and incremental state and local income taxes to
Bernstein since Bernstein will no longer be taxed as a "subchapter S"
corporation. The effective tax rates are assumed to be 10.2%, 13.0%
and 12.3% for the three months ended March 31, 2000 and 1999 and the
year ended December 31, 1999, respectively, for pro forma Alliance
Capital after the Bernstein acquisition.
(8) Certain amounts in the Bernstein consolidated financial statements
presented beginning on page F-1 have been reclassified to conform
with Alliance Capital's presentation.
(9) To record elimination of interest expense on the $130 million notes
payable to shareholders being retained by Bernstein.
Bernstein Acquisition -- Alliance Holding
(10) To record the pro forma effect on equity in earnings of Alliance
Holding's interest in Alliance Capital as a result of the Bernstein
acquisition. The pro forma effect includes the effect of the
reduction in Alliance Holding's ownership share in Alliance Capital
due to the issuance of Alliance Capital units to AXA Financial and
Bernstein. Alliance Holding's ownership in Alliance Capital will be
reduced from 41.99% to 29.44%, from 41.49% to 29.00% and from 41.77%
to 29.17% for the three months ended March 31, 2000 and 1999 and for
the year ended December 31, 1999, respectively.
(11) To record the 3.5% federal tax on Alliance Holding's pro rata share
of Alliance Capital's incremental gross business income resulting
from the Bernstein acquisition, excluding certain brokerage revenue.
This entry also reflects the combined effect of the reduction in
Alliance Holding's ownership share in Alliance Capital, as well as
Alliance Holding's share of the 3.5% federal tax on Bernstein's gross
business income.
37
Financial Advisers
The Blackstone Group
On June 20, 2000, The Blackstone Group L.P. ("Blackstone") delivered its
oral and written opinion to the board of directors of Alliance Capital
Management Corporation, the common general partner of Alliance Holding and
Alliance Capital, to the effect that, as of that date, and based upon the
assumptions made, matters considered and limits of review set forth, the total
consideration of $1.4754 billion in cash and 40.8 million Alliance Capital
units (subject to adjustment, as described in "Transaction Agreements - Summary
of Bernstein's Liquidity Rights") to be paid by Alliance Capital as
consideration for its acquisition of the Bernstein business (the "Transaction")
was fair from a financial point of view to Alliance Capital. References in this
proxy statement to the "Blackstone Opinion" refer to Blackstone's written
opinion as of June 20, 2000.
The full text of the Blackstone Opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken in rendering
such opinion, is attached as Exhibit A to this proxy statement. The summary of
the Blackstone Opinion set forth in this proxy statement is qualified in its
entirety by reference to such full text. Alliance Holding unitholders are urged
to, and should, read the Blackstone Opinion in its entirety.
The Blackstone Opinion is intended for the use and benefit of the general
partner's board of directors, is directed only to the fairness from a financial
point of view of the consideration to be paid by Alliance Capital, does not
address the merits of the underlying decision by Alliance Capital to engage in
the transaction and does not constitute a recommendation to any unitholder of
Alliance Holding as to how any such unitholder should vote at the special
meeting. The consideration to be paid by Alliance Capital for its acquisition
of the Bernstein business has been determined on the basis of negotiations
between Alliance Capital and Bernstein and has been approved by the general
partner's board of directors and the general partner.
In arriving at its opinion, Blackstone:
(1) Reviewed certain publicly available information concerning the
business, financial condition and operations of Alliance
Capital;
(2) Reviewed certain internal information concerning the business,
financial condition and operations of Alliance Capital and
Bernstein;
(3) Reviewed certain internal financial analyses relating to
Alliance Capital and Bernstein prepared by, and furnished to
Blackstone by, the respective managements of Alliance Capital
and Bernstein;
(4) Reviewed certain estimates and forecasts relating to Alliance
Capital and Bernstein prepared by, and furnished to Blackstone
by, the management of Alliance Capital, which such estimates and
forecasts to the extent related to Bernstein, Blackstone was
informed by Alliance Capital were based on data prepared by the
management of Bernstein;
(5) Reviewed financial statements prepared in accordance with
generally accepted accounting principles for Bernstein for the
fiscal years ended December 31, 1997, 1998 and 1999;
(6) Reviewed the draft Registration Statement on Form S-1 of
Bernstein dated October 4, 1999;
(7) Held discussions with members of management of Alliance Capital
and Bernstein concerning their business, operating environment,
financial condition, prospects and strategic objectives;
(8) Compared certain financial information for Bernstein with
similar information for other asset management and brokerage
companies the securities of which are publicly traded;
(9) Reviewed the financial terms of certain recent business
combinations in the asset management and brokerage industries;
38
(10) Performed a sum of the parts valuation analysis on Bernstein's
investment management and brokerage business segments;
(11) Performed a discounted cash flow analysis on Bernstein's
financial projections;
(12) Considered the pro forma financial effect of the Transaction on
Alliance Capital and Alliance Holding;
(13) Reviewed the draft of the acquisition agreement dated June 19,
2000, the draft of the financing agreement dated June 16, 2000,
the draft of the purchase agreement dated June 16, 2000, the
draft of the term sheet dated June 19, 2000 for a registration
rights agreement to be executed by Alliance Holding and
Bernstein prior to the closing of the acquisition, the draft of
the letter agreement dated June 16, 2000, the drafts of the
stockholder agreements dated June 17, 2000, the draft of the
deferred compensation plan dated June 16, 2000 and the draft of
the employment agreements dated June 16, 2000; and
(14) Performed such other studies and analyses, and took into account
such other matters, as Blackstone deemed appropriate.
In arriving at its opinion, Blackstone relied without independent
verification upon the accuracy and completeness of all of the financial and
other information reviewed by Blackstone that was publicly available, that was
supplied or otherwise made available to Blackstone by Alliance Capital or
Bernstein, or that was otherwise reviewed by Blackstone. Without limiting the
generality of the immediately preceding sentence, Blackstone assumed that the
financial forecasts and the estimates prepared by Alliance Capital and
Bernstein and provided to Blackstone were reasonably determined on a basis
reflecting the then-current best available judgments and estimates of Alliance
Capital and Bernstein, and that such forecasts and such estimates will be
realized in the amounts and at the times contemplated thereby.
Blackstone further relied upon the assurances of the management of
Alliance Capital that they were not aware of any facts that would make such
information inaccurate, incomplete or misleading. In addition, Blackstone did
not (1) conduct a physical inspection of the properties and facilities, of the
sales, marketing, distribution and service organizations, or of the product
markets of Alliance Capital or Bernstein; or (2) make an independent evaluation
or appraisal of the assets and liabilities of Alliance Capital or Bernstein.
Blackstone did not consider the relative merits of the Transaction as
compared to any other business plan or opportunity that might be available to
Alliance Capital or the effect of any other arrangement in which Alliance
Capital might engage. In addition, Blackstone did not assess the fairness to
any specific group of unitholders. Blackstone assumed that the Transaction
contemplated by the acquisition agreement will be consummated on substantially
the terms set forth therein. The Blackstone Opinion is necessarily based upon
economic, market, monetary, regulatory and other conditions as they existed and
could be evaluated, and the information made available to Blackstone, as of the
date of its opinion. It should be understood that Blackstone does not have any
obligation to update, revise or reaffirm the Blackstone Opinion. Furthermore,
Blackstone expresses no opinion as to the prices or trading ranges at which the
units of Alliance Holding will trade at any time.
The following is a summary of the material financial and comparative
analyses performed by Blackstone in connection with its opinion.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Blackstone reviewed certain financial and operating information
and ratios (described below) for publicly-traded companies in the asset
management industry and the brokerage industry that Blackstone deemed to be
reasonably comparable to Bernstein. The asset management companies included in
the analysis were: Affiliated Managers Group, Inc., Eaton Vance Corp.,
Federated Investors, Inc., Neuberger Berman Inc., and United Asset Management
Corporation (collectively, the "Bernstein Asset Management Comparables"). The
brokerage companies included in the analysis were: A.G. Edwards, Inc., Dain
Rauscher Corporation, Legg Mason, Inc., Morgan Keegan, Inc., and Raymond James
Financial, Inc. (collectively, the "Bernstein Brokerage Comparables").
Trading multiples as of June 9, 2000 for the Bernstein Asset Management
Comparables and the Bernstein Brokerage Comparables are summarized below:
(1) Trading value (defined as the per share market price of the
common shares) as a multiple of projected current fiscal year
earnings per share ("EPS") for the Bernstein Asset Management
Comparables, which
39
estimates were obtained from the Institutional Brokers Estimate
System ("IBES"), and ranged from 13.7x to 17.9x, with a mean of
15.6x; and for the Bernstein Brokerage Comparables, which
estimates were obtained from IBES, and ranged from 8.0x to
19.2x, with a mean of 10.9x.
(2) The trading equity value (defined as the per share market price
of the common shares multiplied by the number of fully diluted
shares outstanding) as a multiple of latest twelve months
("LTM") net income for the Bernstein Asset Management
Comparables, which ranged from 10.9x to 30.1x, with a mean of
18.4x; and for the Bernstein Brokerage Comparables, which ranged
from 8.7x to 23.9x, with a mean of 12.3x.
(3) The trading equity value as a multiple of LTM pretax income for
the Bernstein Asset Management Comparables, which ranged from
6.1x to 18.5x, with a mean of 11.1x; and for the Bernstein
Brokerage Comparables, which ranged from 5.4x to 14.4x, with a
mean of 7.6x.
(4) The total enterprise value (defined as trading equity value plus
book value of net debt, preferred equity and minority interests)
("TEV") as a multiple of LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") ranged from 4.2x to
10.3x, with a mean of 7.5x for the Bernstein Asset Management
Comparables.
(5) TEV as a percentage of assets under management ("AUM") ranged
from 0.9% to 4.2%, with a mean of 2.4% for the Bernstein Asset
Management Comparables.
Blackstone used this analysis to make general observations regarding the
financial and operating information and ratios of these companies. Blackstone
also used this analysis as a reference point in deciding the trading multiple
ranges to be applied in the Sum of the Parts analysis.
Comparable Transactions Analysis. Blackstone reviewed certain publicly
available information regarding selected business combinations in the asset
management industry ("Asset Management Comparable Transactions") and the
brokerage industry ("Brokerage Comparable Transactions") announced since July
1996 which Blackstone deemed relevant in evaluating the Transaction. The Asset
Management Comparable Transactions and the Brokerage Comparable Transactions
and the dates these transactions were announced are as follows:
Asset Management Comparable Transactions
(1) Old Mutual plc and United Asset Management Corporation (June
2000);
(2) Caisse Des Depots Group and Nvest, L.P. (June 2000);
(3) UniCredito Italiano Group and Pioneer Group, Inc. (May 2000);
(4) AMVESCAP Plc and Trimark Financial Corp. (May 2000);
(5) The Chase Manhattan Corporation and Robert Fleming Holdings Ltd.
(April 2000);
(6) The Charles Schwab Corporation and U.S. Trust Corporation
(January 2000);
(7) Allianz AG and PIMCO Advisors L.P. (October 1999);
(8) ReliaStar Financial Corp. and Pilgrim Capital Corp. (July 1999);
(9) AMP Asset Management and Henderson Plc (February 1998);
(10) Merrill Lynch & Co., Inc. and Mercury Asset Management Group plc
(November 1997);
(11) Invesco Group plc and AIM Management Group Inc. (November 1996).
40
Brokerage Comparable Transactions
(1) The Chase Manhattan Corporation and Hambrecht & Quist Group
(September 1999);
(2) First Union Corporation and EVEREN Capital Corporation (April
1999);
(3) KeyCorp and McDonald & Company Investments, Inc. (June 1998);
(4) U.S. Bancorp and Piper Jaffray Companies Inc.(December 1997);
(5) Bankers Trust New York and Alex. Brown Incorporated (April 1997).
With respect to the Asset Management Comparable Transactions and the
Brokerage Comparable Transactions, Blackstone analyzed:
(1) The per share offer price as a multiple of the current fiscal
year estimated EPS of the acquired company at the date of
announcement;
(2) The total market value of the common equity (defined as the per
share offer price for the acquired company multiplied by the
number of acquired company fully-diluted shares outstanding) as
a multiple of the LTM net income of the acquired company at the
date of the announcement; and
(3) The total market value of the common equity as a multiple of the
LTM pretax income of the acquired company at the date of the
announcement.
With respect to the Asset Management Comparable Transactions, Blackstone
also analyzed:
(1) The total transaction value (defined as the total market value
of the common equity plus the book value of assumed net debt,
preferred equity and minority interests) as a multiple of the
acquired company's LTM EBITDA; and
(2) The total transaction value as a percentage of the acquired
company's AUM.
Blackstone then compared these multiples for the Asset Management
Comparable Transactions and Brokerage Comparable Transactions to the multiples
implied by the Transaction. The results of this analysis are summarized below:
(1) The multiple of per share offer price to current fiscal year EPS
for the Asset Management Comparable Transactions ranged from
16.0x to 38.1x, with a mean of 24.5x; and for the Brokerage
Comparable Transactions ranged from 14.8x to 26.2x, with a mean
of 18.2x. For the Transaction, the multiple of total market
value of the common equity to Bernstein's projected current
fiscal year net income was 19.4x. Bernstein is a "subchapter S"
corporation that does not pay corporate taxes. For comparison
purposes, Bernstein's net income calculation assumed a 42%
effective tax rate.
(2) The multiple of the total market value of the common equity to
LTM net income for the Asset Management Comparable Transactions
ranged from 17.3x to 40.3x, with a mean of 27.7x; and for the
Brokerage Comparable Transactions ranged from 13.5x to 36.6x,
with a mean of 22.1x. For the Transaction, the multiple of total
market value of the common equity to Bernstein's LTM net income
was 19.2x. Bernstein is a "subchapter S" corporation that does
not pay corporate taxes. For comparison purposes, Bernstein's
net income calculation assumed a 42% effective tax rate.
(3) The multiple of the total market value of the common equity to
LTM pretax income for the Asset Management Comparable
Transactions ranged from 10.2x to 26.7x, with a mean of 18.3x;
and for the Brokerage Comparable Transactions ranged from 8.0x
to 22.9x, with a mean of 13.6x. For the Transaction, the
multiple of total market value of the common equity to
Bernstein's LTM pretax income was 11.1x.
(4) The multiple of total transaction value to LTM EBITDA for the
Asset Management Comparable Transactions ranged from 7.3x to
23.6x, with a mean of 14.9x. For the Transaction, the multiple
of total transaction value to Bernstein's LTM EBITDA was 10.6x.
41
(5) Total transaction value as a percentage of AUM for the Asset
Management Comparable Transactions ranged from 1.2% to 9.7%,
with a mean of 3.8%. For the Transaction, total transaction
value as a percentage of Bernstein's AUM was 3.8%.
Sum of the Parts Analysis. Blackstone derived an estimated equity
valuation range for Bernstein by performing a sum of the parts valuation
analysis. To perform this sum of the parts analysis, Blackstone derived an
estimated valuation range for the investment management and brokerage segments
of Bernstein's business.
For the investment management segment of Bernstein's business, the
valuation range was calculated by multiplying the pretax income of the
investment management business by assumed trading multiples ranging from 8.0x
to 11.0x and assumed acquisition multiples ranging from 13.0x to 16.0x. For the
brokerage segment of Bernstein's business, the valuation range was calculated
by multiplying pretax income of the brokerage business by assumed trading
multiples ranging from 6.0x to 9.0x and assumed acquisition multiples ranging
from 9.0x to 12.0x.
This analysis resulted in an aggregate implied equity value for Bernstein
that ranged from $2.3 billion to $4.6 billion.
Discounted Cash Flow Analysis. Blackstone derived an estimated equity
valuation range for Bernstein by performing a discounted cash flow ("DCF")
analysis. To perform this DCF analysis, Blackstone analyzed the projected cash
flows related to Bernstein's operations for the period from 2001 to 2005 as
estimated by Alliance Capital's management, based on information provided to
Alliance Capital's management by Bernstein (the "Base Case"). Blackstone also
analyzed another case (the "Value Case") pursuant to which the assumptions
underlying the Base Case were adjusted by Alliance Capital's management to
reflect a market environment favorable to the value style of investing.
In each case, the DCF was calculated assuming a weighted average cost of
capital range of between 12.0% and 14.0% and was comprised of the sum of the
present values of (1) the projected unlevered free cash flows for the years
2001 to 2005 using projections provided by Alliance Capital management which
were developed based on assumptions provided by Bernstein management and (2)
the year 2005 terminal value based upon a range of multiples of projected year
2005 EBITDA of 6.0x to 8.0x.
The DCF analysis of the Base Case resulted in an aggregate implied equity
value for Bernstein (net of outstanding debt) that ranged from $3.3 billion to
$4.2 billion. The DCF analysis of the Value Case resulted in an aggregate
implied equity value for Bernstein (net of outstanding debt) that ranged from
$3.8 billion to $5.0 billion.
Pro Forma Merger Analysis. Blackstone reviewed the pro forma impact of the
Transaction to Alliance Capital's and Alliance Holding's estimated earnings per
unit ("EPU") and distributions per unit ("DPU") in 2000, 2001, 2002 and 2003.
Blackstone assumed Alliance Capital's Base Case management projections for
Alliance Capital and projections provided by Alliance Capital management which
were developed based on assumptions provided by Bernstein management for
Bernstein. In conducting the Pro Forma Merger Analysis Blackstone assumed a
closing date of September 30, 2000 in which the total consideration would be
equal to $1.4754 billion in cash and 40.8 million units in Alliance Capital.
This analysis also assumed that $1.6 billion in cash would be raised through
the sale of 33.3 million Alliance Capital units (as opposed to the actual
32,619,775 Alliance Capital units sold) to AXA Financial at an assumed price of
$48.00 per unit (as opposed to the actual price of $49.05 per Alliance Capital
unit). Blackstone further assumed that the Transaction would be accounted for
utilizing purchase accounting, and that the goodwill generated as a result of
the Transaction would be amortized over 20 years. Based on the assumptions
described above, under the Base Case, the Transaction is dilutive to EPU, but
accretive to DPU in 2000, 2001, 2002, and 2003.
Blackstone also performed the same analysis using the Value Case. Under
the Value Case, the Transaction is dilutive to EPU in 2000, 2001, 2002, but
accretive to EPU in 2003, and accretive to DPU in 2000, 2001, 2002, and 2003.
The summary set forth above does not purport to be a complete description
of the analyses performed by Blackstone in arriving at its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial or summary description. Blackstone believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all those
factors and analyses, could create a misleading view of the processes
underlying the Blackstone Opinion. Blackstone did not assign relative weights
to any of its analyses in preparing the Blackstone Opinion. The matters
considered by Blackstone in its analyses were based on numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Alliance Capital's and Blackstone's control and
42
involve the application of complex methodologies and educated judgment.
Estimates contained in the analyses performed by Blackstone are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty.
None of the Bernstein Asset Management Comparables or the Bernstein
Brokerage Comparables utilized as a comparison in the analyses described above
are identical to Bernstein, and none of the Asset Management Comparable
Transactions or Brokerage Comparable Transactions utilized as a comparison are
identical to the proposed acquisition. In addition, various analyses performed
by Blackstone incorporate projections prepared by research analysts using only
publicly available information. Such estimates may or may not prove to be
accurate. An analysis of publicly traded comparable companies and comparable
business combinations is not mathematical; rather such an analysis involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
Alliance Capital retained Blackstone because of its experience and
expertise. Blackstone has an internationally recognized merger and acquisition
advisory business. Blackstone, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. Blackstone is familiar with Alliance
Capital, having provided certain investment banking services to Alliance
Capital from time to time and has acted as its financial advisor in connection
with the acquisition.
In accordance with a letter agreement between Alliance Capital and
Blackstone dated as of June 12, 2000, Alliance Capital has agreed to pay
Blackstone:
o a non-refundable retainer fee ("Retainer Fee") of $250,000, payable
in cash on the date of execution of the letter agreement between
Alliance Capital and Blackstone. The Retainer Fee is creditable
against any Success Fee (see below).
o a fee of $6,750,000 (the "Success Fee") payable upon the consummation
of the Transaction.
Alliance Capital has also agreed to reimburse Blackstone for its
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of legal counsel) and to indemnify Blackstone and certain related
parties from and against certain liabilities, including liabilities under the
federal securities laws arising out of its engagement.
Blackstone has, in the past, provided financial advisory services to
Alliance Capital and/or its affiliates and may continue to do so, and has
received, and may continue to receive, fees for the rendering of such services.
Salomon Smith Barney
Alliance Capital also engaged Salomon Smith Barney Inc. in connection with
the acquisition of Bernstein.
43
Information Concerning Alliance Holding
Alliance Capital, one of the nation's largest investment advisers,
provides diversified investment management services to institutional clients
and high net-worth individuals and, through various investment vehicles, to
individual investors.
Alliance Capital's separately managed accounts consist primarily of the
active management of equity and fixed income accounts for institutional
investors and high net-worth individuals. Alliance Capital manages retirement
assets for many of the largest public and private employee benefit plans
(including 28 of the U.S. Fortune 100 companies) and for public employee
retirement funds in 31 out of the 50 states. Its institutional clients also
include insurance companies worldwide, endowments, foundations, banks and other
domestic and foreign institutions. Alliance Capital is also one of America's
largest mutual fund sponsors, with approximately 5.8 million shareholder
accounts and a family of diversified fund portfolios that are distributed
globally. Its mutual funds management services developed as a diversification
of its institutional investment management business, and consist of the
management, distribution and servicing of mutual funds and cash management
products, including money market funds and deposit accounts. Assets under
Alliance Capital's management at March 31, 2000 totaled approximately $394
billion.
In October 1999, Alliance Holding reorganized by transferring its business
and assets to Alliance Capital, a newly formed private partnership, in exchange
for all of the Alliance Capital units. Since the reorganization, Alliance
Capital has conducted the diversified investment management services business
formerly conducted by Alliance Holding, and Alliance Holding's business
activities have consisted of holding Alliance Capital units and engaging in
related activities. Alliance Holding is a registered investment adviser under
the Investment Company Act, and its units trade publicly on the NYSE. Alliance
Capital units do not trade publicly on any exchange and are subject to
significant restrictions on transfer that are designed to prevent Alliance
Capital from being classified as a publicly-traded partnership, and taxed as a
corporation, for federal tax purposes. As a publicly-traded partnership,
Alliance Holding remains subject to a 3.5% federal tax on its proportionate
share of Alliance Capital's gross business income, while Alliance Capital, a
private partnership, is not subject to the 3.5% federal tax. Alliance Capital
Management Corporation is the general partner of both Alliance Holding and
Alliance Capital.
