<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
HAMBRECHT & QUIST GROUP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
January 9, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Hambrecht & Quist Group. The Annual Meeting will be held on February 24,
1998, at 1:30 p.m., in the Embassy Room of the Mandarin Oriental Hotel, located
at 222 Sansome Street, San Francisco, California.
The matters to be voted upon at the Annual Meeting are described in detail
in the accompanying Notice of Annual Meeting and Proxy Statement. Whether or not
you plan to attend the meeting in person, please complete and return the
enclosed proxy in the enclosed postage-paid envelope. Please note that
stockholders attending the meeting in person may revoke such proxy and vote
their shares at the meeting in the manner set forth in the accompanying Proxy
Statement.
I look forward to seeing you at the Annual Meeting.
Sincerely,
[SIGNATURE]
Daniel H. Case III
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
<PAGE>
HAMBRECHT & QUIST GROUP
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 24, 1998
------------------------
To Holders of Common Stock of
HAMBRECHT & QUIST GROUP:
The Annual Meeting of Stockholders of Hambrecht & Quist Group, a Delaware
corporation (the "Company"), will be held on Tuesday, February 24, 1998 at 1:30
p.m., local time, in the Embassy Room of the Mandarin Oriental Hotel, 222
Sansome Street, San Francisco, California, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect two directors to Class II of the Board of Directors, each to a
three-year term.
2. To approve the amendment and restatement of the Company's 1996 Equity
Plan.
3. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the 1998 fiscal year.
4. To transact such other business as may properly come before the meeting
or any adjournment(s) thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure that each stockholder's vote is counted at the meeting,
stockholders are requested to mark, sign, date and return the enclosed proxy
card as promptly as possible in the envelope provided. Stockholders attending
the meeting may vote in person even if they have previously returned a proxy
card.
Only stockholders of record as of the close of business on December 26, 1997
are entitled to receive notice of, to attend and to vote at the meeting. A list
of the stockholders entitled to vote at the meeting may be examined at the
Company's executive offices in San Francisco, California during ordinary
business hours during the ten-day period preceding the meeting.
By Order of the Board of Directors,
[SIGNATURE]
Steven N. Machtinger
GENERAL COUNSEL AND SECRETARY
San Francisco, California
January 9, 1998
<PAGE>
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
------------------------
PROXY STATEMENT
---------------------
The enclosed Proxy is solicited on behalf of the Board of Directors of
Hambrecht & Quist Group, a Delaware corporation, for use at its Annual Meeting
of Stockholders (the "Annual Meeting") to be held on Tuesday, February 24, 1998
at 1:30 p.m., local time in the Embassy Room of the Mandarin Oriental Hotel, 222
Sansome Street, San Francisco, California, or at any adjournment(s) thereof. The
Notice of Annual Meeting, this Proxy Statement and accompanying proxy card were
mailed on or about January 9, 1998 to all stockholders entitled to vote at the
Annual Meeting. Unless the context otherwise requires, "Company" refers to
Hambrecht & Quist Group and its predecessors, affiliates and subsidiaries.
The Company's principal executive offices are located at, and the Company's
complete mailing address is, One Bush Street, San Francisco, California 94104,
and its telephone number is (415) 439-3000.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE; QUORUM
Stockholders of record as of the close of business on December 26, 1997 (the
"Record Date") are entitled to notice of, to attend and to vote at the Annual
Meeting. There were 24,067,731 shares of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"), issued and outstanding on the Record Date.
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record
Date. Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum. Each share of Common Stock is entitled to
one vote on all matters. In connection with the election of directors, shares of
Common Stock may not be voted cumulatively.
REVOCATION OF PROXIES
A stockholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering, prior to or
at the Annual Meeting, a written notice of revocation or a proxy duly executed
by the person who signed the earlier proxy bearing a date later than that of the
previously submitted proxy.
SOLICITATION OF PROXIES
The Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their reasonable expenses in forwarding
solicitation material to such beneficial owners. The Company will bear the cost
of this solicitation. Proxies may be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally
or by telephone or facsimile.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors of six members to be
divided as equally as possible into three classes. Class II of the Board of
Directors currently consists of two members whose terms expire at the Annual
Meeting; Class III consists of two members whose terms expire on the date of the
1999 Annual Meeting; and Class I consists of two members whose terms expire on
the date of the 2000 Annual Meeting.
<PAGE>
At the Annual Meeting, the stockholders will elect two directors to Class II
of the Board of Directors, each to hold office for a three-year term and until
such director's successor has been duly elected and qualified, or until any such
director's earlier resignation or removal. Holders of proxies solicited by this
Proxy Statement will vote the proxies received by them as directed on the proxy
card or, if no direction is made, for the election of the Board of Directors
nominees below. If any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxy holders will vote for a nominee
designated by the present Board of Directors to fill the vacancy. It is not
presently expected that any nominee will be unable or will decline to serve as a
director.
Effective January 1, 1998, William R. Hambrecht resigned as Chairman of the
Board of Directors and Daniel H. Case III was elected as Chairman of the Board.
As of this date, the Board of Directors amended the Company's Bylaws to reduce
the size of the Board of Directors from seven to six members. Also effective
January 1, 1998, Edmund H. Shea, Jr. resigned as a Class II director and was
nominated by the Board of Directors to fill the Class III director vacancy
created by Mr. Hambrecht's resignation.
VOTE REQUIRED
Directors are elected by a plurality of votes cast. Votes withheld and
broker non-votes are not counted toward a nominee's total.
DIRECTOR NOMINEES
The following incumbent directors are the nominees of the Board of Directors
for re-election to Class II of the Board of Directors at this Annual Meeting:
Daniel H. Case III
William J. Perry
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RE-ELECTION
OF DANIEL H. CASE III AND WILLIAM J. PERRY TO CLASS II OF THE BOARD OF
DIRECTORS.
Set forth below is additional biographical information concerning nominees
for re-election to Class II of the Board of Directors. Information is also
provided for the Company's current members of Class I and Class III of the Board
of Directors, none of whom are standing for re-election at the Annual Meeting.
CLASS II DIRECTORS
DANIEL H. CASE III, 40, has been a director of the Company since October
1991. Mr. Case joined the Company in 1981, and was initially an associate and
then a principal in the Corporate Finance Department. He also served as Vice
President and then a partner in the Venture Capital Department, both in San
Francisco and in London. In 1983, he co-founded the business which became
Hambrecht & Quist Guaranty Finance. Mr. Case rejoined Corporate Finance in 1986
as co-director of mergers and acquisitions, and became Managing Director and
head of Investment Banking in December 1987. In October 1989, he was elected
Executive Vice President and in October 1991, he was elected to the Board of
Directors of the Company. In April 1992, he was elected President and Co-Chief
Executive Officer. He became Chief Executive Officer in October 1994. In January
1998, Mr. Case became Chairman of the Board and resigned as the Company's
President. Mr. Case also serves as a director of Rational Software Corporation,
a maker of object-oriented software development tools, Electronic Arts Inc., a
global interactive entertainment software company, AMB Property Corporation, a
real estate company, the National Science and Technology Medal Foundation and
the Bay Area Council. He has a B.A. in Economics and Public Policy from
Princeton University and studied management at the University of Oxford as a
Rhodes Scholar.
2
<PAGE>
WILLIAM J. PERRY, 70, has been a director of the Company since April 1997.
Dr. Perry is currently a professor at Stanford University with a joint
appointment in the Department of Engineering/Operations Research and the
Institute for International Studies. Dr. Perry served as U.S. Secretary of
Defense in the Clinton administration from 1994 to 1997 and was deputy Secretary
of Defense from 1993 to 1994. From 1988 to 1993, Dr. Perry was a professor at
Stanford University during which time he served as Co-Director of the Center for
International Security and Arms Control. He is also a director of the Boeing
Company, an aircraft manufacturer, United Technologies Corp., a provider of high
technology products and support services to the building systems, automotive,
and aerospace industries, and Yurie Systems, Inc., a telecommunications company.
Dr. Perry holds a B.S and M.S. from Stanford University and a Ph.D. in
mathematics from Pennsylvania State University.
CLASS I DIRECTORS
HOWARD B. HILLMAN, 63, has been a director of the Company since July 1989.
He was an officer of Chemical Bank from 1960 to 1969 and has been a venture
capitalist since leaving Chemical Bank. Mr. Hillman became a Director of
Auto-trol Technology Corporation, a maker of computer-based technical
information management solutions, in 1973 and its President in April 1985. He
also currently serves as Auto-trol's Chairman. Mr. Hillman holds an A.B. in
Economics from Princeton and an M.B.A. from Harvard Business School.
WILLIAM R. TIMKEN, 62, has been a director of the Company since 1982. Mr.
Timken joined the Company in 1969 and has been employed by the Company in senior
capacities since then. Mr. Timken was appointed Vice Chairman of the Company in
1992. He is responsible for the activities of the Company's Syndicate
Department. Mr. Timken is a past member of the Board of Governors of the Pacific
Stock Exchange and the Board of Governors of the National Association of
Securities Dealers, Inc. Mr. Timken holds a B.A. degree in Economics from Colby
College.
CLASS III DIRECTORS
WILLIAM E. MAYER, 57, has been a director of the Company since April 1992,
except during the period of March 1995 to January 1996. In December 1996, Mr.
