<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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 number 1-11855
------------------------
HAMBRECHT & QUIST GROUP
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3246636
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</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 _____
24,075,978 shares of Common Stock were issued and outstanding as of February
3, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 13
Results of Operations..........................................................................
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K............................................................... 19
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 42,637,732 $ 12,536,586
Receivables:
Customers (net of allowance of $1,050,000 at September 30, 1997 and
December 31, 1997)................................................ 183,796,833 216,176,295
Lewco Securities Corp............................................... 157,570,375 54,407,046
Syndicate managers.................................................. 15,494,668 10,888,341
Related parties..................................................... 17,397,164 12,847,123
Notes............................................................... 18,489,300 20,296,501
Lease............................................................... 3,467,628 2,814,373
Income taxes........................................................ 531,955 --
Other............................................................... 11,288,008 11,652,690
Marketable trading securities, at market value........................ 32,617,567 41,071,328
Long-term investments, at estimated fair value........................ 117,199,728 111,204,338
Deferred income taxes................................................. 56,734,654 70,958,254
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization....................................... 18,782,846 19,324,842
Leased assets, net of accumulated depreciation........................ 2,272,172 1,977,966
Exchange memberships, at cost (market value--$1,925,000 and
$2,375,000, respectively)........................................... 656,000 656,000
------------- -------------
Total assets.................................................. $ 678,936,630 $ 586,811,683
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Customers........................................................... $ 186,445,656 $ 91,283,534
Compensation and benefits........................................... 116,673,510 95,467,377
Syndicate settlements............................................... 21,355,653 11,445,449
Income taxes payable................................................ 6,563,552 12,692,117
Trade accounts payable.............................................. 2,829,377 1,989,905
Accrued expenses and other.......................................... 33,220,760 45,332,641
Securities sold, not yet purchased, at market value................... 11,770,127 12,624,404
Debt obligations...................................................... 2,700,000 2,000,000
------------- -------------
Total liabilities............................................. 381,558,635 272,835,427
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $0.01 and 100,000,000 shares authorized,
23,790,337 and 24,067,731 issued and outstanding as of September
30, 1997 and December 31, 1997, respectively)..................... 237,903 240,893
Additional paid-in capital.......................................... 136,271,533 146,021,636
Stock notes receivable from employees............................... (5,620,260) (4,138,225)
Retained earnings................................................... 167,230,812 173,880,471
Net unrealized losses on investments available for sale............. (303,117) (2,028,519)
Treasury stock, at cost (21,615 shares outstanding as of September
30, 1997 and none outstanding as of December 31, 1997)............ (438,876) --
------------- -------------
Total stockholders' equity.................................... 297,377,995 313,976,256
------------- -------------
Total liabilities and stockholders' equity.................... $ 678,936,630 $ 586,811,683
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Principal transactions........................................................... $ 28,866,574 $ 26,115,777
Agency commissions............................................................... 9,906,699 12,395,215
Investment banking............................................................... 30,104,368 22,887,465
Corporate finance fees........................................................... 10,755,511 17,554,254
Interest and dividends........................................................... 4,970,546 6,340,802
Net investment gains............................................................. 5,122,082 662,662
Other............................................................................ 5,172,805 5,665,523
------------- -------------
Total revenues............................................................. 94,898,585 91,621,698
------------- -------------
EXPENSES:
Compensation and benefits........................................................ 47,313,854 45,810,849
Brokerage and clearance.......................................................... 3,645,937 5,026,444
Occupancy and equipment.......................................................... 3,288,197 4,799,021
Communications................................................................... 3,166,912 3,749,799
Interest......................................................................... 1,226,849 1,124,032
Other............................................................................ 8,111,615 19,445,484
------------- -------------
Total expenses............................................................. 66,753,364 79,955,629
------------- -------------
Income before income tax provision......................................... 28,145,221 11,666,069
INCOME TAX PROVISION............................................................... 12,383,897 5,016,410
------------- -------------
Net income................................................................. $ 15,761,324 $ 6,649,659
------------- -------------
------------- -------------
EARNINGS PER SHARE:
Basic............................................................................ $0.68 $0.28
Diluted.......................................................................... $0.62 $0.25
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................................................ 23,205,938 24,000,058
Diluted.......................................................................... 25,274,708 26,385,308
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
THE THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL STOCK UNREALIZED TREASURY
OF COMMON COMMON PAID-IN NOTES RETAINED LOSSES, STOCK, AT
