<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
HAMBRECHT & QUIST GROUP
- --------------------------------------------------------------------------------
(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):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
<PAGE>
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
January 28, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Hambrecht & Quist Group. The Annual Meeting will be held on March 14, 1997,
at 1:30 p.m., in the Embassy Room of the Mandarin Oriental Hotel, located at 222
Sansome Street, San Francisco, California.
The matters to be voted upon at the Annual Meeting are described in detail
in the accompanying Notice of Annual Meeting and Proxy Statement. Whether or not
you plan to attend the meeting in person, please complete and return the
enclosed proxy in the enclosed postage-paid envelope. Please note that
stockholders attending the meeting in person may revoke such proxy and vote
their shares at the meeting in the manner set forth in the accompanying Proxy
Statement.
I look forward to seeing you at the Annual Meeting.
Sincerely,
[SIGNATURE]
Daniel H. Case III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
HAMBRECHT & QUIST GROUP
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 14, 1997
------------------------
To Holders of Common Stock of
HAMBRECHT & QUIST GROUP:
The Annual Meeting of Stockholders of Hambrecht & Quist Group, a Delaware
corporation (the "Company"), will be held on Friday, March 14, 1997 at 1:30
p.m., local time, in the Embassy Room of the Mandarin Oriental Hotel, 222
Sansome Street, San Francisco, California, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect two directors to Class I of the Board of Directors, each to a
three-year term.
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the 1997 fiscal year.
3. To transact such other business as may properly come before the meeting
or any adjournment(s) thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure that each stockholder's vote is counted at the meeting,
stockholders are requested to mark, sign, date and return the enclosed proxy
card as promptly as possible in the envelope provided. Stockholders attending
the meeting may vote in person even if they have previously returned a proxy
card.
Only stockholders of record as of the close of business on January 14, 1997
are entitled to receive notice of, to attend and to vote at the meeting. A list
of the stockholders entitled to vote at the meeting may be examined at the
Company's executive offices in San Francisco, California during ordinary
business hours during the ten-day period preceding the meeting.
By Order of the Board of Directors,
[SIGNATURE]
Steven N. Machtinger
GENERAL COUNSEL AND SECRETARY
San Francisco, California
January 28, 1997
<PAGE>
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
------------------------
PROXY STATEMENT
---------------------
The enclosed Proxy is solicited on behalf of the Board of Directors of
Hambrecht & Quist Group, a Delaware corporation, for use at its Annual Meeting
of Stockholders (the "Annual Meeting") to be held on Friday, March 14, 1997 at
1:30 p.m., local time in the Embassy Room of the Mandarin Oriental Hotel, 222
Sansome Street, San Francisco, California, or at any adjournment(s) thereof. The
Notice of Annual Meeting, this Proxy Statement and accompanying proxy card were
mailed on or about January 28, 1997 to all stockholders entitled to vote at the
Annual Meeting. Unless the context otherwise requires, "Company" refers to
Hambrecht & Quist Group and its predecessors, affiliates and subsidiaries.
The Company's principal executive offices are located at, and the Company's
complete mailing address is, One Bush Street, San Francisco, California 94104,
and its telephone number is (415) 439-3000.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE; QUORUM
Stockholders of record as of the close of business on January 14, 1997 (the
"Record Date") are entitled to notice of, to attend and to vote at the Annual
Meeting. There were 23,315,679 shares of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"), issued and outstanding on the Record Date.
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record
Date. Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum. Each share is entitled to one vote on all
matters. Shares of Common Stock may not be voted cumulatively.
REVOCATION OF PROXIES
A stockholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to the
Company's Corporate Secretary at the Company's principal executive offices
referred to above, prior to the Annual Meeting, a written notice of revocation
or a duly executed proxy bearing a date later than that of the previously
submitted proxy.
SOLICITATION OF PROXIES
The Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their reasonable expenses in forwarding
solicitation material to such beneficial owners. The Company will bear the cost
of this solicitation. Proxies may be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally
or by telephone or facsimile.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors of six members to be
divided equally into three classes. Class I of the Board of Directors currently
consists of two members whose respective terms expire at the Annual Meeting;
Class II consists of two members whose terms expire on the date of the 1998
Annual Meeting; and Class III consists of two members whose terms expire on the
date of the 1999 Annual Meeting.
<PAGE>
At the Annual Meeting, the stockholders will elect two directors to Class I
of the Board of Directors, each to hold office for a three-year term and until
such director's successor has been duly elected and qualified, or until any such
director's earlier resignation or removal. Holders of proxies solicited by this
Proxy Statement will vote the proxies received by them as directed on the proxy
card or, if no direction is made, for the election of the Board of Directors
nominees below. If any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxy holders will vote for a nominee
designated by the present Board of Directors to fill the vacancy. It is not
presently expected that any nominee will be unable or will decline to serve as a
director.
VOTE REQUIRED
Directors are elected by a plurality of votes cast. Votes withheld and
broker non-votes are not counted toward a nominee's total.
DIRECTOR NOMINEES
The following incumbent directors are the nominees of the Board of Directors
for re-election to Class I of the Board of Directors at this Annual Meeting:
Howard B. Hillman
William R. Timken
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RE-ELECTION
OF HOWARD B. HILLMAN AND WILLIAM R. TIMKEN TO CLASS I OF THE BOARD OF DIRECTORS.
Set forth below is additional biographical information concerning nominees
for re-election to Class I of the Board of Directors. Information is also
provided for the Company's current members of Class II and Class III of the
Board of Directors, none of whom are standing for re-election at the Annual
Meeting.
CLASS I DIRECTORS
HOWARD B. HILLMAN, 62, joined the Board of Directors of the Company in July
1989. He was an officer of Chemical Bank from 1960 to 1969 and has been a
venture capitalist since leaving Chemical Bank. Mr. Hillman became a Director of
Auto-trol Technology Corporation, a maker of computer-based technical
information management solutions, in 1973 and its President in April 1985. He
also currently serves as Auto-trol's Chairman. Mr. Hillman holds an A.B. in
Economics from Princeton and an M.B.A. from Harvard Business School.
WILLIAM R. TIMKEN, 61, has been a director of the Company since 1982. Mr.
Timken joined the Company in 1969 and has been employed by the Company in senior
capacities since then. Mr. Timken was appointed Vice Chairman of the Company in
1992. He is responsible for the activities of the Company's Syndicate
Department. Mr. Timken is a past member of the Board of Governors of the Pacific
Stock Exchange and the Board of Governors of the National Association of
Securities Dealers, Inc. Mr. Timken holds a B.A. degree in Economics from Colby
College.