Mayer formed Development Capital LLC, which invests in private and public
companies. From October 1992 to December 1996, Mr. Mayer was Dean of the College
of Business and Management at the University of Maryland, College Park. From
September 1991 to July 1992, Mr. Mayer was Dean of the Simon Graduate School of
Business at the University of Rochester. He is the former Chairman and Chief
Executive Officer of CS First Boston Merchant Bank. Before the establishment of
CS First Boston Merchant Bank in 1990, he was President and Chief Executive
Officer of the First Boston Corporation. Mr. Mayer serves as a director of Chart
House Enterprises, Inc., a restaurant management company, Johns Manville
Corporation, a manufacturer of insulation and building products, and is a
trustee of the Colonial Group of Mutual Funds, a mutual fund company. Mr. Mayer
holds a B.S. and an M.B.A. from the University of Maryland.
EDMUND H. SHEA, JR., 68, has been a director of the Company since November
1986. Effective January 1, 1998, Mr. Shea resigned as a Class II director and
was nominated by the Board of Directors to fill a vacancy as a Class III
director. He is a co-founder of J.F. Shea Co., Inc., a privately-held,
diversified civil construction, land development and venture capital company,
and has served as its Executive Vice President in charge of Venture Capital
since 1968. Mr. Shea serves on the Board of Directors of ADAC Laboratories, a
supplier of radiology and laboratory information systems, Ironstone Group, Inc.,
a real estate information services company, and Vanguard Airlines, Inc., a
passenger airline company. Mr. Shea is also on the Advisory Committee of Bay
Partners, a venture capital firm. Mr. Shea holds a B.S. in Engineering from
Massachusetts Institute of Technology.
3
<PAGE>
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended September 30, 1997, the Board of Directors of
the Company met a total of five times and acted by unanimous written consent
three times. During the last fiscal year, no director attended fewer than 75% of
the meetings of the Board of Directors which were held during the time each
individual served as a director.
The Company's Board of Directors has standing audit and executive
compensation committees. The Company has no standing nominating committee. The
Audit Committee of the Board of Directors consists of directors Hillman and
Mayer, neither of whom is an employee of the Company. This committee is
primarily responsible for reviewing the services performed by the Company's
independent accountants, evaluating the Company's accounting policies and its
system of internal controls, and reviewing significant finance transactions. The
Audit Committee met two times during the fiscal year ended September 30, 1997
and each member attended both meetings.
The Executive Compensation Committee of the Board of Directors consists of
directors Mayer and Shea, neither of whom is an employee of the Company. This
committee is primarily responsible for reviewing and recommending compensation
to be paid to officers and consultants of the Company, and for administering the
1996 Equity Plan and the 1996 Bonus and Deferred Sales Compensation Plan. See
"Report of the Executive Compensation Committee of the Board of Directors on
Executive Compensation." The Executive Compensation Committee met two times and
acted by unanimous written consent two times during the fiscal year ended
September 30, 1997. Each member attended both meetings held during the fiscal
year.
DIRECTOR COMPENSATION
The Company does not currently pay fees to its non-employee directors for
attendance at meetings. From time to time, in consideration for services
rendered by its non-employee directors, the Company has sold Common Stock to
such directors and granted these directors options to purchase Common Stock of
the Company. Effective April 1997, the Company granted William J. Perry an
option to purchase 20,000 shares of Common Stock at an exercise price of $16.50.
There were no other stock option grants to non-employee directors during fiscal
1997.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company to the Company's
Chief Executive Officer and the Company's four other most highly compensated
individuals who were serving as officers on September 30, 1997 and whose salary
plus bonus exceeded $100,000 for the fiscal year ended September 30, 1997 (each,
a "Named Executive Officer"), and compensation paid to such Named Executive
Officers for fiscal years ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION SECURITIES
---------------------------------------- RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION AWARDS(2) SARS COMPENSATION(3)
- ------------------------------ ---- -------- ---------- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel H. Case III............ 1997 $300,000 $3,300,000 -- -- -- $ 4,156
Chairman of the Board and
Chief 1996 $300,000 $3,749,865 -- -- 892,680 $2,025,333(5)
Executive Officer(4) 1995 $300,000 $2,000,000 -- -- 156,636 $ 4,156
Paul L. Hallingby............. 1997 $240,000 $1,275,000 -- -- -- $ 151,723
Executive Vice President, 1996 $240,000 $1,418,450 -- -- -- $ 277,403
Institutional Equity, 1995 $240,000 $ 907,000 -- -- 180,000 $ 55,028
H&Q LLC
Bruce M. Lupatkin............. 1997 $180,000 $ 720,000 $ 9,737(6) $180,000 -- $ 191,489(7)
Managing Director and
Director of 1996 $180,000 $ 770,000(8) $ 8,863(6) $ 80,000 116,536 $ 234,989(7)
Research, H&Q LLC 1995 $165,000 $ 600,000 -- -- 80,000 $ 69,903(7)
David M. McAuliffe............ 1997 $240,000 $ 780,000 $ 9,737(6) $195,000 -- $ 139,563
Chief Administrative
Officer, Managing 1996 $240,000 $ 800,000(9) $11,078(6) $100,000 210,680 $ 55,173
Director and Co-Director of 1995 $ 40,000 $ 120,000 -- -- 60,000 $ 83
Investment Banking, H&Q LLC
Cristina M. Morgan............ 1997 $240,000 $ 780,000 $10,224(6) $195,000 -- $ 242,955(10)
Managing Director,
Co-Director of 1996 $240,000 $2,000,000(11) $22,155(6) $200,000 112,044 $ 358,814(10)
Investment Banking, H&Q LLC 1995 $240,000 $1,380,000 -- -- 80,000 $ 132,794(10)
</TABLE>
- ------------------------------
(1) Includes bonuses earned in applicable fiscal year but paid in following
fiscal year.
(2) Represents value of shares of the Company's Common Stock earned in
applicable fiscal year but issuable in subsequent fiscal years pursuant to
the terms of the Company's 1996 Equity Plan and 1996 Bonus and Deferred
Sales Compensation Plan. Such shares of Common Stock vest in equal
installments over a three-year period following the date of grant, subject
to the individual's continuing employment on such dates.
(3) All other compensation includes the following:
(i) matching contributions in the amount of $4,000 for each Named Executive
Officer in each of fiscal years 1997, 1996 and 1995 (except for Mr.
McAuliffe who did not receive a matching contribution in fiscal year
1995) pursuant to the Company's Savings and Employee Stock Ownership
Plan under Internal Revenue Code Section 401(k) ("SESOP").
(ii) premiums paid by the Company in the amounts of $156, $156, $216, $156
and $156 for Messrs. Case, Hallingby, Lupatkin and McAuliffe and Ms.
Morgan, respectively, for group term life insurance in fiscal 1997,
$186, $156, $156, $183 and $156 for Messrs. Case, Hallingby, Lupatkin
and McAuliffe and Ms. Morgan, respectively, for group term life
insurance in fiscal 1996 and $156, $78, $426, $83 and $156 for Messrs.
Case, Hallingby, Lupatkin and McAuliffe and Ms. Morgan, respectively,
for group term life insurance in fiscal 1995.
5
<PAGE>
(iii) payments of $69,168, $104,930, $98,015 and $99,784 to Messrs. Case,
Hallingby and Lupatkin and Ms. Morgan, respectively, pursuant to
merger-related SESOP compensation in fiscal 1996.
(iv) SAR payments of $167,819, $84,417, $147,567 and $123,484 to Messrs.
Lupatkin, McAuliffe and Hallingby and Ms. Morgan, respectively, in
fiscal 1997, SAR payments of $110,467, $168,317 and $110,467 to Messrs.
Lupatkin and Hallingby and Ms. Morgan, respectively, in fiscal 1996 and
SAR payments of $43,400, $50,950 and $43,400 to Messrs. Lupatkin and
Hallingby, and Ms. Morgan, respectively, in fiscal 1995. See
"Aggregated SAR Payouts for Fiscal 1997."
(v) forgiveness of debt to the Company of $103,537, $16,820, $50,990 and
$67,863 for Messrs. Case, Lupatkin and McAuliffe and Ms. Morgan,
respectively, in fiscal 1997, forgiveness of debt to the Company of
$98,550, $16,820, $50,990 and $65,370 for Messrs. Case, Lupatkin and
McAuliffe and Ms. Morgan, respectively, in fiscal 1996, and forgiveness
of debt to the Company of $47,560, $16,820 and $39,875 for Messrs. Case
and Lupatkin and Ms. Morgan, respectively, in fiscal 1995.
(4) Excludes $241,189 and $206,273 received from Hambrecht & Quist Guaranty
Finance, L.P. ("Guaranty Finance") in fiscal 1995 and 1996, respectively,
as compensation for consulting services, distribution on capital and profit
sharing. Guaranty Finance is a majority owned subsidiary of the Company.
(5) In addition to the amounts described in footnote 3 above, includes
compensation in the amount of $1,951,979 to Mr. Case in connection with a
series of transactions designed to increase his equity ownership in the
Company.
(6) Represents the value of the difference between the price paid by the
officer for shares of the Company's Common Stock and the fair market value
of such Common Stock at the date of purchase.
(7) In addition to the amounts described in footnote 3 above, includes $2,634,
$5,531 and $5,257 received in fiscal years 1997, 1996 and 1995,
respectively, in connection with participations in venture capital funds
profits provided by the Company. See "Certain Relationships and Related
Transactions."
