Oppenheimer Holdings Inc. Annual Report 2009

513175F1_Oppen_x3-09PP001_upfront_v28.indd 1 3/18/10 2:42:42 PM Company Overview

Oppenheimer, through its principal subsidiaries, Oppenheimer & Co. Inc. (a U.S. broker-dealer) and Oppenheimer Asset Management Inc., offers a wide range of investment banking, securities, investment management and wealth management services from 94 ofﬁ ces in 26 states and through local broker-dealers in ﬁ ve foreign jurisdictions. OPY Credit Corp. offers syndication as well as trading of issued corporate loans. Oppenheimer employs over 3,600 people. Oppenheimer offers trust and estate services through Oppenheimer Trust Company. Evanston Financial Corporation is engaged in mortgage brokerage and servicing. In addition, through its subsidiary, Freedom Investments, Inc. and the BUYandHOLD division of Freedom, Oppenheimer offers online discount brokerage and dollar-based investing services.

513175F1_Oppen_x3-09PP001_upfront_v28.indd 2 3/18/10 2:42:42 PM Financial Highlights - Annual Report 2009 (In thousands of U.S. dollars except per share amounts)

2009 2008 2007 2006 2005

Gross Revenue $991,433 $920,070 $914,397 $800,823 $679,746 Proﬁ t (loss) before income taxes $34,813 ($36,043) $127,394 $80,450 $41,689 Net proﬁ t (loss) $19,487 ($20,770) $75,367 $44,577 $22,916 Basic earnings (loss) per share $1.49 ($1.57) $5.70 $3.50 $1.76 Total assets $2,203,883 $1,526,559 $2,138,241 $2,160,090 $2,184,467 Shareholders’ equity $451,447 $425,726 $443,980 $359,041 $308,123 Book value per share $34.15 $32.75 $33.22 $27.76 $24.46 Total shares outstanding 13,218 12,999 13,366 12,934 12,596 Number of employees 3,616 3,399 2,928 2,993 2,969

Gross Revenue Net Profit Shareholders’ Equity Book Value Per Share (US$ thousands) (US$ thousands) (US$ thousands) (US$)

1,000,000 80,000 500,000 35 70,000 30 800,000 60,000 400,000 50,000 25 40,000 600,000 300,000 30,000 20 20,000 400,000 200,000 15 10,000 0 10 200,000 -10,000 100,000 5 -20,000 0 -30,000 0 0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09

Assets Under Client Assets Financial Advisors* Branch Offices Management (US$ billions) (US$ billions) 20 80 2000 100 90 70 80 15 60 1500 70 50 60 10 40 1000 50 40 30 30 5 20 500 20 10 10 0 0 0 0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09 * Prior to 2006, we disclosed registered personnel, not financial advisors in the chart

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:1 3/18/10 2:42:42 PM Dear Fellow Shareholders All of us at Oppenheimer are proud of our performance in 2009. In the face of intense economic pressure, the Company remained on a profi table course, bolstered its fi nancial position and increased its market presence. We maintained a healthy balance sheet, profi tability and unlike many others were able to continue paying our dividend.

In the year just ended, we saw stock market aver- While we had a loss in our fi rst quarter that was ages drop 25.4% leading up to a dramatic turn largely associated with remaining 2008 acqui- that began off the bottom created on March 6th. sition expenses and low levels of activity due From there the averages gained 59.3% to end to severely affected markets, the fi rm turned the year with the S&P at 1115, up 23.5% for decidedly profi table for the remainder of the the year. Along with the meltdown in stocks, we year. We repaid $15.2 million on our senior saw markets for fi xed income securities practi- secured credit note, bringing the balance to cally evaporate. During March, securities of every $32.5 million at year-end. rating experienced the widest spreads off of U.S. Treasuries in history. Despite the Federal Reserve During this period, we have been in a unique maintaining rates at record lows and massive position to attract experienced professionals intervention by the government, other markets across the entire spectrum of our business: took months to respond. Markets fi nally regained some semblance of confi dence and as the spring • Our firm hired 240 experienced Financial turned to summer, markets began to recover. Advisors, a record. We also opened eleven branch offi ces including eight in the southeast, During 2009, the Company produced revenues an offi ce in Denver, CO. as well as an offi ce in of $991.4 million, an increase of 8 percent from Leawood, KS. $920.1 million in the prior year. Our net profi t was $19.5 million, compared to a loss of $20.8 million • Client assets in products that generate fee in 2008. The net profi t per share was $1.49 income ended the year at $16.4 billion, up compared to a loss of $1.57 per share in the 31 percent from 2008. We also opened over prior year. At December 31, 2009, the Company 4200 new accounts with significant new had a total of 13,217,681 shares outstanding. assets. Client assets under administration reached $66 billion, up 25 percent through In this volatile period, Oppenheimer the addition of new clients and a recovery in was challenged by the external environ- the markets. ment and the lowest interest rates in a generation which have led to money fund • Oppenheimer Trust Company’s account base fee waivers, low returns from FDIC deposits continued to grow, with the value of assets held and almost eliminated our interest profi ts, our reaching a new record of $3.6 billion at year- biggest profit contributor from our private end, for an increase of 260%. client business. In response, we addressed our worldwide costs in order to better position the • In Capital Markets, we made great strides in Company going forward. We eliminated support fi xed income with major additions to our staff- payments to CIBC, reduced expenditures and ing in London, New York, Chicago and San sustained substantially lower guaranteed com- Francisco as we added expertise in High Grade pensation to employees as well as reduced Corporate Debt, Mortgage Backed Securities, payments to support deferred compensation Loan Trading and undertook an effort to build for employees who joined in 2008. out our ability to trade U.S. Government Debt.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:2 3/18/10 2:42:42 PM • We also expanded our coverage and trading to try to fi nd a comprehensive solution for our We continue to undertake efforts to attract, for institutions in municipal debt both taxable and clients to fi nd liquidity from their ARS holdings, develop and retain top talent. With regard non-taxable. During the year we produced record such a solution continues to elude us. We have to compensation, we will continue to take a revenues from municipal trading and sales. however reached agreement with state regula- prudent and cautious approach, designed to tors, whereby we will begin a process that will reward individuals for their contribution and • In equities, we added trading expertise in the ultimately provide liquidity to clients. It has the tie compensation to performance over both trading of options and initiated an event-trading added benefi t of resolving various investigations the short and long term. We are mindful of desk. We remained active in adding qualifi ed and litigations that were both expensive and the need to reduce compensation expense as and experienced research analysts to our staff distracting to our Company. a percentage of revenue, closer to historical along with a well renowned strategist. levels. At present, it appears that we will not On May 11, 2009, Oppenheimer Holdings Inc. be affected by employee compensation rule- • Although the revenues for investment became a U.S. Company, after domesticating to making. We believe that employees’ rewards banking were up over 10%, the results were Delaware. The move was approved by our share- must be related to individual efforts and returns lower than expected largely due to lower activity holders and our Company is now located in the delivered to shareholders. in the early months of the year. As the capital country where over 90% of our revenues are markets began to recover, our participations in sourced. While our motivation for this move ema- Our strategy is well defi ned and focused on equity underwritings increased 88% year over nated from an effort to resolve the ARS problem, delivering the best possible outcome for our year. However, this was offset by a decrease of we believe that this move and its cost ($2 million clients, our shareholders and our dedicated 24% in merger and acquisition and advisory in taxes paid) will serve the Company well. employees. This strategy comes from consis- fees, as mid-cap companies found few oppor- tency, knowing who we are, what we do and tunities available to them. We added banking The fi nancial markets remain a powerful engine how we do it, day in and day out. expertise in healthcare, aeronautics and defense, to drive economic recovery. Individuals, our as well as a strong team in telecommunications. largest market, can and will play a critical role. Oppenheimer has a very solid balance sheet In addition our restructuring group made signifi - We have seen clear indications that our clients and we manage our business prudently. cant progress assisting companies in bankruptcy are increasingly engaged in fi nding a means Oppenheimer has always had a strong culture, proceedings or overhauling their debt structure. to successful wealth-building; and are once rooted in our pride in what we do every day again moving somewhat further from shore in and a fi rm understanding of the enormous The most signifi cant problem for Oppenheimer their desire for improved returns in a period of responsibility that we owe to our clients. We continued to be in the area of auction rate extraordinarily low interest rates. have many challenges ahead, but I like how securities (“ARS”). This firm and the entire we are positioned. I’d like to thank you for securities industry participated for decades in A credit crisis, the unprecedented recession and your continued support and the faith you have the auction rate market. The failure of the ARS record high unemployment led to the near col- shown in this Company. market in February 2008 wasn’t anticipated as lapse of the markets. Intervention by governments it was caused by the extraordinary market dis- and central banks around the world rescued location of this period. While the market for fi nancial institutions, reduced the risk of sys- these securities remained closed, we did see temic collapse and has reestablished confi dence. redemption of about 50% of the ARS out- Activities by fi nancial institutions will be subject, standing. This provided some relief to holders going forward, to tighter regulatory supervision, Albert G. Lowenthal but not nearly enough. While we have worked less leverage, greater transparency and a more Chairman of the Board tirelessly with regulators and fi nancing sources level playing fi eld among competitors. Oppenheimer Holdings Inc.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:3 3/18/10 2:42:44 PM Private Client Services Disciplined Approach, Customized Solutions

Despite the turbulent markets that resulted from the ﬁ nancial crisis, our philosophy of careful planning and diversification allowed our clients to weather this period. Despite the markets’ unprecedented volatility, Oppenheimer’s Financial Advisors helped their clients by providing the support and careful attention that are hallmarks of Oppenheimer’s client service.

In wealth management, we provide investments to deliver the best opportunity customized solutions for protecting, opti- to meet those goals. mizing and growing clients’ wealth. We analyze our clients’ personal fi nancial situ- Perhaps our greatest challenge in 2009 ations and prepare investment strategies was to maintain the confidence of our based on individual risk profi les of: life Financial Advisors and their clients alike, cycle positioning, liquid and illiquid assets as the dramatic volatility of securities and the owned, present and future liabilities and economic environment, driven at times by stated goals and intentions. On the basis of powerful market psychology and negative these profi les, we align our recommended headlines caused many clients to lose faith

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:4 3/18/10 2:42:44 PM As Oppenheimer continued its disciplined approach, we attracted approximately 240 experienced and dedicated Financial Advisors to the ﬁ rm in 2009. These Financial Advisors brought with them a track record of solid industry experience.

in their financial institutions’ stewardship. billion at year-end, while the Trust Company’s Oppenheimer’s Executive Services Group Oppenheimer’s conservative finances and number of clients serviced increased 90%. offers assistance to corporate executives and consistent operating philosophy allowed our The Trust Company continues its efforts to high net worth individuals in managing their Financial Advisors to focus on guiding clients. fi ll the need for trust services. These services equity holdings. Sales of restricted and control continue to prove valuable strategic com- stock doubled during the year. Rule 10b5-1 Oppenheimer’s culture, personalized plements to Financial Advisors in servicing trading plans remain a popular method for service and product platform continued fi duciary relationships. allowing corporate executives to liquidate to help clients. We expanded our fi nancial- employer stock received from compensation planning services with the Oppenheimer Oppenheimer Life Agency, Ltd. offers our plans and permits them to diversify their invest- Personal Financial Plan, which allows our clients sophisticated planning techniques that ments. Equity collars, variable prepaid forward Financial Advisors to conduct an in-depth provide them with innovative solutions tai- sales and exchange funds are strategies that we assessment of a client’s financial picture lored to meet their long-term fi nancial goals. foresee being attractive to sophisticated execu- as preparation for positioning that client’s In 2009, our mission was to focus intensively tives in 2010 as markets continue to recover. assets strategically for the future. on guaranteeing lifetime retirement income by emphasizing planning solutions such as Retirement Services found 2009 to be As Oppenheimer continued its disciplined annuities. This tactical investment provided a a strong year for growth in both retirement approach, we attracted approximately 240 degree of reassurance to clients about their assets and new accounts. Custodial account experienced and d edicated Financial Advisors retirement goals at a time when they saw assets ended the year up 39%, while the to the fi rm in 2009. These Financial Advisors abrupt declines in their retirement assets. number of custodial accounts increased by over brought with them a track record of solid indus- 10%. Our thriving 401(k) advisory group ended try experience. Their move to Oppenheimer Our consultative approach, coordinated through the year with over $2.5 billion in client assets, was motivated not only by our open architec- our strategic partners, enabled our Financial adding over $375 million from new clients in ture platform, fl exibility in approach and access Advisors to work with their clients on estab- the fourth quarter alone. Total client retirement to decision makers, but also by the working lishing and designing appropriate retirement assets ended the year in excess of $15 billion. relationships that Oppenheimer fosters with planning goals and to assist them in preparing our Capital Markets professionals to deliver for the uncertainties of life through a well- In 2010, we will continue to focus on the even greater client value. thought-out insurance plan as an integral part 401(k) advisory and IRA Rollover businesses. of their investment strategies. Life insurance Our unbiased consultative approach should Our Financial Advisors’ frequent contacts with initiatives play a critical role in providing wealth produce signifi cant growth in institutional clients worked toward reassuring clients that transfer strategies and solutions for estate and 401(k) and other defi ned contribution plan we had tactical and strategic solutions in place legacy planning needs. clients. We expect to see regulatory action and that our message that investment advice, from the Department of Labor this year including professional guidance on asset allo- In an environment of ongoing debate over affecting qualified retirement plans, and cation and diversifi cation, remained a sound health care reform, Oppenheimer stood out believe that this represents additional oppor- approach to their investments both for 2009 as the only fi nancial service fi rm to offer our tunities for new clients. We also anticipate and for the future. clients innovative health care solutions. In growth in the Roth IRA product area, and addition, Bank and Corporate Owned Life have developed a wide variety of Roth IRA Oppenheimer Trust Company showed sig- Insurance, has continued to keep us ahead materials and products to address the 2010 nifi cant business growth in 2009. Client trust of the competition by offering a fully com- Roth conversion opportunity that is now assets rose 260% to approximately $3.6 prehensive wealth management platform. available to individual investors.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:5 3/18/10 4:51:43 PM Asset Management Investing for the Future

Oppenheimer Asset Management (OAM) continues to show solid performance, supporting the demand for investment advice and long-term investment strategies. As of December 31, 2009, OAM’s assets under management increased to approximately $16.2 billion from $12.5 billion in 2008. We saw a total gain in client accounts, as well as signiﬁ cant repositioning across investment programs, as clients sought new allocations to react to market volatility and be positioned for market recovery.

Client accounts can benefit from OAM’s allocation which allows for customized broad range of professional management client portfolios. platforms and its holistic approach to portfolio construction. Through OAM, clients SALES AND MARKETING have diverse investment choices avail- The Sales and Marketing Team con- able to them. Underlying these advisory sults on the broad range of traditional services and investment opportunities are and alternative investment options avail- OAM’s commitment to portfolio manager able through OAM. The Team focuses on research and due diligence, review of helping to attract new clients and respond client risk tolerance and appropriate asset to clients needs through meetings and

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:6 3/18/10 2:42:46 PM All of the Hedge Funds on the AIG platform ended the year strongly, with most funds reaching or surpassing their respective high-water marks.

Quarterly Reviews. The team also assists in FINANCIAL PLANNING OPPENHEIMER INVESTMENT ADVISERS client prospecting, Financial Advisor recruit- Oppenheimer believes that Financial Oppenheimer Investment Advisers’ (OIA) ment and individualized new Financial Planning services can provide a cornerstone fi xed income strategies continued to attract Advisor training. for offering investment advice and direc- client assets. As of year end, assets exceeded tion. Financial Planning capabilities continue $1 billion. The conservative nature of OIA’s CONSULTING GROUP to be a focus for the fi rm, illustrated by Taxable and Tax Exempt Fixed Income strate- The Consulting Group’s Separately Managed investments in personnel, technology and gies has provided clients with much-needed Account (SMA) programs — representing service enhancements. We anticipate these income and return along with holdings trans- OAM’s largest fee-based advisory programs — Financial Planning resources will permit our parency. Municipal bond market strength has ended the year with assets in excess of Financial Advisors to provide greater value been a positive in client Tax Exempt accounts $7.4 billion. Consulting Group asset allo- and insights to clients. as clients continued to reduce portfolio risk cation and manager research remain the exposure. Although there may be a period driving forces behind its programs and ALTERNATIVE INVESTMENTS GROUP of credit tightening ahead, OIA portfolio product offerings. The group made key For 2009, the Alternative Investments Group managers believe that appropriate portfolio additions to investment and research (AIG) had a successful year continuing to add construction and Fixed Income allocation will staff and generated new thinking around to client portfolio performance. All of the remain an important component of capital program development and Consulting Hedge Funds on the AIG platform ended the preservation. Group investment managers. year strongly, with most funds reaching or surpassing their respective high-water marks. DISCRETIONARY PORTFOLIO MANAGEMENT Unifi ed Managed Accounts (UMA). The The AIG Private Equity funds also performed Our OMEGA program of discretionary portfo- fi rm’s UMA accounts offer a variety of pro- well, ranking within the top quartile of their lio management programs grew signifi cantly fessionally managed investments combined respective fund benchmarks. Looking ahead, in 2009, the benefi ciary of client prefer- in a single account. Growth helped the the group has increased its staff to aid in ence for more fl exible programs, particularly program exceed $500 million in assets as of sourcing new investment ideas and due dili- those utilizing Exchange Traded Funds. The year-end. UMA key features include access gence efforts. addition of experienced Portfolio Managers to a growing range of investments, auto- and Advisors to Oppenheimer’s discretion- matic rebalancing, pricing fl exibility and THE PRIVATE EQUITY AND SPECIAL ary programs increased the number of client the ability to calibrate portfolio liquidity. INVESTMENTS GROUP relationships substantially. These clients are The group continued to provide high-quality attracted to Oppenheimer’s history of invest- Portfolio Advisory Service (PAS). The investment opportunities. As an example, ment advisory expertise. Portfolio Advisory Service program, a Mercury Energy (formerly Aquus Energy) fee-based mutual fund advisory program has become the leading solar energy inte- OPPENHEIMER INVESTMENT MANAGEMENT– offers a flexible investment that enables grator in the Northeast. Turmoil in the real INSTITUTIONAL FIXED INCOME clients to choose among multiple asset estate markets challenged our Meritage Oppenheimer Investment Management allocation solutions. PAS continues to offer Commercial Real Estate Funds, but conser- (OIM) continued to increase both the number the flexibility, liquidity and automated vative financing has positioned them for of accounts and assets under management, features that clients seek. Assets for the recovery. We will place additional emphasis which now total nearly $745 million. OIM program were at $2.7 billion as of year- on fi nding compelling investment oppor- continued to expand institutional relation- end and saw the addition of almost 3,500 tunities resulting from the current fi nancial ships and advance business development new accounts. markets’ dislocation. opportunities.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:7 3/18/10 4:37:08 PM Capital Markets Building for the Future

The last two years have delivered a multitude of dramatic changes in the global fi nancial markets and to the landscape of Wall Street. During this period, we have embarked upon a signifi cant build out of our Capital Markets businesses, taking advantage of the opportunity to add talented, experienced professionals across product categories and around the world. We have transformed our business into a signifi cant Investment Banking and Institutional Equity and Fixed Income presence.

Oppenheimer is uniquely positioned to serve and depth in the marketplace to compete effec- the needs of the increasingly important mid-tier tively against a broad array of ﬁ rms competing client base. Our equity research focus, institu- in the mid-tier market. We also aim to capture tional and retail sales distribution, trading and opportunities to increase client coverage inter- capital markets professionals deliver product, nationally through our strengthened businesses. market and industry expertise that is coupled Our European business is headquartered in with a high level of service, providing important London, where we cover the United Kingdom value to these clients. With over 600 dedicated and continental Europe. Our Asian business is professionals in Equities, Fixed Income, and headquartered in Hong Kong, where we cover Investment Banking, we now have the breadth Singapore, India and other Asian countries.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:8 3/18/10 2:42:48 PM Oppenheimer was recognized as the #13 ﬁ rm in Institutional Investors’ All-America Research team and was the 7th-ranked ﬁ rm in Wall Street Journal’s Best on the Street.