As of March 1, 2000, AXA a company organized under the laws of France, AXA
Financial, Equitable Life and certain subsidiaries of Equitable Life were the
beneficial owners of 95,855,945 Alliance Capital units or approximately 55.7%
of the issued and outstanding Alliance Capital units and 1,544,356 Alliance
Holding units or approximately 2.1% of the issued and outstanding Alliance
Holding units. As of March 1, 2000, Alliance Holding was the owner of
71,855,296 Alliance Capital units or approximately 41.7% of the issued and
outstanding Alliance Capital units.
As of June 21, 2000, giving effect to the Alliance Capital units AXA
Financial purchased from Alliance Capital pursuant to the financing agreement,
AXA, AXA Financial, Equitable Life and certain subsidiaries of Equitable Life
were the beneficial owners of 128,475,720 Alliance Capital units or
approximately 62.5% of the issued and outstanding Alliance Capital units. As of
June 21, 2000, Alliance Holding was the beneficial owner of 71,855,296 Alliance
Capital units or approximately 35.3% of the outstanding Alliance Capital units.
Upon closing of the acquisition, the percentage of Alliance Capital units
of which AXA, AXA Financial, Equitable Life and certain subsidiaries of
Equitable Life will be the beneficial owners will decrease to approximately
5.21%, giving effect to the 40.8 million Alliance Capital units that Alliance
Capital will issue to Bernstein as consideration for the acquisition. Alliance
Holding's percentage ownership will accordingly decrease to approximately 29.5%.
The principal executive offices of both Alliance Capital and Alliance
Holding are located at 1345 Avenue of the Americas, New York, New York 10105,
and the telephone number is (212) 969-1000.
44
Bernstein Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
Bernstein is a global investment research and investment management
company. Its highly integrated activities are directed to three principal
client groups:
o Private Clients, which provides research-driven investment management
services primarily to high net- worth individuals, trusts and
estates, personal charitable foundations, partnerships and
corporations;
o Institutional Asset Management, which provides research-driven
investment management services primarily to corporate, public and
tax-exempt clients such as defined benefit plans, profit sharing
plans, endowments and foundations; and
o Institutional Services, which provides in-depth research, portfolio
strategy, trading and brokerage-related services to large
institutional investors such as pension managers, mutual fund
managers and other institutional investors who manage assets.
Operating Environment
Over the periods discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, Bernstein operated in an
environment of relatively low but rising interest rates, low inflation and
volatility in the capital markets, particularly in the U.S. equity markets.
These factors impacted the growth in Bernstein's assets under management, net
revenues and income before income taxes in each of these periods.
U.S. equity returns, as measured by Standard & Poor's S&P 500 Index, were
33% for the year ended December 31, 1997, 27% for the year ended December 31,
1998, and 21% for the year ended December 31, 1999 compared to a cumulative
annualized growth rate of 17% for the S&P 500 index over the 25-year period
ended December 31, 1999. More recently, during the year ended December 31,
1999, the breadth of appreciation in U.S. equity markets narrowed, with growth
oriented stocks outperforming value oriented stocks. For the three months ended
March 31, 2000, the S&P 500 index was up 2%.
Results of Operations
Bernstein believes the best measure by which to assess its historical
profitability is income before income taxes. This is because historically it
has operated as a "subchapter S" corporation and therefore was not subject to
U.S. federal and certain state and local income taxes which have been paid by
its shareholders. After the acquisition, the operations of Bernstein will no
longer be in a "subchapter S" corporation, and, therefore, the tax rates will
change. See "Alliance Capital and Alliance Holding Unaudited Pro Forma
Financial Information".
As a "subchapter S" corporation, Bernstein distributed annually a
substantial portion of its income to its shareholders, almost all of whom were
and continue to be employees of Bernstein, as a return on their investment in
common stock of Bernstein. When these employee shareholders become employees of
Alliance Capital following the acquisition, Alliance Capital will increase
their compensation to a level greater than that reflected in the historical
compensation and benefits amounts (see "Acquisition Overview -- Terms of the
Acquisition" and Alliance Capital and Alliance Holding Unaudited Pro Forma
Condensed Financial Statements").
45
The following table summarizes Bernstein's results of operations for each
of the periods presented as well as its assets under management as of the end
of each period presented:
Summary Operating Results
As of or Percent Change
for the Three Months As of or -------------------------
Ended March 31, for the Years Ended December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
($ in millions)
Net revenues............... $211 $207 $826 $771 $599 2% 7% 29%
Expenses................... 126 107 435 385 310 19 13 24
------ ------ ------ ------ ------
Income before income taxes. $85 $100 $391 $386 $289 (16) 1 33
====== ====== ====== ====== ======
Pre-tax margin(1).......... 40% 48% 47% 50% 48% -- -- --
Assets under management.... $84,856 $78,376 $89,614 $80,070 $71,109 8% 12% 13%
- ---------
(1) Pre-tax margin represents income before income taxes as a percentage of
net revenues.
Bernstein has produced growth in net revenues and income before income
taxes for each of the years ended December 31, 1999 and 1998. For the three
months ended March 31, 2000 as compared to the three month period ending March
31, 1999, income before income taxes fell despite an increase in net revenues.
Although pre-tax margin increased from 48% for the year ended December 31, 1997
to 50% for the year ended December 31, 1998 it decreased to 47% for the year
ended December 31, 1999 and to 40% for the three months ended March 31, 2000.
Net revenues have increased in each of the periods shown, versus the prior
year period, principally due to sales efforts in investment research and
management services, appreciation in clients' accounts, and strong capital
market activity. Sales activity was strong in non-U.S., global institutional
asset management services and domestic sub-advisory services. Total assets
under management increased in each of the full year periods shown, versus the
prior year period, due to both positive net inflows of client assets and market
appreciation. Total assets under management as of March 31, 2000 and March 31,
1999 were below their corresponding previous December 31 balances due to client
asset withdrawals exceeding client asset inflows and negative market
performance.
In general, investment management revenues increase and decrease
consistent with increases and decreases in the amount of assets under
management. Institutional Services revenues tend to fluctuate with capital
markets activity.
The increase in expenses each period is primarily due to increased
compensation and other related costs associated with staff expansion. In
addition, Bernstein has made substantial investment in product offerings,
distribution capabilities, physical plant and technology. These investments
have been funded entirely with internally generated cash flow.
46
Net Revenues by Client Group
The sources of Bernstein's net revenues can be summarized by client groups
as follows:
Net Revenue
For the For the Percent Change
Three Months Years Ended -------------------------
Ended March 31, December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
($ in millions)
Private Client.................. $91 $93 $378 $349 $265 (2)% 8% 32%
Institutional Asset Management.. 59 55 225 214 179 7 5 19
Institutional Services.......... 55 54 198 180 134 3 10 35
Other (net)..................... 6 5 25 28 21 20 (10) 33
------ ------ ------ ------ ------
Total net revenues........... $211 $207 $826 $771 $599 2 7 29
====== ====== ====== ====== ======
Net revenues may not be indicative of the relative profitability of any
client group.
Private Client
Substantially all of Bernstein's private client revenues consist primarily
of investment management fees based on the amount of assets under management at
the beginning of the quarter. A smaller portion of private client revenues is
transaction charges earned by executing trading activities relating to U.S.
equity assets under management for Bernstein's clients.
The following table sets forth the revenues and average assets under
management of Bernstein's private client activities:
Private Client
For the For the Percent Change
Three Months Years Ended -------------------------
Ended March 31, December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
($ in millions)
Fees and transaction
charges.............. $91 $93 $378 $349 $265 (2)% 8% 32%
Average assets under
management........... $34,516 $32,153 $33,844 $29,690 $23,566 7% 14% 26%
Private client revenues increased during each of the full year periods
presented primarily due to increased assets under management brought about by
both net positive client asset inflows and market appreciation. Despite higher
average assets under management for the three months ended March 31, 2000
versus the three months ended March 31, 1999, private client revenues decreased
during the period due to lower transaction charges associated with lower
transaction volumes. While fee revenues from mutual fund accounts are charged
based on average daily assets under management, individually managed accounts
are billed based upon assets under management at each of Bernstein's quarterly
billing dates. Fee revenues from individually managed accounts may therefore
trail the changes in ending private client assets under management over the
periods presented. While transaction charges have generally grown with assets,
differences in growth rates occur due to the level of trading activity within
client portfolios brought about by Bernstein's centralized stock selection
process, which in certain years may lead to greater trading activity than in
other years.
Average assets under management represent the mean of the applicable
assets under management at each of Bernstein's quarterly billing dates.
47
o March 2000 versus March 1999. Revenues decreased 2% for the three
months ended March 31, 2000 versus the three months ended March 31,
1999. Average assets under management increased 7% over the same
period. Revenues decreased during the period, despite higher average
assets under management, due to lower transaction charges associated
with lower transaction volumes.
o 1999 versus 1998. Revenues increased 8% for the year ended December
31, 1999 versus the year ended December 31, 1998. Average assets
under management increased 14% over the same period. The difference
in the rates of increase in revenues and average assets under
management was primarily due to a decreased level of trading activity
during 1999.
o 1998 versus 1997. Revenues increased 32% for the year ended December
31, 1998 versus the year ended December 31, 1997. Average assets
under management increased 26% over the same period. The difference
in the rates of increase in revenues and average assets under
management was primarily due to an increased level of trading
activity during 1998.
In late 1998, Bernstein instituted a new fee schedule for clients with
under $5 million of assets under management which reduced transaction charges
and increased fees. This new schedule applies to accounts opened in 1999 and
thereafter, while existing clients can elect to remain on their current
schedule. This change did not have a material effect on total private client
revenues for 1998 or 1999, or for the three months ended March 31, 2000, and is
not expected to have a material impact on total private client revenues in the
future.
The following table sets forth changes in private client assets under
management:
Private Client Assets under Management
For the For the
Three Months Years Ended
Ended March 31, December 31,
--------------------- -----------------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
(in millions)
Assets at beginning of period...... $34,490 $32,088 $32,088 $27,286 $19,932
Client asset inflows............... 1,370 1,642 6,421 6,110 5,872
Client asset withdrawals........... (3,326) (1,434) (5,883) (3,522) (2,373)
Market appreciation................ (910) 219 1,864 2,214 3,855
------- ------- ------- ------- -------
Assets at end of period............ $31,624 $32,515 $34,490 $32,088 $27,286
======= ======= ======= ======= =======
The growth in private client asset inflows is primarily a result of the
expansion of the private client sales force, from 91 professionals as of the
beginning of 1997 to 122 professionals as of March 31, 2000. The expansion has
included the opening of new offices in San Francisco, California in 1996 and
Washington, D.C. and White Plains, New York in 1998.
Client asset withdrawals have increased each year. Through 1998, the
increase in withdrawals is consistent with the increase in the number of new
accounts and assets under management and with expectations regarding the
periodic cash requirements of Bernstein's private clients. The rate of client
asset withdrawals increased in 1999 and the first quarter of 2000 from the
levels experienced in 1997 and 1998, which Bernstein attributes to a move by
certain clients from Bernstein's value-oriented investment products to
growth-oriented investment products.
Institutional Asset Management
Institutional asset management revenues consist primarily of investment
management fees based principally on the amount of assets under management,
though some fees are dependent on investment performance. A portion of
institutional asset management revenues are transaction charges earned by
executing trading activities relating to U.S. equity assets under management
for Bernstein clients.
48
The following table sets forth the revenues and average assets under
management of Bernstein's institutional asset management activities:
Institutional Asset Management
For the For the Percent Change
Three Months Years Ended -------------------------
Ended March 31, December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
($ in millions)
Fees and transaction $59 $55 $225 $214 $179 7% 5% 19%
charges..............
Average assets under
management........... $52,543 $47,049 $52,167 $47,046 $38,334 12% 11% 23%
The growth in institutional asset management revenues during each of the
periods presented is associated with the net increase in average assets under
management versus the corresponding period, resulting from market appreciation
in each full year period as well as positive net client asset inflows for the
years ended December 31, 1997 and 1999.
o March 2000 versus March 1999. Revenues increased 7% for the three
months ended March 31, 2000 versus the three months ended March 31,
1999. Average assets under management increased 12% over the same
period. The difference in the rates of increase in revenues and
average assets under management was primarily due to an increase in
sub-advisory accounts at lower levels of fee revenue realization --
fee revenues as a percentage of average assets under management.
o 1999 versus 1998. Revenues increased 5% for the year ended December
31, 1999 versus the year ended December 31, 1998. Average assets
under management increased 11% over the same period. This difference
in the rates of increase in revenues and average assets under
management was primarily due to a slightly decreased level of fee
realization caused by an increase in large sub-advisory accounts,
which have lower levels of fee revenue realization. Partially
offsetting the increase in investment management fees was a reduction
in transaction charges due to a decrease in the level of trading
activity during 1999.
o 1998 versus 1997. Revenues increased 19% for the year ended December
31, 1998 versus the year ended December 31, 1997. Average assets
under management increased 23% over the same period. The difference
in the rates of increase in revenues and average assets under
management was primarily due to a slightly decreased level of fee
revenue realization during 1998 and resulted primarily from an
increase in average account size.
49
The following table sets forth changes in assets under management for
Bernstein's institutional asset management clients:
Institutional Asset Management Assets under Management
For the For the
Three Months Years Ended
Ended March 31, December 31,
--------------------- -----------------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
(in millions)
Assets at beginning of period..... $55,124 $47,982 $47,982 $43,823 $32,292
Client asset inflows.............. 1,932 1,460 14,433 7,599 9,263
Client asset withdrawals.......... (1,975) (2,696) (8,852) (8,140) (4,040)
Market appreciation............... (1,849) (885) 1,561 4,700 6,308
------- ------- ------- ------- -------
Assets at end of period........... $53,232 $45,861 $55,124 $47,982 $43,823
======= ======= ======= ======= =======
The increases in client asset inflows are primarily a result of the
expansion of Bernstein's institutional asset management sales force from 16
professionals as of January 1, 1997 to 29 professionals as of March 31, 2000.
As part of Bernstein's continuing effort to increase global distribution of its
investment management products, Bernstein established an Australian subsidiary
in 1997 and opened a London office in 2000.
Despite the increase in Bernstein's sales force, institutional client
asset inflows declined during 1998 primarily due to disappointing taxable fixed
income investment returns. The decline in client asset inflows in 1998,
combined with $5.2 billion of institutional client asset withdrawals in taxable
fixed income products, resulted in net client asset outflows in 1998 of $541
million. During 1999, a significant portion of client asset inflows was
attributable to an increase in sub-advisory accounts, including a major public
mutual fund client. For the three months ended March 31, 2000, assets under
management decreased $1,892 million primarily due to market depreciation,
largely in domestic equities.
Institutional Services
Institutional Services generates transaction charges and underwriting
syndicate-related revenues through fundamental securities research, portfolio
strategy, trading, and brokerage-related services.
The following table sets forth institutional services revenues and the
composition of transaction charges from institutional U.S. and non-U.S.
clients:
Institutional Services
For the For the Percent Change
Three Months Years Ended -------------------------
Ended March 31, December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
($ in millions)
Transaction charges........... $54 $46 $179 $169 $127 18% 6% 33%
Syndicate participation and
other....................... 1 8 19 11 7 (91) 71 69
------ ------ ------ ------ ------
Total....................... $55 $54 $198 $180 $134 3 10 35
====== ====== ====== ====== ======
Transaction charges from
U.S. clients............... $44 $40 $152 $145 $109 11% 4% 33%
Transaction charges from
non-U.S. clients............ 10 6 27 24 18 67 14 33
------ ------ ------ ------ ------
Total....................... $54 $46 $179 $169 $127 18 6 33
====== ====== ====== ====== ======
50
Transaction charges have increased during each of the periods presented,
from both U.S. and non-U.S. clients. This was due to an increase in the capital
markets activity over the periods presented, as reflected by increased trading
volume in the major exchanges, and Bernstein's increased trading capacity. In
order to handle increases in order flow from its institutional clients,
Bernstein has increased its commitment to trading capacity as it increased the
number of seats it either owns or leases on the NYSE from four as of January 1,
1997 to seven as of March 31, 2000.
Syndicate participation and other includes selling concessions,
underwriting fees net of expenses, and cash sales of Bernstein's research
publications. Selling concessions and underwriting fees net of expenses vary
significantly depending on the number and dollar amount of the offerings and
underwriting syndicates in which Bernstein participates. The decrease for the
three months ended March 31, 2000 versus the three months ended March 31, 1999
was due to Bernstein's role as co-manager of a large initial public offering in
the prior period.
Other Revenues (Net)
Other revenues (net) include net interest income, capital gains, net stock
borrow income, and fees generated for trade processing, clearance and custody
services. These net revenues have been generally increasing over the periods
presented due to increases in custodied assets under management and transaction
activity. Other revenues for the year ended 1999 decreased from 1998 due to
lower net interest income and lower capital gains associated with Bernstein's
investment in U.S. Treasury Bills.
Operating Expenses
As the tables below indicate, Bernstein's operating expenses have
increased as a result of a number of factors, including increased levels of
business activities, higher levels of compensation and numbers of employees,
geographic expansion and various technology initiatives.
As noted above, when the employee shareholders of Bernstein become
employees of Alliance Capital, following the acquisition, Alliance Capital will
increase such employees' compensation to a level greater than that reflected in
the historical compensation and benefits amounts (see "Acquisition Overview --
Terms of the Acquisition" and "Alliance Capital and Alliance Holding Unaudited
Pro Forma Condensed Financial Statements").
The following table sets forth Bernstein's operating expenses by category:
Operating Expenses
For the For the Percent Change
Three Months Years Ended ------------------------
Ended March 31, December 31, 3/31/00 1999 1998
------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ -----
(in millions)
Compensation and benefits...... $95 $81. $324 $288 $234 18% 13% 23%
Communications and technology.. 11 9. 33 27 21 22 22 25
Occupancy...................... 6 5. 22 20 16 23 11 24
Business development........... 6 4. 20 17 14 49 15 24
Floor brokerage and clearance.. 3 3. 13 13 10 6 (3) 38
Other.......................... 5 5. 23 20 15 10 15 29
------ ------ ------ ------ ------
Total....................... $126 $107 $435 $385 $310 19 13 24
====== ====== ====== ====== ======
Compensation and benefits are the most significant of the operating
expenses shown above, representing approximately 75% of the total operating
expenses during the periods shown. The period to period increases are driven
primarily by the increases in the number of employees. In addition, bonus
levels increased due to competitive factors for the three months ended March
31, 2000 versus the three months ended March 31, 1999. Approximately 90% of
compensation and benefits expense relates to direct compensation to employees
and includes salaries, bonuses, sales commissions and profit sharing. The
remainder relates to benefits, payroll taxes and the cost of recruiting new
staff.
The following table sets forth the number of Bernstein's employees as of
the end of the period presented:
51
Number of Employees
Percent Change
As of -------------------------
Ended March 31, As of December 31, 3/31/00 1999 1998
-------------------- ------------------------------- vs vs vs
2000 1999 1999 1998 1997 3/31/99 1998 1997
------ ------ ------ ------ ------ ------- ------ ------
Number of Employees.......... 1,440 1,348 1,458 1,337 1,116 7% 9% 20%
The majority of the increase in communications and technology expense is
related to increases in depreciation for, and the leasing and maintenance of,
desktop computers and server hardware and software. Both voice and data
communication costs have risen over the period due to increases in headcount
and business activity. Technology costs also increased for the year ended
December 31, 1999 versus for the year ended December 31, 1998 including
expenses related to Y2K preparedness.
The increase in occupancy is principally related to the leasing of space
in White Plains, New York that began in June 1998 for the relocation of
Bernstein's financial, operational and certain other staff from its New York
City office. The increase is also due to the opening of new offices in both
Washington, D.C. and White Plains, New York in 1998 for Bernstein's expanded
U.S. distribution capabilities and the opening of an office in London in the
first quarter of 2000.
The increase in business development reflects increases in travel,
entertainment and conference expenses associated with increases in Bernstein's
sales and research staff and its larger client base.
Provision for Taxes
Bernstein has historically been treated as a "subchapter S" corporation
for federal and certain state and local income tax purposes and, therefore, has
been subject to no or reduced income taxes in some jurisdictions. Since New
York City does not recognize "subchapter S" status, Bernstein has historically
been liable for New York City corporate income tax for that portion of its
income which is attributable to New York City. In addition, Bernstein has
historically been liable for tax payments to some states and non-U.S.
jurisdictions in which it operates.
Statement of Financial Condition
As a result of Bernstein's broker-dealer activities, its statement of
financial condition includes higher levels of assets and liabilities than is
typical for an investment adviser of its size. Bernstein's broker-dealer
activities provide financing, trade execution, clearing and custody services
for its clients.
Total assets were $2.8 billion as of December 31, 1998, $2.5 billion as of
December 31, 1999 and $2.5 billion as of March 31, 2000. The vast majority of
Bernstein's assets were short-term liquid assets. Bernstein has limited market
risk due to the short-term nature of its investment in U.S. Treasury Bills.
Total liabilities were $2.7 billion as of December 31, 1998, $2.5 billion
as of December 31, 1999 and $2.5 billion as of March 31, 2000. On December 31,
1999, Bernstein distributed to its shareholders $130 million in the form of a
10-year balloon note bearing interest at the rate of 7.93% per year, callable
by Bernstein at par. This $130 million note is a liability to be retained by
Bernstein after the closing of the acquisition.
Total shareholders' equity was $126 million as of December 31, 1998, $30
million as of December 31, 1999 and $38 million as of March 31, 2000. The
decrease as of December 31, 1999 versus as of December 31, 1998 was principally
due to the above-mentioned distribution by Bernstein to its shareholders. The
increase in shareholders' equity from December 31, 1999 to March 31, 2000 was
principally the result of net income retained.
Liquidity and Capital Resources
Historically Bernstein has financed its business with cash provided by
operating activities. Net cash provided by operating activities was $430
million for the year ended December 31, 1997, $766 million for the year ended
December 31, 1998 and $167 million for the year ended December 31, 1999. For
the three months ended March 31, 2000, net cash used by operating activities
was $174 million primarily due to an increase in amounts receivable from
brokers and dealers.
52
Capital expenditures, which were paid for with internally generated funds,
totaled $6 million for the year ended December 31, 1997, $20 million for the
year ended December 31, 1998, $16 million for the year ended December 31, 1999
and $8 million for the three months ended March 31, 2000. The most significant
component of 1998 expenditures was $11 million related to the leasing and
equipping of approximately 133,000 square feet in White Plains, New York. The
most significant component of expenditures in 1999 and the three months ended
March 31, 2000 were technology related.
