<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<S> <C> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-11855
</TABLE>
HAMBRECHT & QUIST GROUP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3246636
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(Address of principal executive offices, including zip code)
(415) 439-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
23,725,127 shares of Common Stock were issued and outstanding as of May 1,
1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HAMBRECHT & QUIST GROUP
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.......................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders........................................... 21
Item 6. Exhibits and Reports on Form 8-K.............................................................. 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents..................................................................... $ 50,031,534 $ 46,536,973
Receivables:
Customers (net of allowance of $900,000 and $2,300,000, respectively)....................... 168,416,287 177,299,797
Lewco Securities Corp....................................................................... 80,532,188 3,843,131
Syndicate managers.......................................................................... 12,742,898 6,445,123
Related parties............................................................................. 17,929,657 13,686,201
Notes....................................................................................... 10,500,000 13,016,179
Lease....................................................................................... 4,335,668 4,118,514
Income taxes................................................................................ 806,062 12,359,574
Other....................................................................................... 1,484,820 8,224,487
Marketable trading securities, at market value................................................ 66,738,999 60,849,773
Long-term investments, at estimated fair value................................................ 69,931,210 98,730,620
Deferred income taxes......................................................................... 37,595,489 46,356,137
Furniture, equipment and leasehold improvements, net of accumulated depreciation and
amortization................................................................................ 13,167,152 16,658,012
Leased assets, net of accumulated depreciation................................................ 3,049,051 3,248,038
Exchange memberships, at cost (market value--$1,325,000 and $1,631,000, respectively)......... 656,000 656,000
-------------- --------------
Total assets............................................................................ $ 537,917,015 $ 512,028,559
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Customers................................................................................... $ 142,489,752 $ 81,285,416
Compensation and benefits................................................................... 100,351,165 102,146,294
Syndicate settlements....................................................................... 18,530,743 12,999,521
Trade accounts payable...................................................................... 2,483,361 2,129,276
Accrued expenses and other.................................................................. 22,929,770 28,906,956
Securities sold, not yet purchased, at market value........................................... 16,055,953 6,856,412
Debt obligations.............................................................................. 8,364,822 8,227,048
-------------- --------------
Total liabilities....................................................................... 311,205,566 242,550,923
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $0.01 and 100,000,000 shares authorized as of September 30, 1996 and
March 31, 1997; 22,693,930 and 23,373,655 issued and outstanding as of September 30, 1996
and March 31, 1997, respectively)......................................................... 226,939 233,736
Additional paid-in capital.................................................................. 116,643,623 129,168,998
Notes receivable from employees for purchases of common stock............................... (13,550,503) (7,134,727)
Retained earnings........................................................................... 124,056,614 147,306,330
Net unrealized gains (losses) on Guaranty Finance's long-term investments................... (665,224) 332,267
Treasury stock, at cost, 20,000 shares...................................................... -- (428,968)
-------------- --------------
Total stockholders' equity.............................................................. 226,711,449 269,477,636
-------------- --------------
Total liabilities and stockholders' equity.............................................. $ 537,917,015 $ 512,028,559
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ------------------------------
1996 1997 1996 1997
------------- ------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Principal transactions.......................... $ 22,725,934 $ 26,700,101 $ 43,997,192 $ 55,566,675
Agency commissions.............................. 9,160,040 11,622,532 17,364,800 21,529,231
Investment banking.............................. 37,658,501 17,954,380 84,053,248 48,058,748
Corporate finance fees.......................... 12,811,174 14,521,448 26,255,967 25,276,959
Net investment gains (losses)................... 8,675,815 (4,763,281) 15,308,482 358,801
Other........................................... 6,497,425 7,372,723 18,962,082 17,212,372
------------- ------------- -------------- --------------
Total revenues................................ 97,528,889 73,407,903 205,941,771 168,002,786
------------- ------------- -------------- --------------
EXPENSES:
Compensation and benefits....................... 50,335,320 39,272,693 103,878,913 86,586,547
Brokerage and clearance......................... 3,110,198 3,676,223 6,118,161 7,322,160
Occupancy and equipment......................... 2,459,786 4,107,566 4,593,220 7,395,763
Communications.................................. 2,511,008 3,893,783 4,527,791 7,060,695
Interest........................................ 1,192,769 262,774 2,203,220 4,717,177
Other........................................... 6,288,375 8,822,739 12,687,391 13,403,098
------------- ------------- -------------- --------------
Total expenses................................ 65,897,456 60,035,778 134,008,696 126,485,440
------------- ------------- -------------- --------------
Income before income tax provision............ 31,631,433 13,372,125 71,933,075 41,517,346
INCOME TAX PROVISION.............................. 10,671,488 5,883,733 24,351,832 18,267,630
------------- ------------- -------------- --------------
Net income.................................... $ 20,959,945 $ 7,488,392 $ 47,581,243 $ 23,249,716
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
EARNINGS PER SHARE................................ $ 0.29 $ 0.92
------------- --------------
------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING............... 25,418,606 25,347,248
------------- --------------
------------- --------------
PRO FORMA INFORMATION:
Net income before income tax adjustment......... $ 20,959,945 $ 47,581,243
Income tax adjustment........................... (3,246,343) (7,298,721)
------------- --------------
Pro forma net income.......................... $ 17,713,602 $ 40,282,522
------------- --------------
------------- --------------
Pro forma earnings per share.................. $ 0.86 $ 1.93
------------- --------------
------------- --------------
Pro forma weighted average shares
outstanding................................. 20,615,922 20,858,832
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
PARTNERS' CAPITAL
FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND THE SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HAMBRECHT & QUIST GROUP
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF ADDITIONAL TREASURY
COMMON COMMON PAID-IN NOTES RETAINED UNREALIZED STOCK, AT
SHARES STOCK CAPITAL RECEIVABLE EARNINGS GAINS, NET COST
---------- ----------- ------------ ------------ ------------ ----------- ---------
BALANCE, SEPTEMBER 30, 1995........ 14,609,188 $25,412,585 $ $ (7,659,714) $ 72,205,112 $ $
Sales of common stock or
partners' capital additions.... 2,080,348 11,994,895 (7,831,585) --
Reductions of notes received for
purchases of common stock...... -- -- 8,981,733 --
Repurchases of common stock or
partners' capital
withdrawals.................... (608,368) (2,201,212) -- (1,409,601)
Distribution of LP interest to
Group Trust.................... -- -- -- 4,493,971
Transfer of LP notes receivable
to H&Q......................... -- -- (8,227,753) --
Net income through August 7,
1996........................... -- -- -- 33,688,550
Partners' capital distributions
payable........................ -- -- -- --
Partners' capital
distributions.................. -- -- -- --
Change in net unrealized gains... -- -- -- --
---------- ----------- ------------ ------------ ------------ ----------- ---------
Balance, August 7, 1996.......... 16,081,168 35,206,268 (14,737,319) 108,978,032
Distribution of cash and
securities to LP Trust......... -- -- -- --
Merger between H&Q and LP........ 2,587,762 (35,019,579) 56,366,873 -- -- (557,280)
Purchase of additional interest
in Guaranty Finance............ -- -- -- -- -- (136,410)
---------- ----------- ------------ ------------ ------------ ----------- ---------
Balance, August 8, 1996.......... 18,668,930 186,689 56,366,873 (14,737,319) 108,978,032 (693,690)
Sale of common stock in initial
public offering plus net
underwriting revenue of
$425,000....................... 4,025,000 40,250 60,276,750 -- -- --
Reductions of notes received for
purchases of common stock...... -- -- -- 1,186,816 -- --
Net income from August 8 to
September 30, 1996............. -- -- -- -- 15,078,582 --
Change in net unrealized
losses......................... -- -- -- -- -- 28,466
---------- ----------- ------------ ------------ ------------ ----------- ---------
BALANCE, SEPTEMBER 30, 1996........ 22,693,930 226,939 116,643,623 (13,550,503) 124,056,614 (665,224)
Sales of common stock............ 679,725 6,797 12,525,375 (289,035) -- --
Reductions of notes received for
purchases of common stock...... -- -- -- 6,704,811 -- --
Net income....................... -- -- -- -- 23,249,716 --
Change in net unrealized gains... -- -- -- -- -- 997,491
Purchase of 20,000 shares of
common stock................... -- -- -- -- -- -- (428,968)
---------- ----------- ------------ ------------ ------------ ----------- ---------
BALANCE, MARCH 31, 1997............ 23,373,655 $ 233,736 $129,168,998 $ (7,134,727) $147,306,330 $ 332,267 $(428,968)
---------- ----------- ------------ ------------ ------------ ----------- ---------
---------- ----------- ------------ ------------ ------------ ----------- ---------
<CAPTION>
HAMBRECHT & QUIST, L.P.
