SECURITIES
AND EXCHANGE COMMISSION
Form 10-K
|
|
þ
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31,
2008.
|
or
|
|
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM _____________ TO
_____________.
|
Commission
File Number: 000-51730
Thomas
Weisel Partners Group, Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
20-3550472
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
San Francisco,
California 94104
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive office)
Securities
registered pursuant to Section 12(b) of the Act:
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.01 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes
o
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes
þ
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Annual Report on
Form 10-K or any amendment to this Annual Report on Form 10-K.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large
accelerated filer
o
|
Accelerated
filer
þ
|
Non-accelerated
filer
o
|
Smaller
reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
o
No
þ
The
aggregate market value of the common stock held by non-affiliates of the
registrant as of the last business day of the registrant’s most recently
completed second fiscal quarter, based upon the closing sale price of the
registrants’ common stock on June 30, 2008 as reported on The NASDAQ Stock
Market, Inc. was $149,040,844.
As of
March 13, 2009 there were
30,789,415
shares
of the registrant’s common stock outstanding, including 6,639,478 shares of TWP
Acquisition Company (Canada), Inc., a wholly-owned subsidiary of the registrant.
Each exchangeable share is exchangeable at any time into common stock of the
registrant on a one-for-one basis, entitles the holder to dividend and other
rights economically equivalent to those of the common stock, and through a
voting trust, votes at meetings of stockholders of the
registrant.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the definitive Proxy Statement for the registrants’ Annual Meeting of
Shareholders to be held on May 20, 2009 have been incorporated by reference into
Part III of this Annual Report on Form 10-K.
|
|
|
TABLE
OF CONTENTS
|
|
|
|
|
|
Item
Number
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
1.
|
|
|
|
|
1
|
|
|
1A.
|
|
|
|
|
8
|
|
|
1B.
|
|
|
|
|
18
|
|
|
2.
|
|
|
|
|
19
|
|
|
3.
|
|
|
|
|
19
|
|
|
4.
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
5.
|
|
|
|
|
23
|
|
|
6.
|
|
|
|
|
26
|
|
|
7.
|
|
|
|
|
27
|
|
|
7A.
|
|
|
|
|
44
|
|
|
8.
|
|
|
|
|
47
|
|
|
9.
|
|
|
|
|
47
|
|
|
9A.
|
|
|
|
|
47
|
|
|
9B.
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
10.
|
|
|
|
|
|
|
|
11.
|
|
|
|
|
|
|
|
12.
|
|
|
|
|
|
|
|
13.
|
|
|
|
|
|
|
|
14.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
|
|
|
|
49
|
|
|
|
|
|
S-1
|
|
|
|
|
|
E-1
|
|
Special
Note Regarding Forward-Looking Statements
This
Annual Report on Form 10-K in Item 1 – “Business”,
Item 1A – “Risk Factors”, Item 7 – “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and in other
sections of includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. In some cases, you can identify these
statements by forward-looking words such as “may”, “might”, “will”, “should”,
“expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”,
“intend” or “continue”, the negative of these terms and other comparable
terminology. These forward-looking statements, which are subject to risks,
uncertainties and assumptions about us, may include expectations as to our
future financial performance, which in some cases may be based on our growth
strategies and anticipated trends in our business. These statements are based on
our current expectations and projections about future events. There are
important factors that could cause our actual results, level of activity,
performance or achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by the
forward-looking statements. In particular, you should consider the numerous
risks outlined in Part I, Item 1A – “Risk Factors” in this Annual
Report on Form 10-K.
Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy or completeness of any of these forward-looking
statements. You should not rely upon forward-looking statements as predictions
of future events. We are under no duty to update any of these forward-looking
statements after the date of this filing to conform our prior statements to
actual results or revised expectations, except as required by Federal securities
law.
Forward-looking
statements include, but are not limited to, the following:
|
|
·
|
Our
statement in Part II, Item 7 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” that, with respect to an
aggregate of $4.3 million of remaining commitments we have made to
unaffiliated funds, we currently anticipate transferring these commitments
to funds sponsored by us.
|
|
|
·
|
Our
statement in Part II, Item 7 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” that as of December 31,
2008, there was (i) $1.2 million of unrecognized compensation expense
related to non-vested restricted stock unit awards made in connection with
our initial public offering and that this cost is expected to be
recognized over a weighted-average period of 0.1 years, and (ii) $38.8
million of unrecognized compensation expense related to non-vested
restricted stock unit awards made subsequent to our initial public
offering and that this cost is expected to be recognized over a
weighted-average period of 2.7 years, in each case because these
statements depend on estimates of employee attrition in the
future.
|
|
|
·
|
The
following in Part I, Item 1 – “Business”
–
|
|
|
o
|
our
statement that we believe that our focus on the growth sectors of the
economy will allow us to capitalize on the business opportunities created
by many of the primary drivers of innovation, growth and capital
investment in the
U.S. economy;
|
|
|
|
our
statements that (i) in the future we expect to continue to sponsor and
raise follow-on or new investment funds and (ii) we expect to continue to
expand our asset management business and provide additional seed
investment funds for new asset management products;
and
|
|
|
|
our
statement that we believe that the trend to alternative trading systems
will continue.
|
|
|
·
|
The
following in Part I, Item 1A – “Risk Factors”
–
|
|
|
|
our
statement that we plan to continue to expand our international
operations;
|
|
|
|
our
statement that we intend to grow our business through both internal
expansion and through strategic investments, acquisitions or joint
ventures; and
|
|
|
|
our
statement that we expect to use the remaining net proceeds of our
follow-on offering of common stock for general corporate purposes,
including support and expansion of our underwriting, trading and asset
management businesses and strategic acquisitions and
investments.
|
|
|
·
|
The
following in Part II, Item 7 – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
–
|
|
|
|
our
statement that we expect to expand our trading in Canadian securities as
our energy and mining analysts begin to make a greater impact on our U.S.
and European accounts, and we will be hiring U.S. based energy bankers and
analysts to capitalize on our capabilities in these
sectors;
|
|
|
|
our
statement that we expect the electronic trading and commission sharing
programs to increase our market share of the expanding volume of shares
traded by institutional clients through alternative trading
platforms;
|
|
|
o
|
our
statement that we currently plan to continue to selectively upgrade our
talent pool, particularly in revenue generating
areas;
|
|
|
|
our
statement that we may carry out repurchases of our common stock from time
to time in the future and our Board of Directors may authorize additional
repurchases in the future, in each case for the purpose of settling
obligations to deliver common stock to employees who have received
Restricted Stock Units under our Equity Incentive Plan;
and
|
|
|
|
our
statement that we believe that our current level of equity capital,
current cash balances, funds anticipated to be provided by operating
activities and funds available to be drawn under temporary loan
agreements, will be adequate to meet our liquidity and regulatory capital
requirements for the next 12
months.
|
Overview
We are an
investment bank focused principally on growth companies and growth
investors. On February 7, 2006, Thomas Weisel Partners Group, Inc.
(“TWPG”), a Delaware corporation, succeeded to the business of Thomas Weisel
Partners Group LLC and completed an initial public offering of its common
stock. Our business is managed as a single operating segment, and we
generate revenues by providing financial services that include investment
banking, brokerage, research and asset management. We take a comprehensive
approach in providing these services to growth companies.
In
January 2008, we completed our acquisition of Westwind Capital Corporation, an
independent, institutional investment bank focused on growth companies and
growth investors, particularly in the energy and mining
sectors.
We have
offices in the following locations:
|
United
States
|
Canada
|
|
Baltimore
|
Toronto
|
|
Boston
|
Calgary
|
|
Chicago
|
|
|
Cleveland
|
Europe
|
|
Denver
|
London
|
|
New
York
|
Zurich
|
|
Portland
|
|
|
San
Francisco
|
|
|
Silicon
Valley
|
|
We are
exposed to volatility and trends in the general securities market and the
economy, and we are currently facing difficult market and economic
conditions. Due to these conditions, we have experienced a
significant decrease in client activity levels that have resulted in, among
other things, lower overall investment banking activity. It is
difficult to predict when conditions will change. Notwithstanding the exposure
to volatility and trends and the current difficult economic conditions, in order
to provide value to our clients, we have made a long-term commitment to
maintaining a substantial, full-service integrated business platform. As a
result of this commitment, if business conditions result in decreases to our
revenues, we may not experience corresponding decreases in the expense of
operating our business.
Our
business is organized into four service offerings: investment banking,
brokerage, equity research and asset management.
Our
investment bankers provide two primary categories of services:
(i) corporate finance and (ii) strategic advisory. Our corporate
finance practice is comprised of industry coverage groups that are dedicated to
establishing long-term relationships and executing a broad range of capital
raising transactions. Our strategic advisory practice focuses on developing
tailored solutions to meet client goals and objectives through industry
expertise, transaction experience and corporate relationships with leading
growth companies. In addition, through our commitment to providing senior-level
attention, we focus on building and maintaining long-term strategic advisory
relationships with growth companies.
We take a
lifecycle approach to servicing growth companies. We combine our industry
knowledge base with our corporate, venture capital and professional
relationships to identify leading growth companies for our services. The
execution capabilities of our investment banking professionals enable us to
provide these companies with a full range of investment banking services,
including equity and debt securities offerings and strategic advisory services
throughout their lifecycle as they engage in more complex capital markets and
strategic transactions.
Corporate Finance
. Our
corporate finance practice advises on and structures capital raising solutions
for our corporate clients through public and private offerings of equity and
debt securities, including convertible debt. We offer a wide range of financial
services designed to meet the needs of growth companies, including initial
public offerings, follow-on and secondary offerings, equity-linked offerings,
private investments in public equity and private placements of both debt and
equity securities. Within corporate finance, our capital markets group executes
a variety of transactions, both public underwritten securities offerings and
private offerings, assists clients with investor relations advice and introduces
companies seeking to raise capital to investors that we believe will be
supportive long-term investors. We assist the efforts of our corporate finance
practice by providing aftermarket trading support for our corporate finance
clients.
Strategic Advisory.
Our strategic advisory services include general
strategic advice as well as transaction specific advice regarding mergers and
acquisitions, divestitures, spin-offs, privatizations, special committee
assignments and takeover defenses. Our specialized advisory professionals work
in conjunction with our industry coverage groups in advising our corporate
clients. We seek to become a trusted advisor to the leading growth companies and
to achieve a balance between our buy- and sell-side assignments. Our buy- and
sell-side assignments are generated through our network of business
relationships and by our reputation for quality execution. Our strategic
advisory services are also supported by our capital markets professionals, who
provide assistance in acquisition financing and market intelligence in
connection with mergers and acquisitions
transactions.
We
provide two principal categories of services within our brokerage operations:
(i) institutional brokerage, which comprises institutional sales, sales
trading, trading and special situations and (ii) private client
services.
Institutional Brokerage
. We
provide equity and convertible debt securities sales and trading services to
more than 1,000 institutional investors.
Institutional Sales
. Our
institutional sales professionals provide equity and convertible debt securities
sales services to institutional investors and seek to develop strong
relationships with the portfolio managers they serve by developing expertise and
working closely with our equity research department. Our institutional sales
professionals focus on growth companies identified by our equity research
department and seek to develop a thorough understanding of those
companies.
Sales Trading
. Our sales
traders are experienced in the industry and are knowledgeable regarding both the
markets for growth company securities and the institutional traders who buy and
sell them. Through our sales trading professionals, we connect with many large
and active buy-side trading desks in the United States, Canada and
Europe.
Trading
. Our trading
professionals provide support to our institutional clients in their pursuit of
best execution, including facilitating block trades, providing electronic
trading services, committing capital and otherwise providing liquidity. In
addition, our convertible debt trading desk maintains securities inventory in
connection with the execution of customer trades and to service the needs of
clients, which include both investors and issuers of convertible debt
securities, and in connection with certain proprietary trading
activities.
Special Situations
. Our
special situations group focuses on sourcing liquidity via overnight block
trades, reverse inquiries and quiet accumulations for investment banking,
institutional, private equity and high net worth clients in a confidential
manner and in connection with these activities engages in certain proprietary
trading activities.
Non-Deal Road Shows
. We work
to leverage our industry knowledge and relationships by helping our
institutional clients maintain and build corporate contacts through coordinating
company and investor meetings that are unrelated to planned or pending
investment banking transactions, commonly referred to as non-deal road shows. We
believe these non-deal road shows underscore our high-service approach, promote
our brokerage services and are valued by our institutional brokerage clients.
Non-deal road shows present an environment for investors to further their
understanding of companies in which they have an equity position or that may be
attractive investment opportunities and for company executives to broaden
relationships with their investors and develop relationships with potential
investors.
Private Client Services
. Our
private client services department offers brokerage and advisory services to
high-net-worth individuals and cash management services to corporate clients.
Our private client professionals emphasize capital preservation and growth
through prudent planning and work closely with clients to personalize solutions
that address their individual needs.
Equity
Research
Our
research analysts perform independent research to help our clients understand
the dynamics that drive the sectors and companies they cover. We seek to
differentiate ourselves through originality of perspective, depth of insight and
ability to uncover industry trends.
As of
December 31, 2008, our equity research professionals covered 500 companies
headquartered in 18 countries. Approximately 89% of the companies
covered had market capitalizations of $10 billion or less.
Equity
Research by Geographic Location of Company Headquarters
(as of
December 31, 2008)
Equity
Research by Market Capitalization
(as of
December 31, 2008)
The sectors and industry components we
focus on within equity research are set forth in the table and chart
below:
|
Technology
|
Healthcare
|
Energy
|
|
Hardware
|
• Biotechnology
|
•
Alternative Energy
|
|
• Applied
Technologies
|
• Healthcare
Information Technology and
|
•
Equipment & Services
|
|
• Communications
Equipment
|
Pharmaceutical
Services
|
• International
Oil & Gas
|
|
• Computer
Systems and Storage
|
• Life
Science and Diagnostics
|
•
Oil & Gas Exploration and Production
|
|
• Electronic
Supply Chain
|
• Medical
Devices
|
|
|
• Information
& Financial Technology Services
|
• Pharmaceuticals:
Specialty
|
Metals
and Mining
|
|
• Semiconductors:
Analog & Mixed Signal
|
|
•
Base Metals and Uranium
|
|
• Semiconductors:
Processors & Components
|
Internet
Media and Telecom
|
•
Gold and Precious Metals
|
|
|
•
Broadcasting and Entertainment
|
|
|
Software &
Services
|
•
Internet Services
|
Other
|
|
• Software:
Applications & Communications
|
• Telecom
Services
|
•
Financial Services
|
|
• Software:
Infrastructure
|
|
•
Special Situations
|
|
|
|
|
|
Consumer
|
|
|
|
• Restaurants
|
|
|
|
• Sports
and Lifestyle Brands
|
|
|
|
• Retailing:
Hardlines
|
|
|
|
• Retailing:
Softlines
|
|
|
Equity
Research by Sector
(based on
number of companies covered as of December 31, 2008)
Our
research analysts analyze major trends, publish research on new areas of growth,
provide fundamental, company-specific coverage and work with our institutional
clients to identify and evaluate investment opportunities in publicly traded
companies. They periodically publish comprehensive “white-paper” studies of an
industry or a long-term investment theme, provide analysis and commentary on
growth companies and publish detailed primary research on investment
opportunities.
We
annually host several conferences targeting growth companies and investors,
including our Technology, Telecom and Internet Conference, Alternative Energy
Conference, Healthcare Conference, Consumer Conference, Natural Resource
Conference, Small and Mid-Cap One-on-One Conference and Growth Stock One-on-One
Conference. We use these specialized events to showcase companies to
institutional investors focused on investing in these growth sectors. We believe
that our conferences differentiate us from smaller investment banks that may
lack the relationships and resources to host broadly attended industry
events.
Our asset
management division is divided into three principal units: (i) private
investment funds, (ii) public equity investment products and (iii) distribution
management.
Private Investment Funds
. We
are currently the managing general partner of three groups of investment
funds:
|
·
|
Thomas
Weisel Global Growth Partners is a fund of funds for private fund
investments with a capital commitment of $287.6 million in 2000. A
fund for secondary private equity investments with a capital commitment of
$130.9 million was formed in 2002 and a third fund for private equity
investments with a capital commitment of $46.0 million was formed in 2008.
As of December 31, 2008, the total amount that has been invested by
these funds was
$397.1 million.
|
|
·
|
Thomas
Weisel Healthcare Venture Partners is a healthcare venture capital fund
that invests in the emerging life sciences and medical technology sectors.
The fund was formed in 2003 with a capital commitment of
$121.8 million, $79.3 million of which has been invested as of
December 31, 2008.
|
|
·
|
Thomas
Weisel Venture Partners is a venture capital fund that invests in
information technology companies, particularly in the broadly defined
software and communications industries. The fund was formed in 2000 with a
capital commitment of approximately $252.5 million,
$202.8 million of which has been invested as of December 31,
2008.
|
As
manager of these funds, we receive management fees generally based on committed
capital or net assets of the partnerships. In the future we expect to continue
to sponsor and raise follow-on or new investment funds.
In
December 2008, Thomas Weisel Capital Management LLC (“TWCM”), a subsidiary of
TWPG, completed a transaction with Guggenheim Partners, LLC in which an
affiliate of Guggenheim became the managing general partner of Thomas Weisel
India Opportunity Fund L.P., and Thomas Weisel India Opportunity LLC, a
subsidiary of TWCM, became the non-managing special limited
partner.
Public Equity Investment
Products
. We have a small/mid-cap growth public equity investment team
based in Portland, Oregon. We have provided approximately $20 million
of seed investment capital for the products they manage. This public equity
investment team manages these products through an asset management subsidiary
and collectively is entitled to receive approximately 50% of the profits
generated.
In the
future, we expect to continue to expand our asset management business and
provide additional seed investment capital for new asset management
products.
Distribution Management
.
Distribution management actively manages securities distributions from private
equity and venture capital funds. We seek to enhance the returns realized by
distributions made from private equity and venture capital funds. The
distribution management services we provide include dedicated portfolio
management, execution, consolidated reporting and administrative
support.
Employees
At
December 31, 2008, we had approximately 570 employees. In 2009,
we reduced our headcount by approximately 70 employees, net, and as of March 13,
2009, we now have approximately 500 employees.
Our
professionals draw upon their experience and market expertise to provide
differentiated advice and customized services to our clients. We believe our
professionals are attracted to our company by our specialized market focus,
entrepreneurial culture and commitment to our clients. None of our employees are
represented by collective bargaining agreements. We have not experienced any
work stoppages and believe our relationship with our employees to be
good.
As an
investment bank, all aspects of our business are intensely competitive. Our
competitors are investment banking firms, other brokerage firms, merchant banks
and financial advisory firms. We compete with some of our competitors nationally
or regionally and with others on a product or service basis. Many of our
competitors have substantially greater capital and resources than we do and
offer a broader range of financial products. We believe that the principal
factors affecting competition in our business include client relationships,
reputation, the abilities of our professionals, market focus and the relative
quality and price of our services and products.
In recent
years there has been substantial consolidation and convergence among companies
in the financial services industry. Legislative and regulatory changes in the
United States have allowed commercial banks to enter businesses previously
limited to investment banks, and a number of large commercial banks, insurance
companies and other broad-based financial services firms have established or
acquired broker-dealers or merged with other financial institutions. This trend
toward consolidation and convergence has significantly increased the capital
base and geographic reach of many of our competitors. Many of our competitors
have the ability to offer a wider range of products and services that may
enhance their competitive position. They may also have the ability to support
investment banking and securities products and services with commercial banking,
insurance and other financial services capabilities in an effort to gain market
share, which could result in pricing pressure in our
businesses.
We
experience price competition with respect to our investment banking business.
One trend, particularly in the equity underwriting business, toward multiple
book runners and co-managers has increased the competitive pressure in the
investment banking industry and may lead to lower average transaction
fees.
We also
experience intense price competition with respect to our brokerage business,
including large block trades, spreads and trading commissions. The ability to
execute trades electronically and through other alternative trading systems has
increased the pricing pressure on trading commissions and spreads, as well as
affected the volume of trades being executed through traditional full-service
platforms.
In
addition, we experience competition with respect to our asset management
business both in the pursuit of investors for our investment funds and products
and in the identification and completion of investments in attractive portfolio
companies for our investment funds. We compete for individual and institutional
clients on the basis of price, the range of products we offer, the quality of
our services as well as on the basis of financial resources available to us and
invested in our products. We may be competing with other investors and corporate
buyers for the investments that we make.
We may
experience competitive pressures in these and other areas in the future,
including if some of our competitors seek to increase market share by reducing
prices.
Competition
is also intense for the recruitment and retention of qualified professionals.
Our ability to continue to compete effectively in our businesses will depend
upon our continued ability to attract new professionals and retain and motivate
our existing professionals.
Our
business, as well as the financial services industry in general, is subject to
extensive regulation in the United States, Canada and elsewhere. As a matter of
public policy, regulatory bodies in the United States, Canada and the rest of
the world are charged with safeguarding the integrity of the securities and
other financial markets and with protecting the interests of customers
participating in those markets. These regulatory bodies adopt and amend rules
(which are subject to approval by government agencies) for regulating the
industry and conduct periodic examinations of members. In the United
States, the Securities and Exchange Commission (the “SEC”) is the federal agency
responsible for the administration of the federal securities laws.
Thomas
Weisel Partners LLC (“TWP”), our wholly-owned subsidiary, is registered as a
broker-dealer with the SEC and the Financial Industry Regulatory Authority
(“FINRA”) and in all 50 states and the District of Columbia. Accordingly,
Thomas Weisel Partners LLC is subject to regulation and oversight by the SEC and
FINRA, a self-regulatory organization which is itself subject to oversight by
the SEC and which adopts and enforces rules governing the conduct, and examines
the activities, of its member firms. In 2007, Thomas Weisel Partners LLC opened
and registered branch offices in London, England, Zurich, Switzerland, Chicago,
Illinois, Palo Alto, California, Cleveland, Ohio and Baltimore,
Maryland. In 2008, Thomas Weisel Partners LLC opened and registered
branch offices in Denver, Colorado, Toronto, Ontario, Canada, and Calgary,
Alberta, Canada deregistered its branch office in Mumbai, India. State
securities regulators also have regulatory or oversight authority over Thomas
Weisel Partners LLC. In addition, Thomas Weisel Partners LLC and several other
wholly-owned subsidiaries of ours, including Thomas Weisel Capital Management
LLC, Thomas Weisel Asset Management LLC, TW Asset Management LLC and Thomas
Weisel Global Growth Partners LLC, are registered as investment advisers with
the SEC and therefore subject to their regulation and oversight. Thomas Weisel
Partners LLC is also a member of, and is subject to regulation by, the New York
Stock Exchange (“NYSE”) and the American Stock Exchange. Thomas Weisel Partners
LLC is also registered as an introducing broker with the Commodity Futures
Trading Commission and is a member of the National Futures
Association.
Broker-dealers
are subject to regulations that cover all aspects of the securities business,
including sales methods, trade practices among broker-dealers, use and
safekeeping of customers’ funds and securities, capital structure,
record-keeping, the financing of customers’ purchases and the conduct and
qualifications of directors, officers and employees. In particular, as a
registered broker-dealer and member of various self-regulatory organizations,
Thomas Weisel Partners LLC is subject to the SEC’s uniform net capital rule,
Rule 15c3-1. The uniform net capital rule specifies the minimum level of net
capital a broker-dealer must maintain and also requires that a significant part
of its assets be kept in relatively liquid form. The SEC and various
self-regulatory organizations impose rules that require notification when net
capital falls below certain predefined criteria, that limit the ratio of
subordinated debt to equity in the regulatory capital composition of a
broker-dealer and that constrain the ability of a broker-dealer to expand its
business under certain circumstances. Additionally, the SEC’s uniform net
capital rule imposes certain requirements that may have the effect of
prohibiting a broker-dealer from distributing or withdrawing capital and
requiring prior notice to the SEC for certain withdrawals of capital. The SEC
has adopted rule amendments that establish alternative net capital requirements
for broker-dealers that are part of a consolidated supervised entity. As a
condition to its use of the alternative method, a broker-dealer’s ultimate
holding company and affiliates (referred to collectively as a consolidated
supervised entity) must consent to group-wide supervision and examination by the
SEC. If we elect to become subject to the SEC’s group-wide supervision, we will
be required to report to the SEC computations of our capital
adequacy.
Thomas
Weisel Partners Canada, Inc. (“TWPC”), our registered Canadian broker-dealer
subsidiary, is subject to regulation by the securities commissions of Ontario,
Quebec, Alberta, British Columbia, Manitoba, Saskatchewan and Nova Scotia, is a
member of the Investment Industry Regulatory Organization of Canada (“IIROC”)
and is a participating organization of the Toronto Stock Exchange, the TSX
Venture Exchange and Canada’s New Stock Exchange. Thomas Weisel Partners Canada,
Inc. is required by the IIROC to belong to the Canadian Investors Protection
Fund (“CIPF”), whose primary role is investor protection. The CIPF may charge
member firms assessments based on revenues and risk premiums. The CIPF provides
protection for securities and cash held in client accounts up to CDN$1,000,000
per client with separate coverage of CDN$1,000,000 for certain types of
accounts. This coverage does not protect against market fluctuations. Thomas
Weisel Partners Canada, Inc. is subject to the minimum capital rule (By-Law No.
17 of the IIROC) and the early warning system (By-Law No. 30 of the IIROC). The
minimum capital rule requires that every member shall have and maintain at all
times risk adjusted capital greater than zero calculated in accordance with Form
1 (Joint Regulatory Financial Questionnaire and Report) and with such
requirements as the Board of Directors of the IIROC may from time to time
prescribe. Insufficient risk adjusted capital may result in suspension from
membership of the IIROC. Thomas Weisel Partners Canada, Inc. had sufficient Risk
Adjusted Capital at all times during the years ended December 31, 2008, 2007 and
2006.
Thomas
Weisel Partners International Limited a registered U.K. broker-dealer
subsidiary, is subject to regulation by the Financial Securities Authority in
the United Kingdom. Our broker-dealer branch office in Zurich, Switzerland is
subject to the oversight of the Swiss Federal Banking Commission
(“SFBC”).
The
effort to combat money laundering and terrorist financing is a priority in
governmental policy with respect to financial institutions. The USA PATRIOT
Act of 2001 contains anti-money laundering and financial transparency laws and
mandates the implementation of various new regulations applicable to
broker-dealers and other financial services companies, including standards for
verifying client identification at account opening and obligations to monitor
client transactions and report suspicious activities. Anti-money laundering laws
outside the United States contain some similar provisions. The obligation of
financial institutions, including us, to identify their customers, watch for and
report suspicious transactions, respond to requests for information by
regulatory authorities and law enforcement agencies, and share information with
other financial institutions, has required the implementation and maintenance of
internal practices, procedures and controls which have increased, and may
continue to increase, our costs, and any failure with respect to our programs in
this area could subject us to regulatory consequences, including substantial
fines and potentially other liabilities.
In
addition to U.S. federal regulations, certain of our businesses are subject
to compliance with laws and regulations of U.S. state governments,
non-U.S. governments, their respective agencies and/or various
self-regulatory organizations or exchanges relating to the privacy of client
information. Any failure to comply with these regulations could expose us to
liability and/or reputational damage.
Additional
legislation, changes in rules promulgated by the SEC and self-regulatory
organizations or changes in the interpretation or enforcement of existing laws
and rules, either in the United States, Canada or elsewhere, may directly affect
the mode of our operations and profitability.
U.S. and
non-U.S. government agencies and self-regulatory organizations, as well as
state securities commissions in the United States, are empowered to conduct
administrative proceedings that can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer or its
directors, officers or employees. Occasionally, our subsidiaries have been
subject to investigations and proceedings, and sanctions have been imposed for
infractions of various regulations relating to our
activities.
Where
You Can Find More Information
We are
required to file annual, quarterly and current reports, proxy statements and
other information required by the Securities Exchange Act of 1934, as amended,
with the SEC. You may read and copy any document we file with the SEC at the
SEC’s public reference room located at 100 F Street, N.E.,
Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC’s internet site at
http://www.sec.gov.
We
maintain a public internet site at http://www.tweisel.com and make available
free of charge through this site our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and
Forms 3, 4 and 5 filed on behalf of directors and executive officers, as
well as any amendments to those reports filed or furnished pursuant to the
Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. We also post on our website the
charters for our Board of Directors’ Audit Committee, Compensation Committee and
Corporate Governance and Nominations Committee, as well as our Corporate
Governance Guidelines, our Code of Conduct and Ethics governing our directors,
officers and employees and other related materials. In addition, we
also post on our website, under “Investment Banking – Transactions”, links to
listings of our completed, filed and announced investment banking transactions.
The information on our website is not part of this Annual
Report.
Our
Investor Relations Department can be contacted at Thomas Weisel Partners Group,
Inc., One Montgomery Street, San Francisco, California 94104,
Attention: Investor Relations; telephone: 415-364-2500; e-mail:
investorrelations@tweisel.com.
We face a
variety of risks in our business, many of which are substantial and inherent in
our business and operations. The following are some of the important risk
factors that could affect our business, our industry and holders of our common
stock. These risks are not exhaustive. Other sections of this Annual Report on
Form 10-K may include additional factors which could adversely impact our
business and financial performance. Moreover, we operate in a very competitive
and rapidly changing environment. New risk factors emerge from time to time and
it is not possible for our management to predict all risk factors, nor can we
assess the impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
Risks
Related to Our Business
Our
businesses have been and may continue to be adversely affected by conditions in
the global financial markets and economic conditions
generally.
Our
businesses, by their nature, do not produce predictable earnings, and are
affected by changes in economic conditions generally and in particular by
conditions in the financial markets. Over the past year, economic conditions and
the state of the financial markets have changed suddenly, significantly and
negatively which has affected and continues to affect our business and results
of operations.
Since
mid-2007, and particularly during the second half of 2008, the financial
services industry and the securities markets generally experienced significant
valuation declines in virtually all asset categories. This was initially
triggered by the subprime mortgage crisis, but eventually spread to other asset
classes, including equities. Financial markets over this period have been
characterized by substantially higher volatility, a lack of liquidity and a
general loss of investor confidence, initially in financial institutions, but
more recently in companies in a number of other industries and in the broader
markets, including the industries in which we specialize.
Tighter
credit has forced investors and other market participants to reduce leverage
rapidly, which has exacerbated market volatility and contributed to further
declines in asset values. Market conditions have also led to the
failure or merger of a number of prominent financial institutions with which we
compete. Financial institution failures or near-failures have
resulted in further losses and have also impacted the trading prices of shares
in all financial institutions, including ours. In addition, as of the
end of 2008, the United States and many other international markets are in a
recession.
Business
activity across a wide range of industries, including the sectors in which we
specialize, is greatly reduced. The weakness in equity markets has resulted in
diminished trading volume of securities that could adversely impact our
brokerage business. Industry-wide declines in the size and number of
underwritings and mergers and acquisitions transactions has had an adverse
effect on our revenues. Reductions in the trading prices for equity
securities tend to reduce the deal value of investment banking transactions,
such as underwritings and mergers and acquisitions transactions, which in turn
may reduce the fees we earn from these transactions. Also, difficult
market conditions have decreased the value of assets under management in our
asset management and private client business, which decrease the amount of
asset-based fees we receive, and may also affect our ability to attract
additional, or retain existing, assets under management within these
businesses.
In
addition, as an investment bank focused principally on the growth sectors of the
economy, we depend significantly on transactions by venture capital-backed
companies for sources of revenues and potential business opportunities. To the
extent venture capital investment activities slow due to difficult market
conditions or otherwise, our business, financial condition, results of
operations and cash flows may be adversely affected.
Our
financial performance depends to a great extent on the economic environment in
which we operate. Overall, fiscal 2008 was characterized by a business
environment that was extremely adverse for our businesses and those of many of
our clients and there can be no assurance that these conditions will improve in
the near term. Until they do, we expect our results of operations
will continue to be adversely affected.
We
focus principally on specific sectors of the economy, and a deterioration in the
business environment in these sectors generally or decline in the market for
securities of companies within these sectors could materially adversely affect
our businesses.
We focus
principally on the technology, healthcare, industrial growth, consumer, energy
and mining sectors of the economy. Therefore, volatility in the business
environment in these sectors generally, or in the market for securities of
companies within these sectors particularly, could substantially affect our
financial results and the market value of our common stock. The business
environment for companies in these sectors can experience substantial
volatility, and our financial results may consequently be subject to significant
variations from year to year. The market for securities in each of our focus
sectors may also be subject to industry-specific risks. For example, changes in
policies by the United States Food and Drug Administration may affect the market
for securities of biotechnology and healthcare companies and volatility in the
commodities markets may affect the market for securities of energy or mining
companies that operate in the affected markets. Underwriting transactions,
strategic advisory engagements and related trading activities in our focus
sectors represent a significant portion of our businesses. This concentration
exposes us to the risk of substantial declines in revenues in the event of
downturns in these sectors of the economy.
Any
future downturns in our focus sectors could materially adversely affect our
business, financial condition, results of operations and cash
flows.
Our
investment banking revenues may fluctuate substantially from period to period,
which may impair our stock price.
We have
experienced, and expect to experience in the future, significant periodic
variations in our investment banking revenues which may be attributable in part
to the fact that they are typically earned upon the successful completion of a
transaction, the timing of which is uncertain and beyond our control. In most
cases we receive little or no payment for investment banking engagements that do
not result in the successful completion of a transaction. As a result, our
business is highly dependent on market conditions as well as the decisions and
actions of our clients and interested third parties. For example, a client’s
acquisition transaction may be delayed or terminated because of a failure to
agree upon final terms with the counterparty, failure to obtain necessary
regulatory consents or board or
shareholder approvals,
failure to secure necessary financing, adverse market conditions or unexpected
financial or other problems in the client’s or counterparty’s business. If the
parties fail to complete a transaction on which we are advising or an offering
in which we are participating, we will earn little or no revenue from the
transaction. This risk may be intensified by our focus on growth companies as
the market for securities of many of these companies has experienced significant
variations in the number and size of equity offerings. Recently, more companies
initiating the process of an initial public offering are simultaneously
exploring merger and acquisition opportunities. If we are not engaged as a
strategic advisor in any such dual-tracked process, our investment banking
revenues would be adversely affected in the event that an initial public
offering is not consummated.
In
addition, we receive warrants from time to time as compensation for investment
banking services which are adjusted to fair value through earnings in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) at the end of each quarter. These fair value adjustments
could increase the volatility of our quarterly earnings.
As a
result, we are unlikely to achieve steady and predictable earnings on a
quarterly basis, which could in turn adversely affect our stock
price.
Our
ability to retain our professionals and recruit additional professionals is
critical to the success of our business, and our failure to do so may materially
adversely affect our reputation, business, financial condition, results of
operations and cash flows.
Our
ability to obtain and successfully execute our business depends upon the
personal reputation, judgment, business generation capabilities and project
execution skills of our senior professionals, particularly Thomas W. Weisel, our
founder, Chairman and Chief Executive Officer, Lionel F. Conacher, our President
and Chief Operating Officer, and the other members of our Executive Committee.
Our senior professionals’ personal reputations and relationships with our
clients are a critical element in obtaining and executing client engagements. We
encounter intense competition for qualified employees from other companies in
the investment banking industry as well as from businesses outside the
investment banking industry, such as investment advisory firms, hedge funds,
private equity funds and venture capital funds. From time to time, we have
experienced losses of investment banking, brokerage, equity research and other
professionals, and losses of our key personnel may occur in the future. The
departure or other loss of Mr. Weisel, Mr. Conacher, any other member of
our Executive Committee or any other senior professional who manages substantial
client relationships and possesses substantial experience and expertise, could
impair our ability to secure or successfully complete engagements, protect our
market share or retain assets under management, each of which, in turn, could
materially adversely affect our business, financial condition, results of
operations and cash flows. Certain of our investment funds may be subject to key
man provisions which, upon the departure or other loss of some or all of the
investment professionals managing the fund, may permit the investors in the fund
to dissolve the fund or may result in a reduction of the management fees paid
with respect to the investment fund.
In
connection with our initial public offering and our conversion to corporate
form, many of our professionals received substantial amounts of common stock in
exchange for their membership interests. Ownership of, and the ability to
realize equity value from our common stock, unlike that of membership interests
in Thomas Weisel Partners Group LLC (the predecessor to Thomas Weisel Partners
Group, Inc.), does not depend upon continued employment and our professionals
are not restricted from leaving us by the potential loss of the value of their
ownership interests. Similarly, in connection with our acquisition of Westwind,
many of the Westwind professionals received substantial amounts of common stock
(or shares exchangeable for common stock) in consideration of their ownership
interests in Westwind. Ownership of, and the ability to realize
equity value from our common stock (or shares exchangeable for our common
stock), unlike that of ownership interests in Westwind, does not depend on
continued employment and these professionals are not restricted from leaving us
by potential loss of the value of their ownership interests. These shares of
common stock (and shares exchangeable for common stock) are subject to certain
restrictions on transfer and a portion are pledged to secure liquidated damages
obligations to us as set forth in the Partners’ Equity Agreement and the
Westwind Capital Corporation Shareholders’ Equity Agreement, each of which has
been filed as an exhibit to this Annual Report on Form 10-K. However, these
agreements will survive for only a limited period and will permit any
professional that is party thereto to leave us without losing any of their
shares of common stock (or shares exchangeable for common stock) if they comply
with these agreements, and, in some cases, compliance with these agreements may
also be waived. Consequently, the steps we have taken to encourage the continued
service of these individuals after our initial public offering may not be
effective.
If any of
our professionals were to join an existing competitor or form a competing
company, some of our clients could choose to use the services of that competitor
instead of our services. The compensation arrangements, non-competition
agreements and lock-up agreements we have entered into with certain of our
professionals may not prove effective in preventing them from resigning to join
our competitors and the non-competition agreements may not be upheld if we were
to seek to enforce our rights under these agreements.
If we are
unable to retain our professionals or recruit additional professionals, our
reputation, business, financial condition, results of operations and cash flows
may be materially adversely affected.
Our
efforts to limit compensation and benefits expense may hinder our ability to
retain our professionals and recruit additional
professionals.
Competitive
pressures may require that our compensation and benefits expense increase in
order to retain our professionals and recruit additional
professionals. Further, new business initiatives and efforts to
expand existing businesses generally require that we incur compensation and
benefits expense before realizing associated additional revenues. Additionally,
we have granted equity awards in connection with our initial public offering and
as part of our compensation and hiring process, the full expense of which is
recognized pro rata over a three- or four-year vesting period. The
future expense associated with these grants could result in an increase to our
compensation and benefits expense in 2009 and subsequent
years.
As of
December 31, 2008, there was (i) $1.2 million of unrecognized compensation
expense related to non-vested restricted stock unit awards made in connection
with our initial public offering, which is expected to be recognized over a
weighted-average period of 0.1 years and (ii) an additional $38.8 million of
unrecognized compensation expense related to non-vested restricted stock unit
awards made subsequent to our initial public offering, which is expected to be
recognized over a weighted-average period of 2.7 years.
Pricing
and other competitive pressures may impair the revenues and profitability of our
brokerage business.
We derive
a significant portion of our revenues from our brokerage business. Along with
other brokerage companies, we have experienced intense price competition in this
business in recent years. In particular, the ability to execute trades
electronically and through other alternative trading systems has increased the
pressure on trading commissions, volume and spreads and has required us to make
investments in our brokerage business in order to compete. We expect this trend
toward alternative trading systems to continue. We believe we may experience
competitive pressures in these and other areas as some of our competitors seek
to obtain market share by competing on the basis of price. In addition, we face
pressure from our larger competitors, which may be better able to offer a
broader range of complementary products and services to brokerage clients in
order to win their trading business. As we are committed to maintaining our
comprehensive research coverage to support our brokerage business, we may be
required to make substantial investments in our research capabilities. If we are
unable to compete effectively with our competitors in these areas, brokerage
revenues may decline and our business, financial condition, results of
operations and cash flows may be adversely affected.
We
face strong competition from larger firms.
The
brokerage, investment banking and asset management industries are intensely
competitive, and we expect them to remain so. We compete on the basis of a
number of factors, including client relationships, reputation, the abilities and
past performance of our professionals, market focus and the relative quality and
price of our services and products. We have experienced intense price
competition with respect to our brokerage business, including large block
trades, spreads and trading commissions, as well as competition due to the
increased use of commission sharing arrangements. Pricing and other competitive
pressures in investment banking, including the trends toward multiple book
runners, co-managers and multiple financial advisors handling transactions, have
continued and could adversely affect our revenues, even during periods where the
volume and number of investment banking transactions are increasing. Competitive
factors with respect to our asset management activities include the amount of
firm capital we can invest in new products and our ability to increase assets
under management, including our ability to attract capital for new investment
funds. We believe we may experience competitive pressures in these and other
areas in the future as some of our competitors seek to obtain market share by
competing on the basis of price.
We are a
relatively small investment bank with approximately 500 employees as of March
13, 2009 and had approximately $51.8 million of excess regulatory capital at
December 31, 2008. Many of our competitors in the brokerage, investment banking
and asset management industries have a broader range of products and services,
greater financial and marketing resources, larger customer bases, greater name
recognition, more senior professionals to serve their clients’ needs, greater
global reach and more established relationships with clients than we have. These
larger and better capitalized competitors may be better able to respond to
changes in the brokerage, investment banking and asset management industries, to
compete for skilled professionals, to finance acquisitions, to fund internal
growth and to compete for market share generally.
Notwithstanding
the displacement in the financial services industry that occurred in 2008, the
scale of our competitors has increased over time as a result of substantial
consolidation among companies in the brokerage and investment banking
industries. In addition, a number of large commercial banks, insurance companies
and other broad-based financial services firms have established or acquired
underwriting or financial advisory practices and broker-dealers or have merged
with other financial institutions. These firms have the ability to offer a wider
range of products than we do, which may enhance their competitive position. They
also have the ability to support investment banking with commercial banking,
insurance and other financial services in an effort to gain market share, which
has resulted, and could further result, in pricing pressure in our businesses.
In particular, the ability to provide financing has become an important
advantage for some of our larger competitors and, because we do not provide such
financing, we may be unable to compete as effectively for clients in a
significant part of the brokerage and investment banking
market.