(8) $90,000 of this amount is a deferred bonus payable over three years
beginning in April 1997, subject to the individual's continued employment
on such dates.
(9) $80,000 of this amount is a deferred bonus payable over three years
beginning in April 1997, subject to the individual's continued employment
on such dates.
(10) In addition to the amounts described in footnote 3 above, includes $47,452,
$79,037 and $45,363 received in fiscal years 1997, 1996 and 1995,
respectively, in connection with participations in venture capital funds
profits provided by the Company. See "Certain Relationships and Related
Transactions."
(11) $240,000 of this amount is a deferred bonus payable over three years
beginning in April 1997, subject to the individual's continued employment
on such dates.
OPTION AND SAR GRANTS DURING FISCAL 1997
The Company did not grant any options or SARs during the fiscal year ended
September 30, 1997 to any of the Named Executive Officers.
6
<PAGE>
AGGREGATED OPTION EXERCISES DURING FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning the number of shares subject to both exercisable
and unexercisable stock options as of September 30, 1997. There were no option
exercises by any of the Named Executive Officers during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Daniel H. Case III....................................... 178,536 714,144 $ 5,096,310 $ 20,385,240
Paul L. Hallingby........................................ 44,000 32,000 $ 1,351,470 $ 973,680
Bruce M. Lupatkin........................................ 27,310 89,226 $ 749,792 $ 2,416,139
David M. McAuliffe....................................... 59,560 111,120 $ 1,703,120 $ 3,049,740
Cristina M. Morgan....................................... 38,682 53,362 $ 1,177,628 $ 1,463,618
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option based on the closing bid price of the
Company's Common Stock on September 30, 1997 ($35 1/16) and the exercise
price of the Named Executive Officer's options.
AGGREGATED SAR PAYOUTS FOR FISCAL 1997
The following table sets forth for each of the Named Executive Officers
certain information concerning SAR payouts during fiscal 1997, the number of
securities underlying SARs outstanding at September 30, 1997 and the unrealized
value of unvested SARs at September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNREALIZED VALUE OF
SAR PAYOUTS IN UNDERLYING SARS AT SARS AT SEPTEMBER 30,
NAME FISCAL 1997(1) SEPTEMBER 30, 1997 1997(2)
- --------------------------------------------------- -------------- ------------------- -----------------------
<S> <C> <C> <C>
Daniel H. Case III................................. -- -- --
Paul L. Hallingby.................................. $ 147,567 160,000 $ 117,367
Bruce M. Lupatkin.................................. $ 167,819 232,520 $ 223,271
David M. McAuliffe................................. $ 84,417 100,000 $ 168,834
Cristina M. Morgan................................. $ 123,484 180,000 $ 134,601
</TABLE>
- ------------------------
(1) SAR payouts for fiscal 1997 reflect payouts of SARs granted during fiscal
1994, 1995 and 1996.
(2) The unrealized value of SARs at the fiscal year end is calculated by
aggregating the unvested and unpaid value of SARs granted in fiscal 1995 and
1996.
EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL PROVISIONS
The Company entered into an employment agreement with Daniel H. Case III in
1992. The agreement provides that if the Company terminates Mr. Case's
employment without cause, or if Mr. Case resigns within six months after a
change in control of the Company, then (i) the Company shall pay Mr. Case the
greater of $400,000 or 25% of his aggregate compensation received during the
preceding two years, (ii) 50% of his unvested options shall become vested, (iii)
all options may be exercised within two years after termination for cash or on a
net-exercise basis and (iv) unless within two years he becomes employed by
another full service investment bank, Mr. Case can co-invest during such period
in the Company's venture capital opportunities on the same basis as the
Company's executive officers.
Restricted stock awards and stock option grants to the Named Executive
Officers other than Mr. Case contain provisions providing for the acceleration
of benefits in the event of a change in control of the Company. All awards of
restricted stock were made under the Company's 1996 Equity Plan. The treatment
7
<PAGE>
of such awards in the event of a change in control is set forth as a description
of the treatment of Plan Shares under the 1996 Equity Plan under the heading
"Proposal No. 2--Amendment of the 1996 Equity Plan-- Description of the 1996
Plan--Effect of Change in Control." With respect to stock option awards held by
the Named Executive Officers, the shares of Common Stock received upon exercise
are subject to a right of repurchase held by the Company that lapses over five
years. With respect to certain of these stock option awards, this right of
repurchase terminates upon a change in control of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of November 30, 1997 by
(i) each Named Executive Officer, (ii) each director, (iii) each holder of more
than 5% of the Company's Common Stock and (iv) all current directors and
executive officers as a group. Except as indicated in the footnotes to this
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAMED EXECUTIVE OFFICERS, DIRECTORS AND 5% BENEFICIAL OWNERS OWNED(1) PERCENT OF CLASS
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Daniel H. Case III(2)......................................................... 2,035,860 8.4%
Paul L. Hallingby(3).......................................................... 658,449 2.7%
Bruce M. Lupatkin(4).......................................................... 264,042 1.1%
David M. McAuliffe(5)......................................................... 319,234 1.3%
Cristina M. Morgan(6)......................................................... 418,769 1.7%
Howard B. Hillman(7).......................................................... 83,520 *
William E. Mayer(8)........................................................... 132,800 *
William J. Perry.............................................................. 0 --
Edmund H. Shea, Jr.(9)........................................................ 530,983 2.2%
William R. Timken(10)......................................................... 1,572,996 6.5%
William R. Hambrecht(11)...................................................... 2,793,767 11.6%
Hambrecht & Quist Savings and Employee Stock Ownership Plan(12)............... 1,777,869 7.4%
All executive officers and directors as a group (12 persons)(13).............. 6,254,720 25.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC"). In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of November 30,
1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. To the Company's knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws,
each person named in the table has sole voting and investment power with
respect to the shares set forth opposite such person's name. The address of
each of the beneficial owners of greater than 5% of the Company's Common
Stock listed in this table is care of Hambrecht & Quist Group, One Bush
Street, San Francisco, California 94104.
(2) Includes 18,495 shares held in trust by the SESOP and in a trust created
for the benefit of current and former employees of the Company relating to
the transfer of the Company's interest in Hambrecht & Quist, L.P., a
California limited partnership (the "Group Trust").
(3) Includes options to purchase 52,000 shares exercisable within 60 days of
November 30, 1997 and 27,898 shares held in trust by the SESOP and in the
Group Trust.
8
<PAGE>
(4) Includes options to purchase 27,310 shares exercisable within 60 days of
November 30, 1997 and 26,079 shares held in trust by the SESOP and in the
Group Trust.
(5) Includes options to purchase 59,560 shares exercisable within 60 days of
November 30, 1997 and 310 shares held in trust by the SESOP.
(6) Includes options to purchase 38,682 shares exercisable within 60 days of
November 30, 1997 and 26,544 shares held in trust by the SESOP and in the
Group Trust.
(7) Includes options to purchase 54,400 shares exercisable within 60 days of
November 30, 1997.
(8) Includes options to purchase 28,000 shares exercisable within 60 days of
November 30, 1997.
(9) Includes options to purchase 4,800 shares exercisable within 60 days of
November 30, 1997.
(10) Includes options to purchase 40,000 shares exercisable within 60 days of
November 30, 1997 and 27,396 shares held in trust by the SESOP and in the
Group Trust.
(11) Includes 2,759,456 shares representing 11.5% of the Company's Common Stock
held of record by the Hambrecht 1980 Revocable Trust, of which Mr.
Hambrecht is the sole trustee and a beneficial owner. Includes 27,911
shares held in trust by the SESOP and in the Group Trust. Effective January
1, 1998, Mr. Hambrecht resigned from the Company's Board of Directors.
(12) Represents shares held by the SESOP for the benefit of employees of the
Company. The Trustee of the SESOP is Barclays Global Investors, N.A.,
located at 420 Montgomery Street, Third Floor, San Francisco, CA 94104.
Each beneficiary is entitled to instruct the Trustee as to the voting or
tendering of any full or partial shares of Company Stock held on his or her
behalf. Excludes 230,184 shares held by Group Trust.
(13) Includes options to purchase 508,226 shares exercisable within 60 days of
November 30, 1997 and 140,747 shares held in trust by the SESOP and in the
Group Trust. Excludes shares beneficially owned by William R. Hambrecht who
resigned from the Company's Board of Directors effective January 1, 1998.
