<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
HAMBRECHT & QUIST GROUP
(NAME OF SUBJECT COMPANY)
HAMBRECHT & QUIST GROUP
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
406545103
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
STEVEN N. MACHTINGER, ESQ.
GENERAL COUNSEL AND SECRETARY
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 439-3000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
EDWARD D. HERLIHY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates to an offer by Bridge Acquisition Corporation, a
Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of The
Chase Manhattan Corporation, a Delaware corporation ("Parent"), to purchase all
of the Shares (as defined below) of Hambrecht & Quist Group, a Delaware
corporation (the "Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name and address of the principal executive offices of the Company is
Hambrecht & Quist Group, One Bush Street, San Francisco, California 94104. This
Schedule 14D-9 relates to the shares of the Company's common stock, par value
$0.01 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by the Purchaser,
disclosed in a Tender Offer Statement on Schedule 14D-1 (as amended or
supplemented from time to time, the "Schedule 14D-1") dated October 4, 1999, to
purchase all the outstanding Shares at a price of $50.00 per Share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated October 4, 1999 (as amended or
supplemented from time to time, the "Offer to Purchase"), and the related Letter
of Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"), copies of which are filed as Exhibits
(a)(1) and (a)(2) hereto, respectively, and incorporated herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 27, 1999, among the Company, the Purchaser and Parent (the
"Merger Agreement"), which provides for the making of the Offer by the
Purchaser, subject to the conditions and upon the terms of the Merger Agreement,
and for the subsequent merger of the Purchaser with and into the Company (the
"Merger"). In the Merger, each Share outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (other than Shares held in
the treasury of the Company or held by any of the Company's wholly-owned
subsidiaries, or by Parent, the Purchaser or any other wholly-owned subsidiary
of Parent (in each case, other than Shares held, directly or indirectly, in
trust accounts, managed accounts and the like or otherwise held in a fiduciary,
nominee or custodial capacity that are beneficially owned by third parties,
including shares held by mutual funds for which a subsidiary of Parent or the
Company acts as investment adviser and other than Shares held by Parent or
Company or any of their Subsidiaries in respect of a debt previously contracted
in good faith), Shares held by stockholders validly exercising appraisal rights
pursuant to the General Corporation Law of the State of Delaware and restricted
Shares ("Restricted Shares") issued under any stock option plan, restricted
stock plan or other agreement or award maintained by the Company ("Company Stock
Plans") (other than Restricted Shares that vest effective as of the Effective
Time pursuant to the Company Stock Plans)) will, by virtue of the Merger and
without any action by the holder thereof, be converted into the right to
receive, without interest, an amount in cash equal to $50.00 (or any higher
price Purchaser determines in its sole discretion to pay in the Offer) per Share
(the "Merger Consideration"). The Merger Agreement, a copy of which is filed as
Exhibit (c)(1) hereto, is summarized in Section 11 of the Offer to Purchase and
incorporated herein by reference.
The Schedule 14D-1 states that the principal executive offices of the
Purchaser and Parent are located at 270 Park Avenue, New York, New York 10017.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) (1) GENERAL. The information contained in Section 11 of the Offer to
Purchase is incorporated herein by reference. Certain contracts, agreements,
arrangements and understandings between the Company and certain of its executive
officers are described in the Information Statement dated October 4, 1999,
<PAGE> 3
included as Annex A to this Schedule 14D-9 and incorporated herein by reference.
The Information Statement will be furnished to the Company's stockholders
pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 promulgated thereunder in connection with
Parent's right (after consummation of the Offer) to designate persons to be
appointed to the Board of Directors of the Company (the "Board") other than at a
meeting of the stockholders of the Company.
Certain members of the Board and certain executive officers of the Company
signed a voting and tender agreement (the "Support Agreement") with Parent,
whereby each of them agreed, among other things and subject to the terms and
conditions of the Support Agreement, to tender the Shares (other than Restricted
Shares) owned by them in the Offer and to vote such Shares in favor of the
Merger. The Support Agreement is filed as Exhibit (c)(2) hereto, is summarized
in Section 11 of the Offer to Purchase, and each of such Exhibit and such
summary is incorporated herein by reference. Other such contracts, arrangements
and understandings known to the Company are described below or are summarized in
Section 11 of the Offer to Purchase, which is incorporated herein by reference.
(2) CERTAIN EXECUTIVE COMPENSATION AND OTHER EMPLOYEE-RELATED MATTERS IN
CONNECTION WITH THE MERGER.
Existing Employment Agreements. Daniel H. Case III, Chairman of the Board
and Chief Executive Officer of the Company, is party to an employment agreement
with the Company. The consummation of the transactions contemplated by the Offer
and the Merger will constitute a "change in control" under this agreement. Under
this agreement, if Mr. Case resigns within six months of a change in control of
the Company, (i) he is entitled to receive a payment equal to 25% of the total
compensation he received in the 24-month period immediately preceding the date
of his resignation, (ii) half of any stock options previously granted by the
Company to Mr. Case that are not yet vested will vest and such options will
remain exercisable for a two-year period following the resignation and (iii) Mr.
Case will retain the right to co-invest in venture capital opportunities of the
Company on the same basis as executive officers of the Company for a period of
two years following such resignation or until he becomes employed by another
full-service investment banking firm. As of the Effective Time, the agreement
will be superseded by the employment agreement between Mr. Case and Chase
Securities Inc. described below.
Employment Agreement Between Mr. Case and Chase Securities Inc. In
connection with the Merger Agreement, Parent (through Chase Securities Inc.)
entered into an Employment Agreement (the "Employment Agreement") with Mr. Case.
Pursuant to the Employment Agreement, Mr. Case agreed to serve as Chairman and
Chief Executive Officer of Chase Securities West and Head of Parent's Global
Technology Group, for the period commencing on the date of the consummation of
the Merger (the "Closing Date") and ending on December 31, 2002.
The Employment Agreement contains restrictive covenants providing that Mr.
Case will not, in any capacity, until the earlier of December 31, 2003, or one
year following the end of his employment, directly or indirectly (or on his own
behalf or on behalf of any other person or entity): (i) become involved in any
business activity that is competitive with any aspect of the business of the
Company as currently conducted (or as it may evolve following Parent's
acquisition of the Company), (ii) solicit, assist in soliciting or offer
employment to certain employees of Parent or its affiliates or (iii) solicit or
assist in soliciting the business of certain clients of Parent or its
affiliates.
As compensation for Mr. Case's services pursuant to the Employment
Agreement, he is entitled to: (i) an annual base salary of $300,000, (ii) an
annual bonus of not less than $7,000,000 (prorated with respect to the last
three months of 1999), (iii) restricted shares of Parent Common Stock (as
defined below) valued at $14,000,000 (granted as of the Closing Date and vesting
in equal installments on each of the first four anniversaries thereof, provided
that Mr. Case remains employed through the applicable vesting date and does not
violate any of the foregoing restrictive covenants), (iv) options to purchase
283,305 shares of Parent Common Stock, with an exercise price of $74.125 per
share (granted as of the Closing Date and with a three-year vesting period,
provided Mr. Case remains employed through the applicable vesting date), (v)
employee
2
<PAGE> 4
benefits comparable to those provided to similar executives, (vi) reimbursement
of reasonable business expenses, and (vii) a gross-up payment to negate the
impact of any excise tax which might be imposed upon him. In the event of Mr.
Case's death or disability, his restricted shares and stock options will fully
vest. If Mr. Case is terminated without cause (as defined in the Employment
Agreement), or if he resigns for good reason (as defined in the Employment
Agreement), then his restricted shares and stock options would likewise become
fully vested, and (subject to his continued compliance with the foregoing
restrictive covenants) he would also be entitled to (i) continued payment of his
base salary and annual bonus until December 31, 2002, (ii) certain outplacement
and financial counseling services and (iii) continued participation in employee
welfare benefit plans.
Employee Retention Pool. Parent and the Company have agreed to establish a
retention pool, consisting of shares of Common Stock, par value $1.00 per share
of Parent ("Parent Common Stock") to be allocated among certain key employees of
the Company to retain the services of those employees through and after the
closing of the Merger. The shares of Parent Common Stock in the pool will be
valued at $200 million in the aggregate and will vest in four equal installments
on each of the first four anniversaries of the consummation of the Merger,
subject to immediate vesting in full on the death or disability of a participant
or termination of a participant's employment without cause. The allocation of
shares in the retention pool among the participants will be mutually determined
by Parent and the Company. The unvested portion of a participant's retention
pool shares is subject to forfeiture if the participant voluntarily terminates
his or her employment or violates certain confidentiality, non-compete and
non-solicitation obligations, or a participant's employment is terminated for
cause.