SHARES STOCK CAPITAL RECEIVABLE EARNINGS NET COST H&Q GROUP
--------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1996................... 22,693,930 $ 226,939 $116,643,623 $(13,550,503) $124,056,614 $ (665,224) $226,711,449
Sales of common
stock................ 1,134,244 11,342 20,083,292 (289,035) 19,805,599
Forfeitures of common
stock................ (37,837) (378) (455,382) (455,760)
Reductions of stock
notes................ 8,209,370 8,209,370
Net income............. 43,174,198 43,174,198
Change in net
unrealized losses.... 362,107 362,107
Purchase of 21,615
common shares........ 9,908 (438,876) (428,968)
--------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997................... 23,790,337 237,903 136,271,533 (5,620,260) 167,230,812 (303,117) (438,876) 297,377,995
Sales of common stock 280,255 3,019 9,575,737 9,578,756
Forfeitures of common
stock................ (2,861) (29) (49,225) (49,254)
Reductions of stock
notes................ 1,482,035 1,482,035
Net income............. 6,649,659 6,649,659
Change in net
unrealized losses.... (1,725,402) (1,725,402)
Issuance of 21,615
common shares........ 223,591 438,876 662,467
--------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... 24,067,731 $ 240,893 $146,021,636 $(4,138,225) $173,880,471 $(2,028,519) $ -- $313,976,256
--------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
--------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
</TABLE>
5
<PAGE>
HAMBRECHT & QUIST GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.............................................. $ 14,512,675 $ (35,782,829)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments.............................................. (12,685,174) (13,655,259)
Proceeds from sales/distributions of long-term investments...................... 10,508,207 18,560,093
Purchases of furniture, equipment and leasehold improvements.................... (2,696,571 (2,718,156)
Increases in notes receivable................................................... (6,600,000) (5,415,000)
Repayments of notes receivable.................................................. -- 3,607,799
Other, net...................................................................... 260,783 4,062,772
-------------- --------------
Net cash and cash equivalents provided by (used in)
investing activities........................................................ (11,212,755) 4,442,249
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations.................................................. 2,655,892 7,000,000
Repayments of debt obligations.................................................. (4,832,000) (7,700,000)
Proceeds from sales of common stock............................................. 4,692,715 1,770,496
Other, net...................................................................... -- 168,938
-------------- --------------
Net cash and cash equivalents provided by financing activities................ 2,516,607 1,239,434
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 5,816,527 (30,101,146)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 50,031,534 42,637,732
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 55,848,061 $ 12,536,586
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include Hambrecht & Quist
Group and its subsidiaries ("H&Q" or the "Company"). 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 1997 Consolidated Financial Statements and related notes
thereto incorporated by reference into the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997. Any capitalized terms used but not
defined have the same meaning given to them in the 1997 Consolidated Financial
Statements.
The preparation of financial statements requires the use of certain
estimates by management in determining the entity's assets, liabilities,
revenues 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 December 31, 1997 and the results of
operations and cash flows for the three month periods ended December 31, 1996
and 1997.
Certain amounts in the fiscal 1997 financial statements have been
reclassified to conform to the fiscal 1998 presentation.
2. EARNINGS PER SHARE:
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128). The Company adopted SFAS 128 on October
1, 1997. 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
7
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
2. EARNINGS PER SHARE: (CONTINUED)
previously reported by the Company. The Company's basic and diluted earnings per
share for the three months ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
NET AVERAGE PER SHARE
INCOME SHARES AMOUNT
------------- ------------ ------------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED--
December 31, 1996:
Basic earnings per share.................................. $ 15,761,324 23,205,938 $ 0.68
Options outstanding....................................... -- 2,068,770
------------- ------------
Diluted earnings per share................................ $ 15,761,324 25,274,708 $ 0.62
------------- ------------
------------- ------------
December 31, 1997:
Basic earnings per share.................................. $ 6,649,659 24,000,058 $ 0.28
Options outstanding....................................... -- 2,385,250
------------- ------------
Diluted earnings per share................................ $ 6,649,659 26,385,308 $ 0.25
------------- ------------
------------- ------------
</TABLE>
3. RECEIVABLES FROM RELATED PARTIES:
At September 30, 1997 and December 31, 1997 receivables from related parties
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -------------
<S> <C> <C>
Notes receivable from affiliates and employees........................... $ 2,696,455 $ 1,854,774
Asset management fees and profit participations.......................... 5,989,569 5,507,069
Affiliate and other advances............................................. 8,711,140 5,485,280
------------- -------------
$ 17,397,164 $ 12,847,123
------------- -------------
------------- -------------
</TABLE>
Notes receivable from affiliates and employees as of September 30, 1997 and
December 31, 1997 include notes receivable from Asia Pacific of $1,757,670 and
$1,161,933, respectively.
Asset management fees and profit participations receivable at September 30,
1997 and December 31, 1997, include profit participations receivable of
$5,527,057 and $5,489,458, respectively from venture and investment partnerships
managed by Venture Partners. Included in other revenues are management fees and
profit participation distributions from venture capital funds of $3,259,324 and
$1,611,186 for the three month periods ended December 31, 1996 and 1997,
respectively.
Affiliate and other advances include temporary advances made to affiliates
for operating expenses and to affiliates, directors and employees for purchases
of investments. Of the amount outstanding at December 31, 1997, $1,338,539
relates to advances to affiliates, directors and employees for purchases of
investments made on their behalf.