------------------------------------------------------------------
<S> <C>
SUBTOTAL H&Q PARTNERS' NOTES DISTRIBUTIONS UNREALIZED SUBTOTAL H&Q
GROUP CAPITAL RECEIVABLE PAYABLE GAINS, NET LP
------------ ------------ ----------- ------------ ----------- ------------
BALANCE, SEPTEMBER 30, 1995........ $ 89,957,983 $ 26,194,002 $(2,232,013) $(10,445,367) $ 1,987,478 $ 15,504,100
Sales of common stock or
partners' capital additions.... 4,163,310 7,595,591 (7,333,171) -- -- 262,420
Reductions of notes received for
purchases of common stock...... 8,981,733 -- 1,337,431 -- -- 1,337,431
Repurchases of common stock or
partners' capital
withdrawals.................... (3,610,813) (420,344) -- -- -- (420,344)
Distribution of LP interest to
Group Trust.................... 4,493,971 -- -- -- -- --
Transfer of LP notes receivable
to H&Q......................... (8,227,753) -- 8,227,753 -- -- 8,227,753
Net income through August 7,
1996........................... 33,688,550 39,834,040 -- -- -- 39,834,040
Partners' capital distributions
payable........................ -- -- -- (14,034,971) -- (14,034,971)
Partners' capital
distributions.................. -- (24,480,338) -- 24,480,338 -- --
Change in net unrealized gains... -- -- -- -- 1,101,224 1,101,224
------------ ------------ ----------- ------------ ----------- ------------
Balance, August 7, 1996.......... 129,446,981 48,722,951 -- -- 3,088,702 51,811,653
Distribution of cash and
securities to LP Trust......... -- (27,375,657) -- -- (3,645,982) (31,021,639)
Merger between H&Q and LP........ 20,790,014 (21,347,294) -- -- 557,280 (20,790,014)
Purchase of additional interest
in Guaranty Finance............ (136,410) -- -- -- -- --
------------ ------------ ----------- ------------ ----------- ------------
Balance, August 8, 1996.......... 150,100,585 -- -- -- -- --
Sale of common stock in initial
public offering plus net
underwriting revenue of
$425,000....................... 60,317,000
Reductions of notes received for
purchases of common stock...... 1,186,816
Net income from August 8 to
September 30, 1996............. 15,078,582
Change in net unrealized
losses......................... 28,466
------------ ------------ ----------- ------------ ----------- ------------
BALANCE, SEPTEMBER 30, 1996........ 226,711,449 -- -- -- -- --
Sales of common stock............ 12,243,137
Reductions of notes received for
purchases of common stock...... 6,704,811
Net income....................... 23,249,716
Change in net unrealized gains... 997,491
Purchase of 20,000 shares of
common stock................... (428,968)
------------ ------------ ----------- ------------ ----------- ------------
BALANCE, MARCH 31, 1997............ $269,477,636 $ -- $ -- $ -- $ -- $ --
------------ ------------ ----------- ------------ ----------- ------------
------------ ------------ ----------- ------------ ----------- ------------
<CAPTION>
TOTAL
--------------
BALANCE, SEPTEMBER 30, 1995........ $ 105,462,083
Sales of common stock or
partners' capital additions.... 4,425,730
Reductions of notes received for
purchases of common stock...... 10,319,164
Repurchases of common stock or
partners' capital
withdrawals.................... (4,031,157)
Distribution of LP interest to
Group Trust.................... 4,493,971
Transfer of LP notes receivable
to H&Q......................... --
Net income through August 7,
1996........................... 73,522,590
Partners' capital distributions
payable........................ (14,034,971)
Partners' capital
distributions.................. --
Change in net unrealized gains... 1,101,224
--------------
Balance, August 7, 1996.......... 181,258,634
Distribution of cash and
securities to LP Trust......... (31,021,639)
Merger between H&Q and LP........ --
Purchase of additional interest
in Guaranty Finance............ (136,410)
--------------
Balance, August 8, 1996.......... 150,100,585
Sale of common stock in initial
public offering plus net
underwriting revenue of
$425,000....................... 60,317,000
Reductions of notes received for
purchases of common stock...... 1,186,816
Net income from August 8 to
September 30, 1996............. 15,078,582
Change in net unrealized
losses......................... 28,466
--------------
BALANCE, SEPTEMBER 30, 1996........ 226,711,449
Sales of common stock............ 12,243,137
Reductions of notes received for
purchases of common stock...... 6,704,811
Net income....................... 23,249,716
Change in net unrealized gains... 997,491
Purchase of 20,000 shares of
common stock................... (428,968)
--------------
BALANCE, MARCH 31, 1997............ $ 269,477,636
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.............................................. $ 19,925,727 $ 29,444,545
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments.............................................. (11,998,636) (40,067,604)
Proceeds from sales/distributions of long-term investments...................... 22,662,058 12,814,376
Purchases of furniture, equipment and leasehold improvements.................... (3,511,513) (6,476,098)
Increases in notes receivable................................................... -- (7,600,000)
Repayments of notes receivable.................................................. -- 5,083,821
(Increases) decreases in lease receivables...................................... (1,524,021) 217,152
Other, net...................................................................... 13,713 (1,402,494)
-------------- --------------
Net cash and cash equivalents provided by (used in) investing activities...... 5,641,601 (37,430,847)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations.................................................. 7,549,985 6,719,227
Repayments of debt obligations.................................................. (12,070,055) (6,857,000)
Proceeds from sales of common stock and partners' capital contributions......... 2,129,106 5,058,482
Repurchases of common stock and partners' capital withdrawals................... (3,196,932) --
Partners' capital distributions................................................. (18,179,512) --
Purchases of treasury stock..................................................... -- (428,968)
-------------- --------------
Net cash and cash equivalents provided by (used in) financing activities...... (23,767,408) 4,491,741
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 1,799,920 (3,494,561)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 34,754,568 50,031,534
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 36,554,488 $ 46,536,973
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include Hambrecht & Quist
Group and its subsidiaries ("H&Q" or the "Company"). H&Q was formed in August
1996 to be the sole parent of Hambrecht & Quist California, a California
corporation (formerly known as Hambrecht & Quist Group)("H&Q California") and to
succeed to the assets of Hambrecht & Quist, L.P., a California limited
partnership ("LP"). The historical condensed consolidated financial statements
include the combined operations of H&Q California and LP. Refer to Note 1 of the
consolidated financial statements as of and for the year ended September 30,
1996 ("1996 Consolidated Financial Statements") for a detailed description of
the Company's organizational structure, including the effects of the
restructuring transactions (the "Restructuring") completed in August 1996. Such
1996 Consolidated Financial Statements are included on Form 10-K filed by the
Company under the Securities Exchange Act of 1934.
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the accompanying condensed
financial statements should be read in conjunction with the 1996 Consolidated
Financial Statements and related notes thereto. Any capitalized terms used but
not defined have the same meaning given to them in the 1996 Consolidated
Financial Statements.
The preparation of financial statements requires the use of certain
estimates by management in determining the entity's assets, liabilities, revenue
and expenses. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. Actual results could differ from
those estimates. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the entire year.
The condensed consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring nature
which, in the opinion of management, are necessary to present fairly the
financial position of the Company at March 31, 1997, the results of operations
for the three month and six month periods ended March 31, 1996 and 1997 and the
cash flows for the six month periods ended March 31, 1996 and 1997.
2. PRO FORMA INCOME TAX ADJUSTMENT AND PRO FORMA EARNINGS PER SHARE:
PRO FORMA INCOME TAX ADJUSTMENT
For the three month and six month periods ended March 31, 1996, no provision
was made in the financial statements for income taxes related to the income of
LP. Pursuant to applicable federal and state income tax regulations, all income
or loss of LP was reportable by each partner directly to the taxing authority.
As part of the Restructuring (see Note 1), LP merged into the Company and ceased
to exist. For financial reporting purposes, the 1996 condensed consolidated
statements of operations for the three month and six months periods ended March
31, 1996 include pro forma income tax adjustments of $3,246,343 and $7,298,721,
respectively, representing taxes on LP's income as if LP's earnings were subject
to income taxes at an effective tax rate of 44 percent.
7
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
2. PRO FORMA INCOME TAX ADJUSTMENT AND PRO FORMA EARNINGS PER SHARE: (CONTINUED)
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share for the 1996 periods is determined by dividing
pro forma net income by the weighted-average number of common shares, including
common share equivalents, outstanding during the period.
3. BASIC AND DILUTED EARNINGS PER SHARE:
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128). The Company will be required to adopt
SFAS 128 in its 1998 fiscal year. SFAS 128 replaces primary and fully diluted
earnings per share with basic and diluted earnings per share calculations. Basic
earnings per share is computed by dividing net income by weighted average shares
outstanding. Diluted earnings per share is computed by dividing net income by
weighted average shares outstanding including the dilutive effects of stock
options. Diluted earnings per share calculations result in the same earnings per
share as currently reported by the Company. The Company's pro forma basic and
diluted earnings per share for the periods presented are as follows (the 1996
amounts are calculated using pro forma net income as discussed in Note 2):
<TABLE>
<CAPTION>
DILUTED
BASIC EARNINGS EARNINGS PER
PER SHARE SHARE
-------------- --------------
<S> <C> <C>
FOR THE THREE MONTHS ENDED--
March 31, 1997.................................... $ 0.32 $ 0.29
March 31, 1996.................................... $ 0.95 $ 0.86
FOR THE SIX MONTHS ENDED--
March 31, 1997.................................... $ 1.00 $ 0.92
March 31, 1996.................................... $ 2.21 $ 1.93
</TABLE>
4. RECEIVABLES FROM RELATED PARTIES:
Notes receivable from related parties and employees were $3,001,858 and
$2,975,981 at September 30, 1996 and March 31, 1997, respectively. Such amounts
include notes receivable from Asia Pacific of $1,792,740 and $1,739,808,
respectively.
Asset management fees and profit participations receivable of $10,349,674
and $7,238,435 at September 30, 1996 and March 31, 1997, respectively, include
profit participations receivable of $9,831,883 and $6,638,495, respectively from
venture and investment partnerships managed by Venture Partners.
Related party and employee advances were $4,578,125 and $3,471,785 at
September 30, 1996 and March 31, 1997, respectively. Such amounts include
temporary advances made to related parties for operating expenses and purchases
of investments. Of the amount outstanding at March 31, 1997, $3,324,731 relates
to advances to affiliates, directors and employees for purchases of investments
made on their behalf. Such amounts are repaid within 30 days.