Bernstein's largest subsidiary, Sanford C. Bernstein & Co., Inc. is a
broker-dealer and member of the New York Stock Exchange, Inc. and is therefore
subject to the Uniform Net Capital Rule 15c3-1 of the Securities and Exchange
Commission. Under this rule, Sanford C. Bernstein & Co., Inc. is required to
maintain minimum net capital levels. Sanford C. Bernstein & Co., Inc.'s net
capital in excess of the required minimum increased from $41 million as of
December 31, 1998 to $64 million as of December 31, 1999 but decreased to $50
million as of March 31, 2000 primarily due to dividends paid to the parent
company.
Advances from, dividend payments by and other equity withdrawals from,
Sanford C. Bernstein & Co., Inc. and its other regulated subsidiaries are
restricted by the regulations of the SEC, the New York Stock Exchange and other
regulatory agencies. As a result of these restrictions, as of December 31,
1999, approximately $23 million of Sanford C. Bernstein & Co., Inc. equity was
not available for payment of cash dividends and advances to Bernstein. The
comparable amount as of March 31, 2000 was $22 million.
Distribution Policy and Market for Bernstein Common Stock
As a "subchapter S" corporation, Bernstein's distribution policy has been
to distribute to its shareholders a substantial portion of its net income as a
return on such shareholders' investment in Bernstein's common stock.
There is no public market for Bernstein's common stock.
Recent Accounting Developments
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", which is an
amendment of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Statement is effective concurrently with SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement
No. 133", which deferred to fiscal years beginning after June 15, 2000 the
effective date of the accounting and reporting requirements of SFAS No. 133.
These statements establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as "derivatives"), and for hedging
activities. These statements require that an entity recognize all derivatives
as either assets or liabilities in the statement of financial condition and
measure those instruments at fair value. The accounting for changes in the fair
value of a derivative instrument depends on its intended use and the resulting
designation. Bernstein has been informed that Alliance Capital intends to adopt
the provisions of SFAS No. 133 deferred by SFAS No. 137 and amended by SFAS No.
138 in fiscal 2001. Bernstein does not expect the impact of the adoption to be
material to its financial condition or results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", establishes criteria for
determining an operating segment and requirements for reporting information on
operating segments. Based on the criteria set forth in this statement,
Bernstein operates in only one segment -- investment research and management --
and has presented its data accordingly.
Bernstein adopted the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", effective January 1, 1999. This
statement requires that certain costs of computer software developed or
obtained for internal use be capitalized and amortized over the useful life of
the related software. Prior to 1999 Bernstein expensed the cost of all software
development in the period in which it was incurred. The effect of the adoption
was to increase consolidated net income for the year ended December 31, 1999 by
$2.5 million.
53
Regulated Subsidiaries
Sanford C. Bernstein & Co., Inc., Bernstein's principal subsidiary, is
subject to extensive regulation. Sanford C. Bernstein & Co., Inc. is regulated
by the SEC, the Commodity Futures Trading Commission, the New York Stock
Exchange and the National Association of Securities Dealers, among others.
Compliance with the rules and regulations of these regulating agencies may
limit distributions, advances or repayment of liabilities by Bernstein, as
discussed in Note 7 of Bernstein's consolidated financial statements included
elsewhere in this proxy statement.
54
The Bernstein Business
Overview
Bernstein is a global investment research and investment management
company. As of March 31, 2000, its total assets under management were $84.9
billion. Bernstein takes a disciplined, research-intensive approach to
investing in the global capital markets in order to deliver long-term
investment returns with controlled risk. Bernstein implements its investment
approach by creating and maintaining separate accounts over which it exercises
investment discretion that is tailored to the individual investment needs and
objectives of each of its clients through a broad array of investment products
and services.
Founded in 1967 to specialize in portfolio management for private
investors, its business has since expanded to encompass:
o Private Clients, which provides research-driven investment management
services primarily to high net worth individuals, trusts and estates,
personal charitable foundations, partnerships and corporations;
o Institutional Asset Management, which provides research-driven
investment management services primarily to large corporate, public
and tax-exempt clients such as defined benefit plans, profit sharing
plans, endowments and foundations; and
o Institutional Services, which provides in-depth research, portfolio
strategy, trading and brokerage-related services to large
institutional investors such as pension managers, mutual fund
managers and other institutional investors who manage assets.
Private Clients
Private clients has been a core client group of Bernstein for over 30
years. Bernstein's clients are high net worth individuals, trusts and estates,
personal charitable foundations, partnerships and corporations. It targets
households with financial assets of $1 million or more and has a minimum
account size of $400,000. Bernstein provides customized, tax-sensitive
investment planning across a broad range of investment options.
Bernstein's private client activities are built on a direct sales effort
that involves over 120 advisors. These financial advisors work with private
clients and their tax, legal and other advisors to tailor long-range investment
plans to meet each client's needs. The portfolio created for each private
client is intended to maximize after-tax investment returns given a client's
individual investment goals, income requirements, risk tolerance, tax
considerations and any other considerations relevant for that client.
Revenues from private clients, which represented 46% of Bernstein's net
revenues for the year ended December 31, 1999, consist primarily of investment
management fees earned from managing assets and also include transaction
charges earned by executing trading activities relating to U.S. equities under
management for its clients.
55
The table below sets forth private client assets under management and
revenues for the periods presented:
Private Client Assets Under Management and Revenues
As of or As of or
for the Three for the
Months Ended Years Ended
March 31, December 31,
------------- -----------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------- -------
(in millions)
Assets under management..... $31,624 $34,490 $32,088 $27,286 $19,932 $14,058
Revenues.................... $91 $378 $349 $265 $190 $130
Private Client Marketing
Bernstein's private client financial advisors are dedicated to obtaining
and maintaining client relationships. They do not manage money and do not sell
individual stocks or external products. Their goal is to provide investment
perspective for Bernstein's clients in order to assist them in determining a
suitable mix of U.S. and non-U.S. equity securities and fixed income
investments. Bernstein's financial advisors are based in its flagship New York
City office and the other offices it has opened since 1990: Los Angeles in
1990, West Palm Beach and Chicago in 1993, Dallas in 1995, San Francisco in
1996 and Washington, D.C. and White Plains in 1998. A Seattle office is
expected to open later this year. These offices reach not only the targeted
market within these cities but also in parts of the surrounding areas.
In addition to its sales force, Bernstein established an extensive
nationwide referral-source network, including accountants, attorneys and
consultants. These professionals serve many of the clients that Bernstein
targets. As part of this strategy, Bernstein organizes meetings for
professionals in many cities and regularly provides them with written materials
to inform them of investment insights and services.
Institutional Asset Management
Bernstein provides research-driven investment management services to
approximately 800 institutional clients, primarily large corporate, public and
Taft-Hartley defined benefit pension plans, endowments and foundations, and
various third-party sponsored mutual funds. Bernstein targets institutions with
plan assets of $1 billion or more and has a minimum account size of $5 million.
Bernstein's institutional asset management sales effort is currently
comprised of 25 institutional asset management advisors, complemented by a team
of three advisors serving the institutional asset management consulting
community.
The Bernstein technology platform allows for substantial diversity in its
service offerings. Bernstein offers clients a wide choice in selecting a base
currency, hedging strategy and benchmark, which can be customized to include or
exclude certain countries. Such flexibility in service specifications gives
Bernstein important competitive advantages.
Over the last 10 years Bernstein has expanded the scope of its
institutional asset management services by applying its investment processes
and technology to non-U.S. securities, both equity and fixed income. These
non-U.S. and global services, which are also used by private clients,
constituted 27% of institutional assets under management as of March 31, 2000.
Revenues from institutional asset management, which represented 27% of net
revenues for the year ended December 31, 1999, consist primarily of the
investment management fees earned on the assets managed.
56
The following table sets forth institutional assets under management and
revenues for each of the periods presented:
Institutional Assets Under Management and Revenues
As of or
for the Three
Months Ended
March 31, As of or for the Years Ended December 31,
------------- -----------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------- -------
(in millions)
Total institutional assets
under management.......... $53,232 $55,124 $47,982 $43,823 $32,292 $24,447
Revenues.................... $59 $225 $214 $179 $136 $103
Institutional Asset Management Marketing
Bernstein's institutional asset management marketing activities are
conducted by two separate but fully integrated teams. Bernstein's direct sales
advisors call directly on plan sponsors and other institutional investors and
its consultant advisors call on major institutional asset management consulting
firms that have been hired by plan sponsors and other institutional investors
to select a qualified asset manager.
Bernstein's team of 25 direct sales advisors is differentiated by:
geography -- U.S. and non-U.S.; size -- large and middle-market plans; and
specialty -- corporate plans, public funds, labor unions and third-party mutual
fund subadvisory relationships. In addition, three consultant advisors generate
new business by calling on consulting firms. Each Bernstein consultant advisor
is assigned several major global relationships. Performance data is distributed
to consulting firms for all of Bernstein's services, which are used by these
firms as a first step in investment manager selection.
Bernstein's marketing efforts include client conferences hosted by senior
Bernstein investment professionals, workshops for senior investment officers at
large corporate plans, conference calls on many key issues and investment
controversies, and publication of investment research that serves to enhance
Bernstein's brand equity.
Institutional Services
Bernstein is a provider of research, portfolio strategy, trading and
brokerage-related services to large institutional investors, such as pension
managers, mutual fund managers and other institutional investors, who manage
assets and look to Bernstein to provide services to support their asset
management activities. As of March 31, 2000, Bernstein served over 700 clients
in the U.S. and over 150 in Europe, Australia and the Far East.
Bernstein earns revenues from institutional services by providing
investment research and by executing brokerage transactions for research
clients on an agency basis. In the case of research, research clients provide
compensation principally by directing brokerage transactions to Bernstein in
return for Bernstein research products. These services accounted for 24% of
Bernstein's net revenues in 1999. Bernstein is occasionally invited to and
chooses to participate in underwriting syndicates for equity issuances.
57
The following table sets forth institutional services revenues for each of
the periods presented:
Institutional Services Revenues
For the Three
Months Ended
March 31, For the Years Ended December 31,
------------- -------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(in millions)
Transaction charges and other..... $55 $198 $180 $134 $110 $98
Bernstein's Disciplined Approach to Investing
Bernstein is an integrated global investment research and management firm,
basing its investment management activities on its investment research findings
as supplemented by third-party research. This disciplined, centralized and
systematic approach to investing distinguishes Bernstein from its competitors
and is used in all of its investment management services. Bernstein applies a
combination of fundamental and qualitative research to identify securities that
it believes are attractively priced relative to their expected returns and to
construct portfolios that seek to balance risk and reward based on the client's
requirements.
Decision-Making Responsibility
Investment Policy Groups. A key element of Bernstein's disciplined
investment process is its Investment Policy Groups, which provide centralized
and consistent investment decision-making for its products and services. The
Bernstein Investment Policy Groups are responsible for Bernstein's investment
strategies, individual security selections, target sector weightings and
duration strategy, as well as general policies governing asset allocation and
portfolio construction. Bernstein has nine U.S. and non-U.S. equity Investment
Policy Groups; three fixed income Investment Policy Groups; two global
Investment Policy Groups; and one Investment Policy Group that solely considers
issues relating to its private client activities. These groups are comprised of
senior professionals who integrate information from fundamental company
research, quantitative analysis and economic research.
Investment Management Administration. Bernstein implements approved
investment decisions on an account-by-account basis. This implementation
includes establishing positions in selected securities, monitoring the tax
implications of potential security sales for each taxable client in most of its
services, adjusting cash balances and/or investing cash balances according to
investment policy and all other matters relating to the implementation of
investment strategy. Dedicated portfolio managers follow the Investment Policy
Group's direction with respect to individual security selection, deviating only
to comply with client-specific needs and guidelines.
Use of Proprietary Software
Proprietary software integrates Bernstein's views of the capital markets
with its clients' tax considerations and investment objectives. Bernstein's
software allows it to customize each of its clients' portfolios. Specifically,
it allows it to pursue two objectives:
o Implementation of the theoretical content of its capital markets
models; and
o Systemization of account management.
Bernstein's capital market models include a variety of measures of short-
and long-term expected returns for individual securities. These include, for
example, the dividend discount model, earnings revisions, momentum tools, and
statistical valuation models, risk models and costs, such as trading costs and
tax costs. Computing and weighing these various factors is accomplished using
its proprietary software.
Bernstein's software also facilitates the mechanics of account management.
It uses quantitative techniques to balance the risk, return and costs of
various possible transactions, while respecting product and account specific
constraints. Bernstein's software enhances account review, quality control and
productivity. With the opening of
58
regional offices, consistent account management with centralized and
decentralized account management capabilities is critical. This software
provides that capability.
Competition
All aspects of the Bernstein business are highly competitive. Bernstein
competes primarily based on its long-term investment performance record and its
use of a centralized and disciplined investment process and its global research
effort. It also competes based on the diversity of its product and service
offerings. While there has been a trend in some areas of the investment
management business towards competition based on fees, particularly in the area
of indexed products, Bernstein has sought to distinguish itself on the basis of
performance and service.
Bernstein competes with other investment advisors and broker-dealers and
the investment advisory and broker-dealer subsidiaries or divisions of
insurance companies, investment banks, commercial banks and trust companies.
Bernstein expects the trend toward consolidation in the financial services
industry to continue, which will likely increase the number of larger
competitors.
Competition is also intense for the attraction and retention of qualified
employees. Bernstein's ability to continue to compete effectively will depend
upon its ability to attract new employees and retain and motivate existing
employees.
Regulation
Investment Advisory, Broker Dealer and Commodity Matters
Bernstein's business is, and the investment advisory, broker-dealer and
commodity futures and options industries generally are, subject to extensive
regulation. As a matter of public policy, the investment advisory,
broker-dealer and commodity futures and options regulatory bodies are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets.
In the United States, the SEC is the federal agency responsible for the
administration of the federal securities laws. Sanford Bernstein & Co., Inc. is
registered as an investment adviser and broker-dealer with the SEC and is
registered or has made an appropriate notice filing, if required, in all 50
states, the District of Columbia and Puerto Rico. Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations, such as the
NYSE which has been designated by the SEC as the examining authority for
Sanford Bernstein & Co., Inc. These self-regulatory organizations adopt rules,
which are subject to approval by the SEC, that govern the industry and conduct
periodic examinations of broker-dealer operations. Broker-dealers are also
subject to regulation by state securities administrators in those states in
which they conduct business. Bernstein's business is also subject to regulation
by various non-U.S. governmental and regulatory bodies. In connection with the
use of futures in its investment management activities, Sanford C. Bernstein &
Co., Inc. is registered with The Commodity Futures Trading Commission (the
"CFTC") as a commodity pool operator and commodity trading advisor and, as
such, its activities in the futures and options markets are subject to
regulation by the CFTC, various domestic commodity exchanges and the National
Futures Association. Sanford C. Bernstein & Co., Inc. is also registered with
the CFTC as a futures commission merchant though it does not currently function
in this capacity.
ERISA Matters
Bernstein is also subject to the Employee Retirement Security Act of 1974,
or "ERISA", and to regulations issued under ERISA, when it acts as a
"fiduciary" for its benefit plan clients that are subject to ERISA. ERISA and
the Internal Revenue Code impose duties on persons that are fiduciaries under
ERISA, prohibit certain transactions involving ERISA plan clients and provide
financial penalties for violations of these prohibitions.
Securities Law Matters
Sanford C. Bernstein & Co., Inc. is also subject to regulation in most
Canadian provinces with respect to providing asset management and research
services. Regulation of the Canadian securities industry is the responsibility
of the various Canadian provinces. For example, Sanford C. Bernstein & Co.,
Inc. is registered as a commodity trading manager under the Commodity Futures
Act of Canada and as an international dealer and non-Canadian advisor under the
Securities Act of Ontario, Canada. Bernstein's activities in Canada do not
require membership in any self-regulatory organization in any Canadian
province.
59
Since July 1997, Bernstein's wholly owned Australian subsidiary, Sanford
C. Bernstein & Co. Proprietary Limited, has been licensed as a dealer by the
Australian Securities and Investments Commission. This dealer license permits
its Australian subsidiary to offer its investment management and research
services throughout Australia.
In April 1999, Sanford C. Bernstein Limited was formed under the laws of
England and Wales. This subsidiary is registered with the United Kingdom's
Financial Services Authority, the self-regulatory organization designated under
the Financial Services Act 1986 as the primary regulator of investment
management services in the United Kingdom. This subsidiary provides investment
management and research services to institutions in the United Kingdom. It will
also seek to provide these services throughout continental Europe pursuant to
the "passport" privileges provided under the European Union's Investment
Services Directive.
Legal Matters
Bernstein is occasionally named as a defendant in litigation in the
ordinary course of its business. Bernstein is not a party to any litigation
that it believes will have an outcome that would have a material adverse effect
on its current financial condition or results of operations.
Properties
Bernstein's principal executive offices are located at 767 Fifth Avenue,
New York, New York and comprise approximately 160,000 square feet of leased
space pursuant to a lease agreement expiring in May, 2002, with options to
renew for up to five additional years.
Bernstein also has offices in White Plains, Chicago, Dallas, Los Angeles,
San Francisco, Washington, D.C. and West Palm Beach. These seven offices total
an aggregate of 200,000 square feet, with White Plains being the largest of
these offices, having a total of 133,000 square feet.
Bernstein also recently commenced operations in London, where it opened an
office occupying approximately 11,700 square feet and expects to open an office
in Seattle with approximately 5,100 square feet later this year.
The principal executive offices of Bernstein are located at 767 Fifth
Avenue, New York, New York 10153, and the telephone number is (212) 486-5800.
The principal executive offices of BTI are located at 720 University
Avenue, Suite 200, Palo Alto, California 94130, and the telephone number is
(650) 330-6800.
60
Transaction Agreements
On June 20, 2000 Alliance Capital entered into various agreements relating
to the acquisition by Alliance Capital of the Bernstein business.
The Acquisition Agreement
The Purchase and Sale
Pursuant to the terms of the acquisition agreement among Alliance Capital,
Alliance Holding, Bernstein and BTI, Alliance Capital will acquire the
Bernstein business through a series of transactions for a total value not to
exceed $1.4754 billion in cash (plus any additional cash that may be paid under
the balance sheet purchase price adjustment) and 40.8 million Alliance Capital
units.
To effectuate the acquisition, the parties have agreed to take, or cause
to be taken, the following steps, each of which will be deemed to occur in
immediate succession on the date the transaction closes, unless otherwise
noted:
o Prior to the closing date, Bernstein will organize a new Delaware
limited liability company, Sanford C. Bernstein & Co. LLC, as an
indirect wholly owned subsidiary and subsequently merge Sanford C.
Bernstein & Co., Inc. with and into Sanford C. Bernstein & Co. LLC,
whereupon the existence of Sanford C. Bernstein & Co., Inc. as a
corporation will cease and Sanford C. Bernstein & Co. L.L.C. will be
the surviving entity ("SCB LLC"). SCB LLC will continue as an
indirect wholly owned subsidiary of Bernstein until the consummation
of the acquisition.
o Alliance Capital will purchase, and BTI will sell, the assets of
BTI's business and Alliance Capital will assume related liabilities.
o Alliance Capital will purchase, and SCB LLC will sell, SCB LLC's
advisory business through either (1) the purchase of the related
assets and the assumption of related liabilities or (2) the purchase
of a limited liability company.
o SCB LLC will distribute to Bernstein the consideration SCB LLC
receives from Alliance Capital in exchange for the advisory assets
and liabilities Alliance Capital purchases and assumes, respectively.
o A newly-created, direct wholly owned subsidiary of Alliance Capital,
organized as a Delaware limited liability company, will purchase a
portion of the membership interests of SCB LLC, which, after the
consummation of the transactions described above, will hold
Bernstein's brokerage business.
o Alliance Capital will purchase, and Bernstein will sell, the
remaining portion of the membership interests of SCB LLC, and
Alliance Capital will instruct Bernstein to convey, on Alliance
Capital's behalf, such membership interests to such newly-created
subsidiary.
o Alliance Capital will purchase from Bernstein the capital stock of
Sanford C. Bernstein & Co. Proprietary Limited, the share capital of
Sanford C. Bernstein Limited and certain securities, contracts,
assets and rights relating to Bernstein's interest in NYFIX
Millennium, LLC.
Representations and Warranties
The acquisition agreement contains certain customary reciprocal
representations and warranties by Alliance Capital and Bernstein relating to,
among other things, the following:
o Corporate or partnership existence, good standing, corporate or
partnership power and similar corporate or partnership matters, each
as applicable;
o Capital structure and the authority, execution, delivery and
performance of the acquisition agreement and the other transaction
agreements and related matters;
61
o Required consents, approvals, orders or authorizations of, or
registrations or filings with, certain domestic and foreign
governmental entities;
o The absence of conflicts, violations and defaults under
organizational documents, applicable law and certain other agreements
and documents;
o The absence of certain material changes or events since December 31,
1999;
o Compliance with applicable laws and court orders, the absence of
pending or threatened legal proceedings and the absence of
undisclosed material liabilities; and
o Broker's or finder's fees and expenses.
The acquisition agreement includes additional customary representations
and warranties by Bernstein, relating to, among other things, the following:
o The status of Bernstein's ownership or leasehold interests in all
real and personal property utilized by Bernstein in its business;
o Bernstein's owned and licensed intellectual property rights,
including the absence of any infringements of third party
intellectual property rights;
o Certain tax, employee benefit and labor matters;
o Compliance with environmental laws;
o Matters relating to the Sanford C. Bernstein Fund, Inc.,
non-registered pooled investment funds for which Bernstein acts as
investment adviser, and other investment advisory clients, including
clients for who Bernstein's subsidiaries act as sub-adviser;
o Investment management activities, regulatory compliance matters,
broker-dealer activities, futures activities and ERISA clients;
o Compliance with securities laws in connection with the acquisition of
the Alliance Capital units; and
o The absence of untrue statements or omissions of material fact in
information provided by Bernstein to us and Alliance Capital in
connection with this proxy statement; and
o Material contracts, insurance coverage and the validity and
effectiveness of governmental permits.
The acquisition agreement also includes additional customary
representations and warranties by Alliance Capital with respect to:
o the due authorization and validity of the Alliance Capital units to
be issued to Bernstein as consideration for the acquisition;
o documents and reports filed with the SEC and the absence of untrue
statements or omissions of material facts therein;
o financing and existing registration rights agreements; and
o ours and Alliance Capital's tax treatment and regulatory compliance.
Certain Covenants
Each of Alliance Capital and Bernstein has undertaken certain covenants in
the acquisition agreement. The following summarizes the more significant of
these covenants:
62
Conduct of Bernstein's Business. Bernstein has agreed that, during the
period from the date of the acquisition agreement until the closing date, it
will conduct its business in the ordinary course consistent with past practice
and will use all commercially reasonable efforts to preserve intact its
business organizations and relationships with clients, customers, employees,
regulatory authorities and other third parties and to keep available the
services of its present officers and employees.