8
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
4. MARKETABLE TRADING SECURITIES AND SECURITIES SOLD, NOT YET PURCHASED:
At September 30, 1997 and December 31, 1997, marketable trading securities
and securities sold, not yet purchased, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -------------
<S> <C> <C>
Marketable trading securities--
Equity securities............................................ $ 10,367,207 $ 10,738,227
Convertible bonds............................................ 2,086,750 7,250,083
Options...................................................... 26,840 36,405
U.S. government securities................................... 20,136,770 23,046,613
------------- -------------
$ 32,617,567 $ 41,071,328
------------- -------------
------------- -------------
Securities sold, not yet purchased--
Equity securities............................................ $ 11,359,430 $ 12,489,956
Options...................................................... 410,697 134,448
------------- -------------
$ 11,770,127 $ 12,624,404
------------- -------------
------------- -------------
</TABLE>
5. LONG-TERM INVESTMENTS:
At September 30, 1997 and December 31, 1997, the Company's long-term
investments, at estimated fair value, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
-------------- --------------
<S> <C> <C>
Marketable equity securities available for sale by Guaranty
Finance and Transition Capital............................. $ 14,023,208 $ 8,810,211
Marketable equity securities--other.......................... 37,661,637 30,801,380
-------------- --------------
Total marketable investments............................... 51,684,845 39,611,591
-------------- --------------
Nonmarketable securities and investment partnership
interests.................................................. 39,568,602 45,665,513
Venture Partners and affiliated venture capital funds........ 15,756,670 15,398,102
Venture capital funds managed by others...................... 8,079,332 8,418,853
Lewco Securities............................................. 2,110,279 2,110,279
-------------- --------------
Total nonmarketable investments............................ 65,514,883 71,592,747
-------------- --------------
Total long-term investments................................ $ 117,199,728 $ 111,204,338
-------------- --------------
-------------- --------------
</TABLE>
The cost of the Company's long-term investments at September 30, 1997 and
December 31, 1997, was $119,412,383 and $122,578,603, respectively.
9
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
5. LONG-TERM INVESTMENTS: (CONTINUED)
Following is an analysis of the net investment gains for the three month
periods ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Realized gains................................................... $ 3,924,549 $ 7,852,385
Change in unrealized gains and losses, net....................... 1,197,533 (7,189,723)
------------ -------------
Net investment gains........................................... $ 5,122,082 $ 662,662
------------ -------------
------------ -------------
</TABLE>
The cost and estimated fair values of investments in marketable equity
securities available for sale by Guaranty Finance and Transition Capital at
September 30, 1997 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -------------
<S> <C> <C>
Cost........................................................... $ 14,369,649 $ 11,128,541
Gross unrealized gains......................................... 1,975,968 721,865
Gross unrealized losses........................................ (2,322,409) (3,040,195)
------------- -------------
Estimated fair value......................................... $ 14,023,208 $ 8,810,211
------------- -------------
------------- -------------
</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 periods ended December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
Gross proceeds...................................................... $ 263,546 $ 4,751,403
Gross realized gains................................................ 72,831 920,058
Gross realized losses............................................... --
</TABLE>
6. EMPLOYEE BENEFIT PLANS:
SAVINGS AND EMPLOYEE STOCK OWNERSHIP TRUST
In November 1997, the Company issued 58,498 shares of common stock valued at
$1,943,760 to the ESOP in satisfaction of compensation and benefits payable.
As of December 31, 1997, the ESOP owned approximately 7.35 percent of the
H&Q common stock outstanding.
BONUS AND DEFERRED SALES COMPENSATION PLAN
The Company paid semiannual bonuses in October 1997. Under the Compensation
Plan, 184,297 shares valued at $6,657,729 were issued to executives and
professionals effective October 15, 1997. All such amounts were included in
compensation and benefits payable as of September 30, 1997.
10
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
STOCK OPTION PLANS
Details of stock options are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding at September 30, 1996............................. 5,697,520 $ 2.04 - $13.75
Granted..................................................... 301,600 $ 16.13 - $31.06
Exercised................................................... (205,038) $ 2.04 - $11.25
Canceled.................................................... (226,926) $ 5.54 - $19.88
----------
Outstanding at September 30, 1997............................. 5,567,156 $ 2.10 - $31.06
Granted..................................................... 631,500 $ 13.75 - $36.13
Exercised................................................... (37,122) $ 5.54 - $13.75
Canceled.................................................... (74,408) $ 4.60 - $ 8.38
----------
Outstanding at December 31, 1997.............................. 6,087,126 $ 2.10 - $36.13
----------
----------
</TABLE>
Of the outstanding options at December 31, 1997, options to purchase
1,493,147 shares had vested.
STOCK APPRECIATION RIGHTS
As of December 31, 1997, the total SARs liability was $5,481,530. A payment
of $3,315,862 was made on January 15, 1998. The remaining amount will be paid on
January 15, 1999.
7. NET CAPITAL REQUIREMENTS:
At September 30, 1997 and December 31, 1997, H&Q LLC's regulatory net
capital of $67,030,028 and $90,838,170, respectively, was 27 percent and 38
percent, respectively, of aggregate debit items and its net capital in excess of
the minimum required was $62,087,429 and $86,081,142, respectively.