8
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
5. MARKETABLE TRADING SECURITIES AND SECURITIES SOLD, NOT YET PURCHASED:
At September 30, 1996 and March 31, 1997, marketable trading securities and
securities sold, not yet purchased, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
Marketable trading securities--
Equity securities............................... $ 20,510,871 $ 29,615,902
Convertible bonds............................... 6,537,960 860,000
Options......................................... 119,042 244,339
U.S. government securities...................... 39,571,126 30,129,532
-------------- --------------
$ 66,738,999 $ 60,849,773
-------------- --------------
-------------- --------------
Securities sold, not yet purchased--
Equity securities............................... $ 14,313,068 $ 6,481,143
Convertible bonds............................... 1,403,500 --
Options......................................... 339,385 375,269
-------------- --------------
$ 16,055,953 $ 6,856,412
-------------- --------------
-------------- --------------
</TABLE>
6. LONG-TERM INVESTMENTS:
At September 30, 1996 and March 31, 1997, the Company's long-term
investments, at estimated fair value, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -------------
<S> <C> <C>
Marketable equity securities available for sale by Guaranty Finance and Transition
Capital.......................................................................... $ 9,078,811 $ 12,337,276
Marketable equity securities--other................................................ 15,266,887 17,079,982
The BISYS Group, Inc. common stock................................................. 7,650,518 7,984,625
------------- -------------
Total marketable investments..................................................... 31,996,216 37,401,883
------------- -------------
Nonmarketable securities and investment partnership interests...................... 24,383,763 36,340,233
Venture Partners and affiliated venture capital funds.............................. 9,527,910 14,802,243
Venture capital funds managed by others............................................ 1,913,042 8,075,982
Lewco Securities................................................................... 2,110,279 2,110,279
------------- -------------
Total nonmarketable investments.................................................. 37,934,994 61,328,737
------------- -------------
Total long-term investments...................................................... $ 69,931,210 $ 98,730,620
------------- -------------
------------- -------------
</TABLE>
The cost of the Company's long-term investments at September 30, 1996 and
March 31, 1997, was $52,489,136 and $85,308,632, respectively.
9
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
6. LONG-TERM INVESTMENTS: (CONTINUED)
Following is an analysis of the net investment gains and losses for the
three month and six month periods ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Realized gains....................................... $ 9,997,805 $ 1,824,707 $ 13,298,034 $ 5,749,256
Change in unrealized gains and losses, net........... (1,321,990) (6,587,988) 2,010,448 (5,390,455)
------------- ------------- ------------- -------------
Net investment gains and losses from long-term
investments...................................... $ 8,675,815 $ (4,763,281) $ 15,308,482 $ 358,801
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Included in net investment gains and losses are realized and unrealized
gains and losses on BISYS holdings of $10,118,258 (gain) and $778,571 (loss) for
the three month periods ended March 31, 1996 and 1997, respectively and
$13,220,518 (gain) and $334,287 (gain) for the six month periods ended March 31,
1996 and 1997, respectively.
The cost and estimated fair values of investments in marketable equity
securities available for sale by Guaranty Finance and Transition Capital at
September 30, 1996 and March 31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -------------
<S> <C> <C>
Cost............................................................ $ 9,839,090 $ 11,957,564
Gross unrealized gains.......................................... 500,588 1,213,487
Gross unrealized losses......................................... (1,260,867) (833,775)
------------- -------------
Estimated fair value............................................ $ 9,078,811 $ 12,337,276
------------- -------------
------------- -------------
</TABLE>
Gross proceeds, gross realized gains and gross realized losses from sales of
investments in marketable equity securities available for sale by Guaranty
Finance for the three month and six month periods ended March 31, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ------------------------
1996 1997 1996 1997
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Gross proceeds........................... $ 2,983,510 $ -- $ 3,031,760 $ 263,546
Gross realized gains..................... 1,363,170 -- 1,411,178 72,831
Gross realized losses.................... -- -- --
</TABLE>
7. RELATED-PARTY TRANSACTIONS:
Included in other revenues are management fees and profit participation
distributions from venture capital funds of $815,153 and $1,872,176 for the
three month periods ended March 31, 1996 and 1997, respectively and $9,150,795
and $5,131,500 for the six month periods ended March 31, 1996 and 1997,
respectively.
10
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
8. EMPLOYEE BENEFIT PLANS:
SAVINGS AND EMPLOYEE STOCK OWNERSHIP TRUST
In December 1996, the Company issued 66,977 shares of common stock valued at
$1,414,889 to the ESOP in satisfaction of its compensation and benefits payable.
As of March 31, 1997, the ESOP owned approximately 8.2 percent of the H&Q
common stock outstanding.
BONUS AND DEFERRED SALES COMPENSATION PLAN
The Company paid semiannual bonuses in October 1996 and April 1997. Under
the Compensation Plan, 385,422 shares valued at $7,339,761 were issued to
executives and professionals effective October 1, 1996 and 345,219 shares valued
at $5,696,114 were issued to executives and professionals effective April 1,
1997. The October and April amounts were included in compensation and benefits
payable as of September 30, 1996 and March 31, 1997, respectively.
STOCK OPTION PLANS
Details of stock options are as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding at September 30, 1995............................ 2,934,428 $ 2.04 - $ 5.54
Granted.................................................... 4,530,320 $ 6.52 - $13.75
Exercised.................................................. (1,609,628) $ 2.10 - $ 4.74
Canceled................................................... (157,600) $ 2.62 - $ 5.54
-----------
Outstanding at September 30, 1996............................ 5,697,520 $ 2.04 - $13.75
-----------
-----------
Granted.................................................... 111,600 $ 19.75 - $24.00
Exercised.................................................. (123,600) $ 2.10 - $ 5.54
Canceled................................................... (62,284) $ 5.54 - $ 8.38
-----------
Outstanding at March 31, 1997................................ 5,623,236 $ 2.04 - $24.00
-----------
-----------
</TABLE>
Of the outstanding options at March 31, 1997, 966,520 had vested.
STOCK APPRECIATION RIGHTS
Compensation expense recorded for SARs awards was $4,187,876 and $8,066,876
for the three month and six month periods ended March 31, 1996, respectively. No
SARs were awarded for the 1997 fiscal year. A 1997 payment of $3,840,900 was
made on January 15, 1997.
11
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The total SARs liability at March 31, 1997, included in compensation and
benefits payable, will be paid out as follows:
<TABLE>
<S> <C>
1998....................... $3,396,809
1999....................... 3,620,338
---------
$7,017,147
---------
---------
</TABLE>
9. STOCK REPURCHASE PROGRAM:
In January 1997, the Board of Directors approved the Stock Repurchase
Program under which the Company is authorized to purchase up to 2,000,000 shares
of the Company's common stock in the open market. The shares acquired under the
Stock Repurchase Program will be used in part to satisfy the Company's
obligations under the Compensation Plan and various stock options plans. In
March 1997, the Company purchased 20,000 shares of the Company's common stock
and is holding such shares as treasury stock at March 31, 1997.
10. NET CAPITAL REQUIREMENTS:
At September 30, 1996 and March 31, 1997, H&Q LLC's regulatory net capital
of $49,975,660 and $57,885,568, respectively, was 22 percent and 34 percent,
respectively, of aggregate debit items and its net capital in excess of the
minimum required was $45,489,559 and $54,466,830, respectively.
At September 30, 1996 and March 31, 1997, RvR Securities had regulatory net
capital under Rule 15c3-1 of $2,011,485 and $686,328, respectively, and its net
capital in excess of the minimum required was $1,761,485 and $436,328,
respectively.
11. COMMITMENTS AND CONTINGENCIES:
Lewco conducts a stock borrow/stock lending business. On behalf of Lewco,
the Company has agreed to guarantee its proportional share of secured loans
resulting from this business. The Company's contingent liability relating to its
net unsecured position under this indemnity agreement was $5,184,326 and
$10,151,499 at September 30, 1996 and March 31, 1997, respectively.
The Company has contingent liabilities, including contractual commitments
arising in the normal course of business, the resolution of which, in
management's opinion, will not have an adverse effect on the Company's financial
position.
As is the case with many firms in the securities industry, the Company is a
defendant or co-defendant in a number of lawsuits that seek substantial and
usually unspecified damages. These suits have arisen in the normal course of the
Company's business and are incidental to the securities and investment banking
business. Most of the proceedings relate to public underwritings of securities
in which H&Q LLC participated as a manager, co-manager or member of the
underwriting syndicate. These cases involve claims under federal and state
securities laws and seek compensatory and other monetary damages. It is possible
that H&Q and/or H&Q LLC may be called upon as a member of a class of defendants
or under the terms of the underwriting, indemnification or other agreements to
contribute to settlements or
12
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
judgments arising out of these cases. The Company is contesting the complaints
in all cases and believes that there are meritorious defenses in each of these
lawsuits. Although the ultimate outcome of such litigation cannot be ascertained
at this time, it is the opinion of the Company's management, based on
discussions with counsel, that the resolution of these actions and others will
not have a material adverse effect on the Company's financial statements taken
as a whole.
H&Q has indemnified certain of its officers, directors and agents, and
certain of its affiliates, as permitted under applicable law. Under these
provisions, H&Q itself is and will be subject to indemnification assertions by
officers, directors, agents or certain of its affiliates who are or may become
defendants in litigation that may result in the normal course of business.