CLASS II DIRECTORS
DANIEL H. CASE III, 39, has been a director of the Company since October
1991. Mr. Case joined the Company in 1981, and was initially an associate and
then a principal in the Corporate Finance Department. He also served as Vice
President and then a partner in the Venture Capital Department, both in San
Francisco and in London. In 1983, he co-founded the business which became
Hambrecht & Quist
2
<PAGE>
Guaranty Finance. Mr. Case rejoined Corporate Finance in 1986 as co-director of
mergers and acquisitions, and became Managing Director and head of Investment
Banking in December 1987. In October 1989, he was elected Executive Vice
President and in October 1991, he was elected to the Board of Directors of the
Company. In April 1992, he was elected President and Co-Chief Executive Officer.
He became Chief Executive Officer in October 1994. Mr. Case also serves as a
director of Rational Software Corporation, a maker of object-oriented software
development tools, Electronic Arts Inc., a global interactive entertainment
software company, the Securities Industry Association and the Bay Area Council.
He has a B.A. in Economics and Public Policy from Princeton University and
studied management at the University of Oxford as a Rhodes Scholar.
EDMUND H. SHEA, JR., 67, was elected a director of the Company in November
1986. He is a co-founder of J.F. Shea Co., Inc., a privately-held, diversified
civil construction, land development and venture capital company, and has served
as its Executive Vice President in charge of Venture Capital since 1968. Mr.
Shea serves on the Board of Directors of ADAC Laboratories, a supplier of
radiology and laboratory information systems, Ironstone Group, Inc., a real
estate information services company, and Vanguard Airlines, Inc., a passenger
airline company. Mr. Shea is also on the Advisory Committee of Bay Partners, a
venture capital firm. Mr. Shea holds a B.S. in Engineering from Massachusetts
Institute of Technology.
CLASS III DIRECTORS
WILLIAM R. HAMBRECHT, 61, is Chairman of the Company and its principal
subsidiary, Hambrecht & Quist LLC ("H&Q LLC"). He has continuously served as an
officer, director or principal of those entities or their predecessors since he
and the late George Quist co-founded the Company in 1968. Mr. Hambrecht is
primarily responsible for directing the Company's venture capital investment
activities. He also serves on the Board of Directors of Adobe Systems
Incorporated, a print and electronic media software company. He holds a B.A.
degree from Princeton University.
WILLIAM E. MAYER, 56, has been a director of the Company since April 1992,
except during the period of March 1995 to January 1996. In December 1996, Mr.
Mayer formed Development Capital LLC, which invests in private and public
companies. From October 1992 to December 1996, Mr. Mayer was Dean of the College
of Business and Management at the University of Maryland, College Park. From
September 1991 to July 1992, Mr. Mayer was Dean of the Simon Graduate School of
Business at the University of Rochester. He is the former Chairman and Chief
Executive Officer of CS First Boston Merchant Bank. Before the establishment of
CS First Boston Merchant Bank in 1990, he was President and Chief Executive
Officer of the First Boston Corporation. Mr. Mayer serves as a director of Chart
House Enterprises, Inc., a restaurant management company, and Schuller
Corporation, a manufacturer of insulation and building products, and is a
trustee of the Colonial Group of Mutual Funds, a mutual fund company. Mr. Mayer
holds a B.S. and an M.B.A. from the University of Maryland.
There is no family relationship among any of the directors of the Company
and there are no arrangements or understandings between any of the above-listed
directors or any other person pursuant to which such director was selected as a
director.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended September 30, 1996, the Board of Directors of
the Company met a total of two times and acted by unanimous written consent six
times. During the last fiscal year, no director attended fewer than 75% of the
meetings of the Board of Directors. The Company's Board of Directors has
standing audit and compensation committees, neither of which held any meetings
during the last fiscal year.
The Audit Committee of the Board of Directors consists of directors Hillman
and Mayer, neither of whom is an employee of the Company. This committee is
primarily responsible for reviewing the services performed by the Company's
independent accountants, evaluating the Company's accounting policies and its
system of internal controls, and reviewing significant finance transactions.
3
<PAGE>
The Compensation Committee of the Board of Directors consists of directors
Mayer and Shea, neither of whom is an employee of the Company. This committee is
primarily responsible for reviewing and recommending compensation to be paid to
officers and consultants of the Company, and for administering the 1996 Equity
Plan and the 1996 Bonus and Deferred Sales Compensation Plan. See "Report of the
Board of Directors on Executive Compensation."
DIRECTOR COMPENSATION
The Company does not currently pay fees to its directors for attendance at
meetings. From time to time, the Company has sold Common Stock to its directors
and granted its directors options to purchase Common Stock of the Company. In
May 1996, the Company granted William E. Mayer an option to purchase 20,000
shares of Common Stock with an exercise price of $8.38 per share. There were no
other stock option grants to outside directors during fiscal 1996. See "Certain
Relationships and Related Transactions--Issuances of Securities to Officers and
Directors."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company to the Company's
Chief Executive Officer and the Company's four other most highly compensated
individuals who were serving as officers on September 30, 1996 and whose salary
plus bonus exceeded $100,000 for the fiscal year ended September 30, 1996 (each,
a "Named Executive Officer") for fiscal years ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
RESTRICED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
BONUS COMPENSATION AWARDS OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($) ($) SARS(#) ($)(2)
- ----------------------------------- ---- --------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel H. Case III 1996 300,000 3,749,865 -- -- 892,680 2,025,333(4)
President, Chief 1995 300,000 2,000,000 -- -- 156,636 4,156
Executive Officer and Director(3)
William R. Hambrecht 1996 300,000 1,151,769(5) -- -- -- 109,138
Chairman and Director 1995 300,000 933,688(5) -- -- -- 4,078
William R. Timken 1996 240,000 1,000,000 -- -- 40,000 169,644
Vice Chairman and Director 1995 240,000 700,000 -- -- 40,000 33,011
Paul L. Hallingby 1996 240,000 1,418,450 -- -- -- 276,453
Executive Vice President, 1995 240,000 907,000 -- -- 180,000 55,028
Institutional Equity,
H & Q LLC
Cristina M. Morgan 1996 240,000 2,000,000 22,155(6) 200,000(7) 112,044 293,444(8)
Managing Director, Co-Director of 1995 240,000 1,380,000 -- -- 80,000 92,919(9)
Investment Banking, H & Q LLC
</TABLE>
- --------------------------
(1) Includes bonuses earned in applicable fiscal year but paid in following
fiscal year.