Equity Capital Markets | Building on a Strong Foundation

Oppenheimer’s Equity Research Depart- which included the decline in the number of As the markets continue to emphasize elec- ment was able to take advantage of market clients driven by fewer hedge funds, as well tronic trading, we will increase our emphasis dislocations resulting in several key addi- as reduced assets under management at tra- on client fl ow-based business in cash equi- tions to the department and augmenting our ditional accounts. In planning for renewed ties, options execution, and instantaneous research universe to be the most comprehen- growth, we substantially increased our sales response to electronic orders and execu- sive among its peers. By year end, our equity and trading coverage in London. This enabled tion. As we continue to invest in this aspect research group consisted of 37 research the fi rm to cover clients throughout Europe of our business, we expect to participate in analysts covering over 750 companies in six with our equity product. In another personnel the expected rapid growth in trading volume, major sectors: Healthcare, Technology, Media initiative, the Equity Group added a new, client- albeit at lower revenue yield per share. We & Telecom, Consumer & Business Services, focused Event Driven Risk Arbitrage sales and also anticipate that most of our clients will Energy, Financial Services and Industrial trading team based in New York. continue to support and expect that fi rms like Growth. In addition, we more than doubled ours will provide “high touch” coverage with our China research, both in terms of ana- The revenues for our options group grew by experienced analysts, knowledgeable sales lysts and coverage, solidifying our presence more than 36% as clients continued to increase support and trading. in that market. We were joined by a Chief their use of equity derivatives to hedge port- Investment Strategist, Brian Belski, round- folio risk. After the most challenging year in PRIVATE TRANSACTIONS ing out our Strategy, Technical, and Special a decade for the convertible bond business, Oppenheimer continues to be uniquely quali- Situations effort. 2009 saw a sharp improvement in both fi ed to take smaller public companies as well secondary trading and primary issuance. as private companies to select institutional Our analysts continue to receive accolades. This medium of investment will continue to investors and raise late round fi nancing as We were recognized as the #13 firm in attract a dedicated following among institu- well as equity to support late stage research Institutional Investors’ All-America Research tional investors. and development. In the current economic team and were the 7th-ranked fi rm in Wall environment, we have also found interest Street Journal’s Best on the Street. Most Institutional equity investors continue to value among sophisticated investors in private importantly, our clients continue to value not just Oppenheimer’s proprietary equity transactions for the purchase of “failed” or our in-depth, differentiated, and thought- research product, but also our access to cor- “failing” fi nancial institutions that are looking ful research. Though the environment was porate managements. The fi rm hosted 15 to recapitalize with the help of federal assis- challenged during 2009 by the severe reces- investor conferences during 2009 across our tance and private funding. sionary landscape, diffi cult credit markets, research universe. These conferences continue hedge fund de-leveraging and a weakened to offer corporate managements and investors equity capital market, our clients consis- a unique forum in which they can exchange tently sought out our equity ideas as they ideas and receive the highest return on their searched for investments with the poten- time and resources. In addition, we hosted tial to enhance portfolio performance in a 275 hosted itineraries for the managements of recovering environment. our research followed companies to meet with institutional investors and brief these sophisti- Equity Sales and Trading experienced a cated investors on their businesses and their modest decline in agency trading year over year prospects. Institutional clients fi nd this service due to structural changes among institutional to be among the most valuable additions to investors. Several factors drove these changes their investment process.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:9 3/18/10 4:26:52 PM Investment Banking | Ideas and Strategies to Strengthen Client Businesses

The capital markets remained challenged in Cree Inc. Participating in the rapid growth Services, Shipping, Technology, Telecom and the fi rst half of 2009, but showed signifi - of China’s economy, Oppenheimer managed Software and Media. During 2009, we added cant and continued improvement in both the 12 of 42 Chinese follow-on transactions and 12 senior professionals to compliment our third and fourth quarters. During this time, IPOs, raising $1.6 billion for Chinese compa- existing practice groups. The restructuring our banking professionals remained atten- nies listing in the U.S. team that we added last year has gained solid tive to clients and continued to present ideas traction, winning a signifi cant number of and strategies intended to strengthen and The fi rm acted as a strategic fi nancial advisor mandates. As the markets in which we partic- grow clients’ businesses both with respect in 18 mergers and acquisitions, plus other ipate continue to return to more typical levels to capital structure to support growth in a advisory engagements with diffi cult economic climate as well as advisory a transaction value of $1.4 services for restructuring to take advantage billion in 2009. Merger and of opportunities to grow as well as to dispose Acquisition activity was quiet of businesses that may not be strategic in for the first three quarters coming years. but began to pick up signifi - cantly in the fourth quarter. The During the year, Oppenheimer completed 59 fi rm received mandates for a public offerings and seven private placements, number of strategic advisory raising approximately $17.5 billion in capital. and restructuring assignments, Oppenheimer acted as sole or joint book- including the $197 million Ideation Acquisition of activity, our M&A and Financial Sponsors runner for 17 public offerings and as lead Corp. purchase of SearchMedia International Calling Groups will continue to provide the agent on fi ve private placements, including Limited and the sale of Amcom Software Inc. types of sound ideas to our clients that we the $139 million IPO for Kraton Performance to Norwest Equity Partners and Split Rock have traditionally delivered in collaboration Polymers Inc.; the $101 million IPO for Partners. We expect this positive momen- with our industry bankers. Duoyuan Global Water Inc (the top-perform- tum to continue into 2010. ing IPO of 2009), and TeleCommunication We will continue to grow our middle-mar- Systems Inc.’s $103.5 million convertible We are focused on our role as a leading ket investment banking platform as one notes offering. In addition, the firm co- middle-market investment bank with dedi- of the few fi rms with a full service capital managed the $444 million follow-on equity cated industry practice groups in Consumer markets offering that allows for the ability offering for Emergency Medical Services & Business Services, Energy, Financial to deliver strategic advice and capital to and the $449 million follow-on offering for Institutions, Healthcare, Industrial Growth & growing companies.

$724,000,000 $138,971,000 Undisclosed $444,452,000 $103,500,000 $197,000,000 $449,075,000

Acquisition of Acquisition of Sale to Norwest Initial Public Offering Equity Partners and Follow-on Offering Cvt notes Offering SearchMedia Follow-on Offering NuVox, Inc. Joint Bookrunner Split Rock Partners Co-Manager Joint Bookrunner International Limited Co-Manager Exclusive Financial Exclusive Financial Financial Advisor Advisor Advisor February 2010 December 2009 December 2009 November 2009 November 2009 October 2009 September 2009

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:10 3/18/10 3:34:50 PM During the year, Oppenheimer completed 59 public offerings and seven private placements, raising approximately $17.5 billion in capital.

Debt Capital Markets | Taking Advantage of Opportunities

HIGH YIELD AND LEVERAGED LOAN of 2009, market activity in both the leveraged Taxable Fixed Income activities had a SALES AND TRADING loan and high yield markets saw record issu- transformational year in 2009. We added The unprecedented sell-off in the capital markets ance in high yield securities, driven largely by business lines, expanded trading and insti- in the fi rst quarter of 2009, curtailed new lev- loan and bond refi nancing activity. tutional sales staff, restructured trading eraged finance activity and offered limited logistics and implemented new risk controls. liquidity for investors in leveraged loans and Despite the challenges throughout 2009, Our institutional trading and sales activities high yield investments. Oppenheimer stepped Oppenheimer participated as an underwriter were major revenue and profi t drivers for into this vacuum by making timely investments and as a co-manager on two offerings: a Oppenheimer.

During the year, we took advantage of mergers, restructurings and the demise of competitors. We hired top-tier institutional traders and salespersons from many of the largest Wall Street fi rms. These highly trained and seasoned professionals were immediately accretive, establishing our institutional activities as an attractive platform for others to join. We will continue to build on this success. in experienced professionals, allowing us to $275 million offering for ViaSat, Inc. and a be among the fi rst to offer our investor clients $425 million offering for GCI, Inc. Also in During the year, we added business lines, needed perspective and liquidity for them to 2009 we acted as Sole Arranger for a $32 including our Government Trading and re-align their portfolios to participate in recov- million add-on term loan for Air Medical Finance Desk, an Institutional Mortgage- ery. The volatility in the markets throughout the Group Holdings Assignments. Our responsi- Backed Trading Desk, a London Trading Desk year and widening spreads permitted the Loan bilities included advising on loan amendments and an Asia desk in Hong Kong. We also Sales and Trading and High Yield desks to prof- and modifi cations; recapitalizations ahead of signifi cantly expanded our Asset-Backed itably trade approximately $4.3 billion of bank impending debt maturities; debt repurchases and Institutional High Grade Trading Desks. loans with over 250 counterparties. and tender offers for our client’s loans and We separated our institutional trading debt securities; and clients’ accumulation of from our private client trading to provide After the fi nancial markets bottomed in March distressed loans and debt securities of non- more specialized service to both of these 2009, secondary prices in both leveraged affi liated companies. constituencies. We have now established loans and high yield began to recover. New institutional trading desks to service clients issue activity showed signs of life, particularly As the group looks forward to 2010, most around the world and around the clock. in the high yield market. Opportunities to expect the improvements that began in the underwrite loans and debt securities on behalf leveraged fi nance market in the latter half of As part of our evolution, we grew the key of the fi rm’s corporate and Financial Sponsor 2009 to continue. The pace of new issuance in component of risk management, as well middle market client base remained quiet the leveraged fi nance markets will continue to as improving our risk monitoring systems but the ability to maintain secondary markets increase. Demand for new leveraged fi nance and controls. We automated our trade proved invaluable and clients were pleased debt issuance on behalf of our middle market processing systems to provide operational with our ability to provide much-needed clients, both loans and other debt securities, effi ciencies and real-time-trade monitoring liquidity. During the third and fourth quarters will expand with the recovery of the economy. and risk assessment.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:11 3/18/10 2:42:51 PM Public Finance | Responding to the Call of Challenging Times

The Oppenheimer Municipal Capital to the new $400 million Kauffman Center SIGNIFICANT FINANCINGS BY Markets Group has been actively respond- for the Performing Arts. The CAB struc- THE MUNICIPAL CAPITAL MARKETS ing to the changed environment for our ture allowed the City to fi nance the project GROUP IN 2009 public sector clients and our municipal while pledging tax proceeds that won’t be $57,375,000.00 bond investors. As states, cities, counties available for six years. Across the river in Massachusetts Health and Education Facilities Authority and school districts addressed the need Kansas City, Kansas, Oppenheimer served Revenue Bonds for new capital and replacement capital as Co-Manager on a $57 million Revenue (Lesley University Issue) at lower interest rates, Oppenheimer’s Bond Issue for that City’s Board of Public $50,013,205.30 Public Finance Investment Bankers were Utilities, the proceeds of which were used Unifi ed School District No. 453 ready with solutions for a much-altered to upgrade the City’s electric utility system. Leavenworth County, Kansas market. Whether providing a taxable Anoka County, Minnesota called on us to General Obligation Improvement and Refunding Bonds alternative through the underwriting of underwrite a $20 million bond issue to Build America Bonds or assisting bond fund the County’s Post Employment Benefi t $57,575,000.00 Unifi ed Government of Wyandotte County/ issuers convert variable rate debt to fixed obligations. In the Health Care sector, Kansas City, Kansas rate debt, our bankers provide our clients Oppenheimer assisted Lesley University Board of Public Utilities with a range of alternatives suited to their by serving as Senior Manager for the Utility System Improvement Revenue Bonds specific needs. University’s $57 million Hospital Revenue $31,430,000.00 Bond issue. The Industrial Development Authority of The County In 2009, Oppenheimer & Co. Inc. expanded of Platte County, Missouri our market reach with the additions of the In the areas of Health Care and Higher Improvement and Refunding Revenue Bonds Municipal Note Public Finance Group and Education, as a result of Oppenheimer’s credit (KCI Corridor Project) the Municipal Short Term Department. These analysis and preparation, Oppenheimer’s $17,585,000 new groups have increased Oppenheimer’s bankers provided fi nancial advisory services Worcester Regional Transit Authority, Massachusetts investment grade short-term bond pres- to several large academic medical centers Revenue Anticipation Notes ence throughout the country. Oppenheimer and healthcare systems for projects involv- $53,236,703.55 ranks nationally in the top fi ve for number ing cutting edge cancer treatment centers. City of Kansas City, Missouri of new issue notes underwritten. The demand for these services will continue Special Obligation Bonds (Capital Appreciation Bonds) into the future as many of these centers are (Performing Arts Center Garage Project) The firm offers the following services to under development. $3,435,615,000.00 issuers: bond underwriting, fi nancial advisory State of California services, arbitrage rebate analysis and eco- Oppenheimer continues to serve our Public Economic Recovery Bonds nomic development and incentive advisory Finance Clients from six regional origination analysis. In addition, we continue to maintain offi ces and seven municipal bond trading $166,075,000.00 a secondary market for the bonds issued by desks located nationwide. With more Indianapolis Bond Bank Public Improvement Bond Bank Notes our Public Finance clients. than 1700 Financial Advisors and Insti- tutional Salespersons, the fi rm offers our $20,000,000.00 Projects of particular note in 2009 clients unsurpassed access to capital and Anoka County, Minnesota included a $53 million Capital Appreciation funding at competitive interest rates with Taxable General Obligation OPEB Bonds Bond Issue for Kansas City, Missouri to structuring advice that serves our clients fi nance a multi level parking facility adjacent best interests.

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:12 3/18/10 2:42:56 PM Oppenheimer Holdings Inc. 2009 Financial Review

Management’s Discussion and Analysis of Financial Condition and Results of Operations 14

Quantitative and Qualitative Disclosures about Market Risk 22

Management’s Report on Internal Control over Financial Reporting 24

Report of Independent Registered Public Accounting Firm 24

Consolidated Balance Sheets as at December 31, 2009 and 2008 25

Consolidated Statements of Operations for the three years ended December 31, 2009, 2008 and 2007 26

Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2009, 2008 and 2007 26

Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2009, 2008 and 2007 27

Consolidated Statements of Cash Flows for the three years ended December 31, 2009, 2008 and 2007 28

Notes to Consolidated Financial Statements 29

Oppenheimer Holdings Inc. 13

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:13 3/18/10 2:42:57 PM Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s consolidated fi nancial statements have been prepared in ac- a cash fl ow hedge under the accounting guidance for derivative instru- cordance with accounting principles generally accepted in the United States ments and hedging activities. Changes in the fair value of the cap hedge are of America. The following discussion should be read in conjunction with the expected to be highly effective in offsetting changes in the interest pay- consolidated fi nancial statements and notes thereto which appear elsewhere ments due to changes in the 3-Month LIBOR rate. in this annual report and also in conjunction with the discussion of the Com- pany’s business and operations included in its Annual Report on Form 10-K Fair Value Measurements for the year ended December 31, 2009, including Risk Factors set forth Effective January 1, 2008, the Company adopted the accounting guidance for therein, fi led with the U.S. Securities and Exchange Commission. the fair value measurement of fi nancial assets, which defi nes fair value, establishes a framework for measuring fair value, establishes a fair value measure- Oppenheimer Holdings Inc. and its subsidiaries, together (the “Company”) ment hierarchy, and expands fair value measurement disclosures. Fair value, as engages in a broad range of activities in the securities industry, including retail defi ned by the accounting guidance, is the price that would be received to sell securities brokerage, institutional sales and trading, investment banking (both an asset or paid to transfer a liability in an orderly transaction between market corporate and public fi nance), research, market-making, trust services and in- participants at the measurement date. The fair value hierarchy established by vestment advisory and asset management services. Its principal subsidiaries are this accounting guidance prioritizes the inputs used in valuation techniques Oppenheimer & Co. Inc. (“Oppenheimer”) and Oppenheimer Asset Manage- into the following three categories (highest to lowest priority): ment Inc. (“OAM”). As at December 31, 2009, the Company provided its services from 94 offi ces in 26 states located throughout the United States, Level 1: Observable inputs that refl ect quoted prices (unadjusted) for offi ces in Tel Aviv, Israel, Hong Kong, China, and London, England and in two identical assets or liabilities in active markets; offi ces in Latin America through local broker-dealers. Client assets entrusted to Level 2: Inputs other than quoted prices included in Level 1 that are the Company as at December 31, 2009 totaled approximately $66.0 billion. observable for the asset or liability either directly or indirectly; and The Company provides investment advisory services through OAM and Op- penheimer Investment Management Inc. (“OIM”) and Oppenheimer’s Fahne- Level 3: Unobservable inputs. stock Asset Management and OMEGA Group divisions. The Company provides trust services and products through Oppenheimer Trust Company. The Com- The Company’s fi nancial instruments are recorded at fair value and generally pany provides discount brokerage services through Freedom Investments, Inc. are classifi ed within Level 1 or Level 2 within the fair value hierarchy using (“Freedom”) and through BUYandHOLD, a division of Freedom. Through OPY quoted market prices or quotes from market makers or broker-dealers. Finan- Credit Corp., the Company offers syndication as well as trading of issued cial instruments classifi ed within Level 1 are valued based on quoted market corporate loans. Evanston Financial Corporation (“Evanston”) is engaged in prices in active markets and consist of U.S. government, federal agency, and mortgage brokerage and servicing. At December 31, 2009, client assets under sovereign government obligations, corporate equities, and certain money management by the asset management groups totaled $16.4 billion. At De- market instruments. Level 2 fi nancial instruments primarily consist of invest- cember 31, 2009, the Company employed 3,616 employees (3,551 full time ment grade and high-yield corporate debt, convertible bonds, mortgage and and 65 part time), of whom approximately 1,474 were fi nancial advisors. asset-backed securities, municipal obligations, and certain money market instruments. Financial instruments classifi ed as Level 2 are valued based on Critical Accounting Estimates quoted prices for similar assets and liabilities in active markets and quoted The Company’s accounting policies are essential to understanding and in- prices for identical or similar assets and liabilities in markets that are not active. terpreting the fi nancial results reported in the consolidated fi nancial state- Some fi nancial instruments are classifi ed within Level 3 within the fair value ments. The signifi cant accounting policies used in the preparation of the hierarchy as observable pricing inputs are not available due to limited market Company’s consolidated fi nancial statements are summarized in note 1 to activity for the asset or liability. Such fi nancial instruments include investments those statements. Certain of those policies are considered to be particularly in hedge funds and private equity funds where the Company is general part- important to the presentation of the Company’s fi nancial results because ner, less-liquid private label mortgage and asset-backed securities, certain dis- they require management to make diffi cult, complex or subjective judg- tressed municipal securities, and auction rate securities. A description of the ments, often as a result of matters that are inherently uncertain. The follow- valuation techniques applied and inputs used in measuring the fair value of ing is a discussion of these policies. the Company’s fi nancial instruments is included in note 4 to the consolidated fi nancial statements for the year ended December 31, 2009. Financial Instruments and Fair Value Financial Instruments Fair Value Option Securities owned and securities sold but not yet purchased, investments The Company has the option to measure certain fi nancial assets and fi nancial and derivative contracts are carried at fair value with changes in fair value liabilities at fair value with changes in fair value recognized in earnings each recognized in earnings each period. The Company’s other fi nancial instru- period. The Company may make a fair value option election on an instrument- ments are generally short-term in nature or have variable interest rates and by-instrument basis at initial recognition of an asset or liability or upon an as such their carrying values approximate fair value, with the exception of event that gives rise to a new basis of accounting for that instrument. The notes receivable from employees which are carried at cost. Company has elected to apply the fair value option to its loan trading portfolio which resides in OPY Credit Corp. and is included in other assets on the Financial Instruments Used for Asset and Liability Management consolidated balance sheet. Management has elected this treatment as it is The Company utilizes interest rate swap agreements to manage interest rate risk consistent with the manner in which the business is managed as well as the on its variable rate Senior Secured Credit Note. These swaps have been desig- way that fi nancial instruments in other parts of the business are recorded. nated as cash fl ow hedges under the accounting guidance for derivative instru- There was one loan position held in the secondary loan trading portfolio at ments and hedging activities. Changes in the fair value of the swap hedges are December 31, 2009 with a par value of $950,000 (nil in 2008) and a fair expected to be highly effective in offsetting changes in the interest payments value of $940,000 which is categorized in Level 2 of the fair value hierarchy. due to changes in the 3-Month London Interbank Offering Rate (“LIBOR”). Loans and Allowances for Doubtful Accounts The Company utilizes an interest rate cap agreement to manage interest Customer receivables, primarily consisting of margin loans collateralized by rate risk on its variable Subordinated Debt. The cap has been designated as customer-owned securities, are charged interest at rates similar to other

14 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 14 3/18/10 3:00:11 PM such loans made throughout the industry. Customer receivables are stated Intangible Assets net of allowance for doubtful accounts. The Company reviews large cus- Intangible assets arose upon the acquisition, in January 2003, of the U.S. Pri- tomer accounts that do not comply with the Company’s margin require- vate Client and Asset Management Divisions of CIBC World Markets Inc. (the ments on a case-by-case basis to determine the likelihood of collection and “Oppenheimer Divisions”) and comprise customer relationships and trade- records an allowance for doubtful accounts following that process. For marks and trade names. Customer relationships of $4.9 million were amortized small customer accounts that do not comply with the Company’s margin on a straight-line basis over 80 months commencing in January 2003 (fully requirements, the allowance for doubtful accounts is generally recorded as amortized and carried at $nil as at December 31, 2009). Trademarks and trade the amount of unsecured or partially secured receivables. names, carried at $31.7 million, which are not amortized, are subject to at least an annual test for impairment to determine if the fair value is less than The Company also makes loans or pays advances to fi nancial advisors as their carrying amount. See note 15 to the consolidated fi nancial statements part of its hiring process. Reserves are established on these receivables if the for the year ended December 31, 2009 for further discussion. fi nancial advisor is no longer associated with the Company and the receivable has not been promptly repaid or if it is determined that it is probable Intangible assets also arose from the acquisition of the New Capital Markets the amount will not be collected. Business in January 2008 and are comprised of customer relationships and a below market lease. Customer relationships are carried at $817,800 Legal and Regulatory Reserves (which is net of accumulated amortization of $123,200) as at December The Company records reserves related to legal and regulatory proceed- 31, 2009 and are being amortized on a straight-line basis over 180 months ings in accounts payable and other liabilities. The determination of the commencing in January 2008. The below market lease is carried at $12.8 amounts of these reserves requires signifi cant judgment on the part of man- million (which is net of accumulated amortization of $8.5 million) as at agement. In accordance with applicable accounting guidance, the Company December 31, 2009 and is being amortized on a straight-line basis over 60 establishes reserves for litigation and regulatory matters when those matters months commencing in January 2008. present loss contingencies that are probable and estimable. When the contingencies are not probable and estimable, the Company does not establish re- Trademarks and trade names recorded as at December 31, 2009 have been serves. When determining whether to record a reserve, management consid- tested for impairment and it has been determined that no impairment has ers many factors including, but not limited to: the amount of the claim; occurred (see note 15 to the consolidated fi nancial statements for the year specifi cally in the case of client litigation, the amount of the loss in the client’s ended December 31, 2009 for further discussion). account and the possibility of wrongdoing, if any, on the part of an employee of the Company; the basis and validity of the claim; previous results in simi- Share-Based Compensation Plans lar cases; and legal precedents and case law as well as the timing of the reso- The Company estimates the fair value of share-based awards using the lution of such matters. Each legal and regulatory proceeding is reviewed with Black-Scholes option-pricing model and applies to it a forfeiture rate based counsel in each accounting period and the reserve is adjusted as deemed on historical experience. Key input assumptions used to estimate the fair appropriate by management. Any change in the reserve amount is recorded value of share-based awards include the expected term and the expected in the results of that period. The assumptions of management in determining volatility of the Company’s Class A Stock over the term of the award, the the estimates of reserves may be incorrect and the actual disposition of a legal risk-free interest rate over the expected term, and the Company’s expected or regulatory proceeding could be greater or less than the reserve amount. annual dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive Goodwill share-based awards. See note 12 to the consolidated fi nancial statements Goodwill arose upon the acquisitions of Oppenheimer, Old Michigan Corp., for the year ended December 31, 2009 for further discussion. Josephthal & Co. Inc., Grand Charter Group Incorporated and the Oppen- heimer Divisions, as defi ned below. The Company defi nes a reporting unit as New Accounting Pronouncements an operating segment. The Company’s goodwill resides in its Private Client Divi- Recently adopted and recently issued accounting pronouncements are de- sion (“PCD”). Goodwill of a reporting unit is subject to at least an annual test scribed in note 1 to the consolidated fi nancial statements for the year for impairment to determine if the fair value of goodwill of a reporting unit is ended December 31, 2009. less than its estimated carrying amount. The Company derives the estimated carrying amount of its operating segments by estimating the amount of stock- Business Environment holders’ equity required to support the activities of each operating segment. The securities industry is directly affected by general economic and market conditions, including fl uctuations in volume and price levels of securities and Accounting standards require goodwill of a reporting unit to be tested for changes in interest rates, infl ation, political events, investor participation levels, impairment between annual tests if an event occurs or circumstances legal and regulatory, accounting, tax and compliance requirements and com- change that would more likely than not reduce the fair value of a reporting petition, all of which have an impact on commissions, fi rm trading, fees from unit below its carrying amount. Goodwill recorded as at December 31, accounts under investment management as well as fees for investment bank- 2009 has been tested for impairment and it has been determined that no ing services, and investment income as well as on liquidity. Substantial fl uctua- impairment has occurred (see note 15 to the consolidated fi nancial state- tions can occur in revenues and net income due to these and other factors. ments for the year ended December 31, 2009 for further discussion). At year-end 2009, the U.S. economy has emerged from the longest con- Excess of fair value of assets acquired over cost arose from the acquisition traction since the Great Depression. Unemployment continues at very of the Canadian Imperial Bank of Commerce (“CIBC”) U.S. capital markets high levels and uncertainty continues to plague the economy as we await business (“New Capital Markets Business”) - see note 19 to the consoli- the reversal of stimulative policies from the Federal Reserve and a deter- dated fi nancial statements for the year ended December 31, 2009 for fur- mination of national policies for major segments of the economy including ther discussion. If the earn-out from the acquisition of the New Capital healthcare and the fi nancial system. Other economic indicators are show- Markets Business exceeds $5.0 million in any of the fi ve years from 2008 ing improvement including: increased manufacturing activity, higher through 2012, the excess will fi rst reduce the excess of fair value of acquired commodity prices and higher end sales to consumers and businesses. The assets over cost and second will create goodwill, as applicable. real estate markets are sending mixed signals with signifi cant deteriora-