At September 30, 1997 and December 31, 1997, RvR Securities and H&Q EM were
in compliance with all applicable regulatory capital adequacy requirements.
8. SIGNIFICANT EVENT:
In December 1997, H&Q and other broker dealer defendants entered into a
settlement agreement with the plaintiffs of the Nasdaq market-makers antitrust
litigation. The Company recorded an $8,000,000 charge for its unaccrued portion
of settlement costs. This charge is included in other expense in the three month
period ended December 31, 1997. All payments of settlement amounts are due on or
before September 30, 1998.
9. 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 $3,950,063 at December
31, 1997. Also, in connection with H&Q LLC's option trading activities, the
Company has issued a letter of credit totaling $5,500,000 at December 31, 1997
with the Options Clearing Corporation.
11
<PAGE>
HAMBRECHT & QUIST GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has other 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 actions. These civil actions and
arbitrations have arisen in the normal course of the Company's business and are
incidental to its activities as a broker-dealer in securities, as an
underwriter, as a corporate financial advisor and as an employer. The Company is
also involved, from time to time, in proceedings with, and investigations by,
governmental agencies and self regulatory organizations. Some of the actions
have been brought on behalf of various classes of claimants and seek damages of
material or indeterminate amounts. Most of the Company's current 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 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 the Company's 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 state 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
December 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.
12
<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 FUTURE GROWTH, THE COMPANY'S PRINCIPAL
INVESTMENT ACTIVITIES, ITS PLANS TO ADDRESS THE YEAR 2000 SOFTWARE ISSUE AND ITS
CURRENT EQUITY CAPITAL LEVELS. 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,
COMPETITIVE CONDITIONS WITHIN THE SECURITIES INDUSTRY, CHANGES IN INTEREST
RATES, STOCK MARKET PRICES AND MUTUAL FUND CASH INFLOWS OR OUTFLOWS, CHANGES IN
THE TECHNOLOGY AND HEALTHCARE INDUSTRIES AND OTHER INDUSTRIES IN WHICH THE
COMPANY IS ACTIVE, CHANGES IN DEMAND FOR INVESTMENT BANKING AND SECURITIES
BROKERAGE SERVICES, 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." THE COMPANY'S ANNUAL REPORT ON FORM 10-K (THE "FORM 10-K") FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1997 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION CONTAINS ADDITIONAL INFORMATION ABOUT THESE AND OTHER RISKS AND
UNCERTAINTIES.
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 an 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. The securities market is 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 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.
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. During 1997, the securities business experienced consolidation,
including the acquisition of several of the Company's competitors by large
commercial banks, providing competitors of the Company with increased financial
and other resources. In addition, the level of competition for key personnel
persists. 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 other factors will not occur
in the future.
EFFECTS OF COMPANY FACTORS AND GROWTH STRATEGIES
Over the past several years, the Company has experienced significant growth
in the scope of its business activities and the number of its employees. Average
employee headcount was 708 in the three month period ended December 31, 1996,
compared to 831 in the three month period ended December 31, 1997.
13
<PAGE>
The scope of the Company's business activities has increased to include new
business activities, increased emphasis on building existing operations, such as
the Company's international operations, and a significantly higher level of
principal investment activities, as more fully described below in "Effects of
Principal Investment Activities." 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 continue 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. The Company purchased $12.7 million and
$13.6 million in principal investments during the three months ended December
31, 1996 and 1997, respectively. The Company expects to continue its 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 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, 1997 and December 31, 1997, the
Company's long-term investments totaled $117.2 million and $111.2 million,
respectively. Net investment gains are included in the Company's statement of
operations and include net realized gains and losses and the net change in
unrealized gains and losses for the period. For the three month periods ended
December 31, 1996 and 1997, net investment gains totaled $5.1 million and
$663,000, respectively.
Principal investing activities, which have been from time to time 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.
MATTERS RELATED TO THE COMPANY'S INFORMATION SYSTEMS
The Company utilizes software and related technologies that will be affected
by the date change in the year 2000. The year 2000 issue exists because many
computer systems and applications currently use two-digit date fields to
designate a year. When the century date change occurs, date-sensitive systems
will recognize the year 2000 as 1900, or not at all. This inability to recognize
or properly treat the year 2000 may result in a systems failure or cause systems
to process critical financial and operational information incorrectly.
14
<PAGE>
Based on ongoing assessments, the Company has determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. In addition, the
Company has also determined that Lewco Securities Corp. ("Lewco"), its clearing
broker, will be required to modify or replace significant portions of the
software used by Lewco in connection with maintaining customer information for
the Company. The Company anticipates that its most significant exposure to the
year 2000 issue is through the clearing activities performed for it by Lewco.
While the Company holds an ownership position in Lewco and will be responsible
for a percentage of the costs incurred by Lewco to address the issue, the
Company does not control the management of the year 2000 problem by Lewco and is
dependent on Lewco's ability to adequately address the issue. The Company
presently believes that with modifications to existing software and conversions
to new software by both it and Lewco, the year 2000 issue can be mitigated.