(2) All other compensation includes the following:
(i) matching contributions in the amount of $4,000 for each Named Executive
Officer in each of fiscal years 1996 and 1995 pursuant to the Company's
Savings and Employee Stock Ownership Plan under Internal Revenue Code
Section 401(k) ("SESOP").
(ii) premiums paid by the Company in the amounts of $186, $156, $156, $156
and $156 for Messrs. Case, Hambrecht, Timken and Hallingby and Ms.
Morgan, respectively, for group term life insurance in fiscal 1996 and
$156, $78, $78, $78 and $156 for Messrs. Case, Hambrecht, Timken and
Hallingby and Ms. Morgan, respectively, for group term life insurance
in fiscal 1995.
(iii) payments of $69,168, $104,982, $103,022, $104,930 and $99,784 to
Messrs. Case, Hambrecht, Timken and Hallingby and Ms. Morgan,
respectively, pursuant to merger-related SESOP compensation in fiscal
1996.
4
<PAGE>
(iv) SAR payments of $62,466, $167,367 and $110,467 to Mr. Timken, Mr.
Hallingby and Ms. Morgan, respectively, in fiscal 1996 and SAR payments
of $28,933, $50,950 and $43,400 to Mr. Timken, Mr. Hallingby and Ms.
Morgan, respectively, in fiscal 1995. See "Aggregated SAR Payouts for
Fiscal 1996."
(3) Excludes amounts received from Guaranty Finance. See "Certain Relationships
and Related Transactions."
(4) In addition to the amounts described in footnote 2 above, includes
compensation in the amount of $1,951,979 to Mr. Case in connection with a
series of transactions designed to increase his equity ownership in the
Company. See "Certain Relationships and Related Transactions--Increase in
Equity Ownership of Daniel H. Case III."
(5) Represents an amount received in connection with participations in venture
capital funds profits provided by the Company. See "Certain Relationships
and Related Transactions."
(6) Represents the value of the difference between the price paid by the officer
for shares of the Company's Common Stock and the fair market value of such
Common Stock at the date of purchase.
(7) Represents value of shares of the Company's Common Stock earned in fiscal
year 1996 but issuable in the following fiscal year pursuant to the terms of
the Company's 1996 Equity Plan. Such shares of Common Stock vest in equal
installments over a three-year period following the date of grant.
(8) In addition to the amounts described in footnote 2 above, includes $79,037
received in connection with participations in venture capital funds profits
provided by the Company. See "Certain Relationships and Related
Transactions."
(9) In addition to the amounts described in footnote 2 above, includes $45,363
received in connection with participations in venture capital funds profits
provided by the Company. See "Certain Relationships and Related
Transactions."
OPTION AND SAR GRANTS DURING FISCAL 1996
The following tables set forth for each of the Named Executive Officers
certain information concerning stock options and stock appreciation rights
("SARs") granted during fiscal 1996:
OPTIONS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel H. Case III................. 892,680(2) 17.4% 6.5175 3/29/03 2,368,527 5,519,676
William H. Hambrecht............... -- -- -- -- -- --
William R. Timken.................. -- -- -- -- -- --
Paul L. Hallingby.................. -- -- -- -- -- --
Cristina M. Morgan................. 32,044(3) 0.6% 6.5175 3/29/03 85,022 198,137
40,000(4) 0.8% 8.3825 5/31/03 136,501 318,105
</TABLE>
- ------------------------
(1) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the Securities and Exchange Commission (the
"SEC"). Actual gains, if any, on stock option exercises are dependent on the
future performance of the stock. There can be no assurance that the amounts
reflected in this table will be achieved.
(2) This option vests at a rate of one-fifth per year from the date of grant.
For information concerning the vesting of this option in the event Mr. Case
resigns, see "Executive Compensation--Employment Agreement."
(3) This option vests at a rate of one-third per year from the date of grant.
(4) This option vests at a rate of one-fifth per year from the date of grant.
5
<PAGE>
SARS
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS(1) REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL SARS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES SAR TERM(2)
SARS IN FISCAL BASE PRICE MATURITY --------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------------------- ----------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel H. Case III....................... -- -- -- -- -- --
William H. Hambrecht..................... -- -- -- -- -- --
William R. Timken........................ 40,000 1.4% 7.49 9/30/96 14,980 29,960
Paul L. Hallingby........................ -- -- -- -- -- --
Cristina M. Morgan....................... 40,000 1.4% 7.49 3/31/96 7,399 14,623
</TABLE>
- ------------------------
(1) SARs are generally awarded for a term of one fiscal year. At the end of the
fiscal year the grantee is allocated an amount equal to the number of SARs
granted multiplied by the increase in the net book value per share (if any)
of the Company's stock during such period. This amount vests and is paid out
over a three year period with one-third paid out following the first, second
and third years after the grant date if the grantee remains an employee of
the Company.
(2) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the SEC.
AGGREGATED OPTION EXERCISES DURING FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during fiscal 1996 and the
number of shares subject to both exercisable and unexercisable stock options as
of September 30, 1996. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding options and the fair market value of the Company's Common Stock as
of September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT SEPTEMBER 30, 1996(#) SEPTEMBER 30, 1996(1)($)
ACQUIRED ON VALUE -------------------------- --------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel H. Case III.............. 1,238,828 4,558,710 -- 892,680 -- 11,252,231
William H. Hambrecht............ -- -- -- -- -- --
William R. Timken............... -- -- 40,000 -- 681,000 --
Paul L. Hallingby............... 74,000 199,280 20,000 56,000 301,620 812,280
Cristina M. Morgan.............. 40,000 152,425 20,000 72,044 340,500 833,715
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option based on the closing bid price of the
Company's Common Stock on September 30, 1996 ($19 1/8) and the exercise
price of the Named Executive Officer's options.
6
<PAGE>
AGGREGATED SAR PAYOUTS FOR FISCAL 1996
The following table sets forth for each of the Named Executive Officers
certain information concerning SAR payouts during fiscal 1996, the number of
securities underlying SARs outstanding at September 30, 1996 and the unrealized
value of unvested SARs at September 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED VALUE
SECURITIES OF
SAR PAYOUTS IN UNDERLYING SARS AT
FISCAL 1996 SARS AT SEPTEMBER 30, 1996
NAME ($)(1) SEPTEMBER 30, 1996 ($)(2)
- -------------------------------------------------------- -------------- ------------------- ------------------
<S> <C> <C> <C>
Daniel H. Case III...................................... -- -- --
William H. Hambrecht.................................... -- -- --
William R. Timken....................................... 62,466 160,000 240,166
Paul L. Hallingby....................................... 167,817 220,000 264,934
Cristina M. Morgan...................................... 110,467 200,000 258,085
</TABLE>
- ------------------------
(1) SAR payouts for fiscal 1996 reflect payouts of SARs granted during fiscal
1993, 1994 and 1995.