If we are
unable to compete effectively with our competitors, our business, financial
condition, results of operations and cash flows will be adversely
affected.
We
have incurred losses and may incur losses in the future.
We
recorded net losses of $203.3 million for the year ended December 31, 2008
and may incur losses in the future. If we are unable to finance future losses,
those losses may have a significant effect on our liquidity as well as our
ability to operate.
In
addition, we may incur significant expenses in connection with initiating new
business activities or in connection with any expansion of our underwriting,
brokerage or asset management businesses. We may also engage in
strategic acquisitions and investments for which we may incur significant
expenses. Accordingly, we will need to increase our revenues at a rate greater
than our expenses to achieve and maintain profitability. If our revenues do not
increase sufficiently, or even if our revenues increase but we are unable to
manage our expenses, we will not achieve and maintain profitability in future
periods.
Our
capital markets and strategic advisory engagements are singular in nature and do
not generally provide for subsequent engagements.
Our
strategy is to take a lifecycle approach in providing investment banking
services to our clients, however, our investment banking clients generally
retain us on a short-term, engagement-by-engagement basis in connection with
specific capital markets or mergers and acquisitions transactions, rather than
on a recurring basis under long-term contracts. As these transactions are
typically singular in nature and our engagements with these clients may not
recur, we must seek out new engagements when our current engagements are
successfully completed or are terminated. As a result, high activity levels in
any period are not necessarily indicative of continued high levels of activity
in any subsequent period. If we are unable to generate a substantial number of
new engagements and generate fees from the successful completion of these
transactions, our business, financial condition, results of operations and cash
flows would likely be adversely affected.
A
significant portion of our brokerage revenues are generated from a relatively
small number of institutional clients.
A
significant portion of our brokerage revenues are generated from a relatively
small number of institutional clients. For example, in 2008 we generated 26% of
our brokerage revenue, or approximately 18% of our net revenues, from our ten
largest brokerage clients. Similarly, in 2007 we generated 22% of our brokerage
revenue, or approximately 9% of our net revenues, from our ten largest brokerage
clients. If any of our key clients departs or reduces its business
with us and we fail to attract new clients that are capable of generating
significant trading volumes, our business, financial condition, results of
operations and cash flows will be adversely affected.
Poor
investment performance, pricing pressure and other competitive factors may
reduce our asset management revenues or result in losses.
As part
of our strategy, we are investing in the expansion of our asset management
business. Our revenues from this business are primarily derived from management
fees which are based on committed capital and/or assets under management and
incentive fees, which are earned if the return of our investment funds exceeds
certain threshold returns. Our ability to maintain or increase assets under
management is subject to a number of factors, including investors’ perception of
our past performance, market or economic conditions, competition from other fund
managers and our ability to negotiate terms with major
investors.
Investment
performance is one of the most important factors in retaining existing clients
and competing for new asset management and private equity business and our
historical performance may not be indicative of future results. Poor investment
performance and other competitive factors could reduce our revenues and impair
our growth in many ways:
|
·
|
existing
clients may withdraw funds from our asset management business in favor of
better performing products;
|
|
·
|
our
incentive fees could decline or be eliminated
entirely;
|
|
·
|
firms
with which we have business relationships may terminate these
relationships with us;
|
|
·
|
our
capital investments in our investment funds or the seed capital we have
committed to new asset management products may diminish in value or may be
lost; and
|
|
·
|
our
key employees in the business may depart, whether to join a competitor or
otherwise.
|
Our
investment funds include gains and losses that have not yet been realized
through sales or other transactions. These unrealized gains and losses are
recognized in our results of operations because these investments are accounted
for in accordance with GAAP using the fair value method based on the percentage
interest in the underlying partnerships. The underlying investments held by
such partnerships are valued based on quoted market prices or estimated fair
value if there is no public market. Due to the inherent uncertainty of
valuation, fair values of these non-marketable investments may differ from the
values that would have been used had a ready market existed for these
investments, which differences could be material, and these differences may
result in increased volatility in our asset management
revenues.
To the
extent our future investment performance is perceived to be poor in either
relative or absolute terms, our asset management revenues will likely be reduced
and our ability to raise new funds will likely be impaired. Even when market
conditions are generally favorable, our investment performance may be adversely
affected by our investment style and the particular investments that we
make.
In
addition, over the past several years, the size and number of investment funds,
including exchange-traded funds, hedge funds and private equity funds, has
continued to increase. This trend came to an end recently with the contraction
of the credit markets and the general downturn of the economy, which have been
major contributors to a reduction in the available investor capital
pool. This, coupled with the over-allocation of many institutional
investors to the alternative asset fund class, could make it increasingly
difficult for us to raise capital for new investment funds. Also,
difficult market conditions have decreased the value of assets under management
in our asset management and private client business, which decreases the amount
of asset-based fees we receive, and may also affect our ability to attract
additional, or retain existing, assets under management within these
businesses.
Increases
in capital commitments in our trading, underwriting and other businesses
increase the potential for significant losses.
The trend
in capital markets is toward larger and more frequent commitments of capital by
financial services firms in many of their activities. For example, in order to
attract clients, investment banks are increasingly committing capital to
purchase large blocks of stock from publicly-traded issuers or their significant
shareholders, instead of the more traditional marketed underwriting process, in
which marketing is typically completed before an investment bank commits capital
to purchase securities for resale. We have participated in this trend and expect
to continue to do so. As a result, we will be subject to increased risk as we
commit greater amounts of capital to facilitate primarily client-driven
business. Furthermore, we may suffer losses even when economic and market
conditions are generally favorable for others in the
industry.
We may
enter into large transactions in which we commit our own capital as part of our
trading business. The number and size of these large transactions may materially
affect our financial condition, results of
operations and cash flows
in a given period. We may also incur significant losses from our trading
activities due to market fluctuations and volatility from quarter to quarter. We
maintain trading positions in the fixed income and equity markets to facilitate
client trading activities, and, at times, these positions can be large and
concentrated in a single issuer. To the extent that we own assets (hold long
positions), a downturn in the value of those assets or in those markets could
result in losses. Conversely, to the extent that we have sold assets we do not
own (hold short positions), an upturn in those markets could expose us to
potentially unlimited losses as we attempt to cover our short positions by
acquiring assets in a rising market.
We also
commit capital to investment funds we sponsor and utilize our own funds as seed
capital for new products and services in our asset management business. These
investments may diminish in value or may be lost entirely if market conditions
are not favorable.
Limitations
on our access to capital could impair our liquidity and our ability to conduct
our businesses.
Liquidity,
or ready access to funds, is essential to financial services firms. Failures of
financial institutions have often been attributable in large part to
insufficient liquidity. Liquidity is of particular importance to our trading
business and perceived liquidity issues may affect our clients’ and
counterparties’ willingness to engage in brokerage transactions with us. Our
liquidity could be impaired due to circumstances that we may be unable to
control, such as a general market disruption or an operational problem that
affects our trading clients, third parties or us. Further, our ability to sell
assets may be impaired if other market participants are seeking to sell similar
assets at the same time.
Our asset
management business is also subject to liquidity risk due to investments in
high-risk, illiquid assets. We have made substantial principal investments in
our investment funds and may make additional investments in future funds, which
often invest in securities that are not publicly traded. There is a significant
risk that we may be unable to realize our investment objectives by sale or other
disposition at attractive prices or may otherwise be unable to complete any exit
strategy. In particular, these risks could arise from changes in the financial
condition or prospects of the portfolio companies in which investments are made,
changes in national or international economic conditions or changes in laws,
regulations, fiscal policies or political conditions of countries in which
investments are made. It takes a substantial period of time to identify
attractive investment opportunities and then to realize the cash value of our
investments through resale. Even if an investment proves to be profitable, it
may be several years or longer before any profits can be realized in
cash.
We have
several broker-dealer subsidiaries in several different jurisdictions which are
each subject to the capital requirements of the relevant governmental and
self-regulatory authorities in those jurisdictions. For example, Thomas Weisel
Partners LLC, our largest broker-dealer subsidiary, is subject to the net
capital requirements of the SEC and various self-regulatory organizations of
which it is a member. These requirements typically specify the minimum level of
net capital a broker-dealer must maintain and also mandate that a significant
part of its assets be kept in relatively liquid form. Any failure to comply with
these net capital requirements could impair our ability to conduct our core
business as a brokerage firm. Furthermore, Thomas Weisel Partners LLC and our
other broker-dealer subsidiaries are subject to laws and regulations that
authorize regulatory bodies to block or reduce the flow of funds from them to
Thomas Weisel Partners Group, Inc. As a holding company, Thomas Weisel Partners
Group, Inc. depends on distributions and other payments from its subsidiaries to
fund all payments on its obligations, including debt obligations. As a result,
regulatory actions could impede access to funds that Thomas Weisel Partners
Group, Inc. needs to make payments on obligations, including debt
obligations.
Our
risk management policies and procedures may leave us exposed to unidentified or
unanticipated risk.
Our risk
management strategies and techniques may not be fully effective in mitigating
our risk exposure in all market environments or against all types of
risk.
Among
other risks, we are exposed to the risk that third parties that owe us money,
securities or other assets will not perform their obligations. These parties may
default on their obligations to us due to bankruptcy, lack of liquidity,
operational failure, breach of contract or other reasons. We are also subject to
the risk that our rights against third parties may not be enforceable in all
circumstances. As a clearing member firm, we finance our customer positions and
could be held responsible for the defaults or misconduct of our customers.
Although we regularly review credit exposures to specific clients and
counterparties and to specific industries and regions that we believe may
present credit concerns, default risk may arise from events or circumstances
that are difficult to detect or foresee. In addition, concerns about, or a
default by, one institution could lead to significant liquidity problems, losses
or defaults by other institutions, which in turn could adversely affect us.
Also, risk management policies and procedures that we utilize with respect to
investing our own funds or committing our capital with respect to investment
banking, trading activities or asset management activities may not protect us or
mitigate our risks from those activities. If any of the variety of
instruments, processes and strategies we utilize to manage our exposure to
various types of risk are not effective, we may incur losses.
Our
operations and infrastructure may malfunction or fail.
Our
businesses are highly dependent on our ability to process, on a daily basis, a
large number of increasingly complex transactions across diverse markets. Our
financial, accounting or other data processing systems may fail to operate
properly or become disabled as a result of events that are wholly or partially
beyond our control, including a disruption of electrical or communications
services or our inability to occupy one or more of our offices. The inability of
our systems to accommodate an increasing volume of transactions could also
constrain our ability to expand our businesses. If any of these systems do not
operate properly or are disabled, if we experience difficulties in conforming
these systems to changes in law or regulation or changes in our business
activities or if there are other shortcomings or failures in our internal
processes, people or systems, we could suffer an impairment to our liquidity,
financial loss, disruption of our businesses, liability to clients, regulatory
intervention or reputational damage.
We also
face the risk of operational failure of any of our clearing agents, the
exchanges, clearing houses or other financial intermediaries we use to
facilitate our securities transactions. Any such failure could adversely affect
our ability to effect transactions and to manage our exposure to
risk.
In
addition, our ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses and the
communities in which we are located. This may include a disruption due to
transitioning from one third-party service provider to another or due to a
disruption involving electrical, communications, transportation or other
services used by us or third parties with which we conduct business, whether due
to fire, other natural disaster, power or communications failure, act of
terrorism or war or otherwise. Nearly all of our employees in our primary
locations, including San Francisco, New York, Toronto, London and Boston,
work in close proximity to each other. If a disruption occurs in one location
and our employees in that location are unable to communicate with or travel to
other locations, our ability to service and interact with our clients may suffer
and we may not be able to implement successfully contingency plans that depend
on communication or travel. Insurance policies to mitigate these risks may not
be available or may be more expensive than the perceived benefit. Further, any
insurance that we may purchase to mitigate certain of these risks may not cover
our loss.
Our
operations also rely on the secure processing, storage and transmission of
confidential and other information in our computer systems and networks. Our
computer systems, software and networks may be vulnerable to unauthorized
access, computer viruses or other malicious code and other events that could
have a security impact. If one or more of such events occur, this potentially
could jeopardize our or our clients’ or counterparties’ confidential and other
information processed and stored in, and transmitted through, our computer
systems and networks, or otherwise cause interruptions or malfunctions in our,
our clients’, our counterparties’ or third parties’ operations. We may be
required to expend significant additional resources to modify our protective
measures or to investigate and remediate vulnerabilities or other exposures, and
we may be subject to litigation and financial losses that are either not insured
against or not fully covered through any insurance maintained by
us.
Strategic
investments or acquisitions and joint ventures may result in additional risks
and uncertainties in our business.
We intend
to grow our business through both internal expansion and through strategic
investments, acquisitions or joint ventures. To the extent we make strategic
investments or acquisitions or enter into joint ventures, we face numerous risks
and uncertainties combining or integrating businesses, including integrating
relationships with customers, business partners and internal data processing
systems. In the case of joint ventures, we are subject to additional risks and
uncertainties in that we may be dependent upon, and subject to liability, losses
or reputational damage relating to, systems, controls and personnel that are not
under our control. In addition, conflicts or disagreements between us and our
joint venture partners may negatively impact our businesses.
Any
future acquisitions or joint ventures could entail a number of risks, including
problems with the effective integration of operations, the inability to maintain
key pre-acquisition business relationships, the inability to retain key
employees, increased operating costs, exposure to unanticipated liabilities,
risks of misconduct by employees not subject to our control, difficulties in
realizing projected efficiencies, synergies and cost savings, and exposure to
new or unknown liabilities.
Any
future growth of our business may require significant resources and/or result in
significant unanticipated losses, costs or liabilities. In addition, expansions,
acquisitions or joint ventures may require significant managerial attention,
which may be diverted from our other operations.
Our
international activities are subject to political, economic, legal, operational
and other risks that are inherent in operating in a foreign
country.
In
connection with our business activities in Canada, England and Switzerland, and
to the extent that we pursue other business opportunities outside the United
States, we will be subject to political, economic, legal, operational and other
risks that are inherent in operating in a foreign country, including risks of
possible nationalization, expropriation, price controls, capital controls,
exchange controls and other restrictive governmental actions, as well as the
outbreak of hostilities. In many countries, the laws and regulations applicable
to the securities and financial services industries are uncertain and evolving,
and it may be difficult for us to determine the exact requirements of local laws
in every market. Our inability to remain in compliance with local laws in a
particular foreign market could have a significant and negative effect not only
on our businesses in that market but also on our reputation generally. We are
also subject to the enhanced risk that transactions we structure might not be
legally enforceable in the relevant jurisdictions.
As
we expand our international operations, we will increase our exposure to foreign
currency risk.
As a
result of the expanded international operations, we hold assets, incur
liabilities, earn revenues and pay expenses in foreign currencies, including the
Canadian dollar, the Swiss franc and the pound sterling. Because our financial
statements will continue to be presented in U.S. dollars, we will be
required to translate assets, liabilities, income and expenses that relate to
our international operations and that are denominated in foreign currencies into
U.S. dollars at the then-applicable exchange rates. Consequently, increases
and decreases in the value of the U.S. dollar versus the various foreign
currencies will affect the value of these items in our financial statements,
even if their value has not changed in such foreign currencies. As a result, our
financial results could be more volatile as a result of our international
operations.
Evaluation
of our prospects may be more difficult in light of our limited operating
history.
Our
company was formed in 1998 and we have a limited operating history upon which to
evaluate our business and prospects. In addition, we acquired Westwind in 2008,
which was formed in 2002 and which also has a limited operating history. As a
relatively young enterprise, we are subject to the risks and uncertainties that
face a company during its formative development. Some of these risks and
uncertainties relate to our ability to attract and retain clients on a
cost-effective basis, expand and enhance our service offerings, raise additional
capital and respond to competitive market conditions. We may not be able to
address these risks adequately, and our failure to do so may adversely affect
our business and the value of an investment in our common
stock.
Despite
the completion of the Thomas Weisel Partners and Westwind integration, the
combined company may not realize synergies, efficiencies or cost
savings.
Prior to
the completion of the acquisition of Westwind in 2008, Thomas Weisel Partners
and Westwind operated independently. Despite the completion of the
integration of Westwind and Thomas Weisel Partners, there can be no assurance
that the combined company will realize any synergies, efficiencies or cost
savings or that any of these benefits will be achieved within a specific time
frame.
We
could be subject to unknown liabilities of Westwind, which could cause us to
incur substantial financial obligations and harm our
business.
Although
the former Westwind shareholders are required to indemnify us for certain
breaches of representations and warranties made in the arrangement agreement
governing our acquisition of Westwind, the shareholders’ obligation is subject
to monetary and time limitations. In addition, if we are entitled to
indemnification by the former Westwind shareholders, it may be costly to enforce
those rights and/or we may not be successful in collecting amounts we are
entitled to. If there are liabilities of Westwind of which we are not aware, we
may have little or no recourse against the former Westwind shareholders and may
be obligated to bear the costs of those liabilities. In addition, many of the
former Westwind shareholders have continued as employees of the combined company
following closing of the transaction. Accordingly, if an indemnifiable claim
does arise, we may need to weigh the need to be indemnified for that claim
against the potential employee distraction or damage to employee relations that
may result if we were to seek recourse for that claim.
As
a result of the acquisition of Westwind, we are subject to additional risks
relating to Westwind’s business.
As a
result of the acquisition of Westwind, we are subject to the risks relating to
Westwind’s business. Because the risks and uncertainties facing us may differ
from those that faced Westwind, the market price, financial condition, results
of operations and cash flows of the combined company may be affected by risks
and uncertainties different from those affecting us prior to the acquisition.
These risks include the following:
|
·
|
Westwind’s focus on specific
sectors of the economy
– Westwind’s investment banking business
focused principally on the mining and energy sectors of the economy. As a
result of the acquisition of Westwind, the combined company’s business has
more exposure to these sectors than Thomas Weisel Partners’ business had
prior to the transaction. Volatility in the business environment in these
sectors generally, including the related commodities markets, or in the
market for securities of companies within these sectors, could
substantially affect our business, financial condition, results of
operations and cash flows.
|
|
·
|
Westwind’s focus on
Canada
– Westwind generated a substantial majority of its revenues
from Canadian-based clients. As a result, Westwind’s business and results
of operations was highly dependent on the strength of the Canadian
economy. As a result of the acquisition of Westwind, we expect that a
significant portion of the combined company’s business will be derived
from Canadian-based clients. Accordingly, our business will be affected by
changes in the Canadian economy and investment activity in Canada. To the
extent that we experience a decline in business in Canada, due to
unfavorable conditions in the Canadian economy or otherwise, we may not be
able to offset these declines by increases in other aspects of our
business and our financial results could
suffer.
|
Risks
Related to Our Industry
Risks
associated with regulatory impact on capital markets.
Highly-publicized
financial scandals in recent years have led to investor concerns over the
integrity of the U.S. financial markets, and have prompted Congress, the
SEC and FINRA to significantly expand corporate governance and public disclosure
requirements. To the extent that private companies, in order to avoid becoming
subject to these new requirements, decide to forgo initial public offerings, our
equity underwriting business may be adversely affected. In addition, provisions
of the Sarbanes-Oxley Act of 2002 and the corporate governance rules imposed by
self-regulatory organizations have diverted many companies’ attention away from
capital market transactions, including securities offerings and acquisition and
disposition transactions. In particular, companies that are or are planning to
be public are incurring significant expenses in complying with the SEC and
accounting standards relating to internal control over financial reporting, and
companies that disclose material weaknesses in such controls under the new
standards may have greater difficulty accessing the capital markets. These
factors, in addition to adopted or proposed accounting and disclosure changes or
changes in laws and regulations governing brokerage and research activities, may
have an adverse effect on our business.
Financial
services firms have been subject to increased scrutiny over the last several
years, increasing the risk of financial liability and reputational harm
resulting from adverse regulatory actions.
Firms in
the financial services industry have been operating in a difficult regulatory
environment. The U.S. financial services industry has experienced increased
scrutiny from a variety of regulators, including the SEC, FINRA and state
attorneys general. Penalties and fines sought by regulatory authorities have
increased substantially over the last several years. This regulatory and
enforcement environment has created uncertainty with respect to a number of
transactions that had historically been entered into by financial services firms
and that were generally believed to be permissible and appropriate. We may be
adversely affected by changes in the interpretation or enforcement of existing
laws and rules by these governmental authorities and self-regulatory
organizations. We also may be adversely affected as a result of new or revised
legislation or regulations imposed by the SEC, other United States or foreign
governmental regulatory authorities or self-regulatory organizations that
supervise the financial markets. Among other things, we could be fined,
prohibited from engaging in some of our business activities or subject to
limitations or conditions on our business activities. Substantial legal
liability or significant regulatory action against us could have material
adverse financial effects or cause significant reputational harm to us, which
could seriously harm our business prospects.
In
addition, financial services firms are subject to numerous conflicts of interest
or perceived conflicts. The SEC and other federal and state regulators have
increased their scrutiny of potential conflicts of interest. We have adopted
various policies, controls and procedures to address or limit actual or
perceived conflicts and regularly seek to review and update our policies,
controls and procedures. However, appropriately dealing with conflicts of
interest is complex and difficult, and our reputation could be damaged if we
fail, or appear to fail, to deal appropriately with conflicts of interest. Our
policies and procedures to address or limit actual or perceived conflicts may
also result in increased costs, additional operational personnel and increased
regulatory risk. Failure to adhere to these policies and procedures may result
in regulatory sanctions or client litigation.
Our
exposure to legal liability is significant, and damages that we may be required
to pay and the reputational harm that could result from legal action against us
could materially adversely affect our businesses.
We face
significant legal risks in our businesses, and, in recent years, the volume of
claims and amount of damages sought in litigation and regulatory proceedings
against financial institutions have been increasing. These risks include
potential liability under securities or other laws for materially false or
misleading statements made in connection with securities offerings and other
transactions, potential liability for “fairness opinions” and other advice we
provide to participants in strategic transactions and disputes over the terms
and conditions of complex trading arrangements. We are also subject to claims
arising from disputes with employees for alleged discrimination or harassment,
among other things. These risks often may be difficult to assess or quantify,
and their existence and magnitude often remain unknown for substantial periods
of time.
Our role
as advisor to our clients on important underwriting or mergers and acquisitions
transactions involves complex analysis and the exercise of professional
judgment, including rendering “fairness opinions” in connection with mergers and
other transactions. Therefore, our activities may subject us to the risk of
significant legal liabilities to our clients and aggrieved third parties,
including shareholders of our clients who could bring securities class actions
against us. Our investment banking engagements typically include broad
indemnities from our clients and provisions to limit our exposure to legal
claims relating to our services, but these provisions may not protect us or may
not be enforceable in all cases. For example, an indemnity from a client that
subsequently is placed into bankruptcy is likely to be of little value to us in
limiting our exposure to claims relating to that client. As a result,
we may incur significant legal and other expenses in defending against
litigation and may be required to pay substantial damages for settlements and
adverse judgments. Substantial legal liability or significant regulatory action
against us could have a material adverse effect on our financial condition,
results of operations and cash flows or cause significant reputational harm to
us, which could seriously harm our business and
prospects.
Regulatory
and legal developments related to auction rate securities could adversely affect
our business.
Since
February 2008, the auctions through which most auction rate securities are sold
and interest rates are determined have failed, resulting in a lack of liquidity
for these securities. The failure of those auctions was a direct result of
decisions without warning by the broker-dealers that underwrote those auction
rate securities and managed the associated auctions not to commit the capital
needed to maintain those auctions.
We,
together with many other firms in the financial services industry, have received
inquiries from FINRA requesting information concerning purchases through the
Company of auction rate securities by Private Client Services
customers. Separately, we have been named in a FINRA arbitration
filed by a Private Client Services retail customer who purchased auction rate
securities.
The
Company did not, at any time, underwrite auction rate securities or manage the
associated auctions. In connection with such auctions, the Company
merely served as agent for its Private Client Services customers when buying in
auctions managed by underwriters. Nevertheless, some combination of FINRA and/or
the Company’s Private Client Services customers could seek to compel the Company
to purchase auction rate securities from the Company’s customers, and the
Company does not have sufficient regulatory capital and cash or borrowing
capacity to repurchase all of the auction rate securities held by those
customers. The Company is and has been exploring a range of potential
solutions for its Private Client Services customers and strongly supports the
efforts of industry participants, including particularly the efforts of those
underwriters of auction rate securities who have entered into settlements with
the SEC and other regulators that contain “best efforts” commitments to
repurchase auction rate securities, to resolve issues relating to the lack of
liquidity for auction rate securities.
While the
Company’s review of the need for any loss contingency reserve in accordance with
Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies
,
has led the Company to conclude that, based upon currently available information
and consultation with its counsel, the Company does not currently need to
establish a provision for loss related to auction rate securities held by retail
clients, the Company is not able to predict with certainty the outcome of
auction securities related matters and there can be no assurance that those
matters will not have a material adverse effect on the Company’s results of
operations in any future period, and a significant judgment or settlement could
have a material adverse impact on the Company’s consolidated statements of
financial condition, operations and cash flows.
Employee
misconduct could harm us and is difficult to detect and
deter.
There
have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry in recent years, and
we run the risk that employee misconduct could occur at our company. For
example, misconduct by employees could involve the improper use or disclosure of
confidential information, which could result in regulatory sanctions and serious
reputational or financial harm. It is not always possible to deter employee
misconduct and the precautions we take to detect and prevent this activity may
not be effective in all cases, and we may suffer significant reputational harm
for any misconduct by our employees.
Risks
Related to Ownership of Our Common Stock
Taken
together, a significant percentage of our outstanding common stock and shares
exchangeable for common stock is owned or controlled by our senior professionals
and their interests may differ from those of other
shareholders.
Our Chief
Executive Officer, Thomas W. Weisel, beneficially owns approximately 8% of our
common stock outstanding, and our President and Chief Operating Officer, Lionel
F. Conacher, beneficially owns approximately 5% of our common stock outstanding
(including shares exchangeable for common stock). Mr. Weisel and Mr. Conacher,
together with the other members of our Executive Committee, collectively own
approximately 18% of our common stock outstanding (including shares exchangeable
for common stock), and together with our current employees own a significant
percentage of our common stock outstanding. As a result of these shareholdings,
our current employees are effectively able to elect our entire board of
directors, control our management and policies, in general, determine without
the consent of the other stockholders the outcome of any corporate transaction
or other matter submitted to the shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of our
assets. Our senior professionals are effectively able to prevent or
cause a change in control of us. These actions may be taken even if
other shareholders oppose them.
Provisions
of our organizational documents may discourage an acquisition of
us.
Our
organizational documents contain provisions that could impede the removal of
directors and may discourage a third party from making a proposal to acquire us.
For example, our board of directors may, without the consent of shareholders,
issue preferred stock with greater voting rights than our common stock. If a
change of control or change in management that shareholders might otherwise
consider to be favorable is prevented or delayed, the market price of our common
stock could decline.
Future
sales of our common stock could cause our stock price to decline and the trading
volume of our common stock may be volatile.
Sales of
substantial amounts of common stock by our senior professionals, employees and
other shareholders, or the possibility of such sales, may adversely affect the
price of our common stock, may impede our ability to raise capital through the
issuance of equity securities, and may cause trading volume in our common stock
to be volatile.
As of
December 31, 2008, there are 30,788,586 shares of our common stock
outstanding, including 6,639,478 exchangeable shares of TWP Acquisition Company
(Canada) Inc., one of our wholly-owned subsidiaries. Each
exchangeable share is exchangeable at any time into common stock of the
registrant on a one-for-one basis, entitles the holder to dividend and other
rights economically equivalent to those of the common stock, and through a
voting trust, votes at our stockholder meetings.
Of these
shares, up to approximately 13.7 million shares are freely transferable
without restriction or further registration under the Securities Act of 1933.
Subject to certain exceptions, the remaining approximately 17.1
million shares of common stock and shares exchangeable for common stock
will be available for future sale upon the expiration or the waiver of transfer
restrictions or in accordance with registration rights. In addition, since we
became a public company, we have granted (and will continue to grant in the
future) equity awards to our employees. Upon vesting and delivery of the shares
of common stock underlying these awards many employees may decide to sell all or
a portion of their shares in the public markets and these sales may happen at or
around the same time due to similar vesting dates or due to the limited periods
of time (trading windows) when we allow our employees to trade our common stock.
These factors may affect both the price of our common stock and the volume of
shares traded. For further information refer to the “Securities Authorized for
Issuance under Equity Compensation Plans” within Item 5 – “Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities” of this Annual Report on Form 10-K.
The
market price of our common stock may decline.
The price
of our common stock may fluctuate widely, depending upon many factors, which may
include, among others, actual or anticipated variations in quarterly operating
results, changes in financial estimates by us or by any securities analysts who
might cover our stock, or our failure to meet the estimates made by securities
analysts, announcements by us or our competitors or significant acquisitions,
strategic partnerships or divestitures, announcements by our competitors of
their financial or operating results, to the extent those announcements are
perceived by investors to be indicative of our future financial results or
market conditions, additions or departures of key personnel, sales of our common
stock, including sales of our common stock by our directors, officers and
employees or by our other principal stockholders, and cyclical changes in the
market in the growth sectors of the economy. For example, between
February 2, 2006 and December 31, 2008 our stock price on the Nasdaq stock
market has fluctuated between a low of $2.65 per share and a high of
$24.35 per share. The closing price of our common stock on December 31,
2008 was $4.72 per share.
Declines
in the price of our stock may adversely affect our ability to recruit and retain
key employees, including our senior professionals.
Your
interest in our firm may be diluted due to issuance of additional shares of
common stock.
Owners of
our common stock may experience dilution of their equity investment as a result
of our issuance of additional shares of common stock or securities that are
convertible into, or exercisable for, shares of our common stock. We may issue
additional shares of common stock in connection with any merger or acquisition
we undertake, in future public or private offerings to raise additional capital
or in satisfaction of currently outstanding restricted stock units, warrants and
options. For example, on January 2, 2008, we issued a total of 7,009,112 shares
of our common stock (and shares exchangeable for common stock) to former
shareholders of Westwind in connection with our acquisition of Westwind. We also
have granted and will continue to grant equity awards under our Equity Incentive
Plan as part of our compensation and hiring processes, and when these awards are
vested or become deliverable we will issue additional shares of common stock in
satisfaction thereof. As of December 31, 2008, there were 7,316,712
restricted stock units outstanding.
For
further information refer to the “Securities Authorized for Issuance under
Equity Compensation Plans” within Item 5 – “Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”
of this Annual Report on Form 10-K.
We
may be required to make substantial payments under indemnification
agreements.
In
connection with our initial public offering and our conversion to corporate
form, we entered into agreements that provide for the indemnification of our
members, partners, directors, officers and certain other persons authorized to
act on our behalf against certain losses that may arise out of our initial
public offering or the related reorganization transactions, certain liabilities
of our partners relating to the time they were members of Thomas Weisel Partners
Group LLC, and certain tax liabilities of our former members that may arise in
respect of periods prior to our initial public offering when we operated as a
limited liability company.
In
addition, in connection with acquisition transactions, such as our acquisition
of Westwind, and in connection with the ordinary conduct of our business, such
as in our relationship with our clearing brokers, we have provided and will
continue to provide indemnities to counterparties.
We may be
required to make payments under these indemnification agreements, which could
adversely affect our financial condition.
We
do not expect to pay any cash dividends in the foreseeable
future.
We intend
to retain any future earnings to fund the operation and expansion of our
business, and, therefore, we do not anticipate paying cash dividends in the
foreseeable future. Accordingly, our shareholders must rely on sales of their
shares of common stock after price appreciation, which may never occur, as the
only way to realize any future gains on an investment in our common stock.
Investors seeking cash dividends should not purchase our common
stock.
Item 1B.
Unresolved Staff
Comments
Our
principal operating locations are as follows, all of which are leased
facilities:
|
Location
|
|
Lease
Expiration Year(s)
|
|
Approximate
Size
(
in square
feet
)
|
|
Area
Subleased to Others
(
in square
feet
)
|
|
Facility
Character and Principal Business Use
|
|
San
Francisco, California
|
|
2010,
2012 and 2015
|
|
140,400
|
|
18,000
|
|
Corporate
Headquarters, Brokerage, Research, Investment Banking, Asset
Management
|
|
New
York, New York
|
|
2010
and 2016
|
|
75,500
|
|
20,400
|
|
Brokerage,
Research, Investment Banking, Asset Management
|
|
Boston,
Massachusetts
|
|
2010
|
|
19,100
|
|
3,800
|
|
Brokerage,
Research, Investment Banking, Asset Management
|
|
Toronto,
Canada
|
|
2019
|
|
20,000
|
|
—
|
|
Brokerage,
Research, Investment Banking
|
|
Calgary,
Canada
|
|
2013
|
|
8,100
|
|
2,600
|
|
Brokerage,
Research, Investment Banking
|
|
East
Palo Alto, California
|
|
2009
|
|
6,300
|
|
—
|
|
Asset
Management, Research
|
|
Zurich,
Switzerland
|
|
2011
|
|
5,400
|
|
—
|
|
Brokerage
|
|
Portland,
Oregon
|
|
2009
|
|
5,300
|
|
—
|
|
Asset
Management
|
|
London,
U.K.
|
|
2014
|
|
4,200
|
|
—
|
|
Brokerage,
Investment Banking, Research
|
|
Denver,
Colorado
|
|
2011
|
|
3,300
|
|
—
|
|
Research
|
|
Chicago,
Illinois
|
|
2010
|
|
2,000
|
|
—
|
|
Brokerage
|
In
addition, we lease approximately 19,100 square feet of office space in Menlo
Park, California, however all such office space has been sublet under separate
agreements. These sublease agreements are for the full term of our
original lease.
A
discussion of Legal Proceedings is included in Note 16 – Commitments, Guarantees
and Contingencies to the consolidated financial statements included in Item 15
of this Annual Report of Form 10-K.
There
were no matters submitted to a vote of security holders during the fourth
quarter of our year ended December 31, 2008.
Directors
and Executive Officers of the Registrant
Set forth
below is information concerning our board of directors and executive officers.
Each director will hold office until our next annual meeting of shareholders to
be held on May 20, 2009, and until a successor has been duly elected and
qualified. Executive officers are appointed by and serve at the discretion of
our board of directors.
|
Name
|
|
Age
|
|
Title
|
|
Thomas
W. Weisel
|
|
68
|
|
Director,
Chairman and Chief Executive Officer
|
|
Thomas
I.A. Allen
|
|
68
|
|
Director
|
|
Matthew
R. Barger
|
|
51
|
|
Director
|
|
Michael
W. Brown
|
|
63
|
|
Director
|
|
B.
Kipling Hagopian
|
|
67
|
|
Director
|
|
Alton
F. Irby III
|
|
68
|
|
Director
|
|
Timothy
A. Koogle
|
|
57
|
|
Director
|
|
Michael
G. McCaffery
|
|
55
|
|
Director
|
|
|
|
|
|
|
|
Lionel
F. Conacher
|
|
46
|
|
President
and Chief Operating Officer
|
|
Shaugn
S. Stanley
|
|
49
|
|
Chief
Financial Officer
|
|
Tom
Carbeau
|
|
36
|
|
Head
of Institutional Sales
|
|
Mark
P. Fisher
|
|
39
|
|
General
Counsel
|
|
Keith
Gay
|
|
50
|
|
Head
of Research
|
|
William
L. McLeod
|
|
43
|
|
Co-Head
of Investment Banking
|
|
Brad
Raymond
|
|
43
|
|
Co-Head
of Investment Banking
|
|
Paul
C. Slivon
|
|
50
|
|
Chairman
of Wealth Management
|
|
Anthony
V. Stais
|
|
43
|
|
Head
of
Trading
|
A brief
biography of each director and executive officer follows:
Thomas W. Weisel
has served
as our Chairman and Chief Executive Officer since October 1998 and has been a
director of Thomas Weisel Partners Group, Inc. since October 2005. Prior to
founding Thomas Weisel Partners, from 1978 until September 1998, Mr. Weisel
was Chairman and Chief Executive Officer of Montgomery Securities, an investment
banking and financial services firm. Mr. Weisel also founded and served as
President of Montgomery Sports, which was also known as Tailwind Sports.
Mr. Weisel received a bachelor of arts degree from Stanford University and
an M.B.A. from Harvard Business School.
Thomas I.A. Allen
has been a
director of Thomas Weisel Partners Group, Inc. since February 2008. Mr. Allen
was formerly a Partner and of Counsel to Ogilvy Renault LLP, an international
law firm based in Canada. Mr. Allen served as a director of Westwind
Capital Corporation, prior to its acquisition by Thomas Weisel Partners in
January 2008. Mr. Allen also serves as a director of Mundoro Mining Inc.,
Terra Nova Minerals Inc., YM BioSciences Inc. and Middlefield Bancorp
Limited. Mr. Allen is a Fellow of the Chartered Institute of Arbitrators
(London, England). He is also past Chairman of the Accounting Standards
Oversight Council of Canada and a former member of the Advisory Board of the
Office of the Superintendent of Financial Institutions of Canada and past
Chairman of the Corporate Finance Committee of the Investment Dealers
Association of Canada (IDA), a former public director of the IDA, and a former
member of the IDA’s Executive Committee. Mr. Allen holds a bachelor of
arts degree and an LL.B, both from the University of Western
Ontario.
Matthew R. Barger
has been a
director of Thomas Weisel Partners Group, Inc. since February
2007. Mr. Barger is currently a Senior Advisor to Hellman &
Friedman LLC, a private equity firm. Mr. Barger joined Hellman &
Friedman in 1984 and has held several positions during his tenure, including
that of Managing General Partner. Prior to joining Hellman
& Friedman, Mr. Barger was an associate in the Corporate Finance Department
of Lehman Brothers Kuhn Loeb. Mr. Barger serves as a Director of Hall
Capital Partners, an investment advisory firm, and as an Advisory Board member
of Artisan Partners and of Mondrian Investment Partners, both investment
advisory firms. Mr. Barger holds a bachelor’s degree from Yale
University and an M.B.A. from the Stanford Graduate School of
Business.
Michael W. Brown
has been a
director of Thomas Weisel Partners Group, Inc. since February 2007. Mr.
Brown was an officer of Microsoft Corporation from December 1989 through July
1997, serving as Vice President and Chief Financial Officer from August 1994 to
July 1997, as Vice President - Finance from April 1993 to August 1994 and as
Treasurer from January 1990 to April 1993. Prior to joining Microsoft, Mr.
Brown spent 18 years with Deloitte & Touche LLP in various positions.
Mr. Brown is also a Director of EMC Corporation, a provider of information
management systems, software and services, a Director of VMware, Inc., a
provider of computer virtualization solutions, and a Director of Administaff,
Inc., a professional employer organization providing services such as payroll
and benefits administration. Mr. Brown is also a director of several
private companies. Mr. Brown is a past Chairman of the Nasdaq Stock Market
Board of Directors and a past governor of the National Association of
Securities. Mr. Brown holds a bachelor of science degree in economics from the
University of Washington in Seattle.
B. Kipling Hagopian
has
been a director of Thomas Weisel Partners Group, Inc. since January 2006.
Mr. Hagopian was a founder of Brentwood Associates, a venture capital
investment company, and was a general partner of all of the funds started by
Brentwood Associates from inception in 1972 until 1996. He has been a Special
Limited Partner of each of the five Brentwood funds started since 1989, and he
is a Special Advisory Partner to Redpoint Ventures I, which is a successor
to Brentwood Associates’ information technology funds. Mr. Hagopian is also
Chairman and President of Segue Productions, a feature film production company,
and he is a Managing Partner of Apple Oaks Partners LLC, a private investment
company which manages his own capital and the capital of one other individual.
Mr. Hagopian serves as Chairman of the board of directors of Maxim
Integrated Products, a semiconductor company. Mr. Hagopian holds a bachelor
of arts degree and an M.B.A., both from the University of California, Los
Angeles.
Alton F. Irby III
has been a
director of Thomas Weisel Partners, Group, Inc. since February 2008. Mr. Irby is
a founding partner of London Bay Capital LLC, a privately held investment firm,
which was founded in May 2006 and he was founding partner of Tricorn Partners
LLP, a privately held investment bank from May 2003 to May 2006. Prior to
founding Tricorn Partners, Mr. Irby was Chairman and Chief Executive Officer of
HawkPoint Partners, formerly known as National Westminster Global Corporate
Advisory, and was a founding partner of Hambro Magan Irby Holdings. He is the
chairman of ContentFilm plc and also serves as a director of McKesson
Corporation (and of one of McKesson Corporation’s U.K. subsidiaries) and several
other privately held firms. Mr. Irby holds a bachelor’s degree from the
Georgia Institute of Technology and served four years on active duty as an
intelligence officer in the U.S. Marine Corps.
Timothy A. Koogle
has been a
director of Thomas Weisel Partners Group, Inc. since January 2006. In 1978, Mr.
Koogle founded Phase 2, Inc., which was sold to Motorola, Inc. in 1981. Mr.
Koogle served in a number of executive management positions with Motorola
between 1981 and 1990. He was President of Intermec Corporation and Corporate
Vice President of its parent company, Western Atlas/ Litton, a multinational
technology company from 1990 to 1995. Mr. Koogle was the founding Chief
Executive Officer of Yahoo! Inc. from July 1995 to May 2001 and Chairman of the
Board of Directors of Yahoo! from 1999 to 2001. Mr. Koogle served as Vice
Chairman and Director of Yahoo! from May 2001 to August 2003. He is currently a
private venture investor engaged in the formation and growth of early stage
technology companies. He is also founder and Chief Executive Officer of
Serendipity Land Holdings, LLC, a private land development company, and the
Managing Director of The Koogle Foundation, a private philanthropic organization
focused on the education of underprivileged youth. Mr. Koogle holds a bachelor
of science degree from the University of Virginia and M.S. and D. Engr. degrees
in mechanical engineering from Stanford University.
Michael G. McCaffery
has been
a director of Thomas Weisel Partners Group, Inc. since January 2006. Mr.