However, if such modifications and conversions are not made, or are not
completed in a timely manner, the year 2000 issue could have a material impact
on the operations and financial condition of the Company.
The Company and Lewco expect to complete year 2000 programming changes by
September 1998 and testing by early 1999. The Company does not expect to incur
material costs or devote material amounts of time to addressing the year 2000
issue with respect to its internal systems. With respect to Lewco's efforts, the
Company does not expect to devote material amounts of its labor resources, but
does expect to incur certain expenses as a result of its ownership interest in
Lewco. The Company's remaining portion of the expenses to address this issue as
budgeted by Lewco is expected to be approximately $1,200,000 in calendar 1998
which will be funded through operating cash flows. During the quarter ended
December 31, 1997, the Company incurred approximately $350,000 of expenses as a
result of Lewco's efforts to address this issue. The estimated costs of and time
frame related to this project are based on estimates of the Company's and
Lewco's management and there can be no assurance that actual costs will not
differ materially from the current expectations. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
REVENUES. Total revenues for the period decreased 3% from $94.9 million for
the three months ended December 31, 1996 to $91.6 million for the three months
ended December 31, 1997.
Principal transactions revenue decreased 10% from $28.9 million to $26.1
million due primarily to lower trading volumes of Nasdaq stocks in the Company's
areas of focus.
Agency commissions increased 25% from $9.9 million to $12.4 million. This
increase was primarily due to increased listed equity trades executed by the
Company's institutional sales force.
Investment banking revenue decreased 24% from $30.1 million to $22.9
million, and decreased as a percentage of revenues from 32% to 25%. The Company
managed or co-managed 30 public offerings during the three month period ended
December 31, 1996, compared to 21 during the three month period ended December
31, 1997.
Corporate finance fees increased 63% from $10.8 million to $17.6 million due
primarily to the completion of a higher level of merger and acquisition
transactions during the three month period ended December 31, 1997.
Interest and dividend revenue increased 28% from $5.0 million to $6.3
million. The increase related primarily to interest earned on higher average
customer margin loans outstanding.
Net investment gains for the three month period decreased 87% from $5.1
million to $663,000.
Other revenues increased 10% from $5.2 million to $5.7 million.
15
<PAGE>
EXPENSES. Total expenses for the period increased 20% from $66.8 million
for the three months ended December 31, 1996 to $80.0 million for the three
months ended December 31, 1997.
Compensation and benefits expense decreased 3% from $47.3 million to $45.8
million. The decrease was due primarily to lower bonus expenses accrued on lower
revenues. Compensation and benefits expense as a percentage of total revenues
was 50% for both periods.
Brokerage and clearance expense increased 38% from $3.6 million to $5.0
million. The percentage increase was primarily attributable to higher charges
from Lewco, which include H&Q's allocation of year 2000 systems programming
changes, and higher floor brokerage charges related to increased agency
commissions.
Occupancy and equipment expense increased 46% from $3.3 million to $4.8
million as a result of higher rent expense and depreciation expense. Such
increased expenses result from the increase in headcount and the related
increased office space and computer and telecommunications equipment
procurements.
Communications expense increased 18% from $3.2 million to $3.7 million. This
increase was due primarily to increases in quotes and information services
expenses resulting from the increase in headcount.
Interest expense decreased 8% from $1.2 million to $1.1. This decrease
related primarily to lower average customer credit balances and lower average
bank borrowings outstanding during the three month period ended December 31,
1997.
Other expenses increased 140% from $8.1 million to $19.4 million. This
increase was primarily due to a charge in December 1997 of $8.0 million for the
Company's unaccrued portion of its settlement of the Nasdaq market-makers
antitrust litigation.
INCOME TAX PROVISION. The Company's effective income tax rate was 44% for
the three month period ended December 31, 1996 and decreased to 43% for the
three month period ended December 31, 1997.
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 December
31, 1997, H&Q LLC had liquid assets consisting primarily of cash and cash
equivalents of $12.5 million and receivables of $54.4 million from Lewco. As of
December 31, 1997, the Company had a bank line of credit in the amount of $15.0
million, with no balance outstanding, and Guaranty Finance and Hambrecht & Quist
Transition Capital, LLC had bank lines of credit of $11.0 million and $10.0
million, respectively with $2.0 million and no amounts outstanding,
respectively. 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 April 30, 1998. The Company plans to
renew this $20.0 million line of credit.
The Company's consolidated balance sheet reflects the Company's relatively
unleveraged financial position. The ratio of assets to equity as of December 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 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
December 31, 1997, securities held for trading purposes include United States
Treasury securities totaling $23.0 million with maturities ranging from two days
to nine months. Securities held for investment purposes are for the most part
illiquid and are carried at valuations that reflect this lack of liquidity.
16
<PAGE>
H&Q LLC, as a broker-dealer, is registered with the SEC and is a member of
the NASD and the NYSE. As such, H&Q LLC is subject to the capital requirements
of these regulatory entities. H&Q LLC's regulatory net capital has historically
exceeded these minimum requirements. As of December 31, 1997, H&Q LLC was
required to maintain minimum regulatory net capital in accordance with SEC rules
of approximately $4.8 million and had total regulatory net capital of
approximately $90.8 million, or approximately $86.0 million in excess of its
requirement.