Oppenheimer Holdings Inc. 15

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 15 3/18/10 3:00:11 PM tion in commercial real estate prices but improvements in the housing to the markets. The Company considered fi ling an amendment to the charter market across most of the country. of Oppenheimer Trust Company to become a depository bank eligible for FDIC insurance as well as to obtain access to the U.S. Federal Reserve Discount Improving market conditions since March 2009, buoyed by low interest rates Window; fi ling an application with the FDIC for Oppenheimer Trust Company and discretionary funds for investment, have led to overall revenue improve- to obtain deposit insurance; and fi ling applications on behalf of Oppen- ments for the Company in each successive quarter of 2009. Revenue from heimer Trust Company and Oppenheimer Holdings to participate in the U.S. commissions and principal transactions in the three and twelve months ended Treasury Capital Purchase Program. This plan was discontinued as it failed to December 31, 2009 surpassed levels achieved in comparable periods in 2008 provide a meaningful solution to the ARS problem. In addition, the Company as a result of the effects of rising equity prices and the credit markets recovery has considered and rejected applying to become a bank holding company for from distressed levels. The strength in revenue from principal transactions was the same reason. The Company moved the situs of the Company to the largely due to the Company’s signifi cant progress in building its fi xed income United States in order to, among other things, potentially avail itself of various division as well as strong debt markets throughout the year. Revenue for the programs sponsored by the U.S. Treasury and the FDIC which may be avail- Company from investment banking activities remains disappointing as many able only to U.S.-based companies. The Company undertook and continues mid-sized and smaller companies continue to face restricted access to the to undertake a program to become a primary dealer appointed by the Fed- capital markets, although there were signifi cant signs of improvement in that eral Reserve Bank of New York. One of the purposes of this undertaking was sector in the fourth quarter of 2009. Net interest revenue for the Company, as to access the Primary Dealer Credit Facility which might have provided a pool well as fees derived from money market funds and FDIC insured deposits of of liquidity with which to permit the Company to undertake a meaningful clients, continue to be signifi cantly and adversely affected by the low interest program to satisfy issues surrounding ARS. The Federal Reserve Board re- rate policies that have been designed to stimulate the economy. Asset man- cently announced the closure of this facility beginning February 1, 2010. agement advisory fees increased in the fourth quarter of 2009 due to incentive fees earned on certain managed funds compared to the prior year. The Company continues to pursue alternatives, which might under certain circumstances, provide the liquidity necessary to permit the Company to redeem While most expense categories showed signifi cant decreases compared to the ARS from its clients. See “Factors Affecting ‘Forward-Looking Statements’”. prior year, the Company’s compensation levels as a percentage of revenue remained at high levels as a result of: 1) increased stock-based and deferred The Company is focused on growing its private client and asset manage- compensation which refl ected the signifi cant improvement in the Company’s ment businesses through strategic additions of experienced fi nancial advi- stock price as well as increases in the value of assets directly tied to deferred sors in its existing branch system and employment of experienced money compensation plans (totaling $33.7 million), 2) the remaining costs of compen- management personnel in its asset management business. In addition, the sation associated with the New Capital Markets Business acquisition ($25.7 Company is committed to the improvement of its technology capability to million), and 3) short term guaranteed compensation to new employees (while support client service and the expansion of its capital markets capabilities down substantially from the prior year) as the Company signifi cantly expanded while addressing the issue of managing its expenses to better align them its professional work force across all areas of its business during 2009. with the current investment environment.

As previously reported, the Company is not involved in the sub-prime Regulatory Environment mortgage business, and does not have any exposure to that business as a The brokerage business is subject to regulation by, among others, the Securities result of its recent acquisition or otherwise. and Exchange Commissions (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) (formerly the NYSE and NASD) in the United States, the For a number of years, the Company has offered auction rate securities (“ARS”) Financial Services Authority (“FSA”) in the United Kingdom, the Securities to its clients. A signifi cant portion of the market in ARS has ‘failed’ because, in and Futures Commission in Hong Kong, the Israeli Securities Authority (“ISA”) the tight credit market, the dealers are no longer willing or able to purchase the in Israel and various state securities regulators. Events in recent years sur- imbalance between supply and demand for ARS. These securities have auctions rounding corporate accounting and other activities leading to investor losses scheduled on either a 7, 28 or 35 day cycle. Clients of the Company own a resulted in the enactment of the Sarbanes-Oxley Act and have caused signifi cant amount of ARS in their individual accounts. The absence of a liquid increased regulation of public companies. New regulations and new interpre- market for these securities presents a signifi cant problem to clients and, as a tations and enforcement of existing regulations are creating increased costs result, to the Company. It should be noted that this is a failure of liquidity and of compliance and increased investment in systems and procedures to comply not a default. These securities in almost all cases have not failed to pay interest with these more complex and onerous requirements. Increasingly, the various or principal when due. These securities are fully collateralized for the most part states are imposing their own regulations that make the uniformity of regula- and, for the most part, remain good credits. The Company has not acted as an tion a thing of the past, and make compliance more diffi cult and more expen- auction agent for ARS nor does it have a signifi cant exposure in its proprietary sive to monitor. FINRA has recently completed the unifi cation and codifi cation accounts. Recently, some of these ARS have been redeemed at par (100% of of its legacy NYSE and NASD rules. issue value) plus accrued dividends by their issuers thus reducing the scope of the issue for clients and the Company. However, in excess of fi fty percent of the Recent events connected to the worldwide credit crisis have made it highly overall ARS issued into the ARS market remain outstanding. There is no way to likely that the self-regulatory framework for fi nancial institutions will be predict the pace of future redemptions or whether all of these securities will be changed in the United States and around the world. The changes are likely redeemed by their issuers. There has been pressure by regulators for fi nancial to signifi cantly reduce leverage available to fi nancial institutions and to in- services fi rms to redeem ARS held by clients. Settlements with regulators by our crease transparency to regulators and investors of risks taken by such insti- competitors have created inconsistencies in the treatment between fi rms that tutions. It is impossible to presently predict the nature of such rulemaking, are redeeming ARS from clients with their own funds and fi rms, like the Com- although proposals being considered in the U.S. and the United Kingdom pany, which have yet to do so. would possibly create a new regulator for certain activities, regulate and/or prohibit proprietary trading for certain deposit taking institutions, control The Company continues to review this situation and explore options to help the amount and timing of compensation to “highly paid” employees, cre- bring liquidity to the Company’s clients holding ARS. The Company has re- ate new regulations around fi nancial transactions with consumers, and viewed various programs initiated by the U.S. government to restore liquidity possibly create a tax on securities transactions. If and when enacted, such

16 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 16 3/18/10 3:00:11 PM regulations will likely increase compliance costs and reduce returns earned As part of its ongoing business, the Company records reserves for legal ex- by fi nancial service providers. Any such action could have a material adverse penses, judgments, fi nes and/or awards attributable to litigation and regula- affect on our business, fi nancial condition and results of operations. tory matters. In connection therewith, the Company has maintained its legal reserves at levels it believes will resolve outstanding matters, but may increase The impact of the rules and requirements that were created by the passage or decrease such reserves as matters warrant. In accordance with applicable of the Patriot Act, and the anti-money laundering regulations (AML) in the accounting guidance, the Company establishes reserves for litigation and U.S. and similar laws in other countries that are related thereto have created regulatory matters when those matters present loss contingencies that are signifi cant costs of compliance and can be expected to continue to do so. both probable and estimable. When loss contingencies are not both probable and estimable, the Company does not establish reserves. In some of the mat- Pursuant to FINRA Rule 3130 (formerly NASD Rule 3013 and NYSE Rule ters described above, including but not limited to the U.S. Airways matter, loss 342), the chief executive offi cers (“CEOs”) of regulated broker-dealers (in- contingencies are not probable and estimable in the view of management cluding the CEO of Oppenheimer) are required to certify that their compa- and, accordingly, reserves have not been established for those matters. nies have processes in place to establish and test policies and procedures reasonably designed to achieve compliance with federal securities laws and Business Continuity regulations, including applicable regulations of self-regulatory organiza- The Company is committed to an on-going investment in its technology tions. The CEO of the Company is required to make such a certifi cation on and communications infrastructure including extensive business continuity an annual basis and did so in March, 2009. planning and investment. These costs are on-going and the Company believes that current and future costs will exceed historic levels due to business Other Regulatory Matters and regulatory requirements. This investment has increased over 2008 and Oppenheimer has been responding to the SEC, FINRA and several state regu- 2009 as a result of the acquisition of the New Capital Markets Businesses lators as part of an industry-wide review of the marketing and sale of ARS. The from CIBC and the Company’s need to build out its platform to accommo- Company has answered several document requests and subpoenas and there date this business. The Company successfully transitioned these businesses have been on-the-record interviews of Company personnel. During the week to its platform in the third quarter of 2008. ended February 26, 2010, Oppenheimer fi nalized settlements with each of the New York Attorney General (“NYAG”) and the Massachusetts Securities Outlook Division (“MSD”) concluding investigations and administrative proceedings by The Company’s long-term plan is to continue to expand existing offi ces by the Regulators concerning Oppenheimer’s marketing and sale of ARS. As a hiring experienced professionals as well as through the purchase of operating result, the Company will purchase eligible ARS from eligible clients pursuant to branch offi ces from other broker dealers or the opening of new branch of- those settlements. Based on the terms of the settlements, the Company will fi ces in attractive locations, thus maximizing the potential of each offi ce and make an initial national offer to purchase to eligible clients who currently hold the development of existing trading, investment banking, investment advi- accounts at Oppenheimer no later than May 24, 2010. Eligible clients’ ac- sory and other activities. Equally important is the search for viable acquisition counts will be aggregated on a “household” basis. The Company will make candidates. As opportunities are presented, it is the long-term intention of subsequent offers to eligible clients holding eligible ARS based on the its avail- the Company to pursue growth by acquisition where a comfortable match ability of funds for such purpose, the amount of which the Company believes, can be found in terms of corporate goals and personnel at a price that would pursuant to the terms of the settlements, will not create a condition that provide the Company’s stockholders with incremental value. The Company would have a material adverse affect on the Company’s fi nancial statements. acquired on January 14, 2008, the New Capital Markets Business. The Com- As a result, it is unlikely that the Company will be required over any short pe- pany may review additional potential acquisition opportunities, and will con- riod of time to purchase all of the ARS currently held by the Company’s former tinue to focus its attention on the management of its existing business. In or current clients who purchased ARS prior to the beginning of the market’s addition, the Company is committed to improving its technology capabilities failure in February 2008. The Company will continue to assess whether it has to support client service and the expansion of its capital markets capabilities. suffi cient regulatory capital or borrowing capacity to make any purchases of ARS beyond those agreed upon in the settlements described above. The Results of Operations Company estimates that it is obligated to purchase up to approximately $39 The net profi t for the year ended December 31, 2009 was $19.5 million or million of eligible ARS in the initial 15 month period covered by settlements $1.49 per share compared to a net loss of $20.8 million or $1.57 per share with the Regulators. Such purchases will be paid for from available funds. The for the year ended December 31, 2008. Revenue for the year ended De- Company is continuing to cooperate with investigating entities from other cember 31, 2009 was $991.4 million, compared to revenue of $920.1 states. Notwithstanding the foregoing settlements, the Company remains as a million for the same period in 2008, an increase of 8%. named respondent in a number of arbitrations by its current or former clients as well as lawsuits, including a class action lawsuit, related to its sale of ARS. The following table sets forth the amount and percentage of the Company’s revenue from each principal source for each of the following years ended Other Matters December 31. Amounts are expressed in thousands of dollars. A subsidiary of the Company was the administrative agent for two closed-end funds until December 5, 2005. The Company has been advised by the current 2009 % 2008 % 2007 % administrative agent for these two funds that the Internal Revenue Service may fi le a claim for interest and penalties for one of these funds with respect to the Commissions $555,574 56% $532,682 58% $382,053 42% 2004 tax year as a result of an alleged failure of such subsidiary to take certain Principal actions. The Company will continue to monitor developments in this matter. transactions, net 107,094 11% 20,651 2% 41,441 5% Interest 35,960 4% 61,793 7% 110,114 12% The Company operates in all state jurisdictions in the United States and is thus Investment banking 90,960 9% 83,541 9% 103,734 11% subject to regulation and enforcement under the laws and regulations of each Advisory fees 160,705 16% 198,960 22% 249,358 27% of these jurisdictions. The Company has been and expects that it will continue to be subject to investigations and some or all of these may result in enforce- Other 41,140 4% 22,443 2% 27,697 3% ment proceedings as a result of its business conducted in the various states. Total revenue $991,433 100% $920,070 100% $914,397 100%

Oppenheimer Holdings Inc. 17

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 17 3/18/10 3:00:11 PM The Company derives most of its revenue from the operations of its principal fees earned on equity underwriting participations increased $23.0 million subsidiaries, Oppenheimer and OAM. Although maintained as separate offset by a decrease of $11.4 million in corporate fi nance advisory fees. entities, the operations of the Company’s brokerage subsidiaries both in the U.S. and other countries are closely related because Oppenheimer acts as Advisory fees were $160.7 million in the year ended December 31, 2009, a clearing broker and omnibus clearing agent in transactions initiated by decrease of 19% compared to $199.0 million in the same period in 2008 as these subsidiaries. Except as expressly otherwise stated, the discussion be- a result of a decrease in average assets under management during the period low pertains to the operations of Oppenheimer. of 10.7%. The decrease in advisory fees also includes a decrease of $21.1 million in fees derived from money market funds primarily as a result of a Fiscal 2009 compared to Fiscal 2008 decline in interest rates. The Company earned incentive fees from general Revenue partnership interests in alternative investments of $10.7 million in 2009 ($nil Commission income is dependent on the level of investor participation in in 2008). At December 31, 2009, client assets under management by the the markets. Commission revenue was $555.6 million in the year ended asset management groups totaled $16.4 billion, compared to $12.5 billion at December 31, 2009 compared to $532.7 million in the same period in December 31, 2008. Assets under management at the end of a calendar 2008, representing an increase of 4%, refl ecting improved market condi- quarter serve as the basis for advisory fees billed in the following quarter. tions in 2009 compared to 2008. Other revenue increased 83% to $41.1 million for the year ended Decem- Principal transactions revenue was signifi cantly higher in the year ended ber 31, 2009 from $22.4 million in the same period in 2008 primarily as a December 31, 2009 at $107.1 million compared to $20.7 million in the result of increases to the value of Company owned life insurance of $14.3 same period in 2008 due to signifi cant improvement in fi xed income trad- million, increased fees of $5.0 million related to the Company’s mortgage ing in 2009 representing a $61.8 million increase when compared to 2008 brokerage business, and a legal settlement award of $2 million, partially as well as gains of $9.8 million in the value of fi rm investments in 2009 offset by a decrease of $3.9 million in fees derived from FDIC insured cli- (versus a loss of $17.8 million in 2008). ent deposits.

Interest revenue declined 42% to $36.0 million in the year ended December Expenses 31, 2009 from $61.8 million in the same period in 2008 due to decreases Compensation and related expenses were $672.3 million for the year ended in interest earned on customer margin debits of $19.1 million and on secu- December 31, 2009 compared with $626.0 million for the same period in rities borrowed positions of $6.2 million. 2008, an increase of 7%. Production and incentive-related compensation increased $35.1 million, deferred compensation costs increased $16.3 mil- Investment banking revenue increased 9% to $91.0 million in the year ended lion, and share-based compensation, directly related to an increased share December 31, 2009 compared to $83.5 million in the same period in 2008 as price during the period, increased $17.4 million. These increases were par-

The following table and discussion summarizes the changes in the major revenue and expense categories for the past two years. Amounts are expressed in thousands of dollars.

Composition of 2009 Revenue Period to Period Change Increase (Decrease) 2009 versus 2008 2008 versus 2007 Amount Percentage Amount Percentage

Revenue Commissions ...... $ 22,892 ...... +4% $150,629...... +39% Principal transactions, net ...... 86,443 . . . . . +419% (20,790) ...... -50% Interest ...... (25,833) ...... -42% (48,321) ...... -44% Investment banking ...... 7,419 ...... +9% (20,193) ...... -19% Advisory fees ...... (38,255) ...... -19% (50,398) ...... -20% Other ...... 18,697 ...... +83% (5,254) ...... -19% Total revenue ...... 71,363 ...... +8% 5,673...... +1% Commissions

Expenses Principal transactions Compensation and related expenses . . . . 46,295 ...... +7% 85,830...... +16% Clearing and exchange fees ...... (4,259) ...... -14% 14,619...... +89% Interest Communications and technology ...... (12,635) ...... -17% 23,071...... +44% Investment banking Occupancy and equipment costs ...... 4,427 ...... +6% 21,338...... +44% Interest ...... (17,948) ...... -46% (17,645) ...... -31% Advisory fees Other ...... (15,373) ...... -13% 41,897...... +57% Total expenses ...... 507 ...... 0% 169,110...... +21% Other Proﬁ t before taxes ...... 70,856 ...... n/a (163,437) ...... n/a Income taxes ...... 30,599 ...... n/a (67,300) ...... n/a Net proﬁ t ...... $ 40,257 ...... n/a $(96,137) ...... n/a