9
<PAGE>
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of securities ownership and changes in such
ownership with the SEC. Officers, directors and greater than ten-percent
stockholders also are required by rules promulgated by the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5s were required, the Company
believes that, during the fiscal year ended September 30, 1997, its officers,
directors and greater than ten-percent beneficial owners complied with all
applicable Section 16(a) filing requirements, except that the Hambrecht 1980
Revocable Trust filed late its Initial Statement of Beneficial Ownership on Form
3 following the transfer of shares from William R. Hambrecht.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PARTICIPATION BY EMPLOYEES AND OFFICERS IN VENTURE CAPITAL INVESTMENTS
Employees and officers of the Company are required to offer to the Company
opportunities which they encounter to invest in companies in the Company's areas
of focus. The Company has the right to take its desired investment position in
such opportunities. If the Company rejects such opportunity, the originating
employee may make such investment. If the Company invests in such opportunities,
it typically will invest an amount equal to at least twice the amount of the
largest investment by a Company employee. After the Company takes its desired
investment position it will typically syndicate such opportunities for
investment by eligible employees and selected outside investors. Such syndicated
investments are made through independent limited partnerships formed for the
sole purpose of making the investment. Occasionally, the Company will be asked
to participate in an investment which is not a candidate for syndication to all
eligible Company employees. In such instance, a small number of the Company's
employees directly involved with the Company or the transaction may invest
side-by-side with the Company (or one of its wholly-owned subsidiaries) on a
direct, non-syndicated basis. In addition, directors of the Company and entities
affiliated with such directors may also invest side-by-side with the Company's
venture capital funds or may commit capital to Company-affiliated venture
capital funds and have from time to time done so. Side-by-side investments are
generally made on the same terms as those applicable to other participants in
the same transaction. The following table summarizes venture capital investments
made through syndicated partnerships and capital committed to Company-affiliated
venture capital funds by the Company's directors and executive officers during
the last fiscal year:
VENTURE INVESTMENTS BY EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT
NAME OF INVESTMENTS
- --------------------------------------------------------------------------- -----------------
<S> <C>
William R. Hambrecht (1)................................................... $ 3,828,893
Daniel H. Case III (2)..................................................... 726,314
William R. Timken.......................................................... 2,322,370
Paul L. Hallingby.......................................................... 95,142
Bruce M. Lupatkin.......................................................... 54,032
David M. McAuliffe......................................................... 202,167
Cristina M. Morgan......................................................... 230,885
Patrick J. Allen........................................................... 62,418
Steven N. Machtinger....................................................... 50,465
Howard B. Hillman.......................................................... 1,405,628
William E. Mayer........................................................... 813,179
Edmund H. Shea, Jr. (3)(4)................................................. 8,815,824
</TABLE>
- ------------------------
(1) Consists of investments made by the Hambrecht 1980 Revocable Trust, of which
Mr. Hambrecht is the sole trustee and a beneficial owner.
(2) Includes investments made by Stacey Case, Mr. Case's wife.
(3) Includes investment of $893,510 in one venture fund managed by H&Q Asia
Pacific, Ltd., an entity in which the Company holds a minority interest.
Does not include an additional capital commitment of up to $1,106,490 made
in this fund during fiscal 1997.
(4) Includes investments made by J.F. Shea Co., Inc., which Mr. Shea may be
deemed to control.
In addition to their pro rata return on investment, the Company allocates to
certain of its professionals, including certain of those listed above, a portion
of the profits realized from particular venture
11
<PAGE>
investments based on such professionals' specific contributions to identifying,
structuring and monitoring the investment.
As a result of venture capital investments by the Company's officers,
directors and employees, such persons, along with entities affiliated with the
Company, hold significant equity interests in a number of private and public
companies. From time to time, the Company has provided investment banking
services such as underwriting and merger and acquisition services to such
companies. In addition, the Company enters into transactions with such companies
on an arm's length basis with terms that the Company believes are no less
favorable than those that would be negotiated with other third parties.
Transactions entered into with companies in which the Company's officers,
directors and related entities have investments include purchasing additional
equity, loaning funds, guaranteeing obligations and providing letters of credit.
To the extent that a portion of the Company's original investment was
syndicated, a corresponding percentage of any such future transactions are
syndicated to the original investors. During fiscal 1997, an aggregate of
$506,480 in payments were made by eight officers and directors to satisfy
guaranteed obligations to two companies. In addition, an additional $4,640,128
in obligations were guaranteed by nine officers and directors during fiscal
1997, but no payments were made with respect to such guarantees during the
fiscal year.
INDEBTEDNESS OF OFFICERS AND DIRECTORS
The Company's executive officers and directors listed below have been
indebted to the Company in the amounts and for the periods set forth below. The
purpose of the indebtedness in each case was to permit the exercise of options
to purchase Common Stock of the Company, the purchase of restricted Common Stock
of the Company or the purchase of units of Hambrecht & Quist, L.P., a California
limited partnership. All such indebtedness is due five years after issuance,
bears interest at approximately the minimum rate necessary to avoid imputation
of interest income for tax purposes and is secured by the shares purchased with
recourse against the borrower only to the extent of the borrower's equity
interest in the Company and the borrower's rights to receive compensation from
the Company. "Type A" indebtedness is repayable with 15% of the gross amount of
each semi-annual Company bonus withheld from the borrower's net pay. "Type B"
indebtedness is forgiven at the rate of 20% of the initial principal amount and
accrued interest at January 15, of each year of the term of such indebtedness.
<TABLE>
<CAPTION>
AGGREGATE BALANCE
HIGHEST BALANCE OUTSTANDING AS
DURING FISCAL 1997 OF SEPTEMBER 30, 1997
------------------------ ------------------------
NAME TYPE A TYPE B TYPE A TYPE B
- ------------------------------------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
William R. Hambrecht......................................... -- $ 24,592 -- $ 12,296
Daniel H. Case III(1)........................................ $ 1,920,399 $ 285,385 $ 1,746,662 $ 198,669
Paul L. Hallingby(1)......................................... $ 1,390,709 -- $ 905,934 --
Bruce M. Lupatkin............................................ $ 498,813 $ 16,820 $ 316,774 --
David M. McAuliffe........................................... $ 292,023 $ 203,960 $ 142,263 $ 152,970
Cristina M. Morgan........................................... -- $ 174,883 -- $ 107,020
Patrick J. Allen............................................. $ 180,730 $ 44,781 $ 65,595 $ 33,586
Steven N. Machtinger......................................... $ 203,754 $ 14,970 $ 141,786 $ 9,980
William E. Mayer............................................. $ 666 -- -- --
</TABLE>
- ------------------------
(1) Mr. Case's and Mr. Hallingby's indebtedness is repayable in installments of
20% of their respective cash bonuses, if any.
12
<PAGE>
TRANSACTIONS WITH SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN
Each fiscal year, pursuant to the terms of the SESOP, the Company has
historically matched a portion of each participant's contribution to the SESOP
in shares of the Company's Common Stock. As of November 30, 1997, the SESOP held
approximately 7.4% of the Company's outstanding Common Stock. The Company's
match is made initially in the form of a cash payment to the SESOP and the SESOP
in turn purchases the number of shares necessary for the match. In December
1996, the Company completed the match for fiscal 1996 by transferring $1,414,889
to the SESOP which then purchased a total of 66,977 shares of Common Stock from
the Company for the match. In November 1997, the Company completed the match for
fiscal 1997 by transferring $1,926,234 to the SESOP which then purchased a total
of 58,498 shares of Common Stock from the Company for the match. The value of
the shares purchased for the 1996 and 1997 matches were established based on the
market value of the Company's Common Stock on the date of the purchases of the
shares.
SECURITIES TRADING FOR EMPLOYEES
Certain directors, officers and employees of the Company maintain margin
accounts with Hambrecht & Quist L.L.C. ("H&Q LLC"), the Company's 100%
beneficially owned subsidiary, on the same terms available to persons
unaffiliated with the Company, including interest rates and collateral on
outstanding margin loans. From time to time, directors, officers and other
employees of the Company may buy or sell securities to or from H&Q LLC as
principal or through H&Q LLC as agent in its capacity as a registered securities
broker-dealer. Such transactions are generally executed on terms (i.e.,
commissions, mark-ups and mark-downs) more favorable to the employee-customer
than those available to similarly-situated non-employee customers of the
Company.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the last fiscal year, the Executive Compensation Committee of the
Board of Directors consisted of directors Mayer and Shea, neither of whom is,
nor formerly was, an officer or employee of the Company. During the last fiscal
year, none of the Company's executive officers served on the board of directors
or compensation committee of another entity in which an executive officer of
such entity served on the Company's board of directors or compensation
committee.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The following report is submitted by the Company's Executive Compensation
Committee (the "Committee") which is currently comprised of two independent
outside directors, neither of whom is a current officer or employee of the
Company or its subsidiaries. The members of the Committee are William E. Mayer
and Edmund H. Shea, Jr. The Committee met two times during the fiscal year ended
September 30, 1997.
The Committee is responsible for the establishment of policies governing and
for the implementation, administration and interpretation of all aspects of
compensation of the Company's executive officers. The Committee reviews the
compensation of executive officers on an ongoing basis and develops plans which
are designed to support the Company's business strategies and reflect
marketplace practices in a dynamic and intensely competitive industry.
The Company's executive compensation program is designed to achieve the
following results:
- Support the Company's business strategies and goals;
- Attract and retain qualified and talented executive officers by providing
compensation opportunities comparable to those offered by other leading
companies in the financial services industry;
13
<PAGE>
- Motivate high performance in an entrepreneurial, incentive-driven culture;
and
- Motivate executive officers to assist the Company in achieving superior
levels of financial and strategic performance for the Company and its
stockholders by closely linking executive compensation to performance in
those areas.
The Company's philosophy is to compensate executive officers based on their
individual performance and the Company's overall performance. Two main
principles guiding this philosophy are to pay market rates and to provide
long-term stock ownership. The Company considers equity ownership by its
executive officers to be critical to its long-term success. By virtue of the
Company's establishment of relatively low fixed base compensation and highly
leveraged incentive opportunities, total compensation will vary with revenue
levels and financial results of the Company. In keeping with the Company's
policy of sustaining its entrepreneurial, incentive-driven culture, no
Company-paid retirement benefits are provided to executive officers other than
the SESOP as described below.