Although the ultimate outcome of indemnification assertions outstanding as of
March 31, 1997 cannot be ascertained at this time, it is the opinion of the
Company's management, based on discussions with counsel, that the resolution of
these assertions will not have a material adverse effect on the Company's
financial statements taken as a whole.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE STATEMENTS IN THIS QUARTERLY REPORT THAT RELATE TO FUTURE PLANS, EVENTS,
OR PERFORMANCE ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INCLUDE, BUT ARE
NOT LIMITED TO, THOSE RELATING TO THE EFFECTS OF FUTURE GROWTH, INTERNATIONAL
EXPANSION PLANS AND THE COMPANY'S PRINCIPAL INVESTMENT ACTIVITY STRATEGY. ACTUAL
RESULTS MIGHT DIFFER MATERIALLY DUE TO A VARIETY OF IMPORTANT FACTORS. THESE
FACTORS INVOLVE RISKS AND UNCERTAINTIES RELATING TO, AMONG OTHER THINGS, GENERAL
ECONOMIC AND MARKET CONDITIONS, CHANGES IN INTEREST RATES, STOCK MARKET PRICES
AND MUTUAL FUND CASH INFLOWS OR OUTFLOWS, CHANGES IN TECHNOLOGY AND HEALTHCARE
INDUSTRIES AND OTHER INDUSTRIES IN WHICH THE COMPANY IS ACTIVE, CHANGES IN
DEMAND FOR INVESTMENT BANKING AND SECURITIES BROKERAGE SERVICES, COMPETITIVE
CONDITIONS WITHIN THE SECURITIES INDUSTRY, THE COMPANY'S ABILITY TO RECRUIT AND
RETAIN KEY EMPLOYEES, CHANGES IN SECURITIES AND BANKING LAWS AND REGULATIONS,
TRADING AND PRINCIPAL INVESTMENT ACTIVITIES, LITIGATION AND OTHER FACTORS
DISCUSSED BELOW IN "OVERVIEW" AND IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM
10-K (THE "FORM 10-K").
THE FOLLOWING ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
HAMBRECHT & QUIST GROUP AND SUBSIDIARIES SHOULD BE READ IN CONJUNCTION WITH THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE HEREIN, AND WITH THE
MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION INCLUDED IN THE COMPANY'S FORM 10-K
AND FORM 10-Q FOR THE COMPANY'S FIRST FISCAL QUARTER.
OVERVIEW
Hambrecht & Quist Group ("H&Q" or the "Company") is a holding company for
Hambrecht & Quist California ("H&Q California"), whose primary subsidiary,
Hambrecht & Quist L.L.C. ("H&Q LLC"), is a wholly owned investment banking firm
and securities broker-dealer. H&Q California's other subsidiaries and affiliates
are engaged in investment banking, venture capital fund management, investment
advisory and lease and other asset-based financing activities.
EFFECTS OF MARKET CONDITIONS
The Company's business depends to a substantial extent on the market for
public equity offerings by emerging growth companies, particularly companies in
the technology and healthcare industries. These markets are affected by general
economic and market conditions, including fluctuations in interest rates, the
volume of securities trading, price levels of securities and the flow of
investor funds into and out of equity mutual funds, and by factors that apply to
particular industries, such as technological advances and changes in the
regulatory environment. Substantial fluctuations can occur and have occurred in
the Company's operating results due to these factors and other factors. In
periods of reduced market activity, profitability has been and is likely to be
adversely affected. Accordingly, net earnings for any period should not be
considered representative of any other period.
Despite the overall increase in market activity during most of fiscal 1996
and generally favorable market conditions continuing into the first fiscal
quarter of 1997, the market for equity securities in general, and for companies
in the industries and of the size on which the Company focuses in particular,
experienced a significant decline during the fourth fiscal quarter of 1996 and
again recently in the second fiscal quarter of 1997. The Company's results of
operations for the six months ended March 31, 1996 were achieved during
extremely favorable market conditions as compared to declining market conditions
for the same period ended March 31, 1997. For example, from January 31, 1997
through March 31, 1997 the Hambrecht & Quist Technology Index declined by 14%.
During the same period the Nasdaq composite index declined by 11%. As a result
of this market decline, many pending securities offerings were delayed or
canceled, including several offerings that the Company was managing or
co-managing. Most offerings completed in March and April were effected at lower
valuations and smaller total dollar sizes than the price ranges indicated in the
preliminary prospectuses for these offerings. The market decline also affected
the valuation of the Company's long-term investment portfolio. The market
decline and other factors
14
<PAGE>
resulted in a decrease in revenues and net income of $37.9 million and $24.3
million, respectively, for the six month period ended March 31, 1997, as
compared to the same period in fiscal 1996.
These market declines had, and any future similar or continuing market
decline will have, an adverse effect on the Company's operating results.
Substantial fluctuations can occur in the Company's operating results due to the
factors discussed above. As a result, there can be no assurance that operating
results for any future period will be comparable to those attained in
corresponding or other prior periods.
EFFECTS OF COMPETITION
The securities business is intensely competitive. Many of the Company's
competitors have greater capital, financial and other resources than the
Company. The securities business has also recently been experiencing
consolidation, providing competitors of the Company with increased capital,
financial and other resources. In addition, the level of competition for key
personnel has been increasing. The Company has experienced losses of research,
investment banking and sales and trading professionals from time to time and
there can be no assurance that losses of key personnel due to competition or
otherwise will not occur in the future.
EFFECTS OF COMPANY FACTORS AND GROWTH STRATEGIES
Over the past several years, and increasingly in the past year, the Company
has experienced significant growth in the scope of its business activities and
the number of its employees. Such growth has resulted in and is expected to
continue to result in increases in the Company's fixed expenses.
The scope of the Company's business activities has increased and is expected
to continue to increase to include a significantly higher level of principal
investment activities, as more fully described below in "Effects of Principal
Investment Activities", new business activities, such as the formation in fiscal
1996 of Hambrecht & Quist Transition Capital, LLC ("Transition Capital"), and
increased emphasis on building existing operations, such as the Executive
Financial Services group and the Company's international operations. Growth in
the Company's international operations during the second fiscal quarter of 1997
included the establishment of a strategic relationship in Israel. There can be
no assurance that the Company will be successful in further increasing the scope
of its business activities, including its international operations, or that any
action taken to develop such operations will not have an adverse effect on the
Company's existing operations.
The number of employees has increased significantly from both the increased
scope of business activities and the growth of existing operations. This
employee growth has increased fixed expenses associated with compensation and
benefits costs, occupancy and equipment costs and communications costs. Such
fixed expenses are expected to grow in the future. Any failure to effectively
manage the Company's growth through the investment in management personnel,
financial and management systems and controls, and facilities could have an
adverse affect on the Company's operations.
EFFECTS OF PRINCIPAL INVESTMENT ACTIVITIES
The Company makes principal investments for strategic purposes and financial
returns. As part of the Company's principal investment activities, it purchases
equity and debt securities or makes commitments to purchase such securities from
public and private companies. Such investments may involve substantial amounts
of capital and significant exposure to any one company or business, as well as
to market, credit and liquidity risks. This level of investment activity has
increased compared to prior periods. For example, during the six months ended
March 31, 1997, the Company purchased $40.0 million in principal investments
compared to $12.0 million during the six months ended March 31, 1996. The
Company expects to continue an increased level of principal investment
activities in subsequent quarters through direct investments in public and
private companies, investments in funds managed by the Company or by investment
management entities in which the Company has an interest, investments in other
special
15
<PAGE>
situation funds managed by outside fund managers and investments in joint
ventures. However, there can be no assurance that the level and quality of
potential investment opportunities made available to the Company will be
sufficient to support such increased level of principal investing or that any
future or historical investments will achieve a level of financial performance
consistent with the Company's objectives.
The Company accounts for its marketable investments in public companies at
prevailing market prices, less discounts for illiquid or restricted holdings.
The Company accounts for its nonmarketable investments in private companies at
estimated fair value as determined by management of the Company. Such marketable
and nonmarketable investments are presented in the Company's balance sheets as
long-term investments. At September 30, 1996 and March 31, 1997, the Company's
long-term investments totaled $69.9 million and $98.7 million, respectively.
Changes in unrealized appreciation arising from changes in prevailing market
prices or fair value or gains and losses upon realization are reflected in the
Company's statements of operations as net investment gains or losses. For the
six month periods ended March 31, 1996 and 1997, net investment gains totaled
$15.3 million and $359,000, respectively.
Principal investing activities, which have historically been a significant
contributor to the Company's revenues and earnings, are not predictable and do
not necessarily correlate with general market conditions. These results, which
in any reporting period may be influenced by a limited number of investments and
transactions, can vary widely from year to year and quarter to quarter.
RESTRUCTURING(1)
H&Q California succeeded in January 1983 to the business of Hambrecht &
Quist, a partnership formed in 1968. Between January 1983 and November 1993, H&Q
California conducted, either directly or through subsidiaries or affiliates, all
of the Company's activities. Hambrecht & Quist, L.P. ("LP") was formed in
November 1993 for the purpose of owning and managing investments in certain
operating affiliates.
On August 8, 1996, the Company effected a series of restructuring
transactions (the "Restructuring"), pursuant to which, among other things, (i)
LP transferred cash and assets totaling $31.0 million to a liquidating trust for
the benefit of LP's partners, (ii) Guaranty Finance distributed assets whose
book value was approximately $2.5 million to its equity owners other than LP,
(iii) LP and H&Q California entered into separate merger transactions, pursuant
to which LP was merged into the Company and H&Q California became a wholly owned
subsidiary of the Company, and (iv) the equity holders of H&Q California and LP
became owners of shares of the Company's common stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUES. Total revenues for the period decreased 25% from $97.5 million
for the three months ended March 31, 1996 to $73.4 million for the three months
ended March 31, 1997.
Principal transactions revenue increased 17% from $22.7 million to $26.7
million. This increase was due to an increase in Nasdaq market activity and the
expansion of the Company's equity sales and trading capabilities.
Agency commissions increased 27% from $9.2 million to $11.6 million. This
increase was due to the expansion of the Company's listed equity business.
- ------------------------
(1) Refer to Note 1 of Notes to the 1996 Annual Consolidated Financial
Statements, as included in the Company's Form 10-K, for a detailed
description of the Company's organizational structure, including the effects
of the restructuring transactions completed in August 1996 (the
"Restructuring").