Bernstein has also agreed that during the same period, except as permitted
by the acquisition agreement or the prior written consent of Alliance Capital,
it will not:
o merge or consolidate with any other person or acquire an amount of
assets material to it from any other person;
o issue, deliver, sell, pledge or otherwise encumber the equity of
Bernstein or repurchase the equity of Bernstein from any stockholder
of Bernstein who is bound by a voting agreement with Alliance
Capital;
o other than as permitted by the acquisition agreement, between the
close of business on the day before the closing and the closing, make
any cash, in-kind or other distribution or engage in any intercompany
transactions;
o other than in the ordinary course of business consistent with past
practices, sell, lease, license or otherwise dispose of any assets or
property;
o enter into any type of business that is materially different from the
Bernstein business as conducted on the date of the acquisition
agreement;
o make any capital expenditures that in the aggregate exceed the
aggregate amount of expenditures set forth in Bernstein's Capital
Budget 2000 and Project Summary 2000; or
o agree or commit to do any of the foregoing.
Meeting of Security Holders. Bernstein agreed to call a meeting of its
stockholders for the purpose of voting on the approval and adoption of the
acquisition agreement and the transactions contemplated thereby. The Bernstein
shareholder meeting was held on July 20, 2000, and the requisite number of
shareholders voted in favor of the acquisition agreement and the transactions
contemplated thereby. For the reasons described more fully in "Reasons for
Unitholder Vote" below, we agreed to call a meeting of our limited partners and
unitholders to approve the possible issuance from time to time of 40.8 million
Alliance Holding units (subject to adjustment, as described in "Transaction
Agreements - Summary of Bernstein's Liquidity Rights") in exchange for the
Alliance Capital units Bernstein will hold after the closing.
No Solicitation. Prior to the termination of the acquisition agreement,
Bernstein has agreed to not, and to not authorize or permit any of its or their
officers, directors, employees, investment bankers, attorneys, accountants,
consultants or other agents or advisors to, directly or indirectly, solicit,
initiate, facilitate or encourage the submission of any offer or proposal for
any merger, sale of a significant portion of assets, sale of equity interests
or any similar transaction involving Bernstein. Bernstein has agreed to notify
Alliance Capital within twenty-four hours after receipt by Bernstein or its
agents or advisors of any such proposal or offer, any indication that any
person is seriously considering making any such proposal or offer or any
request for information relating to Bernstein by any person that is making, or
may consider making, any such proposal or offer.
Consents of the Fund, Non-Registered Funds and Non-Fund Clients. Because
the transactions contemplated by the acquisition agreement will constitute an
assignment and termination of investment advisory contracts under the terms
thereof and the Investment Company Act, Bernstein agrees to use its reasonable
best efforts to obtain such authorizations and approvals of the board of
directors and shareholders of the Sanford C. Bernstein Fund, Inc. as may be
required by the Investment Company Act. Bernstein also agrees to request from
all non-registered funds and non-fund clients a signed written consent or
implied consent to the transactions contemplated by the acquisition agreement.
Restrictions on Dispositions of Acquired Alliance Capital Units.
Prohibited Transfers. Unless otherwise permitted, Bernstein has agreed not to,
directly or indirectly, offer, pledge, sell or otherwise transfer or dispose
of, directly or indirectly, any of the acquired Alliance Capital units (or any
interest therein), any security convertible, exchangeable or exercisable for or
repayable with any of the acquired Alliance Capital units or any security or
other interest in any person
63
owning any of such units. Bernstein also has agreed that neither it nor any of
its affiliates will enter into any swap, hedging transaction or other similar
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership (other than any permitted sale, assignment or pledge)
of the Alliance Capital units Bernstein will acquire at closing.
Permitted Transfers. Notwithstanding the above restrictions on transfer,
Bernstein has the right to sell or assign up to 2.8 million of the acquired
Alliance Capital units at any time after the closing and, beginning on the
second anniversary of the closing, up to an additional twenty percent of the
acquired Alliance Capital units per year. However, such transfers are
permissible only if they:
o do not violate ours and Alliance Capital's internal written policies
generally applicable to senior officers restricting sales of Alliance
Capital units;
o qualify as a private transfer pursuant to United States Treasury
Regulations relating to "block transfers"; and
o comply with all applicable provisions, conditions and requirements of
the Alliance Capital limited partnership agreement dated as of
October 29, 1999, our limited partnership agreement dated as of
October 29, 1999 (or other governing document) and the purchase
agreement dated as of June 20, 2000 among Alliance Capital, AXA
Financial and Bernstein.
To the extent Bernstein does not transfer the maximum twenty percent of
the acquired Alliance Capital units in any one year, Bernstein has the right to
carry forward any balance to subsequent years. Transfers made pursuant to
Bernstein's right to exchange Alliance Capital units for Alliance Holding units
pursuant to the acquisition agreement (summarized below) are not applied toward
the twenty percent limitation. Bernstein's exchange rights, however, are
subject to specified caps.
Furthermore, any transfer, other than (1) transfers made pursuant to
Bernstein's Put rights under the purchase agreement (see "--Summary of
Bernstein's Liquidity Rights" below) and (2) exchanges of Alliance Capital
units for Alliance Holding units, must be made pursuant to:
o an effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act"),
o Rule 144 of the Securities Act or
o if not made pursuant to an effective registration statement or Rule
144, upon delivery of either an opinion of counsel to the effect that
the proposed transfer may be made without registration or a "no
action letter" from the SEC to the effect that such transfer without
registration will not result in a recommendation by the staff of the
SEC that action be taken with respect thereto.
Exchange to Alliance Holding Units. Bernstein has the right to exchange
its Alliance Capital units for an equal number of Alliance Holding units (or in
such other ratio as the general partner may determine in accordance with
Section 6.01 of the Alliance Capital limited partnership agreement or our
limited partnership agreement, as the case may be, so long as such exchange
ratio is applicable to all holders of Alliance Capital units). However, such
exchanges are permissible only if:
o the issuance of Alliance Holding units is exempt from registration
pursuant to the Securities Act;
o the issuance of Alliance Holding units is permitted under our limited
partnership agreement;
o Equitable Life has given its consent (which AXA Financial, Equitable
Life's indirect parent, has agreed to cause Equitable Life to do),
pursuant to Section 12.03(c) of the Alliance Capital limited
partnership agreement and as set forth in the purchase agreement, to
the transfer of such Alliance Capital units to Alliance Holding in
exchange for Alliance Holding units; and
o Bernstein provides Alliance Capital with an expert tax opinion that
such exchange qualifies as a private transfer pursuant to United
States Treasury Regulations relating to "block transfers".
64
Employee Benefits Matters. Alliance Capital agrees, among other things:
o to establish, for each of the first three years following the closing
date, a $15 million incentive compensation bonus pool for the
exclusive benefit of specified Bernstein employees who were
participants in Bernstein's Principals' Profit-Sharing Pool as of
closing (Alliance Capital will not be assuming any obligation
Bernstein has under its Principals' Profit-Sharing Pool);
o to adopt a deferred compensation plan for the benefit of certain
Bernstein employees providing for the investment by Alliance Capital
of $96 million per annum for three years from closing to be
represented by phantom awards and/or to fund open market purchases of
Alliance Holding units or money market funds, in each case for the
benefit of certain individuals who are stockholders and principals of
Bernstein as of the closing date and their replacements, if any, and
who will be employees of Alliance Capital after the closing;
o to establish a Bernstein committee consisting of Messrs. Lewis A.
Sanders, Chairman and Chief Executive Officer of Bernstein, and Roger
Hertog, Bernstein's President, and any other Bernstein individuals,
as provided in the acquisition agreement, to make awards under such
deferred compensation plan referred to above; and
o that the aggregate base cash compensation (in addition to
compensation paid under the deferred compensation plan) for eligible
Bernstein employees who were shareholders of Bernstein as of the
closing date will be $24.55 million for each of the first three years
from the closing date (representing approximately a $2 million
increase over such Bernstein employees' 2000 base cash compensation).
Survival of Representations, Warranties and Covenants. The parties have
agreed that:
o except as stated below, all representations and warranties will
survive the closing until December 31, 2001;
o except as stated below, all covenants and agreements will survive
indefinitely;
o the representations and warranties relating to certain employee
benefits matters and ours and Alliance Capital's tax treatment will
survive until expiration of the statute of limitations applicable to
the matters covered thereby (giving effect to any waiver, mitigation
or extension thereof), if later than December 31, 2001; and
o the covenants, agreements, representations and warranties contained
in Articles 8 (relating to tax matters) and 9 (relating to certain
employee benefit matters) of the acquisition agreement will survive
until expiration of the statute of limitations applicable to the
matters covered thereby (giving effect to any waiver, mitigation or
extension thereof), if later than December 31, 2001.
Notwithstanding the above, the parties have agreed that any covenant,
agreement, representation or warranty in respect of which indemnity may be
sought under the acquisition agreement will survive the time at which it would
otherwise terminate if notice of the inaccuracy or breach thereof is
appropriately and timely given.
Indemnification. If the acquisition closes, Alliance Capital and Bernstein
have agreed to indemnify the other and hold the other harmless from any and all
damages incurred or suffered by such harmed party and its affiliates arising
out of, among other things:
o any misrepresentation or breach of warranty, including those relating
to tax matters, and any failure of any representation or warranty to
be true at and as of the closing date as if made at and as of such
date (except that representations and warranties that by their terms
speak as of the date of the acquisition agreement or some other date
need be true only as of such specified date), in each case determined
without regard to any materiality or material adverse effect
qualification contained in any representation or warranty (other than
each party's representation as to material adverse change and
compliance with laws and court orders);
o any breach of covenant or agreement made or to be performed pursuant
to the acquisition agreement, including those relating to tax
matters.
The acquisition agreement provides, however, that neither party is liable
under its indemnification obligations until the aggregate of all such losses
(other than those relating to tax matters) incurred by any indemnitee exceeds
$25 million and then only to the extent of such excess, and neither party's
maximum liability (other than as relating to tax matters) shall exceed $500
million. The acquisition agreement also provides that neither party is liable
for any damage or loss (other than those relating to tax matters) less than
$50,000 with respect to a single breach of a representation or warranty or any
group of related breaches arising out of the same or similar facts or events.
With respect to damages or losses
65
relating to tax matters, the acquisition agreement provides for a $10,000
deductible and no cap on any party's liability. If the acquisition closes,
indemnification is the sole and exclusive remedy for both Alliance Capital and
Bernstein with respect to any claims relating to the acquisition agreement and
the transactions contemplated thereby.
Miscellaneous Agreements. Bernstein also agrees, among other things, to:
o discontinue using specified marks and names and change its corporate
name so as not to include such specified marks and names;
o deliver to Alliance Capital the resignations of any or all directors
of Bernstein's subsidiaries being acquired by Alliance Capital, such
resignations to be effective as of the closing;
o provide to us and Alliance Capital certain financial information to
be used in this proxy statement and any proxy statement that Alliance
Capital may prepare relating to the acquisition agreement and the
transactions contemplated thereby; and
o except with respect to amounts relating to employee loans, employee
margin indebtedness, investment management contracts and employee
compensation, settle intercompany accounts.
Alliance Capital also agrees, among other things, to:
o refrain from, through the closing date, repurchasing, redeeming or
otherwise acquiring any outstanding Alliance Capital units or other
securities of, or other ownership interests in, Alliance Capital at a
premium above the market price of Alliance Holding units (other than
pursuant to Alliance Capital's employee plans);
o in the event that prior to the closing there is any distribution
(other than a cash distribution in the ordinary course of business
consistent with past practice), reclassification, stock split
(including a reverse split), or other similar transaction, adjust the
number of Alliance Capital units issued as consideration for the
acquisition equitably to reflect such event;
o assume Bernstein's obligations in connection with Sanford C.
Bernstein Limited's lease and to indemnify and hold Bernstein
harmless thereon;
o refrain from, through the closing date, making any amendment to
Alliance Capital's constituent documents or the terms of Alliance
Capital units, in each case that would adversely discriminate against
Bernstein as if Bernstein was a holder of Alliance Capital units as
of the effective date of such amendment; and
The parties mutually have agreed, among other things, to:
o use their reasonable best efforts to take, or cause to be taken, all
actions necessary or desirable to consummate the transactions
contemplated by the acquisition agreement;
o cooperate in determining which filings and actions are required and
making such filings or taking such actions;
o consult with one another before making any public statements with
respect to the acquisition agreement or the transactions contemplated
thereby;
o promptly notify the other of certain events;
o use all reasonable efforts to assure that, for a period of three
years after the closing date, at least 75% of the Board of Directors
of the Sanford C. Bernstein Fund, Inc. or any permitted successor
thereto are not "interested
66
persons" of Alliance Capital, Bernstein or any of Bernstein's
subsidiaries, as that term is defined under applicable provisions of
the Investment Company Act and interpreted by the SEC; and (ii)
refrain from imposing or seeking to impose, for a period of two years
after the closing date any "unfair burden" on the Sanford C.
Bernstein Fund, Inc., within the meaning of the Investment Company
Act; and
o share equally any transfer, documentary, sales, use, stamp,
registration, value added and other similar taxes and fees incurred
in connection with transactions contemplated by the acquisition
agreement.
Conditions to the Closing of the Acquisition
The obligations of both Alliance Capital and Bernstein to close the
transactions contemplated by the acquisition agreement are subject to
satisfaction prior to closing of specified customary conditions to the closing
of this type of acquisition, as well as to additional specified conditions
concerning:
o the approval by Alliance Holding unitholders of the proposal to
possibly issue from time to time up to 40.8 million Alliance Holding
units (subject to adjustment, as described in "Transaction Agreements
- Summary of Bernstein's Liquidity Rights") in exchange for Alliance
Capital units to be issued to Bernstein in connection with Alliance
Capital's acquisition of the Bernstein business;
o execution of a registration rights agreement and the adoption of a
deferred compensation plan, each on the terms and conditions agreed
to by the parties as evidenced on respective term sheets attached as
exhibits to the acquisition agreement;
o re-issuance by Alliance Capital's outside counsel of specified
opinions, which such counsel delivered at the signing of the
acquisition agreement, relating to limited liability, tax and
contract assignment matters, pursuant to the requirements of Alliance
Capital's limited partnership agreement;
o Alliance Capital's reasonable satisfaction that Bernstein has
maintained at least 75% of its client revenue base as of May 31,
2000;
o receipt by Bernstein of such authorizations and approvals of the
board of directors (which gave all required approvals and
authorizations at its duly held meeting on July 20, 2000) and
shareholders (for whom Bernstein will hold a meeting on September 25,
2000 for the purpose of seeking required approvals and authorizations)
of the Sanford C. Bernstein Fund, Inc. as may be required by the
Investment Company Act;
o Bernstein's outside counsel not having advised Bernstein that it is
unable to reissue, as of the closing date, its tax opinion to
Bernstein dated as of June 20, 2000 due solely to (i) (A) a change in
the Internal Revenue Code, (B) the promulgation of any regulation
(excluding any proposed regulation) under the Internal Revenue Code
which is in effect as of the closing date or (C) any decision of the
federal court of appeals or Supreme Court, in each case that is
subsequent to June 20, 2000 and applicable to the transactions
contemplated by the acquisition agreement, or (ii) Alliance Capital
having, without the consent of Bernstein, transferred or assigned, in
whole or from time to time in part, to one of more of its
subsidiaries, the right to purchase all or a portion of the equity of
Bernstein or the assets purchased from BTI and SCB LLC (other than
assignments or cause to be directed transfers, as contemplated by the
acquisition agreement and the other transaction agreements) and, in
the case of either clause (i) or (ii), such events having a material
adverse effect on the federal income tax consequences to Bernstein
and its shareholders, in the aggregate; and
o receipt of necessary governmental approvals and the expiration or
termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and foreign antitrust
laws relating to the transactions contemplated by the acquisition
agreement.
Termination, Amendment and Waiver
Right to Terminate. The acquisition agreement may be terminated at any
time prior to the closing:
(1) by mutual written agreement of Alliance Capital and Bernstein;
(2) by either Alliance Capital or Bernstein if:
o the acquisition does not close by December 31, 2000,
provided that if Alliance Capital and Bernstein reasonably
determine that the closing cannot be consummated on or
before such date due solely to the fact that Alliance
Capital or Bernstein will not have received by such date
any required consents, authorizations or approvals from any
(A) domestic or Canadian governmental
67
agency or (B) foreign governmental agency (other than any
Canadian governmental agency), then, either party may,
under specified circumstances, negotiate in good faith
separate closings for Bernstein's North American operations
and overseas operations, in the case of a determination
pursuant to clause (B), or extend the termination date to
March 1, 2001, in the case of a determination pursuant to
clause (A) or if the parties are unable to negotiate
separate closings for the North American and foreign
operations;
o the consummation of the transactions contemplated by the
acquisition agreement would be illegal or otherwise
prohibited or violate any court order;
o our limited partners and unitholders fail to approve the
possible issuance, from time to time, of up to 40.8 million
Alliance Holding units (subject to adjustment, as described
in "Transaction Agreements - Summary of Bernstein's
Liquidity Rights") in exchange for Alliance Capital units
to Bernstein, which will acquire such Alliance Capital
units at the closing of the acquisition;
(3) by Alliance Capital if Bernstein or any shareholder of Bernstein
that is a party to a voting agreement with Alliance Capital
shall have breached its obligations to refrain from soliciting
offers for the acquisition of the Bernstein business; or
(4) by Bernstein if our special meeting of Alliance Holding
unitholders is not convened within forty-five days of the
approval by the SEC of this proxy statement.
Termination Fee Payable by Bernstein. The acquisition agreement provides
for a break-up fee to be paid by Bernstein to Alliance Capital in the amount of
$125 million plus expenses if the acquisition agreement is terminated pursuant
to clause (3) above. On July 20, 2000, Bernstein held a meeting of its
shareholders at which Bernstein's shareholders approved and adopted the
acquisition agreement and the transactions contemplated thereby by the
requisite vote.
Amendment and Waiver. Any provision of the acquisition agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to the acquisition
agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective.
Summary of Bernstein's Liquidity Rights
Purchase Agreement
Under the purchase agreement with AXA Financial and Alliance Capital,
Bernstein has the right to sell or assign up to 2.8 million of the acquired
Alliance Capital units at any time after the closing. Beginning on the second
anniversary of the closing, generally Bernstein has the right (the "Put") to
sell to AXA Financial, who itself may purchase or cause an entity it designates
to purchase, each year for a period ending on the tenth anniversary of the
closing date up to twenty percent of the acquired Alliance Capital units less
any Alliance Capital units Bernstein may have otherwise transferred that year.
The purchase price for the Alliance Capital units so sold to AXA Financial, or
any entity designated by AXA Financial, pursuant to the Put will be the average
of the closing prices of an Alliance Holding unit as quoted on the NYSE
Composite Transactions Tape or as otherwise quoted or reported for the ten
trading days ending on the fifth trading day following the date Bernstein
notifies AXA Financial and Alliance Capital that it will exercise its Put
rights.
Transfer Restrictions
In addition to the restrictions described above and in "--The Acquisition
Agreement--Certain Covenants--Restrictions on Dispositions of Acquired Alliance
Capital Units", Bernstein's Put rights are subject to the following additional
restrictions:
o Generally, Bernstein may exercise its Put rights only once per year;
68
o Generally, Bernstein may not deliver an exercise notice regarding its
Put rights until at least nine months after it delivered its
immediately preceding exercise notice;
o The sale contemplated by an exercise notice must qualify as a private
transfer pursuant to United States Treasury Regulations relating to
"block transfers"; and
o Bernstein may exercise its Put rights only at times permitted by, and
otherwise in compliance with, ours and Alliance Capital's then
applicable internal written policies generally applicable to senior
officers restricting sales of Alliance Capital units.
Under the terms of the purchase agreement, AXA Financial has the right to
defer Bernstein's Put rights for up to 120 days if AXA Financial reasonably
determines, after consultation with outside counsel, that it possesses
material, non-public information about us or Alliance Capital or if AXA
Financial or any of its affiliates is participating in third party discussions
concerning the potential sale of Alliance Holding units or Alliance Capital
units held by AXA Financial or its affiliates. AXA Financial also has the right
to defer Bernstein's Put rights for up to six months if (1) the applicable
exercise notice is delivered within six months of a sale of Alliance Capital
units by AXA Financial or its affiliates or (2) the exercise would subject AXA
Financial to Section 16 liability under the Securities Exchange Act of 1934, as
amended. In addition, in the event Bernstein chooses to transfer Alliance
Capital units to a third party, AXA Financial has a right of first refusal,
subject to specified conditions, to purchase such Alliance Capital units.
Limited Partnership Agreements
Alliance Capital's limited partnership agreement requires the consent of
Equitable Life, a wholly owned subsidiary of AXA Financial and parent of ours
and Alliance Capital's common general partner, to transfers of Alliance Capital
units. Pursuant to the purchase agreement, AXA Financial agrees to cause
Equitable Life to give any required consents under such partnership agreement
for any transfers permitted by the purchase agreement, including any exchange
of Alliance Capital units for Alliance Holding units pursuant to the
acquisition agreement. However, any such transfers must comply with all
applicable provisions, conditions and requirements of the Alliance Capital
limited partnership agreement and must qualify, in AXA Financial's sole and
exclusive discretion, as a private transfer pursuant to United States Treasury
Regulations relating to "block transfers" (unless such transfer is to
Bernstein's Principals' Profit-Sharing Pool, in which case Bernstein must
furnish to AXA Financial a legal opinion satisfactory to AXA Financial and
Alliance Capital that such transfer is not considered a "transfer" for purposes
of Section 7704 of the Internal Revenue Code).
Registration Rights
Pursuant to the acquisition agreement and subject to the execution of a
definitive registration rights agreement, we have granted Bernstein the right,
commencing on the second anniversary of the closing date, to demand that we use
our reasonable best efforts to file a registration statement relating to the
Alliance Holding units held by Bernstein from time to time that it will acquire
in exchange for Alliance Capital units issued to it as consideration for the
acquisition.
We are required to honor no more than a reasonable number of demand
registration rights during a period of ten years from the date of the executed
registration rights agreement. No demand will be effective unless it is a
demand to register a minimum number (to be agreed upon by the parties) of
Alliance Holding units or, if less, all of the Alliance Holding units held by
Bernstein. Bernstein recognizes that our right to offer Alliance Holding units
and sales by employees, officers and directors of Alliance Capital have
priority over any public offering by Bernstein. Bernstein agrees not to offer
or sell Alliance Holding units for more than sixty days in any one year period
following the second anniversary of the closing date. Bernstein also agrees to
refrain from effecting any public or private distribution or sale of Alliance
Holding units during the fifteen-day period prior to and during the ninety-day
period beginning on the closing date of any underwritten offering pursuant to
any other registration by us unless permitted by us.