18 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 18 3/18/10 3:00:11 PM tially offset by a decrease of $25.7 million for expenses related to deferred Advisory fees decreased 20% for the year ended December 31, 2008 compensation obligations to former CIBC employees. compared to the same period in 2007. Declining market values of client assets negatively impacted fee levels in the third and fourth quarters of Clearing and exchange fees decreased 14% to $26.7 million for the year 2008. Assets under management decreased 28% to $12.5 billion at ended December 31, 2009 compared to $31.0 million in the same period December 31, 2008 compared to $17.5 billion at December 31, 2007, in 2008 primarily refl ecting the economies of transitioning the acquired as a result of declining market values of client fee-paying accounts as- businesses to the Company’s platform. sociated with the general decline in securities markets. In addition, performance fees earned as a result of participation as a general partner Communications and technology expenses decreased 17% to $62.7 million in various alternative investments amounted to $1.3 million in fi scal for the year ended December 31, 2009 from $75.4 million for the same 2008 compared with $44.8 million in fi scal 2007 due to generally disap- period of 2008 as a result of a reduction, or elimination, of many costs as- pointing investment results compared to the prior year. The number of sociated with our January 2008 acquisition. client accounts under management increased 1% at December 31, 2008 compared to December 31, 2007. Included in assets under man- Occupancy and equipment costs increased 6% to $74.4 million for the year agement at December 31, 2008 were approximately $9.8 billion in as- ended December 31, 2009 from $69.9 million in the same period in 2008 sets under the Company’s fee-based programs ($14.3 billion at Decem- due to escalation provisions increasing rental costs, as well as the opening ber 31, 2007). of new branch offi ces around the country. Other revenue decreased 19% for the year ended December 31, 2008 Interest expenses declined 46% to $21.1 million in the year ended Decem- compared to the same period in 2007. Other revenue includes the mark-to- ber 31, 2009 from $39.0 million for the same period in 2008 due to declin- market change of company-owned insurance policies that underpin the ing interest rates resulting in lower interest incurred on securities loaned Company’s deferred compensation programs. Due to market conditions and bank loans totaling $13.5 million. the fair value of these policies decreased $3.9 million in 2008 compared to an increase of $7.1 million in 2007. This loss was offset by an increase of Other expenses decreased 13% to $99.4 million in the year ended Decem- $8.9 million in income from sponsored FDIC covered deposits, introduced ber 31, 2009 from $114.8 million for the same period in 2008 largely as a as a new product in 2008. Additionally, other revenue for the year ended result of the elimination of $33.5 million in non-recurring transitional sup- December 31, 2007 included a gain of $2.5 million on the extinguishment port costs related to the CIBC capital markets business acquired in January of the zero coupon notes issued by the Company on January 2, 2003 in 2008 partially offset by an increase in legal costs of approximately $14.7 connection with an acquisition. million and a departure tax of approximately $2.0 million which was paid to the government of Canada in connection with the move of the Company’s Expenses domicile to the United States. The Company’s expenses for the year ended December 31, 2008 increased 21% compared to the same period of 2007, primarily due to Fiscal 2008 compared to Fiscal 2007 the effect of the Company’s recent acquisition. Acquisition related ex- Revenue penses included $40.2 million for the year ended December 31, 2008 Commission income is dependent on the level of investor participation in for deferred incentive compensation to former CIBC employees for the markets. Commissions for the year ended December 31, 2008 in- awards made by CIBC prior to the January 14, 2008 acquisition by the creased 39% compared to the same period in 2007 primarily as a result Company. These accrued expenses are net of an expense reversal of of the acquired businesses. For the year ended December 31, 2008, 32% $6.1 million recorded in November 2008 arising from the resolution of of total commissions were generated by the investment banking division’s a number of issues with CIBC associated with the implementation and institutional equity business, representing an increase of $160.6 million interpretation of the Acquisition Agreement. Transition service charges compared to the same period in 2007. This increase was offset by a de- of $27.3 million in the year ended December 31, 2008 were incurred for cline of $32.3 million in commissions generated by the Company’s other interim support of the acquired businesses which substantially termi- commission generating businesses. nated upon the transition of those businesses to Oppenheimer’s platform in the second half of 2008. Principal transactions, net decreased 50% for the year ended December 31, 2008 compared to the same period in 2007, primarily due to losses in con- Compensation costs increased 16% in the year ended December 31, 2008 vertible bond arbitrage and failed hedging strategies as the prices of U.S. compared to the same period of 2007. The main driver of the increase for Treasuries diverged from the rest of the credit market during the diffi cult the year ended December 31, 2008 was the increased compensation ex- market conditions experienced in the third and fourth quarters of 2008. pense associated with personnel within the acquired businesses, as described above. A decrease in deferred compensation obligations of $11.0 Interest revenue declined 44% for the year ended December 31, 2008 million driven by declining market values in the underlying benchmark compared to the same period in 2007 primarily due to lower interest rates. portfolios offset the overall increase in compensation costs. Also offsetting In addition, average stock borrow balances and average customer debit the increase in compensation costs was a decrease of $8.6 million related balances decreased 32% and 15%, respectively, in the year ended Decem- to the Company’s stock appreciation rights that are pegged to the price of ber 31, 2008 compared to the same period in 2007, impacted by tight Company’s Class A Stock. credit conditions and liquidation of positions by investors in a declining market in 2008 compared to better market conditions in 2007. For the year ended December 31, 2008, clearing and exchange fees increased 89% due to increased transaction volumes associated with the ac- Investment banking revenues decreased 19% for the year ended December quired businesses as well as transition service charges. 31, 2008 compared to the same period in 2007. Despite the expansion of the Company’s investment banking presence as a result of the acquisition in Communications and technology costs and occupancy and equipment January 2008, market conditions were not conducive to activities generat- costs increased 44% in the year ended December 31, 2008 compared to ing investment banking revenue. the same period in 2007, primarily to support the acquired businesses.

Oppenheimer Holdings Inc. 19

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 19 3/18/10 3:00:11 PM Interest expense decreased 31% for the year ended December 31, 2008 and holdings of ARS. Under the terms of that settlement, the Company compared to the same period of 2007. The interest expense on the Com- has agreed to purchase, in aggregate, ARS with a par value of approxi- pany’s Senior Secured Credit Note declined by $3.4 million for the year mately $31.5 million at December 31, 2009, from eligible clients no later ended December 31, 2007 compared to the same period in 2007 due to than August 7, 2010 and to establish redemption funds of $4.5 million declining interest rates and payments of principal, offset by interest ex- and $2.8 million no later than August 28, 2010 and February 29, 2011, pense of $6.9 million on the Subordinated Note issued in January 2008 respectively. It will make subsequent offers to eligible clients holding eli- and higher interest expense associated with higher bank call loan bal- gible ARS based on the Company’s availability of funds for such purpose, ances incurred as alternative sources of fi nancing such as stock loan bal- the amount of which the Company believes pursuant to the terms of the ances declined. settlements, will not create a condition that would have a material adverse affect on the Company’s fi nancial statements. As a result, it is unlikely that Other expenses increased 57% for the year ended December 31, 2008 the Company will be required over any short period of time to purchase compared to the same period in 2007 and includes substantial transition all of the ARS currently held by the Company’s former or current clients costs related to the acquisition of the acquired businesses, as described who purchased ARS prior to the beginning of the market’s failure in Feb- above. Such transition costs represent 65% of the increase in other ex- ruary 2008. The Company will continue to assess whether it has suffi cient penses in 2008 compared to 2007. In addition, legal fees, registration regulatory capital or borrowing capacity to make any purchases of ARS fees and various employee support costs increased in 2008 compared to beyond those agreed upon in the settlements described above. 2007 related to the acquisition and integration of the acquired businesses. The cost of professional fees increased 31% and represented 5% of the In 2006, the Company issued a Senior Secured Credit Note in the amount increase in other expenses associated with the business acquired and with of $125.0 million at a variable interest rate based on LIBOR with a seven- increased litigation and regulatory costs. Bad debt expense increased by year term to a syndicate led by Morgan Stanley Senior Funding Inc., as $1.3 million for the year ended December 31, 2008 compared to the agent. In accordance with the Senior Secured Credit Note, the Company same period in 2007. has provided certain covenants to the lenders with respect to the maintenance of a minimum fi xed charge ratio and maximum leverage ratio and Liquidity and Capital Resources minimum net capital requirements with respect to Oppenheimer. Total assets at December 31, 2009 increased by 44% from December 31, 2008 levels due in large part to the Company’s expansion of its govern- On December 22, 2008, certain terms of the Senior Secured Credit Note ment trading desk which began in June 2009. In addition, improved were amended, including (1) revised fi nancial covenant levels that require credit conditions and market activity in 2009 compared to 2008 resulted that (i) the Company maintain a maximum leverage ratio (total long-term in increases in receivables from brokers and clearing organizations and debt divided by EBITDA) of 4.05 at December 31, 2009 and (ii) the Com- customers. The market environment that developed in 2008 in the wake pany maintain a minimum fi xed charge ratio (EBITDA adjusted for capital of the failure of fi nancial institutions and seizures in the credit markets expenditures and income taxes divided by the sum of principal and inter- resulted in declining markets around the world and higher levels of risk; est payments on long-term debt) of 1.15 at December 31, 2009; (2) an conditions that began to improve in 2009. increase in scheduled principal payments as follows: 2009 - $400,000 per quarter plus $4.0 million on September 30, 2009 - $500,000 per quarter The Company satisfi es its need for short-term funds from internally gener- plus $8.0 million on September 30, 2010; (3) an increase in the interest ated funds and collateralized and uncollateralized borrowings, consisting rate to LIBOR plus 450 basis points (an increase of 150 basis points); and primarily of bank loans, stock loans and uncommitted lines of credit. The (4) a pay-down of principal equal to the cost of any share repurchases Company’s longer term capital needs are met through the issuance of the made pursuant to the Issuer Bid. In the Company’s view, the maximum Senior Secured Credit Note and the Subordinated Note. The amount of leverage ratio and minimum fi xed charge ratio represent the most restric- Oppenheimer’s bank borrowings fl uctuates in response to changes in the tive covenants. These ratios adjust each quarter in accordance with the level of the Company’s securities inventories and customer margin debt, loan terms, and become more restrictive over time. At December 31, changes in stock loan balances and changes in notes receivable from 2009, the Company was in compliance with all of its covenants. employees. The Company believes that such availability will continue going forward but current conditions in the credit markets may make the The effective interest rate on the Senior Secured Credit Note for the availability of bank fi nancing more challenging in the months ahead. Op- year ended December 31, 2009 was 5.63%. Interest expense, as well penheimer has arrangements with banks for borrowings on a fully col- as interest paid on a cash basis for the year ended December 31, 2009, lateralized basis. At December 31, 2009, the Company had no such bor- on the Senior Secured Credit Note was $2.1 million ($4.6 in 2008 and rowings outstanding compared to outstanding borrowings of $6.5 million $8.0 in 2007). Of the $32.5 million principal amount outstanding at at December 31, 2008. At December 31, 2009, the Company had avail- December 31, 2009, $11.5 million of principal is expected to be paid able collateralized and uncollateralized letters of credit of $187.2 million. within 12 months.

The unprecedented volatility of the fi nancial markets, accompanied by a The obligations under the Senior Secured Credit Note are guaranteed by severe deterioration of economic conditions worldwide, has had a pro- certain of the Company’s subsidiaries, other than broker-dealer subsidiar- nounced adverse affect on the availability of credit through traditional ies, with certain exceptions, and are collateralized by a lien on substan- sources. As a result of concern about the ability of markets generally and tially all of the assets of each guarantor, including a pledge of the owner- the strength of counterparties specifi cally, many lenders have reduced ship interests in each fi rst-tier broker-dealer subsidiary held by a guarantor, and, in some cases, ceased to provide funding to the Company on both a with certain exceptions. secured and unsecured basis. Further, the current environment is not conducive to most new fi nancing and renegotiation of existing loans has On January 14, 2008, in connection with the acquisition of the New become expensive and problematic. Capital Markets Business, CIBC made a loan in the amount of $100.0 million and the Company issued a Subordinated Note to CIBC in the On February 23, 2010 and February 26, 2010, the Company reached amount of $100.0 million at a variable interest rate based on LIBOR. The settlement agreements with regulators with respect to clients’ ownership Subordinated Note is due and payable on January 31, 2014 with interest

20 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 20 3/18/10 3:00:11 PM payable on a quarterly basis. The purpose of this note is to support the The book value of the Company’s Class A and Class B Stock was capital requirements of the New Capital Markets Business. In accordance $34.15 at December 31, 2009 compared to $32.75 at December 31, with the Subordinated Note, the Company has provided certain covenants 2008, an increase of approximately 4%, based on total outstanding to CIBC with respect to the maintenance of a minimum fi xed charge ratio shares of 13,217,681 and 12,999,145, respectively. and maximum leverage ratio and minimum net capital requirements with respect to Oppenheimer. The diluted weighted average number of shares of Class A and Class B Stock outstanding for the year ended December 31, 2009 was Effective December 23, 2008, certain terms of the Subordinated Note 13,441,279 compared to 13,199,580 outstanding for the year ended were amended, including (1) revised fi nancial covenant levels that require December 31, 2008, a net increase of 2% primarily due to the issu- that (i) the Company maintain a maximum leverage ratio of 4.95 at De- ance of Class A Stock pursuant to employee share plans. cember 31, 2009 and (ii) the Company maintain a minimum fi xed charge ratio of 0.95 at December 31, 2009; and (2) an increase in the interest On January 29, 2009, Moody’s Investor Services announced that it rate to LIBOR plus 525 basis points (an increase of 150 basis points). In the had lowered the credit rating on the Company’s Senior Secured Company’s view, the maximum leverage ratio and minimum fi xed charge Credit Note and on Oppenheimer Holdings Inc. from B-1 to B-2 with ratio represent the most restrictive covenants. These ratios adjust each negative outlook, due largely to the poor performance of the busi- quarter in accordance with the loan terms, and become more restrictive ness in 2008. This change in rating did not trigger any covenant vio- over time. At December 31, 2009, the Company was in compliance with lations in connection with any outstanding debt. all of its covenants. Off-Balance Sheet Arrangements The effective interest rate on the Subordinated Note for the year ended Information concerning the Company’s off-balance sheet arrange- December 31, 2009 was 6.18%. Interest expense, as well as interest paid ments is included in note 4 of the notes to the consolidated financial on a cash basis for the year ended December 31, 2009, on the Subordi- statements for the year ended December 31, 2009. Such information nated Note was $6.2 million ($6.9 million in 2008). is hereby incorporated by reference.

Funding Risk Contractual and Contingent Obligations Amounts are expressed in thousands of dollars. The Company has contractual obligations to make future payments Year ended December 31, in connection with non-cancelable lease obligations and debt as- 2009 2008 2007 sumed upon the acquisition of the New Capital Markets Business as well as debt issued in 2006. The Company also has contractual obli- Cash provided by operations $54,717 $59,759 $113,667 gations to make payments to CIBC in connection with deferred Cash used in investing activities (7,762) (65,578) (11,553) compensation earned by former CIBC employees in connection with Cash provided by (used in) the acquisition as well as the earn-out to be paid in 2013 as described fi nancing activities (24,722) 24,802 (97,954) in note 19 of the consolidated financial statements for the year Net increase in cash and cash ended December 31, 2009. Such information is hereby incorporated equivalents $22,233 $18,983 $4,160 by reference. Management believes that funds from operations, combined with the The following table sets forth these contractual and contingent com- Company’s capital base and available credit facilities, are suffi cient for the mitments as at December 31, 2009. Amounts are expressed in millions Company’s liquidity needs in the foreseeable future. (See “Factors Affect- of dollars. ing ‘Forward-Looking Statements’”). Less than 1-3 3-5 More than Other Matters Total 1 Year Years Years 5 Years During the fourth quarter of 2009, the Company did not purchase any Minimum rentals $158 $40 $66 $30 $22 Class A Stock pursuant to the Issuer Bid. Committed capital 4 4 – – – During the fourth quarter of 2009, the Company issued 61,698 shares Earn-out 25 – – 25 – of Class A Stock pursuant to the Company’s share-based compensa- Deferred compensation tion programs. commitments (1) 40 40 – – – On November 27, 2009, the Company paid cash dividends of U.S. $0.11 Revolving commitment (2) 1 – – – 1 per share of Class A and Class B Stock totaling $1.5 million from available Senior Secured Credit Note 33 11 22 – – cash on hand. Subordinated Note 100 – – 100 – On January 28, 2010, the Board of Directors declared a regular quarterly ARS purchase offers (3) 39 36 3 cash dividend of U.S. $0.11 per share of Class A and Class B Stock payable Total $400 $131 $91 $155 $23 on February 26, 2010 to shareholders of record on February 12, 2010. (1) Represents payments to be made to CIBC in relation to deferred incentive compensation to former CIBC employees for awards made On February 5, 2010, the Company was advised of the transfer of an by CIBC prior to the January 14, 2008 acquisition by the Company. aggregate of 44,319 shares of Class B voting common stock from Elka (2) Represents unfunded commitments to provide revolving credit facili- Estates Limited and certain of its shareholders to Phase II Financial Inc., a ties by OPY Credit Corp. company controlled by Albert G. Lowenthal, Chairman and CEO of the (3) Represents payments to be made pursuant to the ARS settlements Company, in exchange for a like number of shares of Class A non-voting entered into with regulators in February 2010. See notes 13 and 20 common stock. The Company was advised that the transaction was initi- to the consolidated fi nancial statements for the year ended Decem- ated by Elka Estates Limited to satisfy estate planning issues. ber 31, 2009.

Oppenheimer Holdings Inc. 21

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 21 3/18/10 3:00:12 PM Infl ation Company’s control, include, but are not limited to: (i) transaction volume Because the assets of the Company’s brokerage subsidiaries are highly in the securities markets, (ii) the volatility of the securities markets, (iii) liquid, and because securities inventories are carried at current market fl uctuations in interest rates, (iv) changes in regulatory requirements values, the impact of infl ation generally is refl ected in the fi nancial which could affect the cost and method of doing business, (v) fl uctuations statements. However, the rate of infl ation affects the Company’s costs in currency rates, (vi) general economic conditions, both domestic and relating to employee compensation, rent, communications and certain international, (vii) changes in the rate of infl ation and the related impact other operating costs, and such costs may not be recoverable in the on the securities markets, (viii) competition from existing fi nancial institu- level of commissions or fees charged. To the extent infl ation results in tions and other participants in the securities markets, (ix) legal develop- rising interest rates and has other adverse effects upon the securities ments affecting the litigation experience of the securities industry and the markets, it may adversely affect the Company’s fi nancial position and Company, including developments arising from the failure of the Auction results of operations. Rate Securities markets, (x) changes in federal and state tax laws which could affect the popularity of products sold by the Company, (xi) the ef- Factors Affecting ‘Forward-Looking Statements’ fectiveness of efforts to reduce costs and eliminate overlap, (xii) war and From time to time, the Company may publish “Forward-looking state- nuclear confrontation, (xiii) the Company’s ability to achieve its business ments” within the meaning of Section 27A of the Securities Act, and plan, (xiv) corporate governance issues, (xv) the impact of the credit crisis Section 21E of the Exchange Act or make oral statements that constitute on business operations, (xvi) the effect of bailout and related legislation, forward-looking statements. These forward-looking statements may re- (xvii) the consolidation of the banking and fi nancial services industry, (xviii) late to such matters as anticipated fi nancial performance, future revenues the effects of the economy on the Company’s ability to fi nd and maintain or earnings, business prospects, projected ventures, new products, antici- fi nancing options and liquidity, (xix) credit, operations, legal and regula- pated market performance, and similar matters. The Private Securities tory risks, and (xx) risks related to foreign operations. There can be no Litigation Reform Act of 1995 provides a safe harbor for forward-looking assurance that the Company has correctly or completely identifi ed and statements. In order to comply with the terms of the safe harbor, the assessed all of the factors affecting the Company’s business. The Com- Company cautions readers that a variety of factors could cause the Com- pany does not undertake any obligation to publicly update or revise any pany’s actual results to differ materially from the anticipated results or forward-looking statements. other expectations expressed in the Company’s forward-looking statements. These risks and uncertainties, many of which are beyond the

Quantitative and Qualitative Disclosures about Market Risk

Risk Management and losses for each trading department are reported to senior manage- The Company’s principal business activities by their nature involve signifi - ment on a daily basis. cant market, credit and other risks. The Company’s effectiveness in managing these risks is critical to its success and stability. In its market-making activities, Oppenheimer must provide liquidity in the equities for which it makes markets. As a result of this, Oppenheimer has As part of its normal business operations, the Company engages in the risk containment policies in place, which limit position size and monitor trading of both fi xed income and equity securities in both a proprietary transactions on a minute-to-minute basis. and market-making capacity. The Company makes markets in over-the- counter equities in order to facilitate order fl ow and accommodate its in- Credit Risk. Credit risk represents the loss that the Company would incur stitutional and retail customers. The Company also makes markets in if a client, counterparty or issuer of securities or other instruments held by municipal bonds, mortgage-backed securities, government bonds and the Company fails to perform its contractual obligations. Given the prob- high yield bonds and short term fi xed income securities and loans issued lems in the credit markets that occurred in 2008, there has been an in- by various corporations. creased focus in the industry about credit risk. The Company follows industry practice to reduce credit risk related to various investing and Market Risk. Market risk generally means the risk of loss that may result fi nancing activities by obtaining and maintaining collateral wherever pos- from the potential change in the value of a fi nancial instrument as a result sible. The Company adjusts margin requirements if it believes the risk ex- of fl uctuations in interest and currency exchange rates and in equity and posure is not appropriate based on market conditions. When Oppen- commodity prices. Market risk is inherent in all types of fi nancial instru- heimer advances funds or securities to a counterparty in a principal ments, including both derivatives and non-derivatives. The Company’s transaction or to a customer in a brokered transaction, it is subject to the exposure to market risk arises from its role as a fi nancial intermediary for risk that the counterparty or customer will not repay such advances. If the its customers’ transactions and from its proprietary trading and arbitrage market price of the securities purchased or loaned has declined or in- activities. creased, respectively, Oppenheimer may be unable to recover some or all of the value of the amount advanced. A similar risk is also present where Oppenheimer monitors market risks through daily profi t and loss state- a customer is unable to respond to a margin call and the market price of ments and position reports. Each trading department adheres to internal the collateral has dropped. In addition, Oppenheimer’s securities positions position limits determined by senior management and regularly reviews are subject to fl uctuations in market value and liquidity. the age and composition of its proprietary accounts. Positions and profi ts