16
<PAGE>
Investment banking revenue decreased 52% from $37.7 million to $18.0
million, and decreased as a percentage of revenues from 39% to 24%. The Company
managed or co-managed 34 public offerings during the three month period ended
March 31, 1996, compared to 19 during the three month period ended March 31,
1997.
Corporate finance fees increased 13% from $12.8 million to $14.5 million.
Net investment gains or losses for the three month period decreased 155%
from an $8.7 million net investment gain to a $4.8 million net investment loss.
Net investment gains or losses include realized and unrealized gains or losses
on the Company's investment in BISYS of a $12.2 million gain for the three
months ended March 31, 1996 and a $779,000 loss for the three months ended March
31, 1997.
Other revenues increased 14% from $6.5 million to $7.4 million. The increase
was due primarily to an increase in asset management fees, primarily from profit
participation distributions.
EXPENSES. Total expenses for the period decreased 9% from $65.9 million for
the three months ended March 31, 1996 to $60.0 million for the three months
ended March 31, 1997.
Compensation and benefits expense decreased 22% from $50.3 million to $39.3
million. The decrease was due primarily to lower bonus expenses accrued on lower
revenues. Compensation and benefits expense as a percentage of total revenues
increased from 52% to 53%. Average employee headcount was 553 in the three month
period ended March 31, 1996 compared to 746 in the three month period ended
March 31, 1997.
Brokerage and clearance expense increased 18% from $3.1 million to $3.7
million. The percentage increase is primarily attributable to corresponding
increases in principal transaction revenue and agency commissions.
Occupancy and equipment expense increased 67% from $2.5 million to $4.1
million as a result of increases in depreciation expense related to computer and
telecommunication equipment upgrades and procurements for new employees and
increases in rent expense for additional office space leased principally in San
Francisco.
Communications expense increased 55% from $2.5 million to $3.9 million. This
increase was due to increases in telecommunications expenses and quotes and
information services expenses resulting from the hiring of additional employees.
Interest expense decreased 78% from $1.2 million to $263,000. This decrease
related primarily to lower average borrowings outstanding during the three month
period ended March 31, 1997.
Other expenses increased 40% from $6.3 million to $8.8 million. This
increase was due to increases in professional services fees, travel,
entertainment and conference expenses and bad debt expense.
INCOME TAX PROVISION. The Company's effective income tax rate was 34% for
the three month period ended March 31, 1996 and increased to 44% for the three
month period ended March 31, 1997. The Company's effective income tax rate in
the 1996 fiscal period was less than the combined federal and state statutory
income tax rates because LP was not subject to corporate federal or state income
tax. The Company's higher effective tax rate in the 1997 fiscal period results
from the effects of the Restructuring. Subsequent to the Restructuring, all
Company income is subject to corporate federal and state income tax. The pro
forma income tax adjustment for the 1996 fiscal period was determined assuming
that all of the Company's combined operations had been subject to corporate
federal and state income tax.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
REVENUES. Total revenues for the period decreased 18% from $205.9 million
for the six months ended March 31, 1996 to $168.0 million for the six months
ended March 31, 1997.
17
<PAGE>
Principal transactions revenue increased 26% from $44.0 million to $55.6
million. This increase was due to an increase in Nasdaq market activity and the
expansion of the Company's equity sales and trading capabilities.
Agency commissions increased 24% from $17.4 million to $21.5 million. This
increase was due to the expansion of the Company's listed equity business.
Investment banking revenue decreased 43% from $84.1 million to $48.1
million, and decreased as a percentage of revenues from 41% to 29%. The Company
managed or co-managed 71 public offerings during the six month period ended
March 31, 1996, compared to 49 during the six month period ended March 31, 1997.
Corporate finance fees decreased 4% from $26.3 million to $25.3 million.
While the number of fee-generating transactions completed in the 1997 fiscal
period was greater, the average size of the advisory fees collected in the 1996
fiscal period was larger.
Net investment gains for the six months period decreased 98% from $15.3
million to $359,000. Net investment gains include realized and unrealized gains
on the Company's investment in BISYS of $13.2 million for the six months ended
March 31, 1996 and $334,000 for the six months ended March 31, 1997.
Other revenues decreased 9% from $19.0 million to $17.2 million. The
decrease was due primarily to a decrease in profit participation distributions
from venture funds managed by the Company.
EXPENSES. Total expenses for the period decreased 6% from $134.0 million
for the six months ended March 31, 1996 to $126.5 million for the six months
ended March 31, 1997.
Compensation and benefits expense decreased 17% from $103.9 million to $86.6
million. The decrease was due primarily to lower bonus expenses accrued on lower
revenues. Compensation and benefits expense as a percentage of total revenues
increased from 50% to 52%. Average employee headcount was 535 in the six month
period ended March 31, 1996, compared to 731 in the six month period ended March
31, 1997.
Brokerage and clearance expense increased 20% from $6.1 million to $7.3
million. The percentage increase is primarily attributable to corresponding
increases in principal transaction revenue and agency commissions.
Occupancy and equipment expense increased 61% from $4.6 million to $7.4
million as a result of increases in depreciation expense related to computer and
telecommunication equipment upgrades and procurements for new employees and
increases in rent expense for additional office space leased principally in San
Francisco.
Communications expense increased 56% from $4.5 million to $7.1 million. This
increase was due to increases in telecommunications expenses and quotes and
information services expenses resulting from the hiring of additional employees.
Interest expense decreased 46% from $2.2 million to $1.2 million. This
decrease related primarily to lower average borrowings outstanding during the
six month period ended March 31, 1997.
Other expenses increased 33% from $12.7 million to $16.9 million. This
increase was due to increases in professional services fees, travel,
entertainment and conference expenses and bad debt expense.
INCOME TAX PROVISION. The Company's effective income tax rate was 34% for
the six month period ended March 31, 1996 and increased to 44% for the six month
period ended March 31, 1997. The Company's effective income tax rate in the 1996
fiscal period was less than the combined federal and state statutory income tax
rates because LP was not subject to corporate federal or state income tax. The
Company's higher effective tax rate in the 1997 fiscal period results from the
effects of the Restructuring. Subsequent to the Restructuring, all Company
income is subject to corporate federal and state income tax.
18
<PAGE>
The pro forma income tax adjustment for the 1996 fiscal period was determined
assuming that all of the Company's combined operations had been subject to
corporate federal and state income tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its funding needs with its own
capital resources, consisting almost entirely of internally generated retained
earnings and capital raised from the sale of its common stock to employee
stockholders and the public through its initial public offering. As of March 31,
1997, H&Q LLC had liquid assets consisting primarily of cash and cash
equivalents of $36.9 million and receivables of $3.8 million from Lewco
Securities Corp. ("Lewco"), its clearing affiliate. The cash equivalents
consisted primarily of United States Treasury bills with maturities of 90 days
or less. As of March 31, 1997, the Company had a bank line of credit in the
amount of $15.0 million, with a balance of $8.2 million outstanding, and
Guaranty Finance and Transition Capital had bank lines of credit of $11.0
million and $10.0 million, respectively with no amounts outstanding under either
line. While the Company has not required additional bank financing during the
past several years, it has available an additional $20.0 million line of credit
with a commercial bank expiring February 28, 1998.
The Company's consolidated balance sheet reflects the Company's relatively
unleveraged financial position. The ratio of assets to equity as of March 31,
1997 was approximately 1.9:1. The Company's principal assets consist of
receivables from customers and Lewco, securities held for trading purposes,
short-term investments and securities held for investment purposes. A
substantial portion of all of the Company's receivables are secured by customer
securities or security transactions in the process of settlement. Securities
held for trading purposes are actively traded and readily marketable. As of
March 31, 1997, securities held for trading purposes include United States
Treasury securities totaling $30.1 million with maturities ranging from five
months to seventeen months. Securities held for investment purposes are for the
most part illiquid and are carried at valuations that reflect this lack of
liquidity.
H&Q LLC and RvR Securities, as broker-dealers, are registered with the SEC
and are members of the NASD and, in the case of H&Q LLC, the NYSE. As such, they
are subject to the capital requirements of these regulatory entities. Their
regulatory net capital has historically exceeded these minimum requirements. As
of March 31, 1997, H&Q LLC was required to maintain minimum regulatory net
capital in accordance with SEC rules of approximately $3.4 million and had total
regulatory net capital of approximately $57.9 million, or approximately $54.5
million in excess of its requirement. RvR Securities had total regulatory net
capital of $686,000 million and a minimum regulatory net capital requirement of
$250,000.
The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations, will be adequate to fund its
operations for the foreseeable future.
19
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996. Following is a summary of recent material developments in
such proceedings and summaries of certain new matters.
INDIVIDUAL, INC. SECURITIES LITIGATION
On February 28, 1997, the plaintiffs filed an Amended Consolidated
Complaint. IN RE: INDIVIDUAL, INC. SECURITIES LITIGATION, U.S.D.C., Mass., No.
96-12272-DPW. The defendants include the company, certain of its current and
former directors and officers, the three co-lead underwriters, including H&Q,
and five syndicate members. On April 15, 1997, the defendants moved to dismiss
the complaint for lack of standing, failure to allege sufficient facts to state
a claim under applicable law, and on other grounds. The Court has scheduled oral
argument for June 25, 1997.
NASDAQ MARKET-MAKERS ANTITRUST LITIGATION
On April 23, 1997, the judge approved the DOJ settlement by granting the
DOJ's motion for entry of the Stipulation and Order and the termination of the
action. The SEC investigation is continuing, and the Company has received
requests from the SEC for information and documents with respect to its Nasdaq
market making activities. In the private class action, the court on April 14,
1997, granted the plaintiffs' motion to permit institutional investors to be
part of the plaintiffs' class. Two of the defendants have entered into
agreements with the plaintiffs, subject to court approval, to settle for
approximately $9.2 million and $14.1 million, respectively.