In connection with any such demand registration, Bernstein agrees to be
responsible for all SEC fees, underwriting discounts or brokerage commissions
and its counsel's fees and expenses and fifty percent of all other reasonable
out-of-pocket costs, fees and expenses, including those of our counsel.
We agree to indemnify Bernstein and its affiliates, and to the extent
adequate indemnification is unavailable, to contribute to the payment of, any
losses incurred relating to information included in any demand registration
except for written information provided by Alliance Holding unitholders for
inclusion in such demand registration. Alliance Holding unitholders will
indemnify us and our affiliates for all losses relating to written information
provided by them to us for use in the registration.
69
Adjustment in the Number of Alliance Holding Units Issued on Exchange
The number of Alliance Capital units that Alliance Capital will issue to
Bernstein as consideration for the acquisition will be increased or decreased,
as appropriate, in the event that prior to the closing of the acquisition,
Alliance Capital (1) issues or delivers any additional Alliance Capital units
as a result of the declaration or payment of a distribution (other than a cash
distribution in the ordinary course consistent with past practice) to the
Alliance Capital unitholders, (2) subdivides its outstanding Alliance Capital
units into a larger number of Alliance Capital units, (3) combines its
outstanding Alliance Capital units into a smaller number of Alliance Capital
units or (4) becomes a party to any transaction (including without limitation a
merger, consolidation or conversion) in which the previously outstanding
Alliance Capital units will be changed into or exchanged for different
interests of Alliance Capital or changed into or exchanged for common stock,
interests or other securities of another person. Accordingly, if the number of
units that Alliance Capital will issue to Bernstein is adjusted for one of
these reasons, then the number of Alliance Holding units that Alliance Holding
may issue from time to time to Bernstein in exchange for its Alliance Capital
units will be increased or decreased, as appropriate.
In addition, the number of Alliance Holding units that Alliance Holding
may issue from time to time to Bernstein in exchange for the Alliance Capital
units Bernstein receives at closing may be increased or decreased, as
appropriate, if (1) at any time after the closing of the acquisition, Alliance
Capital issues or delivers any additional Alliance Capital units or adjusts the
outstanding Alliance Capital units, in each case, as described above or (2) the
general partner adjusts the exchange ratio of Alliance Holding units for
Alliance Capital units pursuant to Section 6.01 of the Alliance Holding limited
partnership agreement.
A vote in favor of Proposal No. 2 relating to amendments to our 1997 Long
Term Incentive Plan will not result in any adjustments described in this
section.
Equity Issuance to AXA Financial
AXA Financial and Alliance Capital entered into a financing agreement
dated as of June 20, 2000 pursuant to which AXA Financial purchased $1.6
billion worth of newly issued Alliance Capital units. The purchase price for
each Alliance Capital unit was $49.05, determined in accordance with section
4.02(e) of Alliance Capital's limited partnership agreement, which provides
that the price per Alliance Capital unit sold to the general partner or certain
affiliates of the general partner, including AXA Financial, be equal to the
average of the last reported sales price per Alliance Holding unit on the NYSE
for the five trading days immediately prior to the date of purchase. Based on
that formula, AXA Financial purchased from Alliance Capital 32,619,775 Alliance
Capital units on June 21, 2000. Alliance Capital will use the proceeds
primarily to finance the cash portion of the acquisition price.
Board and Committee Representation
Pursuant to a letter agreement dated as of June 20, 2000 between Bernstein
and AXA Financial, AXA Financial agreed to cause Messrs. Sanders and Hertog to
be elected to the board of directors of the general partner. Pursuant to the
acquisition agreement, Alliance Capital agreed to appoint Messrs. Sanders and
Hertog, to its Management Compensation Committee.
Employment Agreements
The following key executives of Bernstein executed employment agreements
with Alliance Capital, which the general partner's board of directors approved
and ratified on June 20, 2000.
1. Mr. Sanders, who will serve as Vice Chairman and Chief Investment
Officer of Alliance Capital;
2. Mr. Hertog, who will become Vice Chairman of Alliance Capital;
3. Mr. Michael L. Goldstein, who will serve as Executive Vice President
and Chief Investment Strategist Institutional Services of Alliance
Capital;
4. Mr. Andrew S. Adelson, who will serve as Executive Vice President and
Chief Investment Officer International Value Equities of Alliance
Capital; and
70
5. Ms. Marilyn G. Fedak, who will become Executive Vice President and
Chief Investment Officer U.S. Value Equities of Alliance Capital.
These employment agreements will become effective upon closing and expire
on the third anniversary of the closing date. The purpose of these agreements
is to provide additional incentives to individuals who are critical to the
business both in terms of completing the acquisition and beyond, and who are
likely targets for competitive offers from other companies.
Under the terms of their respective employment agreements, Messrs.
Sanders, Hertog, Goldstein and Adelson and Ms. Fedak have each agreed: (1) not
to engage, directly or indirectly, in any business that is competitive with
Alliance Capital for a period through the third anniversary of the closing date
or, in the event of a termination by Alliance Capital without cause (as defined
in their respective employment agreement) or by Messrs. Sanders, Hertog,
Goldstein or Adelson or Ms. Fedak, as the case may be, for good reason (as
defined in their respective employment agreement), through the date of such
termination; (2) not to solicit or entice away any employee of Alliance Capital
for a period through the third anniversary of the closing date or, in the event
of a termination by Alliance Capital without cause or by Messrs. Sanders,
Hertog, Goldstein or Adelson or Ms. Fedak, as the case may be, for good reason,
through the date of such termination; and (3) not to solicit or entice away any
clients or accounts of Alliance Capital through the earlier of the third
anniversary of the closing date and the end of the one year period beginning on
the date as of which his or her respective employment was terminated. "Good
reason" under the employment agreements of Messrs. Sanders and Hertog includes
any failure of Mr. Sanders or Mr. Hertog, respectively, to be elected to the
board of directors of the general partner or the removal of Mr. Sanders or Mr.
Hertog, respectively, from the board by Alliance Capital without cause. "Good
reason" under the employment agreements of Messrs. Goldstein and Adelson and
Ms. Fedak includes a termination of the service of both Messrs. Sanders and
Hertog as members of the general partner's board of directors, in each case as
a result of either a termination by Alliance Capital without cause (as defined
in the respective employment agreement of Messrs. Sanders and Hertog) or a
termination by Messrs. Sanders and Hertog for good reason (as defined in the
respective employment agreement of Messrs. Sanders and Hertog).
To further provide retention incentives for the employment of Messrs.
Sanders and Hertog, the board of directors of the general partner approved
annual base salaries for each of Messrs. Sanders and Hertog of $1,000,000 per
year. Messrs. Sanders and Hertog are also eligible to participate in Alliance
Capital's Deferred Compensation Plan and shall receive a minimum annual award
(as defined in the Plan) of $5,333,000 and $4,000,000, respectively. The board
of directors approved annual base salaries for Messrs. Goldstein and Adelson
and Ms. Fedak of $500,000 per year. Messrs. Goldstein and Adelson and Ms. Fedak
are also eligible to participate in Alliance Capital's Deferred Compensation
Plan and shall each receive a minimum annual award (as defined in the Plan) of
$3,333,000.
Voting Agreements
On July 20, 2000, Bernstein held a meeting of its shareholders at which
its shareholders approved and adopted the acquisition agreement and the
transactions contemplated thereby by the requisite vote.
Bernstein shareholders representing approximately 81% of the outstanding
Bernstein shares have entered into voting agreements with Alliance Capital,
pursuant to which they have agreed to:
o not vote in favor of the approval of any other proposal to acquire
the Bernstein business or any corporate action the consummation of
which would prevent or delay the consummation of the acquisition and
related transactions; and
o refrain from soliciting third party offers to acquire the Bernstein
business.
71
PROPOSAL NO. 2 -- AMENDMENTS TO THE 1997 LONG TERM INCENTIVE PLAN
In November 1997, the board of directors of the general partner
unanimously adopted and Alliance Holding unitholders subsequently approved,
Alliance Holding's 1997 Long Term Incentive Plan (the "1997 Plan"). The 1997
Plan provides for the granting of options and other Alliance Holding unit-based
awards in order to facilitate the attraction, retention and motivation of key
employees, as well as enabling such employees to participate in the long-term
growth and financial success of the Company. As of June 30, 2000, 8,376,000
options were granted under the 1997 Plan to purchase Alliance Holding units.
On July 26, 2000, the board of directors approved amendments to the 1997
Plan, subject to approval of the Alliance Holding unitholders, to increase by
25 million (subject to adjustment, as described below in "The Alliance Holding
1997 Long Term Incentive Plan -- Alliance Holding Units Presently Authorized
Under the 1997 Plan") the number of Alliance Holding units authorized for
issuance under the 1997 Plan and to extend the term of the 1997 Plan during
which awards may be made to July 26, 2010.
The continued success of Alliance Holding depends upon its ability to
attract and retain highly qualified and competent employees. Increasing the
number of Alliance Holding units available for award under the 1997 Plan and
extending the term during which awards may be made under the 1997 Plan enhance
that ability and provide additional incentives to such personnel to advance the
interests of Alliance Holding and its unitholders. The board of directors of
the general partner recommends that the Alliance Holding unitholders vote in
favor of the proposed amendments to the 1997 Plan.
The essential features of the 1997 Plan and the proposed amendments are
outlined below.
The Alliance Holding 1997 Long Term Incentive Plan
Alliance Holding Units Presently Authorized Under the 1997 Plan
The number of Alliance Holding units with respect to which awards may be
granted under the 1997 Plan may not exceed 16 million less the excess of (a)
the number of Alliance Holding units issued under Alliance Holding's Century
Club Plan (the "Century Club Plan") over (b) the Pre-1997 Century Club Limit,
as defined in the Century Club Plan. The number of Alliance Holding units
authorized under the 1997 Plan is subject to adjustment in the event of any
distribution (whether in the form of limited partnership interests, other
securities or other property), recapitalization (including, without limitation,
any subdivision or combination of limited partnership interests),
reorganization, consolidation, combination, repurchase, or exchange of limited
partnership interests or other securities of Alliance Holding, issuance of
warrants or other rights to purchase limited partnership interests or other
securities of Alliance Holding, any incorporation of Alliance Holding, or other
similar transaction or event affects the Alliance Holding units such that an
adjustment is determined to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the 1997 Plan. Such adjustments may be made by the Committee (as defined
below). The Alliance Holding units issuable under the 1997 Plan may be drawn
from either authorized but previously unissued Alliance Holding units or from
reacquired Alliance Holding units.
Material Features of the 1997 Plan
Currently, the Plan is administered by the board of directors or a
committee of the board of directors designated by the board of directors (the
"Committee"). Except as limited by the board of directors, the Committee has,
among other powers, the power to interpret, waive, amend, establish, or suspend
rules and regulations of the 1997 Plan in its administration of the 1997 Plan.
Except as limited by the board of directors, the Committee has sole and
complete authority to grant to eligible participants one or more equity awards,
including options, restricted Alliance Holding units and phantom restricted
Alliance Holding units, performance awards, other Alliance Holding unit-based
awards, or any combination thereof (each an "Award"). Except as limited by the
board of directors, the Committee has the sole discretion to determine the
number or amount of any Award to be awarded to any participant.
72
Each Award is evidenced by an award agreement that it delivered to the
participant specifying the terms and conditions of the Award and any rules
applicable to such Award. The material terms and features of the various forms
of Awards available under the 1997 Plan are set forth below.
Options. These are options to purchase Alliance Holding units upon payment
of a pre-established exercise price. The exercise price, vesting schedule (if
any) and other terms and conditions of options granted under the 1997 Plan are
established at the time of grant by the Committee.
Restricted Alliance Holding Units. These are grants of Alliance Holding
units to employees, subject generally to forfeiture and transfer restrictions
which lapse in accordance with a vesting schedule or upon the satisfaction of
specified conditions. The vesting schedule or conditions are established by the
Committee at the time of grant.
Phantom Restricted Alliance Holding Units. These are rights to receive
Alliance Holding units at a future date, in accordance with a vesting schedule
or upon satisfaction of other specified conditions. The vesting schedule or
other conditions are established by the Committee at the time of grant.
Performance Awards. These are rights to receive amounts, denominated in
Alliance Holding units, based upon Alliance Holding's performance during the
period between the date of grant and a pre-established future date. Performance
criteria, the length of the performance period, and the form and time of
payment of the Award are established by the Committee at the time of grant.
Other Alliance Holding Unit-Based Awards. These are Awards based on, or
related to, Alliance Holding units that do not constitute any of the Awards
described above. Such Awards have such terms and conditions as are established
by the Committee (such awards, "Other Unit-Based Awards").
Eligible Participants
Under the 1997 Plan, and as designated by the Committee, any officer or
employee of or any adviser or consultant to Alliance Holding or Alliance
Holding's affiliates or any member of the board of directors may be a
participant in the 1997 Plan and receive Awards thereunder.
The 1997 Plan is a discretionary plan and, accordingly, it is not possible
at present to determine the amount or form of any Award that will be available
for grant to any individual during the term of the 1997 Plan.
Amendments to the 1997 Plan
As of July 25, 2000, only approximately 7,891,000 options to purchase
Alliance Holding units remain available to be granted under the 1997 Plan. The
board of directors believes that it is in the best long-term interest of
Alliance Holding to have available for issuance under the 1997 Plan a
sufficient number of Alliance Holding units to provide for continuing,
meaningful incentives to the employees of Alliance Holding and Alliance
Holding's other subsidiaries. In addition, after the closing of the
acquisition, additional Alliance Holding units will be required to be available
for award to key Bernstein employees. No awards have been committed to
Bernstein or its shareholders.
Accordingly, subject to approval of the Alliance Holding unitholders, the
board of directors has approved an amendment under which the number of Alliance
Holding units with respect to which awards are authorized under the 1997 Plan
would be revised to equal the sum of 25 million (subject to adjustment, as
described above) and the present limit. (The present limit is described in
detail under "Alliance Holding Units Presently Authorized Under the 1997 Plan,"
above.) This would have the effect of increasing by 25 million the number of
Alliance Holding units authorized for issuance under the 1997 Plan.
In addition, subject to the approval of the Alliance Holding unitholders,
the board of directors has approved an amendment extending the term of the 1997
Plan from November 20, 2007 to July 26, 2010, which will lengthen the period
during which awards may be made under the 1997 Plan.
Discussion of Certain Federal Income Tax Consequences
Under current federal income tax law, the grant and/or exercise of Awards
under the 1997 Plan would have the following material tax consequences:
73
Options. A participant will not recognize taxable income solely as a
result of being granted an option or holding an unexercised option. When a
participant exercises an option, the participant will recognize ordinary income
equal to the excess, if any, of the fair market value of the Alliance Holding
units purchased thereunder over the purchase price. When a participant disposes
of such Alliance Holding units, any amount received in excess of the fair
market value of the Alliance Holding units on the date of exercise generally
will be treated as long-, mid- or short-term capital gain, depending upon the
holding period of the Alliance Holding units. If the amount received on
disposition of such Alliance Holding units is less than the fair market value
of the Alliance Holding units on the date of exercise, the loss generally will
be treated as long-, mid- or short-term capital loss, depending upon the
holding period of the Alliance Holding units. Upon the exercise of an option,
Alliance Holding will generally be entitled to a deduction for federal income
tax purposes in an amount equal to the amount of ordinary income recognized by
the participant in respect of the exercise.
To the extent that a participant pays all or part of the purchase price of
Alliance Holding units by surrendering Alliance Holding units owned by the
participant, the rules described in the preceding paragraph will apply, except
that the number of Alliance Holding units received upon the exercise which is
equal to the number of Alliance Holding units so surrendered will generally
have the same tax holding period as the Alliance Holding units surrendered.
Generally, the additional option Alliance Holding units received upon such
purchase will have a holding period which commences on the date of purchase.
The aggregate basis of a participant in all of his or her Alliance Holding
units immediately after such Alliance Holding units have been so acquired
generally will equal the sum of (i) the adjusted basis of any Alliance Holding
units owned by the participant immediately prior to exercise (including any
Alliance Holding units surrendered as payment of the purchase price), (ii) the
amount of cash paid by the participant upon exercise of the option and (iii)
the amount of ordinary income recognized by the participant upon the exercise
of the option. A participant will not recognize gain or loss with respect to
Alliance Holding units used to pay the purchase price upon exercise of an
option.
Restricted Alliance Holding Units. Except in the case of a Section 83(b)
election as described below, a recipient of restricted Alliance Holding units
will, at the time the Alliance Holding units vest, realize ordinary income in
an amount equal to the fair market value of the Alliance Holding units and any
other property received at the time of vesting, and Alliance Holding generally
will be entitled to a corresponding deduction for federal income tax purposes.
Partnership distributions paid to the participant with respect to the Alliance
Holding units during the period prior to vesting will be ordinary income to the
participant and deductible as such by Alliance Holding. Alternatively, a
recipient of restricted Alliance Holding units may, at the time of receipt of
such Alliance Holding units, elect under Section 83(b) of the U.S. Internal
Revenue Code (the "Code") to recognize the fair market thereof as of the date
of receipt, in which case Alliance Holding will be entitled to a corresponding
deduction at that time. If a recipient of restricted Alliance Holding units
makes a Section 83(b) election and subsequently forfeits the Alliance Holding
units prior to lapsing of the relevant restrictions, the recipient will not
recognize any loss, for federal income tax purposes, with respect to such
forfeiture.
The basis of a participant in his or her Alliance Holding units received
in respect of an Award of restricted Alliance Holding units generally will
equal the amount of ordinary income recognized by the participant as described
in the preceding paragraph. Upon disposition of such Alliance Holding units,
the participant will generally recognize long-, mid- or short-term capital gain
(or loss), depending upon the holding period of the Alliance Holding units.
Awards Settled in Property. Awards under the 1997 Plan that are settled in
vested property, such as phantom restricted Alliance Holding units and
performance Awards, will generally cause the recipient to realize ordinary
income, at the time of receipt, in the amount or fair market value of the
property received. Alliance Holding will generally be entitled to a deduction
of the same amount.
Other Alliance Holding Unit-Based Awards. The federal income tax
consequences of Other Unit-Based Awards will depend upon the form such Awards
take.
The foregoing discussion is based upon current provisions of the Code,
which are subject to change. The summary does not cover any state or local tax
consequences.
74
The 1997 Plan is not subject to any provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), nor is it a qualified
employee benefit plan under Section 401(a) of the Code.
75
Executive Compensation
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the general partner, based on 1999 salary and
annual bonuses (the "Named Executive Officers").
The general partner pays directors who are not employees of Alliance
Capital, Alliance Holding, AXA Financial or any affiliate of AXA Financial an
annual retainer of $18,000 plus $1,000 per meeting attended of the board of
directors and $500 per meeting of a committee of the board of directors not
held in conjunction with a board of directors meeting. Alliance Capital
reimburses Messrs. Luis Javier Bastida, Donald H. Brydon, Henri de Castries,
Kevin C. Dolan, Denis Duverne, Herve Hatt, Benjamin D. Holloway and Robert B.
Zoellick for certain expenses incurred in attending board of directors'
meetings. Other directors are not entitled to any additional compensation from
the general partner for their services as directors. The board of directors
meets quarterly.
Summary Compensation Table. The following Summary Compensation Table sets
forth all plan and non-plan compensation awarded to, earned by or paid to the
Named Executive Officers for the year ended December 31, 1999.
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Options/
Other Annual Stock (#Alliance LTIP All other
Compen- Award(s) Holding Payouts Compen-
Name and Principal Position Year Salary ($) Bonus ($) sation ($) (1) ($) Units) ($) (1) sation ($)(2)
- --------------------------- ---- --------- -------- ------------- ---------- --------- ------- ------------
Dave H. Williams............. 1999 274,996 5,500,000 -- 0 0 0 419,581
Chairman of the Board 1998 274,976 4,500,000 -- 0 0 0 482,531
1997 274,976 3,000,000 -- 0 0 0 835,027
John D. Carifa............... 1999 269,232 7,200,000 6,601,411 0 0 0 1,506,082
President & Chief
Operating Officer 1998 250,000 5,000,000 -- 0 500,000 0 1,209,640
1997 250,000 4,000,000 -- 0 0 0 686,979
Bruce W. Calvert............. 1999 269,232 6,200,000 -- 0 0 0 1,506,856
Vice Chairman & Chief
Executive Officer 1998 250,000 4,500,000 264,273 0 500,000 0 1,208,311
1997 250,000 4,000,000 -- 0 0 0 687,532
Robert H. Joseph, Jr......... 1999 172,692 738,000 610,429 0 15,000 0 283,348
Senior Vice President &
Chief Financial Officer 1998 163,846 591,500 257,798 0 20,000 0 187,737
1997 160,000 494,000 -- 0 20,000 0 110,335
David R. Brewer, Jr.......... 1999 172,692 741,500 879,670 0 15,000 0 283,348
Senior Vice President &
General Counsel 1998 163,846 595,000 199,448 0 20,000 0 187,737
1997 157,692 495,500 104,646 0 20,000 0 110,037
- ---------
(1) Perquisites and personal benefits are not included in column (e) if the
aggregate amount did not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported in columns (c) and (d).
Column (e) for 1999 includes for Mr. Carifa, among other perquisites and
personal benefits, $6,525,000 representing the dollar value of the
difference between the exercise price and fair market value of Alliance
Holding units acquired as a result of the exercise of options and $42,000
for personal tax services.
Column (e) for 1999 includes for Mr. Joseph, among other perquisites and
personal benefits, $588,246 representing the dollar value of the
difference between the exercise price and fair market value of Alliance
Holding units acquired as a result of the exercise of options and $9,000
for personal tax services.
Column (e) for 1999 includes for Mr. Brewer, among other perquisites and
personal benefits, $860,222 representing the dollar value of the
difference between the exercise price and fair market value of Alliance
Holding units acquired as a result of the exercise of options and $6,000
for personal tax services.
76
Column (e) for 1998 includes for Mr. Calvert, among other perquisites and
personal benefits, $247,323 for costs, including housing, cost-of-living
adjustment, tax equalization and car allowance, for a temporary assignment
in London and $16,950 for personal tax services.
Column (e) for 1998 includes for Mr. Joseph, among other perquisites and
personal benefits, $240,000 representing the dollar value of the
difference between the exercise price and fair market value of Alliance
Holding units acquired as a result of the exercise of options and $9,000
for personal tax services.