Effect of the Merger on Employee Benefit and Stock Plans. The Merger
Agreement contemplates that certain actions will be taken in respect of employee
benefit and stock plans in which executive officers of the Company are eligible
to participate. After the Effective Time but prior to January 1, 2000, employees
of the Company and its subsidiaries who continue their employment with the
Company, Parent or their subsidiaries will be provided with employee benefits
that are substantially identical to those currently provided under the
Company's employee welfare benefit plans, and that are comparable to those
provided under the Hambrecht & Quist Group Savings and Employee Stock Ownership
Plan. Following December 31, 1999, these employees will be provided with
employee benefits that are comparable to those provided by Parent and its
subsidiaries to their similarly-situated employees. Parent and its subsidiaries
will give effect to these employees' years of service with the Company or its
subsidiaries, as the case may be, as if such service had been with Parent or its
subsidiaries, for purposes of determining eligibility to participate in, and
vesting (but not accrual) of benefits of, any plans made available to such
employees after the Effective Time.
At the Effective Time, options to purchase Shares issued under the
Company's Stock Plans that are outstanding and unexercised immediately prior to
the Effective Time will be converted into options to purchase Parent Common
Stock on terms substantially identical to those in effect immediately prior to
the Effective Time under the terms of the Company Stock Plan under which the
options were issued, except that the number of shares of Parent Common Stock
purchasable on exercise of such converted options, and the exercise price
therefor, will be adjusted to reflect the ratio (the "Conversion Ratio") of the
Merger Consideration to the average closing sale price of Parent Common Stock on
the NYSE during the 20 consecutive full NYSE trading days ending on the second
business day before the Closing Date. Options to acquire Shares that would
otherwise become exercisable within 12 months of the Effective Time will vest at
the Effective Time.
Restricted Shares issued to a holder under the Company's Stock Plans that
have not vested prior to the Effective Time, provided that they would not
otherwise vest within 12 months after the Effective Time, will be converted into
restricted shares of Parent Common Stock on terms substantially identical to
those in effect immediately prior to the Effective Time under the terms of the
Company Stock Plan under which such Restricted Shares were issued and in a
number determined by multiplying the number of the holder's Restricted Shares by
the Conversion Ratio. Restricted Shares that would otherwise vest within such
12-month period will become unrestricted at the Effective Time and will be
converted in the Merger into the right to receive the Merger Consideration.
3
<PAGE> 5
Indemnification and Insurance. The Merger Agreement provides that the
certificate of incorporation and bylaws of the company surviving the Merger will
contain, to the extent permitted by law, the same indemnification provisions as
the Company's amended and restated certificate of incorporation and the
Company's bylaws and that, unless a modification is required by law, these
provisions will be maintained in place for a period of 6 years after the
Effective Time with respect to actions or omissions occurring at or prior to the
Effective Time. To the extent provided by law, Parent has also agreed to, and to
cause the surviving corporation in the Merger to, defend and hold harmless the
present and former officers and directors of the Company and of its subsidiaries
in their capacities as such against all losses, expenses, claims, damages or
liabilities arising out of acts or omissions occurring on or prior to the
Effective Time to the fullest extent currently provided by the certificates of
incorporation or bylaws of the Company and its subsidiaries, as the case may be.
Subject to certain limitations, Parent has also agreed to use its reasonable
best efforts to cover the officers and directors of the Company immediately
prior to the Effective Time with the directors' and officers' liability
insurance policy maintained by the Company (or equivalent substitutes) for a
period of 6 years after the Effective Time with respect to acts or omissions
arising prior to the Effective Time.
"Change in Control" Provisions in Existing Company Compensation and
Benefits Arrangements. Under the Company's 1996 Equity Plan (the "1996 Equity
Plan"), unless the committee of the Board administering the 1996 Equity Plan
determines otherwise, any options that would otherwise vest, and any Restricted
Shares with respect to which restrictions would otherwise lapse, within 12
months after the date on which a change in control of the Company occurs will
vest or become free of restrictions, as the case may be, upon such change in
control. Parent, Purchaser and the Company have agreed that such options and
Restricted Shares will vest in connection with the Merger.
With respect to the description of certain provisions of the Merger
Agreement contained in this Item 3(b)(2), see Section 11 of the Offer to
Purchase, which is incorporated by reference herein.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATIONS OF THE BOARD. At a meeting held on September 27, 1999,
the Board unanimously (with one director absent) (1) approved and adopted the
Offer and the Merger Agreement, (2) declared the Merger to be advisable and
determined that the terms of the Offer and the Merger are fair to, and in the
best interest of, holders of Shares and (3) determined to recommend that holders
of Shares accept the Offer and tender their Shares pursuant to the Offer.
Following the meeting, the director who was unable to attend the meeting was
informed of the result of the meeting and concurred in the Board's decision.
Accordingly, the Board unanimously recommends that the stockholders of the
Company tender their Shares pursuant to the Offer. Copies of the joint press
release of Parent and the Company announcing the Merger Agreement and the
transactions contemplated thereby and a letter to the stockholders of the
Company communicating the Board's recommendation are filed as Exhibits (a)(3)
and (a)(4) hereto, respectively, and are incorporated herein by reference.
(b) (1) BACKGROUND. Over the past several years, the management of the
Company and the Board have regularly reviewed the Company's performance,
strategic direction and prospects in light of changes in the financial services
environment, including industry consolidation, increased competition, trends
toward full-service financial services companies, the impact of the Internet and
other technological changes, and shifts in client preferences and needs. From
time to time in recent years, senior executive officers of the Company have
informally discussed these and other aspects of the financial services industry
and the implications for financial services companies with senior executive
officers of Parent and senior executive officers of certain other financial
services companies. Some of these informal discussions included general
discussions regarding the potential merits of a business combination, a product,
distribution or geographic partnership, or other strategic transaction involving
the Company. Senior executives of Parent and the Company also had informal
discussions during the first half of 1999 regarding a potential transaction, and
Parent and the Company entered into a confidentiality agreement on February 8,
1999. Mr. Case regularly briefed the Board and certain members of the Company's
senior management on these discussions. These briefings were held at regularly
scheduled Board meetings and certain special Board meetings, as well as during
informal conversations with
4
<PAGE> 6
individual directors. None of the discussions with third parties resulted in any
definitive agreement on the terms of any business combination, partnership or
other strategic transaction involving the Company.
In late June, 1999, William B. Harrison, Jr., Chief Executive Officer of
Parent, and Mr. Case discussed the potential benefits of a combination of their
two companies. Mr. Harrison indicated that Parent continued to be interested in
a possible transaction, although Parent wished to conduct preliminary due
diligence on the Company before making a more specific proposal on the terms of
such a transaction. After conferring with the Board on June 25, 1999, Mr. Case
informed Mr. Harrison that the Board had authorized him to continue exploring a
possible transaction with Parent and to allow Parent to commence a preliminary
due diligence review of the Company. Representatives of Parent commenced the
preliminary due diligence investigation in July, 1999, including holding
meetings between certain members of the Company's and Parent's senior
managements on July 9, 14 and 15. During this time, the senior managements of
Parent and the Company discussed generally the possible structures and potential
synergies of a business combination transaction. The Board was briefed in detail
on these discussions on July 22, 1999 and in August, 1999, as well as during
conversations with individual directors throughout August. These briefings
included the progress to date of the discussions between the parties and of
Parent's preliminary review of the Company's operations. At the deliberations in
July and August, the Board authorized Mr. Case and senior management of the
Company to continue discussions regarding a potential business combination with
Parent.
At the regular meeting of the Board of Directors of Parent (the "Parent
Board") held on July 20, 1999, senior management of Parent briefed the Parent
Board on their discussions to date with the senior management of the Company and
on the potential strategic benefits of a transaction with the Company.
On September 8, 1999, the Parent Board held a special meeting at which
senior management reported on the results of their discussions with the Company
and the proposed structure and range of terms of the transaction to be discussed
with the Company. Senior management also briefed the Parent Board on the results
of their review of the Company's business and operations and the anticipated
synergies and other strategic benefits that could be obtained from the proposed
transaction. Senior management noted that, among other things, the transaction
with the Company would extend Parent's one-stop investment banking range of
products in the highest growth sector of the U.S. economy and would be a step in
developing Parent's public equities practice. After discussion, the Parent Board
approved the proposed transaction and authorized senior management to negotiate
and execute definitive transaction agreements with the Company.
During the month of September, 1999, the senior managements of the Company
and Parent began to discuss and later negotiate the amount and form of
consideration that would be payable to Company stockholders in connection with a
business combination, and they also discussed various strategies for retaining
the services of key Company employees in the event of a business combination.