OAK TECHNOLOGY SECURITIES LITIGATION
On January 31, 1997, a Consolidated Amended Complaint for Violations of the
Securities Exchange Act of 1934 was filed against the Company and others in the
federal court in San Jose. IN RE OAK TECHNOLOGY SECURITIES LITIGATION, U.S.D.C.,
N.D. Cal., No. CV-96-20552-SW(PVT). On March 24, 1997, the defendants moved to
dismiss the complaint on the ground that it does not allege sufficient facts to
state a claim. Oral argument is scheduled to occur on May 21, 1997.
PRISM SOLUTIONS, INC. SECURITIES LITIGATION
On March 5, 1997, a purported shareholder class action lawsuit was filed in
California State Court in Santa Clara County against Prism Solutions, Inc. and
certain of its officers and directors, as well as against the underwriters of
its March 14, 1996 initial public offering, including H&Q, which was a
co-manager of the offering (ADLER, ET AL. V. PRISM SOLUTIONS, INC., ET AL.,
Santa Clara Superior Court Case No. CV 764547). The complaint alleges, among
other things, that the offering prospectus failed to disclose that Prism's on-
going growth was in jeopardy and likely to slow due to several factors,
including increasing competition, particularly from low-end competitors, and
that the underwriters each supported Prism's stock by issuing fraudulent
research reports. The defendants have filed a demurrer to the complaint.
SS&C TECHNOLOGIES, INC. SECURITIES LITIGATION
Two purported class action lawsuits have been filed against the Company and
others relating to SS&C Technologies, Inc., which went public on May 31, 1996,
in an offering that was co-managed by H&Q. The first such suit was filed on
March 18, 1997, against SS&C Technologies, Inc., three of its officers and/or
directors and its two co-managing underwriters. MONTAGNA, ET AL. V. SS&C
TECHNOLOGIES, INC. ET AL., U.S.D.C., S.D.N.Y., 97 CV-1910 (PKL). The complaint
purports to assert claims under Sections 11, 12(2) and 15 of the Securities Act
of 1933. It alleges, among other things, that the initial offering price was
unreasonable
20
<PAGE>
and unfair, and was based solely, primarily, or significantly upon the ability
of the underwriters to sell the stock, rather on than the fundamentals of the
issuer or market conditions or the demand for similar securities of comparable
companies. On April 6, 1997, the second purported class action was filed in
federal court in Connecticut against the company, nine of its officers and/or
directors and the two lead underwriters by another plaintiff. FEINER V. SS&C
TECHNOLOGIES, INC., ET AL., 397CV00656 JBA. It makes essentially the same
allegations as the other complaint. The defendants have not yet responded to
either complaint.
STORM TECHNOLOGY, INC. SECURITIES LITIGATION
On September 30, 1996, Storm Technology, Inc., went public at $10.50 per
share. The offering was co-managed by H&Q. On March 14, 1997, a purported class
action suit was filed in the California Superior Court in Santa Clara County
against Storm Technology, Inc., two of its officers or directors, a shareholder,
and H&Q related to the September 30, 1996 Storm Technology, Inc. initial public
offering, which was co-managed by H&Q. GOLDBERG V. STORM TECHNOLOGY, INC., ET
AL., Santa Clara Superior Court, No. CV764797. The suit alleges, among other
things, that the prospectus and H&Q's research reports were false and
misleading, and purports to state claims under Sections 25400, 2550, 1507 and
25401 of the California Corporations Code and California Business and
Professions Code Sections 17200, et seq., as well as Sections 11 and 12 of the
Securities Act of 1933. Storms demurrer was filed April 25, 1997. H&Q has not
yet responded to the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on March 14,
1997.
(b) Not applicable.
(c) At the Annual Meeting of Stockholders, the following matters were
voted upon: (i) the election of two persons to Class I of the Board
of Directors of the Company and (ii) the ratification of the
appointment of Arthur Andersen LLP, as independent public
accountants for the Company for the fiscal year ending September 30,
1997.
The results of the voting on matters presented at the Annual Meeting of
Stockholders were as follows:
1. ELECTION OF CLASS I DIRECTORS
<TABLE>
<CAPTION>
WITHHOLD
NAME OF NOMINEE FOR AUTHORITY
- ----------------------------------------------------------- ------------ -----------
<S> <C> <C> <C>
Howard B. Hillman.......................................... 17,602,714 55,872
William R. Timken.......................................... 17,646,127 12,459
</TABLE>
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
------------ --------- -----------
<S> <C> <C> <C>
Ratification of the appointment of Arthur Andersen LLP as
the Company's independent public accountants............. 17,603,462 48,853 6,271
</TABLE>
There were (i) no abstentions or broker non-votes with respect to the election
of Directors and (ii) no broker non-votes with respect to the ratification of
the appointment of independent public accountants.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------
<C> <S>
10.01 Registrant's 1996 Equity Plan, as amended and restated on March 24, 1997*.
10.15 Registrant's 1996 Bonus and Deferred Sales Compensation Plan, as amended and
restated on March 24, 1997*.
10.22 Consulting Agreement between Hambrecht & Quist L.L.C. and William J. Perry, dated
April 1, 1997.
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Indicates management contract or compensatory plan or arrangement.
b) Reports on Form 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
HAMBRECHT & QUIST GROUP,
a Delaware Corporation
By: /s/ PATRICK J. ALLEN
-----------------------------------------
Patrick J. Allen
CHIEF FINANCIAL OFFICER
(ON BEHALF OF THE REGISTRANT AND AS
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Date: May 5, 1997
</TABLE>
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
10.01 Registrant's 1996 Equity Plan, as amended and restated on March 24, 1997........................
10.15 Registrant's 1996 Bonus and Deferred Sales Compensation Plan, as amended and restated on March
24, 1997......................................................................................
10.22 Consulting Agreement between Hambrecht & Quist L.L.C. and William J. Perry, dated April 1,
1997..........................................................................................
27 Financial Data Schedule.........................................................................
</TABLE>
24
<PAGE>
HAMBRECHT & QUIST GROUP
1996 EQUITY PLAN
ARTICLE 1. INTRODUCTION
The Plan was adopted by the Board effective June 19, 1996. The Plan
was amended and restated by the Board effective March 24, 1997.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Plan Shares or Options (which may constitute incentive stock
options or nonstatutory stock options).
The Plan shall be governed by, and construed in accordance with, the
laws of the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy, to the extent determined necessary by the
Committee:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor)
under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees of the Board, each
composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Company
under Section 16 of the Exchange Act (the "Section 16 Persons"), may grant
Awards under the Plan to such Employees and Consultants and may determine all
terms of such Awards. If the Board appoints such a committee(s), such
committee(s) shall be included in the definition of "Committee" whenever used
herein and shall be interpreted so as to apply only with respect to Employees
and Consultants who are not considered Section 16 Persons.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may
<PAGE>
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options awarded under the Plan shall not exceed 1,000,000. The aggregate number
of Plan Shares awarded under the Plan shall not exceed 2,000,000. The
limitations of this Section 3.1 shall be subject to adjustment pursuant to
Article 8.
3.2 ADDITIONAL SHARES. If Options are forfeited or terminate for any
other reason before being exercised, then the corresponding Common Shares shall
again become available for the grant of Options under the Plan. If Plan Shares
are forfeited, then the corresponding Common Shares shall again become available
for the grant of Plan Shares under the Plan.
ARTICLE 4. ELIGIBILITY.
4.1 NONSTATUTORY STOCK OPTIONS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of NSOs.
4.2 INCENTIVE STOCK OPTIONS AND PLAN SHARES. Only Employees shall be
eligible for the grant of Plan Shares. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash
payment or in consideration of a reduction in the Optionee's other compensation.
A Stock Option Agreement may provide that a new Option will be granted
automatically to the Optionee when he or she exercises a prior Option and pays
the Exercise Price in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 8. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
500,000 Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than 1,000,000 Common Shares. The limitations
set forth in the preceding sentence shall be subject to adjustment in accordance
with Article 8.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price, provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair
2
<PAGE>
Market Value of a Common Share on the date of grant. In the case of an NSO, a
Stock Option Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option, provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. NSOs may also be awarded in combination
with Plan Shares, and such an Award may provide that the NSOs will not be
exercisable unless the related Plan Shares are forfeited.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time
of granting an Option or thereafter, that all or part of such Option shall
become exercisable as to all Common Shares subject to such Option in the event
that a Change in Control occurs with respect to the Company. Absent a contrary
determination by the Committee, if (a) a Change in Control occurs with respect
to the Company and (b) the surviving corporation or its parent or subsidiary
does not continue or assume outstanding Options or substitute its own options
for such Options, then such Options shall become exercisable to the extent that
they otherwise would have become exercisable within 12 months after such Change
in Control. For purposes of this Section 5.5 and Section 8.3, an Option shall
be considered assumed or replaced by a substitute option if the new option
confers the right to purchase, for each Common Share subject to the Option
immediately prior to the Change in Control, the consideration (whether stock,
cash or other securities or property) received in the Change in Control by the
Company's stockholders for each Common Share held on the effective date of the
Change in Control (and if stockholders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Common Shares); provided, however, that if such consideration received in the
Change in Control is not solely common stock of the successor corporation or its
parent corporation, the Committee may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option, for each Common Share subject to the Option, to be solely common
stock of the successor corporation or its parent corporation equal in fair
market value to the per share consideration received by holders of Common Shares
in the Change in Control.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
3
<PAGE>
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee, in its sole and
absolute discretion, may at any time accept payment in any form(s)
described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent applicable under Section 6.1,
payment for all or any part of the Exercise Price may be made with Common Shares
which are already owned by the Optionee. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan. The Optionee shall not surrender Common Shares in payment of
the Exercise Price if such surrender would cause the Company to recognize
compensation expense with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent applicable under Section 6.1, payment
may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 EXERCISE/PLEDGE. To the extent applicable under Section 6.1, payment
may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 PROMISSORY NOTE. To the extent applicable under Section 6.1, payment
may be made with a promissory note; provided that the par value of the Common
Shares shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent applicable under Section 6.1,
payment may be made in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. PLAN SHARES.