The total compensation program for executive officers is comprehensive and
integrated to include salary, incentive bonuses, equity-based incentives and
certain other forms of compensation.
SALARY
Base salaries are intended to represent a small portion of total
compensation for the Company's executive officers. The greater part of total
compensation is based on the Company's financial performance and other factors
and is delivered through a combination of cash and equity-based awards. Base
salaries for the Company's executive officers are set at a level such that a
substantial portion of anticipated aggregate cash compensation is at risk in the
form of bonuses and such base salaries are determined prior to the beginning of
the ensuing fiscal year. Salaries will be reviewed annually by the Committee for
appropriateness in consideration of the Company's compensation policy,
marketplace practice, the Company's financial results, and individual position
responsibilities and performance.
INCENTIVE BONUSES
The method of determination of bonuses payable to executive officers,
including the Chief Executive Officer, and the criteria considered vary
depending on each executive's operating division. However, in each case, the
Company's annual incentive bonuses for its executive officers, including those
reported under the heading "Annual Compensation--Bonus" in the Summary
Compensation Table, are based on both objective and subjective performance
criteria and typically constitute a substantial portion of an individual's total
compensation. Objective criteria generally include specific financial and
strategic performance objectives for both the Company as a whole and each
executive's operating division. Subjective criteria encompass evaluation of the
executive's initiative, ability and contribution to overall division and
corporate performance, including the executive's contribution to revenue
generation. No formal weighting of the various criteria was employed in setting
incentive bonuses for fiscal 1997.
The Company currently pays semiannual bonuses to its executive officers. The
bonuses paid to the majority of the executive officers are under the 1996 Bonus
and Deferred Sales Compensation Plan (the "Bonus Plan") pursuant to which 80% of
the bonus is paid in cash and 20% is paid in shares of the Company's Common
Stock, valued at no less than 90% of the fair market value on the date of grant
as provided in the Bonus Plan. The shares of Common Stock vest over three years
following the date of grant. At the time the bonus is awarded, each such
executive has the choice of declining to accept the Common Stock and instead
receive cash payments with interest payable over three years. Such stock will
vest and such cash payments will be made by the Company only to the extent that
the employee is employed by the Company on the first three anniversaries of the
bonus date. In fiscal 1997, two of the Named Executive Officers were not offered
the opportunity to receive their bonus in equity in light of their already
substantial equity positions in the Company.
14
<PAGE>
EQUITY-BASED INCENTIVES
The Company also utilizes stock option and other forms of equity
compensation for its executive officers. Combined with the stock bonuses granted
pursuant to the Bonus Plan described above, such equity-based incentives are
designed to motivate executive officers of the Company by providing an
opportunity for financial rewards through the appreciation in the Company's
Common Stock.
STOCK OPTIONS. Pursuant to the terms of the Company's 1996 Equity Plan (the
"1996 Plan"), the Company may grant stock options to its executive officers and
selected employees. During fiscal 1997, no grants of options to purchase shares
of the Company's Common Stock were made to the Named Executive Officers pursuant
to the 1996 Plan. Historical option grants made by the Company typically provide
for the purchase of shares of Common Stock at market value on the grant date,
become exercisable over five years after the grant date and have a term of seven
years. Because the value of the options is dependent on the increase of the
market value of the Common Stock, the options provide a long-term incentive for
executives to stay with the Company and to increase the market value of the
Common Stock. It is expected that all future stock option grants will be made
pursuant to the 1996 Plan, as amended and restated, presented to stockholders at
the Annual Meeting or such other equity plan as may succeed such plan.
SESOP. The Company has a Savings and Employee Stock Ownership Plan
("SESOP") in which all salaried employees are eligible to participate after six
months of service. The SESOP provides for a salary deferral plan, in which the
Company may, in its discretion, match the first $4,000 contributed by each
participant during the plan year with a partial or equivalent amount of its
Common Stock. Each of the executive officers is eligible to participate in the
SESOP.
OTHER COMPENSATION ARRANGEMENTS
As a result of the diversity in the Company's business and individual
employee job responsibilities, the Company strives to maintain flexibility with
respect to its compensation programs. In addition to the compensation
arrangements described above, the Company has from time to time adopted employee
benefit plan and other arrangements in which executive officers are permitted to
participate. Such arrangements include the ability to co-invest with the Company
in venture capital investments and participate in the profits to the Company as
a result of such investments. The ability to participate in such venture capital
investments is not tied to Company performance. In addition, the Company is in
the process of establishing a leveraged employee venture fund pursuant to which
employees will be permitted to invest along side Hambrecht & Quist entities in
certain future investments.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the Chief Executive Officer's total compensation for fiscal 1997,
in addition to the criteria referenced above, the Board of Directors took into
account the historic long-term performance of the Company under his leadership
and its strategic progress. In addition, the Chief Executive Officer's
compensation is based in part on his direct contribution to revenue generation
as a result of his involvement in investment banking activities.
The Company believes that the total compensation of the Chief Executive
Officer is appropriate relative to his performance, the performance of the
Company and the compensation of other senior executives of high-performing
investment banking firms.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended, (the
"Code") generally denies a tax deduction to any publicly-held corporation for
compensation that exceeds $1 million to any of the five most highly compensated
executive officers in a taxable year, subject to exceptions for
"performance-based compensation" as defined in the Code and compensation paid
pursuant to certain plans in place prior to a
15
<PAGE>
company's initial public offering. To date, all compensation paid to the
Company's Named Executive Officers has been paid pursuant to compensation
programs that were in place prior to the Company's initial public offering. The
Board of Directors is submitting the amendment and restatement of the Company's
1996 Equity Plan to stockholders for the purpose of obtaining the stockholder
approval required by Section 162(m). In determining compensation for executive
officers, the Company's primary consideration is achievement of the Company's
strategic goals, taking into consideration competitive practices, market
conditions and other factors. To the extent that fulfilling these goals is
consistent with obtaining tax deductions, the Company is committed to making
compensation awards that will qualify for tax deductions.
EXECUTIVE COMPENSATION COMMITTEE
WILLIAM E. MAYER
EDMUND H. SHEA, JR.
16
<PAGE>
COMPANY STOCK PERFORMANCE
The following chart compares total stockholder return on the Company's
Common Stock with the cumulative total return of the S&P 500 Index and the Dow
Jones Securities Brokers Index for the period from August 9, 1996, the effective
date of the Company's initial public offering, to September 30, 1997, the end of
the Company's most recent fiscal year. The chart assumes the reinvestment of any
dividends. Note that historic stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
AMONG HAMBRECHT & QUIST GROUP, THE S&P 500 INDEX
AND THE DOW JONES SECURITIES BROKERS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
8/09/96 9/96 9/97
<S> <C> <C> <C>
Hambrecht & Quist Group $100 $121 $220
S & P 500 $100 $104 $146
Dow Jones Securities Brokers $100 $100 $207
</TABLE>
* $100 INVESTED ON AUGUST 9, 1996 IN STOCK OR INDEX--
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
17
<PAGE>
PROPOSAL NO. 2--AMENDMENT OF THE 1996 EQUITY PLAN
The Company's 1996 Plan was adopted by the Company's Board of Directors on
June 19, 1996 and by the sole stockholder of the Company on July 9, 1996 with
the purpose of enabling employees, outside directors and consultants to own
Common Stock of the Company and, in the case of incentive stock options, to take
advantage of the tax benefits allowed to employer stock plans by the Internal
Revenue Code of 1986, as amended.
The text of the 1996 Plan, as amended and restated, is set forth in Exhibit
A to this Proxy Statement.
At the Annual Meeting, the stockholders are being asked to approve the
adoption of the amendment and restatement of the 1996 Plan, as adopted by the
Board of Directors on December 18, 1997 to be effective upon the approval by
stockholders, as follows:
1. To increase the total number of shares available for all types of
awards under the 1996 Plan to 5,000,000 shares. Prior to this amendment, a
total of 1,000,000 shares were available for award as options and a total of
2,000,000 shares were available for award as plan shares.
2. To provide for annual increases in the total number of shares
available for grant under the 1996 Plan as of January 1 of each year,
commencing with the year 1999, equal to the lesser of (i) 3.0% of the total
number of shares of Common Stock outstanding on such date and (ii) 750,000
shares.
3. To include certain provisions designed to comply with Section 162(m)
under the Code which requires that performance-based conditions be placed on
certain awards under the 1996 Plan to executive officers.
4. To make certain other amendments to (i) clarify the administration
requirements, (ii) provide that shares of Common Stock that correspond to
forfeited or terminated options shall become available for grant as plan
shares, (iii) require that the number of ISOs available for grant under the
1996 Plan not be increased by a forfeiture of plan shares, (iv) allow for
the issuance of plan shares to outside directors and consultants in addition
to employees, and (v) allow the administrator of the 1996 Plan to permit or
require an optionee to defer the delivery of shares as deferred
compensation.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting and entitled to vote is required to approve the amendment
and restatement of the 1996 Plan. An abstention will have the same effect as a
negative vote, but, because shares held by brokers will not be considered
entitled to vote on matters as to which the brokers withhold authority, a broker
non-vote will have no effect on the vote.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT
AND RESTATEMENT OF THE 1996 PLAN.