On September 17, 1999, following negotiations regarding the amount and form
of consideration, James B. Lee Jr., a Vice Chairman of Parent, called Mr. Case
and informed him that a price of $50.00, payable in cash for each outstanding
Share, would be Parent's best and highest proposal. On September 18, 1999, Mr.
Harrison and Mr. Case met to discuss the status of the negotiations and other
issues. Parent indicated that it would require Mr. Case to enter into a
retention arrangement as a condition to its willingness to enter into a
definitive merger agreement. While these conversations were occurring,
representatives of Parent continued various aspects of their due diligence
review.
On September 20, 1999, certain members of the Board met with Messrs.
Harrison and Lee to discuss Parent's final offer price and related matters. The
full Board met on September 21 to discuss the proposal and related matters. At
this meeting, the Board considered the Company's business, financial condition,
results of operations, current business strategy and future prospects, recent
and historical market prices and trading ranges for the Shares, strategic and
other potential alternatives to the offer, and other relevant matters, including
information presented by senior management and by the Company's advisors
regarding the progress of the negotiations between counsel for Parent and the
Company over the terms of a definitive merger agreement. Senior management and
the Company's financial and legal advisors discussed with the Board the proposed
terms of the merger agreement, which contemplated a cash tender offer followed
by a cash merger,
5
<PAGE> 7
as well as an associated stock option agreement, pursuant to which the Company
would grant an option to Parent to purchase up to 19.9% of the outstanding
Shares, exercisable on the occurrence of certain events relating to competing
offers for the Company, and a support agreement pursuant to which certain
affiliates of the Company would agree to tender their shares into the Offer and
vote in favor of the Merger. Based on the information presented at these and
previous meetings, and after extensive deliberation, the Board authorized senior
management of the Company to proceed with the negotiation of definitive
documentation relating to the proposed transaction. The Board also authorized
senior management to proceed to negotiate satisfactory retention arrangements
for key employees and for Mr. Case. From September 22 through 27, 1999, the
parties and their advisors negotiated the remaining provisions of the Merger
Agreement, the Option Agreement and the Support Agreement, the terms of
retention arrangements for key Company employees, and the terms of Mr. Case's
employment arrangement.
At a meeting of the Board held on September 27, 1999, Mr. Case, other
members of the Company's senior management and the Company's financial and legal
advisors presented to the Board the terms of the proposed Merger Agreement,
Option Agreement and Support Agreement and such retention arrangements and
discussed with the Board various business issues relating to the transactions
contemplated thereby. The Company's financial advisor, Hambrecht & Quist LLC
("H&Q LLC"), presented a detailed financial analysis of the proposed transaction
and rendered its opinion that, as of September 27, 1999, the $50 per Share cash
consideration to be received in the Offer and the Merger by holders of Shares
was fair to such holders (other than Parent and its affiliates) from a financial
point of view. The Company's legal advisors discussed with the Board the legal
standards applicable to its decisions with respect to the proposed transaction
and reviewed the terms of the transaction documents. After discussion and due
consideration, the Board unanimously approved (with one member absent) the
Merger Agreement, the Option Agreement and the Support Agreement and the
transactions contemplated thereby, including the Offer and the Merger, resolved
to recommend that holders of Shares tender their shares in the Offer and vote in
favor of the Merger, and authorized Mr. Case to enter into the Employment
Agreement. Following the meeting, the director who was unable to attend the
meeting was informed of the result of the meeting and indicated that he
concurred in the Board's decisions.
After execution and delivery of the Merger Agreement on September 28, 1999,
the parties issued a joint press release announcing the definitive agreement,
including the Offer and the Merger.
(2) REASONS FOR RECOMMENDATION. In making the determinations and
recommendations set forth in subparagraph (a) above, the Board considered a
number of factors, including, without limitation, the following:
(i) the amount and kind of consideration to be received by the
Company's stockholders in the Offer and the Merger;
(ii) the Company's prospects if it were to remain independent,
including the risks and benefits inherent in remaining independent in an
industry environment marked by increasing competition and consolidation and
the accelerating trend among financial institutions toward larger scale and
broader product offerings;
(iii) the possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's stockholders of
such alternatives and the timing and likelihood of accomplishing any of
such alternatives;
(iv) information with regard to the financial condition, results of
operations, business and prospects of the Company, the regulatory approvals
required to consummate the Offer and the Merger as well as current economic
and market conditions (including current conditions in the industry in
which the Company is engaged);
(v) the historical and recent market prices of the Shares and the fact
that the Offer and the Merger will enable the holders of the Shares to
realize a premium over the prices at which the Shares traded prior to the
execution of the Merger Agreement;
6
<PAGE> 8
(vi) the financial analyses and presentations of H&Q LLC to the Board
on September 27, 1999, and the opinion of H&Q LLC delivered on September
27, 1999, to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated in such opinion, the $50.00 per Share
cash consideration to be received by holders of Shares in the Offer and the
Merger was fair, from a financial point of view, to such holders (other
than Parent and its affiliates). The full text of the opinion of H&Q LLC,
which sets forth the assumptions made, matters considered and limitations
on the review undertaken by H&Q LLC, is attached hereto as Annex B and is
incorporated herein by reference. H&Q LLC's opinion is directed only to the
fairness, from a financial point of view, of the consideration to be
received in the Offer and the Merger by holders of Shares (other than
Parent and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any stockholders should tender
Shares pursuant to the Offer. Holders of Shares are urged to read such
opinion carefully in its entirety;
(vii) the high likelihood that the proposed acquisition would be
consummated, in light of the experience, reputation and financial
capabilities of Parent, and that the proposed acquisition could likely be
consummated more quickly than a cash merger; and
(viii) the terms of the Merger Agreement and the Option Agreement,
including the parties' representations, warranties and covenants and the
conditions to their respective obligations.
The Board did not assign relative weights to the above factors or determine
that any factor was of special importance. Rather, the Board viewed its position
and recommendations as being based on the totality of the information presented
to and considered by it. In addition, it is possible that different members of
the Board assigned different weights to the various factors described above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained H&Q LLC as its financial advisor in connection
with the Offer and the Merger. Pursuant to the terms of H&Q LLC's engagement,
the Company has agreed to pay H&Q LLC a fee of $750,000 for its services. The
Company also has agreed to reimburse H&Q LLC for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, and to indemnify H&Q LLC
and certain related parties against certain liabilities, including liabilities
under the federal securities laws, arising out of H&Q LLC's engagement. H&Q LLC
has in the past provided investment banking services to the Company unrelated to
the Offer and the Merger, for which services H&Q LLC has received compensation.
In the ordinary course of business, H&Q LLC and its affiliates may hold the
securities of the Company and may hold or trade the securities of Parent, in
each case for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. H&Q LLC is a wholly-owned
indirect subsidiary of the Company. Certain members of the operating committee
and of management of H&Q LLC are also directors and members of management of the
Company and also may have interests that are in addition to, and may be
different from, the interests of the holders of Shares. The Company's Board was
aware of these factors, relied on H&Q LLC's experience in providing advice in
connection with mergers and acquisitions and related transactions and did not
believe there was a need to retain another advisor in connection with the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth below, during the past 60 days, neither the Company
nor any subsidiary of the Company nor, to the best of the Company's knowledge,
any executive officer, director or affiliate of the Company has effected a
transaction in Shares.
7
<PAGE> 9
<TABLE>
<CAPTION>
NAME TRANSACTION DATE PRICE SHARES TRANSACTION TYPE
- --------------------------------- ---------------- --------- ------ -----------------
<S> <C> <C> <C> <C>
Todd D. Bakar.................... 8/20/99 $43.2662 10,000 Sale of Shares
Exercised option
William R. Timken................ 9/8/99 $ 2.10* 40,000 to acquire Shares
</TABLE>
- ---------------
* Exercise price.
(b) To the best of the Company's knowledge, its executive officers,
directors and affiliates currently intend to tender their Shares (other than
Restricted Shares) to the Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth in Item 3(b) or 4, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) of this Schedule 14D-9, there are no
transactions, board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible election or appointment of persons designated by
Parent to a majority of the seats on the Board.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
*+(a)(1) Offer to Purchase dated October 4, 1999.
*+(a)(2) Form of Letter of Transmittal.
+(a)(3) Text of press release issued by Parent and the Company dated
September 28, 1999.
*(a)(4) Letter to stockholders of the Company dated October 4, 1999.
+(a)(5) Summary Advertisement dated October 4, 1999.
*(a)(6) Opinion of H&Q LLC (included as Annex B hereto and
incorporated herein by reference thereto).
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger, dated as of September 27,
1999, among Parent, Purchaser and the Company.
+(c)(2) Option Agreement, dated as of September 27, 1999, between
Parent and the Company.