Other broker-dealer subsidiaries were in compliance with all applicable
regulatory capital adequacy requirements at December 31, 1997.
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.
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
3.02 Registrant's Bylaws, as amended
27 Financial Data Schedule.
</TABLE>
18
<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, 1997. The following is a summary of recent material developments
in such proceedings and a summary of one new lawsuit.
OAK TECHNOLOGY SECURITIES LITIGATION
On January 29, 1998, H&Q filed an answer denying the allegations that remain
against it in the state court case (IN RE OAK TECHNOLOGY SECURITIES LITIGATION,
No. CV758510).
ORTHOLOGIC CORP. SECURITIES LITIGATION
On February 5, 1998, all of the claims against H&Q and the other underwriter
defendants were dismissed with prejudice.
STORM TECHNOLOGY, INC. SECURITIES LITIGATION
A hearing on the defendants' demurrers to the amended complaint in the state
court case is scheduled to occur on March 24, 1998. GOLDBERG V. STORM
TECHNOLOGY, INC., ET AL., Santa Clara Superior Court, No. CV764797.
RHODES V. CRUZ, ET AL.
On January 28, 1998, a purported class action complaint was filed against
H&Q and others in the federal court for the Southern District of Florida. RHODES
V. CRUZ, ET AL., Civ. No. 98-0174. The allegations concern the initial public
offering of Omega Research, Inc. which H&Q co-managed. The complaint alleges
that during the period from October 4, 1997 to January 6, 1998, the defendants
engaged in violations of the Securities Act of 1933. The defendants have not
responded to the complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<S> <C>
3.02 Registrant's Bylaws, as amended
27 Financial Data Schedule.
</TABLE>
b) Reports on Form 8-K
A current report on Form 8-K, dated January 8, 1998, was filed by the
Registrant with the Securities and Exchange Commission to report under Item 5
thereof certain information concerning the Nasdaq market-makers antitrust
litigation to which Hambrecht & Quist LLC is a party.
19
<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)
</TABLE>
Date: February 10, 1998
20
<PAGE>
BYLAWS
OF
HAMBRECHT & QUIST GROUP
AS AMENDED AND RESTATED JANUARY 1, 1998
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is CT CORPORATION SYSTEM.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors or by the written
consent of all of the persons entitled to vote at such meeting, such written
consent shall be filed with the Secretary of the Corporation. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
2.3 SPECIAL MEETING
(a) Special meetings of the stockholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
<PAGE>
(b) Upon written request to the Chairman of the Board of Directors,
the President, any Vice President or the Secretary of the corporation by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the stockholders, such officer forthwith shall cause notice to be
given to the stockholders entitled to vote, that a meeting will be held at a
time requested by the person or persons calling the meeting, such time to be not
less than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given within twenty (20) days after receipt of
such request, the person or persons calling the meeting may be given notice
thereof in the manner provided by law or in these Bylaws. Nothing contained in
this Section 2.3 shall be construed as limiting, fixing or affecting the time or
date when a meeting of stockholders called by action of the Board of Directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as otherwise may be required by law and subject to subsection 2.3(b)
above, written notice of each meeting of stockholders shall be given to each
stockholder entitled to vote at that meeting (see Section 2.8 below), by the
secretary, Assistant Secretary or other person charged with that duty, not less
than ten (10) (or, if sent by third class mail, thirty (30)) nor more than
sixty (60) days before such meeting.
Notice of any meeting of stockholders shall state the date, place and hour
of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transaction at such
meeting;
(b) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the stockholders;
(c) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be presented by
management for election; and
(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions of
Delaware General Corporations law, Section 144 (relating to certain transactions
in which a director has an interest);
(2) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Section 254 (relating to amending the
Certificate of Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Sections 251 (relating to merger or
consolidation); and
(4) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Section 275 (dissolution).
At a special meeting, notice of which has been given in accordance with
this Section, action may not be taken with respect to business, the general
nature of which has
-2-
<PAGE>
not been stated in such notice. At an annual meeting, action may be taken
with respect to business stated in the notice of such meeting, given in
accordance with this section, and, subject to subsection 2.4(d) above, with
respect to any other business as may properly come before the meeting.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of stockholders shall be given either personally
or by first-class mail, or, if the corporation has outstanding shares held of
record by 500 or more persons on the record date for such meeting,
third-class mail, or telegraphic or other written communication, addressed to
the stockholder at the address of that stockholder appearing on the books of
the corporation or given by the stockholder to the corporation for the
purpose of notice. If no such address appears on the corporation's books or
is given, notice shall be deemed to have been given if sent to that
stockholder by first-class mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least
once in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other
means of written communication.
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the stockholder on written demand by the
stockholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
(a) At any meeting of the stockholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the stockholders, unless the vote of a greater number of voting by classes is
required by law or by the Certificate of Incorporation, and except as provided
in subsection (b) below.