22 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 22 3/18/10 3:00:12 PM In addition to monitoring the credit-worthiness of its customers, Oppen- Value-at-Risk heimer imposes more conservative margin requirements than those of the Value-at-risk is a statistical measure of the potential loss in the fair NYSE. Generally, Oppenheimer limits customer loans to an amount not value of a portfolio due to adverse movements in underlying risk fac- greater than 65% of the value of the securities (or 50% if the securities in tors. In response to the SEC’s market risk disclosure requirements, the the account are concentrated in a limited number of issues). Particular Company has performed a value-at-risk analysis of its trading of fi nan- attention and more restrictive requirements are placed on more highly cial instruments and derivatives. The value-at-risk calculation uses volatile securities traded in the NASDAQ market. In comparison, the NYSE standard statistical techniques to measure the potential loss in fair permits loans of up to 75% of the value of the equity securities in a cus- value based upon a one-day holding period and a 95% confi dence tomer’s account. Further discussion of credit risk appears in note 4 to the level. The calculation is based upon a variance/co-variance methodol- Company’s consolidated fi nancial statements for the year ended Decem- ogy, which assumes a normal distribution of changes in portfolio value. ber 31, 2009. The forecasts of variances and co-variances used to construct the model, for the market factors relevant to the portfolio, were generated Operational Risk. Operational risk generally refers to the risk of loss re- from historical data. Although value-at-risk models are sophisticated sulting from the Company’s operations, including, but not limited to, im- tools, their use can be limited as historical data is not always an accu- proper or unauthorized execution and processing of transactions, defi - rate predictor of future conditions. The Company attempts to manage ciencies in its operating systems, business disruptions and inadequacies or its market exposure using other methods, including trading authoriza- breaches in its internal control processes. The Company operates in diverse tion limits and concentration limits. markets and it is reliant on the ability of its employees and systems to process high numbers of transactions often within short time frames. In At December 31, 2009 and 2008, the Company’s value-at-risk for each the event of a breakdown or improper operation of systems, human error component of market risk was as follows (in thousands of dollars): or improper action by employees, the Company could suffer fi nancial loss, regulatory sanctions or damage to its reputation. In order to mitigate and VAR for Fiscal 2009 VAR for Fiscal 2008 High Low Avg High Low Avg control operational risk, the Company has developed and continues to enhance policies and procedures (including the maintenance of disaster Equity price risk $698 $262 $338 $538 $11 $446 recovery facilities and procedures related thereto) that are designed to Interest rate risk 1,327 1,070 1,224 2,415 1,554 1,746 identify and manage operational risk at appropriate levels. With respect to Commodity price risk 237 8 74 233 133 187 its trading activities, the Company has procedures designed to ensure that Diversifi cation benefi t (1,111) (679) (835) (1,757) (951) (1,260) all transactions are accurately recorded and properly refl ected on the Total $1,151 $661 $801 $1,429 $747 $1,119 Company’s books on a timely basis. With respect to client activities, the Company operates a system of internal controls designed to ensure that transactions and other account activity (new account solicitation, transac- VAR at December 31, tion authorization, transaction processing, billing and collection) are 2009 2008 properly approved, processed, recorded and reconciled. The Company Equity price risk $262 $936 has procedures designed to assess and monitor counterparty risk. For Interest rate risk 1,070 1,378 details of funding risk, see the discussion under the caption “Liquidity and Commodity price risk 8 264 Capital Resources”. Diversifi cation benefi t (679) (1,469) Legal and Regulatory Risk. Legal and regulatory risk includes the risk Total $661 $1,109 of non-compliance with applicable legal and regulatory requirements, client claims and the possibility of sizeable adverse legal judgments. The The potential future loss presented by the total value-at-risk generally falls Company is subject to extensive regulation in the different jurisdictions within predetermined levels of loss that should not be material to the in which it conducts its activities. Regulatory oversight of the securities Company’s results of operations, fi nancial condition or cash fl ows. The industry has become increasingly intense over the past few years and changes in the value-at-risk amounts reported in 2009 from those re- the Company, as well as others in the industry, has been directly affected ported in 2008 refl ect changes in the size and composition of the Com- by this increased regulatory scrutiny. Timely and accurate compliance pany’s trading portfolio at December 31, 2009 compared to December with regulatory requests has become increasingly problematic, and regu- 31, 2008. The Company’s portfolio as at December 31, 2009 includes lators have tended to bring enforcement proceedings in relation to such approximately $13.1 million ($10.7 million in 2008) in corporate equities, matters. See further discussion of these risks under the caption “Regula- which are related to deferred compensation liabilities and which do not tory Environment”. bear any value-at-risk to the Company. The Company used derivative fi - nancial instruments to hedge market risk in fi scal 2009 and 2008, includ- The Company has comprehensive procedures for addressing issues such ing in connection with the Senior Secured Credit Note, which is described as regulatory capital requirements, sales and trading practices, use of and in note 7 of the notes to the consolidated fi nancial statements for the safekeeping of customer funds and securities, granting of credit, collec- year ended December 31, 2009. tion activities, money laundering, and record keeping. The Company has designated Anti-Money Laundering Compliance Offi cers who monitor The value-at-risk estimate has limitations that should be considered in compliance with regulations under the U.S. Patriot Act. See further dis- evaluating the Company’s potential future losses based on the year-end cussion of the Company’s reserve policy under the caption “Critical Ac- portfolio positions. Recent market conditions, including increased volatil- counting Estimates”. ity, may result in statistical relationships that result in higher value-at-risk than would be estimated from the same portfolio under different market Off-Balance Sheet Arrangements. In certain limited instances, the conditions. Likewise, the converse may be true. Critical risk management Company utilizes off-balance sheet arrangements to manage risk. See strategy involves the active management of portfolio levels to reduce further discussion in note 4 to the consolidated fi nancial statements for market risk. The Company’s market risk exposure is continuously moni- the year ended December 31, 2009. tored as the portfolio risks and market conditions change.

Oppenheimer Holdings Inc. 23

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 23 3/18/10 3:00:12 PM Management’s Report on Internal Control over Financial Reporting

Management of Oppenheimer Holdings Inc. is responsible for estab- The Company’s internal control over fi nancial reporting includes policies lishing and maintaining adequate internal control over financial re- and procedures that pertain to the maintenance of records that, in rea- porting. The Company’s internal control over financial reporting is a sonable detail, accurately and fairly refl ect transactions and dispositions process designed under the supervision of the Company’s principal of assets; provide reasonable assurances that transactions are recorded executive and principal financial officers to provide reasonable assur- as necessary to permit preparation of fi nancial statements in accordance ance regarding the reliability of financial reporting and the prepara- with U.S. generally accepted accounting principles, and that receipts tion of the Company’s financial statements for external reporting and expenditures are being made only in accordance with authoriza- purposes in accordance with U.S. generally accepted accounting tions of management and the directors of the Company; and provide principles. reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that As of December 31, 2009, management conducted an assessment of could have a material effect on the Company’s fi nancial statements. the effectiveness of the Company’s internal control over fi nancial reporting based on the framework established in Internal Control–Inte- The Company’s internal control over fi nancial reporting as of December grated Framework issued by the Committee of Sponsoring Organiza- 31, 2009 has been audited by PricewaterhouseCoopers LLP, an indepen- tions of the Treadway Commission (COSO). Based on this assessment, dent registered public accounting fi rm, as stated in their report included management has concluded that the Company’s internal control over herein, which expresses an unqualifi ed opinion on the effectiveness of fi nancial reporting as of December 31, 2009 was effective. the Company’s internal control over fi nancial reporting as of December 31, 2009.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Oppenheimer performing such other procedures as we considered necessary in the Holdings Inc.: circumstances. We believe that our audits provide a reasonable basis for our opinions. In our opinion, the consolidated fi nancial statements listed in the accompanying index present fairly, in all material respects, the fi nancial A company’s internal control over fi nancial reporting is a process de- position of Oppenheimer Holdings Inc. and its subsidiaries at December signed to provide reasonable assurance regarding the reliability of fi - 31, 2009 and 2008, and the results of their operations and their cash nancial reporting and the preparation of fi nancial statements for exter- fl ows for each of the three years in the period ended December 31, nal purposes in accordance with generally accepted accounting 2009 in conformity with accounting principles generally accepted in principles. A company’s internal control over fi nancial reporting in- the United States of America. Also in our opinion, the Company main- cludes those policies and procedures that (i) pertain to the maintenance tained, in all material respects, effective internal control over of records that, in reasonable detail, accurately and fairly refl ect the fi nancial reporting as of December 31, 2009, based on criteria estab- transactions and dispositions of the assets of the company; (ii) provide lished in Internal Control - Integrated Framework issued by the Com- reasonable assurance that transactions are recorded as necessary to mittee of Sponsoring Organizations of the Treadway Commission permit preparation of fi nancial statements in accordance with gener- (COSO). The Company’s management is responsible for these fi nancial ally accepted accounting principles, and that receipts and expenditures statements, for maintaining effective internal control over fi nancial of the Company are being made only in accordance with authoriza- reporting and for its assessment of the effectiveness of internal control tions of management and directors of the Company; and (iii) provide over fi nancial reporting, included in the accompanying Management’s reasonable assurance regarding prevention or timely detection of un- Report on Internal Control over Financial Reporting. Our responsibility authorized acquisition, use, or disposition of the Company’s assets is to express opinions on these fi nancial statements and on the Com- that could have a material effect on the fi nancial statements. pany’s internal control over fi nancial reporting based on our integrated audits. We conducted our audits in accordance with the standards of Because of its inherent limitations, internal control over fi nancial re- the Public Company Accounting Oversight Board (United States). porting may not prevent or detect misstatements. Also, projections of Those standards require that we plan and perform the audits to obtain any evaluation of effectiveness to future periods are subject to the risk reasonable assurance about whether the fi nancial statements are free that controls may become inadequate because of changes in condi- of material misstatement and whether effective internal control over tions, or that the degree of compliance with the policies or procedures fi nancial reporting was maintained in all material respects. Our audits may deteriorate. of the fi nancial statements included examining, on a test basis, evi- dence supporting the amounts and disclosures in the fi nancial statements, assessing the accounting principles used and signifi cant estimates made by management, and evaluating the overall fi nancial statement presentation. Our audit of internal control over fi nancial reporting included obtaining an understanding of internal control over fi nancial reporting, assessing the risk that a material weakness exists, PricewaterhouseCoopers LLP and testing and evaluating the design and operating effectiveness of New York, New York internal control based on the assessed risk. Our audits also included March 4 , 2010

24 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 24 3/18/10 3:00:12 PM Oppenheimer Holdings Inc. Consolidated Balance Sheets As At December 31,

Assets 2009 2008 (Expressed in thousands of dollars)

Cash and cash equivalents ...... $ 68,918 $ 46,685 Cash and securities segregated for regulatory and other purposes ...... 78,133 57,033 Deposits with clearing organizations ...... 25,798 14,355 Receivable from brokers and clearing organizations ...... 390,912 278,235 Receivable from customers, net of allowance for doubtful accounts of $2,378 ($1,764 in 2008) ...... 826,658 647,486 Income taxes receivable ...... 5,509 12,647 Securities purchased under agreements to resell ...... 163,825 – Securities owned, including amounts pledged of $623 ($1,903 in 2008), at fair value ...... 238,372 127,479 Notes receivable, net ...... 61,396 53,446 Ofﬁ ce facilities, net ...... 22,356 27,224 Deferred income taxes, net ...... 15,359 1,088 Intangible assets, net ...... 45,303 50,117 Goodwill ...... 132,472 132,472 Other ...... 128,372 78,292 $ 2,203,383 $1,526,559

Liabilities and Stockholders’ Equity 2009 2008 (Expressed in thousands of dollars, except share amounts)

Liabilities Drafts payable...... $ 48,097 $ 52,565 Bank call loans ...... – 6,500 Payable to brokers and clearing organizations ...... 436,018 159,648 Payable to customers ...... 488,360 408,303 Securities sold under agreements to repurchase ...... 155,625 – Securities sold, but not yet purchased, at fair value ...... 131,739 27,454 Accrued compensation ...... 202,525 179,649 Accounts payable and other liabilities ...... 150,049 112,031 Senior secured credit note ...... 32,503 47,663 Subordinated note ...... 100,000 100,000 Excess of fair value of acquired assets over cost ...... 7,020 7,020 1,751,936 1,100,833

Stockholders’ equity Share capital Class A non-voting common stock (2009 – 13,118,001 shares issued and outstanding 2008 – 12,899,465 shares issued and outstanding) ...... 47,691 43,520 Class B voting common stock 99,680 shares issued and outstanding ...... 133 133 47,824 43,653 Contributed capital ...... 41,978 34,924 Retained earnings ...... 362,188 348,477 Accumulated other comprehensive loss ...... (543) (1,328) 451,447 425,726 $ 2,203,383 $1,526,559

Approved on behalf of

Director Director The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

Oppenheimer Holdings Inc. 25

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 25 3/18/10 3:00:12 PM Oppenheimer Holdings Inc. Consolidated Statements of Operations For the year ended December 31,

2009 2008 2007 (Expressed in thousands of dollars, except per share amounts)

Revenue: Commissions ...... $ 555,574 $ 532,682 $ 382,053 Principal transactions, net ...... 107,094 20,651 41,441 Interest ...... 35,960 61,793 110,114 Investment banking ...... 90,960 83,541 103,734 Advisory fees ...... 160,705 198,960 249,358 Other ...... 41,140 22,443 27,697 991,433 920,070 914,397

Expenses: Compensation and related expenses ...... 672,325 626,030 540,200 Clearing and exchange fees ...... 26,748 31,007 16,388 Communications and technology ...... 62,724 75,359 52,288 Occupancy and equipment costs ...... 74,372 69,945 48,607 Interest ...... 21,050 38,998 56,643 Other ...... 99,401 114,774 72,877 956,620 956,113 787,003 Proﬁ t (loss) before income taxes ...... 34,813 (36,043) 127,394

Income tax provision (beneﬁ t) ...... 15,326 (15,273) 52,027 Net proﬁ t (loss) for the year $ 19,487 $ (20,770) $ 75,367

Earnings (loss) per share Basic ...... $1.49 $(1.57) $5.70 Diluted ...... $1.45 $(1.57) $5.57

Consolidated Statements of Comprehensive Income (Loss) For the year ended December 31,

2009 2008 2007 (Expressed in thousands of dollars)

Net proﬁ t (loss) for year ...... $19,487 $(20,770) $75,367

Other Comprehensive income (loss): Currency translation adjustment ...... (99) 31 – Change in cash ﬂ ow hedges, net of tax ...... 884 (388) (971)

Comprehensive income (loss) for the year ...... $20,272 $(21,127) $74,396

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

26 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 26 3/18/10 3:00:12 PM Oppenheimer Holdings Inc. Consolidated Statements of Changes in Stockholders’ Equity For the year ended December 31,

2009 2008 2007 (Expressed in thousands of dollars)

Share Capital Balance at beginning of year ...... $ 43,653 $ 53,054 $ 41,226 Issuance of Class A non-voting common stock ...... 4,730 7,786 11,828 Repurchase of Class A non-voting common stock for cancellation ...... (559) (17,187) –

Balance at end of year $ 47,824 $ 43,653 $ 53,054

Contributed Capital Balance at beginning of year ...... $ 34,924 $16,760 $ 11,662 Issuance of warrant to purchase 1 million shares of Class A non-voting common stock ...... – 10,487 – Tax beneﬁ t from share-based awards ...... 230 698 915 Share-based expense ...... 7,001 7,334 4,183 Vested employee share plan awards ...... (177) (355) –

Balance at end of year $ 41,978 $ 34,924 $ 16,760

Retained Earnings Balance at beginning of year ...... $ 348,477 $ 375,137 $ 306,153 Cumulative effect of an accounting change ...... – – (823) Net proﬁ t (loss) for year ...... 19,487 (20,770) 75,367 Dividends paid ($0.44 per share in 2009; $0.44 per share in 2008; $0.42 per share in 2007) ...... (5,776) (5,890) (5,560)

Balance at end of year $ 362,188 $ 348,477 $ 375,137

Accumulated Other Comprehensive Loss Balance at beginning of year ...... $ (1,328) $(971) – Currency translation adjustment ...... (99) 31 – Change in cash ﬂ ow hedges, net of tax ...... 884 (388) $ (971)

Balance at end of year ...... $ (543) $ (1,328) $ (971)

Total Stockholders’ Equity ...... $ 451,447 $ 425,726 $ 443,980

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

Oppenheimer Holdings Inc. 27

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 27 3/18/10 3:00:12 PM Oppenheimer Holdings Inc. Consolidated Statements of Cash Flows For the year ended December 31,

2009 2008 2007 (Expressed in thousands of dollars) Cash fl ows from operating activities: Net profi t (loss) for year ...... $ 19,487 $ (20,770) $ 75,367 Adjustments to reconcile net profi t to net cash provided by operating activities: Non-cash items included in net profi t (loss): Depreciation and amortization of offi ce facilities and leasehold improvements ...... 12,630 11,474 9,691 Deferred income taxes ...... (14,271) (12,300) 7,621 Amortization of notes receivable ...... 18,462 16,761 19,419 Amortization of debt issuance costs ...... 1,188 1,227 1,218 Amortization of intangible assets ...... 4,814 5,058 735 Provision for doubtful accounts ...... 352 1,473 (37) Share-based compensation ...... 17,246 (112) 9,657 Gain on extinguishment of zero coupon note ...... – – (2,455) Decrease (increase) in operating assets: Cash and securities segregated for regulatory and other purposes ...... (21,100) 10,529 (22,527) Deposits with clearing organizations ...... (11,443) 2,047 (5,047) Receivable from brokers and clearing organizations . . . (112,677) 394,047 (28,368) Receivable from customers ...... (179,524) 230,773 99,655 Income taxes receivable ...... 7,138 (12,647) – Securities purchased under agreements to resell ...... (163,825) – – Securities owned ...... (110,893) 81,618 8,597 Notes receivable ...... (26,412) (25,284) (12,002) Other assets ...... (51,367) 43,990 (33,164) Increase (decrease) in operating liabilities: Drafts payable ...... (4,468) (4,360) (716) Payable to brokers and clearing organizations ...... 277,254 (649,734) (115,502) Payable to customers ...... 80,057 (37,996) 61,418 Securities sold under agreements to repurchase ...... 155,625 Securities sold, but not yet purchased ...... 104,285 (14,333) 2,098 Accrued compensation ...... 14,141 34,334 32,935 Accounts payable and other liabilities ...... 38,018 14,984 7,283 Income taxes payable ...... – (11,020) (2,209) Cash provided by operating activities ...... 54,717 59,759 113,667 Cash fl ows from investing activities: Acquisition, net of cash acquired ...... – (50,335) – Purchase of offi ce facilities ...... (7,762) (15,243) (11,553) Cash used in investing activities ...... (7,762) (65,578) (11,553)

Cash fl ows from fi nancing activities: Cash dividends paid on Class A non-voting and Class B voting common stock ...... (5,776) (5,890) (5,560) Issuance of Class A non-voting common stock ...... 3,043 5,740 10,970 Repurchase of Class A non-voting common stock for cancellation ...... (559) (17,187) – Tax benefi t from share-based awards ...... 230 698 915 Repayments of zero coupon promissory notes ...... – – (12,121) Debt issuance costs ...... – (397) (608) Issuance of subordinated note ...... – 100,000 – Repayments of senior secured credit note ...... (15,160) (35,662) (41,050) Decrease in bank call loans, net ...... (6,500) (22,500) (50,500) Cash (used in) provided by fi nancing activities . . . . . (24,722) 24,802 (97,954) Net increase in cash and cash equivalents ...... 22,233 18,983 4,160 Cash and cash equivalents, beginning of year ...... 46,685 27,702 23,542 Cash and cash equivalents, end of year $ 68,918 $ 46,685 $ 27,702

Schedule of non-cash investing and ﬁ nancing Activities: Warrants issued ...... – $ 10,487 – Employee share plan issuance ...... $ 1,687 $ 2,046 $ 2,408

Supplemental disclosure of cash ﬂ ow information: Cash paid during the year for interest ...... $ 16,248 $ 32,078 $ 57,429 Cash paid during the year for income taxes ...... $ 23,719 $ 13,750 $ 45,900

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

28 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 28 3/18/10 3:00:12 PM Oppenheimer Holdings Inc. Notes to Consolidated Financial Statements As At December 31,

1. Summary of signifi cant accounting policies Financial Instruments and Fair Value Basis of Presentation Financial Instruments Securities owned and securities sold but not yet purchased, investments Oppenheimer Holdings Inc. (”OPY”) is incorporated under the laws of the and derivative contracts are carried at fair value with changes in fair value State of Delaware. On May 11, 2009, the jurisdiction of incorporation of OPY recognized in earnings each period. The Company’s other fi nancial in- was changed from Canada to Delaware. The consolidated fi nancial state- struments are generally short-term in nature or have variable interest ments include the accounts of OPY and its subsidiaries (together, the rates and as such their carrying values approximate fair value, with the “Company”). The principal subsidiaries of OPY are Oppenheimer & Co. Inc. exception of notes receivable from employees which are carried at cost. (“Oppenheimer”), a registered broker dealer in securities, Oppenheimer As- set Management Inc. (“OAM”) and its wholly owned subsidiary, Oppen- Financial Instruments Used for Asset and Liability Management heimer Investment Management Inc. (“OIM”), both registered investment The Company utilizes interest rate swap agreements to manage interest advisors under the Investment Advisors Act of 1940, Oppenheimer Trust rate risk of its variable rate Senior Secured Credit Note and an interest rate Company, a limited purpose trust company chartered by the State of New cap contract, incorporating a series of purchased caplets with fi xed matu- Jersey to provide fi duciary services such as trust and estate administration and rity dates ending December 31, 2012, to hedge the interest payments investment management, Evanston Financial Corporation (“Evanston”), associated with its fl oating rate Subordinated Note. These interest rate which is engaged in mortgage brokerage and servicing, and OPY Credit swaps and the interest rate cap have been designated as cash fl ow Corp., which offers syndication as well as trading of issued corporate loans. hedges under the accounting guidance for derivative instruments and Oppenheimer E.U. Ltd., based in the United Kingdom, provides institutional hedging activities. Changes in the fair value of the interest rate swaps and equities and fi xed income brokerage and corporate fi nancial services and is interest cap hedges are expected to be highly effective in offsetting regulated by the Financial Services Authority. Oppenheimer Investments Asia changes in the interest payments due to changes in the 3-Month London Limited, based in Hong Kong, China, provides assistance in accessing the U.S. Interbank Offering Rate (“LIBOR”). equities markets and limited mergers and acquisitions advisory services to Asia-based companies. Oppenheimer operates as Fahnestock & Co. Inc. in Fair Value Measurements Latin America. Oppenheimer owns Freedom Investments, Inc. (“Freedom”), Effective January 1, 2008, the Company adopted the accounting guid- a registered broker dealer in securities, which also operates as the BUYand- ance for the fair value measurement of fi nancial assets, which defi nes HOLD division of Freedom, offering on-line discount brokerage and fair value, establishes a framework for measuring fair value, establishes a dollar-based investing services, and Oppenheimer Israel (OPCO) Ltd., which is fair value measurement hierarchy, and expands fair value measurement engaged in offering investment services in the State of Israel as a local broker disclosures. Fair value, as defi ned by the accounting guidance, is the dealer. Oppenheimer holds a trading permit on the New York Stock Exchange price that would be received in the sale of an asset or paid to transfer a and is a member of several other regional exchanges in the United States. liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy established by this account- These consolidated fi nancial statements have been prepared in confor- ing guidance prioritizes the inputs used in valuation techniques into the mity with accounting principles generally accepted in the United States of following three categories (highest to lowest priority): America for purpose of inclusion in the Company’s Annual Report on Form 10-K and in its annual report to shareholders. All material intercom- Level 1: Observable inputs that refl ect quoted prices (unadjusted) for pany transactions and balances have been eliminated in the preparation identical assets or liabilities in active markets; of the consolidated fi nancial statements. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and Description of Business The Company engages in a broad range of activities in the securities Level 3: Unobservable inputs. industry, including retail securities brokerage, institutional sales and The Company’s fi nancial instruments are recorded at fair value and trading, investment banking (both corporate and public fi nance), re- generally are classifi ed within Level 1 or Level 2 within the fair value search, market-making, trust services, and investment advisory and asset hierarchy using quoted market prices or quotes from market makers or management services. broker-dealers. Financial instruments classifi ed within Level 1 are valued based on quoted market prices in active markets and consist of U.S. Use of Estimates government, federal agency, and sovereign government obligations, The preparation of the consolidated fi nancial statements in conformity corporate equities, and certain money market instruments. Level 2 with generally accepted accounting principles requires management to fi nancial instruments primarily consist of investment grade and high- make estimates and assumptions that affect the reported amounts of as- yield corporate debt, convertible bonds, mortgage and asset-backed sets and liabilities and disclosures of contingent assets and liabilities at the securities, municipal obligations, and certain money market instru- dates of the consolidated fi nancial statements and the reported amounts ments. Financial instruments classifi ed as Level 2 are valued based on of revenue and expenses during the reporting periods. quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets In presenting the consolidated fi nancial statements, management makes that are not active. Some fi nancial instruments are classifi ed within estimates regarding valuations of fi nancial instruments, loans and allow- Level 3 within the fair value hierarchy as observable pricing inputs are ances for doubtful accounts, the outcome of legal and regulatory matters, not available due to limited market activity for the asset or liability. Such the carrying amount of goodwill and other intangible assets, valuation of fi nancial instruments include investments in hedge funds and private stock-based compensation plans, and income taxes. Estimates, by their equity funds where the Company is general partner, less-liquid private nature, are based on judgment and available information. Therefore, label mortgage and asset-backed securities, certain distressed municipal actual results could be materially different from these estimates. A discus- securities, and auction rate securities. A description of the valuation sion of certain areas in which estimates are a signifi cant component of the techniques applied and inputs used in measuring the fair value of the amounts reported in the consolidated fi nancial statements follows. Company’s fi nancial instruments is located in note 4.