+(c)(3) Tender and Voting Agreement, dated September 27, 1999, among
Parent and the officers and directors named therein.
</TABLE>
8
<PAGE> 10
<TABLE>
<C> <S>
+(c)(4) Confidentiality Agreement, dated as of February 8, 1999,
between the Company and Parent.
+(c)(5) Confidentiality Agreement, dated as of March 29, 1999,
between the Company and Parent.
+(c)(6) Employment Agreement, dated September 27, 1999, between
Chase Securities Inc. and Daniel H. Case III.
</TABLE>
- ---------------
* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 of
Purchaser and Parent dated October 4, 1999, and incorporated herein by
reference.
9
<PAGE> 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
HAMBRECHT & QUIST GROUP
By: /s/ DANIEL H. CASE III
------------------------------------
Name: Daniel H. Case III
Title: Chairman of the Board and
Chief Executive Officer
Dated as of October 4, 1999
10
<PAGE> 12
ANNEX A
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, AND RULE 14F-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO
SEND THE COMPANY A PROXY.
------------------------
This Information Statement is being mailed on or about October 4, 1999, as
a part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Hambrecht & Quist Group (the "Company") to the holders of
record of shares of Common Stock, par value $.01 per share (the "Shares"), of
the Company. You are receiving this Information Statement in connection with the
possible election or appointment of persons designated by The Chase Manhattan
Corporation ("Parent") to a majority of the seats on the Board of Directors of
the Company (the "Board"). Capitalized terms used herein and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
On September 27, 1999, the Company, Parent and Bridge Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the
"Purchaser"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), in accordance with the terms and subject to the conditions of which
the Purchaser commenced the Offer. The Offer is scheduled to expire at 12:00
Midnight, New York City time, on Monday, November 1, 1999, unless the Offer is
extended.
The Merger Agreement requires the Company to cause the directors designated
by Parent to be elected to the Board under the circumstances described therein
following consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action at this time.
The information contained in the Information Statement (including
information incorporated by reference) concerning Parent and the Purchaser and
the Parent Designees (as defined herein) has been furnished to the Company by
Parent and the Purchaser, and the Company assumes no responsibility for the
accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of September 28, 1999, there were
24,595,169 Shares outstanding. The Board currently consists of three classes
with two members each, although the Company's bylaws provide for seven
directors, and therefore there is one vacancy. Each director serves a three-year
term and until such director's successor has been duly elected and qualified, or
until either of such director's earlier resignation or removal. At each annual
meeting of stockholders, members are elected to the class of directors whose
terms are due to expire in the year in which such meeting is held. The officers
of the Company serve at the discretion of the Board.
A-1
<PAGE> 13
INFORMATION WITH RESPECT TO PARENT DESIGNEES
Pursuant to the Merger Agreement, promptly upon the purchase and payment
for Shares by Purchaser pursuant to the Offer that represent at least a majority
of the outstanding Shares, Parent is entitled to designate a number of directors
on the Board equal to the product (rounded up to the nearest whole number) of
the total number of directors on the Board (after giving effect to the Parent
designees) multiplied by the percentage that the number of Shares owned by
Purchaser and its affiliates bears to the number of outstanding Shares. The
Company will use best efforts to enable such Parent designees to be appointed or
elected to the Board. The Company will also use reasonable best efforts to cause
the Parent designees to constitute the same percentage of each committee of the
Board and of each board of directors of each Company subsidiary and committee
thereof as they constitute of the Board (to the extent permitted by law and the
rules of The New York Stock Exchange, Inc.).
The Merger Agreement also provides that the Company and Parent will use
reasonable best efforts to retain until the Effective Time at least two of the
Company's existing directors who are neither designated by Parent or employees
of the Company or its subsidiaries ("Independent Directors"). Following the
appointment or election of Parent's designees and prior to the Effective Time,
the affirmative vote of a majority of the Independent Directors will be required
for the Company to take action to amend or terminate the Merger Agreement,
exercise or waive the rights or remedies of the Company under the Merger
Agreement, extend the time allotted for Parent or Purchaser to perform their
obligations under the Merger Agreement or to approve any action by the Company
that could adversely affect the interests of the Company's stockholders (other
than Parent, Purchaser or their affiliates) in the Offer and the Merger.
Parent has informed the Company that it will choose the Parent designees
from the persons listed below. Parent has informed the Company that each of the
persons listed below has consented to act as a director, if so designated.
Biographical information concerning each of the potential Parent designees is
presented below.
The business address of each such designee is c/o The Chase Manhattan
Corporation, 270 Park Avenue, New York, New York 10017. Unless otherwise
indicated below, each designee has been continuously employed by Parent and its
predecessors for more than five years.
<TABLE>
<CAPTION>
POSITION WITH PARENT; PRINCIPAL
NAME AGE OCCUPATION OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ---- --- --------------------------------------------------------
<S> <C> <C>
Neal S. Garonzik 52 Vice Chairman of Parent and The Chase Manhattan Bank
("Chase Bank"), responsible for Parent's asset
management business and strategic initiatives in
equities and other areas. Mr. Garonzik joined Parent in
August 1999. From 1980 to 1989 and from 1993 to 1997, he
was with Morgan Stanley Dean Witter & Co., most recently
as a member of the firm's management committee and as
head of its equity division.
Donald H. Layton 49 Vice Chairman of Parent and Chase Bank, responsible for
Global Markets, Global Services and International.
James B. Lee Jr. 46 Vice Chairman of Parent and Chase Bank, responsible for
Global Client Management and Investment Banking.
Marc J. Shapiro 52 Vice Chairman of Parent and Chase Bank, responsible for
finance, risk management and administration. Prior to
September 1997, he was Chairman, President and Chief
Executive Officer of Chase Bank of Texas, National
Association.
Jeffrey C. Walker 44 Senior Managing Director of Parent and Chase Bank, and
managing partner of Chase Capital Partners, Parent's
global private equity organization.
</TABLE>
Each such person is a citizen of the United States. Parent has also advised
the Company that, to the best of Parent's knowledge, none of the potential
Parent Designees (i) is currently a director of, or holds any position with, the
Company, (ii) beneficially owns any securities (or rights to acquire any
securities) of the Company, or (iii) has been involved in any transaction with
the Company or any of its directors, executive officers or affiliates which is
required to be disclosed pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"), except as may be disclosed herein or in the
Schedule 14D-9 or the Offer to Purchase.
A-2
<PAGE> 14
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of September 30, 1999, is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Daniel H. Case III........................ 42 Chairman of the Board of Directors and Chief
Executive Officer
David A. Coulter.......................... 52 Director
Howard B. Hillman......................... 65 Director
William E. Mayer.......................... 59 Director
William J. Perry.......................... 72 Director
William R. Timken......................... 64 Director
Patrick J. Allen.......................... 37 Managing Director and Chief Financial Officer
Todd D. Bakar............................. 34 Managing Director and Director of Research, H&Q LLC
David G. Golden........................... 41 Managing Director, Co-Director of Investment
Banking, H&Q LLC
John P. Hullar............................ 42 Managing Director and Director of Worldwide Sales,
H&Q LLC
Steven N. Machtinger...................... 50 Managing Director, General Counsel and Secretary
David M. McAuliffe........................ 50 Chief Operating Officer
Cristina M. Morgan........................ 46 Managing Director, Co-Director of Investment
Banking, H&Q LLC
</TABLE>
DIRECTORS OF THE COMPANY
Daniel H. Case III. Chairman of the Board and Chief Executive Officer. Mr.
Case 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. 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.
David A. Coulter. Director. Mr. Coulter was named a director of the
Company in April, 1999. He is a partner in the Beacon Group, a venture capital
firm based in New York City. Prior to joining Beacon, Mr. Coulter had served as
President of BankAmerica Corporation following its merger with NationsBank
Corporation. From January, 1996 to September, 1998, Mr. Coulter was Chief
Executive Officer, and from May 1996 to September, 1998, Chairman of the Board
of Directors of BankAmerica. He became President of BankAmerica in August, 1995,
and a director in October 1995. Prior to his appointment as President, Mr.
Coulter was vice chairman of BankAmerica. Mr. Coulter is also a director of
PG&E.
Howard B. Hillman. Director. Mr. Hillman 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
A-3
<PAGE> 15
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 E. Mayer. Director. Mr. Mayer 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. Prior to the Simon
School, Mr. Mayer worked for over 23 years with the First Boston Corporation
(now Credit Suisse First Boston), a major investment bank. During his career at
First Boston, Mr. Mayer held numerous management positions including President
and Chief Executive Officer. Mr. Mayer serves as a director of Lee Enterprises,
a diversified media 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.