(b) The stockholders present at a duly called or held meeting of the
stockholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in subsection (b) above.
2.7 ADJOURNED MEETING; NOTICE
Any meeting of stockholders may be adjourned from time to time, whether or
not a quorum is present, by the affirmative vote of a majority of shares
represented at such
-3-
<PAGE>
meeting either in person or by proxy and entitled to vote at such meeting.
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment
is for more than forty-five (45) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 VOTING
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as provided in this Section 2.8, or as may be otherwise provided in
the certificate of incorporation, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder.
(b) Until such time as the corporation becomes a "listed corporation"
within the meaning of Section 301.5 of the California Corporations Code, at a
stockholders' meeting at which directors are to be elected, or at elections held
under special circumstances, a stockholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the number of votes
which such stockholder normally is entitled to cast). Each holder of stock, or
of any class or classes or of a series or series thereof, who elects to cumulate
votes shall be entitled to as many votes as equals the number of votes which
(absent this provision as to cumulative voting) he would be entitled to cast for
the election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit; provided, however, no
stockholder shall be entitled to so cumulate such stockholder's votes unless the
candidates for which such stockholder is voting have been placed in nomination
prior to the voting and a stockholder has given notice at the meeting, prior to
the vote, of an intention to cumulate votes.
(c) At such time as the corporation becomes a listed corporation
within the meaning of Section 301.5 of the California Corporations Code and
thereafter, stockholders shall not be entitled to cumulate votes.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws. All waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
-4-
<PAGE>
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
-5-
<PAGE>
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after eleven (11) months from its date,
unless the proxy provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Stock of the corporation held by its subsidiary or subsidiaries are not
entitled to vote in any matter.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the Board of Directors may appoint any
persons, other than nominees for the office, to act as inspectors of election at
the meeting or its adjournment. If no inspectors of election are so appointed,
the chairman of the meeting may, and on the request of any stockholder or a
stockholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more stockholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3)inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any stockholder or a stockholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
-6-
<PAGE>
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be six (6). This number may be
changed by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of the holders of
a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
(a) For so long as the Board of Directors consists of more than
two directors, the directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third (1/3) of the total number of directors constituting
the entire Board of Directors. At any time following the effectiveness of
this provision, but before the first annual meeting of the stockholders held
after the effectiveness of this provision, the Board of Directors may
designate by resolution the classification of existing directors, with the
initial terms of such directors as follows: Class I directors will serve
until the first annual meeting of the stockholders held after the
effectiveness of this provision, Class II directors will serve until the
second annual meeting of the stockholders held after the effectiveness of
this provision and Class III directors will serve until the third annual
meeting of the stockholders held after the effectiveness of this provision.
At the first annual meeting of the stockholders held after the effectiveness
of this provision and at each succeeding annual meeting of stockholders,
successors to the class of directors whose term expires at such annual
meeting shall be elected for three-year terms. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors
-7-
<PAGE>
in each class as nearly equal as possible, and any additional directors of
any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. Notwithstanding the foregoing, this
provision will become effective only when the corporation becomes a "listed
corporation" within the meaning of Section 301.5 of the California
Corporations Code, until such time, all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
(b) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Except as otherwise
required by law, any vacancy on the Board of Directors that results from an
increase in the number of directors or any other vacancy occurring in the Board
of Directors shall be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.
(c) Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in
-8-
<PAGE>
Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of
-9-
<PAGE>
the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose or
the place of the meeting, if the meeting is to be held at the principal
executive office of the corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to
-10-
<PAGE>
benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this section contained shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.
3.15 REMOVAL OF DIRECTORS
The Board of Directors may declare vacant the office of a director who has
been declared of unsound mind by an order of court or who has been convicted of
a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
Unless otherwise restricted by statute, by the certificate of incorporation
or by these Bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption,
-11-
<PAGE>
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, and a Chief Financial
Officer, and any such other officers with such titles and duties as the Board of
Directors may determine.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall
be chosen by the Board of Directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such
-12-
<PAGE>
other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and
perform such duties as are provided in these Bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the Board of Directors.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if there be such an officer, shall, if present,
preside at all meetings of the Board of Directors and shall exercise and perform
such other powers and duties as may be assigned from time to time by the Board
of Directors or prescribed by these Bylaws. If no President is appointed, the
Chairman of the Board is the general manager and Chief Executive Officer of the
corporation, and shall exercise all powers of the President described in
Section 5.7 below.
5.7 PRESIDENT
Subject to such powers, if any, as may be given by the Board of Directors
to the Chairman of the Board, if there be such an officer, the President shall
be the general manager and Chief Executive Officer of the corporation and shall
have general supervision and control over the business and affairs of the
corporation, subject to the control of the Board of Directors. The President
may sign and execute, in the name of the corporation, any instrument authorized
by the Board of Directors, except when the signing and execution thereof shall
have been expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the corporation. The President shall have all
the general powers and duties of management usually vested in the president of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors or these Bylaws. The President
shall have discretion to prescribe the duties of other officers and employees of
the corporation in a manner not inconsistent with the provisions of these Bylaws
and the directions of the Board of Directors.