Oppenheimer Holdings Inc. 29

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 29 3/18/10 3:00:12 PM Fair Value Option at least an annual test for impairment to determine if the fair value of The Company has the option to measure certain fi nancial assets and fi - goodwill of a reporting unit is less than its estimated carrying amount. The nancial liabilities at fair value with changes in fair value recognized in Company derives the estimated carrying amount of its operating seg- earnings each period. The Company may make a fair value option election ments by estimating the amount of stockholders’ equity required to on an instrument-by-instrument basis at initial recognition of an asset or support the activities of each operating segment. liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected to apply the fair value option Accounting standards require goodwill of a reporting unit to be tested for to its loan trading portfolio which resides in OPY Credit Corp. and is impairment between annual tests if an event occurs or circumstances included in other assets on the consolidated balance sheet. Management change that would more likely than not reduce the fair value of a report- has elected this treatment as it is consistent with the manner in which the ing unit below its carrying amount. Goodwill recorded as at December 31, business is managed as well as the way that fi nancial instruments in other 2009 has been tested for impairment and it has been determined that no parts of the business are recorded. There was one loan position held in the impairment has occurred (see note 15 for further discussion). secondary loan trading portfolio at December 31, 2009 with a par value of $950,000 (nil in 2008) and a fair value of $940,000 which is catego- Excess of fair value of assets acquired over cost arose from the acquisition rized in Level 2 of the fair value hierarchy. of the New Capital Markets Business (see note 19 for further discussion). If the earn-out from the acquisition of the New Capital Markets Business Loans and Allowances for Doubtful Accounts exceeds $5.0 million in any of the fi ve years from 2008 through 2012, the Customer receivables, primarily consisting of margin loans collateralized excess will fi rst reduce the excess of fair value of acquired assets over cost by customer-owned securities, are charged interest at rates similar to and second will create goodwill. other such loans made throughout the industry. Customer receivables are stated net of allowance for doubtful accounts. The Company Intangible Assets reviews large customer accounts that do not comply with the Company’s Intangible assets arose upon the acquisition, in January 2003, of the U.S. margin requirements on a case-by-case basis to determine the likeli- Private Client and Asset Management Divisions of CIBC World Markets hood of collection and records an allowance for doubtful accounts Inc. (the “Oppenheimer Divisions”) and comprise customer relationships following that process. For small customer accounts that do not comply and trademarks and trade names. Customer relationships of $4.9 million with the Company’s margin requirements, the allowance for doubtful were amortized on a straight-line basis over 80 months commencing in accounts is generally recorded as the amount of unsecured or partially January 2003 (fully amortized and carried at $nil as at December 31, secured receivables. 2009). Trademarks and trade names, carried at $31.7 million, which are not amortized, are subject to at least an annual test for impairment to The Company also makes loans or pays advances to fi nancial advisors as determine if the fair value is less than their carrying amount. See note 15 part of its hiring process. Reserves are established on these receivables if for further discussion. the fi nancial advisor is no longer associated with the Company and the receivable has not been promptly repaid or if it is determined that it is Intangible assets also arose from the acquisition of the New Capital Mar- probable the amount will not be collected. kets Business in January 2008 and are comprised of customer relationships and a below market lease. Customer relationships are carried at $817,800 Legal and Regulatory Reserves (which is net of accumulated amortization of $123,200) as at December The Company records reserves related to legal and regulatory proceedings 31, 2009 and are being amortized on a straight-line basis over 180 months in accounts payable and other liabilities. The determination of the amounts commencing in January 2008. The below market lease is carried at $12.8 of these reserves requires signifi cant judgment on the part of management. million (which is net of accumulated amortization of $8.5 million) as at In accordance with applicable accounting guidance, the Company estab- December 31, 2009 and is being amortized on a straight-line basis over lishes reserves for litigation and regulatory matters when those matters 60 months commencing in January 2008. present loss contingencies that are probable and estimable. When the contingencies are not probable and estimable, the Company does not es- Trademarks and trade names recorded as at December 31, 2009 have tablish reserves. When determining whether to record a reserve, manage- been tested for impairment and it has been determined that no impairment considers many factors including, but not limited to: the amount of ment has occurred (see note 15 for further discussion). the claim; specifi cally in the case of client litigation, the amount of the loss in the client’s account and the possibility of wrongdoing, if any, on the part Share-Based Compensation Plans of an employee of the Company; the basis and validity of the claim; previ- The Company estimates the fair value of share-based awards using the ous results in similar cases; and legal precedents and case law as well as the Black-Scholes option-pricing model and applies to it a forfeiture rate based timing of the resolution of such matters. Each legal and regulatory proceed- on historical experience. Key input assumptions used to estimate the fair ing is reviewed with counsel in each accounting period and the reserve is value of share-based awards include the expected term and the expected adjusted as deemed appropriate by management. Any change in the reserve volatility of the Company’s Class A Stock over the term of the award, the amount is recorded in the results of that period. The assumptions of man- risk-free interest rate over the expected term, and the Company’s expected agement in determining the estimates of reserves may be incorrect and the annual dividend yield. Estimates of fair value are not intended to predict actual disposition of a legal or regulatory proceeding could be greater or actual future events or the value ultimately realized by persons who receive less than the reserve amount. share-based awards. See note 12 for further discussion.

Goodwill Revenue Recognition Goodwill arose upon the acquisitions of Oppenheimer, Old Michigan Brokerage Corp., Josephthal & Co. Inc., Grand Charter Group Incorporated and the Customers’ securities and commodities transactions are reported on a settle- Oppenheimer Divisions, as deﬁ ned below. The Company deﬁ nes a report- ment date basis, which is generally three business days after trade date for ing unit as an operating segment. The Company’s goodwill resides in its securities transactions and one day for commodities transactions. Related Private Client Division (“PCD”). Goodwill of a reporting unit is subject to commission income and expense is recorded on a trade date basis.

30 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 30 3/18/10 3:00:12 PM Principal transactions forgiven over a service period of 3 to 5 years from the initial date of Transactions in proprietary securities and related revenue and expenses the loan or based on productivity levels of employees and all such are recorded on a trade date basis. Securities owned and securities notes are contingent on the employees’ continued employment with sold, but not yet purchased, are reported at fair value generally based the Company. The unforgiven portion of the notes becomes due on upon quoted prices. Realized and unrealized changes in fair value are demand in the event the employee departs during the service period. recognized in principal transactions, net in the period in which the Management monitors and compares individual fi nancial advisor change occurs. production to each loan issued to ensure future recoverability. Amorti- zation of notes receivable is included in the statements of operations Fees in compensation and related expenses. Underwriting revenues and advisory fees from mergers, acquisitions and restructuring transactions are recorded when services for the transactions Securities purchased under agreements to resell and securities sold under are substantially completed and income is reasonably determinable, agreements to repurchase generally as set forth under the terms of the engagement. Transaction- Transactions involving purchases of securities under agreements to resell related expenses, primarily consisting of legal, travel and other costs (“resale agreements”) or sales of securities under agreements to repurchase directly associated with the transaction, are deferred and recognized in (“repurchase agreements”) are treated as collateralized fi nancing transac- the same period as the related investment banking transaction revenue. tions and are recorded at their contractual amounts plus accrued interest. Underwriting revenues are presented net of related expenses. Non-reim- The resulting interest income and expense for these arrangements are bursed expenses associated with advisory transactions are recorded included in interest income and interest expense in the consolidated state- within other expenses. ments of operations. The Company can present the resale and repurchase transactions on a net-by-counterparty basis when the specifi c offsetting Asset Management requirements are satisfi ed. See note 4 for further discussion. Asset management fees are generally recognized over the period the related service is provided based on the account value at the valuation From time-to-time, the Company enters into securities fi nancing trans- date per the respective asset management agreements. In certain actions that mature on the same date as the underlying collateral. The circumstances, OAM is entitled to receive performance fees when the Company accounts for these transactions in accordance with the return on assets under management exceeds certain benchmark returns accounting guidance for transfers and servicing. Such transactions are or other performance targets. Performance fees are generally based on treated as a sale of fi nancial assets and a forward repurchase commit- investment performance over a 12-month period and are not subject to ment, or conversely as a purchase of fi nancial assets and a forward resale adjustment once the measurement period ends. Such fees are computed commitment. The forward repurchase and resale commitments are as at the fund’s year-end when the measurement period ends and gen- accounted for as derivatives under the accounting guidance for deriva- erally are recorded as earned in the fourth quarter of the Company’s tives and hedging. fi scal year. Asset management fees and performance fees are included in advisory fees in the consolidated statements of operations. Assets Offi ce Facilities under management are not included as assets of the Company. Offi ce facilities are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of furniture, fi xtures, and Balance Sheet Items equipment is provided on a straight-line basis generally over 3-7 years. Cash and Cash Equivalents Leasehold improvements are amortized on a straight-line basis over the The Company defi nes cash equivalents as highly liquid investments with shorter of the life of the improvement or the remaining term of the lease. original maturities of less than 90 days that are not held for sale in the Leases with escalating rents are expensed on a straight-line basis over the ordinary course of business. life of the lease. Landlord incentives are recorded as deferred rent and amortized, as reductions to lease expense, on a straight-line basis over the Receivables From / Payables To Brokers and Clearing Organizations life of the applicable lease. Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received. Securities borrowed transactions re- Debt Issuance Costs quire the Company to deposit cash or other collateral with the lender. The Debt issuance costs, included in other assets, from the issuance and Company receives cash or collateral in an amount generally in excess of amendment of the Senior Secured Credit Note are reported in the con- the market value of securities loaned. The Company monitors the market solidated balance sheet as deferred charges and amortized using the in- value of securities borrowed and loaned on a daily basis and may require terest method. Debt issuance costs include underwriting and legal fees as counterparties to deposit additional collateral or return collateral pledged, well as other incremental expenses directly attributable to realizing the when appropriate. proceeds of the Senior Secured Credit Note.

Securities failed to deliver and receive represent the contract value of Drafts Payable securities which have not been received or delivered by settlement date. Drafts payable represent amounts drawn by the Company against a bank.

Notes Receivable Foreign Currency Translations The Company had notes receivable, net from employees of approxi- Foreign currency balances have been translated into U.S. dollars as fol- mately $61.4 million at December 31, 2009. The notes are recorded in lows: monetary assets and liabilities at exchange rates prevailing at period the consolidated balance sheet at face value of approximately $109 end; revenue and expenses at average rates for the period; and non- million less accumulated amortization and reserves of $39.7 million monetary assets and stockholders’ equity at historical rates. Cumulative and $7.9 million, respectively, at December 31, 2009. These amounts translation adjustments of $99,000 are included in accumulated other represent recruiting and retention payments generally in the form of comprehensive loss. The functional currency of the overseas operations is upfront loans to ﬁ nancial advisors and key revenue producers as part the local currency in each location except for Oppenheimer E.U. Ltd. of the Company’s overall growth strategy. These loans are generally which has the U.S. dollar as its functional currency.

Oppenheimer Holdings Inc. 31

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 31 3/18/10 3:00:12 PM Income Taxes fair value of an asset in a market that is not active and to provide an Deferred income tax assets and liabilities arise from temporary differences example to illustrate key considerations in determining the fair value of a between the tax basis of an asset or liability and its reported amount in fi nancial instrument when the market for that fi nancial asset is not active. the consolidated fi nancial statements. Deferred tax balances are deter- Additionally, the updated guidance provides direction for estimating the mined by applying the enacted tax rates applicable to the periods in which fair value of an asset or liability when the volume and level of activity for items will reverse. the asset or liability have signifi cantly decreased. This updated guidance also includes direction on identifying circumstances that indicate a In June 2006, accounting guidance on accounting for uncertainty in income transaction is not orderly. The adoption of the updated guidance did not taxes was introduced. This guidance prescribes a recognition threshold and have a material impact on the Company’s fi nancial condition, results of measurement attribute for the fi nancial statement recognition and measure- operations or cash fl ows. ment of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classifi cation, interest and penalties, In April 2009, the FASB updated the accounting guidance for fair value accounting in interim periods, disclosure and transition. measurements and disclosures. The updated guidance is effective for interim reporting periods ending after June 15, 2009, with early adop- The Company adopted such accounting guidance on January 1, 2007 tion permitted for periods ending after March 15, 2009. The updated which resulted in a cumulative adjustment to opening retained earnings in guidance requires disclosures about fair value of fi nancial instruments for the amount of $823,000. See note 11 for further discussion. Management interim reporting periods of publicly traded companies as well as in has evaluated its tax positions for the year ended December 31, 2009 and annual fi nancial statements. Since the updated guidance requires only determined that it has no uncertain tax positions requiring fi nancial state- additional disclosures about the fair value of fi nancial instruments, the ment recognition as of December 31, 2009. Company’s adoption of the updated guidance did not affect the Com- pany’s fi nancial condition, results of operations or cash fl ows. Share-Based Payments The Company has share-based compensation plans which are accounted In May 2009, the FASB updated the accounting guidance relating to for at fair value in accordance with the applicable accounting guidance. disclosure requirements for subsequent events. The updated guidance is See note 12 for further discussion. effective for interim and annual periods ending after June 15, 2009. The updated guidance establishes general direction in the accounting for Interest Expense and disclosure of events that occur after the balance sheet date but before fi nancial statements are issued or are available to be issued. Since Interest expense is primarily comprised of interest on bank call loans, the the updated guidance requires only additional disclosure, the Company’s Senior Secured Credit Note, the Subordinated Note, securities loaned, adoption did not have an impact on its fi nancial condition, results of repurchase agreements, and customer payables. operations or cash fl ows. New Accounting Pronouncements In August 2009, the FASB issued Accounting Standards Update (“ASU”) Recently Adopted No. 2009-05, “Fair Value Measurements and Disclosures – Measuring The Financial Accounting Standards Board (“FASB”) Accounting Standards Liabilities at Fair Value.” ASU No. 2009-05 provides guidance on measur- Codifi cation (“ASC”) is effective for fi nancial reporting periods ending ing liabilities when a quoted price in an active market for an identical after September 15, 2009. The Codifi cation is now the single source of liability is not available and clarifi es that a reporting entity is not required authoritative generally accepted accounting principles (“GAAP”) applica- to include a separate input or adjustment relating to the existence of a ble to non-governmental entities in the United States. restriction that prevents the transfer of the liability. ASU No. 2009-05 is effective for fi nancial statements issued for the fi rst reporting period be- In February 2008, the FASB updated the accounting guidance for transfers ginning after issuance of the ASU. The Company’s adoption did not have and servicing of fi nancial assets applicable for fi scal years beginning after an impact on its fi nancial condition, results of operations or cash fl ows. November 15, 2008, and to be applied to transactions entered into after the date of adoption. The updated guidance requires an initial transfer of a fi nan- In September 2009, the FASB issued ASU No. 2009-12, “Investments in cial asset and a repurchase fi nancing that was entered into contemporane- Certain Entities that Calculate Net Asset Value Per Share (or its Equiva- ously or in contemplation of the initial transfer to be evaluated as a linked lent).” ASU No. 2009-12 provides guidance about using net asset value transaction unless certain criteria are met, including that the transferred asset to measure the fair value of interests in certain investment funds and must be readily obtainable in the marketplace. The Company adopted the requires additional disclosures about interests in investment funds. ASU updated guidance in the fi rst quarter of 2009 and the adoption did not have No. 2009-12 is effective for fi nancial statements issued for reporting an impact on its fi nancial condition, results of operations or cash fl ows. periods ending after December 15, 2009, with earlier application permitted. Because this update is consistent with the Company’s existing In March 2008, the FASB updated the accounting guidance relating to fair value measurement policy for its investment funds, the Company’s disclosure requirements for derivatives and hedging. The updated guid- adoption did not have an impact on its fi nancial condition, results of ance is effective for fi nancial statements issued for fi scal years beginning operations or cash fl ows. after November 15, 2008. The updated guidance requires enhanced disclosures about an entity’s derivative and hedging activities. The Com- Recently Issued pany adopted the updated guidance in the fi rst quarter of 2009. Since In June 2009, the FASB updated the accounting guidance for transfers the updated guidance requires only additional disclosures concerning and servicing of fi nancial assets. The updated guidance eliminates the derivatives and hedging activities, adoption did not affect the Company’s concept of a qualifying special-purpose entity (“QSPE”) and establishes a fi nancial condition, results of operations or cash fl ows. new “participating interest” defi nition that must be met for transfers of portions of fi nancial assets to be eligible for sale accounting. In addition, In October 2008, the FASB updated the accounting guidance for fair value the updated guidance provides clarifi cation and amendments to the measurements and disclosures to provide guidance for determining the derecognition criteria for a transfer to be accounted for as a sale and

32 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 32 3/18/10 3:00:12 PM changes the amount of recognized gains or losses on transfers accounted 3. Receivable from and Payable to Brokers and Clearing for as a sale when benefi cial interests are received by the transferor. The Organizations updated guidance also provides extensive new disclosure requirements As at December 31, for collateral transferred, servicing assets and liabilities, transfers Expressed in thousands of dollars. 2009 2008 accounted for as sales in securitization and asset-backed fi nancing Receivable from brokers and arrangements when the transferor has continuing involvement with the clearing organizations consist of: transferred assets, and transfers of fi nancial assets accounted for as Deposits paid for securities borrowed $299,925 $192,980 secured borrowings. The updated guidance will be applied prospectively Receivable from brokers 23,019 27,517 to new transfers of fi nancial assets occurring in fi scal years beginning after Securities failed to deliver 20,532 17,965 November 15, 2009 and is not expected to have material impact on the Clearing organizations 17,291 14,318 Company’s fi nancial condition, results of operations or cash fl ows. Omnibus accounts 9,192 8,233 In June 2009, the FASB updated the accounting guidance for consolida- Other 20,953 17,222 tion. The updated guidance amends the consolidation framework for $390,912 $278,235 variable interest entities (“VIEs”) by requiring enterprises to qualitatively assess the determination of the primary benefi ciary of a VIE based on Payable to brokers and clearing organizations consist of: whether the entity (1) has the power to direct matters that most signifi - Deposits received for securities loaned $412,420 $114,919 cantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefi ts of the VIE that could potentially be Securities failed to receive 21,728 31,502 signifi cant to the VIE. The updated guidance changes the consideration Clearing organizations and other 1,870 13,227 of “kick-out” rights in determining if an entity is a VIE, which may cause $436,018 $159,648 certain additional entities to now be considered VIEs. The updated guidance requires an ongoing reconsideration of the primary benefi ciary. It 4. Financial instruments also amends the events that trigger a reassessment of whether an entity is a VIE. The updated guidance also expands the disclosures required in Securities owned and securities sold but not yet purchased, investments respect of VIEs. The transition requirements of the updated guidance and derivative contracts are carried at fair value with changes in fair value stipulate that assets, liabilities, and non-controlling interests of the VIE recognized in earnings each period. The Company’s other fi nancial instru- be measured at their carrying amounts as if the statement had been ments are generally short-term in nature or have variable interest rates applied from the inception of the VIE with any difference refl ected as a and as such their carrying values approximate fair value, with the excep- cumulative effect adjustment. In February 2010, the FASB issued ASU No. tion of notes receivable from employees which are carried at cost. 2010-10, “Consolidation – Amendments for Certain Investment Funds”, Securities Owned and Securities Sold, But Not Yet Purchased at Fair Value that will indefi nitely defer the effective date of this accounting guidance for certain investment funds. The investment funds will need to have As at December 31, certain attributes of an investment company to qualify for the deferral. Expressed in thousands of dollars. 2009 2008 The Company’s investment funds are expected to meet the attributes of Owned Sold Owned Sold an investment company and qualify for the deferral of adoption of this U.S. Treasury, agency and guidance. The Company is currently evaluating the impact of this stan- sovereign obligations $84,168 $74,152 $20,751 $1,212 dard on its fi nancial condition, results of operations and cash fl ows. Corporate debt and other obligations 30,330 7,323 23,667 6,370 In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measure- Mortgage and other asset-backed securities 4,035 5 7,535 4 ment”. ASU No. 2010-06 requires new disclosures regarding transfers of assets and liabilities measured at fair value in and out of Level 1 and 2 of Municipal obligations 34,606 1,707 15,051 1,024 the fair value hierarchy. A reporting entity should disclose separately the Convertible bonds 35,001 12,121 19,730 3,806 amounts of signifi cant transfers in and out of Level 1 and Level 2 fair value Corporate equities 43,728 36,286 33,959 14,595 measurements and describe the reasons for the transfer. In addition, the Other 6,504 145 6,786 443 new disclosure standards require the reconciliation of beginning and end- Total $238,372 $131,739 $127,479 $27,454 ing balances for fair value measurements using signifi cant unobservable inputs (i.e., Level 3) to be presented on a gross basis. Such disclosure is Securities owned and securities sold, but not yet purchased, consist of trading effective for reporting periods beginning after December 15, 2009. The and investment securities at fair values. Included in securities owned at De- Company will adopt this ASU in the fi rst quarter of 2010. cember 31, 2009 are corporate equities with estimated fair values of approximately $13.1 million ($10.7 million at December 31, 2008), which are related to deferred compensation liabilities to certain employees included in 2. Cash and Securities Segregated For Regulatory and Other accrued compensation on the consolidated balance sheet. Purposes Deposits of $28.5 million were held at year-end in special reserve bank Valuation Techniques accounts for the exclusive benefi t of customers in accordance with regula- A description of the valuation techniques applied and inputs used in measur- tory requirements at December 31, 2009 (2008 - $25.1 million). To the ing the fair value of the Company’s fi nancial instruments is as follows: extent permitted, these deposits are invested in interest bearing accounts collateralized by qualifi ed securities. U.S. Treasury Obligations U.S. Treasury securities are valued using quoted market prices obtained Evanston had client funds held in escrow totaling $49.7 million at December from active market makers and inter-dealer brokers and, accordingly, are 31, 2009 (2008 - $31.4 million). categorized in Level 1 in the fair value hierarchy.