William J. Perry. Director. Dr. Perry 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 Cylink Corporation, a provider of network security
products. Dr. Perry holds a B.S. and M.S. from Stanford University and a Ph.D.
in mathematics from Pennsylvania State University.
William R. Timken. Director. Mr. Timken has been a director of the Company
since 1982. Mr. Timken joined the Company in 1969 and was employed by the
Company in senior capacities from that time until his retirement in June, 1999.
From 1992 until his retirement, Mr. Timken was Vice Chairman of the Company. 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.
EXECUTIVE OFFICERS OF THE COMPANY
Patrick J. Allen. Chief Financial Officer of the Company and H&Q LLC.
Managing Director of H&Q LLC. Mr. Allen joined the Company in May 1995 as Vice
President, Finance. On October 1, 1996, Mr. Allen was named as the Company's
Chief Financial Officer. In October 1996, Mr. Allen was named a Managing
Director of H&Q LLC. From November 1993 to April 1995, Mr. Allen was Chief
Operating Officer of Cruttenden Roth, an investment bank. Mr. Allen was
previously a Senior Vice President with Kemper Securities, an investment bank,
and held various positions from 1988 to 1993, including Chief Financial Officer
of a predecessor firm. Mr. Allen had been an auditor with Price Waterhouse, a
public accounting firm, in Newport Beach, California from 1984 to 1988. He holds
a B.S. in Business Administration from California Polytechnic University in San
Luis Obispo.
Todd D. Bakar. Managing Director and Director of Research, H&Q LLC. Mr.
Bakar joined the Company in 1987 as a Research Associate. In 1989, Mr. Bakar was
promoted to Research Analyst in the Technology sector. Mr. Bakar was named a
Managing Director in 1994 and was named Director of Technology Research in 1997.
In November 1998, Mr. Bakar was named Director of Research. He holds a B.A. from
the University of California, Berkeley.
David G. Golden. Managing Director, Co-Director of Investment Banking, H&Q
LLC. Mr. Golden joined the Company in 1988. Mr. Golden was named Co-Director of
Mergers and Acquisitions in 1992 and was named Director of Mergers and
Acquisitions in 1995. In 1998, Mr. Golden was named Co-Director of Investment
Banking. From 1984 through 1987, Mr. Golden was employed as an associate at the
law firm of
A-4
<PAGE> 16
Davis Polk & Wardwell in New York and London, where he practiced corporate
finance and securities law. Mr. Golden received his A.B. degree from Harvard
University (magna cum laude, Phi Beta Kappa), and a J.D. degree from Harvard Law
School, where he was an editor of the Harvard Law Review. Mr. Golden is a member
of the Rockefeller University Council.
John P. Hullar. Managing Director and Director of Worldwide Sales, H&Q
LLC. Mr. Hullar joined the Company in 1996, with more than 16 years in the
financial services business. Before joining the Company, Mr. Hullar worked at
Morgan Stanley for 11 years, in Institutional Sales in New York and in
management positions in Research and Sales in Tokyo and London. Upon joining the
Company in San Francisco, he assumed his current position as Managing Director
and Director of Worldwide Sales where he oversees all aspects of U.S. and
International Institutional Sales and Accounts, Executive Financial Services and
Venture Services Sales. Mr. Hullar holds a B.A. from Yale University and
attended N.Y.U.'s Stern Business School.
Steven N. Machtinger. Managing Director, General Counsel and Secretary.
Mr. Machtinger has served as the Company's General Counsel and Secretary since
1988. He was named a Managing Director in 1990. Mr. Machtinger was an attorney
with the SEC from 1974 to 1983 and was General Counsel of Birr, Wilson & Co.,
Inc., an investment bank, from 1983 to 1988. Mr. Machtinger holds a B.A. in
Government from Harvard College and a J.D. from the University of California,
Davis.
David M. McAuliffe. Chief Operating Officer. Mr. McAuliffe joined the
Company in July 1995 as Managing Director and Co-Director of Investment Banking.
In September 1996, Mr. McAuliffe was named Chief Administrative Officer of the
Company. In March 1998, he was named Chief Operating Officer with day-to-day
responsibility for the firm's broker-dealer activities, including research,
syndicate, investment banking, sales, trading and administration. Prior to
joining the Company, Mr. McAuliffe served in various capacities in the
Investment Banking and Merchant Banking divisions of Kidder Peabody & Co., an
investment bank, from 1974 to 1995. From April 1992 to May 1995, he served as
Kidder Peabody & Co.'s Co-Head of the Global Investment Banking Division. Mr.
McAuliffe holds a B.A. in Accounting from Boston College and an M.B.A. from
Harvard Business School.
Cristina M. Morgan. Managing Director, Co-Director of Investment Banking,
H&Q LLC. Ms. Morgan joined the Company in 1982 as a research analyst, became a
principal in Corporate Finance in 1984 and has been a Senior Vice President of
H&Q LLC and its predecessor entity since March 1990. In 1990, Ms. Morgan was
elected Managing Director, Technology Equities in Corporate Finance, and in
1992, was named Director of Investment Banking. Since July 1995, Ms. Morgan has
been Co-Director of Investment Banking. Ms. Morgan holds a B.S. in Finance and
an M.B.A. in Finance from Arizona State University.
All officers serve at the discretion of the Board. There are no family
relationships between directors or executive officers of the Company.
GENERAL INFORMATION ABOUT THE BOARD, COMMITTEES OF THE BOARD AND DIRECTOR
COMPENSATION
Board Meetings and Committees
During the fiscal year ended September 30, 1998, the Board met a total of
five times and acted by unanimous written consent four times. No director
attended fewer than 75% of the meetings of the Board held during the last fiscal
year.
The Company's Board has standing audit and executive compensation
committees. The Company has no standing nominating committee. The Audit
Committee of the Board 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 one time during the fiscal year ended September 30, 1998, and both members
attended the meeting.
The Executive Compensation Committee of the Board consists of Mr. Mayer,
who is not 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
A-5
<PAGE> 17
Bonus and Deferred Sales Compensation Plan. See "Report of the Executive
Compensation Committee of the Board on Executive Compensation." The Executive
Compensation Committee acted by unanimous written consent once during the fiscal
year ended September 30, 1998.
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 Shares to such
directors and granted these directors options to purchase Shares of the Company.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended September 30, 1998, the Executive Compensation
Committee of the Board consisted of directors William E. Mayer and Edmund H.
Shea, Jr., neither of whom is, nor formerly was, an officer or employee of the
Company. During the fiscal year ended September 30, 1998, none of the Company's
executive officers served on the Board or compensation committee of another
entity in which an executive officer of such entity served on the Company's
Board or compensation committee.
A-6
<PAGE> 18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
fiscal 1998, 1997 and 1996 for services in all capacities to the Company and its
subsidiaries by persons who, as of September 30, 1998, were the Chief Executive
Officer and four most highly compensated executive officers of the Company other
than the Chief Executive Officer (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING
NAME AND ---------------------- OTHER ANNUAL SHARE OPTIONS/ ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY BONUS(2) COMPENSATION AWARDS(3) SARS COMPENSATION(4)
- --------------------- ---- -------- ---------- ------------ ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel H. Case III......... 1998 $300,000 $2,700,000 $100,003(5) $500,000 -- $ 88,840
Chairman of the Board and 1997 $300,000 $3,300,000 -- -- -- $ 107,693
Chief Executive 1996 $300,000 $3,749,865 -- -- 892,680 $2,123,883(7)
Officer(6)
David G. Golden............ 1998 $195,000 $1,120,000 $ 76,169(5) $440,000 30,000 $ 81,169
Managing Director, Co-
Director of Investment
Banking, H&Q LLC
Paul L. Hallingby.......... 1998 $240,000 $1,050,000 -- -- -- $ 119,490
Vice Chairman, H&Q LLC(8) 1997 $240,000 $1,275,000 -- -- $ 151,723
1996 $240,000 $1,418,450 -- -- $ 277,403
David M. McAuliffe......... 1998 $240,000 $ 856,000 $ 31,955(5) $214,000 -- $ 137,530
Chief Operating Officer 1997 $240,000 $ 780,000 $ 9,737(5) $195,000 -- $ 139,563
1996 $240,000 $ 800,000(9) $ 11,078(5) $100,000 210,680 $ 55,173
Cristina M. Morgan......... 1998 $240,000 $ 856,000 $ 33,928(5) $214,000 -- $ 153,999
Managing Director, 1997 $240,000 $ 780,000 $ 10,224(5) $195,000 -- $ 242,955(10)
Co-Director of Investment 1996 $240,000 $2,000,000(11) $ 22,155(5) $200,000 112,044 $ 358,814(10)
Banking, H&Q LLC
</TABLE>
- ---------------
(1) Mr. Golden became an executive officer of the Company during fiscal year
1998. Accordingly, compensation information for Mr. Golden is provided only
for fiscal 1998.