7.1 TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be
granted in the form of Plan Shares. Plan Shares may also be awarded in
combination with NSOs, and such an Award may provide that the Plan Shares will
be forfeited in the event that the related NSOs are exercised.
7.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of newly issued Plan Shares, the Award recipient, as a condition to the
grant of such Award, shall be required to pay the Company in cash or cash
equivalents an amount equal to the par value of such Plan Shares. To the extent
that an Award is granted in the form of Plan Shares from the Company's treasury,
no cash consideration shall be required of the Award recipients. To the extent
payment is not made in cash or cash equivalents, it may be made with a
promissory note if the Stock Agreement so provides.
7.3 VESTING CONDITIONS. Each Award of Plan Shares may or may not be
subject to vesting. Vesting may occur in full or in installments, upon
satisfaction of the conditions specified in the Stock Agreement. A Stock
Agreement may provide for accelerated vesting in the event of
4
<PAGE>
the Participant's death, disability or retirement or other events. If a Change
in Control occurs with respect to the Company, then all outstanding Plan Shares
shall become vested to the extent that they otherwise would have become vested
within twelve months after such Change of Control.
7.4 VOTING AND DIVIDEND RIGHTS. The holders of Plan Shares subject to
vesting awarded under the Plan shall have the same voting, dividend and other
rights as the Company's other stockholders.
ARTICLE 8. PROTECTION AGAINST DILUTION.
8.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options and Plan Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 5.2, (c) the number of Common Shares covered by each outstanding Option
or (d) the Exercise Price under each outstanding Option. Except as provided in
this Article 8, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
8.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Committee shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction. The
Committee in its discretion may provide for an Optionee to have the right to
exercise his or her Options until 10 days prior to such transaction as to some
or all of the Common Shares covered thereby, including Common Shares as to which
the Options would not otherwise be exercisable. In addition, the Committee may
provide that any Company repurchase option applicable to any Shares purchased
upon exercise of an Option or to any Plan Shares shall lapse as to some or all
such Shares, provided the proposed dissolution or liquidation takes place at the
time and in the manner contemplated. To the extent not previously exercised,
Options shall terminate immediately prior to the consummation of such proposed
action.
8.3 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options and Plan Shares shall be subject to
the agreement of merger or reorganization. Such agreement may provide, without
limitation, for the continuation of outstanding Awards by the Company (if the
Company is a surviving corporation), for their assumption by the surviving
corporation or its parent or subsidiary, for the substitution by the surviving
corporation or its parent or subsidiary of its own awards for such Awards, for
accelerated vesting and accelerated expiration, or for settlement in cash or
cash equivalents.
ARTICLE 9. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may be
settled in the form of Common Shares issued under this Plan. Such Common Shares
shall be treated for all purposes under the Plan like Plan Shares and shall,
when issued, reduce the number of Common Shares available for the grant of Plan
Shares under Article 3.
5
<PAGE>
ARTICLE 10. LIMITATION ON RIGHTS.
10.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
10.2 STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when he or she becomes entitled to
receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided in
the Plan.
10.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 11. WITHHOLDING TAXES.
11.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
11.2 SHARE WITHHOLDING. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 12. FUTURE OF THE PLAN.
12.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on October 1, 1996. The Plan shall remain in effect until it is
terminated under Section 12.2, except that no ISOs shall be granted after June
18, 2006.
12.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 13. DEFINITIONS.
6
<PAGE>
13.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
13.2 "AWARD" means any award of an Option or a Plan Share under the
Plan.
13.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
13.4 "CHANGE IN CONTROL" shall mean (i) a merger or other
reorganization in which the stockholders of the Company immediately prior to
such transaction do not hold directly indirectly at least 50% of the voting
power of the surviving entity or the parent corporation of the surviving entity
immediately following such merger or other reorganization or (ii) the sale of
all or substantially all of the Company's assets.
13.5 "CODE" means the Internal Revenue Code of 1986, as amended.
13.6 "COMMITTEE" means a committee of the Board, as described in Article
2.
13.7 "COMMON SHARE" means one share of the common stock of the Company.
13.8 "COMPANY" means Hambrecht & Quist Group, a Delaware corporation.
13.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.
13.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
13.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
13.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.
13.13 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Such determination shall be conclusive and binding on all persons.
13.14 "ISO" means an incentive stock option described in section 422(b)
of the Code.
13.15 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
13.16 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
13.17 "OPTIONEE" means an individual or estate who holds an Option.
13.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.
7
<PAGE>
13.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
13.20 "PARTICIPANT" means an individual or estate who holds an Award.
13.21 "PLAN" means this Hambrecht & Quist Group 1996 Equity Plan, as
amended from time to time.
13.22 "PLAN SHARE" means a Common Share awarded under the Plan.
13.23 "STOCK AGREEMENT" means the agreement between the Company and the
recipient of a Plan Share that contains the terms, conditions and any
restrictions pertaining to such Plan Share.
13.24 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
13.25 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
8
<PAGE>
HAMBRECHT & QUIST GROUP
A DELAWARE CORPORATION
1996 BONUS AND DEFERRED SALES COMPENSATION PLAN
(As amended and restated by the Board of Directors on March 24, 1997)
1. PURPOSE
The purpose of this 1996 Bonus and Deferred Sales Compensation Plan (the
"Plan") of Hambrecht & Quist Group, a Delaware Corporation (the "Company"), is
to attract, retain, motivate and reward highly qualified employees who are
important to the Company's success and to provide incentives relating directly
to the financial performance and long-term growth of the Company. The Company,
as used herein when referring to employees thereof, shall mean any and all of
its Parents, Subsidiaries and Affiliates, as those terms are defined in the
Hambrecht & Quist Group 1996 Equity Plan, as amended from time to time.
2. COVERED INDIVIDUALS
The employees entitled to Bonus and Commission payments hereunder
("Participants") shall include the research, investment banking, trading and
administrative professionals, institutional and retail sales professionals, and
other employees of the Company, as determined by the Committee.
3. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee"). The Committee
shall consist exclusively of two or more directors of the Company, who shall be
appointed by the Board. In addition, the composition of the Committee shall
satisfy, to the extent determined necessary by the Committee:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Securities Exchange
Act of 1934 (the "Exchange Act"); and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended
("Section 162(m)").
The Board may also appoint one or more separate committees of the Board, each
composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to employees
who are not considered officers or directors of the Company under section 16 of
the Exchange Act ("Section 16 Persons"). If the Board appoints such a
committee(s), such committee(s) shall be included in the definition of
"Committee" whenever used herein and shall be interpreted so as to apply only
with respect to employees who are not considered Section 16 Persons. The
Committee shall have the sole discretion and authority to interpret and
administer the Plan and to make all determinations with respect to the Plan,
including, but not limited to, determinations of (i) eligibility, (ii)
performance criteria, (iii) Bonus Amounts, (iv) Bonus payments, (v) Commissions,
and (vi) Commission payments. Any determination by the Committee with regard to
any provision of the Plan shall be conclusive and binding on all Participants.
<PAGE>
4. OPERATION OF THE PLAN
(a) BONUS PAYMENTS. As determined by the Committee and subject to Section
6 hereof, bonuses ("Bonus Amounts") shall be paid to Participants other than
institutional and retail sales professionals of the Company as follows:
(i) If the total compensation of such a Participant for a given
six-month period ending March 31 or September 30 is less than $100,000, all of
the Bonus Amount payable hereunder shall be paid in cash.
(ii) If the total compensation of such a Participant for such
six-month period equals or exceeds $100,000:
(A) Eighty percent (80%) of the Bonus Amount payable hereunder
shall be paid in cash.
(B) In the sole discretion of the Committee, Participants shall
be offered the ability to elect to receive the remaining twenty percent (20%) of
such Bonus Amount (the "Twenty Percent Amount") in cash or in shares of Common
Stock of the Company, valued at not less than ninety percent (90%) of their fair
market value on the date of grant. The number of shares of Common Stock shall
be determined by dividing the Twenty Percent Amount by the percentage set by the
Committee of the per share fair market value on the date of grant, rounded up to
the nearest whole share. Such shares shall be offered in the form of Plan
Shares under the 1996 Equity Plan of the Company and shall be subject to the
terms and conditions of such plan and a Stock Agreement in a form provided by
the Company. Unless otherwise determined by the Committee, one-third of such
shares shall vest on each anniversary of the date of grant, subject to the
continued employment of the Participant with the Company on such dates.
(b) INSTITUTIONAL SALES COMMISSIONS. As determined by the Committee and
subject to Section 6 hereof, sales commissions ("Commissions") shall be paid to
Participants who are institutional sales professionals as follows:
(i) If the total compensation of such a Participant for a given
six-month period ending March 31 or September 30 is less than $100,000, all of
the Commissions payable hereunder shall be paid in cash.
(ii) If the total compensation of such a Participant for such
six-month period equals or exceeds $100,000:
(A) A percentage of the Commissions allocable to such a
Participant payable hereunder shall be paid in cash on a monthly basis
according to the Company's normal payroll practices. Such percentage shall be
determined for each Participant by the Committee.