McCaffery was the President and Chief Executive Officer of Stanford Management
Company, a division of Stanford University that manages the university’s
financial and real estate assets, from September 2000 to June 2006. Prior to
joining Stanford Management Company, Mr. McCaffery spent twelve years at
Robertson Stephens & Company Group, L.L.C., an investment banking and
financial services firm, serving as President and Chief Executive Officer from
January 1993 to December 1999 and subsequently as Chairman from January 2000 to
December 2000. Mr. McCaffery is a director of KB Home and serves as the Chief
Executive Officer and as a director of Makena Capital LLC, an investment
management firm. Mr. McCaffery received a bachelor of arts degree from Princeton
University and an M.B.A. from Stanford Business School. He also holds a B.A.
Honours and an M.A. as a Rhodes Scholar from Merton College at Oxford
University.
Lionel F. Conacher
joined
Thomas Weisel Partners as President in January 2008 in connection with the
acquisition of Westwind Capital Corporation and was also named our Chief
Operating Officer in March 2008. Prior to joining Thomas Weisel
Partners, Mr. Conacher served as an officer of Westwind since 2002, first as a
Managing Director and then as the Chief Executive Officer and
President. Prior to his employment by Westwind, Mr. Conacher held
positions with Citigroup, Brookfield Asset Management and National Bank
Financial. Mr. Conacher holds a bachelor’s degree from Dartmouth College in
Economics and Art History.
Shaugn S. Stanley
joined
Thomas Weisel Partners in 1998 and has served as Chief Financial Officer of
Thomas Weisel Partners since March 2008. Previously, Mr. Stanley served as Chief
Financial Officer of Thomas Weisel Partners from its founding in 1998 to 2001
and as a Managing Director from 2001 to 2008. Prior to joining Thomas
Weisel Partners, Mr. Stanley was Chief Financial Officer of Montgomery
Securities from 1996 to 1998 and Chief Financial Officer for the brokerage
division of Fidelity Investments from 1990 to 1996. Mr. Stanley received a
Bachelor of Science in Accounting degree from Stephen F. Austin State University
and is a Certified Public Accountant.
Tom Carbeau
joined Thomas
Weisel Partners in 2006 and has served as Senior Managing Director and Head of
Institutional Sales since April 2008. Prior to serving as Head of Institutional
Sales, Mr. Carbeau served as Director of Sales. Mr. Carbeau has over 14
years of experience in institutional sales, equity capital markets and corporate
finance. Prior to joining Thomas Weisel Partners, Mr. Carbeau was
Executive Director at CIBC World Markets from 2002 to 2006 and Vice President at
Morgan Stanley from 2000 to 2002. Mr. Carbeau received a Bachelor of Science
degree in finance from Georgetown University.
Mark P. Fisher
has served as
our General Counsel since May 2005. From January 1998 until May 2005, prior to
joining Thomas Weisel Partners, Mr. Fisher practiced corporate and
securities law at Sullivan & Cromwell LLP. Mr. Fisher received a
bachelor of arts degree from Stanford University, a J.D. from Harvard Law School
and a Ph.D. in economics from the University of Chicago.
Keith Gay
joined Thomas
Weisel Partners in 1999 and has served as our Head of Research since February
2008 and served as our Associate Director of Research prior to that time. Prior
to his becoming Associate Director of Research, Mr. Gay was a Research Analyst
who followed Applications Software in the Technology sector from 2000 to 2005 at
Thomas Weisel Partners. From 1996 until 1999, he was a Managing Director and a
Senior Research Analyst at NationsBanc Montgomery Securities, where he followed
the Education and Training sectors. Prior to his employment with NationsBanc
Montgomery Securities, Mr. Gay was a Vice President in Investment Banking at
Merrill Lynch & Co., where he covered the General Industrials sector. He
entered the investment banking business following a ten-year career in the U.S.
Air Force, where he was an Assistant Professor at the U.S. Air Force Academy
Department of Management. Mr. Gay received a Bachelor of Arts degree in
Economics from the University of California at Los Angeles and a Master of
Business Administration degree from the Anderson School at the University of
California at Los Angeles.
William L. McLeod
joined
Thomas Weisel Partners in 2004 and has served as Co-Head of Investment Banking
and Director of Capital Markets since July 2007. Prior to serving as Co-Director
of Investment Banking, Mr. McLeod served as a Managing Director with Thomas
Weisel Partners’ Investment Banking department. Mr. McLeod has over 17
years of Wall Street investment banking experience, including, prior to joining
Thomas Weisel Partners, at Banc of America Securities, as Co-Head of U.S. Equity
Capital Markets, and at J.P. Morgan Securities. Mr. McLeod has a bachelor’s
degree from Southern Methodist University and an M.B.A. from the University of
Chicago.
Brad Raymond
joined Thomas
Weisel Partners in 2004 and has served as Co-Head of Investment Banking since
July 2007. Prior to serving as Co-Director of Investment Banking, Mr. Raymond
served as a Managing Director with Thomas Weisel Partners’ Investment Banking
department. Mr. Raymond has more than 14 years of investment banking experience,
with a focus on the technology sector. Prior to joining Thomas Weisel Partners,
Mr. Raymond was affiliated with Morgan Stanley from 1999 to 2004, including
serving as Co-Head of Software Investment Banking. In addition, Mr. Raymond
worked within the technology investment banking groups at both J.P. Morgan
Securities and Alex. Brown & Sons. Mr. Raymond has a bachelor’s degree from
Harvard College and an M.B.A. from the Haas School of Business at the University
of California at Berkeley.
Paul C. Slivon
joined Thomas
Weisel Partners in 1999 and has served as our Chairman of Wealth Management
since April 2008. Prior to serving as our Chairman of Wealth Management,
Mr. Slivon was Head of Institutional Sales from 2001 to 2008 and a Partner in
Institutional Sales from 1999 to 2001. Prior to joining Thomas Weisel Partners,
Mr. Slivon served as Managing Director of Institutional Sales at Robertson
Stephens & Company Group, L.L.C., an investment banking and financial
services firm from January 1993 until January 1999. Previously, Mr. Slivon
was Senior Vice President of Kemper Securities. Mr. Slivon received a
bachelor of arts degree from Amherst College and an M.B.A. from the University
of California, Los Angeles.
Anthony V. Stais
has served
as our Head of Trading since September 2006, and previously served as
Co-Director of Trading since June 2005. Mr. Stais joined Thomas Weisel Partners
in January 2001 and served as our Director of Sales-Trading from January 2001 to
June 2005. Prior to joining Thomas Weisel Partners, between August 1987 and
January 2001, Mr. Stais worked at Goldman Sachs, Merrill Lynch and Salomon
Brothers in both institutional sales trading and wealth management. Mr. Stais
received a bachelor of arts degree from Bowdoin College.
There are
no family relationships among any of our directors and executive officers. There
are no contractual obligations regarding election of our directors, except that
we have agreed with Mr. Weisel in his employment agreement to take all
reasonable action to cause him to be appointed or elected to our board of
directors during his employment with us.
Issuer
Purchases of Equity Securities
During
the three months ended December 31, 2008, we repurchased the following shares of
our common stock:
|
Month
|
|
Number
of Shares
|
|
Average
Purchase
Price
per Share
|
|
|
October
|
|
|
|
|
|
|
|
Employee
transactions (1)
|
|
4,667
|
|
$
|
6.96
|
|
|
November
|
|
|
|
|
|
|
|
Employee
transactions (1)
|
|
670
|
|
|
4.74
|
|
|
December
|
|
|
|
|
|
|
|
Share
repurchase (2)
|
|
27,039
|
|
|
4.04
|
|
|
Total
|
|
32,376
|
|
$
|
4.48
|
|
|
(1)
|
Includes
shares of common stock that were otherwise scheduled to be delivered to
employees in respect of vesting Restricted Stock Units. These
shares were withheld from delivery (under the terms of grants under the
Equity Incentive Plan) to offset tax withholding obligations of the
employee recipients that occur upon the vesting of Restricted Stock
Units. In lieu of delivering these shares to the employee
recipients, we satisfied a portion of their tax withholding obligations
with cash in an amount equivalent to the value of such shares on the
scheduled delivery date.
|
|
(2)
|
These
repurchases were funded through cash and cash equivalents. The shares were
classified as treasury stock upon repurchase and we intend to use these
shares to settle obligations to deliver common stock in the future to
employees who have received Restricted Stock Units under our Equity
Incentive Plan.
|
The
repurchases referred to in the table above as “Share repurchases” were executed
pursuant to an authorization by our Board of Directors to repurchase up to
2,000,000 shares of common stock for the purpose of settling obligations to
deliver common stock in the future to employees who have received Restricted
Stock Units under our Equity Incentive Plan. Additional repurchases
pursuant to this authority may be carried out from time to time in the
future. Furthermore, our Board of Directors may authorize additional
repurchases for the purpose of settling obligations to deliver common stock in
the future to employees who have received Restricted Stock Units under our
Equity Incentive Plan.
Market
Information and Dividend Policy
Our
common stock is traded on The Nasdaq Stock Market, Inc. (“Nasdaq”) under the
symbol “TWPG”. In 2008, we voluntarily requested that our common stock be
delisted from the Toronto Stock Exchange where it traded under the symbol “TWP”.
The Toronto Stock Exchange subsequently granted our request. The following table
sets forth the quarterly high and low closing sale prices per share of our
common stock as reported by Nasdaq for each quarter during the following years
ended:
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First
Quarter
|
|
$
|
13.91
|
|
|
$
|
6.35
|
|
|
$
|
21.52
|
|
|
$
|
17.08
|
|
|
Second
Quarter
|
|
|
7.43
|
|
|
|
5.01
|
|
|
|
20.80
|
|
|
|
15.75
|
|
|
Third
Quarter
|
|
|
9.33
|
|
|
|
3.90
|
|
|
|
17.11
|
|
|
|
11.11
|
|
|
Fourth
Quarter
|
|
|
8.99
|
|
|
|
2.65
|
|
|
|
17.32
|
|
|
|
11.41
|
|
As of
December 31, 2008, there were approximately 110 holders of record of our common
stock.
This number
does not include stockholders for whom shares were held in “nominee” or “street”
name. No dividends have been declared or paid on our common stock. We do not
currently anticipate that we will pay any cash dividends on our common stock in
the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of December 31, 2008 with respect to
compensation plans under which equity securities of the registrant are
authorized for issuance:
|
Plan
Category
|
|
Plan
Name
|
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans
|
|
|
Equity
compensation plans approved by security holders
|
|
Thomas
Weisel Partners Group, Inc. Equity Incentive Plan
(1)
|
|
8,863,408
|
(2)
|
$ 10.40
|
(3)
|
2,286,592
|
|
|
Equity
compensation plans not approved by security holders
|
|
None
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
|
|
8,863,408
|
(2)
|
$ 10.40
|
(3)
|
2,286,592
|
(4)(5)
|
|
(1)
|
Approved
by Thomas Weisel Partners Group LLC as sole shareholder of Thomas Weisel
Partners prior to our initial public offering. Subsequent amendments to
the Equity Incentive Plan were approved by the shareholders of Thomas
Weisel Partners at the 2007 and 2008 Annual Meetings of
Shareholders. Total number of shares issuable under the plan as
of December 31, 2008 is 11,150,000.
|
|
(2)
|
These
shares of common stock may be issued pursuant to 8,594,859 outstanding
restricted stock units and 268,549 outstanding
options.
|
|
(3)
|
Under
the Thomas Weisel Partners Group, Inc. Equity Incentive Plan, no exercise
price is applicable to restricted stock units. The weighted-average
exercise price stated relates solely to the options issued under the
Equity Incentive Plan. As of December 31, 2008, there were
268,549 outstanding options with a weighted-average exercise price of
$10.40.
|
|
(4)
|
Number
of securities remaining available for future issuance does not reflect the
amendment to the Equity Incentive Plan to increase by 6,000,000 the number
of shares of our common stock available for awards thereunder, which was
approved by the shareholders of Thomas Weisel Partners Group, Inc. at the
Special Meeting of Shareholders on February 5,
2009.
|
|
(5)
|
Number
of securities remaining available for future issuance does not reflect
approximately 400,000 restricted stock units that were withheld from
delivery to offset tax withholding obligations of the employee recipients
upon the vesting of the restricted stock units in February
2009.
|
Performance
Graph
The
following graph and table compare:
|
|
·
|
the
performance of an investment in our common stock over the period of
February 3, 2006 through January 2, 2009, beginning with an investment at
the closing market price on February 3, 2006, the end of the first day our
common stock traded on the Nasdaq following our initial public offering,
and thereafter based on the closing price of our common stock on the
Nasdaq; with
|
|
|
·
|
an
investment in the Russell 2000 Growth Index and an investment in the
Standard and Poor’s Mid Cap Investment Banking & Brokerage Index
Sub-Industry Index (the “S&P Brokerage Sub-Industry Index”), in each
case, beginning with an investment at the closing price on February 2,
2006 and thereafter based on the closing price of the
index.
|
The graph
and table assume $100 was invested on the starting date at the price indicated
above and that dividends, if any, were reinvested on the date of payment without
payment of any commissions. The performance shown in the graph and
table represents past performance and should not be considered an indication of
future performance.
|
|
|
2/3/06
|
|
|
7/3/06
|
|
|
1/3/07
|
|
|
7/3/07
|
|
|
1/3/08
|
|
|
7/3/08
|
|
|
1/2/09
|
|
|
Thomas
Weisel Partners Group, Inc.
|
|
$
|
100.00
|
|
|
$
|
100.26
|
|
|
$
|
110.94
|
|
|
$
|
88.85
|
|
|
$
|
61.61
|
|
|
$
|
26.51
|
|
|
$
|
22.34
|
|
|
Russell
2000 Growth Index
|
|
$
|
100.00
|
|
|
$
|
98.72
|
|
|
$
|
103.94
|
|
|
$
|
115.75
|
|
|
$
|
108.23
|
|
|
$
|
97.00
|
|
|
$
|
69.01
|
|
|
S&P
Brokerage Sub-Industry Index
|
|
$
|
100.00
|
|
|
$
|
113.74
|
|
|
$
|
118.43
|
|
|
$
|
137.78
|
|
|
$
|
118.89
|
|
|
$
|
92.20
|
|
|
$
|
73.95
|
|
The
information provided above under the heading “Performance Graph” shall not be
considered “filed” for purposes of Section 18 of the Securities Exchange Act of
1934 or incorporated by reference in any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934.
Set forth
below is selected consolidated financial and other data of Thomas Weisel
Partners Group, Inc. (
in
thousands, except Selected Data and Ratios
). The Selected Data and Ratios
have been obtained or derived from our records. The data below should be read in
conjunction with Item 1A – “Risk Factors”, Item 7 – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”, our consolidated
financial statements and the notes to our consolidated financial statements. In
January 2008, we acquired Westwind. The results of Westwind have been included
in our consolidated financial statements since January 2,
2008.
|
|
|
As
of or For the Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statement
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
$
|
63,305
|
|
|
$
|
127,228
|
|
|
$
|
124,136
|
|
|
$
|
75,300
|
|
|
$
|
84,977
|
|
|
Brokerage
|
|
|
131,939
|
|
|
|
120,187
|
|
|
|
123,809
|
|
|
|
138,497
|
|
|
|
154,746
|
|
|
Asset
management
|
|
|
(7,120
|
)
|
|
|
33,414
|
|
|
|
25,752
|
|
|
|
36,693
|
|
|
|
44,009
|
|
|
Interest
income
|
|
|
7,341
|
|
|
|
17,718
|
|
|
|
13,525
|
|
|
|
5,510
|
|
|
|
3,148
|
|
|
Other
revenue
|
|
|
—
|
|
|
|
920
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
195,465
|
|
|
|
299,467
|
|
|
|
287,222
|
|
|
|
256,000
|
|
|
|
286,880
|
|
|
Interest
expense
|
|
|
(5,938
|
)
|
|
|
(10,418
|
)
|
|
|
(10,905
|
)
|
|
|
(5,114
|
)
|
|
|
(3,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
189,527
|
|
|
|
289,049
|
|
|
|
276,317
|
|
|
|
250,886
|
|
|
|
283,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
147,186
|
|
|
|
187,902
|
|
|
|
152,195
|
|
|
|
154,163
|
|
|
|
146,078
|
|
|
Non-compensation
expenses
|
|
|
237,893
|
|
|
|
103,920
|
|
|
|
97,997
|
|
|
|
101,594
|
|
|
|
112,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses excluding interest
|
|
|
385,079
|
|
|
|
291,822
|
|
|
|
250,192
|
|
|
|
255,757
|
|
|
|
258,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before taxes
|
|
|
(195,552
|
)
|
|
|
(2,773
|
)
|
|
|
26,125
|
|
|
|
(4,871
|
)
|
|
|
24,726
|
|
|
Provision
for taxes (tax benefit)
|
|
|
7,700
|
|
|
|
(2,793
|
)
|
|
|
(8,796
|
)
|
|
|
2,187
|
|
|
|
2,044
|
|
|
Net
income (loss)
|
|
|
(203,252
|
)
|
|
|
20
|
|
|
|
34,921
|
|
|
|
(7,058
|
)
|
|
|
22,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Preferred dividends and accretion
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,608
|
)
|
|
|
(15,654
|
)
|
|
|
(15,761
|
)
|
|
Net
income (loss) attributable to common shareholders and to Class A, B and C
shareholders
|
|
$
|
(203,252
|
)
|
|
$
|
20
|
|
|
$
|
33,313
|
|
|
$
|
(22,712
|
)
|
|
$
|
6,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
281,650
|
|
|
$
|
586,680
|
|
|
$
|
483,189
|
|
|
$
|
312,823
|
|
|
$
|
309,174
|
|
|
Total
liabilities
|
|
|
109,749
|
|
|
|
313,053
|
|
|
|
216,135
|
|
|
|
199,428
|
|
|
|
178,206
|
|
|
Total
redeemable convertible preference stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
223,792
|
|
|
|
221,635
|
|
|
Shareholders’
and members’ equity (deficit)
|
|
|
171,901
|
|
|
|
273,627
|
|
|
|
267,054
|
|
|
|
(110,397
|
)
|
|
|
(90,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt,
including capital lease obligations
|
|
|
22,253
|
|
|
|
27,420
|
|
|
|
32,499
|
|
|
|
19,539
|
|
|
|
16,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Investment
banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of transactions
|
|
|
82
|
|
|
|
83
|
|
|
|
87
|
|
|
|
63
|
|
|
|
88
|
|
|
Revenue
per transaction (
in
millions
)
|
|
$
|
0.77
|
|
|
$
|
1.53
|
|
|
$
|
1.43
|
|
|
$
|
1.15
|
|
|
$
|
0.93
|
|
|
Brokerage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
daily brokerage revenue (
in
millions
)
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
0.55
|
|
|
$
|
0.61
|
|
|
Equity
research:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
analysts
|
|
|
37
|
|
|
|
29
|
|
|
|
30
|
|
|
|
39
|
|
|
|
32
|
|
|
Companies
covered
|
|
|
500
|
|
|
|
480
|
|
|
|
485
|
|
|
|
565
|
|
|
|
469
|
|
|
Number
of companies covered per publishing analyst
|
|
|
14
|
|
|
|
17
|
|
|
|
16
|
|
|
|
14
|
|
|
|
15
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of employees
|
|
|
641
|
|
|
|
632
|
|
|
|
565
|
|
|
|
548
|
|
|
|
540
|
|
|
|
|
For
the Year Ended
|
|
|
|
|
December 31,
2006
|
|
|
Pro
forma, as adjusted (unaudited)
(1)
|
|
|
|
|
|
Pro
forma net revenues (2)
|
|
$
|
276,179
|
|
|
Pro
forma income before tax (2)
|
|
|
25,987
|
|
|
Pro
forma tax benefit (3)
|
|
|
(7,363
|
)
|
|
Pro
forma net income (2) (3)
|
|
|
33,350
|
|
|
Pro
forma preferred dividends and accretion
|
|
|
—
|
|
|
Pro
forma net income attributable to common shareholders and to Class A, B and
C shareholders (2) (3)
|
|
|
33,350
|
|
|
|
|
|
|
|
|
Pro
forma earnings per share:
|
|
|
|
|
|
Pro
forma basic earnings per share
|
|
$
|
1.39
|
|
|
Pro
forma diluted earnings per share
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
Pro
forma weighted average shares used in the computation of per share
data:
|
|
|
|
|
|
Pro
forma basic weighted average shares outstanding
|
|
|
23,980
|
|
|
Pro
forma diluted weighted average shares outstanding
|
|
|
24,945
|
|
|
|
|
(1)
|
The
pro forma, as adjusted amounts depict results we estimate we would have
had during the year ended December 31, 2006 if the reorganization
transactions had taken place on January 1, 2006, as these amounts change
tax expense to amounts that we estimate we would have paid if we were a
corporation beginning January 1, 2006. Additionally, these amounts
decrease net revenues by the amount of interest expense on notes payable
issued to preferred shareholders upon consummation of the reorganization
transactions. The amounts for the year ended December 31, 2006
reflect pro forma results of operations as if these transactions had
occurred on January 1, 2006. See Note 20 – Pro Forma, As Adjusted
(Unaudited) to the consolidated financial
statements.
|
|
(2)
|
Reflects
decrease in net revenues and net income before tax of $0.1 million
for the estimated interest expense for the notes issued to Class D
and D-1 preferred shareholders.
|
|
(3)
|
On
a pro forma basis, the tax benefit for the year ended December 31, 2006
was decreased by the estimated additional tax expense of $1.5 million
as if we were a corporation beginning January 1, 2006. The additional tax
expense is attributable to our applicable tax rate, a combination of
Federal, state and local income tax rates, of 42% applied to our pro forma
net income for the period beginning January 1, 2006 through
February 6, 2006.
|
We are an
investment bank focused principally on growth companies and growth investors.
Our business is managed as a single operating segment and we generate revenues
by providing financial services that include investment banking, brokerage,
equity research and asset management. We take a comprehensive approach in
providing these services to growth companies.
We are
exposed to volatility and trends in the general securities market and the
economy, and we are currently facing difficult market and economic
conditions. Due to the recent downturn in the market and the economic
recession, client activity levels have decreased resulting in, among other
things, lower overall investment banking activity. It is difficult to
predict when conditions will change.
Fiscal
year 2008 was a very challenging environment for the capital markets given the
unprecedented events on Wall Street that led to increased uncertainty and
turmoil in the U.S. economy and global financial markets. We are
focused on making the necessary adjustments to our business and adapting to the
current environment. We are planning for 2009 to be a continuation of
2008 and are focused on the following items:
|
|
·
|
Preserving
capital and retaining key people in order to emerge as a strong player
once market stability returns,
|
|
|
·
|
Reducing
compensation and non-compensation expenses in order to operate break-even
on a cash basis or better, and
|
|
|
·
|
Enhancing
the value of our franchise with opportunistic hires, particularly in the
advisory business, to be ready to build market share when stability
returns to the capital markets.
|
In
January 2008, our headcount increased by approximately 100 employees as a result
of our acquisition of Westwind. Subsequent to the acquisition, during
2008 and through February 2009, we reduced our total headcount by approximately
250 employees, or approximately 34%. The reductions were primarily in
underperforming areas of our business as well as non-revenue producing
departments. As of March 13, 2009, we have approximately 500
employees. We will continue to selectively hire to upgrade our talent pool,
particularly in revenue generating areas, and make additional key hires as
appropriate.
In
addition to the headcount reductions noted above, base salaries for employees
with titles of Vice President and above were reduced by 10% as of January 1,
2009.
During
2008, in addition to the headcount and salary reductions discussed above, we
executed on the following initiatives:
|
|
·
|
Acquisition and Integration of
Westwind
– On January 2, 2008, we completed our acquisition of
Westwind, and integrating Westwind has been a primary focus during
2008. In September 2008, our two U.K. broker-dealer
subsidiaries, Thomas Weisel Partners International Limited and Thomas
Weisel Partners (UK) Limited, successfully merged into one entity. In
October 2008, we completed an internal reorganization of our U.S.
broker-dealer subsidiaries to eliminate redundancies and unnecessary
expense. As a result of this reorganization, the business of Thomas Weisel
Partners (USA) Inc. was consolidated with that of Thomas Weisel Partners
LLC.
One
of our ongoing integration strategies has been to expand our trading in
Canadian securities as our energy and mining analysts begin to make a
greater impact on our U.S. and European accounts, and we currently plan to
hire U.S. based energy bankers and analysts to capitalize on Westwind’s
capabilities in Canada. In Europe, where we integrated our
offices in early 2008, we have combined our sales forces and are marketing
the combined companies’ products and
expertise.
|
|
|
·
|
Repurchase of Common
Stock
– During 2008, we repurchased a total of 1,544,286 shares of
our common stock. The shares were classified as treasury stock
upon repurchase, and we intend to use these shares to settle obligations
to deliver common stock in the future to employees who have received
Restricted Stock Units under our Equity Incentive Plan. These repurchases
were executed pursuant to an authorization by our Board of Directors to
repurchase up to 2,000,000 shares of common stock for the purpose of
settling obligations to deliver common stock to employees who have
received restricted stock units under our Equity Incentive
Plan. Additional repurchases pursuant to this authority may be
carried out and our Board of Directors may authorize additional
repurchases in the future.
|
|
|
·
|
Key Producer Restricted Stock
Unit Plan
– As part of a special retention and incentive program,
we granted restricted stock unit equity awards to senior employees of the
Company as a means of incentivizing and retaining our key
producers. An aggregate of 2,970,000 restricted stock units
were granted to employees in August 2008 and vest after the end of a
three-year period. In addition, we granted 550,000
performance-based awards to certain members of the Executive Committee
that vest upon the attainment of the Company’s long-term performance
goals.
|
|
|
·
|
Reduction of the Convertible
Book Size
– We have significantly reduced our convertible trading
book from approximately $190 million at December 31, 2007 to approximately
$6 million at December 31, 2008. We experienced losses during
the year ended December 31, 2008 related to the convertible book which we
do not expect to incur in 2009 due to the fact that we have significantly
reduced our exposure to convertible
securities.
|
|
|
·
|
Exiting of Facilities
–
We exited portions of our office facilities in San Francisco, New York,
Montreal and London due to staff reductions. As a result, we
recorded a lease loss provision of $6.0 million during the year ended
December 31, 2008.
|
Consolidated
Results of Operations
Our
results of operations depend on a number of market factors, including market
conditions and valuations for growth companies and growth investors, as well as
general securities market conditions. Trends in the securities markets are also
affected by general economic trends, including fluctuations in interest rates,
flows of funds into and out of the markets and other conditions. In addition to
these market factors, our revenues from period to period are substantially
affected by the timing of investment banking transactions in which we are
involved. Fees for many of the services we provide are earned only upon the
completion of a
transaction. Accordingly, our results of operations in any individual year or
quarter may be affected significantly by whether and when significant
transactions are completed.
Notwithstanding
this exposure to volatility and trends, in order to provide value to our
clients, we have made a long-term commitment to maintaining a substantial,
full-service integrated business platform. As a result of this commitment, if
business conditions result in decreases to our revenues, we may not experience
corresponding decreases in the expense of operating our business.
The
following table provides a summary of our results of operations (
dollar amounts in
thousands
):
|
|
For
the Year Ended December 31,
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
Net
revenues
|
|
$
|
189,527
|
|
|
$
|
289,049
|
|
|
$
|
276,317
|
|
|
|
(34.4
|
)%
|
|
|
4.6
|
%
|
|
Income
(loss) before taxes
|
|
|
(203,252
|
)
|
|
|
(2,773
|
)
|
|
|
26,125
|
|
|
|
nm
|
|
|
|
nm
|
|
|
Net
income (loss)
|
|
|
(203,252
|
)
|
|
|
20
|
|
|
|
34,921
|
|
|
|
nm
|
|
|
|
(99.9
|
)%
|
|
Net
income (loss) attributable to common shareholders and to Class A, B and C
shareholders
|
|
|
(203,252
|
)
|
|
|
20
|
|
|
|
33,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
The
following table sets forth our revenues, both in dollar amounts and as a
percentage of net revenues (
dollar amounts in
thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
$
|
63,305
|
|
|
$
|
127,228
|
|
|
$
|
124,136
|
|
|
|
(50.2
|
)%
|
|
|
2.5
|
%
|
|
Brokerage
|
|
|
131,939
|
|
|
|
120,187
|
|
|
|
123,809
|
|
|
|
(9.8
|
)
|
|
|
(2.9
|
)
|
|
Asset
management
|
|
|
(7,120
|
)
|
|
|
33,414
|
|
|
|
25,752
|
|
|
|
(121.3
|
)
|
|
|
29.8
|
|
|
Interest
income
|
|
|
7,341
|
|
|
|
17,718
|
|
|
|
13,525
|
|
|
|
(58.6
|
)
|
|
|
31.0
|
|
|
Other
revenue
|
|
|
—
|
|
|
|
920
|
|
|
|
—
|
|
|
|
(100.0
|
)
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
195,465
|
|
|
|
299,467
|
|
|
|
287,222
|
|
|
|
(34.7
|
)
|
|
|
4.3
|
|
|
Interest
expense
|
|
|
(
5,938
|
)
|
|
|
(10,418
|
)
|
|
|
(10,905
|
)
|
|
|
(
43.0
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
189,527
|
|
|
$
|
289,049
|
|
|
$
|
276,317
|
|
|
|
(34.4
|
)%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
|
33.4
|
%
|
|
|
44.0
|
%
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
69.6
|
|
|
|
41.6
|
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
|
Asset
management
|
|
|
(3.8
|
)
|
|
|
11.6
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3.9
|
|
|
|
6.1
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Other
revenue
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
103.1
|
|
|
|
103.6
|
|
|
|
103.9
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3.1
|
)
|
|
|
(3.6
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
Investment
Banking Revenue
Our
investment banking revenue includes (i) management fees, underwriting fees,
selling concessions and agency placement fees earned through our participation
in public offerings and private placements of equity and debt securities,
including convertible debt, (ii) fees earned as strategic advisor in
mergers and acquisitions and similar transactions and (iii) the value of
warrants received as partial payment for investment banking services. Investment
banking revenues are typically recognized at the completion of each transaction.
Underwriting revenues are presented net of related expenses. Unreimbursed
expenses associated with private placement and advisory transactions are
recorded as non-compensation expenses.
With the
significant decline in market conditions and capital raising activity during
2008, we focused our efforts towards our strategic advisory business which
resulted in strategic advisory revenues representing 55% of investment banking
revenues during 2008 as compared to 39% of investment banking revenues during
2007.
The
following table sets forth our investment banking revenue and the number of
investment banking transactions (
dollar amounts
in
thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
Investment
banking revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
raising
|
|
$
|
28,183
|
|
|
$
|
77,634
|
|
|
$
|
93,063
|
|
|
|
(63.7
|
)%
|
|
|
(16.6
|
)%
|
|
Strategic
advisory
|
|
|
35,122
|
|
|
|
49,594
|
|
|
|
31,073
|
|
|
|
(29.2
|
)
|
|
|
59.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment banking revenues
|
|
$
|
63,305
|
|
|
$
|
127,228
|
|
|
$
|
124,136
|
|
|
|
(50.2
|
)%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
raising
|
|
|
59
|
|
|
|
66
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Strategic
advisory
|
|
|
23
|
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment banking transactions
|
|
|
82
|
|
|
|
83
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
revenue per transaction (1)
|
|
$
|
772
|
|
|
$
|
1,533
|
|
|
$
|
1,427
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenue
per investment banking transaction is generally higher in the U.S. than in
Canada.
|
2008 versus 2007
.
Investment banking
revenue decreased $63.9 million in 2008 from 2007. Our average revenue per
transaction decreased to $0.8 million during 2008 from $1.5 million in
2007. As noted above, revenue per investment banking transaction is
generally higher in the U.S. than in Canada. During 2008 and 2007, we
closed 82 and 83 investment banking transactions,
respectively. Excluding the impact from the Westwind acquisition, we
closed 37 investment banking transactions in 2008. The change in our
revenue per transaction is primarily due to our acquisition of Westwind which,
historically, has completed a larger number of smaller sized transactions. In
addition, during 2007 our investment banking revenue included $13.4 million in
revenue generated from a single strategic advisory transaction. During 2008 and
2007, approximately 36% and 31%, respectively, of our investment banking revenue
was earned from the ten largest transactions during the respective
periods.
Capital
raising revenue accounted for approximately 45% and 61% of our investment
banking revenue in 2008 and 2007, respectively. Capital raising revenue
decreased $49.5 million to $28.2 million in 2008. Our average revenue per
capital raising transaction decreased to $0.5 million during 2008 from
$1.2 million in 2007. During 2008 and 2007 we closed 59 and 66 capital
raising transactions, respectively. Excluding the impact from the
Westwind acquisition, we closed 18 capital raising transactions in
2008.
Strategic
advisory revenue accounted for approximately 55% and 39% of our investment
banking revenue in 2008 and 2007, respectively. Strategic advisory revenue
decreased $14.5 million to $35.1 million in 2008. Our average revenue per
strategic advisory transaction decreased to $1.5 million during 2008 from $2.9
million in 2007. The decrease in our average revenue per strategic
advisory transaction was primarily due to a single strategic advisory
transaction which resulted in $13.4 million of revenue during
2007. During 2008 and 2007, we closed 23 and 17 strategic advisory
transactions, respectively. Excluding the impact from the Westwind acquisition,
we closed 19 strategic advisory transactions in 2008.
2007 versus 2006
. Investment
banking revenue increased $3.1 million in 2007 from 2006. Our average revenue
per transaction increased to $1.5 million in 2007 from $1.4 million in
2006. During 2007 and 2006, we closed 83 and 87 investment banking transactions,
respectively. During 2007 and 2006, approximately 31% and 34%, respectively, of
our investment banking revenue was earned from the ten largest transactions
during the respective year. We joint book-managed our own initial public
offering and follow-on offering in 2006 but did not include those transactions
in our transaction count, did not recognize revenue relating to those
transactions and did not include those transactions in calculating our revenue
per transaction measures.
Capital
raising revenue accounted for 61% and 75% of our investment banking revenue in
2007 and 2006, respectively. Capital raising revenue decreased $15.4 million in
2007 from 2006. Our average revenue per capital raising transaction decreased to
$1.2 million in 2007 from $1.3 million in 2006. During 2007 and 2006, we
closed 66 and 72 capital raising transactions, respectively.
Strategic
advisory revenue accounted for 39% and 25% of our total investment banking
revenue in 2007 and 2006, respectively. Strategic advisory revenue increased
$18.5 million in 2007 from 2006. Our average revenue per strategic advisory
transaction increased to $2.9 million in 2007 from $2.1 million in
2006. The increase in our average revenue per strategic advisory transaction was
primarily due to a single strategic advisory transaction which resulted in $13.4
million of revenue. During 2007 and 2006, we closed 17 and 15 strategic advisory
transactions, respectively.
Brokerage
Revenue
Our
brokerage revenue includes (i) commissions paid by customers for brokerage
transactions in equity securities, (ii) spreads paid by customers on convertible
debt securities, (iii) trading gains and losses which result from market
making activities, from our commitment of capital to facilitate customer
transactions and from proprietary trading activities relating to our convertible
debt and special situations trading groups, (iv) advisory fees paid to us
by high-net-worth individuals and institutional clients of our private client
services group, which are generally based on the value of the assets we manage
and (v) fees paid to us for equity research.
The
concentration in brokerage revenues among our ten largest brokerage clients was
26%, 22% and 26% in 2008, 2007 and 2006, respectively, which represents
approximately $35 million, $26 million and $32 million of brokerage revenues,
respectively.
2008 versus 2007
. Brokerage
revenue increased by $11.8 million in 2008 from 2007. This increase is primarily
due to our acquisition of Westwind in January 2008 and our expansion into Europe
in late 2007. During 2008, brokerage revenues of $13.3 million were
generated from former Westwind clients. These increases were offset
by net trading losses in our convertible debt trading business as we
considerably reduced our proprietary convertible debt trading book in the latter
part of 2008.
The
combined average daily volume on the New York Stock Exchange, Nasdaq and the
Toronto Stock Exchange was approximately 4.0 billion shares during 2008, an
increase of 3.0% from 2007. Our combined average daily customer trading volume
increased 36.9% in 2008 from 2007 primarily due to our acquisition of
Westwind.
In
addition to our acquisition of Westwind, we believe the steps we have taken over
the past year, including (i) broadening our geographic coverage and (ii)
developing our product offerings within electronic trading in order to attract
and retain trading volume from customers who are shifting away from utilizing
full-service brokerage services and increasing their use of alternative trading
systems, have resulted in our increased trading volume from institutional
customers.
2007 versus 2006
. Brokerage
revenue decreased $3.6 million in 2007 from 2006. The decreases were primarily
attributable to decreases in trading volumes in our institutional equity
business, partially offset by improvements in our convertible debt trading and
private client services businesses.
The
combined average daily volume on the New York Stock Exchange and Nasdaq was
approximately 3.7 billion shares during 2007, an increase of 3.4% from 2006. Our
combined average daily customer trading volume decreased 11.0% in 2007 from 2006
primarily due to declines in the volume of shares we traded for our
institutional brokerage customers. We believe the decline in our trading volume
for institutional customers was partially due to the increased use of
alternative trading systems by our customers and a decrease in the willingness
of our traditional brokerage customers to pay full-service commissions in order
to access our equity research.
Our asset
management revenue includes (i) fees from investment partnerships we
manage, (ii) allocation of the appreciation and depreciation in the fair value
of our investments in the underlying partnerships, (iii) fees we earn from the
management of equity distributions received by our clients (iv) other asset
management-related realized and unrealized gains and losses on investments not
associated with investment partnerships and (v) realized and unrealized gains
and losses on warrants received as partial payment for investment banking
services.
The
following table sets forth our asset management revenue (
dollar amounts
in
thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
Asset
management revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
$
|
14,691
|
|
|
$
|
15,946
|
|
|
$
|
12,420
|
|
|
|
(7.9
|
)%
|
|
|
28.4
|
%
|
|
Investments
in partnerships realized and unrealized gains and losses
—
net
|
|
|
(13,414
|
)
|
|
|
17,662
|
|
|
|
12,323
|
|
|
|
nm
|
|
|
|
43.3
|
|
|
Other
securities realized and unrealized gains and losses
—
net
|
|
|
(8,397
|
)
|
|
|
(194
|
)
|
|
|
1,009
|
|
|
|
nm
|
|
|
|
(119.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
asset management revenue
|
|
$
|
(7,120
|
)
|
|
$
|
33,414
|
|
|
$
|
25,752
|
|
|
|
(121.3
|
)%
|
|
|
29.8
|
%
|
2008 versus 2007
.
Investments in
partnerships realized and unrealized gains and losses were as follows (
dollar amounts in
thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
Investments
in partnerships realized and unrealized gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Weisel Healthcare Venture Partners
|
|
$
|
(4,530
|
)
|
|
$
|
4,226
|
|
|
|
(207.2
|
)%
|
|
Thomas
Weisel Venture Partners
|
|
|
(2,956
|
)
|
|
|
9,591
|
|
|
|
(130.8
|
)
|
|
Thomas
Weisel Global Growth Partners
|
|
|
(2,271
|
)
|
|
|
2,654
|
|
|
|
(185.6
|
)
|
|
Thomas
Weisel Capital Partners
|
|
|
(3,155
|
)
|
|
|
763
|
|
|
|
(513.4
|
)
|
|
Other
|
|
|
(502
|
)
|
|
|
428
|
|
|
|
(217.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships realized and unrealized gains and
losses
|
|
$
|
(13,414
|
)
|
|
$
|
17,662
|
|
|
|
(175.9
|
)%
|
The
realized and unrealized investment loss from Thomas Weisel Healthcare Venture
Partners during 2008 was due to fair value adjustments of two public portfolio
companies within this fund. The remaining partnerships net unrealized
losses were primarily due to fair value adjustments resulting generally from a
decline in the equity markets and lack of liquidity in the capital
markets. These conditions combined to create a lack of available
financing at previous valuation levels resulting in downward fair value
adjustments for certain companies held by these funds.
We
recorded investment losses in other securities of $8.4 million in 2008 compared
to investment losses of $0.2 million in 2007. The investment losses
in 2008 were primarily due to net realized and unrealized losses on warrants of
$6.2 million acquired through the Westwind acquisition and declines in the
value of equity securities held by our small/mid cap funds.
Management
fees decreased $1.3 million in 2008 from 2007 as a result of a decrease in
assets under management in 2008 as compared to 2007.
2007 versus 2006
. Investments
in partnerships realized and unrealized gains and losses were as follows (
dollar amounts in
thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
Investments
in partnerships realized and unrealized gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Weisel Healthcare Venture Partners
|
|
$
|
4,226
|
|
|
$
|
2,741
|
|
|
|
54.2
|
%
|
|
Thomas
Weisel Venture Partners
|
|
|
9,591
|
|
|
|
(6
|
)
|
|
|
nm
|
|
|
Thomas
Weisel Global Growth Partners
|
|
|
2,654
|
|
|
|
2,077
|
|
|
|
27.8
|
|
|
Thomas
Weisel Capital Partners
|
|
|
763
|
|
|
|
7,270
|
|
|
|
(89.5
|
)
|
|
Other
|
|
|
428
|
|
|
|
241
|
|
|
|
77.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships realized and unrealized gains and
losses
|
|
$
|
17,662
|
|
|
$
|
12,323
|
|
|
|
43.3
|
%
|
This
realized and unrealized investment gains from Thomas Weisel Venture Partners and
Thomas Weisel Healthcare Venture Partners was due to was due to an increase in
realized gains allocated to us in respect to our previously waived management
fees, increases in gains from investment funds allocated to us with respect to
our carried interest and an overall increase in gains within our investment
funds. This increase in realized and unrealized investment gains was
partially offset by a decrease in investment gains in partnerships from Thomas
Weisel Capital Partners.
Management
fees increased $3.5 million in 2007 from 2006. This increase was primarily
attributable to an increase in fees received from Thomas Weisel Global Growth
Partners and Thomas Weisel Healthcare Venture Partners as a result of certain
management fees being waived in 2006 that were not waived in 2007. In
addition, in 2007 the Thomas Weisel India Opportunity fund was created which
resulted in management fees of $0.6 million.
Other
Revenue
2007
. Other revenue of $0.9
million recorded in 2007 relates to the gain, net of selling costs, on the sale
of certain software previously developed for internal use. At the time of sale
there were no amounts capitalized relating to this software.