(2) Includes bonuses earned in applicable fiscal year but paid in following
fiscal year.
(3) Represents value of Shares 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 vest
in equal installments over a three-year period following the date of grant,
subject to the individual's continuing employment on such dates. As of
September 30, 1998, the aggregate dollar value and the number of Shares
underlying all unvested restricted Share ("Restricted Share") awards held
by the Named Executive Officers were as follows (including Shares earned in
the fiscal year ended September 30, 1998 but issued after September 30,
1998): Mr. Case: $673,278 (36,631 Shares); Mr. Golden: $668,720 (36,383
Shares); Mr. Hallingby; $0 (0 Shares); Mr. McAuliffe: $405,683 (22,072
Shares); Ms. Morgan: $494,514 (26,905 Shares). Holders of Restricted Shares
are eligible to vote the Shares and to receive dividends, if any.
(4) All other compensation includes the following:
(i) matching contributions in the amount of $2,000 for each Named
Executive Officer in fiscal 1998 and $4,000 for each Named Executive
Officer except Mr. Golden in each of fiscal years 1997 and 1996
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 amount of $123 for each Named
Executive Officer for group term life insurance in fiscal 1998, $156
for each Named Executive Officer except Mr. Golden for group term life
insurance in fiscal 1997, and $186, $156, $183 and $156 for Messrs.
Case, Hallingby and McAuliffe and Ms. Morgan, respectively, for group
term life insurance in fiscal 1996.
A-7
<PAGE> 19
(iii) payments of $69,168, $104,930 and $99,784 to Messrs. Case and
Hallingby and Ms. Morgan, respectively, pursuant to merger-related
SESOP compensation in fiscal 1996.
(iv) SAR payments of $67,300, $117,367, $84,417 and $100,833 to Messrs.
Golden, Hallingby and McAuliffe and Ms. Morgan, respectively, in
fiscal 1998, SAR payments of $147,567, $84,417 and $123,484 to Messrs.
Hallingby and McAuliffe and Ms. Morgan, respectively, in fiscal 1997,
and SAR payments of $168,317 and $110,467 to Mr. Hallingby and Ms.
Morgan, respectively, in fiscal 1996. See "Aggregated SAR Payouts for
Fiscal 1998."
(v) forgiveness of debt to the Company of $86,717, $11,746, $50,990 and
$51,043 for Messrs. Case, Golden and McAuliffe and Ms. Morgan,
respectively, in fiscal 1998, forgiveness of debt to the Company of
$103,537, $50,990 and $67,863 for Messrs. Case and McAuliffe and Ms.
Morgan, respectively, in fiscal 1997, and forgiveness of debt to the
Company of $98,550, $50,990 and $65,370 for Messrs. Case and McAuliffe
and Ms. Morgan, respectively, in fiscal 1996.
(5) Represents the value of the difference between the price paid by the
officer for Shares and the fair market value of such Shares at the date of
purchase.
(6) Excludes $206,273 received from Hambrecht & Quist Guaranty Finance, L.P.
("Guaranty Finance") in fiscal 1996 as compensation for consulting
services, distribution on capital and profit sharing. Guaranty Finance is a
majority owned subsidiary of the Company.
(7) In addition to the amounts described in footnote 4 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.
(8) Mr. Hallingby resigned as an executive officer of the Company on March 31,
1999.
(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 4 above, includes $47,452
and $79,037 received in fiscal years 1997 and 1996, respectively, in
connection with participations in venture capital funds profits provided by
the Company. See "Certain Relationships and Related Transactions."
(11) $240,000 of this amount is a deferred bonus payable over three years
beginning in April 1997, subject to the individual's continued employment
on such dates.
OPTIONS AND SAR GRANTS DURING FISCAL 1998
The following table sets forth information concerning the grant of options
to each of the Named Executive Officers in fiscal 1998. There were no SARs
granted to any Named Executive Officer in fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ----------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David G. Golden................ 30,000 4.06% $32.75 11/3/04 $399,976 $923,115
</TABLE>
- ---------------
(1) Potential Realizable Value is based on certain rates of appreciation
pursuant to rules prescribed by the SEC.
A-8
<PAGE> 20
AGGREGATED OPTION EXERCISES DURING FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during fiscal 1998 and the
number of shares subject to both exercisable and unexercisable stock options as
of September 30, 1998. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding options and the fair market value of the Shares as of September 30,
1998:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1998(#) SEPTEMBER 30, 1998(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel H. Case III......... -- -- 357,072 535,608 4,235,767 6,353,650
David G. Golden............ -- -- 64,680 53,340 807,625 303,332
Paul L. Hallingby.......... 38,000 616,580 38,000 -0- 521,260 -0-
David M. McAuliffe......... -- -- 88,000 72,000 1,023,040 755,760
Cristina M. Morgan......... 41,363 1,073,001 16,000 34,681 160,000 366,703
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the options based on the closing sale price of the
Shares on September 30, 1998 ($18.38) and the exercise price of the Named
Executive Officer's options.
AGGREGATED SAR PAYOUTS FOR FISCAL 1998
The following table sets forth for each of the Named Executive Officers
certain information concerning SAR payouts during fiscal 1998, the number of
securities underlying SARs outstanding at September 30, 1998 and the unrealized
value of unvested SARs at September 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNREALIZED VALUE OF SARS
SAR PAYOUTS IN UNDERLYING SARS AT AT SEPTEMBER 30,
NAME FISCAL 1998(1) SEPTEMBER 30, 1998 1998(2)
- ---- -------------- -------------------- ------------------------
<S> <C> <C> <C>
Daniel H. Case III........................ -- -- --
David G. Golden........................... $ 67,300 20,000 $33,767
Paul L. Hallingby......................... $117,367 35,000 -0-
David M. McAuliffe........................ $ 84,417 25,000 $84,417
Cristina M. Morgan........................ $100,833 30,000 $33,767
</TABLE>
- ---------------
(1) SAR payouts for fiscal 1998 reflect payouts of SARs granted during fiscal
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 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) he is entitled to receive a payment
equal to 25% of the total compensation he received in the 24-month period
immediately preceding the date of his resignation, (ii) half of any stock
options previously granted by the Company to Mr. Case that are not yet vested
will vest and such options will remain exercisable for a two-year period
following the resignation and (iii) Mr. Case will retain the right to co-invest
in venture capital opportunities of the Company on the same basis as executive
officers of the Company for a period of two years following such resignation or
until he becomes employed by another full-service investment banking firm.
Restricted Share 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 Shares were made under the Company's 1996 Equity Plan. The treatment
A-9
<PAGE> 21
of such awards in the event of a change in control is described under Item
3(b)(2) of the Schedule 14D-9. Stock option awards held by the Named Executive
Officers vest over a five-year period from the date of grant. With respect to
certain of these stock option awards, vesting accelerates upon a change in
control of the Company. See Item 3(b)(2) of the Schedule 14D-9.
PERFORMANCE GRAPH
The following graph compares total stockholder return on the Shares 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, 1998. The graph assumes an
investment of $100 on August 9, 1996 and reinvestment of any dividends. Note
that historic stock price performance is not necessarily indicative of future
stock price performance.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN
AMONG HAMBRECHT & QUIST GROUP, THE S&P 500 INDEX
AND THE DOW JONES SECURITIES BROKERS INDEX
<TABLE>
<CAPTION>
DOW JONES SECURITIES
HAMBRECHT & QUIST GROUP S & P 500 BROKERS
----------------------- --------- --------------------
<S> <C> <C> <C>
Aug 9, 96 100 100 100
Sept 96 121 104 100
Sept 97 220 146 207
Sept 98 115 159 160
</TABLE>
A-10
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of Shares as of September 30, 1999 by (i) each Named
Executive Officer, (ii) each director, (iii) each holder of more than 5% of the
Shares known to the Company 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 shown as beneficially owned by them, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAMED EXECUTIVE OFFICERS, BENEFICIALLY PERCENT
DIRECTORS AND 5% BENEFICIAL OWNERS OWNED(1) OF CLASS
- ---------------------------------- ------------ --------
<S> <C> <C>
Daniel H. Case III(2)....................................... 1,897,037 7.5%
David G. Golden(3).......................................... 178,573 *
David M. McAuliffe(4)....................................... 403,992 1.6%
Cristina M. Morgan(5)....................................... 344,462 1.4%
David A. Coulter............................................ 0 --
Howard B. Hillman........................................... 0 --
William E. Mayer(6)......................................... 128,800 *
William J. Perry(7)......................................... 8,000 *
William R. Timken(8)........................................ 1,127,360 4.6%
William R. Hambrecht(9)..................................... 2,188,813 8.9%
550 15th Street
San Francisco, CA 94103
Hambrecht & Quist Savings and Employee Stock Ownership Trust
("SESOT")(10)............................................... 1,161,741 4.7%
All executive officers and directors as a group (13
persons)(11).............................................. 4,516,412 17.7%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with SEC rules. In
computing the number of Shares beneficially owned by a person and the
percentage ownership of that person, Shares subject to options held by that
person that are currently exercisable or exercisable within 60 days of
September 30, 1999 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 for Mr. Case, a beneficial owner of greater than 5% of the Shares,
is care of Hambrecht & Quist Group, One Bush Street, San Francisco,
California 94104. Exercisable options reported in this table do not include
the effect of any acceleration that may occur as a result of the proposed
Offer or Merger.