Oppenheimer Holdings Inc. 33

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 33 3/18/10 3:00:12 PM U.S. Agency Obligations credits, announced issuer redemptions, completed issuer redemptions, and U.S. agency securities consist of agency issued debt securities and mortgage announcements from issuers regarding their intentions with respect to their pass-through securities. Non-callable agency issued debt securities are gener- outstanding auction rate securities. The failure of auctions has resulted in a ally valued using quoted market prices. Callable agency issued debt securities Level 3 categorization of ARPS in the fair value hierarchy. are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mort- Investments gage pass-through securities are model driven with respect to spreads of the In its role as general partner in certain hedge funds and private equity funds, comparable To-be-announced (“TBA”) security. Actively traded non-callable the Company holds direct investments in such funds. The Company uses the agency issued debt securities are categorized in Level 1 of the fair value hier- net asset value of the underlying fund as a basis for estimating the fair value archy. Callable agency issued debt securities and mortgage pass-through of its investment. Due to the illiquid nature of these investments and diffi cul- securities are generally categorized in Level 2 of the fair value hierarchy. ties in obtaining observable inputs, these investments are included in Level 3 of the fair value hierarchy. Sovereign Obligations The fair value of sovereign obligations is determined based on quoted The following table provides information about the Company’s invest- market prices when available or a valuation model that generally utilizes ments at December 31, 2009. interest rate yield curves and credit spreads as inputs. Sovereign obligations are categorized in Level 1 or 2 of the fair value hierarchy. Expressed in thousands of dollars. Fair Unfunded Redemption Redemption Value Commitments Frequency Notice Period Corporate Debt & Other Obligations The fair value of corporate bonds is estimated using recent transactions, Hedge Funds (1) $ 1,725,651 $ – Quarterly- 30-120 Annually Days broker quotations, and bond spread information. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy. Private Equity Funds (2) 2,300,052 3,967,781 N/A N/A Distressed Opportunities Mortgage and Other Asset-Backed Securities Fund (3) 11,556,401 – Semi- The Company holds non-agency securities primarily collateralized by Annually 180 Days home equity and manufactured housing which are valued based on exter- Total $15,582,104 $3,967,781 nal pricing and spread data provided by independent pricing services and are generally categorized in Level 2 of the fair value hierarchy. When posi- (1) Includes investments in hedge funds and hedge fund of funds that tion specifi c external pricing is not observable, the valuation is based on pursue long/short, event-driven, and activist strategies. yields and spreads for comparable bonds and, consequently, the positions (2) Includes private equity funds and private equity fund of funds with a are categorized in Level 3 of the fair value hierarchy. focus on diversifi ed portfolios, real estate and global natural resources. (3) Hedge fund that invests in distressed debt of U.S. companies. Municipal Obligations The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information. These obli- Derivative Contracts gations are generally categorized in Level 2 of the fair value hierarchy; in From time to time, the Company transacts in exchange-traded and over-the- instances where signifi cant inputs are unobservable, they are categorized in counter derivative transactions to manage its interest rate risk. Exchange-traded Level 3 of the hierarchy. derivatives, namely U.S. Treasury futures, Federal funds futures, and Eurodollar futures, are valued based on quoted prices from the exchange and are catego- Convertible Bonds rized in Level 1 of the fair value hierarchy. Over-the-counter derivatives, namely The fair value of convertible bonds is estimated using recently executed interest rate swap and interest rate cap contracts, are valued using a discounted transactions and dollar-neutral price quotations, where observable. When cash fl ow model and the Black-Scholes model, respectively, using observable observable price quotations are not available, fair value is determined interest rate inputs and are categorized in Level 2 of the fair value hierarchy. based on cash fl ow models using yield curves and bond spreads as key inputs. Convertible bonds are generally categorized in Level 2 of the fair As described below in “Credit Concentrations”, the Company participates value hierarchy; in instances where signifi cant inputs are unobservable, in loan syndications and operates as underwriting agent in leveraged fi - they are categorized in Level 3 of the hierarchy. nancing transactions where it utilizes a warehouse facility provided by CIBC to extend fi nancing commitments to third-party borrowers identi- Corporate Equities fi ed by the Company. The Company uses broker quotations on loans Exchange-traded equity securities and options are generally valued based trading in the secondary market as a proxy to determine the fair value of on quoted prices from the exchange and categorized as Level 1 in the fair the underlying loan commitment which is categorized in Level 3 of the fair value hierarchy. value hierarchy. The Company also purchases and sells loans in its proprietary trading book where CIBC provides the fi nancing through a loan Other trading facility. The Company uses broker quotations to determine the fair The Company holds Auction Rate Preferred Securities (“ARPS”) issued by value of loan positions held which are categorized in Level 2 of the fair closed-end funds with interest rates that reset through periodic auctions. value hierarchy. Due to the auction mechanism and generally liquid markets, ARPS have his- torically been categorized as Level 1 in the fair value hierarchy. Beginning in As described in note 1, the Company from time to time enters into securi- February 2008, uncertainties in the credit markets resulted in substantially all ties fi nancing transactions that mature on the same date as the underlying of the auction rate securities market experiencing failed auctions. Once the collateral. Such transactions are treated as a sale of fi nancial assets and a auctions failed, the ARPS could no longer be valued using observable prices forward repurchase commitment, or conversely as a purchase of fi nancial set in the auctions. As a result, the Company has used less observable deter- assets and a forward resale commitment. The forward repurchase and minants of the fair value of ARPS, including the strength in the underlying resale commitments are valued based on the spread between the market

34 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 34 3/18/10 3:00:12 PM value of the government security and the underlying collateral and are (3) Included in accounts payable and other liabilities on the consolidated bal- categorized in Level 2 of the fair value hierarchy. ance sheet. (4) Included in payable to brokers and clearing organizations on the consoli- Fair Value Measurements dated balance sheet. The Company’s assets and liabilities, recorded at fair value on a recurring basis as of December 31, 2009 and December 31, 2008, have been cat- Assets and liabilities measured at fair value on a recurring basis as egorized based upon the above fair value hierarchy as follows: of December 31, 2008: Fair Value Measurement Assets and liabilities measured at fair value on a recurring basis as Expressed in thousands of dollars. As of December 31, 2008 of December 31, 2009: Level 1 Level 2 Level 3 Total Fair Value Measurements Expressed in thousands of dollars. As of December 31, 2009 Assets: Level 1 Level 2 Level 3 Total Cash equivalents $8,627 $ – $ – $8,627 Assets: Securities segregated for regulatory and Cash equivalents $13,365 $ – $ – $13,365 other purposes 11,499 – – 11,499 Securities segregated for regulatory and other Deposits with clearing purposes 11,499 – – 11,499 organizations 8,295 – – 8,295 Deposits with clearing Securities owned: organizations 7,995 – – 7,995 U.S. Treasury, agency and Securities owned: sovereign obligations 17,738 3,013 – 20,751 U.S. Treasury obligations 53,633 – – 53,633 Corporate debt and U.S. Agency obligations 15,928 14,604 – 30,532 other obligations – 23,667 – 23,667 Sovereign obligations 3 – – 3 Mortgage and other Corporate debt and other asset-backed securities – 5,925 1,610 7,535 obligations – 30,330 – 30,330 Municipal obligations – 15,051 – 15,051 Mortgage and other Convertible bonds – 18,915 815 19,730 asset-backed securities – 3,718 317 4,035 Corporate equities 33,959 – – 33,959 Municipal obligations – 33,531 1,075 34,606 Other 1,461 – 5,325 6,786 Convertible bonds – 35,001 – 35,001 Corporate equities 35,178 8,550 – 43,728 Securities owned, at fair value 53,158 66,571 7,750 127,479 Other 2,054 – 4,450 6,504 Investments (1) 597 19,121 12,085 31,803 Securities owned, at fair value 106,796 125,734 5,842 238,372 Derivative contracts (2) – 71 – 71 Investments (1) 11,374 28,972 15,981 56,327 Total $82,176 $85,763 $19,835 $187,774 Derivative contracts (2) – 5,854 – 5,854 Liabilities: Total $151,029 $160,560 $21,823 $333,412 Securities sold, but not yet purchased: Liabilities: U.S. Treasury, agency and Securities sold, but not yet purchased: sovereign obligations $1,212 $ – $ – $1,212 U.S. Treasury obligations $73,909 $ – $ – $73,909 Corporate debt and U.S. Agency obligations – 90 – 90 other obligations – 6,370 – 6,370 Sovereign obligations 153 – – 153 Mortgage and other Corporate debt and other asset-backed securities – 4 – 4 obligations – 7,323 – 7,323 Municipal obligations – 1,024 – 1,024 Mortgage and other Convertible bonds – 3,806 – 3,806 asset-backed securities – 5 – 5 Municipal obligations – 1,707 – 1,707 Corporate equities 14,595 – – 14,595 Convertible bonds – 12,121 – 12,121 Other 68 – 375 443 Corporate equities 22,112 14,174 – 36,286 Securities sold, but not yet purchased, at fair value 15,875 11,204 375 27,454 Other 145 – – 145 Securities sold, but not yet Derivative contracts (3) 341 2,373 2,516 5,230 purchased, at fair value 96,319 35,420 – 131,739 Total $16,216 $13,577 $2,891 $32,684 Investments (3) 57 – – 57 (1) Included in other assets on the consolidated balance sheet. Derivative contracts (4) 178 972 – 1,150 (2) Included in receivable from brokers and clearing organizations on the Total $96,554 $36,392 $ – $132,946 consolidated balance sheet. (1) Included in other assets on the consolidated balance sheet. (3) Included in payable to brokers and clearing organizations (Levels 1 and (2) Included in receivable from brokers and clearing organizations on the 2) and accounts payable and other liabilities (Level 3) on the consoli- consolidated balance sheet. dated balance sheet.

Oppenheimer Holdings Inc. 35

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 35 3/18/10 3:00:12 PM The following tables present changes in Level 3 assets and liabilities mea- business is managed as well as the way that fi nancial instruments in other sured at fair value on a recurring basis for the years ended December 31, parts of the business are recorded. There was one loan position held in the 2009 and 2008. secondary loan trading portfolio at December 31, 2009 with a par value of $950,000 (nil in 2008) and a fair value of $940,000 which is catego- Expressed in thousands of dollars. Level 3 Assets and Liabilities rized in Level 2 of the fair value hierarchy. Purchases, Realized Unrealized Sales, Opening Gains Gains Issuances, Transfers Ending Fair Value of Derivative Instruments Balance (Losses)(5) (Losses)(5)(6) Settlements In/Out Balance The Company transacts, on a limited basis, in exchange traded and For the year ended December 31, 2009 over-the-counter derivatives for both asset and liability management as Assets: well as for trading and investment purposes. Risks managed using de- Convertible bonds $815 $(124) $ – $(691) $ – $ – rivative instruments include interest rate risk and, to a lesser extent, Mortgage and other foreign exchange risk. Interest rate swaps and interest rate caps are asset-backed entered into to manage the Company’s interest rate risk associated securities (1) 1,610 323 (160) (1,406) (50) 317 with fl oating-rate borrowings All derivative instruments are measured Municipal at fair value and are recognized as either assets or liabilities on the obligations – – – – 1,075 1,075 balance sheet. The Company designates interest rate swaps and inter- Other (2) 5,325 – – (875) – 4,450 est rate caps as cash fl ow hedges of fl oating-rate borrowings. Investments (3) 12,085 (76) 4,742 – (770) 15,981 Cash fl ow hedges used for asset and liability management Liabilities: For derivative instruments that are designated and qualify as a cash fl ow Other (2) $(375) – – 375 – $ – hedge, the effective portion of the gain or loss on the derivative is re- Derivative ported as a component of other comprehensive income and reclassifi ed contracts (4) (2,516) 45 – 2,471 – – into earnings in the same period or periods during which the hedged transaction affects earnings. Gains or losses on the derivative representing For the year ended December 31, 2008 either hedge ineffectiveness or hedge components excluded from the Assets: assessment of effectiveness are recognized in current earnings. Convertible bonds $ – 33 46 – 736 $815 On September 29, 2006, the Company entered into interest rate swap Mortgage and other transactions to hedge the interest payments associated with its fl oating asset-backed securities (1) 881 (14) (64) 898 (91) 1,610 rate Senior Secured Credit Note, which is subject to change due to changes in 3-Month LIBOR. See note 7 for further information. These Other (2) – – – 5,347 (22) 5,325 swaps have been designated as cash fl ow hedges. Changes in the fair Investments (3) 1,820 140 (3,706) 2,821 11,010 12,085 value of the swap hedges are expected to be highly effective in offsetting Liabilities: changes in the interest payments due to changes in 3-Month LIBOR. For Other (2) $ – – – (375) – $(375) the year ended December 31, 2009, the effective portion of the net gain Derivative on the interest rate swaps, after tax was approximately $861,000 and has contracts (4) – – – (2,516) – (2,516) been recorded as other comprehensive income on the consolidated statement of comprehensive income (loss). There was no ineffective portion as (1) Represents non-agency securities primarily collateralized by home equity and manufactured housing. at December 31, 2009. The interest rate swaps had a weighted-average fi xed interest rate of 5.45% and a weighted-average maturity of one year (2) Represents auction rate preferred securities that failed in the auction rate market. at December 31, 2009. (3) Primarily represents general partner ownership interests in hedge funds and private equity funds sponsored by the Company. On January 20, 2009, the Company entered into an interest rate cap contract, incorporating a series of purchased caplets with fi xed maturity dates ending (4) Represents unrealized losses on excess retention exposure on leveraged fi - nance underwriting activity described below under Credit Concentrations. December 31, 2012, to hedge the interest payments associated with its fl oating rate Subordinated Note, which is subject to changes in 3-Month LIBOR. (5) Included in principal transactions, net on the consolidated statement of operations, except for investments which is included in other income on See note 7 for further information. This cap has been designated as a cash the consolidated statement of operations. fl ow hedge. Changes in the fair value of the interest rate cap are expected to (6) Unrealized gains (losses) are attributable to assets or liabilities that are be highly effective in offsetting changes in the interest payments due to still held at the reporting date. changes in 3-Month LIBOR. For the year ended December 31, 2009, the effective portion of the net gain on the interest rate cap, after tax, was approximately $23,000 and has been recorded as other comprehensive income Fair Value Option (loss) on the consolidated statement of comprehensive income (loss). There The Company has the option to measure certain fi nancial assets and fi - was no ineffective portion as at December 31, 2009. The Company paid a nancial liabilities at fair value with changes in fair value recognized in premium for the interest rate cap of $2.4 million which has a strike of 2% and earnings each period. The Company may make a fair value option election matures December 31, 2012. As at December 31, 2009, the cumulative on an instrument-by-instrument basis at initial recognition of an asset or amortization of the premium on the interest rate cap was $24,000. liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected to apply the fair value option Foreign exchange hedges to its loan trading portfolio which resides in OPY Credit Corp. and is in- The Company also utilizes forward and options contracts to hedge the cluded in other assets on the consolidated balance sheet. Management foreign currency risk associated with compensation obligations to Oppen- has elected this treatment as it is consistent with the manner in which the heimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekels.

36 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 36 3/18/10 3:00:12 PM Derivatives used for trading and investment purposes (2) Forward commitment to repurchase government securities that received Futures contracts represent commitments to purchase or sell securities sale treatment related to “Repo-to-Maturity” transactions. or other commodities at a future date and at a specifi ed price. Market (3) Included in Receivable from brokers and clearing organizations on the risk exists with respect to these instruments. Notional or contractual consolidated balance sheet. amounts are used to express the volume of these transactions, and do (4) Included in Payable to brokers and clearing organizations on the con- not represent the amounts potentially subject to market risk. The futures solidated balance sheet. contracts the Company used include U.S. Treasury notes, Federal Funds The following table presents the location and fair value amounts of the and Eurodollar contracts. At December 31, 2009, the Company had 100 Company’s derivative instruments and their effect on the statement of open short contracts for 10-year U.S. Treasury notes with a fair value of operations for the year ended December 31, 2009. $178,000 used primarily as an economic hedge of interest rate risk associated with a portfolio of fi xed income investments. Reclassifi ed from Recognized Accumulated in Other Other The Company has some limited trading activities in pass-through mort- Comprehensive Comprehensive gage-backed securities eligible to be sold in the “To-Be-Announced” or Recognized Income on Income into TBA market. TBAs provide for the forward or delayed delivery of the in Income Derivatives - Income - Effective underlying instrument with settlement up to 180 days. The contractual on Derivatives Effective Portion Portion(2) Expressed in thousands of dollars. (pre-tax) (after-tax) (after-tax) or notional amounts related to these fi nancial instruments refl ect the Hedging Gain/ Gain/ Gain/ volume of activity and do not refl ect the amounts at risk. Unrealized Relationship Description Location (Loss) (Loss) Location (Loss) gains and losses on TBAs are recorded in the consolidated balance sheets in receivable from brokers and clearing organizations and payable Cash Flow Hedges: to brokers and clearing organizations, respectively, and in the consoli- Interest rate Swaps (3) N/A $ – $861 Interest $(1,774) dated statement of operations as principal transactions revenue. See contracts Expense Fair Value of Derivative Instruments tables below for TBAs outstanding at December 31, 2009. Caps N/A – 23 Other (61)

From time-to-time, the Company enters into securities fi nancing transac- Derivatives used for trading and investment: tions that mature on the same date as the underlying collateral. These Commodity U.S. Treasury Principal 2,431 – None –- transactions are treated as a sale of fi nancial assets and a forward repur- contracts Futures transaction chase commitment, or conversely as a purchase of fi nancial assets and a revenue forward resale commitment. At December 31, 2009, the fair value of the Federal Principal (59) forward repurchase commitment was approximately $97,000. Funds Futures transaction revenue The notional amounts and fair values of the Company’s derivatives at Euro-dollar Principal (19) December 31, 2009 by product were as follows: Futures transaction revenue Fair Value of Derivative Instruments Expressed in thousands of dollars As of December 31, 2009 Foreign Forwards Other 1 – None – exchange revenue Description Notional Fair Value contracts Assets: Other TBAs Principal 4,227 – None – Derivatives designated as contracts transaction hedging instruments (1) revenue Interest rate contracts (3) Cap $100,000 $2,357 Forward Principal (97) – None – Derivatives not designated as purchase transaction hedging instruments (1) commitment (4) revenue Other contracts (3) TBAs $329,169 $3,498 Total Assets $429,169 $5,854 Credit-Risk Related Contingent Features: Liabilities: Warehouse Excess Principal 47 – None – facility retention (1) transaction Derivatives designated as revenue hedging instruments (1) Interest rate contracts (3) Swaps $36,000 $875 Total $6,531 $884 $(1,835) Derivatives not designated as (1) See “Credit Concentrations” below for description of derivative hedging instruments (1) financial instruments. Commodity contracts (4) U.S. Treasury $10,000 $178 Futures (2) There is no ineffective portion included in income for the year ended December 31, 2009. Other contracts (4) TBAs 329,169 – (3) As noted above in “Cash flow hedges used for asset and liability Forward management”, interest rate swaps are used to hedge interest rate Purchase risk associated with the Senior Secured Credit Note. As a result, Commitment (2) 800,000 97 changes in fair value of the interest rate swaps are offset by inter- $1,139,169 $275 est rate changes on the outstanding Senior Secured Credit Note balance. There was no ineffective portion as at December 31, Total Liabilities $1,175,169 $1,150 2009. (1) See “Credit Concentrations” below for description of derivative fi nancial (4) Forward commitment to repurchase government securities that re- instruments. ceived sale treatment related to “Repo-to-Maturity” transactions.