Net
Revenues by Geographic Segment
The
following table sets forth our net revenues by geographic segment (
dollar amounts
in thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
United
States
|
|
$
|
161,321
|
|
|
$
|
289,040
|
|
|
$
|
276,315
|
|
|
|
(44.2
|
)%
|
|
|
4.6
|
%
|
|
Other
countries
|
|
|
28,206
|
|
|
|
9
|
|
|
|
2
|
|
|
|
nm
|
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
189,527
|
|
|
$
|
289,049
|
|
|
$
|
276,317
|
|
|
|
(34.4
|
)%
|
|
|
4.6
|
%
|
2008 versus 2007
.
Net revenues from
countries other than the United States increased $28.2 million during 2008 from
2007 as a result of our acquisition of Westwind in January 2008 and our
expansion into Europe in late 2007. During 2008, net revenues from countries
other than the United States consisted primarily of net revenues from Canada,
which accounted for approximately 75.2% of net revenues from other
countries.
No single
customer accounted for 10% or more of net revenues during the years ended
December 31, 2008, 2007 and 2006.
Expenses
Excluding Interest
The
following table sets forth information relating to our expenses excluding
interest, both in dollar amounts and as a percentage of net revenues (
dollar amounts
in thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
2007-2008
|
|
|
2006-2007
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
%
Change
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
$
|
147,186
|
|
|
$
|
187,902
|
|
|
$
|
152,195
|
|
|
|
(21.7
|
)%
|
|
|
23.5
|
%
|
|
Non-compensation
expenses
|
|
|
237,893
|
|
|
|
103,920
|
|
|
|
97,997
|
|
|
|
128.9
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses excluding interest
|
|
|
385,079
|
|
|
$
|
291,822
|
|
|
$
|
250,192
|
|
|
|
32.0
|
%
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
77.7
|
%
|
|
|
65.0
|
%
|
|
|
55.1
|
%
|
|
|
|
|
|
|
|
|
|
Non-compensation
expenses
|
|
|
125.5
|
|
|
|
36.0
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
203.2
|
%
|
|
|
101.0
|
%
|
|
|
90.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of employees
|
|
|
641
|
|
|
|
632
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
Compensation
and Benefits Expense
Compensation
and benefits expense to secure the services of our employees has been the
largest component of our total expenses. Compensation and benefits expense
includes salaries, overtime, bonuses, commissions, share-based compensation,
benefits, severance, employment taxes and other employee costs.
We pay
discretionary bonuses based on a combination of company and individual
performance, and we have entered into guaranteed contractual agreements with
employees that require specified bonus payments, both of which are accrued over
the related service periods. These bonuses make up a significant portion of our
compensation and benefits expense.
Share-based
awards constitute a portion of our compensation expense, and as a general
matter, vest over a three or four-year service period, are subject to continued
employment and, accordingly, are recorded as non-cash compensation expense
ratably over the service period beginning at the date of grant. As a result, our
aggregate compensation expense has been, and will continue to be, impacted as we
recognize multiple years of share-based compensation expense associated with the
vesting of prior year grants. As of December 31, 2008, there was (i)
$1.2 million of unrecognized compensation expense related to non-vested
restricted stock unit awards made in connection with our initial public
offering, which is expected to be recognized over a weighted-average period of
0.1 years and (ii) an additional $38.8 million of unrecognized compensation
expense related to non-vested restricted stock unit awards made subsequent to
our initial public offering, which is expected to be recognized over a
weighted-average period of 2.7 years.
As part
of a special retention and incentive program, in August 2008 we granted
2,970,000 restricted stock unit equity awards to senior employees of the Company
as a means of incentivizing and retaining our key producers. The
restricted stock units vest after the end of a three-year period. We
also granted 550,000 performance-based restricted stock unit equity awards to
certain members of the Executive Committee that will vest upon the attainment of
the Company’s long-term performance goals. The performance-based
restricted stock unit equity awards granted to the Executive Committee are
earned and become payable based on both a service and performance
condition. The service condition requires the executive to be
employed by the Company from the date of grant through the vesting
date. The performance condition provides for pre-established targets
relating to several performance measures that are determined over a performance
period from July 1, 2010 to June 30, 2011. Specifically, these performance
measures are based on: (i) GAAP revenue per employee, (ii) GAAP net income
margin and (iii) GAAP return on equity. Such targets relate to the
Company as a whole. If the service and performance conditions are
met, the restricted stock unit equity awards will vest on August 6, 2011, and
the underlying shares will be delivered on or about the related vesting
date. The total grant date fair value of these restricted stock unit
equity awards was $21.0 million.
In
addition, during 2008, performance-based restricted stock unit equity awards
have been granted to employees as part of our regular hiring
process.
We
estimate the fair value of performance-based restricted stock units awarded to
employees at the grant date of the equity instruments. The fair value
is based on the market price of our common stock on the grant date. We also
consider the probability of achieving the established targets in determining our
share-based compensation with respect to these awards. We recognize
compensation cost over a three-year service period.
We have
put in place incentive compensation arrangements that are structured under
separate limited liability company agreements in order to incentivize certain of
our professionals responsible for managing such business. Compensation expense
associated with these payments to these individuals was $3.2 million, $2.7
million and $3.0 million for the years ended December 31, 2008, 2007 and
2006, respectively.
As
previously discussed, during 2008 and through February 2009, we reduced our
total headcount by approximately 34% as compared to our headcount on January 2,
2008. The reductions were primarily in underperforming areas of our
business as well as non-revenue producing departments. In addition,
base salaries for employees with titles of Vice President and above were reduced
by 10% as of January 1, 2009. These reductions in headcount and base
salaries are expected to have a decrease in our compensation expense in future
periods.
2008 versus 2007
.
Compensation and
benefits expense decreased $40.7 million in 2008 from 2007. Included in this
decrease are expenses of $18.2 million related to the acquisition of
Westwind. Excluding the impact from the Westwind acquisition,
compensation and benefits expense would have decreased $58.9 million during
2008. This fluctuation was primarily the result of a decrease in
bonus expense of $56.2 million. The reduction in bonus expense is due
to the overall decrease in our 2008 operations as well as the one-time
compensation expense in the fourth quarter of 2007 attributable to the
acceleration of the payment of 2008 mid-year retention bonuses. In
addition, salary expense decreased $10.5 million during the same period due to
our reduction in non-Westwind employee headcount during 2008. This
decrease is partially offset by an increase in share-based compensation expense
of $ 7.3 million as a result of additional grants of restricted stock units made
during 2008. Compensation and benefits expense in 2008 and 2007
included $6.3 million and $6.1 million, respectively, of non-cash compensation
expense relating to share-based awards made in connection with our initial
public offering.
2007 versus 2006
.
Compensation and benefits expense increased $35.7 million in 2007 from 2006. The
increase primarily relates to the one-time compensation expense of $24.8 million
in the fourth quarter of 2007 attributable to the acceleration of the payment of
2008 mid-year retention bonuses and certain severance expenses, each of which
were related to the integration of Westwind. In addition, the average number of
employees increased during the year ended December 31, 2007 as compared to the
year ended December 31, 2006 which increased the salary related expenses during
2007. Compensation and benefits expense in 2007 and 2006 included
$6.1 million and $7.0 million, respectively, of non-cash compensation expense
relating to share-based awards made in connection with our initial public
offering.
Non-Compensation
Expenses
Our
non-compensation expenses include (i) brokerage execution, clearance and account
administration, (ii) communications and data processing, (iii) depreciation and
amortization of property and equipment, (iv) amortization of other intangible
assets, (v) goodwill impairment, (vi) marketing and promotion, (vii) occupancy
and equipment and (viii) other expenses.
2008 versus 2007
.
Non-compensation expense increased $134.0 million in 2008 from 2007. This
increase includes the goodwill impairment of $92.6 million and the amortization
of identifiable intangible assets acquired as a result of the Westwind
acquisition in January 2008 of $15.3 million. In addition, included
in this increase are additional operating expenses of $18.4 million attributable
to our acquisition of Westwind. Excluding the goodwill impairment,
intangible amortization and the impact from the Westwind acquisition,
non-compensation expense would have increased $7.7 million during
2008.
The
increase of $7.7 million in non-compensation expense includes an increase in
occupancy and equipment expense of $6.0 million during 2008 from 2007 primarily
due to our exiting certain office space in September and December 2008 for which
we recorded a $6.0 million lease loss charge. In addition, brokerage
execution, clearance and account administration increased $4.6 million during
2008 from 2007 as a result of increased brokerage activity during the period as
well as the outsourcing of our our NYSE floor brokerage during
2008. Communication and data processing expense increased by $1.1
million due to increased costs associated with our expansion into Canada, Europe
and the midwest. This overall increase of $11.7 million is partially
offset by a decrease of $3.0 million in marketing and promotion primarily due to
a decrease in client related travel and conference expenses in
2008.
2007 versus 2006
.
Non-compensation expenses increased $5.9 million in 2007 from 2006. The overall
increase in non-compensation expenses was primarily due to increases in
marketing and promotion expense, other expenses and communication expense of
$3.6 million, $3.3 million and $2.3 million, respectively. Marketing and
promotion expense increased primarily due to increased travel and entertainment
related to the geographic expansion of our business. Other expense increased as
a result of expenses related to a third-party private equity management
agreement which began in late 2006 and communications expenses increased due to
our opening additional offices during 2007. These increases were
partially offset by a decrease of $2.3 million in brokerage, execution,
clearance and account administration expense due to improved efficiencies in our
trade execution practices and lower NYSE exchange rate fees, as well as less
clearance charges associated with lower trading volume.
Before
completion of our initial public offering on February 7, 2006, we were a
limited liability company and all of our income and losses were reportable by
our individual members, and, accordingly, the U.S. Federal and state income
taxes payable by our members, based upon their share of our net income, had not
been reflected in our historical consolidated financial statements.
In
connection with our initial public offering, we reorganized from a limited
liability company into a corporation, and following that reorganization became
subject to U.S. Federal and state income taxes. We account for income taxes in
accordance with SFAS No. 109,
Accounting for Income Taxes
("SFAS No. 109")
, which requires the
recognition of deferred tax assets and liabilities based upon temporary
differences between the financial reporting and tax bases of our assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets when it is more likely than not that a portion or all of the
deferred tax assets will not be realized.
Our
effective tax rates for 2008 and 2007 were (3.9)% and 100.7%,
respectively. The decrease in our effective tax rate in 2008 from
2007 is primarily due to the recognition of deferred tax benefits in 2007
resulting in a reduction to our effective tax rate of 49.8%, our recognition of
a deferred tax valuation allowance in 2008 of $44.8 million resulting in a
reduction to our effective tax rate of 18.7%, and the 2008 impairment charge to
goodwill acquired in the Westwind transaction of $92.6 million, which did not
provide a tax benefit and resulted in a reduction to our effective tax rate of
17.0%.
Refer to
the Deferred Tax Valuation Allowance section within Critical Accounting Policies
and Estimates below for additional disclosures on factors considered by
management in the establishment of the valuation allowance on deferred tax
assets.
Business
Combination
On
January 2, 2008, we acquired Westwind and under the agreement, we indirectly
acquired 100 percent of Westwind’s outstanding shares and Westwind became our
indirect subsidiary. Total consideration was approximately $156 million, which
consisted of $45 million in cash, 7,009,112 shares of the Company’s common stock
valued at $15.35 per share (based on the average closing price over a five day
period starting two days prior to the acquisition announcement date of October
1, 2007 and ending two days after the announcement date) and direct acquisition
costs of $3.1 million consisting primarily of legal, accounting and advisory
fees. Common stock issued includes 6,639,478 exchangeable shares,
which are shares issued by a Canadian subsidiary of the Company and are
exchangeable for shares of the Company’s common stock.
During
the year ended December 31, 2008, we experienced a significant decline in our
market capitalization which was affected by the uncertainty in the financial
markets. The tightening of the credit markets contributed to a sharp
decline in our capital raising investment banking revenues during the same
period. Based on the difficult conditions in business climate and our
perception that the climate is unlikely to change in the near term, we recorded
a full impairment charge to the goodwill asset of $92.6 million that was
recorded as part of the Westwind acquisition. The impairment charge
was determined based on our fair value utilizing a discounted cash flow
analysis, and we considered our market capitalization to determine the
reasonableness of the discounted cash flow.
Liquidity
and Capital Resources
We
believe that our current level of equity capital, current cash balances, funds
anticipated to be provided by operating activities and funds available to be
drawn under temporary loan agreements, will be adequate to meet our liquidity
and regulatory capital requirements for the next 12 months.
Cash Flows
Cash
and cash equivalents were $116.6 million at December 31, 2008, a decrease of
$40.4 million from $157.0 million at December 31, 2007.
Operating
activities used $44.4 million of cash and cash equivalents during
2008. Our net loss excluding non-cash items contributed $26.1 million
to the decrease in cash. Additionally, in February 2008, we made aggregate cash
bonus payments to our employees of $25.6 million, as well as an aggregate cash
payment of $24.8 million to our employees attributable to the acceleration of
the payment of 2008 mid-year retention bonuses and certain severance
expenses. During 2008, we had a decrease in accrued expenses and
other liabilities of $27.4 million which is due to the fact that we have made
cash payments to settle accrued expenses that were recorded as of December 31,
2007. The overall decrease in our cash and cash equivalents from operating
activities is partially offset by the partial liquidation of our convertible
holdings as well as an overall decrease in our net securities owned positions
which provided $50.2 million of cash.
Investing
activities provided $26.4 million of cash and cash equivalents during
2008. The proceeds from sales of investments in partnerships and
other investments during 2008 were $47.0 million primarily relating to the sale
of auction rate securities. We used these proceeds to fund our $45.0 million
cash payment for the acquisition of Westwind in January 2008 and to fund bonus
and severance payments discussed in the operating activities discussion
above. Cash received as a result of our acquisition of Westwind was
$36.9 million. In addition, during 2008 we purchased investments in
partnerships and other investments of $7.2 million and purchased property and
equipment of $5.6 million.
Financing activities used
$16.7 million of cash and cash equivalents during 2008 primarily due to the
repurchase of our common stock from the open market for $9.5 million and the
repayment of notes payable of $6.1 million. In addition, we net
settled $1.0 million of equity awards that became deliverable to our employees
during 2008.
Auction
Rate Securities
As of
December 31, 2008, we held auction rate securities (“ARS”) with a par value of
$9.7 million and fair value of $8.9 million. The ARS are variable
rate debt instruments, having long-term maturity dates (approximately 25 to 31
years), but whose interest rates are reset through an auction process, most
commonly at intervals of 7, 28 and 35 days. The interest earned on these
investments is exempt from Federal income tax. All of our ARS are backed by
pools of student loans and are rated either Aaa, Aa3 or A1 at December 31,
2008. We continue to receive interest when due on our ARS and expect
to continue to receive interest when due in the future. The
weighted-average Federal tax exempt interest rate was 1.91% at December 31,
2008.
In January 2008, we sold a
substantial portion of our ARS holdings at par and used the proceeds to
partially fund our acquisition of Westwind. Subsequent to January
2008
, auction failures increased significantly. While it was not unusual
for supply to outweigh demand, banks running the auctions had historically
absorbed the excess supply in order to ensure a successful auction and a liquid
market. This process came to a halt as the result of the dislocation in the
credit markets during 2008.
The
principal balance of our ARS will not be accessible until successful auctions
occur, a buyer is found outside of the auction process, the issuers and the
underwriters establish a different form of financing to replace these securities
or final payments come due according to the contractual
maturities. As a result of the auction failures, we evaluate the
credit risk and compare the yields on our ARS to similarly rated municipal
issues. Our valuation of our ARS assesses the credit and liquidity
risks associated with the securities and determines the fair values based on a
discounted cash flow analysis. Key assumptions of the discounted cash
flow analysis included the following:
Coupon Rate
– In determining
fair value, we projected future interest rates based on the average near term
historical interest rate for these issues, the Securities Industry and Financial
Markets Association Municipal Swap Index and benchmark yield
curves. The average interest rates assumed ranged from 3.2% to
3.7%.
Discount Rate
– Our discount
rate was based on a spread over the AA Municipal General Education yield curve
and consisted of a spread of 425 to 450 bps over this yield curve which we
adjusted down to 50 bps over periods of time ranging from twelve to nineteen
quarters. This spread is included in the discount rate to reflect the
current and expected illiquidity, which we expect to trend toward the mean in
the ARS market. The average spread between our ARS and the AA
Municipal General Education yield curve between August 2004 and August 2007, a
period in which auctions were not likely to fail, averaged less than 10 basis
points.
Timing of Liquidation
– Our
cash flow projections consisted of various scenarios for each security wherein
we valued the ARS to points in time where it was in the interest of the issuer,
based on the fail rate, to redeem the securities. Our concluded
values for each security were based on the average valuation of these various
scenarios. For the securities analyzed, the shortest average time to
liquidation was assumed to be 30 months.
Based on
the results of the discounted cash flow analysis, we determined that our ARS had
a decline in fair value of $0.8 million during the year ended December 31,
2008.
Debt
Financing
In
connection with our initial public offering of common stock, we issued
$33 million of unsecured senior notes to our former Class D and
Class D-1 shareholders and are required to make principal and interest
payments on these notes in accordance with their terms. As of December 31, 2008,
the outstanding principal balance under these notes was $23.0 million and is due
in January 2011.
In April
2008, Thomas Weisel Partners LLC, our U.S. broker-dealer subsidiary, entered
into a $25.0 million revolving note and subordinated loan
agreement. Thomas Weisel Partners LLC will need to satisfy certain
covenants in order to draw funds under this loan agreement, which have been
satisfied at December 31, 2008. These covenants include the
following: (i) maintaining a certain level of equity, (ii) meeting specific
financial ratios based upon regulatory financial statement filings, (iii)
continuing to employ Thomas W. Weisel as Chief Executive Officer, (iv)
continuing to operate Thomas Weisel Partners LLC’s investment banking and
brokerage operations and (v) demonstrating Thomas Weisel Partner LLC’s
investment banking and brokerage operations continue to generate a specified
percentage of total revenues. Through the date of this filing, no
amounts have been drawn under this loan agreement.
We
previously had a financing arrangement with General Electric Capital
Corporation, the balance of which was $3.7 million as of December 31,
2007. We paid all outstanding principal and interest to General
Electric Capital Corporation in May 2008.
Bonus
and Share-Based Compensation
The
timing of bonus compensation payments to our employees may significantly affect
our cash position and liquidity from period to period. While our employees are
generally paid salaries semi-monthly during the year, bonus payments, which make
up a larger portion of total compensation, have historically been paid in
February and July.
In
February 2008, we made aggregate cash bonus payments to our employees of
approximately $25.6 million and granted equity awards with a grant date fair
value of $22.4 million. In addition, in February 2008, we made
aggregate cash payments of $24.8 million to our employees attributable to the
acceleration and cessation of the mid-year retention bonuses, which had
historically been paid in July, and certain severance expenses.
In July
2008, we made aggregate cash bonus payments to our Canadian based employees of
approximately $8.7 million.
In
February 2009, we made aggregate cash bonus payments to our employees of
approximately $19.2 million and granted equity awards with a grant date fair
value of $7.9 million.
During
the year ended December 31, 2008, approximately 350,300 shares of freely
transferable common stock became deliverable to our employees in respect of
share-based awards previously granted. We elected to settle a portion of these
vesting shares through a net settlement feature provided for in SFAS No. 123(R),
Share-Based Payment,
to
meet the minimum employee statutory income tax withholding
requirements. During the year ended December 31, 2008, we made
payments of $1.0 million related to the net settlement of shares. Our
cash position and liquidity will be affected to the extent we elect to continue
to settle a portion of vesting shares through net settlement in the
future.
In
February 2009, approximately 1,100,000 shares of freely transferable common
stock became deliverable to our employees in respect of share-based awards
previously granted, and we made payments of $1.5 million related to the net
settlement of these shares.
Regulatory
Net Capital and Other Amounts Required to be Maintained at Broker-Dealer
Subsidiary
We have
the following registered securities broker-dealers:
|
|
·
|
Thomas
Weisel Partners LLC (“TWP”)
|
|
|
·
|
Thomas
Weisel Partners Canada Inc.
(“TWPC”)
|
|
|
·
|
Thomas
Weisel Partners International Limited
(“TWPIL”)
|
TWP is a
registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule
under the Securities Exchange Act of 1934 administered by the SEC and FINRA,
which requires the maintenance of minimum net capital. SEC and FINRA regulations
also provide that equity capital may not be withdrawn or cash dividends paid if
certain minimum net capital requirements are not met.
TWPC is a
registered investment dealer in Canada and is subject to the capital
requirements of the Investment Industry Regulatory Organization of
Canada. TWPIL is a registered U.K. broker-dealer and is subject to
the capital requirements of the Financial Securities Authority.
The table
below summarizes the minimum capital requirements for our broker-dealer
subsidiaries (
in
thousands
):
|
|
|
December
31, 2008
|
|
|
|
|
Required
Net Capital
|
|
|
Net
Capital
|
|
|
Excess
Net Capital
|
|
|
TWP
|
|
$
|
1,000
|
|
|
$
|
41,867
|
|
|
$
|
40,867
|
|
|
TWPC
|
|
|
203
|
|
|
|
10,822
|
|
|
|
10,619
|
|
|
TWPIL
|
|
|
1,469
|
|
|
|
1,794
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,672
|
|
|
$
|
54,483
|
|
|
$
|
51,811
|
|
Regulatory
net capital requirements change based on certain investment and underwriting
activities.
Our
clearing brokers are also the primary source of the short-term financing of our
securities inventory. In connection with the provision of the
short-term financing, we are required to maintain deposits with our clearing
brokers. These deposits are included in our net receivable from or
payable to clearing brokers.
Due to
the nature of our investment banking and brokerage businesses, liquidity is of
critical importance to us. Accordingly, we regularly monitor our liquidity
position, including our cash and net capital positions.
In April 2008, TWP entered
into a $25.0 million revolving note and subordinated loan
agreement. From time to time we may borrow funds under this
subordinated loan agreement or under similar liquidity facilities. Such funds
would constitute capital for purposes of calculating our net capital
position.
Acquisition
of Westwind
On
January 2, 2008, we completed our acquisition of Westwind, and at the closing of
this transaction we made a cash payment of $45 million as the cash portion of
the consideration for this acquisition. In addition, total costs
related to our acquisition of Westwind were $3.1 million.
Off-Balance
Sheet Arrangements
In the
ordinary course of business we enter into various types of off-balance sheet
arrangements including certain reimbursement guarantees meeting the
FIN No. 45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
(“FIN 45”), definition of a guarantee that
may require future payments. These include contractual commitments and
guarantees. For a discussion of our activities related to these off-balance
sheet arrangements, see Note 16 – Contingencies, Commitments and Guarantees
and
Note 17 – Financial Instruments with Off-Balance Sheet Risk, Credit Risk or
Market Risk to our consolidated financial statements.
Contractual
Obligations
The
following table provides a summary of our contractual obligations as of
December 31, 2008 (
in
thousands
):
|
|
|
Contractual
Obligation Due by Period
|
|
|
|
|
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Notes
payable (1)
|
|
$
|
1,040
|
|
|
$
|
24,143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,183
|
|
|
Capital
leases (2)
|
|
|
69
|
|
|
|
95
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
Operating
leases (3)
|
|
|
18,994
|
|
|
|
29,195
|
|
|
|
18,937
|
|
|
|
17,800
|
|
|
|
84,926
|
|
|
General
partner commitment to invest in private equity funds (4)
|
|
|
269
|
|
|
|
1,054
|
|
|
|
161
|
|
|
|
—
|
|
|
|
1,484
|
|
|
Unaccrued
guaranteed compensation payments
|
|
|
620
|
|
|
|
2,634
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
|
$
|
20,992
|
|
|
$
|
57,121
|
|
|
$
|
19,098
|
|
|
$
|
17,800
|
|
|
$
|
115,011
|
|
|
(1)
|
Represents
remaining principal amount and related estimated interest payable for
notes issued in connection with our initial public
offering.
|
|
(2)
|
Includes
estimated interest payable related to capital lease
liability.
|
|
(3)
|
Operating
lease expense is presented net of sublease rental
income.
|
|
(4)
|
The
private equity fund commitments have no specific contribution dates. The
timing of these contributions is presented based upon estimated
contribution dates.
|
In
addition to the commitments within the table above, we have made commitments to
investments in unaffiliated funds. During the year ended December 31, 2008, we
funded $3.4 million of these commitments and transferred $22.2 million of these
commitments to a fund sponsored by us. Our remaining unfunded commitment as of
December 31, 2008 was $4.3 million, which we anticipate transferring to funds
sponsored by us. These commitments may be called in full at any
time.
The table
above excludes $1.1 million of liabilities under Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109
(“FIN No. 48”).
We have not provided a detailed estimate of the payment timing within the table
above due to the uncertainty of when the related tax settlements are
due.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
about future events that affect the amounts reported in our consolidated
financial statements and their notes. Actual results could differ significantly
from those estimates. We believe that the following discussion addresses our
most critical accounting policies, which are those that are most important to
the presentation of our financial condition and results of operations and
require management’s most difficult, subjective and complex
judgments.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS No. 157”), establishes a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The objective of a fair
value measurement is to determine the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (the exit price), other than in a forced or
liquidation sale. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurements). Assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value
measurement. Our financial assets and liabilities measured and reported at fair
value are classified and disclosed in one of the following
categories:
|
|
·
|
Level
1 – Quoted prices are available in active markets for identical
investments as of the reporting date. Investments included in this
category are listed equities. As required by SFAS No. 157, we do not
adjust the quoted price of these investments, even in situations where we
hold a large position and a sale could reasonably be expected to affect
the quoted price.
|
|
|
·
|
Level
2 – Pricing inputs are other than quoted prices in active markets, which
are either directly or indirectly observable as of the reporting date, and
fair value is determined through the use of models or other valuation
methodologies. Investments which are generally included in this category
are convertible bonds.
|
|
|
·
|
Level
3 – Pricing inputs are unobservable for the investment and include
situations where there is little, if any, market activity for the
investment. The inputs into the determination of fair value require
significant management judgment or estimation. Investments included in
this category generally are general partnership interests in private
investment funds, warrants, auction rate securities and convertible bonds
that cannot be publicly offered or sold unless registration has been
affected under the Securities Act of
1933.
|
Securities
owned, securities sold, but not yet purchased and investments in partnerships
and other investments on our consolidated statements of financial condition
consist of financial instruments carried at fair value, with related unrealized
gains or losses recognized in our results of operations. The use of fair value
to measure these financial instruments, with related unrealized gains and losses
recognized immediately in our results of operations, is fundamental to our
consolidated financial statements.
The fair
value of financial instruments is derived using observable market prices,
observable market parameters or broker or dealer prices (bid and ask prices), if
available. In the case of financial instruments transacted on
recognized exchanges, the observable market prices represent quotations for
completed transactions from the exchange on which the financial instrument is
principally traded. For offsetting positions in the same financial
instrument, the same price within the bid-ask spread is used to measure both the
long and short positions. For financial instruments that do not have
readily determinable fair values through quoted market prices, the determination
of fair value is derived using techniques appropriate for each particular
product. These techniques involve some degree of management
judgment.
A
substantial percentage of the fair value of our securities owned and securities
sold, but not yet purchased are based on observable market prices, observable
market parameters, or derived from broker or dealer prices. The
availability of observable market prices and pricing parameters can vary from
product to product. When available, observable market prices and
pricing or market parameters in a product may be used to derive a price without
requiring significant judgment. In certain markets, observable market
prices or market parameters are not available for all products, and fair value
is determined using techniques appropriate for each particular
product. These techniques involve some degree of management
judgment.
For
investments in illiquid or privately held securities that do not have readily
determinable fair values, the determination of fair value requires us to
estimate the value of the securities using the best information
available. Among the factors considered by us in determining the fair
value of financial instruments are the cost, terms and liquidity of the
investments, the financial condition and operating results of the issuer, the
quoted market price of publicly traded securities with similar quality and yield
and other factors generally pertinent to the valuation of
investments. In instances where a security is subject to transfer
restrictions, the value of the security is based primarily on the quoted price
of a similar security without restriction but may be reduced by an amount
estimated to reflect such restrictions. Even where the value of a security is
derived from an independent source, certain assumptions may be required to
determine the security’s fair value. For example, we assume that the size of
positions that we hold would not be large enough to affect the quoted price of
the securities if we sell them, and that any such sale would happen in an
orderly manner. The actual value realized upon disposition could be different
from the current estimated fair value. Private investments may also
be valued at cost for a period of time after an acquisition as the best
indicator of fair value.
Financial
instruments carried at contract amounts have short-term maturities (one year or
less), are repriced frequently or bear market interest rates and, accordingly,
those contracts are carried at amounts approximating fair
value. Financial instruments carried at contract amounts on our
consolidated statements of financial condition include receivables from and
payables to clearing brokers and corporate finance and syndicate
receivables.
Instruments
that trade infrequently or have no market and therefore have little or no price
transparency are classified within Level 3 based on the results of our
price verification process. Our Level 3 assets were $44.2 million at
December 31, 2008. This balance primarily consists of investments in funds
managed by the Company’s Asset Management Subsidiaries and unaffiliated general
partners, ARS and private investments in the equity of operating
companies.
In
January 2008, we experienced a significant increase in ARS failures. While it
was not unusual for supply to outweigh demand, banks running the auctions had
historically absorbed the excess supply in order to ensure a successful auction
and a liquid market. This process came to a halt as the result of the
dislocation in the credit markets during 2008, at which point we transferred our
auction rate securities into the Level 3 category. The valuation of
our ARS is based on a discounted cash flow method which assesses the credit and
liquidity risks associated with the securities to determine the fair
values.
Investments
in Partnerships and Other Investments
Investments
in partnerships and other investments include our general and limited
partnership interests in investment partnerships and direct investments in
non-public companies. These interests are carried at estimated fair value. The
net assets of investment partnerships consist primarily of investments in
non-marketable securities. The underlying investments held by such partnerships
and direct investments in non-public companies are valued based on estimated
fair value ultimately determined by us in our capacity as general partner or
investor and, in the case of an investment in an unaffiliated investment
partnership, are based on financial statements prepared by an unaffiliated
general partner. Due to the inherent uncertainty of valuation, fair values of
these non-marketable investments may differ from the values that would have been
used had a ready market existed for these investments, and the differences could
be material. Increases and decreases in estimated fair value are
recorded based on underlying information of these non-public company investments
including third-party transactions evidencing a change in value, market
comparables, operating cash flows and financial performance of the companies,
trends within sectors and/or regions, underlying business models, expected exit
timing and strategy, and specific rights or terms associated with the
investment, such as conversion features and liquidation
preferences. In cases where an estimate of fair value is determined
based on financial statements prepared by an unaffiliated general partner, such
financial statements are generally unaudited other than audited year-end
financial statements. Upon receipt of audited financial statements from an
investment partnership, we adjust the fair value of the investments in our
subsequent financial statements to reflect the audited partnership results if
they differ from initial estimates. We also perform procedures to evaluate fair
value estimates provided by unaffiliated general partners.
The
investment partnerships in which we are a general partner may allocate carried
interest and make carried interest distributions to the general partner if the
partnerships’ investment performance reaches a threshold as defined in the
respective partnership agreements. We recognize the allocated carried
interest when this threshold is met, however future investment underperformance
may require amounts previously distributed to us to be returned to the
partnership.
We earn
fees from the investment partnerships which we manage or of which we are a
general partner. Such management fees are generally based on the net assets or
committed capital of the underlying partnerships. Through March 31, 2007, we
agreed in certain cases to waive management fees, in lieu of making a cash
contribution, in satisfaction of our general partner investment commitments to
the investment partnerships. In these cases, we generally recognize our
management fee revenues at the time when we are allocated a special profit
interest in realized gains from these partnerships. With respect to the
investment partnerships existing as of March 31, 2007, we will no longer waive
management fees subsequent to March 31, 2007.
Liability
for Lease Losses
Our
accrued expenses and other liabilities include a liability for lease losses
related to office space that we subleased or vacated due to staff reductions in
2008 and in prior years. The liability for lease losses was $9.6 million at
December 31, 2008 and will expire with the termination of the relevant
facility leases through 2012. We estimate our liability for lease losses as the
net present value of the differences between lease payments and receipts under
sublease agreements.
Legal
and Other Contingent Liabilities
We are
involved in various pending and potential complaints, arbitrations, legal
actions, investigations and proceedings related to our business. Some of these
matters involve claims for substantial amounts, including claims for punitive
and other special damages. The number of complaints, arbitrations, legal
actions, investigations and regulatory proceedings against financial
institutions like us has been increasing in recent years. We have, after
consultation with counsel and consideration of facts currently known by
management, recorded estimated losses in accordance with Statement of Financial
Accounting Standards No. 5,
Accounting for Contingencies
,
to the extent we have determined a claim will result in a probable loss and the
amount of the loss can be reasonably estimated. The determination of these
reserve amounts requires significant judgment on the part of management and our
ultimate liabilities may be materially different. In making these
determinations, management considers many factors, including, but not limited
to, the loss and damages sought by the plaintiff or claimant, the basis and
validity of the claim, the likelihood of successful defense against the claim
and the potential for, and magnitude of, damages or settlements from such
pending and potential complaints, arbitrations, legal actions, investigations
and proceedings, and fines and penalties or orders from regulatory agencies. See
Note 16 – Commitments, Guarantees and Contingencies to the consolidated
financial statements included in Item 15 of this Annual Report of Form 10-K for
a further description of legal proceedings.
Additionally,
we will record receivables for insurance recoveries for legal settlements and
expenses when such amounts are covered by insurance and recovery of such losses
or costs are considered probable of recovery. These amounts will be
recorded as other assets in the consolidated statements of financial condition
and will reduce other expense, to the extent such losses or costs have been
incurred, in the consolidated statements of results of operations.
Allowance
for Doubtful Accounts
Our
receivables include corporate finance and syndicate receivables relating to our
advisory and investment banking engagements. We also have receivables from our
clearing brokers in connection with the clearing of our brokerage transactions.
We record an allowance for doubtful accounts on these receivables based on a
specific identification basis. Management is continually evaluating our
receivables for collectibility and possible write-off by examining the facts and
circumstances surrounding each specific case where a loss is deemed a
possibility.
Deferred
Tax Valuation Allowance
In
determining our provision for income taxes, we recognize deferred tax assets and
liabilities based on the difference between the carrying value of assets and
liabilities for financial and tax reporting purposes. For our investments in
partnerships, adjustments to the carrying value are made based on determinations
of the fair value of underlying investments held by such partnerships. Both
upward and downward adjustments to the carrying value of investment
partnerships, which are recorded as unrealized gains and losses in our
consolidated statements of operations, represent timing differences until such
time as these gains and losses are realized.
SFAS
No.109 states that a deferred tax asset should be reduced by a valuation
allowance if based on the weight of all available evidence, it is more likely
than not (a likelihood of more than 50%) that some portion or the entire
deferred tax asset will not be realized. The valuation allowance should be
sufficient to reduce the deferred tax asset to the amount that is more likely
than not to be realized. The determination of whether a deferred tax asset is
realizable is based on weighting all available evidence, including both positive
and negative evidence. SFAS No. 109 provides that the realization of deferred
tax assets, including carryforwards and deductible temporary differences,
depends upon the existence of sufficient taxable income of the same character
during the carryback or carryforward period. SFAS No.109 requires the
consideration of all sources of taxable income available to realize the deferred
tax asset, including the future reversal of existing temporary differences,
future taxable income exclusive of reversing temporary differences and
carryforwards, taxable income in carryback years and tax-planning
strategies.
Our
operations are in a cumulative loss position for the three-year period ended
December 31, 2008, primarily created by poor operating results in 2008 due
to the challenging environment for the capital markets. For purposes of
assessing the realization of the deferred tax assets, this cumulative taxable
loss position is considered significant negative evidence and has caused us to
conclude that it is more likely than not we will not be able to realize the
deferred tax assets in the future. As of December 31, 2008, we recorded a
full valuation allowance of $44.8 million on our U.S. deferred tax
assets. In addition, we have a valuation allowance of $1.7 million on our U.K.
deferred tax asset as of December 31, 2008. Management will reassess the
realization of the deferred tax assets based on the criteria of SFAS No.109 each
reporting period. To the extent that our financial results improve and the
deferred tax asset becomes realizable, we will be able to reduce the valuation
allowance through earnings.
During
the three months ended March 31, 2006, we recognized a one-time tax benefit
upon conversion to a corporation in connection with the establishment of our
deferred tax asset balances, partially offset by a valuation allowance of $9.9
million. The valuation allowance was recorded because management at that time,
concluded that a portion of the deferred tax benefit, which resulted from
unrealized capital losses, more likely than not would not be realized due to the
uncertainty of our ability to generate future capital gains to offset such
capital losses. During 2006 however, the performance of the underlying
investments in our investments in partnerships exceeded our estimates,
significantly reducing our net unrealized capital loss and accordingly, our
valuation allowance by $8.5 million. As of December 31, 2006, the
deferred tax asset recorded to reflect these net unrealized losses was $1.4
million, and the related valuation allowance was $1.4 million.
In 2007,
we recorded net capital gains of $17.7 million, which included the recognition
of previously recorded unrealized gains. As a result, our deferred
tax asset associated with our net unrealized loss increased by $1.6 million for
the period ending December 31, 2007. However, due to the significant
recognition of capital gains in the current year, the continued performance of
our investments and our expectation of being able to reduce unrealized capital
losses through recognition and future unrealized capital gains, we reduced our
valuation allowance to zero. In reducing our valuation allowance, we
recognized deferred tax benefit of $1.4 million during 2007 resulting in a 49.8%
reduction in the effective tax rate.
Business
Combinations
In
accordance with business combination accounting
under Statement of
Financial Accounting Standards No. 141,
Business
Combinations
,
we allocate the
purchase price of acquired businesses to the tangible and intangible assets
acquired and liabilities assumed based on estimated fair values. Such
allocations require management to make significant estimates and assumptions,
especially with respect to intangible assets acquired.
Management’s
estimates of fair value are based upon assumptions believed to be
reasonable. These estimates are based on information obtained from
management of the acquired companies and are inherently
uncertain. Critical estimates in valuing certain of the intangible
assets include, but are not limited to, (i) future expected cash flows from
acquired businesses, (ii) future expected cash flows from employees subject to
non-compete agreements and (iii) the acquired company’s market
position.
Unanticipated
events and circumstances may occur which may affect the accuracy or validity of
such assumptions, estimates or actual results.
Goodwill
and Long-Lived Assets
In accordance with
Statement of Financial Accounting Standards No. 142,
Goodwill
and Other Intangible Assets
(“SFAS No. 142”), we are
required to evaluate goodwill annually to determine whether it is
impaired. Goodwill is also required to be tested between annual impairment
tests if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying amount. We selected the
fourth quarter to perform our annual goodwill impairment
testing.
The provisions of SFAS No. 142 require that a
two-step impairment test be performed on goodwill. In the first step, we compare
the fair value of the reporting unit to its carrying value. If the fair value of
the reporting unit exceeds the carrying value of the net assets assigned to that
unit, goodwill is considered not impaired and we are not required to perform
further testing. If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then we must
perform the second step of the impairment test in order to determine the implied
fair value of the reporting unit’s goodwill. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, then we would record
an impairment loss equal to the difference.
During
the year ended December 31, 2008, we experienced a significant decline in our
market capitalization which was affected by the uncertainty in the financial
markets. The tightening of the credit markets contributed to a sharp
decline in our capital raising investment banking revenues during the same
period. Based on the difficult conditions in business climate and our
perception that the climate is unlikely to change in the near term, we recorded
a full impairment charge to the goodwill asset of $92.6 million. The
impairment charge was determined based on our fair value utilizing a discounted
cash flow analysis, and we considered our market capitalization to determine the
reasonableness of the discounted cash flow.
We
account for the impairment and disposal of long-lived assets utilizing Statement
of Financial Accounting Standards No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
(“SFAS No. 144”). SFAS No. 144 requires
that long-lived assets, such as property and equipment, and purchased intangible
assets subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The recoverability of an asset is measured by a comparison of
the carrying amount of an asset to its estimated undiscounted future cash flows
expected to be generated. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
While we
believe our estimates and judgments about future cash flows are reasonable,
future impairment charges may be required if the expected cash flow estimates,
as projected, do not occur or if events change requiring us to revise our
estimates, and thereby result in non-cash charges to our earnings in the period
in which we make the adjustment.
Recently
Issued Accounting Pronouncements
Statement of Financial Accounting
Standards No. 157 – “Fair Value Measurements” (“SFAS No. 157”)
. In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, which defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. The primary
focus of SFAS No. 157 is to increase consistency and comparability in fair value
measurements, as well as provide better information about the extent to which
fair value is used to measure recognized assets and liabilities, the inputs used
to develop the measurements and the effect fair value measurements have on
earnings for the period, if any. We adopted SFAS No. 157 as of January 1,
2008. Adoption of SFAS No. 157 did not have a material impact on our
consolidated statements of financial condition, operations and cash flows. Under
provisions set forth in FSP 157-2,
Effective Date of FASB Statement No.
157
(“FSP 157-2”), we elected to defer adoption of SFAS No. 157 until
January 1, 2009 for nonfinancial assets and nonfinancial liabilities that are
not recognized or disclosed at fair value in the financial statements on a
recurring basis. We adopted FSP 157-2 on January 1, 2009, and
adoption did not have a material impact on our consolidated statements of
financial condition, results of operations or cash flows.
Statement of Financial Accounting
Standards No. 159 – “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”)
. In February 2007, the FASB issued SFAS No.
159, which permits entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value and establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. We adopted SFAS No. 159
as of January 1, 2008 and elected not to apply the provisions.
Statement of Financial Accounting
Standards No. 141R – “Business Combinations” (“SFAS No. 141R”)
.
In
December 2007, the FASB
issued SFAS No. 141R, which improves the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Early adoption of
SFAS No. 141R was not permitted. We adopted SFAS No. 141R on January 1, 2009,
and adoption did not have an impact on our consolidated statements of financial
condition, operations and cash flows.