(2) Includes options to purchase 551,608 shares exercisable within 60 days of
September 30, 1999 and 16,547 shares held in trust by the SESOT for the
benefit of Mr. Case.
(3) Includes options to purchase 48,000 shares exercisable within 60 days of
September 30, 1999 and 6,292 shares held in trust by the SESOT for the
benefit of Mr. Golden.
(4) Includes options to purchase 30,000 shares exercisable within 60 days of
September 30, 1999 and 388 shares held in trust by the SESOT for the
benefit of Mr. McAuliffe.
(5) Includes options to purchase 30,000 shares exercisable within 60 days of
September 30, 1999 and 23,811 shares held in trust by the SESOT for the
benefit of Ms. Morgan.
A-11
<PAGE> 23
(6) Includes options to purchase 24,000 Shares exercisable within 60 days of
September 30, 1999.
(7) Includes options to purchase 8,000 Shares exercisable within 60 days of
September 30, 1999.
(8) Includes options to purchase 6,000 Shares exercisable within 60 days of
September 30, 1999 and 24,572 Shares held in trust by the SESOT for the
benefit of Mr. Timken.
(9) The above Share information is based solely on information contained in a
Statement in Changes of Beneficial Ownership on Form 4 dated June 8, 1998
filed with the SEC.
(10) Represents Shares held by the SESOT for the benefit of current and former
employees of the Company. The Trustee of the SESOT is Merrill Lynch Trust
Co. FSB., located at 50 Fremont Street, 17th Floor, San Francisco, CA
94105. Each beneficiary is entitled to instruct the Trustee as to the
voting or tendering of any full or partial Shares held on his or her
behalf.
(11) Includes options to purchase 983,458 shares exercisable within 60 days of
September 30, 1999 and 94,154 Shares held in trust by the SESOT.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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 to be filed
with the SEC, the Company believes that, during the fiscal year ended September
30, 1998, its officers, directors and greater than ten-percent beneficial owners
complied with all applicable Section 16(a) filing requirements.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
OF THE BOARD ON EXECUTIVE COMPENSATION
The following report is submitted by the Company's Executive Compensation
Committee (the "Committee") which at September 30, 1998 was comprised of two
independent outside directors, neither of whom was an officer or employee of the
Company or its subsidiaries. The members of the Committee at such time were
William E. Mayer and Edmund H. Shea, Jr. The Committee acted by written consent
once during the fiscal year ended September 30, 1998.
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;
- 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.
A-12
<PAGE> 24
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 1998.
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, valued at not less
than 90% of the fair market value on the date of grant as provided in the Bonus
Plan. The Shares 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 Shares and instead receive cash payments with interest payable over three
years. Such Shares 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 1998, 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.
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 Shares.
A-13
<PAGE> 25
Stock Options. Pursuant to the terms of the 1996 Equity Plan, the Company
may grant stock options to its executive officers and selected employees. Option
grants made by the Company typically provide for the purchase of Shares 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 Shares, the options provide
a long-term incentive for executives to stay with the Company and to increase
the market value of the Shares. It is expected that all future stock option
grants will be made pursuant to the 1996 Equity Plan or such other equity plan
as may succeed such plan.
SESOP. The Company has a 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 Shares. 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 plans 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 has established a leveraged employee venture fund pursuant to which
employees are permitted to invest alongside the Company entities in certain
investments.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the Chief Executive Officer's total compensation for fiscal
1998, in addition to the criteria referenced above, the Board 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 company's initial public offering.
In determining compensation for executive officers, the Company's primary
consideration is achievement of the Company's strategic goals, taking into
consideration competitive practices, market conditions and other factors. To the
extent that fulfilling these goals is consistent with obtaining tax deductions,
the Company is committed to making compensation awards that will qualify for tax
deductions.
EXECUTIVE COMPENSATION COMMITTEE
WILLIAM E. MAYER
EDMUND H. SHEA, JR.
A-14
<PAGE> 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PARTICIPATION BY EMPLOYEES, DIRECTORS, OFFICERS AND 5% STOCKHOLDERS 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. Syndicated investments sponsored by
entities independent of the Company are also made available to eligible
employees and selected outside investors and such persons may invest
side-by-side with the Company. 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 Company-sponsored syndicated partnerships by the Company's
directors, executive officers and 5% stockholders during the fiscal year ended
September 30, 1998.
VENTURE INVESTMENTS BY EXECUTIVE OFFICERS,
DIRECTORS AND 5% STOCKHOLDERS
<TABLE>
<CAPTION>
AGGREGATE
AMOUNT OF
NAME INVESTMENTS
- ---- --------------
<S> <C>
Daniel H. Case III(1)....................................... $ 1,330,561
Patrick J. Allen............................................ $ 93,528
David G. Golden............................................. $ 155,777
Paul L. Hallingby(2)........................................ $ 77,075
John P. Hullar.............................................. $ 94,513
Steven N. Machtinger........................................ $ 35,454
David M. McAuliffe.......................................... $ 144,642
Cristina M. Morgan.......................................... $ 590,319
William R. Timken........................................... $ 2,113,341
Howard B. Hillman........................................... $ 1,111,430
William E. Mayer............................................ $ 982,309
Edmund H. Shea, Jr.(3)...................................... $10,710,295
William R. Hambrecht(4)..................................... $ 4,481,816
</TABLE>
- ---------------
(1) Includes investments made by Stacey Case, Mr. Case's wife.
(2) Mr. Hallingby resigned as an executive officer of the Company on March 31,
1999.
(3) Includes investments made by J.F. Shea Co., Inc., which Mr. Shea may be
deemed to control. Mr. Shea resigned as a director of the Company on August
5, 1999.
(4) Consists of investments made by the Hambrecht 1980 Revocable Trust, of which
Mr. Hambrecht is the sole trustee and a beneficial owner.
A-15
<PAGE> 27
In addition to their pro rata return on investment, the Company allocates
to certain of its professionals, including certain of those listed above, a
portion of the profits realized from particular venture investments based on
such professionals' specific contributions to identifying, structuring and
monitoring the investment.
As a result of venture capital investments by the Company's officers,
directors and employees, such persons, along with entities affiliated with the
Company, hold significant equity interests in a number of private and public
companies. From time to time, the Company 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, providing merger and acquisition advice, 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.
INDEBTEDNESS OF OFFICERS AND DIRECTORS
The Company's executive officers during fiscal 1998 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 Shares, the purchase of Restricted Shares 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 OF
DURING FISCAL 1998 SEPTEMBER 30, 1998
---------------------- ----------------------
NAME TYPE A TYPE B TYPE A TYPE B
- ---- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Daniel H. Case III(1)........................ $1,746,662 $198,670 $1,181,583 $111,953
Patrick J. Allen............................. $ 69,925 $ 33,586 -- $ 22,391
David G. Golden.............................. -- $ 22,941 -- $ 11,195
Paul L. Hallingby(1)(2)...................... $ 905,934 -- $ 577,457 --
Steven N. Machtinger......................... $ 141,786 $ 9,980 $ 93,193 $ 4,990
David M. McAuliffe........................... $ 142,263 $152,973 $ 23,127 $101,980
Cristina M. Morgan........................... -- $107,020 -- $ 55,977
</TABLE>
- ---------------
(1) Mr. Case's and Mr. Hallingby's indebtedness is repayable in installments of
20% of their respective cash bonuses, if any.
(2) Mr. Hallingby resigned as an executive officer of the Company on March 31,
1999.