(2) The unrealized value of SARs at the fiscal year end is calculated by
aggregating the unvested and unpaid value of SARs granted in fiscal 1994,
1995 and 1996.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Daniel H. Case III in
1992. The currently effective provisions of this agreement provide that if the
Company terminates Mr. Case's employment without cause, or if Mr. Case resigns
within six months after a change in control of the Company, then (i) the Company
shall pay Mr. Case the greater of $400,000 or 25% of his aggregate compensation
received during the preceding two years, (ii) 50% of his unvested options shall
become vested, (iii) all options maybe exercised within two years after
termination for cash or on a net-exercise basis and (iv) unless within two years
he becomes employed by another full service investment bank, Mr. Case can
co-invest during such period in the Company's venture capital opportunities on
the same basis as the Company's executive officers.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of December 31, 1996 by
(i) each Named Executive Officer, (ii) each director, (iii) each holder of more
than 5% of the Company's common stock and (iv) all current directors and
executive officers as a group. Except as indicated in the footnotes to this
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAMED EXECUTIVE OFFICERS BENEFICIALLY PERCENT OF
DIRECTORS AND 5% BENEFICIAL OWNERS OWNED(1) CLASS
- ---------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
William R. Hambrecht(2)............................................... 2,893,656 12.4%
Daniel H. Case III(3)................................................. 2,000,966 8.6%
William R. Timken(4).................................................. 1,572,875 6.7%
Paul L. Hallingby(5).................................................. 651,777 2.8%
Cristina M. Morgan(6)................................................. 421,321 1.8%
William E. Mayer(7)................................................... 120,800 *
Howard B. Hillman(8).................................................. 81,920 *
Edmund H. Shea, Jr.................................................... 526,183 2.3%
Hambrecht & Quist Savings and
Employee Stock Ownership Plan(9).................................... 1,986,277 8.5%
All executive officers and directors
as a group (12 persons)(10)......................................... 9,013,155 38.3%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of December 31, 1996 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to applicable
community property laws, each person named in the table has sole voting and
investment power with respect to the shares set forth opposite such person's
name. The address of each of the beneficial owners of greater than 5% of the
Company's Common Stock listed in this table is care of Hambrecht & Quist
Group, One Bush Street, San Francisco, California 94104.
(2) Includes 27,790 shares held in trust by the SESOP and in a trust created
for the benefit of current and former employees of the Company relating to
the transfer of the Company's interest in Hambrecht & Quist, L.P., a
California limited partnership (the "Group Trust").
(3) Includes 18,374 shares held in trust by the SESOP and in the Group Trust.
(4) Includes options to purchase 40,000 shares exercisable within 60 days of
December 31, 1996 and 27,275 shares held in trust by the SESOP and in the
Group Trust.
(5) Includes options to purchase 28,000 shares exercisable within 60 days of
December 31, 1996 and 27,777 shares held in trust by the SESOP and in the
Group Trust.
8
<PAGE>
(6) Includes options to purchase 20,000 shares exercisable within 60 days of
December 31, 1996 and 26,423 shares held in trust by the SESOP and in the
Group Trust.
(7) Includes options to purchase 16,000 shares exercisable within 60 days of
December 31, 1996.
(8) Includes options to purchase 52,800 shares exercisable within 60 days of
December 31, 1996.
(9) Represents shares held by the SESOP for the benefit of employees of the
Company. The Trustee of the SESOP is Barclays Global Investors, N.A.,
located at 420 Montgomery Street, Third Floor, San Francisco, CA 94104. Each
beneficiary is entitled to instruct the Trustee as to the voting or
tendering of any full or partial shares of Company Stock held on his or her
behalf. Excludes 230,184 shares held by Group Trust.
(10) Includes options to purchase 187,200 shares exercisable within 60 days of
December 31, 1996 and 167,569 shares held in trust by the SESOP and in the
Group Trust.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
securities ownership and changes in such ownership with the SEC. Officers,
directors and greater than ten-percent stockholders also are required by rules
promulgated by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5s were required, the Company
believes that, during the fiscal year ended September 30, 1996, its officers,
directors and greater than ten-percent beneficial owners complied with all
applicable Section 16(a) filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INCREASE IN EQUITY OWNERSHIP OF DANIEL H. CASE III
In March 1996, the Company's Board of Directors approved a series of
transactions proposed by a committee of the Board of Directors designed to
increase the equity ownership of Daniel H. Case III, the Company's President and
Chief Executive Officer to a level commensurate with his position and
responsibilities. Mr. Case was promoted to Chief Executive Officer effective
October 1, 1994. The Board of Directors decided at that time that Mr. Case's
access to equity ownership in the Company should be increased as of Mr. Case's
promotion date to be equivalent to the ownership position of Company Chairman
William R. Hambrecht. The Board delegated to the committee the determination of
Mr. Case's equity programs. Because the committee's determination was not
completed until early in fiscal 1996, Mr. Case's options to purchase Common
Stock, described below, were valued as of September 30, 1995. As a partial
make-up for this delay, the Board determined to pay Mr. Case a bonus of
$1,951,979 (the "Make-Up Bonus") which on a pre-tax basis equalled the
difference in the fair value of the Company's Common Stock subject to such
options between October 1994 and October 1995. In March 1996: (i) the Board
accelerated the vesting of options to purchase 161,576 shares of Common Stock;
(ii) Mr. Case exercised options covering 1,238,828 shares of Common Stock, with
a weighted average exercise price of approximately $2.838 per share; (iii) Mr.