Statement of Financial Accounting
Standards No. 160 – “
Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS No.
160”)
.
In
December 2007, the FASB
issued SFAS No. 160, which improves the relevance, comparability and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Early adoption of SFAS No. 160 was not permitted. We adopted SFAS No. 160
on January 1, 2009, and adoption did not have an impact on our consolidated
statements of financial condition, operations and cash flows.
Statement of Financial Accounting
Standards No. 161 – “
Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement No. 133”
(“SFAS No. 161”)
. In
March 2008, the FASB
issued SFAS No. 161, which enhances disclosures about an entity’s derivative
instruments and hedging activities and thereby improves the transparency of
financial reporting. SFAS No. 161 is effective for financial statements issued
for fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. SFAS No. 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. We adopted SFAS No. 161 on
January 1, 2009, and adoption did not have an impact on our consolidated
statements of financial condition, operations and cash flows.
FASB Staff Position 157-3 –
“
Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP
157-3”)
. In
October 2008, the FASB
issued FAS 157-3, which clarifies the application of SFAS No. 157 in a market
that is not active and provides an example of key considerations to determine
the fair value of financial assets when the market for those assets is not
active. FSP 157-3 was effective upon issuance, including prior
periods for which financial statements have not been issued. The adoption of FSP
157-3 did not have an impact on our consolidated statements of financial
condition, operations and cash flows.
FASB Staff Position FAS 140-4 and
FIN 46(R)-8 – “
Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities” (“FSP 140-4”)
. In
December 2008, the FASB
issued FSP 140-4, which requires additional disclosure related to transfers of
financial assets and variable interest entities. FSP 140-4 was
effective for the first reporting period ending after December 15, 2008. As FSP
140-4 impacts our disclosures and not our accounting treatment for transfers of
financial assets and variable interest entities, our adoption of FSP 140-4 did
not have an impact on our consolidated statements of financial condition,
operations and cash flows.
Our
business and financing activities directly expose us to various types of risks,
including (i) market risk relating to, among other things, the changes in the
market value of equity or debt instruments and (ii) interest rate risk relating
to the effect of changes in interest rates and the yield curve on the value of
debt instruments that we hold and our payment obligations in respect of notes
that we have issued. We are also exposed to other risks in the
conduct of our business such as credit risk and the effects of
inflation. Our exposure to these risks could be material to our
consolidated financial statements. Set forth below is a discussion of some of
these risks together with quantitative information regarding the aggregate
amount and value of financial instruments that we hold or in which we maintain a
position or that we have issued and that remain outstanding, in each case, as of
December 31, 2008 and 2007. Due to the nature of our business, in particular our
trading business, the amount or value of financial instruments that we hold or
maintain a position in will fluctuate on a daily and intra-day basis, and the
year-end values and amounts presented below are not necessarily indicative of
the exposures to market risk, interest rate risk and other risks we may
experience at various times throughout any given year.
Market
risk represents the risk of loss that may result from the change in value of a
financial instrument due to fluctuations in its market price. Market risk may be
exacerbated in times of trading illiquidity when market participants refrain
from transacting in normal quantities and/or at normal bid-offer spreads. Our
exposure to market risk is directly related to our role as a financial
intermediary in customer trading and to our market-making, investment banking
and investment activities, which activities include committing from time to time
to purchase large blocks of stock from publicly-traded issuers or their
significant shareholders. We trade in equity and convertible debt securities as
an active participant in both listed and over-the-counter equity and convertible
debt markets and typically maintain securities in inventory to facilitate our
market-making activities and customer order flow. Market risk is inherent in
financial instruments.
The
following tables categorize our market risk sensitive financial instruments by
type of security and, where applicable, by contractual maturity
date.
As of
December 31, 2008 (
in
thousands
):
|
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
7,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,500
|
|
|
$
|
12,550
|
|
|
$
|
6,402
|
|
|
Warrants—long
(1)
|
|
|
250
|
|
|
|
153
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
430
|
|
|
Equity
securities—long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,095
|
|
|
Total—long
|
|
|
250
|
|
|
|
1,153
|
|
|
|
7,077
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,500
|
|
|
|
12,980
|
|
|
|
18,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,464
|
|
|
Equity
index fund—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,073
|
|
|
Total—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(2)
|
|
|
9,650
|
|
|
|
8,913
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248
|
|
|
(1)
|
Maturity
date is based on the warrant expiration date. An assumption of
expiration date was made when none was
available.
|
|
(2)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
As of
December 31, 2007 (
in
thousands
):
|
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
9,305
|
|
|
$
|
4,063
|
|
|
$
|
1,005
|
|
|
$
|
5,348
|
|
|
$
|
21,949
|
|
|
$
|
120,050
|
|
|
$
|
161,720
|
|
|
$
|
189,483
|
|
|
Equity
securities—long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,957
|
|
|
Total—long
|
|
|
9,305
|
|
|
|
4,063
|
|
|
|
1,005
|
|
|
|
5,348
|
|
|
|
21,949
|
|
|
|
120,050
|
|
|
|
161,720
|
|
|
|
220,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—short
|
|
|
—
|
|
|
|
—
|
|
|
|
2,705
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
12,031
|
|
|
|
15,736
|
|
|
|
18,351
|
|
|
U.S.
Treasury securities—short
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
15,330
|
|
|
Equity
securities—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,060
|
|
|
Equity
index fund—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,192
|
|
|
Total—short
|
|
|
—
|
|
|
|
5,000
|
|
|
|
2,705
|
|
|
|
—
|
|
|
|
11,000
|
|
|
|
12,031
|
|
|
|
30,736
|
|
|
|
163,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
37,600
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,550
|
(2)
|
|
|
46,150
|
|
|
|
46,150
|
|
|
Municipal
debt securities
|
|
|
4,016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,016
|
|
|
|
4,016
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,262
|
|
|
(1)
|
Represents
earlier of contractual maturity or repricing date, which we believe
represents the market risk inherent in the underlying instrument. Please
refer to further discussion regarding auction rate securities included in
the “Liquidity and Capital Resources” section
above.
|
|
(2)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
In
connection with our asset management activities, we provide seed investment
funds for new asset management products to be invested in long and short
positions in publicly traded equities and related options and other derivative
instruments. These seed investments are included in the tables presented
above.
In
addition to the positions set forth in the table above, we maintain investments
in private equity, venture capital and other investment funds. These
investments are carried at fair value in accordance with industry guidance, and
as of December 31, 2008 and 2007, the fair value of these investments was $32.7
million and $53.3 million, respectively.
From time
to time we may use a variety of risk management techniques and hedging
strategies in the ordinary course of our brokerage activities, including
establishing position limits by product type and industry sector, closely
monitoring inventory turnover, maintaining long and short positions in related
securities and using exchange-traded equity options and other derivative
instruments.
In
connection with our brokerage activities, management reviews reports appropriate
to the risk profile of specific trading activities. Typically, market conditions
are evaluated and transaction details and securities positions are reviewed.
These activities seek to ensure that trading strategies are within acceptable
risk tolerance parameters, particularly when we commit our own capital to
facilitate client trading. We believe that these procedures, which stress timely
communications between our traders, institutional brokerage management and
senior management, are important elements in evaluating and addressing market
risk.
Interest
rate risk represents the potential loss from adverse changes in market interest
rates. As we may hold U.S. Treasury securities and auction rate securities,
as well as convertible debt securities, and incur interest-sensitive liabilities
from time to time, we are exposed to interest rate risk arising from changes in
the level and volatility of interest rates and in the shape of the yield curve.
Certain of these interest rate risks may be managed through the use of short
positions in U.S. government and corporate debt securities and other
instruments. In addition, we issued floating rate notes to California
Public Employees’ Retirement System and Nomura America Investment, Inc. and,
therefore, are exposed to the risk of higher interest payments on those notes if
interest rates rise.
The
tables below provide information about our financial instruments that are
sensitive to changes in interest rates. For inventory positions, other
investments and notes payable the table presents principal cash flows with
contractual maturity dates.
As of
December 31, 2008 (
in
thousands
):
|
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
7,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,500
|
|
|
$
|
12,550
|
|
|
$
|
6,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(3)
|
|
|
9,650
|
|
|
|
8,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR + 2.25% (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
12,492
|
|
|
Senior
Note, floating mid-term AFR + 2.25% (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
9,609
|
|
|
(1)
|
The
weighted average interest rate was 1.91% at December 31,
2008.
|
|
(2)
|
We
have recorded the debt principal at a discount to reflect the below-market
stated interest rate of these notes at inception. We amortize the discount
to interest expense so that the interest expense approximates our
incremental borrowing rate. The weighted average interest rate for notes
payable outstanding at December 31, 2008 was
5.17%.
|
|
(3)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
As of
December 31, 2007 (
in
thousands
):
|
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
9,305
|
|
|
$
|
4,063
|
|
|
$
|
1,005
|
|
|
$
|
5,348
|
|
|
$
|
21,949
|
|
|
$
|
120,050
|
|
|
$
|
161,720
|
|
|
$
|
189,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—short
|
|
|
—
|
|
|
|
—
|
|
|
|
2,705
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
12,031
|
|
|
|
15,736
|
|
|
|
18,351
|
|
|
U.S.
Treasury securities—short
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
15,330
|
|
|
Total—short
|
|
|
—
|
|
|
|
5,000
|
|
|
|
2,705
|
|
|
|
—
|
|
|
|
11,000
|
|
|
|
12,031
|
|
|
|
30,736
|
|
|
|
33,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities (1)
|
|
|
37,600
|
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,550
|
(7)
|
|
|
46,150
|
|
|
|
46,150
|
|
|
Municipal
debt securities (2)
|
|
|
4,016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,016
|
|
|
|
4,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR + 2.25% (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
12,267
|
|
|
Senior
Note, floating mid-term AFR + 2.25% (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
9,436
|
|
|
Contingent
Payment Senior Note (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,384
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,384
|
|
|
|
1,948
|
|
|
Secured
Note, floating at LIBOR + 2.85% (5)
|
|
|
3,734
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,734
|
|
|
|
3,734
|
|
|
(1)
|
The
weighted average interest rate was 5.42% at December 31,
2007.
|
|
(2)
|
The
weighted average interest rate was 3.80% at December 31,
2007.
|
|
(3)
|
We
have recorded the debt principal at a discount to reflect the below-market
stated interest rate of these notes at inception. We amortize the discount
to interest expense so that the interest expense approximates our
incremental borrowing rate. The weighted average interest rate was 6.65%
at December 31, 2007.
|
|
(4)
|
The
Contingent Payment Senior Note had a variable due date based upon
distributions received from certain private equity funds. We recorded the
debt principal at a discount and amortized the discount to interest
expense so that the interest expense on this non-interest bearing note
approximated our incremental borrowing rate. The weighted average interest
rate was 6.98% at December 31,
2007.
|
|
(5)
|
The
weighted average interest rate was 8.17% at December 31,
2007.
|
|
(6)
|
Represents
earlier of contractual maturity or repricing date, which we believe
represents the interest rate risk inherent in the underlying instrument.
Please refer to further discussion regarding auction rate securities
included in the “Liquidity and Capital Resources” section
above.
|
|
(7)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
Our
broker-dealer subsidiaries place and execute customer orders. The orders are
then settled by unrelated clearing organizations that maintain custody of
customers’ securities and provide financing to customers. The majority of our
transactions, and consequently the concentration of our credit exposure, is with
our clearing brokers. The clearing brokers are also the primary source of our
short-term financing (securities sold, but not yet purchased), which is
collateralized by cash and securities owned by us and held by the clearing
brokers. Our securities owned may be pledged by the clearing brokers. The amount
receivable from or payable to the clearing brokers represents amounts receivable
or payable in connection with the proprietary and customer trading activities.
As of December 31, 2008 and 2007, our cash on deposit with the clearing
brokers of $69.3 million and $135.9 million, respectively, was not
collateralizing any liabilities to the clearing brokers. In addition to the
clearing brokers, we are exposed to credit risk from other brokers, dealers and
other financial institutions with which we transact
business.
Through
indemnification provisions in our agreement with our clearing organizations,
customer activities may expose us to off-balance sheet credit risk. We may be
required to purchase or sell financial instruments at prevailing market prices
in the event a customer fails to settle a trade on its original terms or in the
event cash and securities in customer margin accounts are not sufficient to
fully cover customer obligations. We seek to control the risks associated with
brokerage services for our customers through customer screening and selection
procedures as well as through requirements that customers maintain margin
collateral in compliance with governmental and self-regulatory organization
regulations and clearing organization policies.
Due to
the fact that our assets are generally liquid in nature, they are not
significantly affected by inflation. However, the rate of inflation affects our
expenses, such as employee compensation, office leasing costs and communications
charges, which may not be readily recoverable in the price of services offered
by us. To the extent inflation results in rising interest rates and has other
adverse effects upon the securities markets, it may adversely affect our
financial position, results of operations and cash flows.
Regulatory
and Legal Risk
Legal
risk includes the risk of customer and/or regulatory claims in connection with
auction rate securities matters. While these claims may not be the result of any
wrongdoing, we do, at a minimum, incur costs associated with investigating and
defending against such claims. In addition, we are generally subject
to extensive legal and regulatory requirements as described in Item 1. Business
– Regulation and are subject to potentially sizable adverse legal judgments or
arbitration awards, and fines, penalties, and other sanctions for non-compliance
with those legal and regulatory requirements. We have comprehensive procedures
addressing issues such as regulatory capital requirements, sales and trading
practices, use of and safekeeping of customer funds, the extension of credit,
including margin loans, collection activities, money laundering and record
keeping. We act as an underwriter or selling group member in equity offerings,
and we have potential legal exposure to claims relating to these securities
offerings. To manage this exposure, a committee of senior executives reviews
proposed underwriting commitments to assess the quality of the offering and the
adequacy of due diligence investigation.
The
financial statements and supplementary data required by this item are included
in Item 15
–
“Exhibits and Financial Statement Schedules” of this Annual Report on
Form 10-K.
We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed or
submitted under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. Our disclosure controls and procedures
are also designed to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required
disclosure.
During
the year ended December 31, 2008, we carried out an evaluation, under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31,
2008.
There
were no changes in our internal control over financial reporting in the year
ended December 31, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
The
certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are
filed as Exhibits 31.1 and 31.2, respectively, to this Annual Report on Form
10-K.
Report
of Management on Internal Control over Financial Reporting
The
management of Thomas Weisel Partners Group, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of our financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes maintaining records
that in reasonable detail accurately and fairly reflect our transactions;
providing reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements; providing reasonable assurance that
receipts and expenditures are made in accordance with management authorization;
and providing reasonable assurance that unauthorized acquisition, use or
disposition of company assets that could have a material effect on our financial
statements would be prevented or detected on a timely basis. Because of its
inherent limitations, internal control over financial reporting is not intended
to provide absolute assurance that a misstatement of our financial statements
would be prevented or detected.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework and criteria established in
Internal Control — Integrated
Framework
, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evaluation. Based
on this evaluation, management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
Our
internal control over financial reporting as of December 31, 2008 has been
audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included in Part IV,
Item 15 of this Annual Report on Form 10-K.
The
information required by this item is included in Item 4 – “Submission of Matters
to a Vote of Security Holders” of this Annual Report on Form 10-K, as well as
incorporated herein by reference to the sections entitled “The Board of
Directors and its Committees”, “Compensation of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for
the Annual Meeting of Shareholders scheduled to be held on May 20, 2009 (the
“Proxy Statement”), which we expect to file with the SEC in April
2009.
The
information required by this item is incorporated herein by reference to the
sections entitled “Executive Compensation” and “Compensation Discussion and
Analysis” in the Proxy Statement.
The
information required by this item is included in Item 5 – “Market for
Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities” of this Annual Report on Form 10-K, as well as incorporated
herein by reference to the section entitled “Security Ownership of Certain
Beneficial Owners and Management” in the Proxy Statement.
The
information required by this item is incorporated herein by reference to the
section entitled “Certain Relationships and Related Transactions” in the Proxy
Statement.
The
information required by this item is incorporated herein by reference to the
section entitled “Fees Paid to Independent Auditors” in the Proxy
Statement.
|
(a)
|
The
following documents are filed as part of this Annual Report on Form
10-K:
|
|
1.
|
Consolidated
Financial Statements
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
|
|
·
|
Consolidated
Statements of Financial Condition as of December 31, 2008 and
2007;
|
|
·
|
Consolidated
Statements of Operations for the years ended December 31, 2008, 2007 and
2006;
|
|
·
|
Consolidated
Statements of Changes in Shareholders’ and Members’ Equity (Deficit) for
the years ended December 31, 2008, 2007 and
2006;
|
|
·
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006; and
|
|
·
|
Notes
to the Consolidated Financial
Statements
|
|
2.
|
Financial
Statement Schedules
|
Separate
financial statement schedules have been omitted either because they are not
applicable or because the required information is included in the consolidated
financial statements or notes described in Item 15(a)(1)
above.
Refer to
the Exhibit Index for a list of the exhibits being filed or furnished with
or incorporated by reference into this Annual Report on Form
10-K.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Financial Statements
|
|
Page
|
|
|
|
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-9
|
|
|
|
|
F-9
|
|
|
|
|
F-10
|
|
|
|
|
F-12
|
|
|
|
|
F-17
|
|
|
|
|
F-18
|
|
|
|
|
F-18
|
|
|
|
|
F-19
|
|
|
|
|
F-21
|
|
|
|
|
F-21
|
|
|
|
|
F-21
|
|
|
|
|
F-22
|
|
|
|
|
F-24
|
|
|
|
|
F-24
|
|
|
|
|
F-27
|
|
|
|
|
F-29
|
|
|
|
|
F-29
|
|
|
|
|
F-35
|
|
|
|
|
F-35
|
|
|
|
|
F-36
|
|
|
|
|
F-36
|
|
|
|
|
F-38
|
|
|
|
|
F-38
|
Report of Independent Registered Public Accounting
Firm
To the
Board of Directors and Shareholders of
Thomas
Weisel Partners Group, Inc. and Subsidiaries
San Francisco,
California
We have
audited the accompanying consolidated statements of financial condition of
Thomas Weisel Partners Group, Inc. and subsidiaries (formerly Thomas Weisel
Partners Group LLC and subsidiaries) (the “Company”) as of December 31,
2008 and 2007, and the related consolidated statements of operations, changes in
shareholders’ and members’ equity (deficit), and cash flows for each of the
three years in the period ended December 31, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. As audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Thomas Weisel Partners Group, Inc. and
subsidiaries at December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2008, based on the criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 16, 2009 expressed an
unqualified opinion on the Company’s internal control over financial
reporting.
/s/
DELOITTE & TOUCHE LLP
San Francisco,
California
To the
Board of Directors and Shareholders of
Thomas
Weisel Partners Group, Inc. and Subsidiaries
San Francisco,
California
We have
audited the internal control over financial reporting of Thomas Weisel Partners
Group, Inc. and subsidiaries (formerly Thomas Weisel Partners Group LLC and
subsidiaries) (the “Company”) as of December 31, 2008, based on criteria
established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Report of Management on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the
criteria established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of the Company and our report dated
March 16, 2009 expressed an unqualified opinion on those financial
statements.
/s/
DELOITTE & TOUCHE LLP
San Francisco,
California
THOMAS WEISEL PARTNERS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(In
thousands, except share and per share data)
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
116,588
|
|
|
$
|
157,003
|
|
|
Restricted
cash
|
|
|
6,718
|
|
|
|
6,718
|
|
|
Securities
owned
|
|
|
18,927
|
|
|
|
220,440
|
|
|
Receivable
from clearing brokers
|
|
|
12,064
|
|
|
|
—
|
|
|
Corporate
finance and syndicate receivables—net of allowance for doubtful accounts
of $950 and $725, respectively
|
|
|
5,716
|
|
|
|
18,609
|
|
|
Investments
in partnerships and other investments
|
|
|
43,815
|
|
|
|
111,686
|
|
|
Property
and equipment—net of accumulated depreciation and amortization of $102,047
and $93,389, respectively
|
|
|
20,581
|
|
|
|
21,317
|
|
|
Receivables
from related parties—net of allowance for doubtful loans of $2,324 and
$1,849, respectively
|
|
|
2,263
|
|
|
|
3,190
|
|
|
Other
intangible assets—net of accumulated amortization of $15,254 and zero,
respectively
|
|
|
23,229
|
|
|
|
—
|
|
|
Deferred
tax assets
|
|
|
—
|
|
|
|
21,093
|
|
|
Other
assets
|
|
|
31,749
|
|
|
|
26,624
|
|
|
Total
assets
|
|
$
|
281,650
|
|
|
$
|
586,680
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased
|
|
$
|
11,537
|
|
|
$
|
163,933
|
|
|
Payable
to clearing brokers
|
|
|
13
|
|
|
|
4,778
|
|
|
Accrued
compensation
|
|
|
21,824
|
|
|
|
56,863
|
|
|
Accrued
expenses and other liabilities
|
|
|
47,978
|
|
|
|
60,059
|
|
|
Capital
lease obligations
|
|
|
152
|
|
|
|
35
|
|
|
Notes
payable
|
|
|
22,101
|
|
|
|
27,385
|
|
|
Deferred
tax liability
|
|
|
6,144
|
|
|
|
—
|
|
|
Total
liabilities
|
|
|
109,749
|
|
|
|
313,053
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Note 16 to the consolidated financial
statements)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
|
Exchangeable
common stock—par value $0.01 per share, 6,639,478 and zero shares issued
and outstanding, respectively
|
|
|
66
|
|
|
|
—
|
|
|
Common
stock—par value $0.01 per share, 100,000,000 shares authorized, 25,693,394
and 25,235,470
shares
issued, respectively
|
|
|
257
|
|
|
|
252
|
|
|
Additional
paid-in capital
|
|
|
484,289
|
|
|
|
358,720
|
|
|
Accumulated
deficit
|
|
|
(288,440
|
)
|
|
|
(85,188
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(14,745
|
)
|
|
|
(157
|
)
|
|
Treasury
stock—at cost, 1,544,286 and zero shares, respectively
|
|
|
(9,526
|
)
|
|
|
—
|
|
|
Total
shareholders’ equity
|
|
|
171,901
|
|
|
|
273,627
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
281,650
|
|
|
$
|
586,680
|
|
See
accompanying notes to the consolidated financial statements.
THOMAS WEISEL PARTNERS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
$
|
63,305
|
|
|
$
|
127,228
|
|
|
$
|
124,136
|
|
|
Brokerage
|
|
|
131,939
|
|
|
|
120,187
|
|
|
|
123,809
|
|
|
Asset
management
|
|
|
(7,120
|
)
|
|
|
33,414
|
|
|
|
25,752
|
|
|
Interest
income
|
|
|
7,341
|
|
|
|
17,718
|
|
|
|
13,525
|
|
|
Other
revenue
|
|
|
—
|
|
|
|
920
|
|
|
|
—
|
|
|
Total
revenues
|
|
|
195,465
|
|
|
|
299,467
|
|
|
|
287,222
|
|
|
Interest
expense
|
|
|
(5,938
|
)
|
|
|
(10,418
|
)
|
|
|
(10,905
|
)
|
|
Net
revenues
|
|
|
189,527
|
|
|
|
289,049
|
|
|
|
276,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
147,186
|
|
|
|
187,902
|
|
|
|
152,195
|
|
|
Brokerage
execution, clearance and account administration
|
|
|
27,102
|
|
|
|
20,363
|
|
|
|
22,621
|
|
|
Communications
and data processing
|
|
|
22,195
|
|
|
|
18,993
|
|
|
|
16,650
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
7,784
|
|
|
|
6,450
|
|
|
|
8,549
|
|
|
Amortization
of other intangible assets
|
|
|
15,254
|
|
|
|
—
|
|
|
|
—
|
|
|
Goodwill
impairment
|
|
|
92,597
|
|
|
|
—
|
|
|
|
—
|
|
|
Marketing
and promotion
|
|
|
13,915
|
|
|
|
15,147
|
|
|
|
11,545
|
|
|
Occupancy
and equipment
|
|
|
26,509
|
|
|
|
18,988
|
|
|
|
17,926
|
|
|
Other
expense
|
|
|
32,537
|
|
|
|
23,979
|
|
|
|
20,706
|
|
|
Total
expenses excluding interest
|
|
|
385,079
|
|
|
|
291,822
|
|
|
|
250,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before taxes
|
|
|
(195,552
|
)
|
|
|
(2,773
|
)
|
|
|
26,125
|
|
|
Provision
for taxes (tax benefit)
|
|
|
7,700
|
|
|
|
(2,793
|
)
|
|
|
(8,796
|
)
|
|
Net
income (loss)
|
|
|
(203,252
|
)
|
|
|
20
|
|
|
|
34,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and accretion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class D
redeemable convertible shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(710
|
)
|
|
Class D-1
redeemable convertible shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(380
|
)
|
|
Accretion
of Class C redeemable preference shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common shareholders and to Class A, B and C
shareholders
|
|
$
|
(203,252
|
)
|
|
$
|
20
|
|
|
$
|
33,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.39
|
|
|
Diluted
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computation of per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
32,329
|
|
|
|
26,141
|
|
|
|
23,980
|
|
|
Diluted
weighted average shares outstanding
|
|
|
32,329
|
|
|
|
26,446
|
|
|
|
24,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma, as adjusted (unaudited)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net revenues
|
|
|
|
|
|
|
|
|
|
$
|
276,179
|
|
|
Pro
forma income before tax
|
|
|
|
|
|
|
|
|
|
|
25,987
|
|
|
Pro
forma tax benefit
|
|
|
|
|
|
|
|
|
|
|
(7,363
|
)
|
|
Pro
forma net income
|
|
|
|
|
|
|
|
|
|
|
33,350
|
|
|
Pro
forma preferred dividends and accretion
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
Pro
forma net income attributable to common shareholders and to Class A, B and
C shareholders
|
|
|
|
|
|
|
|
|
|
|
33,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net income per share (unaudited)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma basic net income per share
|
|
|
|
|
|
|
|
|
|
$
|
1.39
|
|
|
Pro
forma diluted net income per share
|
|
|
|
|
|
|
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma weighted average shares used in the computation of per share data
(unaudited)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
23,980
|
|
|
Pro
forma diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
24,945
|
|
|
*
|
See
Note 20 – Pro Forma, As Adjusted (Unaudited) to the consolidated
financial statements.
|
See
accompanying notes to the consolidated financial statements.
THOMAS WEISEL PARTNERS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ AND MEMBERS’ EQUITY
(DEFICIT)
|
|
|
Exchangeable
Common Stock
|
|
|
|
Common
Stock
|
|
|
Paid-In
Capital
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Treasury
|
|
|
Total
Shareholders’ and Members’ Equity
|
|
|
Total
Comprehensive Income
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Class
A
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
(Loss)
|
|
|
Shares
|
|
|
(Deficit)
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31,
2005
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
26,442
|
|
|
$
|
—
|
|
|
$
|
(136,530
|
)
|
|
$
|
(309
|
)
|
|
$
|
—
|
|
|
$
|
(110,397
|
)
|
|
$
|
(7,070
|
)
|
|
Net
income for the period January 1, to February 7, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,551
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,551
|
|
|
|
3,551
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class D
redeemable convertible shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(710
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(710
|
)
|
|
|
—
|
|
|
Class D-1
redeemable convertible shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(380
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(380
|
)
|
|
|
—
|
|
|
Accretion
of Class C redeemable preference shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(518
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(518
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions—Class A
shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
283
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
283
|
|
|
|
—
|
|
|
Currency
translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
|
|
14
|
|
|
Reorganization
from an LLC to a C Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for Class A and A-1 shares
|
|
|
—
|
|
|
|
—
|
|
|
|
13,274
|
|
|
|
133
|
|
|
|
(26,725
|
)
|
|
|
26,592
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance
of common shares for Class C redeemable preference
shares
|
|
|
—
|
|
|
|
—
|
|
|
|
1,304
|
|
|
|
13
|
|
|
|
—
|
|
|
|
31,287
|
|
|
|
18,009
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,309
|
|
|
|
—
|
|
|
Issuance
of common shares for Class D and D-1 redeemable convertible
shares
|
|
|
—
|
|
|
|
—
|
|
|
|
2,769
|
|
|
|
28
|
|
|
|
—
|
|
|
|
145,244
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145,272
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in initial public offering—net of underwriting
discounts
|
|
|
—
|
|
|
|
—
|
|
|
|
4,915
|
|
|
|
49
|
|
|
|
—
|
|
|
|
71,626
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71,675
|
|
|
|
—
|
|
|
Direct
costs of initial public offering
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,457
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,457
|
)
|
|
|
—
|
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,250
|
|
|
|
—
|
|
|
Issuance
of common stock in follow-on offering—net of underwriting
discounts
|
|
|
—
|
|
|
|
—
|
|
|
|
3,582
|
|
|
|
35
|
|
|
|
—
|
|
|
|
76,811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
76,846
|
|
|
|
—
|
|
|
Direct
costs of follow-on offering
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(821
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(821
|
)
|
|
|
—
|
|
|
Repurchase
or reacquisition of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(90
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(233
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(233
|
)
|
|
|
—
|
|
|
Net
income from February 8, 2006 to December 31, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,370
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,370
|
|
|
|
31,370
|
|
|
Balance—December
31, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
25,754
|
|
|
|
258
|
|
|
|
—
|
|
|
|
352,299
|
|
|
|
(85,208
|
)
|
|
|
(295
|
)
|
|
|
—
|
|
|
|
267,054
|
|
|
|
34,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
20
|
|
|
Currency
translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138
|
|
|
|
—
|
|
|
|
138
|
|
|
|
138
|
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,716
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
10,716
|
|
|
|
—
|
|
|
Excess
tax benefits from share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
Vested
and delivered restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Repurchase
or reacquisition of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(567
|
)
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(4,307
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,313
|
)
|
|
|
—
|
|
|
Balance—December
31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
25,235
|
|
|
|
252
|
|
|
|
—
|
|
|
|
358,720
|
|
|
|
(85,188
|
)
|
|
|
(157
|
)
|
|
|
—
|
|
|
|
273,627
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(203,252
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(203,252
|
)
|
|
|
(203,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Westwind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of exchangeable shares of common stock
|
|
|
6,639
|
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101,709
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101,775
|
|
|
|
—
|
|
|
Issuance
of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
370
|
|
|
|
4
|
|
|
|
—
|
|
|
|
5,671
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,675
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,588
|
)
|
|
|
—
|
|
|
|
(14,588
|
)
|
|
|
(14,588
|
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,551
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,551
|
|
|
|
—
|
|
|
Excess
tax deficiencies from share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
Vested
and delivered restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
243
|
|
|
|
3
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Repurchase
or reacquisition of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(155
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(347
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,526
|
)
|
|
|
(9,875
|
)
|
|
|
—
|
|
|
Balance—December
31, 2008
|
|
|
6,639
|
|
|
|
66
|
|
|
|
25,693
|
|
|
$
|
257
|
|
|
$
|
—
|
|
|
$
|
484,289
|
|
|
$
|
(288,440
|
)
|
|
$
|
(14,745
|
)
|
|
$
|
(9,526
|
)
|
|
$
|
171,901
|
|
|
$
|
(217,840
|
)
|
See
accompanying notes to the consolidated financial statements.
THOMAS WEISEL PARTNERS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(203,252
|
)
|
|
$
|
20
|
|
|
$
|
34,921
|
|
|
|
Non-cash
items included in net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
7,784
|
|
|
|
6,450
|
|
|
|
8,549
|
|
|
|
|
Amortization
of other intangible assets
|
|
|
15,254
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Goodwill
impairment
|
|
|
92,597
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Share-based
compensation expense
|
|
|
18,969
|
|
|
|
10,900
|
|
|
|
7,250
|
|
|
|
|
Excess
tax benefits from share-based compensation
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
|
Deferred
tax expense (benefit)
|
|
|
14,956
|
|
|
|
(5,231
|
)
|
|
|
(15,862
|
)
|
|
|
|
Provision
for doubtful corporate finance and syndicate receivable
accounts
|
|
|
1,295
|
|
|
|
718
|
|
|
|
7
|
|
|
|
|
Provision
(credit) for facility lease loss
|
|
|
6,044
|
|
|
|
(208
|
)
|
|
|
3,337
|
|
|
|
|
Deferred
rent expense
|
|
|
(455
|
|
|
|
(706
|
)
|
|
|
(543
|
)
|
|
|
|
Unrealized
and realized loss (gain) on investments in partnerships and other
securities and other investments—net
|
|
|
13,816
|
|
|
|
(17,706
|
)
|
|
|
(13,130
|
)
|
|
|
|
Unrealized
loss on warrants—net
|
|
|
6,171
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Interest
amortization on notes payable
|
|
|
851
|
|
|
|
818
|
|
|
|
721
|
|
|
|
|
Other
|
|
|
(87
|
)
|
|
|
159
|
|
|
|
273
|
|
|
|
Net
effect of changes in operating assets and liabilities—net of effects from
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
segregated under Federal or other regulations
|
|
|
—
|
|
|
|
(250
|
)
|
|
|
4,049
|
|
|
|
|
Securities
owned and securities sold, but not yet purchased—net
|
|
|
50,180
|
|
|
|
(10,164
|
)
|
|
|
(32,802
|
)
|
|
|
|
Corporate
finance and syndicate receivables—net
|
|
|
15,190
|
|
|
|
749
|
|
|
|
(9,604
|
)
|
|
|
|
Distributions
from investment partnerships
|
|
|
7,865
|
|
|
|
11,537
|
|
|
|
16,045
|
|
|
|
|
Other
assets
|
|
|
(5,454
|
)
|
|
|
(16,396
|
)
|
|
|
4,008
|
|
|
|
|
Receivable
from/payable to clearing brokers—net
|
|
|
(11,213
|
)
|
|
|
(1,381
|
)
|
|
|
15,714
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
|
(27,404
|
)
|
|
|
6,346
|
|
|
|
(1,441
|
)
|
|
|
|
Payables
to customers
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,343
|
)
|
|
|
|
Accrued
compensation
|
|
|
(47,544
|
)
|
|
|
18,941
|
|
|
|
(5,168
|
)
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(44,437
|
)
|
|
|
4,584
|
|
|
|
12,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(5,593
|
)
|
|
|
(3,225
|
)
|
|
|
(3,130
|
)
|
|
|
Sale
of property and equipment
|
|
|
364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Acquisition—net
of cash received
|
|
|
(8,109
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
Purchase
of investments in partnerships and other investments
|
|
|
(7,241
|
)
|
|
|
(159,155
|
)
|
|
|
(204,724
|
)
|
|
|
Proceeds
from sale of investments in partnerships and other
investments
|
|
|
46,978
|
|
|
|
177,844
|
|
|
|
132,007
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
26,399
|
|
|
|
15,464
|
|
|
|
(75,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of capital lease obligations
|
|
|
(130
|
)
|
|
|
(131
|
)
|
|
|
(279
|
)
|
|
|
Addition
of notes payable
|
|
|
—
|
|
|
|
25,000
|
|
|
|
6,217
|
|
|
|
Repayment
of notes payable
|
|
|
(6,117
|
)
|
|
|
(30,766
|
)
|
|
|
(23,427
|
)
|
|
|
Proceeds
from issuance of common stock—net of expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
142,243
|
|
|
|
Excess
tax benefits from share-based compensation
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
Cash
paid for net settlement of equity awards
|
|
|
(972
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
Repurchase
or reacquisition of common stock
|
|
|
(9,528
|
)
|
|
|
(1,245
|
)
|
|
|
(233
|
)
|
|
|
Contributions
from members
|
|
|
—
|
|
|
|
—
|
|
|
|
283
|
|
|
|
Distributions
to members
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,465
|
)
|
|
|
Withdrawals
of capital
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,581
|
)
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(16,747
|
)
|
|
|
(7,130
|
)
|
|
|
116,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(5,630
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(40,415
|
)
|
|
|
12,918
|
|
|
|
53,892
|
|
|
CASH
AND CASH EQUIVALENTS—Beginning of year
|
|
|
157,003
|
|
|
|
144,085
|
|
|
|
90,193
|
|
|
CASH
AND CASH EQUIVALENTS—End of year
|
|
$
|
116,588
|
|
|
$
|
157,003
|
|
|
$
|
144,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
4,760
|
|
|
$
|
9,412
|
|
|
$
|
10,063
|
|
|
Cash
paid for taxes
|
|
$
|
6,958
|
|
|
$
|
15,140
|
|
|
$
|
8,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares and warrant for Class C, D and D-1 redeemable convertible
preference shares
|
|
|
—
|
|
|
|
—
|
|
|
|
194,581
|
|
|
Issuance
of senior notes for Class D and D-1 redeemable convertible preference
shares
|
|
|
—
|
|
|
|
—
|
|
|
|
29,728
|
|
|
Issuance
of common shares and exchangeable common shares for acquisition of
Westwind
|
|
|
107,450
|
|
|
|
—
|
|
|
|
—
|
|
|
Addition
of capital lease obligations
|
|
|
247
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in connection with vested restricted stock
units
|
|
|
3,115
|
|
|
|
733
|
|
|
|
—
|
|
See
accompanying notes to the consolidated financial statements.
THOMAS WEISEL PARTNERS GROUP, INC. AND
SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Organization
Thomas
Weisel Partners Group, Inc., a Delaware corporation, together with its
subsidiaries (collectively, the “Company”), is an investment banking firm
headquartered in San Francisco. The Company operates on an integrated basis and
is managed as a single operating segment providing investment services that
include investment banking, brokerage, equity research and asset
management.
The
Company conducts its investment banking, brokerage and research business through
the following subsidiaries:
|
|
·
|
Thomas
Weisel Partners LLC (“TWP”) – TWP is a registered broker-dealer under the
Securities Exchange Act of 1934, is a member of the New York Stock
Exchange, Inc. (“NYSE”), American Stock Exchange, the Financial Industry
Regulatory Authority (“FINRA”) and the Ontario Securities Commission and
is also a registered introducing broker under the Commodity Exchange Act
and a member of the National Futures Association. TWP conducts certain of
its activities through affiliates and branch offices in Canada and the
United Kingdom (“U.K.”) and through a representative office in
Switzerland.
|
Thomas
Weisel Partners (USA) Inc. (“TWP USA”) was a U.S. broker-dealer and was
registered with the Securities and Exchange Commission and FINRA. In
October 2008, TWP USA transferred its customer accounts to TWP.
|
|
·
|
Thomas
Weisel Partners Canada Inc. (“TWPC”) – TWPC is an investment dealer
registered in the Canadian provinces of Ontario, Quebec, Alberta, British
Columbia, Saskatchewan, Manitoba and Nova Scotia and is a member of the
Investment Industry Regulatory Organization of
Canada.
|
|
|
·
|
Thomas
Weisel Partners International Limited (“TWPIL”) – TWPIL is a U.K.
securities firm authorized by the Financial Services Authority in the
U.K. In September 2008, TWPIL acquired the business and net
assets of Thomas Weisel Partners (UK) Limited (“TWP UK”), a wholly-owned
subsidiary of the Company, in exchange for shares of capital stock in
TWPIL.
|
TWPC, TWP
UK and TWP USA were acquired by the Company in January 2008 as a result of its
acquisition of Westwind Capital Corporation (refer to Note 2 –
Acquisition).
TWP, TWPC
and TWPIL introduce on a fully disclosed basis its proprietary and customer
securities transactions to other broker dealers (the “clearing brokers”) for
clearance and settlement.
The
Company primarily conducts its asset management business through Thomas Weisel
Capital Management LLC (“TWCM”), a registered investment adviser under the
Investment Advisers Act of 1940, which is a general partner of a series of
investment funds in venture capital and fund of funds through the following
subsidiaries (the “Asset Management Subsidiaries”):
|
|
·
|
Thomas
Weisel Global Growth Partners LLC (“TWGGP”), a registered investment
adviser under the Investment Advisers Act of 1940, which provides fund
management and private investor access to venture and growth managers.
TWGGP also manages investment funds that are active buyers of secondary
interests in private equity funds, as well as portfolios of direct
interests in venture-backed
companies;
|
|
|
·
|
Thomas
Weisel Healthcare Venture Partners LLC (“TWHVP”), the managing general
partner of a venture capital fund that invests in the emerging life
sciences and medical technology sectors, including medical devices,
specialty pharmaceuticals, emerging biopharmaceuticals, drug delivery
technologies and biotechnology; and
|
|
|
·
|
Thomas
Weisel Venture Partners LLC (“TWVP”), the managing general partner of an
early stage venture capital fund that invests in emerging information
technology companies.
|
In
December 2008, TWCM completed a transaction with Guggenheim Partners, LLC in
which an affiliate of Guggenheim became the managing general partner of Thomas
Weisel India Opportunity Fund, L.P., and Thomas Weisel India Opportunity LLC, a
subsidiary of TWCM, became the non-managing special limited
partner. In addition, TWCM transferred to Guggenheim existing
portfolio management, analytical, administrative and other support functions
from Thomas Weisel International Private Limited (“TWIPL”), a subsidiary of the
Company.
Initial
Public Offering and Reorganization Transactions
Thomas
Weisel Partners Group, Inc. completed its initial public offering on
February 7, 2006 in which it issued and sold 4,914,440 shares of common
stock. The Company’s net proceeds from the initial public offering were
$66.2 million.
In
connection with the closing of the initial public offering, a number of
reorganization transactions were carried out in order to cause Thomas Weisel
Partners Group, Inc. to succeed to the business of Thomas Weisel Partners Group
LLC. In the reorganization transactions, the members of Thomas Weisel Partners
Group LLC received shares of common stock of Thomas Weisel Partners Group, Inc.
and in the case of holders of Class D and D-1 shares, received additional
consideration in the form of notes and a warrant of Thomas Weisel Partners
Group, Inc., in exchange for all of their membership interests and shares of
redeemable convertible preference stock of Thomas Weisel Partners Group LLC. The
notes that certain members received resulted in $33 million of additional
debt for the Company, recorded at the date of issuance at the estimated fair
value of the debt of $29.7 million. See Note 10
–
Notes Payable for details
on the notes issued and Note 12
–
Net Income (Loss) Per Share
for details on the warrant issued.