TRANSACTIONS WITH H&Q VENTURE ASSOCIATES
Effective July 1, 1998, the Company established a strategic relationship
with H&Q Venture Associates, L.L.C., a California limited liability company
("Venture Associates"). Venture Associates is an independent venture capital
organization owned and managed by former employees of the Company that provides
fund administration services to the Company and to outside parties. The Company
has profit participation interests of varying percentages in the investment
funds and partnerships managed and administered by Venture Associates. In
addition, the Company has profit participation interests of varying percentages
in certain investment funds and partnerships managed by WR Hambrecht + Co.,
L.L.C., a California limited liability
A-16
<PAGE> 28
company ("WR Hambrecht") that are administered by Venture Associates. William R.
Hambrecht, a 5% stockholder of the Company as of September 30, 1998, is a member
of Venture Associates and WR Hambrecht.
TRANSACTIONS WITH SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN
Each fiscal year, pursuant to the terms of the SESOT, the Company has
historically matched a portion of each participant's contribution to the SESOT
in Shares. As of September 30, 1999, the SESOT held approximately 4.7% of the
Company's outstanding Shares. The Company's match is made initially in the form
of a cash payment to the SESOT and the SESOT in turn purchases the number of
Shares necessary for the match. In November 1997, the Company completed the
match for fiscal 1997 by transferring $1,926,234 to the SESOT which then
purchased a total of 58,498 Shares from the Company for the match. In November
1998, the Company completed the match for fiscal 1998 by transferring $1,092,419
to the SESOT which then purchased a total of 42,630 Shares from the Company for
the match. The value of the Shares purchased for the 1997 and 1998 matches were
established based on the market value of the Shares 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 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.
A-17
<PAGE> 29
ANNEX B
HAMBRECHT & QUIST LLC ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 439-3000
September 27, 1999
Confidential
The Board of Directors
Hambrecht & Quist Group
One Bush Street
San Francisco, CA 94104
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of common stock (the "Common Stock") of
Hambrecht & Quist Group ("H&Q" or the "Company") of the consideration to be
received by such shareholders in connection with a proposed transaction as set
forth below.
We understand that H&Q, The Chase Manhattan Corp. ("Chase Manhattan") and Bridge
Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of Chase Manhattan,
propose to enter into an Agreement and Plan of Merger (the "Agreement") to be
dated as of September 27, 1999. The terms of the Agreement provide, among other
things, that (i) Merger Sub will promptly commence a tender offer (the "Offer")
to purchase for cash all of the outstanding shares of Common Stock at a purchase
price of $50.00 per share, net to the seller in cash, upon the terms and subject
to the conditions set forth in the Agreement and certain ancillary documents to
be filed with the Securities and Exchange Commission; and (ii) the Merger Sub
will subsequently be merged (the "Merger") with and into the Company in a
transaction which will provide the remaining holders of shares of Common Stock
(other than Chase Manhattan, H&Q, the Merger Sub or their respective
subsidiaries, and holders who have perfected their appraisal rights, if any,
under Delaware law) with $50.00 per share in cash. The Offer and the Merger
constitute the "Proposed Transaction".
Hambrecht & Quist LLC, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
We have acted as a financial advisor to the Board of Directors of H&Q in
connection with the Proposed Transaction.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
Chase Manhattan for recent years and interim periods to date and certain other
relevant financial and operating data of Chase Manhattan made available to us
from published sources;
(ii) reviewed the publicly available consolidated financial statements of
H&Q for recent years and interim periods to date and certain other relevant
financial and operating data of H&Q made available to us from published sources
and from the internal records of H&Q;
(iii) reviewed certain internal financial and operating information
relating to H&Q prepared by the senior management of H&Q;
(iv) discussed the business, financial condition and prospects of H&Q with
certain members of senior management;
(v) reviewed the recent reported prices and trading activity for the common
stock of H&Q and compared such information and certain financial information for
H&Q with similar information for certain other companies engaged in businesses
we consider comparable;
B-1
<PAGE> 30
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vii) participated on behalf of the Board of Directors of H&Q in the
negotiations leading to the Proposed Transaction;
(viii) reviewed the Agreement dated September 27, 1999; and
(ix) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and financial,
economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Chase Manhattan or H&Q
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of Chase Manhattan or H&Q; nor have we conducted a
physical inspection of the properties and facilities of either company. With
respect to the financial forecasts and projections made available to us and used
in our analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of Chase
Manhattan and H&Q. For purposes of this opinion, we have assumed that neither
Chase Manhattan nor H&Q is a party to any pending transactions, including
external financings, recapitalizations or material merger discussions, other
than the Proposed Transaction and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this letter and any change in such conditions
would require a reevaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors only and may not be used for any other purpose without our prior
written consent; provided, however, that this letter may be reproduced in full
in any filings with the Securities and Exchange Commission pursuant to the
Securities and Exchange Act of 1934. This letter does not constitute a
recommendation to any stockholder as to whether such stockholder should accept
the Offer.
Based upon and subject to the foregoing and after considering such other matters
as we deem relevant, we are of the opinion that as of the date hereof the
consideration to be received by the holders of the Common Stock in the Proposed
Transaction is fair to such holders from a financial point of view. We express
no opinion, however, as to the adequacy or financial fairness of any
consideration received in the Proposed Transaction by Chase Manhattan or its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ PAUL B. CLEVELAND
-----------------------------------
Paul B. Cleveland
Managing Director
B-2
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*+(a)(1) Offer to Purchase dated October 4, 1999.
*+(a)(2) Form of Letter of Transmittal.
+(a)(3) Text of press release issued by Parent and the Company dated
September 28, 1999.
*(a)(4) Letter to stockholders of the Company dated October 4, 1999.
+(a)(5) Summary Advertisement dated October 4, 1999.
*(a)(6) Opinion of H&Q LLC (included as Annex B hereto and
incorporated herein by reference thereto).
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger, dated as of September 27,
1999, among Parent, Purchaser and the Company.
+(c)(2) Option Agreement, dated as of September 27, 1999, between
Parent and the Company.
+(c)(3) Tender and Voting Agreement, dated September 27, 1999, among
Parent and the officers and directors of the Company named
therein.
+(c)(4) Confidentiality Agreement, dated as of February 8, 1999,
between the Company and Parent.
+(c)(5) Confidentiality Agreement, dated as of March 29, 1999,
between the Company and Parent.
+(c)(6) Employment Agreement, dated September 27, 1999, between
Chase Securities Inc. and Daniel H. Case III.
</TABLE>
- ---------------
* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 of
Purchaser and Parent dated October 4, 1999, and incorporated herein by
reference.
<PAGE> 1
EXHIBIT (a)(4)
HAMBRECHT & QUIST ONE BUSH STREET
GROUP SAN FRANCISCO, CA 94104
(415) 439-3000
DANIEL H. CASE III
CHAIRMAN
CHIEF EXECUTIVE OFFICER
October 4, 1999
Dear Stockholders:
I am pleased to inform you that Hambrecht & Quist Group has entered into an
agreement and plan of merger, dated as of September 27, 1999, by and among
Hambrecht & Quist, The Chase Manhattan Corporation and a wholly-owned subsidiary
of Chase Manhattan, pursuant to which the Chase subsidiary has commenced a
tender offer to purchase all of the outstanding shares of common stock of
Hambrecht & Quist for $50.00 per common share, net to the seller in cash.
The tender offer is conditioned upon, among other things, a minimum of a
majority of Hambrecht & Quist's outstanding common shares (on a fully diluted
basis) being tendered and not withdrawn prior to the expiration of the offer.
After completion of the tender offer, the Chase subsidiary will be merged with
and into Hambrecht & Quist, and any Hambrecht & Quist common shares not
purchased in the tender offer will, by virtue of the merger and without any
action by the holders of such shares, be converted into the right to receive an
amount in cash equal to $50.00 per share (or any higher per share price that the
Chase subsidiary determines in its sole discretion to pay in the tender offer).
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE TENDER
OFFER AND THE MERGER AGREEMENT, HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND THAT THE TERMS OF THE OFFER AND MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, HAMBRECHT & QUIST AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT ITS STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES OF
COMMON STOCK PURSUANT TO THE OFFER.
Enclosed is a copy of Hambrecht & Quist's Schedule 14D-9, as filed with the
Securities and Exchange Commission on October 4, 1999. The Schedule 14D-9
contains additional information relating to the tender offer and the merger,
including a description of the reasons for your Board of Director's conclusions
described in the preceding paragraph. Also enclosed are the Chase subsidiary's
offer to purchase, dated October 4, 1999, a letter of transmittal for use in
tendering your Hambrecht & Quist common shares and other related documents.
These documents set forth the terms and conditions of the tender offer. We urge
you to read the enclosed information and consider it carefully before making
your decision to tender your common shares.
Your Board of Directors and the management and employees of Hambrecht &
Quist thank you for your continued support.
Sincerely,
/s/ DANIEL H. CASE III
--------------------------------------
Daniel H. Case III
Chairman and Chief Executive Officer