Case paid the exercise price of such options by delivering promissory notes for
$3,515,352; (iv) Mr. Case resold 169,428 of the purchased shares to the Company
for $6.518 cash per share (the then fair market value of the shares in the
opinion of the Board of Directors), or a total of $1,104,247; and (v) the
Company's Board of Directors granted Mr. Case a nonstatutory stock option to
purchase 892,680 shares of Common Stock at an exercise price of $6.518 per
share. Mr. Case also purchased 3,616 Units of Hambrecht and Quist, L.P., a
California limited partnership ("LP"), with a promissory note for $1,133,698. As
part of a series of restructuring transactions which occurred immediately prior
to the Company's initial public offering in August 1996 (the "Restructuring"),
such Units were
9
<PAGE>
exchanged for 86,784 additional shares of Common Stock. Each of the
above-referenced promissory notes has a five-year term, bears interest at the
rate of 6% per annum, and is to be repaid from Mr. Case's cash bonuses at a rate
of 20% of any such bonuses. Mr. Case applied all of the proceeds of the Make-Up
Bonus described above after withholding for taxes to prepay approximately
$1,260,000 of such notes. Mr. Case also applied a portion of the proceeds
received from a distribution from the Restructuring and a portion of the
proceeds from the Guaranty Finance transactions described below, as additional
prepayments of the notes.
GUARANTY FINANCE
Prior to the Restructuring, LP owned 70% of Hambrecht & Quist Guaranty
Finance, L. P. ("Guaranty Finance") and Mr. Case indirectly owned approximately
15% of the outstanding equity of Guaranty Finance and indirectly held an option
to purchase approximately 3% additional equity of Guaranty Finance. Mr. Case had
also rendered certain consulting services to Guaranty Finance. Mr. Case co-
founded Guaranty Finance in 1983 and purchased his interest at fair market value
at the time Guaranty Finance was initially capitalized in 1985. Subsequently,
Mr. Case made additional investments or increased his percentage ownership
indirectly in Guaranty Finance, principally by foregoing his share of a cash
distribution that Hambrecht & Quist California ("Group California") received
from Guaranty Finance in 1992. During fiscal 1993, 1994, 1995 and 1996, Mr. Case
received $86,300, $51,653, $241,189 and $206,273, respectively, from Guaranty
Finance as compensation for consulting services, distribution on capital and
profit sharing. Of the $206,273 paid to Mr. Case during fiscal 1996, the
portions relating to consulting services, distributions on capital and profit
sharing were $9,375, $150,006 and $46,892, respectively.
In June 1996, Guaranty Finance repurchased all outstanding options to
purchase additional equity in Guaranty Finance. Mr. Case received $500,000 for
his interest in the repurchased Guaranty Finance options. In July 1996, Mr. Case
applied this $500,000 toward the prepayment of notes payable to the Company.
Guaranty Finance also (a) distributed certain non-operating assets to its equity
holders, including Mr. Case and LP, and (b) accrued and paid out deferred
profit-sharing obligations representing approximately 10% of all net investment
gains (the "Distribution"). Mr. Case's proportionate share of the Distribution
had a book value as of August 8, 1996, the date of the Distribution, of
approximately $1.5 million, of which approximately $250,000 is subject to
repayment in part if Mr. Case terminates his employment with the Company prior
to December 31, 1999.
In connection with the Restructuring and in order to avoid the possibility
or appearance of a conflict of interest in the future, the Company purchased Mr.
Case's interest in Guaranty Finance for $1,734,588, which represented the fair
market value at May 31, 1996, of Mr. Case's proportionate part of assets
remaining in Guaranty Finance after the Distribution plus $162,148 which
represented Mr. Case's proportionate part of the proceeds from the sales, after
May 31, 1996 and prior to the Restructuring, of additional assets which
otherwise would have been distributed as part of the Distribution. Following the
Restructuring, Mr. Case had no further direct interest in the profits of
Guaranty Finance and waived his rights to any further consulting fees or profit
sharing from Guaranty Finance.
10
<PAGE>
ISSUANCES OF SECURITIES TO OFFICERS AND DIRECTORS
The Company has made numerous sales of Common Stock to directors, executive
officers and other employees during the last fiscal year. The following table
summarizes such sales made to the Company's directors and executive officers:
<TABLE>
<CAPTION>
SHARES AGGREGATE
NAME (#)(1) PURCHASE PRICE($)
- ------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
Daniel H. Case III........................................... 1,482,412 5,611,040
William R. Hambrecht......................................... -- --
William R. Timken............................................ -- --
Paul L. Hallingby............................................ 272,240 1,585,894
Cristina M. Morgan........................................... 115,845 642,086
David M. McAuliffe........................................... 13,281 174,386
Bruce M. Lupatkin............................................ 66,784 477,323
Steven N. Machtinger......................................... 46,561 212,730
Patrick J. Allen............................................. 37,520 271,930
Howard B. Hillman............................................ -- --
William E. Mayer............................................. 50,400 172,480
Edmund H. Shea, Jr........................................... 49,600 151,236
</TABLE>
- ------------------------
(1) Share number and aggregate purchase price figures have been adjusted to
reflect the exchange of Group California shares and LP units for shares of
Common Stock of the Company in connection with the Restructuring.
In October 1996, David M. McAuliffe purchased a total of 44,800 shares of
Common Stock for an aggregate purchase price of $241,920. In addition, during
fiscal 1996, Raymond J. Minehan, the Company's former Chief Financial Officer,
purchased a total of 33,121 shares of Common Stock for an aggregate purchase
price of $164,941.
PARTICIPATION BY EMPLOYEES AND OFFICERS IN VENTURE CAPITAL INVESTMENTS
Employees and officers of the Company are required to offer to the Company
opportunities which they encounter to invest in private companies in the
Company's areas of focus. The Company has the right to take its desired
investment position in such opportunities. If the Company rejects such
opportunity, the originating employee may make such investment. If the Company
invests in such opportunities, it typically will invest an amount equal to at
least twice the amount of the largest investment by a Company employee. After
the Company takes its desired investment position it will typically syndicate
such opportunities for investment by eligible employees and selected outside
investors. Occasionally, the Company will be asked to participate in an
investment which is not a candidate for syndication to all eligible Company
employees. In such instance, a small number of the Company's employees directly
involved with the Company or the transaction may invest side-by-side with the
Company (or one of its wholly-owned subsidiaries) on a direct, non-syndicated
basis. A Small Business Investment Company that is wholly-owned by William R.
Hambrecht and his family, and J.F. Shea Co., Inc. and other affiliates of Edmund
H. Shea, a director of the Company, each regularly invests side-by-side with the
Company's venture capital funds and commits capital to venture capital funds
affiliated with H&Q. Other directors of the Company may also invest side-by-side
with the Company's venture capital funds or may commit capital to
Company-affiliated venture capital funds and have from time to time done so.