PLAN ACTIVITY
Information with respect to the issuance of Plan Shares to the Named
Executive Officers during the fiscal year ended September 30, 1997 is included
under the heading "Restricted Stock Awards" in the table titled "Summary
Compensation Table" contained elsewhere in this proxy statement. There were no
stock option grants to the Named Executive Officers during the fiscal year ended
September 30, 1997. The
18
<PAGE>
following table sets forth additional information with respect to Options
granted and Plan Shares awarded under the 1996 Plan during the fiscal year ended
September 30, 1997 to certain persons:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE ISSUANCE PRICE OF
NUMBER OF EXERCISE PRICE OF NUMBER OF PLAN PLAN
IDENTITY OF GROUP OPTIONS GRANTED OPTIONS GRANTED SHARES AWARDED SHARES AWARDED
- -------------------------------------- --------------- ----------------- --------------- ---------------------
<S> <C> <C> <C> <C>
All current executive officers as a
group (9 persons)................... -- -- 50,673 $ 16.46
All current non-executive directors as
a group
(4 persons)......................... 20,000 $ 16.50 -- --
Non-executive officer employees as a
group (approximately 814 persons)... 281,600 $ 21.50 813,981 $ 16.91
</TABLE>
Option and Plan Share awards to be made in the future under the 1996 Plan
and the Bonus Plan to executive officers, directors and other employees are not
presently determinable.
DESCRIPTION OF THE 1996 PLAN
The following is a summary of the principal provisions of the amended and
restated 1996 Plan, but does not purport to be a complete statement of the 1996
Plan's terms. The following discussion is subject to and qualified in its
entirety by reference to Exhibit A.
AUTHORIZED SHARES. Prior to the proposed amendment and restatement,
3,000,000 shares were reserved for issuance under the 1996 Plan. Of this total,
the aggregate number of options awarded under the 1996 Plan shall not exceed
1,000,000 of which 76,900 shares remained available for future option grants as
of December 15, 1997, and the aggregate number of Plan Shares awarded under the
1996 Plan shall not exceed 2,000,000 of which 969,996 shares remained available
for future issuances as of December 15, 1997. Plan Shares are shares of Common
Stock that may be awarded, with or without cash consideration (other than par
value), under the 1996 Plan. Such Plan Shares may also be subject to the terms
and conditions of the Bonus Plan.
The text of the proposed amendment increases the aggregate number of shares
issuable under the 1996 Plan by 2,000,000 shares to 5,000,000 shares and
eliminates the individual limits on Options and Plan Shares. Instead, the
amended and restated 1996 Plan provides for an aggregate number of shares that
may be issued either as Options or Plan Shares.
ANNUAL INCREASE. Effective January 1 of each year following the approval by
stockholders of the amendment and restatement of the 1996 Plan, the number of
shares available for award either as Options or Plan Shares shall be increased
by an amount equal to the lesser of (i) 3.0% of the total number of shares of
Common Stock of the Company outstanding on such date and (ii) 750,000 shares.
ADMINISTRATION. The 1996 Plan may be administered by the Board of Directors
or a committee appointed by the Board. The 1996 Plan is currently administered
by the Company's Board of Directors and the Executive Compensation Committee
with respect to awards to officers and directors of the Company subject to
Section 16 of the Exchange Act, and administered by Daniel H. Case III, Chief
Executive Officer of the Company, with respect to awards to employees and
consultants not subject to Section 16 of the Exchange Act (each a "Plan
Administrator"). The Plan Administrator has final authority to interpret any
provision of the 1996 Plan and the Bonus Plan and the terms of any grant made
under either plan.
ELIGIBILITY. All employees, outside directors and consultants of the
Company (including any parent, subsidiary or affiliate of the Company) are
eligible to receive Plan Shares and nonstatutory stock options
19
<PAGE>
("NSOs"). Only employees of the Company (including any parent, subsidiary or
affiliate of the Company) are eligible to receive incentive stock options
("ISOs"). As of September 30, 1997, approximately 830 persons were eligible to
participate in the 1996 Plan.
PERFORMANCE-BASED COMPENSATION LIMITS. No employee may be granted Options
for more than 500,000 shares in one fiscal year, other than a one-time grant of
Options for up to 1,000,000 shares to newly-hired employees. In addition, the
Plan Administrator may require that the vesting of any award of Plan Shares be
contingent upon the attainment of a performance target by the Company or one of
its business units for a period of one or more years. Such a target shall
determined not later than the 90th day of such a period and shall be based upon
one or more of the following criteria: return on equity, operating income,
earnings per share, market share results or revenue targets. In addition, in no
event, shall the number of Plan Shares which are subject to performance-based
vesting conditions and which are granted to any individual in a single calendar
year exceed 250,000 shares.
TERM. As described below, the 1996 Plan will remain in effect until 2006
unless terminated sooner by the Board of Directors.
AWARD RECIPIENTS. The Plan Administrator selects the individuals who are to
receive options and Plan Shares under the 1996 Plan, and, subject to the
provisions of the 1996 Plan and the Bonus Plan, determines the terms of each
grant.
TYPES OF AWARDS. The 1996 Plan permits the Company to grant ISOs, NSOs and
Plan Shares. Each of these grants are described below. The "Tax Information"
section summarizes the tax treatment of each of these grants.
PLAN SHARES. Plan Shares are shares of the Company's Common Stock awarded
under the 1996 Plan. Such Plan Shares may be issued with or without cash
consideration (other than par value) and may or may not be subject to vesting.
STOCK OPTIONS. The Plan Administrator determines the term and vesting
schedule of each option. In the case of ISOs, the term in most cases may be as
long as ten years from the date of grant. The Plan Administrator also determines
the option exercise price. The exercise price of ISOs may not be less than 100%
of fair market value of the Company's Common Stock on the date of grant. The
closing price of the Company's Common Stock on the New York Stock Exchange on
December 22, 1997 was $36.25 per share. Written agreements between the optionee
and the Company generally contain the following terms:
(i) If an optionee's employment, directorship or consulting relationship
terminates other than for cause, death or disability, his or her option may
be exercised, to the extent it was exercisable at the date of such
termination, for three months after termination, but no later than the
expiration of the term of the option.
(ii) If an optionee's employment terminates as a result of death or
disability, the option shall remain exercisable for six months after such
termination, but no later than the expiration of the original term.
(iii) If the optionee is terminated for cause, the option shall terminate
immediately.
The Plan Administrator determines how an optionee may pay the exercise price
of an option. Payment for the exercise price may be made in cash or cash
equivalents. In addition, with the Plan Administrator's express consent and in
its sole discretion, the following additional forms of payment may be accepted:
(i) surrender of certain other shares of Common Stock already owned by
the optionee.
(ii) delivery of irrevocable instructions to a broker to deliver to the
Company the appropriate amount of proceeds from the sale of the shares
exercised (often referred to as a "cashless exercise") in payment of the
exercise price.
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(iii) delivery of irrevocable instructions to a broker to pledge shares
of the Company's Common Stock as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
exercise price.
(iv) promissory note, provided that the par value of the shares of
Common Stock being acquired are paid in cash or cash equivalents.
(v) any other form of payment that is consistent with applicable laws,
regulations and rules.
The Plan Administrator may at any time offer to buy out, for a payment in
cash, any outstanding option, based on such terms and conditions as the Plan
Administrator shall establish and communicate to the optionee at the time such
offer is made.
WRITTEN AGREEMENTS. All options and awards granted under the 1996 Plan are
evidenced by a written agreement between the Company and the employee, outside
director or consultant to whom the option or award is granted.
NON-TRANSFERABILITY OF OPTIONS OR AWARDS. Generally, such written
agreements provide that Options and unvested Plan Shares granted under the Plan
are non-transferable by the participant, other than by will or the laws of
descent and distributions. Options may be exercised during the lifetime of the
participant only by the participant.
ADJUSTMENT ON CHANGES IN CAPITALIZATION. If any change, such as a stock
split or dividend, is made in the Company's capitalization, and the change
results in an increase or decrease in the number of issued shares of Common
Stock without receipt of consideration by the Company, an appropriate adjustment
will be made in the price of each option and in the number of shares subject to
each option. Plan Shares when issued will be treated as outstanding shares of
the Company's Common Stock and any adjustment in the Company's capitalization
which affects shares of the outstanding Common Stock will also apply to the Plan
Shares. In the event of a proposed dissolution or liquidation of the Company,
all outstanding options will automatically terminate immediately prior to the
consummation of such proposed action. The Plan Administrator may in its
discretion, however, make provision for accelerating the exercisability of any
option and the vesting of Plan Shares.
EFFECT OF CHANGE IN CONTROL. If there is a "Change in Control" of the
Company (as defined below), each outstanding option may be assumed or
substituted by the successor corporation (or a parent or subsidiary of such
successor corporation). In the event that the successor corporation does not
agree to such assumption or substitution, and absent a contrary determination by
the Plan Administrator, each option shall become vested to the extent it would
otherwise have been vested twelve months after the date of the Change in
Control, regardless of whether the optionee continues to be an employee, outside
director or consultant following the Change in Control. With respect to Plan
Shares, in the event of a Change in Control, all of the outstanding Plan Shares
will become vested to the extent that they otherwise would have become vested
within twelve months after such Change in Control. A "Change in Control" is
defined as (i) a merger or other reorganization in which the stockholders of the
Company immediately prior to such transaction do not hold directly indirectly at
least 50% of the voting power of the surviving entity or the parent corporation
of the surviving entity immediately following such merger or other
reorganization or (ii) the sale of all or substantially all of the Company's
assets.