(B) In the sole discretion of the Committee, Participants shall
be offered the ability to elect to receive the remaining portion of their
Commissions for such six-month period in cash or the first $10,000 in cash and
the remainder (the "Six-Month Commission") in shares of Common Stock of the
Company, valued at not less than ninety percent (90%) of their fair market value
on the date of grant. The number of shares of Common Stock shall be determined
by dividing the cash-denominated value of the Six-Month Commission by the
percentage set by the Committee of the per share fair market value on the date
of grant, rounded up to the nearest whole share. Such shares shall be offered
as Plan Shares under the 1996 Equity Plan of the Company and shall be subject to
the terms and conditions of such plan and a Stock Agreement in a form provided
by the Company. Unless otherwise determined by the Committee, one-third of such
shares shall vest on each anniversary of the
2
<PAGE>
date of grant, subject to the continued employment of the Participant with the
Company on such dates.
(c) RETAIL SALES COMMISSIONS. As determined by the Committee and
subject to Section 6 hereof, Commissions shall be paid to Participants who are
Executive Financial Services sales professionals as follows:
(i) All Commissions allocable to such a Participant with respect to a
given month's sales shall be paid following the end of such month according to
the Company's normal payroll practices.
(ii) If total sales for a Participant for a given six-month period ending March
31 or September 30 exceed $250,000, then, in the sole discretion of the
Committee, Participants shall be offered the ability to elect to receive an
additional four percent (4%) of all gross commissions in excess of $250,000 ("4%
Commission") in cash or in shares of Common Stock of the Company, valued at not
less than ninety percent (90%) of their fair market value on the date of grant.
The number of shares of Common Stock shall be determined by dividing the
cash-denominated value of the 4% Commission by the percentage set by the
Committee of the per share fair market value on the date of grant, rounded up to
the nearest whole share. Such shares shall be offered as Plan Shares under the
1996 Equity Plan of the Company and shall be subject to the terms and conditions
of such plan and a Stock Agreement in a form provided by the Company. Unless
otherwise determined by the Committee, one-third of such shares shall vest on
each anniversary of the date of grant, subject to the continued employment of
the Participant with the Company on such dates.
(d) PARTICIPANT ELECTION. At the time of payment of the Twenty Percent
Amount, the Six-Month Commission or the 4% Commission, if a Participant elects
to receive such amount in cash, unless otherwise determined by the Committee,
such amount shall be payable (without interest) as to one-third of such amount
on each anniversary date following the date of grant, subject to the continued
employment of the Participant with the Company on such dates.
(e) ACCELERATION OF VESTING. In the event of a Participant's death prior
to the completion of vesting of shares or cash pursuant to Sections 4(a)(ii)(B),
4(b)(ii)(B), 4(c)(ii), or 4(d), above, the vesting of such shares or cash shall
automatically accelerate in full.
5. AMOUNT OF BONUS AND SIX-MONTH COMMISSION
Promptly after the beginning of the fiscal year, with respect to
Participants who are Section 16 Persons and who the Committee expects will have
deductions for compensation limited by Section 162(m) during the fiscal year,
the Committee shall (i) establish the financial performance criteria for the
fiscal year, (ii) determine the employees who shall receive Bonuses, (iii)
determine each target Bonus Amount, (iv) determine the time(s) for payment of
Bonus Amounts, and (v) determine the employees who shall receive Six-Month
Commissions. The financial performance criteria established by the Committee
shall include a consolidated after-tax net profits target of the Company, or
such other criteria that the Committee may in its sole discretion agree upon.
With respect to Participants to whom the previous paragraph is not
applicable, the Committee shall, in its sole discretion, determine the
eligibility, timing and manner of determination of Bonuses, Bonus Amounts,
Commissions and Commission payments.
6. PAYMENT OF TWENTY PERCENT AMOUNT, SIX-MONTH COMMISSION OR 4% COMMISSION
The payment of any given Twenty Percent Amount, Six Month Commission or 4%
Commission shall be contingent upon the Participant's being on the Company's, a
Parent's, Subsidiary's or Affiliate's payroll as of the first payroll date
following March 31st and
3
<PAGE>
September 30th of the applicable period. The Committee may make exceptions
to this requirement in the case of retirement, death or disability, as
determined by the Committee in its sole discretion. No Bonus shall be paid
unless and until the Committee determines that the performance goals of the Plan
are satisfied. The Committee shall determine the time of payment of the
Six-Month Commission and the 4% Commission.
7. WITHHOLDING
Distributions made hereunder shall be subject to withholding for applicable
income and employment taxes.
8. NONASSIGNABILITY
Prior to payment, no Bonus or Commission under the Plan shall be assignable
or transferable by the Participant during the Participant's lifetime.
9. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in this Plan shall confer upon any Participant any right to
continue in the employ of the Company or shall interfere with or restrict in
anyway the right of the Company to discharge a Participant at any time for any
reason whatsoever, with or without cause.
10. AMENDMENT AND TERMINATION
The Company reserves the right to amend this Plan at any time, except that
no Participant's earned compensation shall be retroactively reduced by such
amendment. Plan amendments will require stockholder approval only to the extent
required by applicable law.
4
<PAGE>
CONSULTING AGREEMENT
This CONSULTING AGREEMENT is made as of the 1st day of April, 1997, by and
between William J. Perry, an individual residing in Palo Alto, Cailfornia, and
Hambrecht & Quist LLC, a Delaware limited liability company ("H&Q").
WHEREAS, H&Q desires to retain Perry to provide it with consulting services
as requested by H&Q and Perry desires to provide such services to H&Q.
NOW, THEREFORE, it is agreed as follows:
1. APPOINTMENT OF CONSULTANT. Effective the date hereof and until this
Agreement is terminated in accordance with paragraph 4 hereof, H&Q hereby
retains Perry as a consultant to provide it with advice, from time to time, as
H&Q may request, concerning H&Q's business activities. Independent of the
services provided by Perry pursuant to this Agreement, Perry shall be named a
director of Hambrecht & Quist Group, a Delaware corporation.
2. ACCEPTANCE BY CONSULTANT. Perry hereby accepts such appointment
and agrees to provide H&Q with advice concerning its business and the business
of its affiliates as requested by H&Q and such affiliates and to give H&Q his
best judgment and efforts in rendering his services pursuant to this Agreement.
However, Perry shall not be obligated by the terms of this Agreement to render
in excess of two days of consulting services during any calendar month.
3. FEES. For services rendered hereunder, H&Q will pay Perry $48,000
per year, payable monthly.
4. TERMINATION.
(a) Either party may terminate this Agreement for any reason upon not less
than 30 days prior written notice to the other party hereto.
(b) Any termination of this Agreement shall be without payment of any
penalty, except that H&Q shall remain liable to Perry for the payment of fees
pursuant to paragraph 3 hereof for the period prior to the effective date of
such termination. Nothing herein shall relieve any party of any liability for
any breach of this Agreement.
5. COMPLIANCE PROCEDURES. In carrying out his duties hereunder, Perry
will act in accordance with the legal and regulatory compliance procedures
promulgated by H&Q from time to time. Without limiting the foregoing, while
carrying out his duties hereunder, if Perry shall obtain material non-public
information regarding an issuer of securities, Perry shall notify H&Q's
Compliance Department immediately and Perry shall not engage in any transaction
in the securities markets with respect to such issuer s securities until such
time as such information is publicly available or H&Q's Compliance Department
determines that such information is immaterial. H&Q's Compliance Department
shall advise Perry within two business days after he has provided notice that he
has obtained such information as to whether it believes the information is
immaterial.
6. INDEPENDENT CONTRACTOR. For the purposes of this Agreement, Perry
shall be deemed to be an independent contractor and shall have no authority to
act for or bind H&Q.
1
<PAGE>
7. ARBITRATION. In order to minimize the potentially high costs
incurred by all parties involved in disputes, any controversy arising out of or
relating to this Agreement or the termination of this Agreement, including
without limitation, any claim by Perry against H&Q or any of its affiliates,
directors, officers or employees under federal, state or local statutory or
common law, and any dispute under the scope of this paragraph, shall be resolved
by binding arbitration in San Francisco, California. The arbitration will be
conducted in accordance with the then prevailing commercial dispute resolution
rules of the American Arbitration Association (the "AAA"). Perry and H&Q agree
to keep confidential from third parties (other than the arbitrator and the AAA)
the existence of any dispute, unless otherwise required by law. A judgment on
the arbitrator's decision shall be final and may be entered in any court having
jurisdiction. The arbitration procedure shall be in lieu of any and all actions
in law or equity.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties hereto with respect to the matters set forth herein and supersedes
any prior understanding or arrangement, oral or written, with respect hereto.
9. AMENDMENT. This Agreement shall not be amended except by a writing
signed by the parties hereto. No waiver of any provision of this Agreement
shall be implied from any course of dealing between the parties hereto or from
any failure by any such party to assert its rights on any occasion or series of
occasions.
10. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California without reference to the
principles of conflicts of laws.
11. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
/s/ WILLIAM J. PERRY
----------------------------------
WILLIAM J. PERRY
HAMBRECHT & QUIST LLC
By: /s/ STEVEN N. MACHTINGER
----------------------------------
Name: STEVEN N. MACHTINGER
Title: General Counsel and Secretary
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINACIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 46,537
<RECEIVABLES> 238,993
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 60,850
<PP&E> 16,658
<TOTAL-ASSETS> 512,029
<SHORT-TERM> 8,227
<PAYABLES> 227,467
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 6,856
<LONG-TERM> 0
0
0
<COMMON> 122,268
<OTHER-SE> 147,209
<TOTAL-LIABILITY-AND-EQUITY> 512,029
<TRADING-REVENUE> 55,567
<INTEREST-DIVIDENDS> 8,261
<COMMISSIONS> 21,529
<INVESTMENT-BANKING-REVENUES> 48,058
<FEE-REVENUE> 32,147
<INTEREST-EXPENSE> 1,186
<COMPENSATION> 86,587
<INCOME-PRETAX> 41,517
<INCOME-PRE-EXTRAORDINARY> 41,517
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,250
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