Side-by-side investments are generally made on the
11
<PAGE>
same terms as those applicable to other participants in the same transaction.
The following table summarizes venture capital investments made and capital
committed to Company-affiliated venture capital funds by the Company's directors
and executive officers during the last fiscal year:
VENTURE INVESTMENTS BY EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
AGGREGATE
AMOUNT OF
NAME INVESTMENTS
- -------------------------------------------------------------------------------- ------------
<S> <C>
William R. Hambrecht(1)(2)...................................................... $ 3,513,617
Daniel H. Case III(3)........................................................... 945,448
William R. Timken(2)............................................................ 1,284,155
Paul L. Hallingby............................................................... 163,531
Cristina M. Morgan.............................................................. 203,662
David M. McAuliffe.............................................................. 15,001
Bruce M. Lupatkin............................................................... 68,599
Steven N. Machtinger............................................................ 58,318
Patrick J. Allen................................................................ 14,598
Howard B. Hillman............................................................... 847,954
William E. Mayer................................................................ 687,005
Edmund H. Shea, Jr.(2)(4)....................................................... 8,432,996
</TABLE>
- ------------------------
(1) Includes investments made by a Small Business Investment Company owned by
Mr. Hambrecht and his family.
(2) Includes investments in venture funds managed by H & Q Asia Pacific, Ltd.,
an entity in which the Company holds a minority interest.
(3) Includes investments made by Stacey Case, Mr. Case's wife.
(4) Includes investments made by Edmund & Mary Shea Real Property Trust, and
J.F. Shea Co., Inc., which Mr. Shea may be deemed to control.
In addition to their pro rata return on investment, the Company allocates to
certain of its professionals, including certain of those listed above, a portion
of the profits realized from particular venture investments based on such
professionals' specific contributions to identifying, structuring and monitoring
the investment.
As a result of venture capital investments by the Company's officers,
directors and employees, such persons, along with entities affiliated with the
Company, hold significant equity interests in a number of private and public
companies. From time to time, the Company enters into transactions with such
companies on an arm's length basis with terms that the Company believes are no
less favorable than those that would be negotiated with other third parties.
Transactions entered into with companies in which the Company's officers,
directors and related entities have investments include purchasing additional
equity, loaning funds, guaranteeing obligations and providing letters of credit.
In addition, the Company has provided investment banking services such as
underwriting and merger and acquisition services to such companies.
12
<PAGE>
INDEBTEDNESS OF OFFICERS AND DIRECTORS
The Company's executive officers and directors listed below have been
indebted to the Company in the amounts and for the periods set forth below. The
purpose of the indebtedness in each case was to permit the exercise of options
to purchase Common Stock of the Company, the purchase of restricted Common Stock
of the Company or the purchase of LP units. All such indebtedness is due five
years after issuance, bears interest at approximately the minimum rate necessary
to avoid imputation of interest income for tax purposes and is secured by the
shares purchased with recourse against the borrower only to the extent of the
borrower's equity interest in the Company and the borrower's rights to receive
compensation from the Company. "Type A" indebtedness is repayable with 15% of
the gross amount of each semi-annual Company bonus withheld from the borrower's
net pay. "Type B" indebtedness is forgiven at the rate of 20% of the initial
principal amount and accrued interest at January 15, of each year of the term of
such indebtedness.
<TABLE>
<CAPTION>
AGGREGATE BALANCE
HIGHEST BALANCE OUTSTANDING AS OF
DURING FISCAL 1996($) DECEMBER 31, 1996($)
--------------------- ---------------------
TYPE A TYPE B TYPE A TYPE B
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
William R. Hambrecht.............. -- 24,592 -- 24,592
Daniel H. Case III(1)............. 5,186,288 302,206 1,920,399 302,206
William R. Timken................. -- -- -- --
Paul L. Hallingby(1).............. 1,544,888 -- 952,457 --
Cristina M. Morgan................ 396,451 174,883 -- 174,883
David M. McAuliffe................ 254,344 208,519 193,536 208,519
Bruce M. Lupatkin................. 584,999 16,820 342,344 16,820
Steven N. Machtinger.............. 274,585 14,970 156,666 14,970
Patrick J. Allen.................. 207,957 44,781 102,684 44,781
William E. Mayer.................. 32,800 -- -- --
</TABLE>
- ------------------------
(1) Mr. Case's and Mr. Hallingby's indebtedness is repayable in installments of
20% of their respective cash bonuses, if any.
SEPARATION AGREEMENT
On September 30, 1996, the Company entered into a Separation Agreement and
General Release (the "Agreement") with Raymond J. Minehan, the Company's former
Chief Financial Officer. Pursuant to the terms of the Agreement, Mr. Minehan
resigned from employment with the Company effective September 30, 1996 and
agreed to provide consulting services as requested by the Company for part of
October. The Company agreed to pay Mr. Minehan $360,000 and additional
contingent payments of $54,652 in January 1997, $47,110 in January 1998 and
$23,636 in January 1999. As of December 31, 1996, Mr. Minehan owed the Company a
total of $241,964 evidenced by promissory notes which will not become due and
payable until September 1, 1997.
TRANSACTIONS WITH SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN
Each fiscal year, pursuant to the terms of the SESOP, the Company has
historically matched a portion of each participant's contribution to the SESOP
in shares of the Company's Common Stock. The SESOP holds approximately 8.5% of
the Company's outstanding Common Stock. The Company's match is made initially in
the form of a cash payment to the SESOP and the SESOP in turn purchases the
number of shares necessary for the match. In March 1996, the Company completed
the match for fiscal 1995 by transferring $1,072,669 to the SESOP which then
purchased a total of 41,145 shares of Common Stock
13
<PAGE>
from the Company for the match. The value of the shares purchased for the 1995
match was established based on the book value of the Company's Common Stock as
of September 30, 1995. In December 1996, the Company completed the match for
fiscal 1996 by transferring $1,414,889 to the SESOP which then purchased a total
of 66,977 shares of Common Stock from the Company for the match. The value of
the shares purchased for the 1996 match was established based on the market
value of the Company's Common Stock on the date of the purchase of the shares.