Follow-On
Offering
On
May 23, 2006, Thomas Weisel Partners Group, Inc. completed a follow-on
offering in which it issued and sold 3,581,902 shares of its common stock. The
Company received net proceeds from the sale of shares of common stock in this
follow-on offering of $76.0 million. In addition, as part of the follow-on
offering, selling shareholders sold 2,570,598 shares of common stock, the
proceeds of which were not received by the Company.
NOTE 2 – ACQUISITION
On
January 2, 2008, the Company acquired Westwind Capital Corporation (“Westwind”),
a full-service, institutionally oriented, independent investment bank focused on
the energy and mining sectors. Westwind, which was founded in 2002 and
headquartered in Toronto, has additional offices in Calgary and the U.K. Under
the agreement, the Company indirectly acquired 100 percent of Westwind’s
outstanding shares and Westwind became an indirect subsidiary of the Company.
The Company acquired Westwind in order to further expand its geographic coverage
in both Canada and the U.K., as well as expand its industry coverage into the
energy and mining sectors of the economy.
The
purchase price was allocated between the business acquisition and the
non-compete agreements executed with Westwind’s employee shareholders on a fair
value basis. Total consideration was approximately $156 million,
which consisted of $45 million in cash, 7,009,112 shares of the Company’s common
stock valued at $15.35 per share (based on the average closing price over a five
day period starting two days prior to the acquisition announcement date of
October 1, 2007 and ending two days after the announcement date) and direct
acquisition costs of $3.1 million consisting primarily of legal, accounting and
advisory fees. Common stock issued includes 6,639,478 exchangeable
shares, which are shares issued by a Canadian subsidiary of the Company and are
exchangeable for shares of the Company’s common stock.
The
Company accounted for its acquisition of Westwind utilizing the purchase method
as required by Statement of Financial Accounting Standards No. 141,
Business Combinations
(“SFAS
No. 141”). The results of operations for the acquired business are
included in the accompanying consolidated statements of operations since the
acquisition date and, in accordance with the purchase method, all assets and
liabilities were recorded at fair value as of the acquisition date.
The
following sets forth the Company’s allocation of the purchase price
consideration (
in
thousands
):
|
Cash
|
|
$
|
36,891
|
|
|
Securities
owned
|
|
|
9,917
|
|
|
Goodwill
|
|
|
98,204
|
|
|
Other
intangible assets
|
|
|
21,000
|
|
|
Other
liabilities assumed—net
|
|
|
(19,284
|
)
|
|
Deferred
tax liabilities on acquired identifiable intangible assets
|
|
|
(7,106
|
)
|
|
|
|
|
|
|
|
Total
purchase price allocation for the business acquisition
|
|
|
139,622
|
|
|
|
|
|
|
|
|
Non-compete
agreements
|
|
|
24,033
|
|
|
Deferred
tax liability on acquired non-compete agreements
|
|
|
(8,133
|
)
|
|
|
|
|
|
|
|
Total
consideration
|
|
$
|
155,522
|
|
Under
business combination accounting, the total purchase price was allocated to
Westwind’s net tangible and identifiable intangible assets based on their
estimated fair values as of January 2, 2008. The excess of the purchase price
over the net tangible and identifiable intangible assets was recorded as
goodwill. In addition to the acquisition of the business, the Company also
entered into non-compete agreements with a majority of the Westwind employee
shareholders who became employees of the Company subsequent to the
acquisition. These non-compete agreements generally apply for a
period of 1 to 3 years following the employee’s departure from the Company (if
that departure occurs within the first three years following the Company’s
acquisition of Westwind) and include a liquidated damages provision that would
require employees who breach the non-compete agreement to pay the Company an
amount equal to 50% of the consideration received for their shares in
Westwind.
The
Company recorded goodwill as of the acquisition date of $98.2 million as a
result of the premium paid to acquire a full service investment bank with
seasoned banking and institutional personnel primarily focused on the energy and
mining sectors of the economy.
In
accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(“SFAS No. 142”), the Company is required to evaluate goodwill annually
to determine whether it is impaired. Goodwill is also required to be
tested between annual impairment tests if an event occurs or circumstances
change that would reduce the fair value of a reporting unit below its carrying
amount.
During
the year ended December 31, 2008, the Company experienced a significant decline
in its market capitalization which was affected by the uncertainty in the
financial markets. The tightening of the credit markets contributed
to a sharp decline in the Company’s capital raising activities and a significant
decrease in revenues during the same period. Based on the difficult
condition in business climate and the Company’s perception that the climate is
unlikely to change in the near term, the Company recorded a full impairment
charge to the goodwill asset of $92.6 million. The impairment charge
was determined based on the fair value of the Company utilizing a discounted
cash flow analysis, and considered the Company’s market capitalization to
determine the reasonableness of the discounted cash flow. The
difference between the goodwill balance recorded on the acquisition date and the
amount impaired during the year ended December 31, 2008 is due to the currency
translation adjustment of $5.6 million.
The
following sets forth the other intangible assets recorded as a result of the
Westwind acquisition (
dollar
amounts in thousands
):
|
|
|
Fair
Value January 2, 2008
|
|
|
Accumulated
Amortization December 31, 2008
|
|
|
Net
Book Value December 31, 2008
|
|
Useful
Life
|
|
Customer
relationships
|
|
$
|
18,400
|
|
|
$
|
4,785
|
|
|
$
|
13,615
|
|
7.5
years
|
|
Non-compete
agreements
|
|
|
24,033
|
|
|
|
8,012
|
|
|
|
16,021
|
|
3.0
years
|
|
Investment
banking backlog
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
—
|
|
1.0
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other intangible assets
|
|
$
|
45,033
|
|
|
$
|
15,397
|
|
|
$
|
29,636
|
|
|
The
difference between the net book value of the other intangible assets presented
above and the amount presented within the consolidated statements of financial
condition is due to a currency translation adjustment of $6.4
million.
In
performing the purchase price allocation, the Company considered, among other
factors, its intention for future use of the acquired assets, analyses of
historical financial performance and estimates of future performance of
Westwind’s operations. The fair value of other intangible assets was
based on the income approach.
The
following sets forth the remaining amortization of the other intangible assets
based on accelerated and straight-line methods of amortization over the
respective useful lives as of December 31, 2008 (
in thousands
):
|
2009
|
|
$
|
11,732
|
|
|
2010
|
|
|
10,889
|
|
|
2011
|
|
|
2,200
|
|
|
2012
|
|
|
1,720
|
|
|
2013
|
|
|
1,360
|
|
|
Thereafter
|
|
|
1,735
|
|
|
|
|
|
|
|
|
Total
amortization
|
|
$
|
29,636
|
|
Unaudited
Pro Forma Financial Information
The
following unaudited pro forma financial information for the years ended December
31, 2007 and 2006 give effect to the Company’s acquisition of Westwind as if the
acquisition had occurred as of January 1, 2007 and 2006, respectively. The
unaudited pro forma financial information is based on historical financial
statements of the Company and Westwind.
The
unaudited pro forma financial information was prepared using the purchase method
of accounting under SFAS No. 141 with the Company treated as the accounting
acquiror. The unaudited pro forma financial information does not purport to be
indicative of the results that would have actually been achieved had such
transactions been completed as of the assumed date and for the period presented,
or which may be achieved in the future.
The
following sets forth the unaudited pro forma financial information (
in thousands, except per share
data
):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Pro
forma net revenues
|
|
$
|
373,848
|
|
|
$
|
320,078
|
|
|
Pro
forma income (loss) before taxes
|
|
$
|
(2,859
|
)
|
|
$
|
20,123
|
|
|
Pro
forma net income (loss)
|
|
$
|
(476
|
)
|
|
$
|
30,773
|
|
|
Pro
forma net income (loss) attributable to common shareholders and to Class
A, B and C shareholders
|
|
$
|
(476
|
)
|
|
$
|
29,165
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Pro
forma basic net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.94
|
|
|
Pro
forma diluted net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma weighted average shares used in the computation of per share
data:
|
|
|
|
|
|
|
|
|
|
Pro
forma basic weighted average shares outstanding
|
|
|
33,150
|
|
|
|
30,989
|
|
|
Pro
forma diluted weighted average shares outstanding
|
|
|
33,150
|
|
|
|
31,954
|
|
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
–
These consolidated
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”). The consolidated
financial statements include the accounts of Thomas Weisel Partners Group, Inc.,
and its wholly-owned subsidiaries. Accordingly, all intercompany balances and
transactions have been eliminated.
Use of Estimates
–
The preparation of the
Company’s consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from those estimates and such differences could be
material to the consolidated financial statements.
Investment Banking
Revenue
–
Investment banking revenue includes underwriting and private placement
agency fees earned through the Company’s participation in public offerings and
private placements of equity and debt securities, including convertible debt,
and fees earned as a financial advisor in mergers and acquisitions and similar
transactions. Also included in investment banking revenue is the value of
warrants received as partial payment for investment banking services.
Underwriting revenues are earned in securities offerings in which the Company
acts as an underwriter and include management fees, selling concessions and
underwriting fees. Management fees are recorded on the offering date, selling
concession on the trade date and underwriting fees at the time the underwriting
is completed and the related income is reasonably determinable. Syndicate
expenses related to securities offerings in which the Company acts as
underwriter or agent are deferred until the related revenue is recognized.
Merger and acquisition fees and other advisory service revenues are generally
earned and recognized upon successful completion of the engagement, except for
fees earned upon the delivery of a fairness opinion and fees earned ratably over
the term of a retainer. Underwriting revenues are presented net of related
expenses. Unreimbursed expenses associated with private placement and advisory
transactions are recorded as expenses excluding interest.
Brokerage Revenue
–
The majority of the
Company’s brokerage revenue is derived from commissions paid by customers from
brokerage transactions in equity securities and spreads paid by customers on
convertible debt securities. Commission revenues and related expenses resulting
from securities transactions executed are recorded on a trade date basis.
Brokerage revenue also includes net trading gains and losses which result from
market making activities from the Company’s commitment of capital to facilitate
customer transactions and from proprietary trading activities relating to the
Company’s convertible debt and special situations trading groups. In addition,
brokerage revenue includes fees paid to the Company for investment advisory
services provided through its private client services group to both
institutional and high-net-worth individual investors based on the value of
assets under management and fees paid to the Company for research. These fees
are recognized in income as earned.
Asset Management
Revenue
–
Management fees are earned from managing investment partnerships and are
recorded as services are provided pursuant to contractual agreements. Management
fees earned from investment partnerships
are
generally paid monthly or
quarterly based upon either committed capital or assets under management
depending upon the nature of the investment product. In addition, asset
management revenue includes the realized and unrealized gains and losses from
the valuation of the Company’s investments, which are carried on the
consolidated statements of financial condition within investments in
partnerships and other investments, and also include certain investments held in
securities sold, but not yet purchased. Also included in asset management
revenue are the realized and unrealized gains and losses on warrants received as
partial payment for investment banking services.
In
certain investment partnerships the Company has elected to waive receipt of
management fees in lieu of making direct cash capital contributions. These
waived management fees are treated as deemed contributions by the Company to the
partnerships, satisfy the capital commitments to which the Company would
otherwise be subject as general partner and are recognized in revenue when the
investment partnership generates gains and allocates the gains to the general
partner in respect of previously waived management fees. Because waived
management fees are contingent upon the recognition of gains by the investment
partnership, the recognition in revenue is deferred until the contingency is
satisfied in accordance with GAAP.
Customer
Concentration
–
There is a concentration in brokerage revenue among the Company’s ten
largest brokerage clients, as follows (
in thousands, except
percentages
):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
34,764
|
|
|
$
|
26,238
|
|
|
$
|
31,956
|
|
|
Percentage
of brokerage revenue
|
|
|
26
|
%
|
|
|
22
|
%
|
|
|
26
|
%
|
In 2007,
investment banking revenue included merger and acquisition fees and other
advisory revenues of $13.4 million generated from multiple advisory services
performed for a single client. There was no customer concentration in merger and
acquisition fees and other advisory revenues for 2008 and
2006.
Cash and Cash Equivalents
–
The Company considers
highly liquid investments with maturities of three months or less at the date of
purchase to be cash equivalents. Cash and cash equivalents include cash on
deposit with the clearing brokers of $69.3 million and $135.9 million
as of December 31, 2008 and 2007, respectively.
Restricted Cash –
The
restricted cash consists of cash and restricted deposits as collateral for
letters of credit related to lease commitments. Restricted cash is as follows
(
in
thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Restricted
cash
|
|
$
|
4,241
|
|
|
$
|
4,241
|
|
|
Restricted
deposits
|
|
|
2,477
|
|
|
|
2,477
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
restricted cash
|
|
$
|
6,718
|
|
|
$
|
6,718
|
|
Securities Owned
and Securities Sold, but not yet Purchased
–
Securities owned and securities sold,
but not yet purchased are recorded on a trade date basis and are carried at fair
value. Realized and unrealized gains and losses have been reflected in brokerage
revenue or asset management revenue. Equity securities and equity index funds
are carried at market value which is determined using quoted market prices.
Convertible debt securities and other fixed income securities are
carried at fair value determined using
recent transactions, dealer quotes and comparable fixed income
values.
Investments in Partnerships and
Other Investments
– Investments in partnerships and other investments
consist of the Company’s general and limited partnership interests in investment
partnerships and direct investments in non-public equity securities. These
investments are accounted for using the fair value method, which requires
unrealized gains and losses to be recorded in the consolidated statements of
operations, based on the percentage interest in the underlying partnerships or
based on the non-public company investment. The net assets of the investment
partnerships consist primarily of investments in non-marketable securities. The
underlying investments held by such partnerships are valued based on estimated
fair value ultimately determined by the Company or its affiliates in the
Company’s capacity as general partner and, in the case of an investment in an
unaffiliated investment partnership, are based on financial statements prepared
by an unaffiliated general partner. Increases and decreases in estimated fair
value are recorded based on underlying information of these non-public company
investments including third-party transactions evidencing a change in value,
market comparables, operating cash flows and financial performance of the
companies, trends within sectors and/or regions, underlying business models,
expected exit timing and strategy, and specific rights or terms associated with
the investment, such as conversion features and liquidation
preferences.
The
investment partnerships in which the Company is a general partner may allocate
carried interest and make carried interest distributions to the general partner
if the partnerships’ investment performance reaches a threshold as defined in
the respective partnership agreements. The Company recognizes the
allocated carried interest when this threshold is met, however future investment
underperformance may require amounts previously distributed to the Company to be
returned to the partnership.
The Asset
Management Subsidiaries earn management and other fees from the investment
partnerships which they manage or are the general partner. Such management fees
are generally based on the net assets or committed capital of the underlying
partnerships. Through March 31, 2007, the Company agreed in certain cases to
waive management fees, in lieu of making a cash contribution, in satisfaction of
its general partner investment commitments to the investment partnerships. In
these cases, the Company generally recognizes its management fee revenues at the
time when it is allocated a special profit interest in realized gains from these
partnerships. With respect to the investment partnerships existing as of March
31, 2007, the Company will no longer waive management fees subsequent to March
31, 2007.
Property and Equipment
–
Property and equipment,
including office furniture and equipment, hardware and software and leasehold
improvements, are stated at cost, net of accumulated depreciation and
amortization. Depreciation of furniture, equipment and computer hardware and
software is computed using the straight-line method over the estimated useful
lives of the assets, ranging from three to seven years. Leasehold improvements
are amortized over the shorter of the term of the lease or the useful life of
the asset, as appropriate.
The
Company capitalizes certain costs of computer software developed or obtained for
internal use and amortizes the amounts over the estimated useful life of the
software, generally not exceeding four years. Property and equipment
is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Leases
–
Leases are accounted for
under Statement of Financial Accounting Standards No. 13,
Accounting for Leases,
and
are classified as either capital or operating, as appropriate. For capital
leases, the present value of the related lease payments is recorded as a
liability. Amortization of capitalized leased assets is computed on the
straight-line method over the useful life of the asset.
Liability for Lease Losses
–
Included in accrued
expenses and other liabilities in the consolidated statements of financial
condition is a liability for lease losses related to office space that the
Company subleased or abandoned due to staff reductions in 2008 and in prior
years. The Company estimates its liability for lease losses as the net present
value of the differences between lease payments and receipts under sublease
agreements, if any.
Receivable from/Payable to Clearing
Brokers
–
TWP
and TWPC clear customer transactions through other broker-dealers on a fully
disclosed basis. The amount receivable from/payable to the clearing brokers
relates to such transactions. TWP and TWPC have indemnified the clearing brokers
for any losses as a result of customer nonperformance.
Fair Value of Financial
Instruments
–
Securities owned, securities sold, but not yet purchased and investments
in partnerships and other investments are recorded at fair value. The Company’s
other financial instruments, including primarily corporate finance and syndicate
receivables, receivable from and payable to clearing brokers, and certain other
assets, are recorded at their cost or contract amount which is considered by
management to approximate their fair value as they are short-term in nature or
are subject to frequent repricing.
Corporate Finance and Syndicate
Receivables
–
Corporate finance and syndicate receivables include receivables relating
to the Company’s investment banking or advisory engagements. The Company records
an allowance for doubtful accounts on these receivables on a specific
identification basis.
A summary
of the allowance for doubtful corporate finance and syndicate receivable
accounts is presented below (
in thousands
):
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance
—
Beginning of
Period
|
|
$
|
725
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Provision
for doubtful accounts
|
|
|
1,295
|
|
|
|
718
|
|
|
|
7
|
|
|
Write-offs
|
|
|
(1,070
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
End of
Period
|
|
$
|
950
|
|
|
$
|
725
|
|
|
$
|
7
|
|
Compensation and Benefits
–
Compensation and
benefits expense includes salaries, overtime, bonuses, commissions, share-based
compensation, benefits, employment taxes and other employee
costs. Share-based compensation is accrued over the service period of
the related restricted stock units. Accruals of compensation cost for awards
with a performance condition are based on the probable outcome of that
performance condition. Bonuses are accrued over the service period to which they
relate. In the case of guaranteed amounts, the service period is defined by the
contract, whereas the service period for discretionary awards is defined by the
payment dates and the conditions, if any, that must be fulfilled in order to
receive the award.
Provision for
Taxes
–
Prior to the reorganization of the Company from a limited liability
company to a corporation in February 2006, all income and losses of the Company
were reportable by the individual members of the limited liability company in
accordance with the Internal Revenue Code. Accordingly, the Federal and state
income taxes payable by the members, based upon their share of the Company’s net
income, have not been reflected in the accompanying consolidated financial
statements for periods prior to the reorganization. The Company records income
tax expense on the earnings of its foreign subsidiaries, but it does not provide
any distribution taxes on the undistributed earnings of these subsidiaries as
the Company intends to reinvest any earnings indefinitely.
After the
reorganization, the Company accounts for taxes in accordance with Statement of
Financial Accounting Standards No. 109,
Accounting for Income Taxes
(“SFAS No. 109”), which requires the recognition of tax benefits or
expenses on the temporary differences between the financial reporting and tax
bases of its assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets when it is more likely than not that a
portion or all of the deferred tax assets will not be
realized.
On
January 1, 2007, the Company adopted the provisions of Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109
(“FIN No.
48”), which prescribes a recognition threshold and measurement attributes for
the financial statement recognition and measurement of a tax position taken, or
expected to be taken in a tax return, and provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The adoption of FIN No. 48 did not have a material
impact on the Company’s consolidated statements of financial condition,
operations and cash flows.
Comprehensive Income (Loss)
–
Comprehensive income
(loss) consists of two components, net income (loss) and other comprehensive
income (loss). Other comprehensive income (loss) refers to revenue, expenses,
gains and losses that are recorded as an element of shareholders’ and members’
equity (deficit) but are excluded from net income (loss). The Company’s other
comprehensive income (loss) is comprised of foreign currency translation
adjustments.
Foreign Currency Translation
–
Assets and
liabilities denominated in non-U.S. currencies are translated at the rate
of exchange prevailing on the date of the consolidated statements of financial
condition, and revenues and expenses are translated at average rates of exchange
for the period. Gains (losses) on translation of the consolidated financial
statements are from the Company’s subsidiaries where the functional currency is
not the U.S. dollar. Translation gains (losses) are reflected as a
component of accumulated other comprehensive income (loss). Gains and losses on
foreign currency transactions are included in the consolidated statements of
operations.
Business Combinations –
In
accordance with business combination accounting
under SFAS No. 141,
the Company allocates the purchase price of acquired businesses to the
tangible and intangible assets acquired and liabilities assumed based on
estimated fair values. Such allocations require management to make
significant estimates and assumptions, especially with respect to intangible
assets acquired.
Management’s
estimates of fair value are based upon assumptions believed to be
reasonable. These estimates are based on information obtained from
management of the acquired companies and are inherently
uncertain. Critical estimates in valuing certain of the intangible
assets include, but are not limited to, (i) future expected cash flows from
acquired businesses, (ii) future expected cash flows from employees subject to
non-compete agreements and (iii) the acquired company’s market
position.
Goodwill
and Long-Lived Assets –
In accordance with SFAS
No. 142, the Company is required to evaluate goodwill annually to determine
whether it is impaired. Goodwill is also required to be tested between
annual impairment tests if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying amount. The
Company selected the fourth quarter to perform its annual goodwill impairment
testing.
The provisions of SFAS No. 142 require that a
two-step impairment test be performed on goodwill. In the first step, the
Company compares the fair value of the reporting unit to its carrying value. If
the fair value of the reporting unit exceeds the carrying value of the net
assets assigned to that unit, goodwill is considered not impaired and the
Company is not required to perform further testing. If the carrying value of the
net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the Company must perform the second step of the impairment
test in order to determine the implied fair value of the reporting unit’s
goodwill. If the carrying value of a reporting unit’s goodwill exceeds its
implied fair value, then the Company would record an impairment loss equal to
the difference.
The
Company accounts for the impairment and disposal of long-lived assets utilizing
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
(“SFAS No. 144”). SFAS No. 144 requires
that long-lived assets, such as property and equipment and purchased intangible
assets subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The recoverability of an asset is measured by a comparison of
the carrying amount of an asset to its estimated undiscounted future cash flows
expected to be generated. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the
asset.
While the
Company believes its estimates and judgments about future cash flows are
reasonable, future impairment charges may be required if the expected cash flow
estimates, as projected, do not occur or if events change requiring the Company
to revise its estimates and thereby result in non-cash charges to its earnings
in the period in which the Company makes the adjustment.
New
Accounting Pronouncements
Statement of Financial Accounting
Standards No. 157 – “Fair Value Measurements” (“SFAS No. 157”)
. In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, which defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. The primary
focus of SFAS No. 157 is to increase consistency and comparability in fair value
measurements, as well as provide better information about the extent to which
fair value is used to measure recognized assets and liabilities, the inputs used
to develop the measurements and the effect fair value measurements have on
earnings for the period, if any. The Company adopted SFAS No. 157 as of January
1, 2008. Adoption of SFAS No. 157 did not have a material impact on
the Company’s consolidated statements of financial condition, operations and
cash flows. Under provisions set forth in FSP 157-2,
Effective Date of FASB Statement No.
157
(“FSP 157-2”), the Company elected to defer adoption of SFAS No. 157
until January 1, 2009 for nonfinancial assets and nonfinancial liabilities that
are not recognized or disclosed at fair value in the financial statements on a
recurring basis. The Company adopted FSP 157-2 on January 1, 2009 and
adoption did not have a material impact on its consolidated statements of
financial condition, results of operations or cash flows.
The
objective of a fair value measurement is to determine the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (the exit
price), other than in a forced or liquidation sale. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurements). Assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our financial assets and liabilities
measured and reported at fair value are classified and disclosed in one of the
following categories:
|
|
·
|
Level
1 – Quoted prices are available in active markets for identical
investments as of the reporting date. Investments included in this
category are listed equities. As required by SFAS No. 157, we do not
adjust the quoted price of these investments, even in situations where we
hold a large position and a sale could reasonably be expected to affect
the quoted price.
|
|
|
·
|
Level
2 – Pricing inputs are other than quoted prices in active markets, which
are either directly or indirectly observable as of the reporting date, and
fair value is determined through the use of models or other valuation
methodologies. Investments which are generally included in this category
are convertible bonds.
|
|
|
·
|
Level
3 –
Pricing
inputs are unobservable for the investment and include situations where
there is little, if any, market activity for the investment. The inputs
into the determination of fair value require significant management
judgment or estimation. Investments included in this category are general
partnership interests in private investment funds, direct investments in
non-public companies, warrants, auction rate securities and convertible
bonds that cannot be publicly offered or sold unless registration has been
affected under the Securities Act of
1933.
|
Securities
owned, securities sold, but not yet purchased and investments in partnerships
and other investments on the consolidated statements of financial condition
consist of financial instruments carried at fair value, with related unrealized
gains or losses recognized in the results of operations. The use of fair value
to measure these financial instruments, with related unrealized gains and losses
recognized immediately in the results of operations, is fundamental to the
Company’s consolidated financial statements.
The fair
value of financial instruments is derived using observable market prices,
observable market parameters or broker or dealer prices (bid and ask prices), if
available. In the case of financial instruments transacted on
recognized exchanges, the observable market prices represent quotations for
completed transactions from the exchange on which the financial instrument is
principally traded. For offsetting positions in the same financial
instrument, the same price within the bid-ask spread is used to measure both the
long and short positions. For financial instruments that do not have
readily determinable fair values through quoted market prices, the determination
of fair value is derived using techniques appropriate for each particular
product. These techniques involve some degree of management
judgment.
A
substantial percentage of the fair value of the Company’s securities owned and
securities sold, but not yet purchased are based on observable market prices,
observable market parameters, or derived from broker or dealer
prices. The availability of observable market prices and pricing
parameters can vary from product to product. When available,
observable market prices and pricing or market parameters in a product may be
used to derive a price without requiring significant judgment. In
certain markets, observable market prices or market parameters are not available
for all products, and fair value is determined using techniques appropriate for
each particular product. These techniques involve some degree of
management judgment.
For
investments in illiquid or privately held securities that do not have readily
determinable fair values, the determination of fair value requires the Company
to estimate the value of the securities using the best information available.
These valuation methodologies involve a significant degree of management
judgment. Among the factors considered by the Company in determining
the fair value of financial instruments are the cost, terms and liquidity of the
investments, the financial condition and operating results of the issuer, the
quoted market price of publicly traded securities with similar quality and yield
and other factors generally pertinent to the valuation of
investments. In instances where a security is subject to transfer
restrictions, the value of the security is based primarily on the quoted price
of a similar security without restriction but may be reduced by an amount
estimated to reflect such restrictions. Even where the value of a security is
derived from an independent source, certain assumptions may be required to
determine the security’s fair value. For example, the Company assumes that the
size of positions that it holds would not be large enough to affect the quoted
price of the securities if it sells them, and that any such sale would happen in
an orderly manner. The actual value realized upon disposition could be different
from the current estimated fair value. Private investments may also
be valued at cost for a period of time after an acquisition as the best
indicator of fair value.
Financial
instruments carried at contract amounts have short-term maturities (one year or
less), are repriced frequently or bear market interest rates and, accordingly,
those contracts are carried at amounts approximating fair
value. Financial instruments carried at contract amounts on the
Company’s consolidated statements of financial condition include receivables
from and payables to clearing brokers and corporate finance and syndicate
receivables.
Statement of Financial Accounting
Standards No. 159 – “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”)
. In February 2007, the FASB issued SFAS No.
159, which permits entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value and establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. The Company adopted SFAS
No. 159 as of January 1, 2008 and elected not to apply the
provisions.
Statement of Financial Accounting
Standards No. 141R – “Business Combinations” (“SFAS No. 141R”).
In
December 2007, the FASB
issued SFAS No. 141R, which improves the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Early adoption of
SFAS No. 141R was not permitted. The Company adopted SFAS No. 141R on January 1,
2009, and adoption did not have an impact on its consolidated statements of
financial condition, operations and cash flows.
Statement of Financial Accounting
Standards No. 160 – “
Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS No.
160”).
In
December 2007, the FASB
issued SFAS No. 160, which improves the relevance, comparability and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Early adoption of SFAS No. 160 was not permitted. The Company adopted SFAS
No. 160 on January 1, 2009, and adoption did not have an impact on its
consolidated statements of financial condition, operations and cash
flows.
Statement of Financial Accounting
Standards No. 161 – “
Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement No. 133”
(“SFAS No. 161”).
In
March 2008, the FASB
issued SFAS No. 161, which enhances disclosures about an entity’s derivative
instruments and hedging activities and thereby improves the transparency of
financial reporting. SFAS No. 161 is effective for financial statements issued
for fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. SFAS No. 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The Company adopted SFAS
No. 161 on January 1, 2009, and adoption did not have an impact on its
consolidated statements of financial condition, operations and cash
flows.
FASB Staff Position 157-3 –
“
Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP
157-3”)
. In
October 2008, the FASB
issued FAS 157-3, which clarifies the application of SFAS No. 157 in a market
that is not active and provides an example of key considerations to determine
the fair value of financial assets when the market for those assets is not
active. FSP 157-3 was effective upon issuance, including prior
periods for which financial statements have not been issued. The adoption of FSP
157-3 did not have an impact on the Company’s consolidated statements of
financial condition, operations and cash flows.
FASB Staff Position FAS 140-4 and
FIN 46(R)-8 – “
Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities” (“FSP 140-4”)
. In
December 2008, the FASB
issued FSP 140-4, which requires additional disclosure related to transfers of
financial assets and variable interest entities. FSP 140-4 was
effective for the first reporting period ending after December 15, 2008. As FSP
140-4 impacts the Company’s disclosures and not its accounting treatment for
transfers of financial assets and variable interest entities, the Company’s
adoption of FSP 140-4 did not have an impact on its consolidated statements of
financial condition, operations and cash flows.
NOTE 4 – SHAREHOLDERS’ EQUITY
Prior to
the Company’s initial public offering in February 2006, the Company operated as
a limited liability company. The Company’s Limited Liability Company Agreement
set forth the rights and obligations of members of the Company and provided that
the Company’s Executive Committee was responsible for managing the affairs of
the Company. In connection with the Company’s conversion to a corporation, a
Board of Directors (the “Board”) was constituted with ultimate responsibility
for management of the Company.
Classes
of Stock Prior to the Initial Public Offering
Under the
LLC Agreement, the Firm had the following classes of shares:
(i) Class A shares, (ii) Class A-1 shares,
(iii) Class B shares, (iv) Class C shares,
(v) Class D shares and (vi) Class D-1 shares. The Class A,
A-1 and B shares were held by the then partners and former partners of the Firm
and represented equity interests and certain rights with respect to
distributions of operating profits. In addition, holders of Class A shares
had rights to a guaranteed return, paid at the end of each quarter based on the
prime rate for the prior quarter. The Class C, D and D-1 shares were issued
to strategic investors, including California Public Employees’ Retirement
System, Nomura America Investment, Inc., private equity investors and venture
capital investors. The Class C, D and D-1 shares were redeemable
convertible shares and included certain preferred dividend and liquidation
rights. In particular, holders of Class C shares had the right to sell all
or a portion of their Class C shares back to the Firm at any time at a
price that would result in a 12% internal rate of return. Holders of
Class D shares were entitled to a 7% annual preferred return that was
distributed semiannually. Holders of Class D-1 shares were entitled to a 5%
annual preferred return that was distributed semiannually. All of these
preference features terminated in connection with the Firm’s initial public
offering.
Income
Attributable to Class A, B and C Shareholders
The
Company’s net income for the period ended February 7, 2006 is shown after
deducting the guaranteed return to Class A shareholders included in
compensation and benefits expense. The Company deducts all preferred returns
payable from net income, including preferred dividends payable to Class D
and D-1 shareholders and accretion of Class C shares to arrive at net
income attributable to Class A, B and C shareholders.
NOTE 5 – SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET
PURCHASED
Securities
owned and securities sold, but not yet purchased were as follows (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Securities
Owned
|
|
|
Securities
Sold, But Not Yet Purchased
|
|
|
Securities
Owned
|
|
|
Securities
Sold, But Not Yet Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
12,095
|
|
|
$
|
1,465
|
|
|
$
|
30,957
|
|
|
$
|
116,060
|
|
|
Equity
index fund
|
|
|
—
|
|
|
|
10,072
|
|
|
|
—
|
|
|
|
14,192
|
|
|
Convertible
bonds
|
|
|
6,402
|
|
|
|
—
|
|
|
|
189,483
|
|
|
|
18,351
|
|
|
Warrants
|
|
|
430
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
U.S.
Treasury securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities owned and securities sold, but not yet
purchased
|
|
$
|
18,927
|
|
|
$
|
11,537
|
|
|
$
|
220,440
|
|
|
$
|
163,933
|
|
At
December 31, 2008 and 2007, securities sold, but not yet purchased were
collateralized by securities owned that are held at the clearing
brokers.
At
December 31, 2007, convertible bonds included certain securities that could not
be publicly offered or sold unless registration had been affected under the
Securities Act of 1933. The estimated fair value of these was approximately
$15.9 million at December 31, 2007. The Company did not hold any
convertible bonds that could not be publicly offered or sold unless registration
had been affected under the Securities Act of 1933 at December 31,
2008.
Warrants
are received from time to time as partial payment for investment banking
services. The warrants provide the Company with the right to purchase common
shares in both public and private companies. All warrants were non-transferable
as of December 31, 2008, and certain of them have a restricted period during
which the warrant may not be exercised.
NOTE 6 – INVESTMENTS IN PARTNERSHIPS AND OTHER
INVESTMENTS
Investments
in partnerships and other investments consisted of the following (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in partnerships
|
|
$
|
32,654
|
|
|
$
|
53,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
8,913
|
|
|
|
46,150
|
|
|
Municipal
debt securities
|
|
|
—
|
|
|
|
4,016
|
|
|
Other
|
|
|
2,248
|
|
|
|
8,262
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships and other investments
|
|
$
|
43,815
|
|
|
$
|
111,686
|
|
Investments
in Partnerships
Investments
in partnerships consist primarily of investments in private equity
partnerships and include the Company’s general partner interests in investment
partnerships and the fair value adjustments recorded to reflect the investments
at fair value. The Company waived certain management fees with respect to
certain of these partnerships through March 31, 2007. These waived fees
constitute deemed contributions to the investment partnerships that serve to
satisfy the Company’s general partner commitment, as provided in the underlying
investment partnerships’ partnership agreements. The Company may be allocated a
special profits interest in respect of previously waived management fees based
on the subsequent investment performance of the respective
partnerships.
The
investment partnerships in which the Company is a general partner may allocate
carried interest and make carried interest distributions to the general partner
if the partnerships’ investment performance reaches a threshold as defined in
the respective partnership agreements. The Company recognizes the
allocated carried interest if and when this threshold is met.
Some of
the Company’s investments in partnerships interests meet the definition of a
variable interest entity (“VIE”) as defined under FASB Interpretation No. 46R,
Consolidation of Variable
Interest Entities
. The Company does not consolidate these VIEs
because it has determined that the Company is not the primary beneficiary.
For General Partnership interests that do not qualify as VIEs, the Partnership
Agreement has established simple majority kick out rights for limited partner
interests and therefore does not consolidate the partnerships in accordance with
EITF 04-5,
Determining Whether
a General Partner Controls a Limited Partnership or similar entity when the
Limited Partners have Certain Rights.
Other
Investments
As of
December 31, 2008, the Company held auction rate securities (“ARS”) with a par
value of $9.7 million and fair value of $8.9 million. The ARS are
variable rate debt instruments, having long-term maturity dates (approximately
25 to 31 years), but whose interest rates are reset through an auction process,
most commonly at intervals of 7, 28 and 35 days. The interest earned on these
investments is exempt from Federal income tax. All of the Company’s ARS are
backed by pools of student loans and are rated either Aaa, Aa3 or A1 at December
31, 2008 and either AAA or Aaa at December 31, 2007. The Company continues to
receive interest when due on its ARS and expects to continue to receive interest
when due in the future. The weighted-average Federal tax exempt
interest rate was 1.91% at December 31, 2008.
In January 2008, the
Company sold a substantial portion of its ARS holdings at par and used the
proceeds to partially fund its acquisition of Westwind. Subsequent to
January 2008
, auction failures increased significantly. While it was not
unusual for supply to outweigh demand, banks running the auctions had
historically absorbed the excess supply in order to ensure a successful auction
and a liquid market. This process came to a halt as the result of the
dislocation in the credit markets during 2008.
The
principal balance of the Company’s ARS will not be accessible until successful
auctions occur, a buyer is found outside of the auction process, the issuers and
the underwriters establish a different form of financing to replace these
securities or final payments come due according to the contractual
maturities. As a result of the auction failures, the Company
evaluates the credit risk and compares the yields on its ARS to similarly rated
municipal issues. The Company’s valuation of its ARS assesses the
credit and liquidity risks associated with the securities and determines the
fair values based on a discounted cash flow analysis. Key assumptions
of the discounted cash flow analysis included the following:
Coupon Rate
– In determining
fair value, the Company projected future interest rates based on the average
near term historical interest rate for these issues, the Securities Industry and
Financial Markets Association Municipal Swap Index and benchmark yield
curves. The average interest rates assumed ranged from 3.2% to
3.7%.
Discount Rate
– The Company’s
discount rate was based on a spread over the AA Municipal General Education
yield curve and consisted of a spread of 425 to 450 bps over this yield curve
which the Company adjusted down to 50 bps over periods of time ranging from
twelve to nineteen quarters. This spread is included in the discount
rate to reflect the current and expected illiquidity, which the Company expects
to trend toward the mean, in the ARS market. The average spread
between the Company’s ARS and the AA Municipal General Education yield curve
between August 2004 and August 2007, a period in which auctions were not likely
to fail, averaged less than 10 basis points.
Timing of Liquidation
– The
Company’s cash flow projections consisted of various scenarios for each security
wherein it valued the ARS to points in time where it was in the interest of the
issuer, based on the fail rate, to redeem the securities. The
Company’s concluded values for each security were based on the average valuation
of these various scenarios. For the securities analyzed, the shortest
average time to liquidation was assumed to be 30 months.
Based on
the results of the discounted cash flow analysis, the Company determined that
its ARS had a decline in fair value of $0.8 million during the year ended
December 31, 2008, which is recorded in asset management revenue in the
consolidated statements of operations.
NOTE 7 – RELATED PARTY TRANSACTIONS
Receivables
from related parties consisted of the following (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Co-Investment
Fund loans to employees and former employees
|
|
$
|
3,947
|
|
|
$
|
3,973
|
|
|
Employee
loans and other related party receivables
|
|
|
640
|
|
|
|
1,066
|
|
|
Less
—
Allowance for doubtful
loans
|
|
|
(2,324
|
)
|
|
|
(1,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
receivables from related parties
|
|
$
|
2,263
|
|
|
$
|
3,190
|
|
Related
Party Loans
Co-Investment Funds –
In 2000
and 2001 the Company established an investment program for employees wherein
employees who qualified as accredited investors were able to contribute up to 4%
of their compensation to private equity funds (the “Co-Investment Funds”). The
Co-Investment Funds were established solely for employees of the Company and
invested side-by-side with the Company’s affiliates, Thomas Weisel Capital
Partners, L.P. (a private equity fund formerly managed by the Company) and
Thomas Weisel Venture Partners L.P. As part of this program, the Company made
loans to employees for capital contributions to the Co-Investment Funds in
amounts up to 400% of employees’ contributions. The Company holds as collateral
the investment in the Co-Investment Funds and establishes a reserve that reduces
the carrying value of the receivable to the fair value of the collateralized
ownership interest of the employees and former employees in the Co-Investment
Funds. The Company discontinued the investment program for employees in 2002.
The Co-Investment Funds did not make any distributions that were credited
towards repayment of the loans to employees during the year ended December 31,
2008. During the year ended December 31, 2007, the Co-Investment
Funds distributed $1.1 million which was credited towards repayment of loans to
employees.
Employee Loans –
The Company
from time to time prior to its initial public offering made unsecured loans to
its employees. These loans were not part of a Company program, but were made as
a matter of course. The Company previously established a reserve for the face
value of these loans. In June 2007, two employees entered into
agreements with the Company that provide for repayment of their loans by
December 31, 2008, if they have not already been repaid, from funds generated
through repurchase by the Company of shares of the Company’s common stock held
by the employees. As a result of these agreements, the Company
reversed a previously established reserve of $0.8 million in June
2007.
In
September 2008, the two employees and the Company amended the agreements
described above to extend the repayment date of the loans to February
2011. During the year ended December 31, 2008, the two employees
collectively repaid $0.3 million of their outstanding loan balances from
proceeds they received through the repurchase by the Company of shares of the
Company’s common stock held by the employees. The shares repurchased
by the Company as a result of this transaction are included in treasury stock at
December 31, 2008. As of December 31, 2008, the fair market value of
the Company’s common stock held by each of the employees was greater than the
outstanding amount of their loans.
Other
Related Party Transactions
The
Company provides personal office services to Mr. Weisel, its Chairman and
Chief Executive Officer. In accordance with an agreement he has with the
Company, Mr. Weisel reimburses the Company for out-of-pocket expenses the
Company incurs for these services. Amounts incurred by the Company for these
services for the years ended December 31, 2008, 2007 and 2006 were approximately
$337,000, $322,000 and $243,000, respectively. The receivable from Mr. Weisel at
December 31, 2008 and 2007 was approximately $73,000 and $160,000,
respectively.
In
addition, Mr. Weisel and certain other employees of the Company from time
to time use an airplane owned by Ross Investments Inc. (“Ross”), an entity
wholly-owned by Mr. Weisel, for business travel. The Company and Ross have
adopted a time-sharing agreement in accordance with Federal Aviation
Regulation 91.501 to govern the Company’s use of the Ross aircraft,
pursuant to which the Company reimburses Ross for the travel expenses in an
amount generally comparable to the expenses the Company would have incurred for
business travel on commercial airlines for similar trips. For the years ended
December 31, 2008, 2007 and 2006, the Company paid approximately $127,000,
$210,000, and $428,000, respectively, to Ross on account of such expenses. These
amounts are included in marketing and promotion expense within the consolidated
statements of operations. As of December 31, 2008 and 2007, the Company did not
have any amounts payable to Ross.