Column (e) for 1998 and 1997 includes for Mr. Brewer, among other
perquisites and personal benefits, $187,000 and $98,000 respectively,
representing the dollar value of the difference between the exercise price
and fair market value of Alliance Holding units acquired as a result of
the exercise of options and, for 1998, $5,700 for personal tax services.
(2) Column (i) includes award amounts vested and earnings credited in 1997,
1998 and 1999 in respect of the Alliance Partners Compensation Plan.
Column (i) does not include any amounts in respect of awards made in 1999
in respect of the Alliance Partners Compensation Plan since none of these
awards have vested and no earnings have been credited in respect of the
1999 awards.
Column (i) includes the following amounts for 1999:
Vesting of
Vesting of Awards and
Awards and Accrued
Accrued Earnings
Earnings Earnings Under Alliance Profit
Accrued On Under Capital Partners Sharing Term Life
Partners Plan Accumulation Compensation Plan Insurance
Balances Plan Plan Contribution Premiums Total
------------- ------------- -------------- ------------ --------- -----
Dave H. Williams....... $14,669 $83,581 $281,141 $23,000 $17,190 $419,581
John D. Carifa......... 5,735 33,442 1,438,366 23,000 5,539 1,506,082
Bruce W. Calvert....... 5,060 34,891 1,438,366 23,000 5,539 1,506,856
Robert H. Joseph, Jr... 0 0 256,862 23,000 3,486 283,348
David R. Brewer, Jr.... 0 0 256,862 23,000 3,486 283,348
Option Grants in 1999
The table below shows information regarding grants of options made to the
Chairman of the Board and each of the four most highly compensated executive
officers of the general partner at the end of 1999 ("Named Executive Officers")
under the 1993 Unit Option Plan and the 1997 Long Term Incentive Plan
("Alliance Capital Options Plans") during 1999. The amounts shown for each of
the Named Executive Officers as potential realizable values are based on
assumed annualized rates of appreciation of five percent and ten percent over
the full ten-year term of the options, which would result in Unit prices of
approximately $48.77 and $77.65, respectively. The amounts shown as potential
realizable values for all Alliance Holding unitholders represent the
corresponding increases in the market value of 72,259,583 outstanding Alliance
Holding units held by all Alliance Holding unitholders as of December 31, 1999,
which would total approximately $1.4 billion and $3.4 billion, respectively. No
gain to the optionees is possible without an increase in the price of an
Alliance Holding unit which will benefit all Alliance Holding unitholders
proportionately. These potential realizable values are based solely on assumed
rates of appreciation required by applicable SEC regulations. Actual gains, if
any, on option exercises and Alliance Holding unitholdings are dependent on the
future performance of the Alliance Holding units. There can be no assurance
that the potential realizable values shown in this table will be achieved.
77
Option Grants in 1999
Potential Realizable Value
at Assumed Annual Rates
of Unit Price Appreciation
Individual Grants(1) for Option Term
------------------------------------------------------------ --------------------------
% of total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration 5% 10%
Name Granted (#) Year (2) ($/Unit) Date ($) ($)
- ----------------------- ----------- ---------- -------- ---------- ------- -------
Dave H. Williams....... 0 N/A N/A N/A N/A N/A
John D. Carifa......... 0 N/A N/A N/A N/A N/A
Bruce W. Calvert....... 0 N/A N/A N/A N/A N/A
Robert H. Joseph, Jr... 15,000 .8% 30.25 12/06/09 277,800 711,000
David R. Brewer, Jr.... 15,000 .8% 30.25 12/06/09 277,800 711,000
(1) Options on Alliance Holding units are awarded at the fair market value of
Alliance Holding units at the date of award and become exercisable in 20%
increments commencing one year from such date if the optionee has not died
or terminated employment. Such options lapse at the earliest of ten years
after award, three months after the optionee's normal termination of
employment or disability, six months after the optionee's death, or at the
time of the optionee's termination of employment otherwise than normally.
(2) Options in respect of 2,000,000 Alliance Holding units were granted in
1999.
Aggregated Option Exercises in 1999 and 1999 Year-End Option Values
The following table summarizes for each of the Named Executive Officers
the number of options exercised during 1999, the aggregate dollar value
realized upon exercise, the total number of Alliance Holding units subject to
unexercised options held at December 31, 1999, and the aggregate dollar value
of in-the-money, unexercised options held at December 31, 1999. Value realized
upon exercise is the difference between the fair market value of the underlying
Alliance Holding units on the exercise date and the exercise price of the
option. Value of unexercised, in-the-money options at fiscal year-end is the
difference between its exercise price and the fair market value of the
underlying Alliance Holding units on December 31, 1999, which was $29.9375 per
Alliance Holding unit. These values have not been, and may never be, realized.
The underlying options have not been, and may never be, exercised, and actual
gains, if any, on exercise will depend on the value of Alliance Holding units
on the date of exercise. There can be no assurance that these values will be
realized.
Aggregated Option Exercises in 1999
And December 31, 1999 Option Values
Number of Alliance Holding Value of Unexercised In-the-
Units Underlying Unexpired Money Options at
Options Options at December 31, 1999 December 31, 1999 ($) (1)
Exercised Value Realized
(# Alliance
Name Holding Units) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- -------------- ----------- ------------- ----------- -------------
Dave H. Williams...... 0 N/A 0 0 0 0
John D. Carifa........ 400,000 6,525,000 380,000 470,000 6,065,000 2,875,625
Bruce W. Calvert...... 0 N/A 740,000 460,000 13,255,000 2,673,125
Robert H. Joseph, Jr.. 30,620 588,246 120,500 63,000 2,295,070 571,875
David R. Brewer, Jr... 34,058 860,222 148,750 59,000 3,046,711 490,875
- ---------
(1) In-the-Money Options are those where the fair market value of the
underlying Alliance Holding units exceeds the exercise price of the
option. The Named Executive Officers hold no other options in respect of
the Alliance Holding units or Alliance Capital units.
Options to acquire Alliance Holding units are granted by Alliance Capital
to its employees. Upon exercise of options, Alliance Holding exchanges the
proceeds from exercise for a number of Alliance Capital units equal to
78
the number of Alliance Holding units acquired pursuant to the option exercises,
thus increasing Alliance Holding's investment in Alliance Capital.
Compensation Agreements with Certain Executive Officers
In connection with the 1985 acquisition by Equitable Life of Donaldson
Lufkin & Jenrette, Inc. ("DLJ"), ACMC, Inc., a wholly owned subsidiary of
Equitable Life, entered into employment agreements with Messrs. Williams,
Carifa and Calvert. Each agreement provided for deferred compensation payable
in stated monthly amounts for ten years commencing at age 65, or earlier in a
reduced amount in the event of disability or death, if the individual involved
so elects. The right to receive such deferred compensation is vested. Assuming
payments commence at age 65, the annual amount of deferred compensation payable
for ten years to Messrs. Williams, Carifa and Calvert is $425,731, $522,036,
and $434,612, respectively. While Alliance Capital assumed responsibility for
payment of these deferred compensation obligations, ACMC, Inc. and the general
partner are required, subject to certain limitations, to make capital
contributions to Alliance Capital in an amount equal to the payments, and ACMC,
Inc. is also obligated to the employees for the payments. The general partner's
obligations to make capital contributions to Alliance Capital are guaranteed,
subject to certain limitations, by Equitable Holdings LLC, a wholly-owned
subsidiary of Equitable Life.
Certain Employee Benefit Plans
Retirement Plan. Alliance Capital maintains a qualified, non-contributory,
defined benefit retirement plan covering most employees of Alliance Capital who
have completed one year of service and attained age 21. Employer contributions
are determined by application of actuarial methods and assumptions to reflect
the cost of benefits under the plan. Each participant's benefits are determined
under a formula which takes into account years of credit service, the
participant's average compensation over prescribed periods and Social Security
covered compensation. The maximum annual benefit payable under the plan may not
exceed the lesser of $100,000 or 100% of a participant's average aggregate
compensation for the three consecutive years in which he received the highest
aggregate compensation from Alliance Capital or such lower limit as may be
imposed by the Internal Revenue Code on certain participants by reason of their
coverage under another qualified plan maintained by Alliance Capital. A
participant is fully vested after the completion of five years of service. The
plan generally provides for payments to or on behalf of each vested employee
upon such employee's retirement at the normal retirement age provided under the
plan or later, although provision is made for payment of early retirement
benefits on an actuarially reduced basis. Normal retirement age under the plan
is 65. Death benefits are payable to the surviving spouse of an employee who
dies with a vested benefit under the plan.
The table below sets forth with respect to the retirement plan the
estimated annual straight life annuity benefits payable upon retirement at
normal retirement age for employees with the remuneration and years of service
indicated:
Estimated Annual Benefits
---------------------------------------------------------------------------------------
Years of Service at Retirement
Average Final ---------------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40 45
- ------------- --------- --------- --------- --------- --------- --------- ---------
$100,000 $19,078 $25,437 $31,796 $38,156 $44,515 $49,515 $54,515
150,000 30,328 40,437 50,546 60,656 70,765 78,265 85,765
200,000 41,578 55,437 69,296 83,156 97,015 100,000 100,000
250,000 52,828 70,437 88,046 100,000 100,000 100,000 100,000
300,000 64,078 85,437 100,000 100,000 100,000 100,000 100,000
Assuming they are employed by Alliance Capital until age 65, the credited
years of service under the plan for Messrs. Williams, Carifa, Calvert, Joseph
and Brewer would be 20, 40, 38, 28 and 22, respectively. Compensation on which
plan benefits are based includes only base compensation and not bonuses,
incentive compensation, profit-sharing plan contributions or deferred
compensation. The compensation for calculation of plan benefits for each of
these five individuals for 1999 is $160,000, $160,000, $160,000, $160,000 and
$160,000, respectively.
DLJ Executive Supplemental Retirement Program. In 1983 DLJ adopted an
Executive Supplemental Retirement Program under which certain employees of
Alliance Capital deferred a portion of their 1983 compensation in return for
which DLJ agreed to pay each of them a specified annual retirement benefit for
15 years beginning at age 65. Benefits
79
are based upon the participant's age and the amount deferred and are calculated
to yield an approximate 12.5% annual compound return. In the event of the
participant's disability or death, an equal or lesser amount is to be paid to
the participant or his beneficiary. After age 55, participants the sum of whose
age and years of service equals 80 may elect to have their benefits begin in an
actuarially reduced amount before age 65. DLJ has funded its obligation under
the Executive Supplemental Retirement Program through the purchase of life
insurance policies.
The following table shows as to the Named Executive Officers who are
participants in the Executive Supplemental Retirement Program the estimated
annual retirement benefit payable at age 65. Each of these individuals is fully
vested in the applicable benefit.
Estimated Annual
Name Retirement Benefit
- ---- ------------------
Dave H. Williams................... $ 55,838.28
John D. Carifa..................... 124,495.56
Bruce W. Calvert................... 154,501.80
80
THE SPECIAL MEETING
On behalf of Alliance Holding, the general partner is using this proxy
statement to solicit voting instructions from Alliance Holding unitholders for
use at the Alliance Holding special meeting. We are first mailing this proxy
statement and accompanying voting instruction form to Alliance Holding
unitholders on or about o, 2000.
Matters Relating to the Meeting
Time and Place: o, 2000
o a.m., New York City time
Alliance Capital Management L.P.
1345 Avenue of the Americas
41(st) floor
New York, New York 10105
Purpose of Meeting is to Vote (1) The possible issuance of up to 40.8 million Alliance Holding units
Upon the Following Items: (subject to adjustment, as described in this proxy statement) from
time to time in exchange for Alliance Capital units issued to
Bernstein in connection with the acquisition by Alliance Capital of
the Bernstein business; and
(2) The approval and adoption of the amendment to Alliance Holding's
1997 Long Term Incentive Plan providing for the increase by 25
million of the Alliance Holding units authorized for issuance
(subject to adjustment, as described in this proxy statement)
thereunder and the extension of the term of the 1997 Long Term
Incentive Plan during which awards may be made to July 26, 2010.
(3) Such other matters as may properly come before the meeting,
including the approval of any adjournment of the meeting.
Record Date: The record date for Alliance Holding units entitled to vote is o, 2000.
Outstanding Alliance Holding Units As of the close of business on the record date, there were o Alliance
as of Record Date: Holding units outstanding and entitled to vote.
Quorum Requirement: A quorum is necessary to hold a valid meeting. A quorum will be met if
Alliance ALP, Inc. (the entity that holds, in name only, the limited
partnership interests underlying all units) has received voting instructions
(including instructions to abstain) for more than 50% of the Alliance
Holding units held by all holders.
Presence of Accountants at the Representatives of KPMG LLP are expected to be present at the meeting.
Meeting: These representatives will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to
appropriate questions.
81
Vote Required to Approve the Proposals
Proposal Vote Necessary
1. Approval of issuance of Alliance Affirmative vote of a majority of votes cast.
Holding units:
2. Approval of amendments to the 1997 Affirmative vote of a majority of votes cast.
Long Term Incentive Plan:
In addition, both proposals require the approval of the general partner,
which has already been obtained.
Voting Instructions
You may vote in person at the special meeting or by submitting your voting
instructions as directed in your voting instruction form. To be effective, your
voting instructions must be submitted to Alliance ALP, Inc. (the entity that
holds, in name only, the limited partnership interests underlying all units) on
or before the special meeting date.
You are entitled to direct the vote of one limited partnership interest in
Alliance Holding for every unit you hold. If your voting instruction form is
signed and returned without indicating instructions for one or both proposals,
your units will be voted FOR approval of that proposal or those proposals. If
your voting instruction form is signed and returned and indicates instructions
to abstain with respect to one or both proposals, this will have the effect of
neither a vote FOR nor a vote AGAINST approval of that proposal or those
proposals. If you do not submit a voting instruction form to Alliance ALP,
Inc., your units will not be deemed represented at the special meeting for
purposes of determining whether a quorum is present, and your units will not be
voted for approval of either proposal. Broker non-votes will be counted to
determine whether a quorum is present but will not be counted in determining
whether a particular proposal has been approved by the unitholders.
How to Vote:
By Telephone*: Call o toll-free and follow the instructions. You will need to
give the personal identification number contained on your
voting instruction form.
By Internet*: Go to www.o and follow the instructions. You will need to
give the personal identification number contained on your
voting instruction form.
In Writing: Complete, sign, date and return your voting instruction form in
the enclosed envelope.
- ---------
* If you hold shares through a broker or other custodian, please check the
voting form used by that firm to see if it offers telephone or internet
voting. Section 17.04(c) of the Alliance Holding limited partnership
agreement provides that Delaware law governing the validity and use of
corporate proxies shall govern the validity and use of written
instructions by unitholders. Section 212 of the Delaware General
Corporation Law authorizes the use of electronic transmission, such as
transmissions over the internet, to grant a proxy.
Revoking Your Voting Instructions
You may revoke your voting instructions before the vote at the special
meeting by:
o submitting new voting instructions with a later date, including
voting instructions given by telephone or internet, to Alliance ALP,
Inc. and the general partner,
o notifying Alliance ALP, Inc. and the secretary of the general partner
in writing before the meeting that you have revoked your voting
instructions, or
82
o attending the special meeting and delivering another voting
instruction form to Alliance ALP, Inc. in person. Attendance at the
special meeting will not by itself constitute a revocation of voting
instructions.
All written notices of revocation and other communications with respect to
revocation of voting instructions should be addressed to Alliance ALP, Inc. and
the secretary of the general partner, c/o [Name of proxy solicitor], [address],
toll-free telephone number: o.
Other Business; Adjournments
The Board of Directors of the general partner knows of no other matters to
be acted on at the special meeting. However, if any other matters are properly
brought before the special meeting, Alliance ALP, Inc. or its substitutes will
vote the voting instructions in accordance with its judgment with respect to
such matters, unless you withhold authority to do so in your voting
instructions.
Adjournments may be made for the purpose of, among other things,
solicitations of additional voting instructions. If your voting instruction
form is signed and returned and indicates instructions to vote AGAINST one or
both proposals, your units will be voted AGAINST any adjournments. Otherwise,
your units will be voted FOR any adjournments.
Alliance Holding does not hold annual meetings of unitholders and does not
expect to hold any unitholder meetings other than the special meeting for the
foreseeable future.
Solicitation of Voting Instruction Forms
This solicitation is being made by the general partner on behalf of
Alliance Holding. The costs of soliciting voting instructions will be borne by
Alliance Capital. In addition to this mailing, officers, employees or
representatives of the general partner may solicit voting instruction forms
personally, electronically or by telephone. Officers, employees or
representatives of the general partner may also meet with brokers, research
analysts and other members of the investment community and may arrange meetings
with unitholders to discuss the special meeting. Officers and employees of the
general partner who engage in solicitation efforts or who participate in such
meetings and contacts will do so without additional compensation.
The general partner has also retained o as information agent to help with
the solicitation. In connection with this engagement, the information agent
will receive a fee of $o plus reasonable out-of-pocket expenses. None of the
compensation paid to the information agent will be contingent on the outcome of
the solicitation efforts or the result of the solicitation with respect to
either Proposal or based on the number of affirmative votes received.
No Appraisal Rights
Alliance Holding unitholders who object to either Proposal No. 1 or
Proposal No. 2 will have no appraisal, dissenter or similar rights under
applicable law. That is, such Alliance Holding unitholders will not have the
right, instead of consenting to Proposal No. 1 or Proposal No. 2, to seek
judicial determination of the "fair value" of the Alliance Holding units and to
compel Alliance Holding to purchase such Alliance Holding units for cash in
that amount. Alliance Holding will not voluntarily give its unitholders these
rights. If you give voting instructions to vote in favor of Proposal No. 1 or
Proposal No. 2, a court may find that you have waived your right to challenge
the fairness of such proposal, regardless of whether you act individually or as
a member of a class of Alliance Holding's unitholders.
83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Security Holders
Alliance Holding has no information that any person beneficially owns more
than 5% of the Alliance Holding units.
Management
The following table sets forth, as of July 1, 2000, the beneficial
ownership of Alliance Holding units by each director and each Named Executive
Officer of the general partner and by all directors and executive officers of
the general partner as a group:
Number of Alliance Holding
Alliance Holding Units and
Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------ -------------------------- ----------------
Dave H. Williams (1)(2)............................................... 1,009,876 1.4%
Luis Javier Bastida................................................... 0 *
Donald H. Brydon (1).................................................. 0 *
Bruce W. Calvert (1)(3)............................................... 1,300,000 1.8%
John D. Carifa (1)(4)................................................. 1,435,336 2.0%
Henri de Castries (1)................................................. 2,000 *
Kevin C. Dolan (1).................................................... 0 *
Denis Duverne (1)..................................................... 2,000 *
Alfred Harrison (1)................................................... 342,940 *
Herve Hatt (1)........................................................ 0 *
Michael Hegarty (1)................................................... 0 *
Benjamin D. Holloway(5)............................................... 13,600 *
W. Edwin Jarmain(1)................................................... 0 *
Edward D. Miller (1).................................................. 0 *
Peter D. Noris (1).................................................... 2,000 *
Frank Savage (1)...................................................... 81,000 *
Peter J. Tobin(1)..................................................... 0 *
Stanley B. Tulin (1).................................................. 4,000 *
Reba W. Williams (1)(6)............................................... 1,009,876 1.4%
Robert B. Zoellick(7)................................................. 2,600 *
David R. Brewer, Jr. (1)(8)........................................... 242,000 *
Robert H. Joseph, Jr. (1)(9).......................................... 133,800 *
All Directors and executive officers of the general partner as a
Group (22 persons)(10)............................................... 4,581,232 6.3%
- ---------
* Number of Alliance Holding units listed represents less than 1% of the
Alliance Holding units outstanding.
(1) Excludes Alliance Holding units beneficially owned by AXA, AXA Financial
and/or EquitableLife. Messrs. Williams, Brydon, de Castries, Dolan,
Duverne, Hatt, Hegarty, Jarmain, Miller, Noris, Tobin and Tulin are
directors and/or officers of AXA, AXA Financial and/or Equitable Life.
Messrs. Williams, Calvert, Carifa, Harrison, Savage, Brewer, Joseph and
Mrs. Reba W. Williams are directors and/or officers of the general
partner.
(2) Includes 160,000 Alliance Holding units owned by Mrs. Reba W. Williams.
(3) Includes 800,000 Alliance Holding units which may be acquired within 60
days under Alliance Capital Option Plans.
(4) Includes 450,000 Alliance Holding units which may be acquired within 60
days under Alliance Capital Option Plans.
(5) Includes 2,000 Alliance Holding units which may be acquired within 60 days
under Alliance Capital Option Plans.
(6) Includes 849,876 Alliance Holding units owned by Mr. Dave H. Williams.
(7) Includes 2,000 Alliance Holding units which may be acquired within 60 days
under Alliance Capital Option Plans.
84
(8) Includes 140,000 Alliance Holding units which may be acquired within 60
days under Alliance Capital Option Plans and 2,000 Alliance Holding units
owned by Mr. Brewer's wife.
(9) Includes 113,880 Alliance Holding units which may be acquired within 60
days under Alliance Capital Option Plans.
(10) Includes 1,507,880 Alliance Holding units which may be acquired within 60
days under Alliance Capital Option Plans.
The following tables set forth, as of March 1, 2000, the beneficial
ownership of the common stock of AXA Financial, AXA, a company organized under
the laws of France, and Finaxa, a French holding company that, on March 1,
2000, directly and indirectly owned approximately 20.3% of the issued ordinary
shares (representing 31.9% of the voting power) of AXA, by each director and
each Named Executive Officer of the general partner and by all directors and
executive officers of the general partner as a group:
AXA Financial Common Stock
Number of Shares and Nature Percent of
Name of Beneficial Owner of Beneficial Ownership Class
- ------------------------ --------------------------- ----------
Dave H. Williams (1)................................................... 200,000 *
Luis Javier Bastida ................................................... 0 *
Donald H. Brydon (2)................................................... 0 *
Bruce W. Calvert (3)................................................... 100,000 *
John D. Carifa (4)..................................................... 100,000 *
Henri de Castries (2)(5)............................................... 86,665 *
Kevin C. Dolan (2)..................................................... 0 *
Denis Duverne (2)(6)................................................... 53,999 *
Alfred Harrison........................................................ 0 *
Herve Hatt (2)......................................................... 0 *
Michael Hegarty (2)(7)................................................. 296,794 *
Benjamin D. Holloway................................................... 108 *
Edward D. Miller (2)(8)................................................ 732,711 *
Peter D. Noris (9)..................................................... 216,333 *
Frank Savage........................................................... 136 *
Stanley B. Tulin (10).................................................. 278,753 *
Reba W. Williams (11).................................................. 200,000 *
Robert B. Zoellick..................................................... 0 *
David R. Brewer, Jr.................................................... 0 *
Robert H. Joseph, Jr................................................... 0 *
All Directors and executive officers of the general partner as a
Group (20 persons)(12)................................................ 2,065,499 *
- ---------
* Number of shares listed represents less than one percent (1%) of the
number of shares of AXA Financial common stock outstanding.