SECURITIES TRADING FOR EMPLOYEES
Certain directors, officers and employees of the Company maintain margin
accounts with H&Q LLC on the same terms available to persons unaffiliated with
the Company, including interest rates and collateral on outstanding margin
loans. From time to time, directors, officers and other employees of the Company
may buy or sell securities to or from H&Q LLC as principal or through H&Q LLC as
agent in its capacity as a registered securities broker-dealer. Such
transactions are generally executed on terms (i.e., commissions, mark-ups and
mark-downs) more favorable to the employee-customer than those available to
similarly-situated non-employee customers of the Company.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the last fiscal year, the Compensation Committee of the Board of
Directors consisted of directors Mayer and Shea, neither of whom is, nor
formerly was, an officer or employee of the Company. During the last fiscal
year, none of the Company's executive officers served on the board of directors
or compensation committee of another entity in which an executive officer of
such entity served on the Company's board of directors or compensation
committee.
REPORT OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The following report is submitted by the Company's Board of Directors and
relates to the Company's executive compensation practices during fiscal 1996. In
June 1996, in connection with the Company's initial public offering, the Board
of Directors established the Compensation Committee (the "Committee") which is
currently comprised of two independent outside directors, neither of whom is a
current officer or employee of the Company or its subsidiaries. The members of
the Committee are William E. Mayer and Edmund H. Shea, Jr. Prior to the
formation of the Committee, the Company's executive compensation policies were
determined by the full Board of Directors and administered by the Company's
executive officers. The Committee did not meet during the fiscal year ended
September 30, 1996 and compensation policies for the fiscal year were
established by the Board of Directors and administered by the Committee and the
Company's executive officers.
The Committee is responsible for the establishment of policies governing and
for the implementation, administration and interpretation of all aspects of
compensation of the Company's executive officers. The Company reviews the
compensation of executive officers on an ongoing basis and develops plans which
are designed to support the Company's business strategies and reflect
marketplace practices in a dynamic and intensely competitive industry.
The Company's executive compensation program is designed to achieve the
following results:
- Support the Company's business strategies and goals;
- Attract and retain qualified and talented executive officers by providing
compensation opportunities comparable to those offered by other leading
companies in the financial services industry;
- Motivate high performance in an entrepreneurial, incentive-driven culture;
and
14
<PAGE>
- Motivate executive officers to assist the Company in achieving superior
levels of financial and strategic performance for the Company and its
stockholders by closely linking executive compensation to performance in
those areas.
The Company's philosophy is to compensate executive officers based on their
individual performance and the Company's overall performance. Two main
principles guiding this philosophy are to pay market rates and to provide
long-term stock ownership. The Company considers equity ownership by its
executive officers to be critical to its long-term success. By virtue of the
Company's establishment of relatively low fixed base compensation and highly
leveraged incentive opportunities, total compensation will vary with revenue
levels and financial results of the Company. In keeping with the Company's
policy of sustaining its entrepreneurial, incentive-driven culture, no
Company-paid retirement benefits are provided to executive officers other than
the SESOP as described below.
The total compensation program for executive officers is comprehensive and
integrated to include salary, incentive bonuses, equity-based incentives and
certain other forms of compensation.
SALARY
Base salaries are intended to represent a small portion of total
compensation for the Company's executive officers. The greater part of total
compensation is based on the Company's financial performance and other factors
and is delivered through a combination of cash and equity-based awards. Base
salaries for the Company's executive officers are set at a level such that a
substantial portion of anticipated aggregate cash compensation is at risk and
such salaries are determined prior to the beginning of the ensuing fiscal year.
Salaries will be reviewed annually by the Committee for appropriateness in
consideration of the Company's compensation policy, marketplace practice, the
Company's financial results, and individual position responsibilities and
performance.
INCENTIVE BONUSES
The method of determination of bonuses payable to executive officers and the
criteria considered vary depending on each executive's operating division.
However, in each case, the Company's annual incentive bonuses for its executive
officers, including those reported under the heading "Annual Compensation--
Bonus" in the Summary Compensation Table, are based on both objective and
subjective performance criteria and typically constitute a substantial portion
of an individual's total compensation. Objective criteria generally include
specific financial and strategic performance objectives for both the Company as
a whole and each executive's operating division. Subjective criteria encompass
evaluation of the executive's initiative, ability and contribution to overall
division and corporate performance, including the executive's contribution to
revenue generation. No formal weighting of the various criteria was employed in
setting incentive bonuses for fiscal 1996.
The Company currently pays semiannual bonuses to its executive officers. The
bonuses paid to the majority of the executive officers are under the 1996 Bonus
and Deferred Compensation Plan (the "1996 Compensation Plan") pursuant to which
80% of the bonus is paid in cash and 20% is paid in shares of the Company's
Common Stock, valued at 90% of the market value at the time of the award. The
shares of Common Stock vest over three years following the date of grant. At the
time the bonus is awarded, each such executive has the choice of declining to
accept the Common Stock and instead receive cash payments without interest. Such
stock will vest and such cash payments will be made by the Company only to the
extent that the employee is employed by the Company on the first three
anniversaries of the bonus date. In fiscal 1996, four of the Named Executive
Officers were not offered the opportunity to receive their bonus in equity in
light of their already substantial equity positions in the Company.
15
<PAGE>
EQUITY-BASED INCENTIVES
During fiscal 1996, the Board of Directors also utilized stock option and
other forms of equity compensation for its executive officers. Combined with the
stock bonuses granted pursuant to the 1996 Compensation Plan described above,
such equity-based incentives are designed to motivate executive officers of the
Company by providing an opportunity for financial rewards through the
appreciation in the Company's Common Stock.
STOCK OPTIONS. Pursuant to the terms of the Company's 1996 Equity Plan (the
"1996 Plan"), the Company may grant stock options to its executive officers and
selected employees. During fiscal 1996, the Company granted options to purchase
a total of 964,724 shares of the Company's Common Stock to the Named Executive
Officers pursuant to the terms of the predecessor plan to the 1996 Plan. Option
grants typically provide for the purchase of shares of Common Stock at market
value on the grant date, become exercisable over five years after the grant date
and have a term of seven years. Because the value of the options is dependent on
the increase of the market value of the Common Stock, the options provide a
long-term incentive for executives to stay with the Company and to increase the
market value of the Common Stock. It is expected that all future stock option
grants will be made pursuant to the 1996 Plan or such other equity plan as may
succeed it.
SARS. During fiscal 1996, the Company also granted a total of 340,520 stock
appreciation rights ("SARs") to six of the Company's executive officers. The
SARs were granted for terms of either six months or one year and vest over three
years. Such SARs will result in additional compensation to the executives based
on the increase of the Company's book value during a period of either six months
or one year following the date of the award. The Company does not expect to make
further SAR grants in the future.