In
September 2007, the Company entered into an amendment to the Employment
Agreement it has with Mr. Weisel. The amendment alters the timing of certain
payments that may become due to Mr. Weisel thereunder upon a termination of his
employment by deferring such payments until six months following any such
termination.
During
the year ended December 31, 2007, the Company acted as a financial advisor to
London Bay Capital LLC in connection with its indirect acquisition of a
controlling interest in a limited liability company, which was completed in
January 2008. The Company also acted as a placement agent in connection
with the issuance of debt undertaken to finance a portion of the
transaction. As compensation for its advisory and placement agent services in
this matter, the Company received aggregate compensation of approximately $1.9
million from London Bay Capital and its affiliates, which amount includes 31,141
shares of the limited liability company. Also, in connection with this
transaction, the Company purchased additional shares of the limited liability
company. In February 2008, the Company elected to its Board of
Directors Alton F. Irby III who is a founding partner of London Bay Capital
LLC.
NOTE 8 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following (
in
thousands
):
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Leasehold
improvements
|
|
$
|
66,694
|
|
|
$
|
63,782
|
|
|
Equipment,
computer hardware and software
|
|
|
36,716
|
|
|
|
33,384
|
|
|
Furniture
and artwork
|
|
|
18,596
|
|
|
|
17,165
|
|
|
Capital
leases
|
|
|
622
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
Total
property and equipment
|
|
|
122,628
|
|
|
|
114,706
|
|
|
Less
—
Accumulated depreciation
and amortization
|
|
|
(102,047
|
)
|
|
|
(93,389
|
)
|
|
|
|
|
|
|
|
|
|
Total
property and equipment
—
net
|
|
$
|
20,581
|
|
|
$
|
21,317
|
|
Depreciation
and amortization expense related to property and equipment totaled $7.8 million,
$6.4 million and $8.5 million for the years ended December 31, 2008, 2007
and 2006, respectively.
NOTE 9 – ACCRUED EXPENSES AND OTHER
LIABILITIES
Accrued
expenses and other liabilities consisted of the following (
in
thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Syndicate
liabilities
|
|
$
|
897
|
|
|
$
|
13,406
|
|
|
Accounts
payable and other liabilities
|
|
|
30,732
|
|
|
|
27,412
|
|
|
Private
equity distribution payable
|
|
|
1,873
|
|
|
|
6,593
|
|
|
Liability
for lease losses
|
|
|
9,608
|
|
|
|
5,106
|
|
|
Deferred
rent
|
|
|
3,218
|
|
|
|
4,079
|
|
|
Deferred
incentive fees
|
|
|
1,650
|
|
|
|
3,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses and other liabilities
|
|
$
|
47,978
|
|
|
$
|
60,059
|
|
The
liability for lease losses relates to office space that the Company subleased or
abandoned due to staff reductions in 2008 and in prior years, and the liability
will expire with the termination of the relevant facility leases through
2012. The lease loss provision (benefit) was $6.0 million,
($0.2) million and $3.3 million for the years ended December 31,
2008, 2007 and 2006, respectively. The Company estimates its liability for lease
losses as the net present value of the differences between lease payments and
receipts under sublease agreements.
Accrued
expenses and other liabilities at December 31, 2008 and 2007 include an accrual
for anticipated settlement amounts related to matters described in Note 16
– Commitments, Guarantees and Contingencies. These amounts are
included in accounts payable and other liabilities in the table
above.
NOTE 10 – NOTES PAYABLE
Senior
Notes
Concurrent
with its initial public offering, the Company issued three separate unsecured
senior notes in the aggregate principal amount of $33 million. Two notes,
each $10 million in principal, were issued to California Public Employees’
Retirement System. The first $10 million note was called “Senior Note” and
the second $10 million note was called “Contingent Payment Senior Note”.
The third note, in the principal amount of $13 million, was issued to Nomura
America Investment, Inc. and was also called “Senior Note” with similar terms
and covenants to the Senior Note issued to California Public Employees’
Retirement System. Both note holders were investors in Thomas Weisel Partners
Group LLC, the predecessor to the Company, and received the notes in partial
consideration of exchange of their Class D and D-1 redeemable convertible
shares. See Note 1 – Organization for details on the reorganization
transactions. The Contingent Payment Senior Note was paid in full in
September 2008.
The two
Senior Notes in the aggregate principal amount of $23 million bear interest
at a floating rate equal to the mid-term applicable Federal rate in effect from
time to time and mature in 2011. The Contingent Payment Senior Note bore no
interest and provided for payments as and when certain distributions from TWCP
were made, with a maximum term of five years. As the interest rate terms for all
three notes were at amounts more favorable than the current market incremental
borrowing rate for the Company, the notes were recorded at fair value and the
discounts are being amortized over the terms of the loans. As the term of the
Contingent Payment Senior Note was linked to distributions, estimates were made
by the Company and applied in determining the estimated term of the Contingent
Payment Senior Note and the associated discount. The discount for the Contingent
Payment Senior Note was fully amortized upon repayment.
Notes
payable consisted of the following (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Principal
Amount
|
|
|
Carrying
Amount
|
|
|
Principal
Amount
|
|
|
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR (4) + 2.25% (1)
|
|
$
|
13,000
|
|
|
$
|
12,492
|
|
|
$
|
13,000
|
|
|
$
|
12,267
|
|
|
Senior
Note, floating mid-term AFR (4) + 2.25% (1)
|
|
|
10,000
|
|
|
|
9,609
|
|
|
|
10,000
|
|
|
|
9,436
|
|
|
Contingent
Payment Senior Note, non interest bearing (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,384
|
|
|
|
1,948
|
|
|
Secured
Note, floating at LIBOR + 2.85% (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,734
|
|
|
|
3,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
$
|
23,000
|
|
|
$
|
22,101
|
|
|
$
|
29,118
|
|
|
$
|
27,385
|
|
|
(1)
|
The
Company has recorded the debt principal at a discount to reflect the
below-market stated interest rate of these notes at inception. The Company
amortizes the discount to interest expense so that the interest expense
approximates the Company’s incremental borrowing rate. The
effective interest rates at December 31, 2008 and 2007 were 5.17% and
6.65%, respectively.
|
|
(2)
|
The
Contingent Payment Senior Note had a variable due date based upon
distributions received from certain private equity funds. The Company
recorded the debt principal at a discount and amortized the discount to
interest expense so that the interest expense on this non-interest bearing
note approximated the Company’s incremental borrowing rate. During the
years ended December 31, 2008 and 2007, the Company received $1.9 million
and $2.0 million, respectively, in distributions that were used to repay
principal on this note. The effective interest rate at December
31, 2007 was 6.98%. The note was paid in full in September
2008.
|
|
(3)
|
The
note was paid in full in May 2008.
|
|
(4)
|
Applicable
Federal Rate.
|
As of
December 31, 2008 and 2007, the fair value for each of the notes payable
presented above approximates the carrying value as of December 31, 2008 and
2007, respectively.
The
weighted-average interest rate for notes payable was 5.17% and 6.96% at December
31, 2008 and 2007, respectively.
The
principal balances for notes payable as of December 31, 2008 are due in February
2011.
Subordinated
Borrowings
In April
2008, TWP entered into a $25.0 million revolving note and subordinated loan
agreement with its primary clearing broker and incurred a commitment fee of
1.0%, or $0.2 million. The agreement terminates in April
2010. As of December 31, 2008, TWP does not have any balances
outstanding under this facility.
TWPC has
a capital rental arrangement with a Canadian financial institution which is also
a member of the Investment Industry Regulatory Organization of Canada. Under
this arrangement, the financial institution provides subordinated loan capital
to TWPC out of its capital up to CDN$8.0 million for bought deal underwriting
commitments in return for a participation in the underwriting. During the year
ended December 31, 2008, this facility was not used.
In May
2007, the Company entered into a $25.0 million temporary subordinated loan with
its primary clearing broker at an interest rate of LIBOR plus
2.0%. The Company repaid this loan in May 2007. The
Company incurred interest expense of approximately $81,000 in connection with
this loan during the year ended December 31, 2007.
During
the year ended December 31, 2006 the Company paid a commitment fee of 1.0% on a
$40.0 million subordinated borrowing facility. This facility,
was not drawn upon during 2006, and was terminated by the Company in November
2006.
Covenants
The
Senior Notes include financial covenants that include restrictions on additional
indebtedness and requirements that the notes be repaid should the Company enter
into a transaction to liquidate or dispose of all or substantially all of its
property, business or assets. The Company was in compliance with all covenants
at December 31, 2008 and December 31, 2007.
NOTE 11 – FINANCIAL INSTRUMENTS
The
Company records financial assets and liabilities at fair value on the
consolidated statements of financial condition with unrealized gains and losses
reflected in the consolidate statements of operations.
The
degree of judgment used in measuring the fair value of financial instruments
generally correlates to the level of pricing observability. Pricing
observability is impacted by a number of factors, including the type of
financial instrument, whether the financial instrument is new to the market and
not yet established and the characteristics specific to the
transaction. Financial instruments with readily available active
quoted prices for which fair value can be measured from actively quoted prices
generally will have a higher degree of pricing observability and a lesser degree
of judgment used in measuring fair value. Conversely, financial
instruments rarely traded or not quoted will generally have less, or no, pricing
observability and a higher degree of judgment used in measuring fair
value.
The
following is a summary of the fair value of the major categories of financial
instruments held by the Company (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Securities
owned
|
|
$
|
18,927
|
|
|
$
|
220,440
|
|
|
Investments
in partnerships and other investments
|
|
|
43,815
|
|
|
|
111,686
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
62,742
|
|
|
$
|
332,126
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased
|
|
$
|
11,537
|
|
|
$
|
163,933
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
11,537
|
|
|
$
|
163,933
|
|
The
following is a summary of the Company’s financial assets and liabilities that
are accounted for at fair value on a recurring basis by level in accordance with
the fair value hierarchy described in Note 3 – Significant Accounting Policies
(
in
thousands
):
|
|
|
December
31, 2008
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
11,172
|
|
|
$
|
923
|
|
|
$
|
—
|
|
|
$
|
12,095
|
|
|
Convertible
bonds
|
|
|
—
|
|
|
|
6,402
|
|
|
|
—
|
|
|
|
6,402
|
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in partnerships and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in partnerships
|
|
|
—
|
|
|
|
—
|
|
|
|
32,654
|
|
|
|
32,654
|
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
8,913
|
|
|
|
8,913
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
2,248
|
|
|
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
11,172
|
|
|
$
|
7,325
|
|
|
$
|
44,245
|
|
|
$
|
62,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
1,465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,465
|
|
|
Equity
index fund
|
|
|
10,072
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
11,537
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,537
|
|
The
following is a summary of changes in fair value of the Company’s financial
assets that have been classified as Level 3 at December 31, 2008 (
in thousands
):
|
|
|
Convertible
Bonds Owned
|
|
|
Warrants
|
|
|
Investments
in Partnerships
|
|
|
Auction
Rate Securities
|
|
|
Other
Investments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
December 31,
2007
|
|
$
|
15,941
|
|
|
$
|
—
|
|
|
$
|
53,258
|
|
|
$
|
—
|
|
|
$
|
8,262
|
|
|
$
|
77,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
and unrealized gains (losses)
—
net
|
|
|
(1,830
|
)
|
|
|
(6,171
|
)
|
|
|
(17,807
|
)
|
|
|
(737
|
)
|
|
|
(2,886
|
)
|
|
|
(29,431
|
)
|
|
Purchases,
sales, issuances and settlements
—
net
|
|
|
(7,054
|
)
|
|
|
7,139
|
(1)
|
|
|
(2,797
|
)
(2)
|
|
|
1,100
|
|
|
|
(3,128
|
)
|
|
|
(4,740
|
)
|
|
Cumulative
translation adjustment
|
|
|
—
|
|
|
|
(538
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(538
|
)
|
|
Transfer
in
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,550
|
|
|
|
—
|
|
|
|
8,550
|
|
|
Transfers
out
|
|
|
(7,057
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
December 31,
2008
|
|
$
|
—
|
|
|
$
|
430
|
|
|
$
|
32,654
|
|
|
$
|
8,913
|
|
|
$
|
2,248
|
|
|
$
|
44,245
|
|
|
(1)
|
On
January 2, 2008, the Company acquired $7.7 million of warrants as a result
of the Westwind acquisition. Other warrants are received from
time to time as partial payment for investment banking
services. During the year ended December 31, 2008, the Company
exercised $0.8 million of warrants.
|
|
(2)
|
Represents
the net of contributions to and distributions from investments in
partnerships and other securities.
|
|
(3)
|
Represents
convertible bonds that were registered under the Securities Act of 1933
during year ended December 31, 2008 that previously could not be publicly
offered or sold as registration had not yet been
affected.
|
During
the year ended December 31, 2008, ARS for which the auctions failed and where no
secondary market has developed were moved to Level 3, as the assets were subject
to valuation using unobservable inputs. These ARS continued to be
classified as Level 3 through December 31, 2008.
The total
net unrealized losses during the year ended December 31, 2008 of $27.6 million
relates to financial assets held by the Company as of December 31,
2008.
Realized
and unrealized gains and losses from investments in partnerships and other
investments and warrants are included in asset management revenue on the
consolidated statements of operations. Realized and unrealized gains
and losses from securities owned and securities sold, but not yet purchased,
except those related to warrants, are included in brokerage revenue on the
consolidated statements of operations.
NOTE 12 – NET INCOME (LOSS) PER SHARE
The
Company calculates its basic and diluted net income (loss) per share in
accordance with Statement of Financial Accounting Standards No. 128,
Earnings per
Share
. Diluted shares outstanding are calculated including the
effect of the dilutive instruments. The Company uses the treasury stock method
to reflect the potential dilutive effect of the unvested restricted stock units,
the warrant and unexercised stock options (“options”).
Basic
shares outstanding for the year ended December 31, 2006 are calculated
assuming exchange of the Company’s Class C, D and D-1 redeemable
convertible preference shares and Class A shares for shares of common
stock, notes payable and the warrant had been consummated on January 1,
2006. The shares of common stock issued pursuant to the Company’s initial public
offering are considered outstanding from the date of the initial public offering
and the shares of common stock issued pursuant to the Company’s follow-on
offering are considered outstanding from the date of the follow-on offering. See
Note 1
–
Organization
for discussion of the initial public offering and reorganization transactions
and the follow-on offering.
The
following table is a reconciliation of basic and diluted net income (loss) per
share (
in thousands, except
per share data
):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net
income (loss)
|
|
$
|
(203,252
|
)
|
|
$
|
20
|
|
|
$
|
34,921
|
|
|
Preferred
dividends and accretion
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common shareholders and to Class A, B and C
shareholders
|
|
$
|
(203,252
|
)
|
|
$
|
20
|
|
|
$
|
33,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
32,329
|
|
|
|
26,141
|
|
|
|
23,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average restricted stock units
|
|
|
—
|
|
|
|
261
|
|
|
|
866
|
|
|
Weighted
average options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted
average warrant
|
|
|
—
|
|
|
|
44
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
32,329
|
|
|
|
26,446
|
|
|
|
24,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.39
|
|
|
Diluted
net income (loss) per share
|
|
$
|
(6.29
|
)
|
|
$
|
—
|
|
|
$
|
1.34
|
|
Potential
dilutive shares consist of the incremental common stock issuable for outstanding
restricted stock units, options and a warrant (both vested and non-vested) using
the treasury stock method. Potential dilutive shares are excluded from the
computation of net income (loss) per share if their effect is anti-dilutive. The
anti-dilutive options totaled 85,216 for the years ended December 31, 2008 and
2007 and totaled 32,831 for the year ended December 31, 2006. The anti-dilutive
warrant totaled 486,486 shares for the year ended December 31,
2008.
NOTE 13 – SHARE-BASED COMPENSATION
The
Thomas Weisel Partners Group, Inc. Second Amended and Restated Equity Incentive
Plan (the “Equity Incentive Plan”) provides for awards of non-qualified and
incentive options, restricted stock and restricted stock units and other
share-based awards to officers, directors, employees, consultants and advisors
of the Company. At the Company’s Annual Meeting of Shareholders on May 19, 2008,
the Company’s shareholders approved an amendment to the Equity Incentive Plan
to, among other things, increase the maximum number of shares that may be issued
thereunder by 5,000,000 shares. At December 31, 2008 the total number of shares
issuable under the Equity Incentive Plan was 11,150,000
shares. Awards of options and restricted stock units reduce the
number of shares available for future issuance. The number of shares
available for future issuance under the Equity Incentive Plan at December 31,
2008 was approximately 2,290,000 shares.
At the
February 2009 Special Meeting of Shareholders, the shareholders of the Company
voted to approve the increase in the number of shares of the Company’s common
stock available for awards under the Equity Incentive Plan by 6,000,000
shares. Subsequent to the Special Meeting, the total number of shares
issuable under the Equity Incentive Plan was 17,150,000 shares.
The
Company accounts for share-based compensation at fair value, in accordance with
provisions under Statement of Financial Accounting Standards No. 123(R),
Share-Based
Payment
.
Stock
Options
The
Equity Incentive Plan provides for the grant of non-qualified or incentive
options to officers, directors, employees, consultants and advisors for the
purchase of newly issued shares of the Company’s common stock at a price
determined by the Compensation Committee (the “Committee”) of the Board at the
date the option is granted. Generally, options vest and are exercisable ratably
over a three or four-year period from the date the option is granted (although,
in accordance with the terms of the Company’s Equity Incentive Plan, options
granted to non-employee directors as regular director’s compensation have no
minimum vesting period) and expire within ten years from the date of grant. The
exercise prices, as determined by the Committee, cannot be less than the fair
market value of the shares on the grant date. These options provide for
accelerated vesting upon a change in control, as determined by the
Committee.
The fair
value of each option award is estimated on the date of grant using a
Black-Scholes Merton option pricing model with the following weighted-average
assumptions noted in the table below.
Expected volatility
– Based
on the lack of historical data for the Company’s own shares, the Company based
its expected volatility on a representative peer group that took into account
the criteria outlined in SAB No. 107: industry, market capitalization,
stage of life cycle and capital structure.
Expected term
– Expected term
represents the period of time that options granted are expected to be
outstanding. The Company elected to calculate the expected term of the option
awards using the “simplified method” as prescribed under Staff Accounting
Bulletin No. 110. This election was made as the Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to
estimate expected term due to the limited period of time its equity shares have
been publicly traded. Under the “simplified” calculation method, the expected
term was calculated as an average of the vesting period and the contractual life
of the options.
Risk-free interest rate
–
Based on the U.S. Treasury zero-coupon bond rate with a remaining term
approximate of the expected term of the option.
Dividend yield
– As the
Company has not paid, nor does it currently plan to pay, dividends in the
future, the assumed dividend yield is zero.
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected
volatility
|
|
|
54.60
|
%
|
|
|
47.46
|
%
|
|
|
35.00
|
%
|
|
Expected
term (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
6.25
|
|
|
Risk-free
interest rate
|
|
|
3.09
|
%
|
|
|
4.71
|
%
|
|
|
4.71
|
%
|
|
Dividend
yield
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Weighted-average
grant date fair value
|
|
$
|
3.00
|
|
|
$
|
8.59
|
|
|
$
|
9.90
|
|
The
following table is a summary of option activity:
|
|
|
Options
|
|
|
|
|
|
Weighted Average
Remaining
Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in
years
)
|
|
|
(
in
thousands
)
|
|
|
Outstanding
—
December 31,
2007
|
|
|
85,216
|
|
|
$
|
19.87
|
|
|
|
8.94
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
183,333
|
|
|
|
6.00
|
|
|
|
10.00
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
—
December 31,
2008
|
|
|
268,549
|
|
|
$
|
10.40
|
|
|
|
8.92
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
—
December 31,
2008
|
|
|
258,289
|
|
|
$
|
9.91
|
|
|
|
8.99
|
|
|
$
|
—
|
|
As of
December 31, 2008, there were 258,289 options vested. The Company
assumes that there will be no forfeitures of the non-vested options outstanding
as of December 31, 2008 and therefore expects the total amount to vest over
their remaining vesting period.
As of
December 31, 2008, the total unrecognized compensation expense related to
non-vested options was approximately $0.1 million. This cost is expected to
be recognized over a weighted-average period of 1.2 years.
The
Company recorded $0.6 million, $0.5 million and $0.1 million in non-cash
compensation expense with respect to options during the years ended December 31,
2008, 2007 and 2006, respectively.
The
Company will issue new shares of common stock upon exercise of stock
options.
Restricted
Stock Units
Upon
completion of its initial public offering, the Company granted to a broad group
of its employees and advisors and each of its independent directors restricted
stock units with respect to which shares of the Company’s common stock are
deliverable. The allocation of these restricted stock units to the employees was
determined on a discretionary basis and the grants to the independent directors
were determined in accordance with the director compensation policy. The value
of these restricted stock units was based on the market price on the date of
grant. These restricted stock units vest in three equal installments, a portion
of which vest equally on February 7, 2007, February 8, 2008 and February 7,
2009, subject to the employee’s continued employment with the Company, but may
vest earlier in the event of a change of control. After vesting, the shares of
common stock underlying most of these restricted stock units will be deliverable
in three equal installments on or about February 7, 2009, 2010 and 2011,
respectively, but may be deliverable earlier in the event of a change in
control.
The
Company also makes grants of restricted stock units from time to time in
connection with its regular compensation and hiring process. Although the terms
of individual grants vary, as a general matter, grants of restricted stock units
made in connection with the Company’s regular compensation and hiring process
will vest over a three or four-year service period, subject to the employee’s
continued employment with the Company, but may vest earlier in the event of a
change of control.
The
Company has granted performance based awards that vest upon achievement or
satisfaction of performance conditions specified in the performance award
agreement. The shares of common stock underlying these restricted stock units
will be deliverable on or about the related vesting date. The Company estimates
the fair value of performance-based restricted stock units awarded to employees
at the grant date of the equity instruments. The fair value is based
on the market price of the Company’s common stock on the grant date. The Company
also considers the probability of achieving the established targets in
determining its share-based compensation with respect to these
awards. The Company recognizes compensation cost over the three-year
service period.
The
following table is a summary of non-vested restricted stock unit
activity:
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
Non-vested
—
December 31,
2007
|
|
|
2,341,570
|
|
|
$
|
16.71
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
6,831,235
|
|
|
|
7.31
|
|
|
Vested
|
|
|
(774,774
|
)
|
|
|
16.26
|
|
|
Cancelled
|
|
|
(1,081,319
|
)
|
|
|
12.61
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
—
December 31,
2008
|
|
|
7,316,712
|
|
|
$
|
8.58
|
|
The fair
value of shares vested during the year ended December 31, 2008, 2007 and 2006
was $8.0 million, $11.1 million and $0.3 million, respectively.
As of
December 31, 2008, there was $40.0 million of total unrecognized
compensation expense related to non-vested restricted stock unit awards. This
cost is expected to be recognized over a weighted-average period of
2.6 years.
The
Company recorded $18.3 million, $10.9 million and $7.3 million in non-cash
compensation expense with respect to grants of restricted stock units for the
years ended December 31, 2008, 2007 and 2006, respectively.
In
February 2009, the Company made an additional grant of approximately 2,690,000
restricted stock units in connection with its regular compensation process. The
unrecognized compensation expense associated with this grant is $5.9 million,
net of expected forfeitures. The restricted stock units granted will
vest over a three-year service period, subject to the employee’s continued
employment with the Company, and the shares of common stock underlying these
restricted stock units will be deliverable on or about the related vesting
date.
NOTE 14 – INCOME TAXES
The
Company accounts for income taxes in accordance with SFAS No. 109, which
requires the recognition of deferred tax assets and liabilities based upon
temporary differences between the financial reporting and tax bases of its
assets and liabilities. SFAS No.109 states that a deferred tax asset should be
reduced by a valuation allowance if based on the weight of all available
evidence, it is more likely than not (a likelihood of more than 50%) that some
portion or the entire deferred tax asset will not be realized. The valuation
allowance should be sufficient to reduce the deferred tax asset to the amount
that is more likely than not to be realized. The determination of whether a
deferred tax asset is realizable is based on weighting all available evidence,
including both positive and negative evidence. SFAS No. 109 provides that the
realization of deferred tax assets, including carryforwards and deductible
temporary differences, depends upon the existence of sufficient taxable income
of the same character during the carryback or carryforward period. SFAS No.109
requires the consideration of all sources of taxable income available to realize
the deferred tax asset, including the future reversal of existing temporary
differences, future taxable income exclusive of reversing temporary differences
and carryforwards, taxable income in carryback years and tax-planning
strategies.
The
Company’s operations are in a cumulative loss position for the three-year period
ended December 31, 2008, primarily created by poor operating results in
2008 due to the challenging environment for the capital markets. For purposes of
assessing the realization of the deferred tax assets, this cumulative taxable
loss position is considered significant negative evidence and has caused the
Company to conclude that it is more likely than not the Company will not be able
to realize the deferred tax assets in the future. As of December 31, 2008,
the Company recorded a full valuation allowance of $44.8 million on its
U.S. deferred tax assets. In addition, the Company has a valuation allowance of
$1.7 million on its U.K. deferred tax asset as of December 31,
2008. Management will reassess the realization of the deferred tax
assets based on the criteria of SFAS No.109 each reporting period. To the extent
that the financial results of the Company improve and the deferred tax asset
becomes realizable, the Company will be able to reduce the valuation allowance
through earnings.
During
the three months ended March 31, 2006, the Company recognized a one-time
tax benefit upon conversion to a corporation in connection with the
establishment of its deferred tax asset balances, partially offset by a
valuation allowance of $9.9 million. The valuation allowance was recorded
because management at that time concluded that a portion of the deferred tax
benefit, which resulted from unrealized capital losses, more likely than not
would not be realized due to the uncertainty of the Company’s ability to
generate future capital gains to offset such capital losses. Based on the
performance of the underlying investments in its investments in partnerships
during the year ended December 31, 2006, the Company reduced the valuation
allowance by $8.5 million. As of December 31, 2006, the deferred tax asset
recorded to reflect these net unrealized losses was $1.4 million, and the
related valuation allowance was $1.4 million.
In 2007,
based upon the performance of the underlying investments in the Company’s
investments in partnerships and its expectation as to the future performance of
such investments, the Company reduced the valuation allowance from $1.4
million to zero and recognized a deferred tax benefit of $1.6
million on the increase in net unrealized losses. This resulted
in a deferred tax asset balance at December 31, 2007 of $3.0
million.
On
January 1, 2007, the Company adopted the provisions of FIN No. 48, which
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with SFAS No. 109, and prescribes a
recognition threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken, or expected to be taken in
a tax return. FIN No. 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. In the U.S., the Company is subject to Federal and
state tax authority examination on the 2007 and 2006 tax years. In
Canada, the Company is subject to Federal tax authority examination on the 2007
through 2005 tax years and subject to provincial tax authority examination on
the 2007 through 2004 tax years. The adoption of FIN 48 did not have a material
impact on the Company’s consolidated statements of financial condition,
operations and cash flows. During the year ended December 31, 2008,
there have been no changes in uncertain tax positions that have had a material
impact to the Company’s tax positions. At December 31, 2008, the Company
had a liability for unrecognized tax benefits in Canada of $1.1 million, as
defined in FIN No. 48, which is included in accrued expenses and other
liabilities in the statements of financial position.
The
components of the provision for taxes (tax benefit) were as follows (
in thousands
):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(8,235
|
)
|
|
$
|
1,105
|
|
|
$
|
4,794
|
|
|
State
|
|
|
(91
|
)
|
|
|
1,210
|
|
|
|
2,040
|
|
|
Foreign
|
|
|
1,070
|
|
|
|
123
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current expense (benefit)
|
|
|
(7,256
|
)
|
|
|
2,438
|
|
|
|
7,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
15,363
|
|
|
|
(3,483
|
)
|
|
|
(11,785
|
)
|
|
State
|
|
|
5,534
|
|
|
|
(1,507
|
)
|
|
|
(3,999
|
)
|
|
Foreign
|
|
|
(5,941
|
)
|
|
|
(241
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred expense (benefit)
|
|
|
14,956
|
|
|
|
(5,231
|
)
|
|
|
(15,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes (tax benefit)
|
|
$
|
7,700
|
|
|
$
|
(2,793
|
)
|
|
$
|
(8,796
|
)
|
A
reconciliation of the statutory Federal income tax rate to the Company’s
effective tax rate was as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Tax
at U.S. statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
State
tax expense (benefit)
|
|
|
(1.8
|
)
|
|
|
1.4
|
|
|
|
7.0
|
|
|
Foreign
tax expense (benefit)
|
|
|
(0.5
|
)
|
|
|
4.3
|
|
|
|
0.6
|
|
|
Permanent
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment
|
|
|
(17.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other
permanent items
(1)
|
|
|
(0.5
|
)
|
|
|
7.4
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
before adjustment to valuation allowance and impact of change in tax
status of the Company
|
|
|
15.2
|
|
|
|
48.1
|
|
|
|
40.2
|
|
|
Adjustment
to valuation allowance
|
|
|
(18.7
|
)
|
|
|
49.8
|
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(3.5
|
)
|
|
|
97.9
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from nontaxable limited liability company through February 7,
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
(5.7
|
)
|
|
Recognition
of deferred tax asset upon change from a limited liability company to a
taxable corporation
|
|
|
—
|
|
|
|
—
|
|
|
|
(53.0
|
)
|
|
Other
adjustments
|
|
|
(0.4
|
)
|
|
|
2.8
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
(3.9
|
)%
|
|
|
100.7
|
%
|
|
|
(33.7
|
)%
|
|
(1)
|
Other
permanent items for the year ended December 31, 2008 consisted primarily
of non-deductible expenses and foreign tax loss of (0.3%) and (0.2%),
respectively. Permanent items for the year ended December 31, 2007
consisted of tax exempt interest, non-deductible expenses and foreign tax
loss of 39.3%, (27.6%) and (4.3%), respectively. Permanent
items for the year ended December 31, 2006 consisted of tax exempt
interest, non-deductible expenses and foreign tax loss of (3.7%), 1.9% and
(0.6%), respectively.
|
The
components of deferred tax assets and liabilities were as follows (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Net
operating loss
|
|
$
|
14,520
|
|
|
$
|
—
|
|
|
Accrued
compensation and related expenses
|
|
|
—
|
|
|
|
919
|
|
|
Equity
based compensation
|
|
|
12,043
|
|
|
|
7,413
|
|
|
Depreciation
and amortization
|
|
|
7,121
|
|
|
|
5,762
|
|
|
Nondeductible
reserves and allowances
|
|
|
6,924
|
|
|
|
5,075
|
|
|
Net
unrealized capital losses
|
|
|
7,984
|
|
|
|
3,017
|
|
|
Other
|
|
|
277
|
|
|
|
253
|
|
|
Total
deferred tax assets
|
|
|
48,869
|
|
|
|
22,439
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Capital
assets and other intangible assets
|
|
|
(6,841
|
)
|
|
|
—
|
|
|
Prepaid
expenses
|
|
|
(1,272
|
)
|
|
|
(1,338
|
)
|
|
Accrued
compensation and related expenses
|
|
|
(256
|
)
|
|
|
—
|
|
|
Other
|
|
|
(123
|
)
|
|
|
(8
|
)
|
|
Total
deferred tax liabilities
|
|
|
(8,492
|
)
|
|
|
(1,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(46,521
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset (liabilities)
|
|
$
|
(6,144
|
)
|
|
$
|
21,093
|
|
As of
December 31,
2008, the
Company had Federal and state net operating losses of approximately $26.3
million and $48.4 million
, respectively, available to reduce future
incom
e subject to income taxes.
The F
ederal net operating losses will expire in 2029. The state net
operating losses will expire between 2014 and 2030. At December 31,
2008, the Company had foreign net operating losses of approximately $6.2 million
available to reduce future income subject to income taxes. The
foreign net operating losses do not expire.
The
Company does not provide for distribution taxes on the undistributed earnings of
its foreign subsidiaries as the Company intends to reinvest any earnings
indefinitely. Undistributed earnings of the Company’s foreign
subsidiaries were not material for the years ended December 31, 2008, 2007 and
2006.
NOTE 15 – EMPLOYEE BENEFITS
The
Company has a defined contribution 401(k) retirement plan (the “Plan”) which
allows eligible employees to invest a percentage of their pretax compensation,
limited to the maximum allowed by the Internal Revenue Service regulations. The
Company, at its discretion, may contribute funds to the Plan. The Company made
no contributions during the years ended December 31, 2008, 2007 and
2006.
NOTE 16 – COMMITMENTS, GUARANTEES AND
CONTINGENCIES
Commitments
Lease
Commitments
The
Company leases office space and computer equipment under non-cancelable
operating leases which extend to 2016 and which may be extended as prescribed
under renewal options in the lease agreements. The Company has entered into
several non-cancelable sublease agreements for certain facilities or floors of
facilities which are co-terminus with the Company’s lease for the respective
facilities or floors of facilities.
The
Company’s minimum annual lease commitments and related sublease income were as
follows (
in
thousands
):
|
|
|
December
31, 2008
|
|
|
|
|
Minimum
Lease Payments
|
|
|
Sublease
Rental Income
|
|
|
Net
Minimum Lease Payments
|
|
|
2009
|
|
$
|
21,825
|
|
|
$
|
2,831
|
|
|
$
|
18,994
|
|
|
2010
|
|
|
17,088
|
|
|
|
1,184
|
|
|
|
15,904
|
|
|
2011
|
|
|
13,291
|
|
|
|
—
|
|
|
|
13,291
|
|
|
2012
|
|
|
10,249
|
|
|
|
—
|
|
|
|
10,249
|
|
|
2013
|
|
|
8,688
|
|
|
|
—
|
|
|
|
8,688
|
|
|
Thereafter
|
|
|
17,800
|
|
|
|
—
|
|
|
|
17,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,941
|
|
|
$
|
4,015
|
|
|
$
|
84,926
|
|
Facility
and computer equipment lease expenses charged to operations for the years ended
December 31, 2008, 2007 and 2006 were $16.6 million, $14.8 million and
$12.6 million, respectively, net of sublease income of $3.8 million, $2.9
million and $3.2 million, respectively.
The
Company signed a forbearance agreement with the lessor of certain office space
it occupies in San Francisco that provided a reduction in the rent payments from
November 1, 2003 to October 31, 2005. There were certain non-financial
and financial events that would automatically terminate the forbearance
agreement, requiring the Company to reimburse the forbearance amount of $3.3
million to the lessor. During the year ended December 31, 2007, the Company and
the lessor entered into an amendment to the lease agreement whereby the
contingent forbearance amount would be removed in exchange for a total fee of
$1.3 million. During the years ended December 31, 2008 and 2007, $0.6
million and $0.4 million, respectively, of the total fee was included in
occupancy and equipment expense in the consolidated statements of
operations. The remaining $0.3 million of the total fee will be
included in occupancy and equipment expense over the remaining life of the
original lease agreement.
At
December 31, 2008, the Company had a lease loss liability of $9.6 million
related to office space that it vacated in September and December 2008 and in
prior years. The lease loss liability was estimated as the net
present value of the difference between lease payments and receipts under
expected sublease agreements.
Fund
Capital Commitments
At
December 31, 2008, the Company’s Asset Management Subsidiaries had
commitments to invest in affiliated investment partnerships. Such commitments
may be satisfied by direct investments and are generally required to be made as
investment opportunities are identified by the underlying
partnerships. The Company’s Asset Management Subsidiaries’
commitments at December 31, 2008 were as follows (
in thousands
):
|
Global
Growth Partners I
|
|
$
|
414
|
|
|
Global
Growth Partners II
|
|
|
411
|
|
|
Global
Growth Partners IV (S)
|
|
|
291
|
|
|
Thomas
Weisel Healthcare Venture Partners
|
|
|
368
|
|
|
|
|
|
|
|
|
Total
fund capital commitments
|
|
$
|
1,484
|
|
In
addition to the commitments within the table above, the Company has made
commitments to investments in unaffiliated funds. During the year ended December
31, 2008, the Company funded $3.4 million of these commitments and transferred
$22.2 million of these commitments to a fund sponsored by the
Company. The Company’s remaining unfunded commitment as of December
31, 2008 was $4.3 million. These commitments may be called in full at any
time.
Guarantees
Broker-Dealer
Guarantees and Indemnification
The
Company’s customers’ transactions are introduced to the clearing brokers for
execution, clearance and settlement. Customers are required to complete their
transactions on settlement date, generally three business days after the trade
date. If customers do not fulfill their contractual obligations to the clearing
brokers, the Company may be required to reimburse the clearing brokers for
losses on these obligations. The Company has established procedures to reduce
this risk by monitoring trading within accounts and requiring deposits in excess
of regulatory requirements.
In
February 2009, a customer of the Company failed to pay
for several equity purchases the Company executed at the
customer’s request. Refer to Note 22 – Subsequent Event.
The
Company is a member of various securities exchanges. Under the standard
membership agreements, members are required to guarantee the performance of
other members and, accordingly, if another member becomes unable to satisfy its
obligations to the exchange, all other members would be required to meet the
shortfall. The Company’s liability under these arrangements is not quantifiable
and could exceed the cash and securities it has posted as collateral. However,
management believes that the potential for the Company to be required to make
payments under these arrangements is remote. The Company has not recorded any
loss contingency for this indemnification.
Guaranteed
Compensation
Consistent
with practice in prior years, guaranteed compensation agreements were entered
into during the year ended December 31, 2008. These obligations are being
accrued ratably over the service period of the agreements. Total unaccrued
obligations at December 31, 2008 for services to be provided subsequent to
December 31, 2008 were $3.3 million.
Director
and Officer Indemnification
The
Company has entered into agreements that provide indemnification to its
directors, officers and other persons requested or authorized by the Board to
take actions on behalf of the Company for all losses, damages, costs and
expenses incurred by the indemnified person arising out of such person’s service
in such capacity, subject to the limitations imposed by Delaware law. The
Company has not recorded any loss contingency for this
indemnification.
Tax
Indemnification Agreement
In
connection with its initial public offering, the Company entered into a tax
indemnification agreement to indemnify the members of Thomas Weisel Partners
Group LLC against the full amount of certain increases in taxes that relate to
activities of Thomas Weisel Partners Group LLC and its affiliates prior to the
Company’s reorganization. The tax indemnification agreement included provisions
that permit the Company to control any tax proceeding or contest which might
result in it being required to make a payment under the tax indemnification
agreement. The Company has not recorded any loss contingency for this
indemnification.
Contingencies
Loss
Contingencies
The
Company is involved in a number of judicial, regulatory and arbitration matters
arising in connection with its business. The outcome of matters the Company is
involved in cannot be determined at this time, and the results cannot be
predicted with certainty. There can be no assurance that these matters will not
have a material adverse effect on the Company’s results of operations in any
future period, and a significant judgment could have a material adverse impact
on the Company’s consolidated statements of financial condition, operations and
cash flows. The Company may in the future become involved in additional
litigation in the ordinary course of its business, including litigation that
could be material to the Company’s business.
In
accordance with Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies
(“SFAS No. 5”), the Company reviews the need for any loss contingency
reserves and establishes reserves when, in the opinion of management, it is
probable that a matter would result in liability, and the amount of loss, if
any, can be reasonably estimated. Generally, in view of the inherent difficulty
of predicting the outcome of those matters, particularly in cases in which
claimants seek substantial or indeterminate damages, it is not possible to
determine whether a liability has been incurred or to reasonably estimate the
ultimate or minimum amount of that liability until the case is close to
resolution, in which case no reserve is established until that
time.
Additionally,
the Company will record receivables for insurance recoveries for legal
settlements and expenses when such amounts are covered by insurance and recovery
of such losses or costs are considered probable of recovery. These amounts
will be recorded as other assets in the consolidated statements of financial
condition and will reduce other expense, to the extent such losses or costs have
been incurred, in the consolidated statements of results of
operations.
Investment
Banking Matters
Auction Rate Securities
– The
Company has received inquiries from FINRA requesting information concerning
purchases through the Company of auction rate securities by Private Client
Services customers. Based upon press reports, approximately forty
firms, including the Company, have received inquiries from the Enforcement
Department of FINRA regarding retail customer purchases through those firms of
auction rate securities. The Company is cooperating with FINRA while
it conducts its investigation. The Company notes that a number of
underwriters of auction rate securities entered into settlements with the SEC
and other regulators in connection with those underwriters’ sales and
underwriting practices. The Company did not, at any time, underwrite
auction rate securities or manage the associated auctions. In
connection with such auctions, the Company merely served as agent for its
customers when buying in auctions managed by those
underwriters. Accordingly, the Company distinguishes its conduct from
such underwriters and is prepared to assert these and other defenses should
FINRA seek to bring an action in the future. Nevertheless, there can
be no assurance that FINRA will not take regulatory action.
In
addition to the FINRA investigation, the Company has been named (along with two
employees) in a FINRA arbitration filed by one of its retail customers who
purchased auction rate securities as part of his 401(k) Profit Sharing Plan
account. The amount of the claim in that matter is not material to
the Company. The Company has only recently filed its answer to the
customer’s complaint and the parties will now proceed toward
discovery. The Company believes it has meritorious defenses to the
action and intends to vigorously defend such action as it applies to the
Company.
While the
Company’s review of the need for any loss contingency reserve in accordance with
SFAS No. 5 has led the Company to conclude that, based upon currently available
information and consultation with its counsel, the Company does not
currently need to establish a provision for loss related to auction rate
securities held by retail clients, the Company is not able to predict with
certainty the outcome of auction rate securities related matters and there can
be no assurance that those matters will not have a material adverse effect on
the Company’s results of operations in any future period, and a significant
judgment or settlement could have a material adverse impact on the Company’s
consolidated statements of financial condition, operations and cash
flows.
Borghetti v. Campus Pipeline
– A putative shareholder derivative action was brought in the Third Judicial
District Court in Salt Lake County, Utah on October 5, 2004 against Campus
Pipeline in connection with a sell-side mergers and acquisitions engagement in
which the Company acted as a financial advisor to Campus Pipeline. Plaintiffs
alleged breach of fiduciary duty, fraud and similar related claims against
Campus Pipeline’s directors, officers, attorneys and the Company. On May 3,
2005, the court granted in part and denied in part the Company’s motion to
dismiss, dismissing all claims against the Company except the breach of
fiduciary duty claim. Thereafter, on April 23, 2007, the court granted the
Company’s motion for summary judgment with respect to the remaining claims
against the Company, although the plaintiffs subsequently have appealed this
decision. The Company has denied liability in connection with this matter. The
Company believes it has meritorious defenses to the action and intends to
vigorously defend such action as it applies to the Company.