5.8 VICE PRESIDENTS
In the absence or disability of the President, in the event of a vacancy in
the office of President, or in the event such officer refuses to act, the Vice
President shall perform all the duties of the President and, when so acting,
shall have all the powers of, and be subject to all the restrictions on, the
President. If at any such time the corporation has more than
-13-
<PAGE>
one vice president, the duties and powers of the President shall pass to each
Vice President in order of such Vice President's rank as fixed by the Board
of Directors or, if the Vice Presidents are not so ranked, to the Vice
President designated by the Board of Directors. The Vice Presidents shall
have such other powers and perform such other duties as may be prescribed for
them from time to time by the Board of Directors, the President or pursuant
to these Bylaws.
5.9 SECRETARY
The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's stockholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of a corporation's stockholders, showing the names and addresses of all
stockholders and the number of classes of shares held by each. Such records
shall be kept in written form or any other form capable of being converted into
written form.
(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal office is not in California, at its
principal business office in California, an original or copy of these Bylaws, as
amended.
(d) Give, or cause to be given, notice of all meetings of
stockholders, directors and committees of the Board of Directors, as required by
law or by these Bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these Bylaws.
If any Assistant Secretaries are appointed, the Assistant Secretary,
or one of the Assistant Secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the Assistant Secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these Bylaws or by the Board of Directors.
5.10 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the treasurer of
the corporation.
(b) keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable
-14-
<PAGE>
to the corporation from any source whatsoever; have charge and custody of,
and be responsible for, all monies and other valuables of the corporation and
be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositories as may be designated by the Board
of Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
(e) Render to the Chief Executive Officer and the Board of Directors
a statement of the financial condition of the corporation if called upon to do
so.
(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these Bylaws.
If any Assistant Financial Officer is appointed, the Assistant
Financial Officer, or one of the Assistant Financial Officers, if there are more
than one, in the order of their ranks as fixed by the Board of Directors or, if
they are not so ranked, the Assistant Financial Officers designated by the Board
of Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to these
Bylaws or by the Board of Directors.
5.11 COMPENSATION
The compensation of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by reason of the fact that such officer is also a director of the
corporation.
5.12 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
-15-
<PAGE>
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
-16-
<PAGE>
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
-17-
<PAGE>
8.2 BANK ACCOUNTS
The Board of Directors or its duly appointed and authorized committee from
time to time may authorize the opening and keeping of general and/or special
bank accounts with such banks, trust companies, or other depositories as may be
selected by the Board of Directors, its duly appointed and authorized committee
or by any officer or officers, agent or agents, of the corporation to whom such
power may be delegated from time to time by the Board of Directors. The Board
of Directors or its duly appointed and authorized committee may make such rules
and regulations with respect to said bank accounts, not inconsistent with the
provisions of these Bylaws, as are deemed advisable.
8.3 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 LOANS
No loans shall be contracted on behalf of the corporation and no negotiable
paper shall be issued in its name, unless and except as authorized by the Board
of Directors or its duly appointed and authorized committee. When so authorized
by the Board of Directors or such committee, any officer or agent of the
corporation may effect loans and advances at any time for the corporation from
any bank, trust company, or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other evidences of indebtedness of the corporation
and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer
any and all stocks, securities and other property, real or personal, at any time
held by the corporation, and to that end endorse, assign and deliver the same as
security for the payment of any and all loans, advances, indebtedness, and
liabilities of the corporation. Such authorization may be general or confined
to specific instances.
8.5 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
-18-
<PAGE>
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.6 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.7 LOST CERTIFICATES
Except as provided in this Section 8.7, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.9 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may
-19-
<PAGE>
abolish any such reserve. Such purposes shall include but not be limited to
equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.10 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.11 SEAL
This Corporation shall have a corporate seal, which shall have the name of
the corporation inscribed thereon and shall otherwise be in such form as may be
approved from time to time by the Board of Directors.
8.12 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.13 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.14 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
-20-
<PAGE>
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(a) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(b) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
-21-
<PAGE>
(c) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
-22-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 12,537
<RECEIVABLES> 329,082
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 41,071
<PP&E> 19,325
<TOTAL-ASSETS> 586,812
<SHORT-TERM> 2,000
<PAYABLES> 258,211
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 12,624
<LONG-TERM> 0
0
0
<COMMON> 142,124
<OTHER-SE> 171,852
<TOTAL-LIABILITY-AND-EQUITY> 586,812
<TRADING-REVENUE> 26,116
<INTEREST-DIVIDENDS> 6,341
<COMMISSIONS> 12,395
<INVESTMENT-BANKING-REVENUES> 22,887
<FEE-REVENUE> 20,593
<INTEREST-EXPENSE> 1,124
<COMPENSATION> 45,811
<INCOME-PRETAX> 11,666
<INCOME-PRE-EXTRAORDINARY> 11,666
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,650
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.25
</TABLE>