SESOP. The Company has a Savings and Employee Stock Ownership Plan
("SESOP") in which all salaried employees are eligible to participate after six
months of service. The SESOP provides for a salary deferral plan, in which the
Company may, in its discretion, match the first $4,000 contributed by each
participant during the plan year with a partial or equivalent amount of its
Common Stock. Each of the executive officers is eligible to participate in the
SESOP.
OTHER COMPENSATION ARRANGEMENTS
As a result of the diversity in the Company's business and individual
employee job responsibilities, the Company strives to maintain flexibility with
respect to its compensation programs. In addition to the compensation
arrangements described above, the Company has from time to time adopted employee
benefit plan and other arrangements in which executive officers are permitted to
participate. Such arrangements include the ability to co-invest with the Company
in venture capital investments and participate in the profits to the Company as
a result of such investments.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the Chief Executive Officer's total compensation for fiscal 1996,
in addition to the criteria referenced above, the Board of Directors took into
account the historic long-term performance of the Company under his leadership
and its strategic progress, which were viewed as critical to the successful
initial public offering in August 1996. In addition, the Chief Executive
Officer's compensation is based in part on his direct contribution to revenue
generation as a result of his involvement in investment banking activities.
The Company believes that the total compensation of the Chief Executive
Officer is appropriate relative to his performance, the performance of the
Company and the compensation of other senior executives of high-performing
investment banking firms. For information concerning action taken by the Company
during fiscal 1996 increasing the Chief Executive Officer's equity ownership in
the Company, see "Certain Relationships and Related Transactions--Increase in
Equity Ownership of Daniel H. Case III."
16
<PAGE>
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1966, as amended, (the
"Code") generally denies a tax deduction to any publicly-held corporation for
compensation that exceeds $1 million to any of the five most highly compensated
executive officers in a taxable year, subject to exceptions for
"performance-based compensation" as defined in the Code and compensation paid
pursuant to certain plans in place prior to a company's initial public offering.
To date, all compensation paid to the Company's Named Executive Officers has
been paid pursuant to compensation programs that were in place prior to the
Company's initial public offering. In determining compensation for executive
officers, the Company's primary consideration is achievement of the Company's
strategic goals, taking into consideration competitive practices, market
conditions and other factors. To the extent that fulfilling these goals is
consistent with obtaining tax deductions, the Company is committed to making
compensation awards that will qualify for tax deductions.
BOARD OF DIRECTORS
WILLIAM R. HAMBRECHT, Chairman
DANIEL H. CASE III
HOWARD B. HILLMAN
WILLIAM E. MAYER
EDMUND H. SHEA, JR.
WILLIAM R. TIMKEN
17
<PAGE>
COMPANY STOCK PERFORMANCE
The following chart compares total stockholder return on the Company's
Common Stock with the cumulative total return of the S&P 500 Index and the Dow
Jones Securities Brokers Index for the period from August 9, 1996, the effective
date of the Company's initial public offering, to September 30, 1996, assuming
the reinvestment of any dividends. Note that historic stock price performance is
not necessarily indicative of future stock price performance.
COMPARISON OF 2 MONTH CUMULATIVE TOTAL RETURN*
AMONG HAMBRECHT & QUIST GROUP, THE S&P 500 INDEX
AND THE DOW JONES SECURITIES BROKERS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HAMBRECHT & QUIST GROUP S&P 500 DOW JONES SECURITIES BROKERS
<S> <C> <C> <C>
8/9/96 $100 $100 $100
9/30/96 $121 $104 $100
</TABLE>
*$100 INVESTED ON 8/09/96 IN STOCK OR INDEX--
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
INDEX POINTS
<TABLE>
<CAPTION>
8/09/96 9/30/96
----------- -----------
<S> <C> <C>
Hambrecht & Quist Group......................................................................... $ 100 $ 121
S&P 500 Index................................................................................... $ 100 $ 104
Dow Jones Securities Broker Index............................................................... $ 100 $ 100
</TABLE>
18
<PAGE>
PROPOSAL NO. 2--RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
accountants, to audit the Company's consolidated financial statements for the
fiscal year ending September 30, 1997. At the Annual Meeting, the stockholders
are being asked to ratify the appointment of Arthur Andersen LLP as the
Company's independent accountants for fiscal year 1997. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have the opportunity to respond to appropriate questions
and to make a statement if they desire.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting and entitled to vote is required to ratify the appointment
of Arthur Andersen LLP as the Company's independent public accountants for the
fiscal year ending September 30, 1997. An abstention will have the same effect
as a negative vote, but, because shares held by brokers will not be considered
entitled to vote on matters as to which the brokers withhold authority, a broker
non-vote will have no effect on the vote.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
OTHER MATTERS
The Company knows of no other matters to be submitted to the stockholders at
the Annual Meeting. If any other matters properly come before the stockholders
at the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
STOCKHOLDER PROPOSALS
Stockholders of the Company who intend to present proposals at the Company's
next Annual Meeting of Stockholders must send such proposals to the Company for
receipt no later than September 30, 1997 in order for such proposals to be
considered for inclusion in the proxy statement and form of proxy relating to
such meeting.
By Order of the Board of Directors
[SIGNATURE]
Steven N. Machtinger
GENERAL COUNSEL AND SECRETARY
Dated: January 28, 1997
19
<PAGE>
HAMBRECHT & QUIST GROUP
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 14, 1997
The undersigned hereby appoints Daniel H. Case III, Patrick J. Allen and
Steven N. Machtinger as Proxies, with full power to act without the others
and each with power of substiution, and hereby authorizes them to represent
and to vote, as designated on the reverse side of this card, all shares of
Common Stock of Hambrecht & Quist Group (the "Company") held of record by the
undersigned on January 14, 1997, at the Annual Meeting of Stockholders to be
held on March 14, 1997, or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
1. ELECTION OF CLASS I DIRECTORS
Nominees: Howard B. Hillman
William R. Timken
[ ] FOR
[ ] WITHHOLD AUTHORITY to vote for all nominees listed at right
FOR all nominees listed (except as marked to the contrary below.)
________________________________________
2. Proposal to ratify the selection of Arthur Andersen LLP to serve as the
Company's independent accountants for fiscal 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other business as may properly come before
the Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL
BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED
FOR THE TWO NOMINEES FOR ELECTION, AND FOR PROPOSAL 2.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES.
______________________________________ Date: ___________________
Signature
NOTE: Please sign exactly as name or names appear on stock certificate (as
indictated hereon). When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If the signature is by
a corporation, sign the full company name by a duly authorized officer.