AMENDMENT AND TERMINATION. The Board of Directors may amend, alter, suspend
or terminate the 1996 Plan at any time, but such amendment, alteration,
suspension or termination may not adversely affect any outstanding option or
Plan Share without the consent of the holder. To the extent necessary and
desirable to comply with Section 422 of the Code (or any other applicable law or
regulation, including the rules of the New York Stock Exchange), the Company
must obtain stockholder approval of certain amendments to the Plan in the manner
and to the degree required by such laws and regulations. The 1996 Plan will
terminate, in any event, in 2006.
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DEFERRAL OF AWARDS. The Plan Administrator may in its sole discretion
permit or require an Option holder to have shares of Common Stock that otherwise
would be delivered to such holder converted into amounts credited to a deferred
compensation account established for such holder. Such amount credited to be
determined based on the fair market value of the Common Stock otherwise
deliverable.
TAX TREATMENT
The following is a summary of the U.S. federal income tax consequences of
transactions under the Plan based on federal securities and income tax laws in
effect in August 1997. This summary is not intended to be exhaustive and does
not discuss the tax consequences of a participant's death or the provision of
any income tax laws of any municipality, state or foreign country in which an
optionee may reside.
NONSTATUTORY STOCK OPTIONS. With respect to NSOs: (i) no income is
recognized by the optionee at the time the option is granted; (ii) generally, at
exercise, ordinary income is recognized by the optionee in an amount equal to
the difference between the fair market value of the shares on the date of
exercise and the option exercise price paid for the shares, and the Company is
entitled to a tax deduction in the same amount; and (iii) upon disposition of
the shares, any gain or loss is treated as capital gain or loss. In the case of
an optionee who is also an employee at the time of grant, any income recognized
upon exercise of an NSO will constitute wages for which withholding will be
required.
PLAN SHARES. Generally, no income is recognized by a recipient in
connection with the award of Plan Shares subject to vesting, unless the
recipient files an election under Section 83(b) of the Code with the Internal
Revenue Service and the Company within 30 days of the date of such award. If
such an election is timely filed, the recipient recognizes as ordinary income
the excess of the fair market value of the stock over the amount paid for the
stock at the time the stock is awarded. Otherwise, the recipient generally
recognizes compensation income equal to the excess of the fair market value of
the stock over the amount paid for the stock at the time it vests (that is, as
the forfeiture condition lapses). In the case of a recipient who is also an
employee, any amount recognized as income will be subject to tax withholding by
the Company. The Company will be entitled to a tax deduction in the amount and
at the time the recipient recognizes ordinary income with respect to the stock.
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee
upon the grant or exercise of an ISO (unless the alternative minimum tax rules
apply). If Common Stock is issued to an optionee pursuant to the exercise of an
ISO, and if no disqualifying disposition of the shares is made by the optionee
within two years after the date of grant or within one year after the issuance
of such shares to the optionee, then (i) upon the resale of such shares, the
difference between the amount realized on sale and the option exercise price
will be capital gain or loss, and (ii) no deduction will be allowed to the
Company for federal income tax purposes.
If Common Stock acquired upon the exercise of an ISO is disposed of before
the expiration of either holding period described above, generally (i) the
optionee will recognize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares at exercise
(or, if less, the amount realized on the disposition of the shares) over the
option exercise price paid for such shares, and (ii) the Company is entitled to
a tax deduction in the same amount.
ALTERNATIVE MINIMUM TAX. The exercise of an ISO granted under the Plan may
subject the optionee to the alternative minimum tax ("AMT") under Section 55 of
the Code. In computing alternative minimum taxable income, shares purchased upon
exercise of an ISO are treated as if they had been acquired by the optionee
pursuant to an NSO. This may be particularly significant if shares subject to a
repurchase option of the Company are purchased upon exercise of an ISO or if the
optionee is subject to Section 16(b) of the Exchange Act. See "Nonstatutory
Stock Options," above. Under certain circumstances, an optionee may affect the
timing and measurement of AMT by filing an election under Section 83(b) with the
Internal
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Revenue Service and the Company within 30 days after the date of exercise of an
ISO. Accordingly, an optionee should consult his or her own tax advisor prior to
exercising an ISO concerning the advisability of filing an election under
Section 83(b) of the Code for alternative minimum tax purposes.
If an optionee pays AMT in excess of his or her regular tax liability, the
amount of such AMT relating to ISOs may be carried forward as a credit against
any subsequent years' regular tax in excess of the AMT.
PROPOSAL NO. 3--RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
accountants, to audit the Company's consolidated financial statements for the
fiscal year ending September 30, 1998. At the Annual Meeting, the stockholders
are being asked to ratify the appointment of Arthur Andersen LLP as the
Company's independent accountants for fiscal year 1998. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have the opportunity to respond to appropriate questions
and to make a statement if they desire.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting and entitled to vote is required to ratify the appointment
of Arthur Andersen LLP as the Company's independent public accountants for the
fiscal year ending September 30, 1998. An abstention will have the same effect
as a negative vote, but, because shares held by brokers will not be considered
entitled to vote on matters as to which the brokers withhold authority, a broker
non-vote will have no effect on the vote.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
OTHER MATTERS
The Company knows of no other matters to be submitted to the stockholders at
the Annual Meeting. If any other matters properly come before the stockholders
at the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
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STOCKHOLDER PROPOSALS
Stockholders of the Company who intend to present proposals at the Company's
next Annual Meeting of Stockholders must send such proposals to the Company for
receipt no later than September 11, 1998 in order for such proposals to be
considered for inclusion in the proxy statement and form of proxy relating to
such meeting.
By Order of the Board of Directors
[SIGNATURE]
Steven N. Machtinger
GENERAL COUNSEL AND SECRETARY
Dated: January 9, 1998
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EXHIBIT A
HAMBRECHT & QUIST GROUP
1996 EQUITY PLAN
ARTICLE 1. INTRODUCTION
The Plan was adopted by the Board effective June 19, 1996. The Plan was
amended and restated by the Board on December 18, 1997 and approved by the
Company's stockholders on , 1998.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b)
encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Plan Shares or Options (which may constitute incentive stock
options or nonstatutory stock options).
The Plan shall be governed by, and construed in accordance with, the laws of
the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by one or more
Committees that shall consist of either the full Board of Directors or one or
more directors of the Company, who shall be appointed by the Board. If more than
one Committee is appointed, each such committee shall be included in the
definition of "Committee" whenever used herein.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares that may be awarded under the Plan either as Option or Plan Shares
shall not exceed 5,000,000. The limitations of this Section 3.1 shall be subject
to adjustment pursuant to Article 8.
3.2 ANNUAL INCREASE. In addition to the number of Common Shares issuable
under the Plan pursuant to Section 3.1, as of January 1, of each year,
commencing with the year 1999, the aggregate number of shares authorized for
issuance either as Option or Plan Shares shall automatically increase by a
number equal to the lesser of (i) 3.0% of the total number of shares of Common
Stock of the Company then outstanding and (ii) 750,000 shares.
3.3 ADDITIONAL SHARES. If Options are forfeited or terminate for any other
reason before being exercised, then the corresponding Common Shares shall again
become available for the grant of Options or Plan Shares under the Plan. If Plan
Shares are forfeited, then the corresponding Common Shares shall again become
available for the grant of NSOs or Plan Shares under the Plan. The aggregate
number of Common Shares that may be issued under the Plan upon the exercise of
ISOs shall not be increased when Plan Shares or other Common Shares are
forfeited.
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ARTICLE 4. ELIGIBILITY.
4.1 NONSTATUTORY STOCK OPTIONS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of NSOs.
4.2 INCENTIVE STOCK OPTIONS AND PLAN SHARES. Only Employees, Outside
Directors and Consultants shall be eligible for the grant of Plan Shares. Only
Employees who are common-law employees of the Company, a Parent or a Subsidiary
shall be eligible for the grant of ISOs. In addition, an Employee who owns more
than 10% of the total combined voting power of all classes of outstanding stock
of the Company or any of its Parents or Subsidiaries shall not be eligible for
the grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 8. Options granted to any Optionee in a
single fiscal year of the Company shall not cover more than 500,000 Common
Shares, except that Options granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
cover more than 1,000,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 8.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price, provided that the Exercise Price under an ISO shall in no event be less
than 100% of the Fair Market Value of a Common Share on the date of grant. In
the case of an NSO, a Stock Option Agreement may specify an Exercise Price that
varies in accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option, provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. NSOs may also be awarded in combination
with Plan Shares, and such an Award may provide that the NSOs will not be
exercisable unless the related Plan Shares are forfeited.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time
of granting an Option or thereafter, that all or part of such Option shall
become exercisable as to all Common Shares subject to such Option in the event
that a Change in Control occurs with respect to the Company. Absent a contrary
determination by the Committee, if (a) a Change in Control occurs with respect
to the Company and (b) the surviving corporation or its parent or subsidiary
does not continue or assume outstanding Options or substitute its own options
for such Options, then such Options shall become exercisable to the extent that
they otherwise would have become exercisable within 12 months after such Change
in Control. For purposes of this Section 5.5 and Section 8.3, an Option shall be
considered assumed or replaced by a substitute option if the new option confers
the right to purchase, for each Common Share subject to the
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Option immediately prior to the Change in Control, the consideration (whether
stock, cash or other securities or property) received in the Change in Control
by the Company's stockholders for each Common Share held on the effective date
of the Change in Control (and if stockholders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Common Shares); provided, however, that if such consideration
received in the Change in Control is not solely common stock of the successor
corporation or its parent corporation, the Committee may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Common Share subject to the Option, to be
solely common stock of the successor corporation or its parent corporation equal
in fair market value to the per share consideration received by holders of
Common Shares in the Change in Control.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee, in its sole and absolute
discretion, may at any time accept payment in any form(s) described in this
Article 6.