In re GT Solar International,
Inc.
– The Company has been named as a defendant in a purported class
action litigation brought in connection with an initial public offering of GT
Solar International, Inc. in July 2008 where it acted as a co-manager. The
complaint, filed in the United States District Court for the District of New
Hampshire on August 1, 2008, alleges violations of Federal securities laws
against GT Solar and certain of its directors and officers as well as GT Solar’s
underwriters, including the Company, based on alleged misstatements and
omissions in the registration statement. The Company believes it has meritorious
defenses to the action and intends to vigorously defend such action as it
applies to the Company.
In re Initial Public Offering
Securities Litigation –
The Company is a defendant in several purported
class actions brought against numerous underwriters in connection with certain
initial public offerings in 1999 and 2000. These cases have been consolidated in
the United States District Court for the Southern District of New York and
generally allege that underwriters accepted undisclosed compensation in
connection with the offerings, entered into arrangements designed to influence
the price at which the shares traded in the aftermarket and improperly allocated
shares in these offerings. The actions allege violations of Federal securities
laws and seek unspecified damages. Of the 310 issuers named in these cases, the
Company acted as a co-lead manager in one offering, a co-manager in 32
offerings, and as a syndicate member in 10 offerings. The Company has denied
liability in connection with these matters. On June 10, 2004, plaintiffs
entered into a definitive settlement agreement with respect to their claims
against the issuer defendants and the issuers’ present or former officers and
directors named in the lawsuits, however, approval of the proposed settlement
remains on hold pending the resolution of the class certification issue
described below. By a decision dated October 13, 2004, the Federal district
court granted plaintiffs’ motion for class certification, however, the
underwriter defendants petitioned the U.S. Court of Appeals for the Second
Circuit to review that certification decision. On December 5, 2006. the
Second Circuit vacated the district court’s class certification decision and the
plaintiffs subsequently petitioned the Second Circuit for a rehearing. On
April 6, 2007, the Second Circuit denied the rehearing
request. In May 2007, the plaintiffs filed a motion for class
certification on a new basis and subsequently scheduled
discovery. During 2008, the parties have participated in a formal
mediation over several sessions and are in the process of documenting a
potential settlement (which is subject to, among other things, agreement on
definitive documentation and approval by the Court) that the Company believes
will result in the resolution of this matter for an amount that will be covered
by its relevant insurance policies.
In re Merix Securities Litigation –
The Company has been a defendant in a purported class action suit brought
in connection with an offering in January 2004 involving Merix Corporation
in which it served as co-lead manager for Merix. On September 15, 2005, the
United States District Court for the District of Oregon entered an order
dismissing all claims against the underwriter defendants, including the Company,
and the Merix defendants. A portion of the claim under Section 12(a)(2) of
the Securities Exchange Act of 1934 was dismissed with prejudice, and the
remainder of that claim and the Section 11 claim were dismissed with leave
to re-file. Plaintiffs subsequently filed an amended complaint and on
September 28, 2006 the Court dismissed the remaining claims with prejudice.
Following the September 28, 2006 dismissal, plaintiffs filed a notice of
appeal to the United States Court of Appeals for the Ninth Circuit and the
dismissal has now been overturned by the appellate court. The parties have now
begun discovery and the court has set various status dates beginning in the next
couple months. The Company believes it has meritorious defenses to
these actions and intends to vigorously defend such actions as they apply to the
Company.
In re Netlist, Inc. Securities
Litigation
– The Company has been named as a defendant in an amended
complaint for a purported class action lawsuit filed in November 2007 in
connection with the initial public offering of Netlist in November 2006 where
the Company acted as a lead manager. The amended complaint, filed in
the United States District Court for the Central District of California, alleges
violations of federal securities laws against Netlist, various officers and
directors as well as Netlist’s underwriters, including the Company, based on
alleged misstatements and omissions in the disclosure documents for the
offering. The complaint essentially alleges that the registration
statement relating to Netlist’s initial public offering was materially false and
misleading. The Company denies liability in connection with this
matter. The Company believes it has meritorious defenses to the
action and intends to vigorously defend such action as it applies to the
Company.
In re Noah Educational Holdings,
Ltd
.
Securities
Litigation
–
The
Company has previously been named, and has now been formally served, as a
defendant in a purported class action litigation brought in connection with an
initial public offering of Noah Educational Holdings, Ltd. in October 2007 where
it acted as a co-manager. The complaint, apparently filed in the United States
District Court for the Southern District of New York, alleges violations of
Federal securities laws against Noah Educational and the underwriters, including
the Company, based on alleged misstatements and omissions in the registration
statement. The Company believes it has meritorious defenses to the action and
intends to vigorously defend such action as it applies to the
Company.
In re Occam Networks, Inc.
Securities Litigation
– The Company has been named as a defendant in an
amended complaint for a purported class action lawsuit filed in November 2007
arising out of the November 2006 secondary offering of Occam Networks, Inc.
where the Company acted as the sole book manager. The amended
complaint, filed in the United States District Court for the Central District of
California, alleges violations of federal securities laws against Occam, various
officers and directors as well as Occam’s underwriters, including the Company,
based on alleged misstatements and omissions in the disclosure documents for the
offering. The Company believes it has meritorious defenses to these
actions and intends to vigorously defend such actions as they apply to the
Company.
In re Openwave Systems Inc.
Securities Litigation
– The Company has been named as a defendant in a
purported class action lawsuit filed in June 2007 in connection with a secondary
offering of common stock by Openwave Systems’ in December 2005 where the Company
acted as a co-manager. The complaint, filed in the United States
District Court for the Southern District of New York alleges violations of
Federal securities laws against Openwave Systems, various officers and directors
as well as Openwave Systems’ underwriters, including the Company, based on
alleged misstatements and omissions in the disclosure documents for the
offering. The underwriters’ motion to dismiss was granted in October
2007, however, the plaintiffs may appeal the dismissal. The Company believes it
has meritorious defenses to the action and intends to vigorously defend such
action as it applies to the Company.
In re Orion Energy Systems, Inc.
Securities Litigation
– The Company has been named as a defendant in a
purported class action lawsuit filed in February 2008 arising out of the
December 2007 initial public offering of Orion Energy Systems, Inc. where the
Company acted as the sole book manager. The complaint, filed in the
United States District court for the Southern District of New York, alleges
violations of federal securities laws against Orion, various officers and
directors, as well as Orion’s underwriters, including the Company, based on
alleged misstatements and omissions in the disclosure documents for the
offering. The Company believes it has meritorious defenses to these
actions and intends to vigorously defend such actions as they apply to the
Company.
In re Rigel Pharmaceuticals Inc.
Securities Litigation
– The Company has apparently been named (but not
yet served) as a co-defendant in a purported class action litigation brought in
connection with a February 2008 secondary offering of Rigel Pharmaceuticals in
which the Company acted as a co-manager. The complaint appears to
have been filed in the United States District Court, Northern District of
California, and alleges violations of Federal securities laws against Rigel
Pharmaceuticals, officers, and underwriters, including TWP, based on alleged
misstatements and omissions in the registration statement. The
Company believes it has meritorious defenses to these actions and intends to
vigorously defend such actions as they apply to the Company.
In re Virgin Mobile USA, Inc.
Securities Litigation
– The Company has been named as a defendant in one
of two purported class action lawsuits filed in November 2007 arising out of the
October 2007 initial public offering of Virgin Mobile USA, Inc. where the
Company acted as a co-manager. The complaints, filed in the United
States District Courts for New Jersey and the Southern District of New York,
allege violations of federal securities laws against Virgin Mobile, various
officers and directors as well as Virgin Mobile’s underwriters, including the
Company, based on alleged misstatements and omissions in the disclosure
documents for the offering. The parties have agreed to transfer and
consolidate the matters in the United States District Court for the Southern
District of New York. The Company believes it has meritorious
defenses to these actions and intends to vigorously defend such actions as they
apply to the Company.
In re Vonage Holdings Corp.
Securities Litigation
– The Company is a defendant named in purported
class action lawsuits filed in June 2006 arising out of the May 2006
initial public offering of Vonage Holdings Corp. where the Company acted as a
co-manager. The complaints, filed in the United States District Court for the
District of New Jersey and in the Supreme Court of the State of New York, County
of Kings, allege misuse of Vonage’s directed share program and violations of
Federal securities laws against Vonage and certain of its directors and senior
officers as well as Vonage’s underwriters, including the Company, based on
alleged false and misleading statements in the registration statement and
prospectus. In January 2007, the plaintiffs’ complaints were transferred to
the U.S. District Court for the District of New Jersey and the defendants have
filed motions to dismiss. The Company believes it has meritorious defenses to
these actions and intends to vigorously defend such actions as they apply to the
Company.
Lev Mass v.
Thomas Weisel
Partners LLC
– The Company has been named a defendant in a purported class
action lawsuit filed in July 2008 with respect to the alleged misclassification
of certain employees as exempt from provisions of California state law requiring
the payment of overtime wages. The complaint was filed in the
California Superior Court for the County of San Francisco. The
Company believes it has meritorious defenses to these actions and intends to
vigorously defend such actions as they apply to the Company.
Stetson Oil
& Gas, Ltd. v. Thomas Weisel Partners Canada Inc.
– The Company has
been named as defendant in a Statement of Claim filed in the Ontario Superior
Court of Justice. The claim arises out of the July 2008 “bought deal”
transaction in which TWP (Canada) was allegedly engaged to act as underwriter
(purchasing subscription receipts amounting to approximately CDN$25 million) for
Stetson Oil & Gas, Ltd., an Alberta, Canada oil and gas exploration
corporation. The Company believes it has meritorious defenses to
these actions and intends to vigorously defend such actions as they apply to the
Company.
Resolved
Matters
In re AirGate PCS, Inc. Securities
Litigation –
The Company had been a defendant in a purported class
action litigation brought in connection with a secondary offering of AirGate
PCS, Inc. in December 2001 where the Company acted as a co-manager. The
complaint, filed in the United States District Court for the Northern District
of Georgia on May 17, 2002, alleges violations of Federal securities laws
against AirGate and certain of its directors and officers as well as AirGate’s
underwriters, including the Company, based on alleged misstatements and
omissions in the registration statement. During the second quarter of 2008 a
settlement was reached that did not result in a liability for the
Company.
In re First Horizon Pharmaceutical
Corporation Securities Litigation –
The Company has been a defendant in a
purported class action litigation brought in connection with a secondary
offering of First Horizon Pharmaceutical Corporation in April 2002 where
the Company acted as a co-manager. The consolidated amended complaint, was filed
in the United States District Court for the Northern District of Georgia on
September 2, 2003, and alleged violations of Federal securities laws
against First Horizon and certain of its directors and officers as well as First
Horizon’s underwriters, including the Company, based on alleged false and
misleading statements in the registration statement and other
documents. A settlement has now been reached that did not result in a
liability for the Company.
In re Friedman’s Inc. Securities
Litigation –
The Company has been a defendant in a purported class action
litigation brought in connection with a secondary offering of Friedman’s in
September 2003 where the Company acted as a co-manager. The
complaint, filed in the United States District Court for the Northern District
of Georgia, alleged that the registration statement for the offering and a
previous registration statement dated February 2, 2002 were fraudulent and
materially misleading. During 2008, the plaintiffs’ claims were
settled. The Company’s portion of the settlement amount was not
material to the Company’s consolidated statements of financial condition,
operations and cash flows.
In re Intermix Media, Inc
.
–
The Company had been
a defendant in a purported class action lawsuit filed in August 2006 arising out
of the sale of Intermix to News Corporation in September 2005. The complaint was
filed in the United States District Court for the Central District of California
and alleged various misrepresentations and/or omissions of material information
that would have demonstrated that the sale was not fair from a financial point
of view to the shareholders of Intermix. The Company acted as a financial
advisor to Intermix in connection with the sale and rendered a fairness opinion
with respect to the sale. In July 2008 the court dismissed, with prejudice,
claims against the Company.
In re Leadis Technology, Inc.
Securities Litigation –
The Company has been a defendant in a purported
class action litigation brought in connection with Leadis Technology, Inc.’s
initial public offering in June 2004 in which the Company served as a
co-manager for Leadis. The consolidated complaint, filed in the United States
District Court for the Northern District of California on August 8, 2005,
alleged violations of Federal securities laws against Leadis and certain of its
directors and officers as well as the Company’s underwriters, including the
Company, based on alleged misstatements and omissions in the registration
statement. On March 1, 2006, the complaint against the Company in this
matter was dismissed by the court with prejudice. Subsequently, on
March 28, 2006, the plaintiffs in this matter appealed the dismissal and
the dismissal has now been overturned by the appellate court. The Company
believes it has meritorious defenses to these actions and intends to vigorously
defend such actions as they apply to the Company. A settlement has
now been reached that the Company believes will not result in a liability for
the Company.
In re SeraCare Life Sciences, Inc.
Securities Litigation
–
The Company has been a defendant in a purported class action litigation
brought in connection with the SeraCare May 2005 secondary offering and various
financial filings from 2003 to 2006. In March 2006, SeraCare delisted
from the NASDAQ and filed for bankruptcy. The complaint was filed in
the United States District Court for the Southern District of California and was
amended in June 2006 to include underwriter defendants. The complaint
alleged violations of federal securities laws relating to the secondary offering
and financials as referenced above. The Company acted as a co-manager
on the secondary offering. A settlement has now been reached that the
Company believes will result in the resolution of this matter for an amount that
will be covered by its relevant reserves.
In re U.S. Auto Parts Network, Inc.
Securities Litigation
–
The Company has been a defendant in a purported class action lawsuit
filed in March 2007 with respect to the initial public offering of U.S.
Auto Parts Network, Inc. on February 8, 2007 and subsequent public
disclosures by U.S. Auto Parts. The Company was an underwriter and a co-book
manager of the U.S. Auto Parts initial public offering. The complaint, which was
filed in the United States District Court, Central District of California,
Western Division, alleges violations of various Federal securities laws against
U.S. Auto Parts and certain of its directors and officers as well as U.S. Auto
Parts’ underwriters, including the Company, based on, among other things,
alleged false and misleading statements. A settlement has now been
reached that did not result in a liability for the Company.
NOTE 17 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CREDIT
RISK OR MARKET RISK
Concentration
of Credit Risk and Market Risk
The
majority of the Company’s transactions, and consequently the concentration of
its credit exposure, is with its clearing brokers. The clearing brokers are also
the primary source of short-term financing for both securities purchased and
securities sold, not yet purchased by the Company. The Company’s securities
owned may be pledged by the clearing brokers. The amount receivable from and
payable to the clearing brokers in the Company’s consolidated statements of
financial condition represents amounts receivable or payable in connection with
the trading of proprietary positions and the clearance of customer securities
transactions. As of December 31, 2008 and 2007, the Company’s cash on
deposit with the clearing brokers was not collateralizing any liabilities to the
clearing brokers.
In
addition to the clearing brokers, the Company is exposed to credit risk from
other brokers, dealers and other financial institutions with which it transacts
business. In the event counterparties do not fulfill their obligations, the
Company may be exposed to credit risk. The Company seeks to control credit risk
by following an established credit approval process and monitoring credit limits
with counterparties.
The
Company’s trading activities include providing securities brokerage services to
institutional and retail clients. To facilitate these customer transactions, the
Company purchases proprietary securities positions (“long positions”) in equity
securities, convertible, other fixed income securities and equity index fund.
The Company also enters into transactions to sell securities not yet purchased
(“short positions”), which are recorded as liabilities on the consolidated
statements of financial condition. The Company is exposed to market risk on
these long and short securities positions as a result of decreases in market
value of long positions and increases in market value of short positions. Short
positions create a liability to purchase the security in the market at
prevailing prices. Such transactions result in off-balance sheet market risk as
the Company’s ultimate obligation to satisfy the sale of securities sold not yet
purchased may exceed the amount recorded in the consolidated statements of
financial condition. To mitigate the risk of losses, these securities positions
are marked to market daily and are monitored by management to ensure compliance
with limits established by the Company. The associated interest rate risk of
these securities is not deemed material to the Company.
The
Company is also exposed to market risk through its investments in partnerships
and through certain loans to employees collateralized by such investments. In
addition, as part of the Company’s investment banking and asset management
activities, the Company from time to time takes long and short positions in
publicly traded equities and related options and other derivative instruments
and makes private equity investments, all of which expose the Company to market
risk. These activities are subject, as applicable, to risk guidelines and
procedures designed to manage and monitor market risk.
NOTE 18 – REGULATED BROKER-DEALER SUBSIDIARIES
TWP is a
registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule
(the “Net Capital Rule”) under the Securities Exchange Act of 1934 administered
by the SEC and FINRA, which requires the maintenance of minimum net capital. TWP
has elected to use the alternative method to compute net capital as permitted by
the Net Capital Rule, which requires that TWP maintain minimum net capital, as
defined, of $1.0 million. These rules also require TWP to notify and sometimes
obtain approval from the SEC and FINRA for significant withdrawals of capital or
loans to affiliates.
Under the
alternative method, a broker-dealer may not repay subordinated borrowings, pay
cash dividends or make any unsecured advances or loans to its parent or
employees if such payment would result in net capital of less than 5% of
aggregate debit balances or less than 120% of its minimum dollar amount
requirement.
TWPC is a
registered investment dealer in Canada and is subject to the capital
requirements of the Investment Industry Regulatory Organization of
Canada. In addition, TWPIL is a registered U.K. broker-dealer and is
subject to the capital requirements of the Financial Securities Authority.
The
tables below summarize the minimum capital requirements for the Company’s
broker-dealer subsidiaries (
in
thousands
):
|
|
|
December
31, 2008
|
|
|
|
|
Required
Net Capital
|
|
|
Net
Capital
|
|
|
Excess
Net Capital
|
|
|
TWP
|
|
$
|
1,000
|
|
|
$
|
41,867
|
|
|
$
|
40,867
|
|
|
TWPC
|
|
|
203
|
|
|
|
10,822
|
|
|
|
10,619
|
|
|
TWPIL
|
|
|
1,469
|
|
|
|
1,794
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,672
|
|
|
$
|
54,483
|
|
|
$
|
51,811
|
|
|
|
|
December
31, 2007
|
|
|
|
|
Required
Net Capital
|
|
|
Net
Capital
|
|
|
Excess
Net Capital
|
|
|
TWP
|
|
$
|
1,000
|
|
|
$
|
15,793
|
|
|
$
|
14,793
|
|
|
TWPIL
|
|
|
538
|
|
|
|
634
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,538
|
|
|
$
|
16,427
|
|
|
$
|
14,889
|
|
TWP and
TWPC clear customer and proprietary transactions through other broker-dealers on
a fully disclosed basis. The amount of receivable from or payable to
the clearing brokers in the Company’s consolidated statements of financial
condition relates to such transactions. TWP and TWPC have indemnified the
clearing brokers for any losses as a result of customer
nonperformance.
TWP is
not required to calculate a reserve requirement and segregate funds for the
benefit of customers since it clears its securities transactions on a fully
disclosed basis and promptly transmits all customer funds and securities to the
clearing brokers.
Proprietary
balances of TWP, the introducing broker-dealer (“PAIB assets”), held at the
clearing brokers are considered allowable assets for net capital purposes,
pursuant to agreements between TWP and the clearing brokers, which require,
among other things, that the clearing brokers perform computations for PAIB
assets and segregate certain balances on behalf of TWP, if
applicable.
NOTE 19 — SEGMENT INFORMATION
The
following table represents net revenues by geographic area (
in thousands
):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United
States
|
|
$
|
161,321
|
|
|
$
|
289,040
|
|
|
$
|
276,315
|
|
|
Other
countries
|
|
|
28,206
|
|
|
|
9
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
189,527
|
|
|
$
|
289,049
|
|
|
$
|
276,317
|
|
Net
revenues from countries other than the United States during the year ended
December 31, 2008 consists primarily of net revenues from Canada, which
accounted for 75% of net revenues from other countries.
The
following table represents long lived assets by geographic area based on the
physical location of the assets (
in thousands
):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
United
States
|
|
$
|
17,261
|
|
|
$
|
20,908
|
|
|
Other
countries
|
|
|
3,320
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long lived assets
—
net
|
|
$
|
20,581
|
|
|
$
|
21,317
|
|
NOTE 20 – PRO FORMA, AS ADJUSTED (UNAUDITED)
The
Company completed its initial public offering on February 7, 2006 and
converted to a corporation from a limited liability company on this date. This
conversion was the result of a series of reorganization transactions that were
carried out to cause Thomas Weisel Partners Group, Inc. to succeed to the
business of the Thomas Weisel Partners Group LLC (see Note 1 – Organization).
The pro forma, as adjusted amounts presented on the face of the Company’s
consolidated statements of operations are based upon the Company’s historical
consolidated financial statements as adjusted to reflect the reorganization
transactions as though they had taken place on January 1,
2006.
Interest
Expense, Preferred Dividends and Accretion
The pro
forma, as adjusted information included in the consolidated statements of
operations reflects interest expense that would have been incurred and preferred
dividends and accretion that would not have been incurred had the following
taken place on January 1, 2006:
|
|
·
|
the
issuance of common stock in exchange for all of the Class A members’
interests and all of the Class C convertible preference
stock;
|
|
|
·
|
the
issuance of common stock, a $10.0 million principal unsecured, senior
floating-rate note and a $10.0 million principal unsecured, senior
non-interest bearing note in exchange for all of the Class D
convertible preference stock;
|
|
|
·
|
the
issuance of common stock, a $13.0 million principal unsecured, senior
floating-rate note and a warrant, with a fair value of $4.6 million
determined by applying a Black-Scholes option pricing model with an
exercise price of $15 based on the initial public offering price of $15
per share, for the purchase of 486,486 of the Company’s common
shares.
|
On a pro
forma basis, net revenues for the year ended December 31, 2006 were decreased by
the estimated interest expense for the notes payable of $0.1 million. In
addition, net income attributable to common shareholders and to Class A, B and C
shareholders was increased by $1.6 million to reflect the elimination of
preferred dividends and accretion.
Income
Taxes
The pro
forma, as adjusted information included in the consolidated statements of
operations reflects income taxes that would have been incurred had the Company
been converted to a corporation and subjected to Federal and state tax on its
income beginning January 1, 2006. Prior to the reorganization of the
Company from a limited liability company to a corporation, all income and losses
of the Company, except income from its foreign subsidiaries, were reportable by
the individual members of the limited liability company in accordance with
Federal and state income tax regulations.
On a pro
forma basis, the tax benefit for year ended December 31, 2006 was decreased
by the estimated additional tax expense of $1.5 million as if the Company
was a corporation beginning January 1, 2006. The additional tax expense is
attributable to the Company’s applicable tax rate, a combination of Federal,
state and local income tax rates, of 42% applied to the Company’s pro forma net
income for the period beginning January 1, 2006 through February 6,
2006.
NOTE 21 – QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
The
following table presents the Company’s unaudited quarterly results (
in thousands, except per share
data
). These quarterly results were prepared in accordance with GAAP and
reflect all adjustments that are, in the opinion of management, necessary for a
fair statement of the results.
|
|
|
Three
Months Ended
|
|
|
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
|
Fiscal
Year 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
48,924
|
|
|
$
|
60,014
|
|
|
$
|
49,046
|
|
|
$
|
31,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
40,389
|
|
|
|
41,788
|
|
|
|
36,869
|
|
|
|
28,140
|
|
|
Non-compensation
expenses
|
|
|
34,987
|
|
|
|
35,112
|
|
|
|
131,656
|
|
|
|
36,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses excluding interest
|
|
|
75,376
|
|
|
|
76,900
|
|
|
|
168,525
|
|
|
|
64,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before tax
|
|
|
(26,452
|
)
|
|
|
(16,886
|
)
|
|
|
(119,479
|
)
|
|
|
(32,735
|
)
|
|
Provision
for taxes (tax benefit)
|
|
|
(8,647
|
)
|
|
|
(6,759
|
)
|
|
|
(10,300
|
)
|
|
|
33,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(17,805
|
)
|
|
$
|
(10,127
|
)
|
|
$
|
(109,179
|
)
|
|
$
|
(66,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share
|
|
$
|
(0.54
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(3.41
|
)
|
|
$
|
(2.08
|
)
|
|
Diluted
net loss per share
|
|
$
|
(0.54
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(3.41
|
)
|
|
$
|
(2.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
76,689
|
|
|
$
|
71,739
|
|
|
$
|
63,712
|
|
|
$
|
76,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
43,990
|
|
|
|
37,395
|
|
|
|
38,304
|
|
|
|
68,213
|
|
|
Non-compensation
expenses
|
|
|
23,817
|
|
|
|
23,915
|
|
|
|
27,522
|
|
|
|
28,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses excluding interest
|
|
|
67,807
|
|
|
|
61,310
|
|
|
|
65,826
|
|
|
|
96,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before tax
|
|
|
8,882
|
|
|
|
10,429
|
|
|
|
(2,114
|
)
|
|
|
(19,970
|
)
|
|
Provision
for taxes (tax benefit)
|
|
|
3,481
|
|
|
|
3,827
|
|
|
|
(1,314
|
)
|
|
|
(8,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
5,401
|
|
|
$
|
6,602
|
|
|
$
|
(800
|
)
|
|
$
|
(11,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$
|
0.21
|
|
|
$
|
0.25
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.43
|
)
|
|
Diluted
net income (loss) per share
|
|
$
|
0.20
|
|
|
$
|
0.25
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.43
|
)
|
NOTE 22 – SUBSEQUENT EVENT
In
February 2009, a customer of the Company failed to pay
for several equity purchases the Company executed at the
customer’s request. Based on the Company’s agreement with its primary
clearing broker, the Company was required to settle and pay for those
transactions on the customer’s behalf. The Company subsequently sold the
underlying securities and recorded a loss of approximately $5.1
million. The Company believes those losses were incurred as a result of
fraudulent activity on the part of the customer and is vigorously pursuing that
customer for the losses incurred upon liquidating those positions. In
particular, the Company has obtained a temporary restraining order from the
Clark County District Court of the State of Nevada freezing the customer’s
assets and is exploring multiple options for recovering part or all of the
losses.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THOMAS WEISEL PARTNERS GROUP,
INC.
By:
/s/ Thomas W. Weisel
Name: Thomas
W. Weisel
Title: Chairman
and Chief Executive Officer
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas W. Weisel, Shaugn S. Stanley and Mark P. Fisher,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agents full power and
authority to do and perform each and every act in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/
Thomas W. Weisel
|
Director,
Chairman and Chief Executive Officer
(principal
executive officer)
|
|
|
Thomas
W. Weisel
|
|
|
|
|
|
/s/
Shaugn S. Stanley
|
Chief
Financial Officer
(principal
financial officer)
|
|
|
Shaugn
S. Stanley
|
|
|
|
|
|
/s/
Ryan Stroub
|
Chief
Accounting Officer
(principal
accounting officer)
|
|
|
Ryan
Stroub
|
|
|
|
|
|
|
Director
|
|
|
Thomas
I.A. Allen
|
|
|
|
|
|
/s/
Matthew R. Barger
|
Director
|
|
|
Matthew
R. Barger
|
|
|
|
|
|
/s/
Michael W. Brown
|
Director
|
|
|
Michael
W. Brown
|
|
|
|
|
|
/s/
B. Kipling Hagopian
|
Director
|
|
|
B.
Kipling Hagopian
|
|
|
|
|
|
/s/
Alton F. Irby III
|
Director
|
|
|
Alton
F. Irby III
|
|
|
|
|
|
/s/
Timothy A. Koogle
|
Director
|
|
|
Timothy
A. Koogle
|
|
|
|
|
|
/s/
Michael G. McCaffery
|
Director
|
|
|
Michael
G.
McCaffery
|
|
EXHIBIT
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Date
of
|
|
Exhibit
|
|
Filed
|
|
Number
|
|
Exhibit
Description
|
|
Form
|
|
Number
|
|
First
Filing
|
|
Number
|
|
Herewith
|
|
2.1
|
|
Plan
of Reorganization and Merger Agreement, dated as of October 14, 2005,
by and among Thomas Weisel Partners Group LLC, Thomas Weisel Partners
Group, Inc. and TWPG Merger Sub LLC
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
2.1
|
|
|
|
|
2.2
|
|
Agreement
and Plan of Merger between Thomas Weisel Partners Group, Inc. and Thomas
Weisel Partners Group LLC
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
2.2
|
|
|
|
|
2.3
|
|
Arrangement
Agreement dated as of December 31, 2007 by and among Thomas Weisel
Partners Group, Inc., TWP Acquisition Company (Canada), Inc., Westwind
Capital Corporation, and Lionel Conacher, as Shareholders’
Representative
|
|
8-K
|
|
000-51730
|
|
10/1/2007
|
|
|
2.1
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
3.1
|
|
|
|
|
3.2
|
|
By-Laws
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
3.2
|
|
|
|
|
3.3
|
|
Certificate
of Designations, Preferences and Rights of the Special Voting Preferred
Stock of Thomas Weisel Partners Group, Inc.
|
|
8-K
|
|
000-51730
|
|
1/1/2008
|
|
|
3.3
|
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.1
|
|
|
|
|
4.2
|
|
Registration
Rights Agreement
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.2
|
|
|
|
|
4.3
|
|
Warrant
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.3
|
|
|
|
|
10.1
|
|
Partners’
Equity Agreement
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
10.1
|
|
|
|
|
10.2+
|
|
Form
of Employment Agreement
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.2
|
|
|
|
|
10.3
|
|
Form
of Pledge Agreement
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.3
|
|
|
|
|
10.4+
|
|
Equity
Incentive Plan
|
|
S-1/A
|
|
333-129108
|
|
2/1/2006
|
|
|
10.4
|
|
|
|
|
10.5+
|
|
Amended
and Restated Equity Incentive Plan
|
|
10-Q
|
|
000-51730
|
|
8/10/2007
|
|
|
10.1
|
|
|
|
|
10.6+
|
|
Second
Amended and Restated Thomas Weisel Partners Group, Inc. Equity Incentive
Plan
|
|
10-Q
|
|
000-51730
|
|
8/8/2008
|
|
|
10.1
|
|
|
|
|
10.7+
|
|
Third
Amended and Restated Thomas Weisel Partners Group, Inc. Equity Incentive
Plan
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
10.8
|
|
Form
of Indemnification Agreement
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.5
|
|
|
|
|
10.9
|
|
Form
of Tax Indemnification Agreement
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.6
|
|
|
|
|
10.10+
|
|
Thomas
Weisel Partners Group, Inc. Bonus Plan
|
|
S-1/A
|
|
333-129108
|
|
2/1/2006
|
|
|
10.16
|
|
|
|
|
10.11+
|
|
Form
of Restricted Stock Unit Award Agreement
|
|
S-1/A
|
|
333-129108
|
|
2/1/2006
|
|
|
10.17
|
|
|
|
|
10.12+
|
|
Form
of Restricted Stock Award Agreement
|
|
S-1/A
|
|
333-129108
|
|
2/1/2006
|
|
|
10.18
|
|
|
|
|
10.13+
|
|
Form
of Performance Award Agreement
|
|
8-K
|
|
000-51730
|
|
6/11/2008
|
|
|
99.1
|
|
|
|
|
10.14+
|
|
Form
of Equity Incentive Plan Performance Award Agreement (Performance Based,
August 2008)
|
|
8-K
|
|
000-51730
|
|
8/1/2008
|
|
|
99.2
|
|
|
|
|
10.15+
|
|
Form
of Restricted Stock Unit Award Agreement (Time Based, August
2008)
|
|
8-K
|
|
000-51730
|
|
8/1/2008
|
|
|
99.3
|
|
|
|
|
10.16+
|
|
Form
of Restricted Stock Unit Award Agreement
|
|
8-K
|
|
000-51730
|
|
8/1/2008
|
|
|
99.4
|
|
|
|
|
10.17+
|
|
CEO
Employment Agreement
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
10.19
|
|
|
|
|
10.18+
|
|
First
Amendment to CEO Employment Agreement
|
|
10-Q
|
|
000-51730
|
|
11/13/2007
|
|
|
10.4
|
|
|
|
|
10.19+
|
|
Amended
and Restated CEO Employment Agreement
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
10.20+
|
|
President
Employment Agreement
|
|
8-K
|
|
000-51730
|
|
1/1/2008
|
|
|
10.3
|
|
|
|
|
10.21+
|
|
Amended
and Restated President Employment Agreement
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Date
of
|
|
Exhibit
|
|
Filed
|
|
Number
|
|
Exhibit
Description
|
|
Form
|
|
Number
|
|
First
Filing
|
|
Number
|
|
Herewith
|
|
10.22+
|
|
Agreement,
dated as of February 27, 2009, between Thomas Weisel Partners Group, Inc.
and Lionel F. Conacher
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
10.23+
|
|
Form
of Equity Incentive Plan Restricted Stock Unit Award Agreement to Lionel
F. Conacher
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
10.24
|
|
Letter
Agreement, dated as of January 27, 2006, between Thomas Weisel
Partners Group LLC and California Public Employees’ Retirement
System
|
|
S-1/A
|
|
333-129108
|
|
2/1/2006
|
|
|
10.14
|
|
|
|
|
10.25
|
|
Fully
Disclosed Clearing Agreement dated as of August 15, 2005 by and
between National Financial Services LLC and Thomas Weisel Partners
LLC
|
|
10-Q
|
|
000-51730
|
|
5/8/2006
|
|
|
10.12
|
|
|
|
|
10.26
|
|
Amendments
to the Fully Disclosed Clearing Agreement dated as of August 15, 2005 by
and between National Financial Services LLC and Thomas Weisel Partners
LLC
|
|
10-Q
|
|
000-51730
|
|
8/10/2007
|
|
|
10.2
|
|
|
|
|
10.27
|
|
Subscription
Agreement, dated as of January 18, 2000, between Thomas Weisel Partners
Group LLC and California Public Employees’ Retirement System, as
amended
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.13
|
|
|
|
|
10.28
|
|
Alliance
Agreement, dated as of November 14, 2001, among Nomura Securities Co.,
Ltd., Nomura Corporate Advisors Co., Ltd., Nomura Holding America Inc. and
Thomas Weisel Partners Group LLC
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.15
|
|
|
|
|
10.29
|
|
Lease,
dated as of December 7, 1998, between Post-Montgomery Associates and
Thomas Weisel Partners Group LLC, as amended by the First Amendment dated
as of June 11, 1999, the Second Amendment dated as of June 11, 1999, the
Third Amendment dated as of June 30, 1999, the Fourth Amendment dated as
of September 27, 1999, the Fifth Amendment dated as of November 19, 1999,
the Sixth Amendment dated as of June 9, 2000, the Seventh Amendment dated
as of July 31, 2000, the Eighth Amendment dated as of October 1, 2000, the
Ninth Amendment dated as of December 18, 2000, the Tenth Amendment dated
as of July 31, 2003 and the Eleventh Amendment dated as of February 5,
2004
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.7
|
|
|
|
|
10.30
|
|
Lease,
dated as of January 10, 2000, between Teachers Insurance and Annuity
Association of America and Thomas Weisel Partners Group LLC, as amended by
the First Amendment dated as of February 1, 2000, the Second Amendment
dated as of June 21, 2000 and the Third Amendment dated as of October 29,
2003
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.8
|
|
|
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Date
of
|
|
Exhibit
|
|
Filed
|
|
Number
|
|
Exhibit
Description
|
|
Form
|
|
Number
|
|
First
Filing
|
|
Number
|
|
Herewith
|
|
10.31
|
|
Lease,
dated as of June 21, 2000, between Teachers Insurance and Annuity
Association of America and Thomas Weisel Partners Group LLC, as amended by
the First Amendment dated as of April 20, 2001 and the Second Amendment
dated as of October 8, 2003
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.9
|
|
|
|
|
10.32
|
|
Lease,
dated May 5, 1999, between 390 Park Avenue Associates, LLC and Thomas
Weisel Partners Group LLC, as amended by the Letter Agreement dated as of
June 3, 1999, the Lease Amendment dated as of October 1, 19999 and the
Third Lease Amendment dated as of May 3, 2000
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
10.10
|
|
|
|
|
10.33
|
|
Lease,
dated as of June 30, 1999, between Fort Hill Square Phase 2 Associates and
Thomas Weisel Partners Group LLC, as amended by the First Amendment dated
as of October 25, 1999, the Second Amendment dated as of June 12, 2000 and
the Third Amendment dated as of January 8, 2002
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
10.11
|
|
|
|
|
10.34
|
|
Lease,
dated as of November 9, 2006, between Moss Adams LLP and Thomas Weisel
Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/16/2007
|
|
|
10.21
|
|
|
|
|
10.35
|
|
Lease,
dated as of December 31, 2007, between SP4 190 S. LASALLE, L.P. and Thomas
Weisel Partners Group, Inc.
|
|
10-Q
|
|
000-51730
|
|
8/10/2007
|
|
|
10.3
|
|
|
|
|
10.36
|
|
Lease,
dated as of August 1, 2007, between Farallon Capital Management, L.L.C and
Thomas Weisel Partners Group, Inc.
|
|
10-Q
|
|
000-51730
|
|
11/13/2007
|
|
|
10.5
|
|
|
|
|
10.37
|
|
Lease,
dated as of September 1, 2007, between Schweizerische
Rückversicherungs-Gesellschaft, and Thomas Weisel Partners International
Limited
|
|
10-Q
|
|
000-51730
|
|
11/13/2007
|
|
|
10.6
|
|
|
|
|
10.38
|
|
Sublease,
dated as of July 30, 2004, between Dewey Ballantine LLP and Thomas Weisel
Partners Group LLC
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
10.12
|
|
|
|
|
10.39
|
|
Sublease,
dated as of November 30, 2006, between Arastra, Inc. and Thomas Weisel
Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/16/2007
|
|
|
10.23
|
|
|
|
|
10.40
|
|
Sublease,
dated as of November 30, 2006, between Cedar Associates LLC and Thomas
Weisel Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/16/2007
|
|
|
10.24
|
|
|
|
|
10.41
|
|
Sublease,
dated as of November 27, 2006, between The Alexander Group, Inc. and
Thomas Weisel Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/16/2007
|
|
|
10.25
|
|
|
|
|
10.42
|
|
Sublease,
dated as of November 30, 2006, between Gyrographic Communications Inc. and
Thomas Weisel Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/16/2007
|
|
|
10.26
|
|
|
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Date
of
|
|
Exhibit
|
|
Filed
|
|
Number
|
|
Exhibit
Description
|
|
Form
|
|
Number
|
|
First
Filing
|
|
Number
|
|
Herewith
|
|
10.43
|
|
License
to Assign Underlease, dated as of October 15, 2007, between Oppenheim
Immobilien-Kapitalanlagegesellschaft mbH to Fox Williams LLP and Bache
Equities Limited and Thomas Weisel Partners International Limited and
Thomas Weisel Partners Group, Inc.
|
|
10-K
|
|
000-51730
|
|
3/17/2008
|
|
|
10.33
|
|
|
|
|
10.44
|
|
Leave
and License Agreement, dated as of December 2, 2005, between Tivoli
Investments & Trading Company Private Limited and Thomas Weisel
International Private Limited
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.25
|
|
|
|
|
10.45
|
|
Leave
and License Agreement, dated as of December 2, 2005, between Fitech
Equipments (India) Private Limited and Thomas Weisel International Private
Limited
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.26
|
|
|
|
|
10.46
|
|
Loan
and Security Agreement among Silicon Valley Bank, Thomas Weisel Capital
Management LLC, Thomas Weisel Venture Partners LLC, Thomas Weisel
Healthcare Venture Partners LLC and Tailwind Capital Partners LLC, dated
as of June 30, 2004
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.20
|
|
|
|
|
10.47
|
|
Unconditional
Secured Guaranty by Thomas Weisel Partners Group LLC to Silicon Valley
Bank, dated June 15, 2004
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.21
|
|
|
|
|
10.48
|
|
Master
Security Agreement between General Electric Capital Corporation and Thomas
Weisel Partners Group LLC, dated as of December 31, 2003, as amended by
the Amendment dated as of November 30, 2005, the Financial Covenants
Addendum No. 1 to Master Security Agreement, dated as of December 31,
2003, and the Financial Covenants Addendum No. 2 to Master Security
Agreement, dated as of November 30, 2005
|
|
S-1/A
|
|
333-129108
|
|
1/17/2006
|
|
|
10.22
|
|
|
|
|
10.49
|
|
Westwind
Capital Corporation Shareholders’ Equity Agreement dated as of December
31, 2007 by and among Thomas Weisel Partners Group, Inc. and Certain
Former Shareholders of Westwind Capital Corporation
|
|
8-K
|
|
000-51730
|
|
1/1/2008
|
|
|
10.1
|
|
|
|
|
10.50
|
|
Form
of Pledge Agreement dated as of December 31, 2007 by and among Thomas
Weisel Partners Group, Inc., TWP Holdings Company (Canada), ULC, TWPG
Acquisition Company (Canada), Inc., and The Individual Named
Herein
|
|
8-K
|
|
000-51730
|
|
1/1/2008
|
|
|
10.2
|
|
|
|
|
21.1
|
|
List
of Subsidiaries of the Registrant
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
23.1
|
|
Consent
of Deloitte & Touche LLP
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
24.1*
|
|
Power
of Attorney
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)
Certification of Chief Executive Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
31.2
|
|
Rule 13a-14(a)
Certification of Chief Financial Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
32.1
|
|
Section 1350
Certification of Chief Executive Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
|
32.2
|
|
Section 1350
Certification of Chief Financial Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
______________________
+ Indicates
a management contract or a compensatory arrangement.
* Included
on signature page of this filing.
Thomas Weisel (NASDAQ:TWPG)
Historical Stock Chart
From May 2024 to Jun 2024
Thomas Weisel (NASDAQ:TWPG)
Historical Stock Chart
From Jun 2023 to Jun 2024