(1) Represents 200,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(2) Excludes shares beneficially owned by AXA. Messrs. Brydon, de Castries,
Dolan, Duverne, Hatt, and Miller are officers of AXA.
(3) Represents 100,000 shares subject to options held by Mr. Calvert, which
options Mr. Calvert has the right to exercise within 60 days.
(4) Represents 100,000 shares subject to options held by Mr. Carifa, which
options Mr. Carifa has the right to exercise within 60 days.
(5) Represents 86,665 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days.
(6) Includes 49,999 shares subject to options held by Mr. Duverne, which
options Mr. Duverne has the right to exercise within 60 days and 4,000
shares owned jointly by Mr. Duverne and his spouse, Sylvie Duverne.
85
(7) Includes 295,956 shares subject to options held by Mr. Hegarty, which
options Mr. Hegarty has the right to exercise within 60 days.
(8) Includes 732,511 shares subject to options held by Mr. Miller, which
options Mr. Miller has the right to exercise within 60 days.
(9) Represents 216,633 shares subject to options held by Mr. Noris, which
options Mr. Noris has the right to exercise within 60 days.
(10) Includes 253,280 shares subject to options held by Mr. Tulin, which
options Mr. Tulin has the right to exercise within 60 days and 8,000
shares owned jointly by Mr. Tulin and his spouse, Riki P. Tulin.
(11) Represents 200,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(12) Includes 2,035,044 shares subject to options, which options may be
exercised within 60 days.
AXA Common Stock
Number of Shares and Nature Percent of
Name of Beneficial Owner of Beneficial Ownership Class
- ------------------------ --------------------------- ----------
Dave H. Williams (1)................................................... 10,000 *
Luis Javier Bastida ................................................... 0 *
Donald H. Brydon (2)................................................... 6,250 *
Bruce W. Calvert (3)................................................... 2,500 *
John D. Carifa (4)..................................................... 3,000 *
Henri de Castries (5).................................................. 122,750 *
Kevin C. Dolan (6)..................................................... 29,350 *
Denis Duverne (7)...................................................... 26,042 *
Alfred Harrison........................................................ 0 *
Herve Hatt (8)......................................................... 2,500 *
Michael Hegarty (9).................................................... 3,750 *
Benjamin D. Holloway................................................... 0 *
Edward D. Miller (10).................................................. 12,500 *
Peter D. Noris (11).................................................... 4,250 *
Frank Savage........................................................... 0 *
Stanley B. Tulin (12).................................................. 8,500 *
Reba W. Williams (13).................................................. 10,000 *
Robert B. Zoellick..................................................... 300 *
David R. Brewer, Jr.................................................... 0 *
Robert H. Joseph, Jr................................................... 0 *
All Directors and executive officers of the general partner as a
Group (20 persons)(14)................................................ 231,692 *
- ---------
* Number of shares listed represents less than one percent (1%) of the AXA
common stock outstanding. Holdings of AXA American Depositary Shares are
expressed as their equivalent in AXA common stock. Each AXA American
Depositary Share is equivalent to one-half of a share of AXA common stock.
(1) Represents 10,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(2) Represents 6,250 shares subject to options held by Mr. Brydon, which
options Mr. Brydon has the right to exercise within 60 days.
(3) Represents 2,500 shares subject to options held by Mr. Calvert, which
options Mr. Calvert has the right to exercise within 60 days.
(4) Includes 2,500 shares subject to options held by Mr. Carifa, which options
Mr. Carifa has the right to exercise within 60 days.
(5) Includes 59,125 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days and 7,500
shares owned by Mr. de Castries' three minor children.
(6) Represents 29,350 shares subject to options held by Mr. Dolan, which
options Mr. Dolan has the right to exercise within 60 days.
86
(7) Includes 16,000 shares held jointly with Mr. Duverne's wife, 42 shares
owned by Mr. Duverne's children and 10,000 shares subject to options held
by Mr. Duverne, which options Mr. Duverne has the right to exercise within
60 days.
(8) Represents 2,500 shares subject to options held by Mr. Hatt, which options
Mr. Hatt has the right to exercise within 60 days.
(9) Represents 3,750 shares subject to options held by Mr. Hegarty, which
options Mr. Hegarty has the right to exercise within 60 days.
(10) Represents 12,500 shares subject to options held by Mr. Miller, which
options Mr. Miller has the right to exercise within 60 days.
(11) Represents 4,250 shares subject to options held by Mr. Noris, which
options Mr. Noris has the right to exercise within 60 days.
(12) Includes 7,500 shares subject to options held by Mr. Tulin, which options
Mr. Tulin has the right to exercise within 60 days.
(13) Represents 10,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(14) Includes 150,225 shares subject to options, which options may be exercised
within 60 days.
87
Finaxa Common Stock
Number of Shares and Nature Percent of
Name of Beneficial Owner of Beneficial Ownership Class
- ------------------------ --------------------------- ----------
Dave H. Williams....................................................... 0 *
Luis Javier Bastida ................................................... 0 *
Donald H. Brydon....................................................... 0 *
Bruce W. Calvert....................................................... 0 *
John D. Carifa......................................................... 0 *
Henri de Castries...................................................... 71,001 *
Kevin C. Dolan......................................................... 0 *
Denis Duverne.......................................................... 0 *
Alfred Harrison........................................................ 0 *
Herve Hatt............................................................. 0 *
Michael Hegarty........................................................ 0 *
Benjamin D. Holloway................................................... 0 *
Edward D. Miller....................................................... 0 *
Peter D. Noris......................................................... 0 *
Frank Savage........................................................... 0 *
Stanley B. Tulin....................................................... 0 *
Reba W. Williams....................................................... 0 *
Robert B. Zoellick..................................................... 0 *
David R. Brewer, Jr.................................................... 0 *
Robert H. Joseph, Jr................................................... 0 *
All Directors and executive officers of the general partner as a
Group (20 persons).................................................... 71,001 *
- ---------
* Number of shares listed represents less than one percent (1%) of the
Finaxa common stock outstanding.
88
WHERE YOU CAN FIND MORE INFORMATION
Alliance Holding and Alliance Capital file annual, quarterly and special
reports and other information with the SEC. You may read and copy any reports,
statements or other information we or Alliance Capital file at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or in New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC filings of Alliance
Holding and Alliance Capital are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov".
The SEC allows us to "incorporate by reference" information into this
proxy statement/prospectus, which means that we can disclose important business
and financial information about Alliance Holding to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this proxy statement, except for any
information superseded by information in this proxy statement. This proxy
statement incorporates by reference the documents set forth below that we have
previously filed with the SEC. These documents contain important information
about the Alliance Holding business.
Alliance Holding SEC Filings (File No. 1-9818) Period
- ---------------------------------------------- ------
Annual Report on Form 10-K Fiscal Year Ended December 31, 1999
Quarterly Report on Form 10-Q Fiscal Quarter ended March 31, 2000
Current Report on Form 8-K Dated June 20, 2000
We are also incorporating by reference additional documents that we file
with the SEC between the date of this proxy statement and the date of the
special meeting.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this proxy statement. Please direct your oral or written requests
to:
[Name of proxy solicitor]
[Address]
[Address]
[Phone number]
If you would like to request documents, please do so no later than o, 2000
in order to receive them before the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the issuance of Alliance Holding
units. We have not authorized anyone to provide you with information that is
different from what is contained in this proxy statement. This proxy statement
is dated o, 2000. You should not assume that the information contained in the
proxy statement is accurate as of any date other than such date, and neither
the mailing of this proxy statement to Alliance Holding unitholders nor the
issuance of Alliance Holding units shall create any implication to the
contrary.
By Order of the General Partner
_______________________________
DAVID R. BREWER, JR.
Senior Vice President, General Counsel and Secretary
Alliance Capital Management Corporation
Dated: o, 2000
89
Alliance Capital Management Holding L.P.
Instructions of Unitholder of
Alliance Capital Management Holding L.P. in connection with
the Special Meeting of Limited Partners and Unitholders
o , 2000
THESE VOTING INSTRUCTIONS ARE
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE GENERAL PARTNER OF THE PARTNERSHIP
The undersigned hereby instructs Alliance ALP, Inc., the assignor limited
partner (the "Assignor Limited Partner") of Alliance Capital Management Holding
L.P. (the "Partnership") to vote the limited partnership interests underlying
all of the units registered in the name of the undersigned at the special
meeting of unitholders of the Partnership to be held at o a.m., New York City
time, on o, 2000, at the Partnership's offices, 41(st) Floor, 1345 Avenue of
the Americas, New York, New York 10105 or any adjournments or postponements
thereof. The undersigned acknowledges receipt of the notice of special meeting
and the accompanying proxy statement and hereby instructs the Assignor Limited
Partner to vote as indicated hereon..
IF THIS VOTING INSTRUCTION FORM EXECUTED BY THE REGISTERED OWNER
IDENTIFIED BELOW IS NOT RECEIVED BY THE ASSIGNOR LIMITED PARTNER, AND SUCH
OWNER DOES NOT VOTE BY TELEPHONE OR INTERNET AS DESCRIBED BELOW, THE LIMITED
PARTNERSHIP INTERESTS UNDERLYING THE UNITS HELD BY SUCH OWNER WILL NOT BE
DEEMED REPRESENTED AT THE SPECIAL MEETING FOR PURPOSES OF DETERMINING WHETHER A
QUORUM IS PRESENT AND WILL NOT BE VOTED AT THE SPECIAL MEETING.
(Continued and to be dated and signed on the reverse side.)
Alliance Capital Management Holding L.P.
1345 Avenue of the Americas
New York, New York 10105
1. To approve the possible issuance of up to 40.8 million units ("Alliance
Holding Units") (subject to adjustment, as described in the Proxy
Statement) of Alliance Capital Management Holding L.P. ("Alliance
Holding") from time to time in exchange for units of limited partnership
interest of Alliance Capital Management L.P. ("Alliance Capital") issued
to Sanford C. Bernstein Inc. and its subsidiaries in connection with the
acquisition by Alliance Capital of the business of Sanford C. Bernstein
Inc. and its subsidiaries.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER RECOMMENDS THAT UNITHOLDERS VOTE
"FOR" PROPOSAL NO. 1.
2. To approve and adopt the amendments to Alliance Holding's 1997 Long Term
Incentive Plan providing for the increase by 25 million (subject to
adjustment, as described in the Proxy Statement) of the Alliance Holding
units authorized for issuance thereunder and the extension of the term of
the 1997 Long Term Incentive Plan during which awards may be made to July
26, 2010.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER RECOMMENDS THAT UNITHOLDERS VOTE
"FOR" PROPOSAL NO. 2.
PLEASE CHECK THIS BOX IF YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON. [ ]
(Please sign exactly as name appears to the left,
date and return. If shares are held by joint
tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.)
Please Date: ________________________________________
Sign Here: ________________________________________
________________________________________
Signature (if held jointly)
________________________________________
Capacity (Title or Authority, i.e.,
President, Partner, Executor, Trustee)
Section 17.04(c) of the Alliance Holding limited partnership agreement
provides that Delaware law governing the validity and use of corporate proxies
shall govern the validity and use of written instructions by unitholders.
Section 212 of the Delaware General Corporation Law authorizes the use of
electronic transmission, such as transmissions over the internet, to grant a
proxy.
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
FINANCIAL STATEMENTS SUPPLEMENT
SANFORD C. BERNSTEIN INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................................F-2
Consolidated Statements of Financial Condition.............................F-3
Consolidated Statements of Income..........................................F-4
Consolidated Statements of Changes in Shareholders' Equity.................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to Consolidated Financial Statements.................................F-7
Unaudited Consolidated Statement of Financial Condition...................F-12
Unaudited Consolidated Statements of Income...............................F-13
Unaudited Consolidated Statement of Shareholders' Equity..................F-14
Unaudited Consolidated Statements of Cash Flows...........................F-15
Notes to Unaudited Consolidated Financial Statements......................F-16
F-1
Report of Independent Auditors
The Board of Directors of
Sanford C. Bernstein Inc.
We have audited the accompanying consolidated statements of financial
condition of Sanford C. Bernstein Inc. as of December 31, 1999 and 1998 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally
accepted in the United States. 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 consolidated financial position of Sanford C.
Bernstein Inc. as of December 31, 1999 and 1998 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
February 29, 2000
New York, New York
F-2
Sanford C. Bernstein Inc.
Consolidated Statements of Financial Condition
(In thousands, except share data)
December 31,
-------------------------------------
1999 1998
---------- ----------
Assets
Cash and cash equivalents.................................................. $29,155 $73,712
United States Treasury Bills, at market value (cost of $1,232,361 and
$1,381,307, respectively)................................................ 1,243,783 1,394,305
Receivables:
Brokers and dealers...................................................... 925,098 1,076,307
Clients.................................................................. 191,747 152,265
Advisory fees............................................................ 47,231 40,632
Related parties...................................................... 943 --
Furniture, equipment and leasehold improvements, at cost (net of
accumulated depreciation and amortization of $51,103 and $39,468,
respectively)............................................................ 29,085 26,842
Other assets............................................................... 27,476 22,372
---------- ----------
Total assets............................................................... $2,494,518 $2,786,435
Liabilities and Shareholders' Equity
Payables:
Brokers and dealers...................................................... $636,384 $710,877
Clients.................................................................. 1,474,354 1,623,376
Related parties.......................................................... 53,339 165,931
Accrued compensation....................................................... 123,918 110,581
Accrued expenses and other liabilities..................................... 36,378 31,501
Payable to shareholders.................................................... 10,000 18,211
Notes payable to shareholders.............................................. 130,000 --
---------- ----------
Total liabilities.......................................................... 2,464,373 2,660,477
========== ==========
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 500,000 shares authorized; 100,350
and 100,250 shares issued and outstanding, respectively;............... 1 1
Additional paid-in capital............................................... 19,972 19,841
Retained earnings........................................................ 11,421 106,796
Accumulated foreign currency translation adjustment................... 14 --
Treasury stock, at cost; 950 and 650 shares, respectively................ (1,263) (680)
---------- ----------
Total shareholders' equity................................................. 30,145 125,958
---------- ----------
Total liabilities and shareholders' equity................................. $2,494,518 $2,786,435
========== ==========
See Notes to Consolidated Financial Statements.
F-3
Sanford C. Bernstein Inc.
Consolidated Statements of Income
(In thousands)
Years ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
Revenues
Investment management............ $602,352 $561,740 $444,277
Institutional services........... 198,412 180,460 133,694
Interest......................... 73,577 76,911 56,617
Securities borrowed income....... 43,224 43,837 35,957
Other............................ 5,493 8,017 6,340
-------- -------- --------
Gross revenues.............. 923,058 870,965 676,885
Interest expense................. 67,350 71,297 53,074
Securities loaned expense........ 29,288 29,029 24,526
-------- -------- --------
Net revenues................ 826,420 770,639 599,285
-------- -------- --------
Expenses
Compensation and benefits........ 324,578 287,790 233,588
Communications and technology.... 32,594 26,619 21,238
Occupancy........................ 21,987 19,722 15,878
Business development ............ 19,761 17,127 13,822
Floor brokerage and clearance.... 13,064 13,435 9,904
Other............................ 23,123 20,133 15,300
-------- -------- --------
Total expenses.............. 435,107 384,826 309,730
-------- -------- --------
Income before income taxes....... 391,313 385,813 289,555
Income taxes..................... 19,188 20,250 21,945
-------- -------- --------
Net income....................... $372,125 $365,563 $267,610
======== ======== ========
See Notes to Consolidated Financial Statements.
F-4
Sanford C. Bernstein Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1997, 1998 and 1999
(In thousands, except share data)
Accumulated
Additional Foreign Currency Total
Common Paid-In Retained Translation Treasury Shareholders'
Stock Capital Earnings Adjustment Stock Equity
------ --------- -------- ---------------- ------- -------------
December 31, 1996...................... $1 $19,180 $48,699 $ -- $(745) $67,135
Net income............................ 267,610 267,610
Distribution to shareholders ......... (243,507) (243,507)
Treasury stock purchased - 800 shares. (1,011) (1,011)
Treasury stock sold - 1,000 shares.... 160 552 712
-------- -------- -------- -------- -------- --------
December 31, 1997...................... 1 19,340 72,802 -- (1,204) 90,939
-------- -------- -------- -------- -------- --------
Net income............................ 365,563 365,563
Distribution to shareholders.......... (331,569) (331,569)
Treasury stock sold - 500 shares...... (40) 524 484
Common stock issued - 250 shares...... 541 541
-------- -------- -------- -------- -------- --------
December 31, 1998...................... 1 19,841 106,796 -- (680) 125,958
-------- -------- -------- -------- -------- --------
Comprehensive income:
Net income.......................... 372,125 372,125
Currency translation adjustment..... 14 14
Comprehensive income.............. 372,139
Distribution to shareholders.......... (467,500) (467,500)
Common stock issued - 100 shares...... 131 131
Treasury stock purchased - 300 shares. (583) (583)
-------- -------- -------- -------- -------- --------
December 31, 1999...................... $1 $19,972 $11,421 $14 $(1,263) $30,145
======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
Sanford C. Bernstein Inc.
Consolidated Statements of Cash Flows
(In thousands)
Years ended December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities
Net income.......................................................... $372,125 $365,563 $267,610
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 13,878 8,529 6,174
Changes in assets and liabilities:
(Increase) decrease in receivables:
Brokers and dealers.......................................... 151,209 (327,907) (118,968)
Clients...................................................... (39,482) (33,407) (52,975)
Advisory fees................................................ (6,599) (4,672) (10,612)
Related parties.............................................. (943) -- --
(Increase) in other assets..................................... (5,104) (8,916) (3,010)
Increase (decrease) in payables:
Brokers and dealers.......................................... (74,493) 240,890 35,515
Clients...................................................... (149,022) 448,610 281,496
Related parties.............................................. (112,592) 50,750 (1,036)
Increase in accrued compensation............................... 13,337 21,120 19,279
Increase in accrued expenses and other liabilities............. 4,877 5,490 6,346
-------- -------- --------
Net cash provided by operating activities........................... 167,191 766,050 429,819
-------- -------- --------
Cash flows from investing activities
Purchases of United States Treasury Bills........................... (4,098,825) (5,077,284) (4,290,005)
Proceeds from sales and maturities of United States Treasury
Bills.............................................................. 4,249,347 4,648,544 4,136,334
Purchases of furniture, equipment and leasehold improvements........ (16,121) (20,036) (6,223)
-------- -------- --------
Net cash provided by (used in) investing activities................. 134,401 (448,776) (159,894)
-------- -------- --------
Cash flows from financing activities
Cash distributions to shareholders.................................. (345,711) (324,733) (238,767)
Purchase of treasury stock.......................................... (583) -- (1,011)
Proceeds from sale of treasury stock................................ -- 484 713
Proceeds from issuance of common stock.............................. 131 541 --
Accumulated foreign currency translation adjustment................. 14 -- --
-------- -------- --------
Net cash used in financing activities............................... (346,149) (323,708) (239,065)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................ (44,557) (6,434) 30,860
Cash and cash equivalents, beginning of period...................... 73,712 80,146 49,286
-------- -------- --------
Cash and cash equivalents, end of period............................ $29,155 $73,712 $80,146
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest........................................................... $67,439 $71,464 $53,243
======== ======== ========
Income taxes ...................................................... $17,643 $20,284 $21,259
======== ======== ========
See Notes to Consolidated Financial Statements.
F-6
Sanford C. Bernstein Inc.
Notes to Consolidated Financial Statements
December 31, 1999
(Dollar amounts in thousands)
1. Description of Business
Sanford C. Bernstein Inc. ("SCB Inc.") provides investment research and
management services globally for both individual and institutional customers,
and provides self clearing brokerage-related services in United States markets.
2. Significant Accounting Policies
Basis of Presentation
SCB Inc. is organized as a Delaware corporation and has elected to be
treated as a subchapter S corporation for Federal income tax purposes. Sanford
C. Bernstein & Co., Inc. ("SCB & Co.") and Bernstein Technologies Inc. ("BTI")
are organized as qualified subchapter S subsidiaries of SCB Inc. Sanford C.
Bernstein & Co. Proprietary Ltd. ("Proprietary") is a subsidiary of SCB Inc.
and is incorporated in Australia. Sanford C. Bernstein Limited ("Limited") is a
subsidiary of the Company and is incorporated in the United Kingdom.
Pursuant to a plan of reorganization effective March 1, 1998, the
shareholders of SCB & Co. contributed all of their ownership interests in SCB &
Co. to SCB Inc. in return for shares of SCB Inc. SCB & Co. subsequently
transferred certain intangible assets, including trade names, trade marks and
financial models to SCB Inc. which in turn transferred these assets to BTI. BTI
commenced operations on March 1, 1998. Prior thereto, all of the activities of
SCB Inc. and its subsidiaries (collectively the "Company") were conducted
through SCB & Co.
The consolidated financial statements include the results of operations of
SCB Inc. as of March 1, 1998 and prior thereto of SCB & Co. and its then wholly
owned subsidiary Proprietary. All material intercompany accounts have been
eliminated.
All financial instruments, including United States Treasury Bills, are
stated at fair value.
Anticipated capital withdrawals are recorded as a liability of the
Company.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain prior year financial amounts have been reclassified to conform
with the current year's presentation.
Income Taxes
The Company is subject to certain state and local income taxes. Federal
income taxes have not been provided on the net income of the Company, as
liability for such taxes passes through to the shareholders of the Company.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid debt instruments, such as
short-term deposits, money market accounts, commercial paper and certificates
of deposit purchased with original maturities of three months or less.
Depreciation and Amortization
Depreciation of furniture and equipment is provided on an accelerated
basis over estimated lives of five to seven years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the economic life or the
term of the lease.
F-7
Sanford C. Bernstein Inc.
Notes to Consolidated Financial Statements
2. Significant Accounting Policies (continued)
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into United States dollars at year-end currency exchange rates, while revenues
and expenses are translated at an average rate applicable during the year.
Gains and losses resulting from the translation of foreign currency are
included in shareholders' equity.
Investment Management Revenue
Investment management revenue consists of fees and transaction charges
related to the management and servicing of customer investment accounts.
Investment management fees are recognized as revenue as the related services
are performed. Investment management fees are generally based on predetermined
percentages of the market values of the portfolios under management.