6.2 SURRENDER OF STOCK. To the extent applicable under Section 6.1,
payment for all or any part of the Exercise Price may be made with Common Shares
which are already owned by the Optionee. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan. The Optionee shall not surrender Common Shares in payment of the
Exercise Price if such surrender would cause the Company to recognize
compensation expense with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent applicable under Section 6.1, payment may
be made by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Common Shares
and to deliver all or part of the sales proceeds to the Company in payment of
all or part of the Exercise Price and any withholding taxes.
6.4 EXERCISE/PLEDGE. To the extent applicable under Section 6.1, payment
may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
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6.5 PROMISSORY NOTE. To the extent applicable under Section 6.1, payment
may be made with a promissory note; provided that the par value of the Common
Shares shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent applicable under Section 6.1,
payment may be made in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. PLAN SHARES.
7.1 TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be granted
in the form of Plan Shares. Plan Shares may also be awarded in combination with
NSOs, and such an Award may provide that the Plan Shares will be forfeited in
the event that the related NSOs are exercised.
7.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the form
of newly issued Plan Shares, the Award recipient, as a condition to the grant of
such Award, shall be required to pay the Company in cash or cash equivalents an
amount equal to the par value of such Plan Shares. To the extent that an Award
is granted in the form of Plan Shares from the Company's treasury, no cash
consideration shall be required of the Award recipients. To the extent payment
is not made in cash or cash equivalents, it may be made with a promissory note
if the Stock Agreement so provides.
7.3 VESTING CONDITIONS. Each Award of Plan Shares may or may not be
subject to vesting. Vesting may occur in full or in installments, upon
satisfaction of the conditions specified in the Stock Agreement. A Stock
Agreement may provide for accelerated vesting in the event of the Participant's
death, disability or retirement or other events. If a Change in Control occurs
with respect to the Company, then all outstanding Plan Shares shall become
vested to the extent that they otherwise would have become vested within twelve
months after such Change of Control. The Committee may include among such
conditions the requirement that the performance of the Company or a business
unit of the Company for a specified period of one or more years equal or exceed
a target determined in advance by the Committee. Such performance shall be
determined by the Company's independent auditors. Such a target shall be based
upon one or more of the following criteria: return on equity, operating income,
earnings per share, market share results or revenue targets. The Committee shall
determine such target not later than the 90th day of such period. In no event
shall the number of Plan Shares which are subject to performance-based vesting
conditions and which are granted to any Participant in a single calendar year
exceed 250,000, subject to adjustment in accordance with Article 8.
7.4 VOTING AND DIVIDEND RIGHTS. The holders of Plan Shares subject to
vesting awarded under the Plan shall have the same voting, dividend and other
rights as the Company's other stockholders.
ARTICLE 8. PROTECTION AGAINST DILUTION.
8.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options and Plan Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 5.2, (c) the number of Common Shares covered by each outstanding Option
or (d) the Exercise Price under each outstanding Option. Except as provided in
this Article 8, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
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8.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Committee shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction. The
Committee in its discretion may provide for an Optionee to have the right to
exercise his or her Options until 10 days prior to such transaction as to some
or all of the Common Shares covered thereby, including Common Shares as to which
the Options would not otherwise be exercisable. In addition, the Committee may
provide that any Company repurchase option applicable to any Shares purchased
upon exercise of an Option or to any Plan Shares shall lapse as to some or all
such Shares, provided the proposed dissolution or liquidation takes place at the
time and in the manner contemplated. To the extent not previously exercised,
Options shall terminate immediately prior to the consummation of such proposed
action.
8.3 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options and Plan Shares shall be subject to
the agreement of merger or reorganization. Such agreement may provide, without
limitation, for the continuation of outstanding Awards by the Company (if the
Company is a surviving corporation), for their assumption by the surviving
corporation or its parent or subsidiary, for the substitution by the surviving
corporation or its parent or subsidiary of its own awards for such Awards, for
accelerated vesting and accelerated expiration, or for settlement in cash or
cash equivalents.
ARTICLE 9. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Plan Shares and
shall, when issued, reduce the number of Common Shares available for the grant
of Plan Shares under Article 3.
ARTICLE 10. LIMITATION ON RIGHTS.
10.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
10.2 STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when he or she becomes entitled to
receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided in
the Plan.
10.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 11. WITHHOLDING TAXES.
11.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
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11.2 SHARE WITHHOLDING. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 12. FUTURE OF THE PLAN.
12.1 TERM OF THE PLAN. The Plan became effective on October 1, 1996. The
Plan shall remain in effect until it is terminated under Section 12.2, except
that no ISOs shall be granted after June 18, 2006.
12.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 13. DEFERRAL OF DELIVERY OF SHARES
The Committee (in its sole discretion) may permit or require an Optionee to
have Common Shares that otherwise would be delivered to such Optionee as a
result of the exercise of an Option converted into amounts credited to a
deferred compensation account established for such Optionee by the Committee as
an entry on the Company's books. Such amounts shall be determined by reference
to the Fair Market Value of such Common Shares as of the date when they
otherwise would have been delivered to such Optionee. A deferred compensation
account established under this Article 13 may be credited with interest or other
forms of investment return, as determined by the Committee. An Optionee for whom
such an account is established shall have no rights other than those of a
general creditor of the Company. Such an account shall represent an unfunded and
unsecured obligation of the Company and shall be subject to the terms and
conditions of the applicable agreement between such Optionee and the Company. If
the conversion of Options is permitted or required, the Committee (in its sole
discretion) may establish rules, procedures and forms pertaining to such
conversion, including (without limitation) the settlement of deferred
compensation accounts established under this Article 13.
ARTICLE 14. DEFINITIONS.
14.1 "AFFILIATE" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
14.2 "AWARD" means any award of an Option or a Plan Share under the Plan.
14.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
14.4 "CHANGE IN CONTROL" shall mean (i) a merger or other reorganization
in which the stockholders of the Company immediately prior to such transaction
do not hold directly indirectly at least 50% of the voting power of the
surviving entity or the parent corporation of the surviving entity immediately
following such merger or other reorganization or (ii) the sale of all or
substantially all of the Company's assets.
14.5 "CODE" means the Internal Revenue Code of 1986, as amended.
14.6 "COMMITTEE" means a committee of the Board, as described in Article
2.
14.7 "COMMON SHARE" means one share of the common stock of the Company.
14.8 "COMPANY" means Hambrecht & Quist Group, a Delaware corporation.
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14.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.
14.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
14.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
14.12 "EXECUTIVE OFFICERS" means those Employees of the Company who are
required to file reports under Section 16(a) of the Exchange Act.
14.13 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.
14.14 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Such determination shall be conclusive and binding on all persons.
14.15 "ISO" means an incentive stock option described in section 422(b) of
the Code.
14.16 "NSO" means a nonstatutory stock option not described in sections
422 or 423 of the Code.
14.17 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
14.18 "OPTIONEE" means an individual or estate who holds an Option.
14.19 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.
14.20 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
14.21 "PARTICIPANT" means an individual or estate who holds an Award.
14.22 "PLAN" means this Hambrecht & Quist Group 1996 Equity Plan, as
amended from time to time.
14.23 "PLAN SHARE" means a Common Share awarded under the Plan.
14.24 "SECTION 16 PERSONS" means those persons required to file reports
pursuant to Section 16(a) of the Exchange Act.
14.25 "STOCK AGREEMENT" means the agreement between the Company and the
recipient of a Plan Share that contains the terms, conditions and any
restrictions pertaining to such Plan Share.
14.26 "STOCK OPTION AGREEMENT" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.
14.27 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
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HAMBRECHT & QUIST GROUP
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 1998
The undersigned hereby appoints Daniel H. Case III, Patrick J. Allen and
Steven N. Machtinger as Proxies, with full power to act without the others and
each with power of substiution, and hereby authorizes them to represent and to
vote, as designated on the reverse side of this card, all shares of Common Stock
of Hambrecht & Quist Group (the "Company") held of record by the undersigned on
December 26, 1997, at the Annual Meeting of Stockholders to be held on February
24, 1998, or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE>
/X/
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
1. ELECTION OF CLASS II DIRECTORS
Nominees: Daniel H. Case III
William J. Perry
[ ] FOR all nominees listed at right (except those named below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed at right
(Instruction: To withhold authority for any nominee, write that nominee's
name on the line below)
- ---------------------------------------
2. Proposal to amend and restate the Company's 1996 Equity Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the selection of Arthur Andersen LLP to serve as the
Company's independent accountants for fiscal 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon such other business as may properly come
before the Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL BE
VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR
THE TWO NOMINEES FOR ELECTION, FOR PROPOSAL 2 AND FOR PROPOSAL 3.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN THE
ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
Date:
- -------------------------------------- -------------------
Signature
NOTE: Please sign exactly as name or names appear on stock certificate
(as indictated hereon). When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If the signature is by a
corporation, sign the full company name by a duly authorized officer.