Transaction charges earned and related expenses are recorded on a trade date
basis.
Institutional Services Revenue
Institutional services revenue consists of transaction charges and
underwriting syndicate revenues related to services provided to customers who
manage their own investments. Transaction charges earned and related expenses
are recorded on a trade date basis. Syndicate participation and underwriting
revenues include gains, losses, and fees, net of syndicate expenses, arising
from securities offerings in which the Company acts as an underwriter or agent.
Syndicate participation and underwriting revenues are recorded on the offering
date.
Business Segments
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information", which requires companies to define operating segments and
disclose information about those segments. The Company has not presented
business segment data in accordance with SFAS No. 131 because it operates
predominantly in one business segment, investment research and management
services.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires companies to report all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
The Company did not have any items of "other comprehensive income" in 1998 or
1997.
Collateralized Securities Transactions
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received in connection with the transaction and are
included in receivables from and payables to brokers and dealers in the
consolidated statements of financial condition. Securities borrowed
transactions require the Company to deposit cash or other collateral with the
lender. With respect to securities loaned, the Company receives collateral. The
initial collateral advanced or received approximates or is greater than the
fair value of securities borrowed or loaned. The Company monitors the fair
value of the securities borrowed and loaned on a daily basis and requests
additional collateral or returns excess collateral, as appropriate. Income or
expense is recognized over the life of the transactions.
F-8
Sanford C. Bernstein Inc.
Notes to Consolidated Financial Statements
2. Significant Accounting Policies (continued)
Securities Transactions
Customers' securities transactions are reported on a settlement date basis
with related commission income and expenses reported on a trade date basis.
Receivables from and payables to customers include amounts due on cash and
margin transactions. Securities owned by customers are held as collateral for
receivables. Such collateral is not reflected in the consolidated financial
statements. Principal securities transactions and related expenses are recorded
on a trade date basis. Transaction charges earned on customer securities
transactions was $289,468, $295,518 and $213,463 for the years ended December
31, 1999, 1998 and 1997, respectively.
Accounting Developments
The Company adopted the American Institute of Certified Public Accountants
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective January 1, 1999.
SOP No. 98-1 requires that certain costs of computer software developed or
obtained for internal use be capitalized and amortized over the useful life of
the related software. Prior to the adoption of SOP 98-1 the Company expensed
the cost of all software development in the period in which it was incurred.
The effect of the adoption was to increase consolidated net income for the year
ended December 31, 1999 by $2,464.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133 (an amendment of
SFAS No. 133)," issued in June 1999, defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," until fiscal
years beginning after June 15, 2000. The Company expects to adopt SFAS No. 133,
as amended by SFAS No. 137, effective January 1, 2001. Management does not
expect the impact of the adoption to be material.
3. Securities Segregated Under Federal Regulations and Other Requirements
As of December 31, 1999, United States Treasury Bills include $12,652
deposited with clearing organizations and $1,354,925 segregated in a special
reserve bank custody account for the exclusive benefit of customers under Rule
15c3-3 of the Securities and Exchange Commission ("SEC").
F-9
Sanford C. Bernstein Inc.
Notes to Consolidated Financial Statements
4. Commitments and Contingencies
The Company has operating leases for office space expiring at various
dates through 2008, which provide for minimum annual rental payments as
follows:
2000....................................... $ 12,574
2001....................................... 12,915
2002....................................... 8,196
2003....................................... 5,130
2004 and thereafter........................ 27,772
----------
$ 66,587
==========
The leases contain provisions for rent escalation based on increases in
costs incurred by the lessor. Rent expense for the years ended December 31,
1999, 1998 and 1997 was $13,392, $11,947 and $10,648, respectively.
SCB & Co. has been named as a defendant in certain legal actions including
those in the ordinary course of its syndicate business. It is the opinion of
management, after consultation with counsel, that these actions will not result
in any material adverse effect on the financial condition of the Company.
5. Profit Sharing Plan
The Company maintains a 401(k) defined contribution profit sharing plan
covering all eligible regular employees. Participants are permitted within
limitations imposed by tax law to make pre-tax and after-tax contributions to
the plan. Matching, non-highly compensated employee and non-elective company
contributions are made at the discretion of the Board of Directors and amounted
to $3,644, $2,698 and $2,340 for the years ended December 31, 1999, 1998 and
1997, respectively.
6. Related Party Transactions
Receivables from and payables to related parties represent cash and fully
collateralized margin accounts of principal officers.
On December 31, 1999, the Company distributed $130,000 to its shareholders
in the form of a 10-year balloon note, bearing interest at 7.93%, callable at
par.
The Company performs investment management and shareholder and
administrative services for the Sanford C. Bernstein Fund, Inc. (the "Fund"),
an open-end registered investment company. The Company also acts as distributor
of Fund shares. Certain officers and directors of the Company are also officers
and directors of the Fund. At December 31, 1999 advisory fees receivable
included $10,450 from the Fund. Investment management and shareholder and
administrative servicing fees aggregated $119,670, $107,840 and $87,297 for the
years ended December 31, 1999, 1998 and 1997, respectively.
In addition, SCB & Co. sponsors and provides investment management
services to other collective vehicles for the investment of customer assets. At
December 31, 1999 advisory fees receivable included $353 for such services.
Investment management fees aggregated $16,526, $12,668 and $4,589 for the years
ended December 31, 1999, 1998 and 1997, respectively.
F-10
Sanford C. Bernstein Inc.
Notes to Consolidated Financial Statements
7. Net Capital Requirement
As a broker-dealer and member of the New York Stock Exchange, Inc., SCB &
Co. is subject to the Uniform Net Capital Rule 15c3-1 of the SEC. SCB & Co.
computes its net capital under the alternative method permitted by the rule,
which requires that minimum net capital, as defined, equal the greater of two
percent of aggregate debit items arising from customer transactions, as
defined, or $1,000. As of December 31, 1999, SCB & Co. had net capital of
$73,551, which exceeded minimum net capital requirements by $64,205.
Advances, dividend payments and other equity withdrawals by SCB & Co. and
other regulated subsidiaries are restricted by the regulations of the SEC, NYSE
and other securities agencies. Similarly, equity withdrawals by Proprietary and
Limited are restricted by their respective regulatory authorities. At December
31, 1999, approximately $23,415 of the Company's subsidiaries' equity was not
available for payment of cash dividends and advances to the Company.
8. Risk Management
Customer Activities
In the normal course of business, the Company's brokerage activities
involve the execution, settlement and financing of various customer securities,
which may expose the Company to off-balance sheet risk in the event the
customer is unable to fulfill its contracted obligations by requiring the
Company to purchase or sell securities at prevailing market prices.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the Company extends credit to the
customer, subject to various regulatory and internal margin requirements. These
transactions are collateralized by cash or securities in the customer's
account. In connection with these activities, the Company may execute and clear
customer transactions involving the sale of securities not yet purchased. The
Company seeks to control the risks associated with margin transactions by
requiring customers to maintain collateral in compliance with the
aforementioned regulatory and internal guidelines. The Company monitors
required margin levels daily and, pursuant to such guidelines, requires the
customers to deposit additional collateral, or reduce positions, when
necessary. A majority of the Company's customer margin accounts are managed on
a discretionary basis whereby the Company maintains control over the investment
activity in the accounts. For these discretionary accounts, the Company's
margin deficiency exposure is minimized through maintaining a diversified
portfolio of securities and by virtue of its discretionary authority and role
as custodian.
The Company performs clearing services, on a fully disclosed basis and
pursuant to a clearing agreement, for customer accounts of another broker
("introducing broker") on a delivery versus payment basis. Accordingly, the
Company may be exposed to risk of loss in the event the introducing broker's
customers fail to fulfill their responsibilities. The Company seeks to control
this risk by maintaining control of related cash or securities pending
settlement of the transaction. The Company monitors these positions daily and
may, pursuant to the aforementioned regulatory and internal guidelines, reduce
positions, when necessary.
The Company may enter into forward foreign currency contracts on behalf of
accounts for which the Company acts as custodian. The Company minimizes credit
risk associated with these contracts by monitoring these positions on a daily
basis, as well as by virtue of its discretionary authority and role as
custodian.
In accordance with industry practice, the Company records customer
transactions on a settlement date basis, which is generally three business days
after trade date. The Company is therefore exposed to risk of loss on these
transactions in the event of the customer's or broker's inability to meet the
terms of their contracts, in which case the Company may have to purchase or
sell financial instruments at prevailing market prices. Settlement of these
transactions is not expected to have a material effect upon the Company's
consolidated financial statements.
Other Counterparties
The Company is engaged in various brokerage activities in which
counterparties primarily include broker-dealers, banks and other financial
institutions. In the event counterparties do not fulfill their obligations, the
Company may be exposed to risk. The risk of default depends on the
creditworthiness of the counterparty or issuer of the instrument. It is the
Company's policy to review, as necessary, the credit standing of each
counterparty.
In connection with the Company's security borrowing and lending
arrangements, which constitute the majority of the receivable from and payable
to brokers and dealers, the Company enters into collateralized agreements which
may result in credit exposure in the event the counterparty to a transaction is
unable to fulfill its contractual obligations. Security borrowing arrangements
require the Company to deposit cash collateral with the lender. With respect to
security lending arrangements, the Company receives collateral in the form of
cash in amounts generally in excess of the market value of the securities
loaned. The Company minimizes credit risk associated with these activities by
establishing credit limits for each broker and monitoring these limits on a
daily basis. Additionally, security borrowing and lending collateral is marked
to market on a daily basis, and additional collateral is deposited by or
returned to the Company as necessary.
F-11
Sanford C. Bernstein Inc.
Unaudited Consolidated Statement of Financial Condition
(In thousands, except share data)
March 31, 2000
--------------
Assets
Cash and cash equivalents............................................................................ $114,061
United States Treasury Bills, at market value (cost of $956,868)..................................... 966,769
Receivables:
Brokers and dealers................................................................................ 1,200,441
Clients............................................................................................ 139,954
Advisory fees...................................................................................... 46,974
Related parties.................................................................................... 485
Furniture, equipment and leasehold improvements, at cost (net of accumulated depreciation
and amortization of $55,495)....................................................................... 33,019
Other assets......................................................................................... 24,141
--------------
Total assets......................................................................................... $2,525,844
==============
Liabilities and Shareholders' Equity
Payables:
Brokers and dealers................................................................................ $751,844
Clients............................................................................................ 1,363,276
Related parties.................................................................................... 78,898
Accrued compensation................................................................................. 50,613
Accrued expenses and other liabilities............................................................... 40,346
Payable to shareholders.............................................................................. 72,882
Notes payable to shareholders........................................................................ 130,000
--------------
Total liabilities.................................................................................... 2,487,859
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 500,000 shares authorized; 100,350 shares issued and
outstanding...................................................................................... 1
Additional paid-in capital......................................................................... 19,972
Retained earnings.................................................................................. 19,504
Accumulated foreign currency translation adjustment................................................ (229)
Treasury stock, at cost; 950 shares................................................................ (1,263)
--------------
Total shareholders' equity........................................................................... 37,985
--------------
Total liabilities and shareholders' equity........................................................... $2,525,844
==============
See Notes to Unaudited Consolidated Financial Statements.
F-12
Sanford C. Bernstein Inc.
Unaudited Consolidated Statements of Income
(In thousands)
Three Months Ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
Revenues
Investment management.................. $149,922 $147,950
Institutional services................. 55,059 53,589
Interest............................... 18,329 18,356
Securities borrowed income............. 13,131 7,943
Other.................................. 3,793 1,351
--------- ---------
Gross revenues..................... 240,234 229,189
Interest expense....................... 19,832 16,984
Securities loaned expense.............. 9,125 5,424
--------- ---------
Net revenues....................... 211,277 206,781
--------- ---------
Expenses
Compensation and benefits.............. 95,033 80,696
Communications and technology.......... 10,352 8,487
Occupancy.............................. 6,145 5,016
Business development .................. 6,060 4,061
Floor brokerage and clearance charges.. 3,484 3,273
Other.................................. 5,592 5,107
--------- ---------
Total expenses..................... 126,666 106,640
--------- ---------
Income before income taxes............. 84,611 100,141
Income taxes........................... 3,646 4,206
--------- ---------
Net income............................. $80,965 $95,935
========= =========
See Notes to Unaudited Consolidated Financial Statements.
F-13
Sanford C. Bernstein Inc.
Unaudited Consolidated Statement of Shareholders' Equity
(In thousands)
Accumulated
Foreign
Additional Currency Total
Common Paid-In Retained Translation Treasury Shareholders'
Stock Capital Earnings Adjustment Stock Equity
------ ---------- -------- ----------- -------- -------------
December 31, 1999.................. $1 $19,972 $11,421 $14 $(1,263) $30,145
Distribution to shareholders...... (72,882) (72,882)
Comprehensive income:
Net income...................... 80,965 80,965
Currency translation adjustment. (243) (243)
Comprehensive income......... 80,722
------- ------- ------- ------- ------- -------
March 31, 2000..................... $1 $19,972 $19,504 $(229) $(1,263) $37,985
See Notes to Unaudited Consolidated Financial Statements.
F-14
Sanford C. Bernstein Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
-----------------------------------
March 31, 2000 March 31,1999
-------------- -------------
Cash flows from operating activities
Net income........................................................................... $80,965 $95,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 4,392 3,046
Changes in assets and liabilities:
(Increase) decrease in receivables:
Brokers and dealers............................................................ (275,343) 136,707
Clients........................................................................ 51,793 10,364
Advisory fees.................................................................. 257 (673)
Related parties ............................................................. 458 (2,096)
(Increase) decrease in other assets............................................... 3,335 (40,143)
Increase (decrease) in payables:
Brokers and dealers............................................................ 115,460 (76,734)
Clients........................................................................ (111,078) (167,875)
Related parties................................................................ 25,559 (117,295)
Decrease in accrued compensation.................................................. (73,305) (68,184)
Increase in accrued expenses and other liabilities................................ 3,968 15,928
--------- ---------
Net cash provided (used) by operating activities..................................... (173,539) (211,020)
--------- ---------
Cash flows from investing activities
Purchases of United States Treasury Bills............................................ (671,867) (876,025)
Proceeds from sales and maturities of United States Treasury Bills................... 948,881 1,095,607
Purchases of furniture, equipment and leasehold improvements......................... (8,326) (1,900)
--------- ---------
Net cash provided by investing activities............................................ 268,688 217,682
--------- ---------
Cash flows from financing activities
Cash distributions to shareholders................................................... (10,000) (18,226)
Purchase of treasury stock........................................................... -- (583)
Proceeds from issuance of common stock............................................... -- 131
Accumulated foreign currency translation adjustment ................................. (243) --
--------- ---------
Net cash used in financing activities................................................ (10,243) (18,678)
--------- ---------
Net increase (decrease) in cash and cash equivalents................................. 84,906 (12,016)
Cash and cash equivalents, beginning of period....................................... 29,155 73,712
--------- ---------
Cash and cash equivalents, end of period............................................. $114,061 $61,696
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $19,904 $17,164
========= =========
Income taxes $5,231 $7,633
========= =========
See Notes to Unaudited Consolidated Financial Statements.
F-15
Sanford C. Bernstein Inc.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The unaudited interim consolidated financial statements of Sanford C.
Bernstein Inc. ("SCB Inc.") included herein have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
interim consolidated financial statements reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation of financial
position, results of operations and cash flows of the SCB Inc. for the interim
periods presented and are not indicative of a full year's results.
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
those estimates.
These financial statements should be read in conjunction with SCB Inc.'s
audited consolidated financial statements.
2. Subsequent Event
On June 20, 2000 the Company and Alliance Capital Management L.P.
("Alliance Capital") announced that they had entered into a definitive
agreement whereby Alliance Capital will acquire substantially all of the assets
and liabilities of the Company for an aggregate value of approximately $3.5
billion. The consideration will consist of $1.4754 billion in cash and 40.8
million private partnership units of Alliance Capital. The transaction is
expected to close during the fourth quarter of 2000. The transaction is subject
to certain regulatory approvals, and approval by Alliance Capital Management
Holding L.P. unit holders.
F-16
ANNEX A
THE BLACKSTONE GROUP
June 20, 2000
Alliance Capital Management Corporation,
as general partner of both
Alliance Capital Management L.P. and
Alliance Capital Management Holding L.P.
1345 Avenue of Americas
New York, NY 10105
Gentlemen and Mesdames:
We understand that Alliance Capital Management L.P. ("Alliance") and
Sanford C. Bernstein Inc. ("Bernstein") plan to enter into an Acquisition
Agreement (the "Agreement") which provides for, among other things, the
acquisition of certain assets and the stock of certain subsidiaries of
Bernstein ("the Assets") by Alliance (the "Transaction"). Pursuant to the
Agreement, Alliance will deliver to Bernstein 40.8 million units of limited
partnership interests in Alliance ("Private Units") and Alliance will pay
Bernstein $1.4754 billion in cash (the "Consideration") in exchange for the
Assets. Of the Private Units received by Bernstein, 2.8 million units will be
immediately convertible into units of Alliance Capital Management Holding L.P.
("Alliance Holding") representing assignments of beneficial ownership of
limited partnership interests ("Public Units"). In addition, we further
understand that Alliance will invest $96 million per annum for three years from
closing to fund purchases of a money market fund or open market purchases of
Public Units for the benefit of Bernstein employees (the "Deferred
Compensation") and will for the 36 month period following closing establish a
bonus pool of $15 million per 12 month period for eligible Bernstein employees.
Alliance will also create an additional bonus pool for other Bernstein
employees of approximately $89 million per year for 3 years. You have advised
us that in connection with the Transaction, and as set forth in the Financing
Agreement between Alliance and AXA Financial, Inc. ("AXA Financial"), Alliance
will issue Private Units to AXA Financial at market based prices (the
"Additional Unit Purchases") in exchange for $1.6 billion in order to fund the
cash portion of the Consideration and to provide capital to Alliance for
general corporate purposes. The terms and conditions of the Transaction are
more fully set forth in the Agreement, the Financing Agreement, the Purchase
Agreement, the Term Sheet for the Registration Rights Agreement, the Letter
Agreement, the Stockholder Agreements, the Deferred Compensation Plan, and the
Employment Agreements.
You have asked us whether, in our opinion, the Consideration is fair to
Alliance from a financial point of view.
__________________________________
The Blackstone Group L.P.
345 Park Avenue New York, NY 10154
212 583-5000
A-1
In arriving at the opinion set forth below we have (i) reviewed, among
other things, (a) certain publicly available information concerning the
business, financial condition and operations of Alliance which we believe to be
relevant to our inquiry, (b) certain internal information concerning the
business, financial condition and operations of Alliance and Bernstein, which
we believe to be relevant to our inquiry, (c) certain internal financial
analyses relating to Alliance and Bernstein prepared by, and furnished to us
by, the respective managements of Alliance and Bernstein, (d) certain estimates
and forecasts relating to Alliance and Bernstein prepared by, and furnished to
us by, the management of Alliance, which such estimates and forecasts to the
extent related to Bernstein, we have been informed by Alliance are based on
data prepared by the management of Bernstein; (e) the GAAP financial statements
for Bernstein for the fiscal years ended December 31, 1997, 1998 and 1999, and
(f) the draft S-1 Registration statement of Bernstein dated October 4, 1999;
(ii) held discussions with members of management of Alliance and Bernstein
concerning their business, operating environment, financial condition,
prospects and strategic objectives; (iii) compared certain financial
information for Bernstein with similar information for certain other asset
management and brokerage companies the securities of which are publicly traded;
(iv) reviewed the financial terms of certain recent business combinations in
the asset management and brokerage industries; (v) performed a sum of the parts
valuation analysis on Bernstein's investment management and brokerage business
segments; (vi) performed a discounted cash flow analysis on Bernstein's
financial projections; (vii) considered the pro forma financial effect of the
Transaction on Alliance and Alliance Holding; (viii) reviewed the draft of the
Acquisition Agreement dated June 19, 2000, the draft of the Financing Agreement
dated June 16, 2000, the draft of the Purchase Agreement dated June 16, 2000,
the draft of the Term Sheet for the Registration Rights Agreement dated June
19, 2000, the draft of the Letter Agreement dated June 16, 2000, the draft of
the Stockholder Agreements dated June 17, 2000, the draft of the Deferred
Compensation Plan dated June 16, 2000, and the draft of the Employment
Agreements dated June 16, 2000; and (ix) performed such other studies and
analyses, and took into account such other matters, as we deemed appropriate.
For Bernstein financial projections beyond the year 2000, we have relied on
assumptions provided by Alliance management which were developed by Alliance's
management based on assumptions provided by Bernstein.
In arriving at our opinion, we have relied without independent
verification upon the accuracy and completeness of all of the financial and
other information reviewed by us that was publicly available, that was supplied
or otherwise made available to us by Alliance or Bernstein or that was
otherwise reviewed by us. Without limiting the generality of the foregoing, we
have assumed that the financial forecasts and the estimates prepared by
Alliance or Bernstein and provided to us, have been reasonably determined on a
basis reflecting the best currently available judgments and estimates of
Alliance or Bernstein, and that such forecasts and such estimates will be
realized in the amounts and at the times contemplated thereby.
We have further relied upon the assurances of management of Alliance that
they are not aware of any facts that would make such information inaccurate,
incomplete or misleading. In addition, we have not (i) conducted a physical
inspection of the properties and facilities; sales, marketing distribution and
service organizations or product markets of Alliance or Bernstein; or (ii) made
an independent evaluation or appraisal of the assets and liabilities of
Alliance or Bernstein.
A-2
We have not considered the relative merits of the Transaction as compared
to any other business plan or opportunity that might be available to Alliance
or the effect of any other arrangement in which Alliance might engage. In
addition, we have not assessed the fairness to any specific group of
unitholders. We have assumed that the transactions contemplated by the
Agreement will be consummated on substantially the same terms set forth
therein. Our opinion is necessarily based upon economic, market, monetary,
regulatory and other conditions as they exist and can be evaluated, and the
information made available to us, as of the date hereof. Furthermore, we
express no opinion as to the prices or trading ranges at which the units of
Alliance Holding will trade at any time.
This letter does not constitute a recommendation to any unitholder as to
how such holder should vote with respect to the Transaction, and should not be
relied upon by any unitholder as such.
We have acted as financial advisor to Alliance with respect to the
proposed Transaction and will receive a fee from Alliance for our services.
Alliance has also agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion. In addition, we have performed other
investment banking and financial advisory services for Alliance in the past for
which we have received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair to Alliance, from a financial point of
view.
Very truly yours,
/s/ The Blackstone Group L.P.
THE BLACKSTONE GROUP L.P.
A-3