Oppenheimer Holdings Inc. 37

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 37 3/18/10 3:00:12 PM Collateralized Transactions ternational (Europe) held securities with a fair value of $8.6 million that were The Company enters into collateralized borrowing and lending transactions segregated and not re-hypothecated. in order to meet customers’ needs and earn residual interest rate spreads, At December 31, 2009, the Company had available collateralized and uncol- obtain securities for settlement and fi nance trading inventory positions. Under lateralized letters of credit of $187.2 million. these transactions, the Company either receives or provides collateral, including U.S. government and agency, asset-backed, corporate debt, equity, and Credit Concentrations non-U.S. government and agency securities. Credit concentrations may arise from trading, investing, underwriting and fi - The Company obtains short-term borrowings primarily through bank call nancing activities and may be impacted by changes in economic, industry or loans. Bank call loans are generally payable on demand and bear interest at political factors. In the normal course of business, the Company may be ex- various rates but not exceeding the broker call rate. At December 31, 2009, posed to risk in the event customers, counterparties including other brokers bank call loans were $nil ($6.5 million at December 31, 2008). and dealers, issuers, banks, depositories or clearing organizations are unable to fulfi ll their contractual obligations. The Company seeks to mitigate these In June 2009, the Company signifi cantly expanded its government trading risks by actively monitoring exposures and obtaining collateral as deemed operations and began fi nancing those operations through the use of securi- appropriate. Included in receivable from brokers and clearing organizations as ties sold under agreements to repurchase (“repurchase agreements”) and of December 31, 2009 are receivables from three major U.S. broker-dealers securities purchased under agreements to resell (“reverse repurchase totaling approximately $159.1 million. agreements”). Repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which The Company participates in loan syndications through its Debt Capital securities subsequently will be resold or reacquired as specifi ed in the Markets business. Through OPY Credit Corp., the Company operates as un- respective agreements and include accrued interest. Repurchase and reverse derwriting agent in leveraged fi nancing transactions where it utilizes a ware- repurchase agreements are presented on a net-by-counterparty basis, when house facility provided by CIBC to extend fi nancing commitments to third- the repurchase and reverse repurchase agreements are executed with the party borrowers identifi ed by the Company. The Company has exposure, up same counterparty, have the same explicit settlement date, are executed in to a maximum of 10%, of the excess underwriting commitment provided by accordance with a master netting arrangement, the securities underlying the CIBC over CIBC’s targeted loan retention (defi ned as “Excess Retention”). The repurchase and reverse repurchase agreements exist in “book entry” form Company quantifi es its Excess Retention exposure by assigning a fair value to and certain other requirements are met. the underlying loan commitment provided by CIBC (in excess of what CIBC has agreed to retain) which is based on the fair value of the loans trading in The Company receives collateral in connection with securities borrowed and the secondary market. To the extent that the fair value of the loans has de- reverse repurchase agreement transactions and customer margin loans. creased, the Company records an unrealized loss on the Excess Retention. Under many agreements, the Company is permitted to sell or repledge the Underwriting of loans pursuant to the warehouse facility is subject to joint securities received (e.g., use the securities to enter into securities lending credit approval by the Company and CIBC. The maximum aggregate principal transactions, or deliver to counterparties to cover short positions). At Decem- amount of the warehouse facility is $1.5 billion, of which the Company uti- ber 31, 2009, the fair value of securities received as collateral under securities lized $73.1 million and had nil in Excess Retention as of December 31, borrowed transactions and reverse repurchase agreements was $289.0 mil- 2009. lion and $1.4 billion, respectively, of which the Company has re-pledged approximately $53.3 million under securities loaned transactions and $1.3 The Company is obligated to settle transactions with brokers and other fi nan- billion under repurchase agreements. cial institutions even if its clients fail to meet their obligations to the Company. Clients are required to complete their transactions on settlement date, gener- The Company pledges certain of its securities owned for securities lending, ally one to three business days after trade date. If clients do not fulfi ll their and repurchase agreements, and to collateralize bank call loan transactions. contractual obligations, the Company may incur losses. The Company has The carrying value of pledged securities owned that can be sold or re-pledged clearing/participating arrangements with the National Securities Clearing by the counterparty was $623,000 as at December 31, 2009 ($1.9 million at Corporation (“NSCC”), the Fixed Income Clearing Corporation (“FICC”), R.J. December 31, 2008). The carrying value of securities owned by the Company O’Brien & Associates (commodities transactions) and others. With respect to that have been loaned or pledged to counterparties where those counterpar- its business in securities purchased under agreement to resell and securities ties do not have the right to sell or re-pledge the collateral was $63.8 million as at December 31, 2009. sold under agreement to repurchase, all open contracts at December 31, 2009 are with the FICC. The clearing brokers have the right to charge the The Company manages credit exposure arising from repurchase and reverse Company for losses that result from a client’s failure to fulfi ll its contractual repurchase agreements by, in appropriate circumstances, entering into master obligations. Accordingly, the Company has credit exposures with these clear- netting agreements and collateral arrangements with counterparties that ing brokers. The clearing brokers can re-hypothecate the securities held on provide the Company, in the event of a customer default, the right to liquidate behalf of the Company. As the right to charge the Company has no maximum and the right to offset a counterparty’s rights and obligations. The Company amount and applies to all trades executed through the clearing brokers, the also monitors the market value of collateral held and the market value of se- Company believes there is no maximum amount assignable to this right. At curities receivable from others. It is the Company’s policy to request and obtain December 31, 2009, the Company had recorded no liabilities with regard to additional collateral when exposure to loss exists. In the event the counter- this right. The Company’s policy is to monitor the credit standing of the clear- party is unable to meet its contractual obligation to return the securities, the ing brokers and banks with which it conducts business. Company may be exposed to off-balance sheet risk of acquiring securities at prevailing market prices. Through its Debt Capital Markets business, the Company also participates, with other members of loan syndications, in providing fi nancing commit- One of the Company’s funds in which it acts as a general partner and also ments under revolving credit facilities in leveraged fi nancing transactions. As owns a limited partnership interest utilized Lehman Brothers International of December 31, 2009, the Company had $1.2 million committed under (Europe) as a prime broker. As of December 31, 2009, Lehman Brothers In- such fi nancing arrangements.

38 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 38 3/18/10 3:00:12 PM Variable Interest Entities (VIEs) 6. Bank Call Loans VIEs are entities in which equity investors do not have the characteristics of a Bank call loans, primarily payable on demand, bear interest at various rates but controlling fi nancial interest or do not have suffi cient equity at risk for the en- not exceeding the broker call rate, which was 2.0% at December 31, 2009 tity to fi nance its activities without additional subordinated fi nancial support (2.75% at December 31, 2008). Details of the bank call loans are as follows. from other parties. The primary benefi ciary of a VIE is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected re- Amounts are expressed in thousands of dollars, except percentages. sidual returns, or both, as a result of holding variable interests. The enterprise that is considered the primary benefi ciary of a VIE consolidates the VIE. 2009 2008 Year-end balance Nil $6,500 The Company serves as general partner of hedge funds and private equity Weighted interest rate (at end of year) – 1.25% funds that were established for the purpose of providing investment alterna- Maximum balance (at any month end) $121,900 $315,900 tives to both its institutional and qualifi ed retail clients. The Company holds Average amount outstanding variable interests in these funds as a result of its rights to receive management (during the year) (1) $52,150 $120,283 and incentive fees. The Company’s investment in and additional capital com- Average interest rate (during the year) 1.73% 2.51% mitments to these hedge funds and private equity funds are also considered variable interests. The Company’s additional capital commitments are subject (1) The average amount outstanding during the year was computed by adding amounts outstanding at the end of each month and dividing to call at a later date and are limited in amount. by twelve. The Company assesses whether it is the primary benefi ciary of the hedge funds Interest expense for the year ended December 31, 2009 on bank call and private equity funds in which it holds a variable interest in the context of loans was $900,300 ($3.0 million in 2008 and $1.9 million in 2007). the total general and limited partner interests held in these funds by all parties. In each instance the Company has determined that it is not the primary benefi - 7. Long-term debt ciary and therefore need not consolidate the hedge funds or private equity Dollar amounts are expressed in thousands. funds. The Company’s general partnership interests, additional capital commitments, and management fees receivable represent its maximum exposure to Interest Rate at Maturity December 31, December 31, December 31, loss. The Company’s general partnership interests and management fees re- Issued Date 2009 2009 2008 ceivable are included in other assets on the consolidated balance sheet. Senior Secured Credit Note (a) 7/31/2013 4.79% $32,503 $47,663 The following tables set forth the total VIE assets, carrying value of the Com- pany’s variable interests, and the Company’s maximum exposure to loss in Subordinated Note (b) 1/31/2014 5.53% $100,000 $100,000 Company-sponsored non-consolidated VIEs in which the Company holds variable interests and other non-consolidated VIEs in which the Company holds (a) In 2006, the Company issued a Senior Secured Credit Note in the amount variable interests: of $125.0 million at a variable interest rate based on LIBOR with a seven-year term to a syndicate led by Morgan Stanley Senior Funding Inc., as agent. In As of December 31, 2009 accordance with the Senior Secured Credit Note, the Company has provided Maximum certain covenants to the lenders with respect to the maintenance of a mini- Carrying Value of Exposure mum fi xed charge ratio and maximum leverage ratio and minimum net capital the Company’s to Loss in Total Variable Interest Capital Non-consolidated requirements with respect to Oppenheimer. VIE Assets Assets (1) Liabilities Commitments VIEs On December 22, 2008, certain terms of the Senior Secured Credit Note were Hedge Funds $1,564,486 $830 $ – $ – $830 amended, including (1) revised fi nancial covenant levels that require that (i) the Private Company maintain a maximum leverage ratio (total long-term debt divided by Equity Funds 123,701 34 – 5 39 EBITDA) of 4.05 at December 31, 2009 and (ii) the Company maintain a Total $1,688,187 $864 $ – $5 $869 minimum fi xed charge ratio (EBITDA adjusted for capital expenditures and in- (1) Included in other assets on the consolidated balance sheet. come taxes divided by the sum of principal and interest payments on long-term debt) of 1.15 at December 31, 2009; (2) an increase in scheduled principal 5. Offi ce Facilities payments as follows: 2009 - $400,000 per quarter plus $4.0 million on Sep- tember 30, 2009 - $500,000 per quarter plus $8.0 million on September 30, December 31, 2010; (3) an increase in the interest rate to LIBOR plus 450 basis points (an Amounts are expressed in thousands of dollars. 2009 2008 increase of 150 basis points); and (4) a pay-down of principal equal to the cost Accumulated of any share repurchases made pursuant to the Issuer Bid. In the Company’s depreciation/ Net book Net book view, the maximum leverage ratio and minimum fi xed charge ratio represent Cost amortization value value the most restrictive covenants. These ratios adjust each quarter in accordance Furniture, fi xtures with the loan terms, and become more restrictive over time. At December 31, and equipment $75,694 $60,586 $15,108 $19,727 2009, the Company was in compliance with all of its covenants. Leasehold improvements 31,457 24,209 7,248 7,497 The effective interest rate on the Senior Secured Credit Note for the year $107,151 $84,795 $22,356 $27,224 ended December 31, 2009 was 5.63%. Interest expense, as well as interest paid on a cash basis for the year ended December 31, 2009, on the Senior Depreciation and amortization expense, included in occupancy and Secured Credit Note was $2.1 million ($4.6 in 2008 and $8.0 in 2007). Of the equipment costs, was $12.6 million, $11.5 million and $9.7 million in the $32.5 million principal amount outstanding at December 31, 2009, $11.5 years ended December 31, 2009, 2008 and 2007, respectively. million of principal is expected to be paid within 12 months.

Oppenheimer Holdings Inc. 39

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 39 3/18/10 3:00:12 PM The obligations under the Senior Secured Credit Note are guaranteed by certain Issuer Bid of the Company’s subsidiaries, other than broker-dealer subsidiaries, with cer- In the year ended December 31, 2009, the Company purchased 50,000 tain exceptions, and are collateralized by a lien on substantially all of the assets shares of Class A Stock under an Issuer Bid. All shares purchased pursuant of each guarantor, including a pledge of the ownership interests in each ﬁ rst- to Issuer Bids are cancelled. tier broker-dealer subsidiary held by a guarantor, with certain exceptions. Expressed in thousands of dollars, except per share amounts. (b) On January 14, 2008, in connection with the acquisition of the New 2009 2008 2007 Capital Markets Business, CIBC made a loan in the amount of $100.0 million and the Company issued a Subordinated Note to CIBC in the Class A Stock purchased and cancelled pursuant to an amount of $100.0 million at a variable interest rate based on LIBOR. The Issuer Bid 50,000 650,000 – Subordinated Note is due and payable on January 31, 2014 with interest Total consideration $559 $17,187 – payable on a quarterly basis. The purpose of this note is to support the capital requirements of the New Capital Markets Business. In accordance Average price per share $11.18 $26.44 – with the Subordinated Note, the Company has provided certain covenants to CIBC with respect to the maintenance of a minimum ﬁ xed charge ratio Dividends and maximum leverage ratio and minimum net capital requirements with In 2009, the Company paid cash dividends of $0.44 per share to holders of respect to Oppenheimer. Class A and Class B Stock as follows ($0.44 in 2008 and $0.42 in 2007):

Effective December 23, 2008, certain terms of the Subordinated Note were Dividends per share Record Date Payment Date amended, including (1) revised fi nancial covenant levels that require that (i) $0.11 February 13, 2009 February 27, 2009 the Company maintain a maximum leverage ratio of 4.95 at December 31, $0.11 May 15, 2009 May 29, 2009 2009 and (ii) the Company maintain a minimum fi xed charge ratio of 0.95 at $0.11 August 14, 2009 August 28, 2009 December 31, 2009; and (2) an increase in the interest rate to LIBOR plus 525 $0.11 November 13, 2009 November 27, 2009 basis points (an increase of 150 basis points). In the Company’s view, the maximum leverage ratio and minimum fi xed charge ratio represent the most 9. Contributed Capital restrictive covenants. These ratios adjust each quarter in accordance with the loan terms, and become more restrictive over time. At December 31, 2009, Contributed capital includes the impact of share-based awards. See note the Company was in compliance with all of its covenants. 12 for further discussion. Also included in contributed capital is the grant date fair value of warrants issued in relation to the acquisition of the New The effective interest rate on the Subordinated Note for the year ended De- Capital Markets Business in January 2008, as described in note 19. cember 31, 2009 was 6.18%. Interest expense, as well as interest paid on a cash basis for the year ended December 31, 2009, on the Subordinated Note 10. Earnings per share was $6.2 million ($6.9 million in 2008). Basic earnings per share was computed by dividing net profi t (loss) by the 8. Share capital weighted average number of shares of Class A and Class B Stock outstanding. Diluted earnings per share includes the weighted average The Company’s authorized share capital, all of which is without par value, number of shares of Class A and Class B Stock outstanding and the ef- consists of (a) 50,000,000 shares of Preferred Stock, par value $0.001 per fects of the warrants using the if converted method and options to pur- share; (b) 50,000,000 shares of Class A non-voting common stock, par chase the Class A Stock and restricted stock awards of Class A Stock using value $0.001 per share (“Class A Stock”); and (c) 99,680 shares of Class the treasury stock method. B voting common stock, par value $0.001 per share (“Class B Stock”). No Preferred Stock has been issued. 99,680 shares of Class B Stock have Earnings per share has been calculated as follows. been issued and are outstanding. Expressed in thousands of dollars, except share and per share amounts. The Class A and the Class B Stock are equal in all respects except that the Year ended December 31, Class A Stock is non-voting. 2009 2008 2007

The following table refl ects changes in the number of shares of Class A Stock Basic weighted average number of shares outstanding 13,110,647 13,199,580 13,223,442 outstanding for the periods indicated: Net dilutive effect of warrants, 2009 2008 2007 treasury method (1) – – – Class A Stock outstanding, Net dilutive effect of share-based beginning of year 12,899,465 13,266,596 12,834,682 awards, treasury method (2) 330,632 – 308,845 Issued to Oppenheimer Diluted common shares 13,441,279 13,199,580 13,532,287 & Co. Inc. 401(k) Plan – – 95,425 Net profi t (loss), as reported $19,487 $(20,770) $75,367 Issued pursuant to share-based Net profi t (loss) available to compensation plans 268,536 282,869 336,489 stockholders and assumed Repurchased and cancelled conversions $19,487 $(20,770) $75,367 pursuant to the issuer bid (50,000) (650,000) – Basic earnings per share $1.49 $(1.57) $5.70 Class A Stock outstanding, Diluted earnings per share $1.45 $(1.57) $5.57 end of year 13,118,001 12,899,465 13,266,596 (1) As part of the consideration for the 2008 acquisition of a portion of Share-based compensation plans are described in note 12. CIBC World Markets Corp.’s U.S. capital markets businesses, the

40 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 40 3/18/10 3:00:12 PM Company issued a warrant to CIBC to purchase 1 million shares of December 31, Class A Stock of the Company at $48.62 per share exercisable fi ve Expressed in thousands of dollars. 2009 2008 years from the January 14, 2008 acquisition date. For the years Deferred tax assets: ended December 31, 2009 and 2008, the effect of the warrants is anti-dilutive. Employee deferred compensation plans $33,672 $25,999 (2) The diluted earnings per share computations do not include the an- Reserve for litigation and legal fees 4,545 1,576 tidilutive effect of the following items: Allowance for doubtful accounts 1,091 884 Year ended December 31, Other 12,697 9,985 2009 2008 2007 Total deferred tax assets 52,005 38,444 Number of antidilutive warrants, options and restricted shares, Deferred tax liabilities: for the period 1,459,642 1,460,194 84,103 Section 197 amortization of goodwill 29,905 25,810 11. Income Taxes Investment in partnerships 3,104 8,221 Involuntary conversion 2,371 2,712 The income tax provision shown in the consolidated statements of operations is reconciled to amounts of tax that would have been pay- Gain on NYSE Group shares 116 324 able (recoverable) from the application of the federal tax rate to pre-tax Acquisition 4,982 4,982 profi t as follows. Other 1,335 1,535 Total deferred tax liabilities 41,813 43,584 Year ended December 31, 2009 2008 2007 U.S. deferred income taxes, net 10,192 (5,140) U.S. federal statutory income tax rate 35.0% 35.0% 35.0% Non U.S. deferred income tax benefi t, net 5,167 6,228

U.S. state and local income taxes, Deferred income taxes, net $15,359 $1,088 net of U.S. federal income tax beneﬁ ts 6.9% 5.2% 6.7% Tax exempt income, including dividends -1.7% 2.8% -0.4% Goodwill arising from the acquisitions of Josephthal Group Inc. and the Op- Business promotion and other penheimer Divisions is being amortized for tax purposes on a straight-line non-deductible expenses 0.9% -1.5% – basis over 15 years. The difference between book and tax is recorded as a Non-U.S. Operations -1.4% -0.1% – deferred tax liability. Other (1) (2) 4.3% 1.0% -0.5% As a result of the acquisition of the New Capital Market Business in January Effective income tax rate 44.0% 42.4% 40.8% 2008, the Company recorded deferred tax liabilities of $4.9 million that arose from tax allocation to the acquired U.S. business. (1) In 2007 and 2008, other primarily includes the effect of tax authority audits. The Company believes that the realization of its net operating losses is more (2) In 2009, other primarily includes the tax impact of $1.9 million related to likely than not based on expectations as to future taxable income in the juris- moving the jurisdiction of incorporation of OPY from Canada to the United States. dictions in which it operates.

Income taxes included in the consolidated statements of operations rep- In June 2006, accounting guidance on Accounting for Uncertainty in Income resent the following. Taxes was introduced. Such accounting guidance clarifi es the accounting for uncertainty in income taxes recognized in a company’s fi nancial statements Year ended December 31, Expressed in thousands of dollars. 2009 2008 2007 and prescribes a recognition threshold and measurement attribute for the fi - nancial statement recognition and measurement of a tax position taken or Current: expected to be taken in a tax return and provides guidance on derecognition, U.S. federal tax $21,280 $(2,430) $35,241 classifi cation, interest and penalties, accounting in interim periods, disclosure State and local tax 7,263 (791) 9,165 and transition. Non- U.S. operations 1,054 248 – The Company adopted such accounting guidance on January 1, 2007 which 29,597 (2,973) 44,406 resulted in a cumulative adjustment to opening retained earnings in the Deferred: amount of $823,000. Management has evaluated its tax positions and deter- U.S. federal tax (10,261) (9,198) 5,700 mined that it has no uncertain tax positions requiring fi nancial statement State and local tax (3,502) (2,992) 1,921 recognition as of December 31, 2009 and 2008. Non U.S. operations (508) (110) – The Company is under continuous examination by the Internal Revenue Ser- (14,271) (12,300) 7,621 vice (the “IRS”) and States in which the Company has signifi cant business $15,326 $(15,273) $52,027 operations. The tax years under examination vary by jurisdiction; for example, the Company has come to conclusion with the IRS on issues through the Deferred income taxes refl ect the net tax effects of temporary differences 2006 tax year. The Company regularly assesses the likelihood of additional between the fi nancial reporting and tax bases of assets and liabilities and assessments in each of the taxing jurisdictions resulting from these and sub- are measured using enacted tax rates and laws that will be in effect when sequent years’ examinations. The Company has established tax reserves that such differences are expected to reverse. Signifi cant components of the the Company believes are adequate in relation to the potential for additional Company’s deferred tax assets and liabilities at December 31, 2009 and assessments. Once established, the Company adjusts tax reserves only when 2008 were as follows. more information is available or when an event occurs necessitating a change

Oppenheimer Holdings Inc. 41

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 41 3/18/10 3:00:12 PM to the reserves. The Company believes that the resolution of tax matters will generally vest at the rate of 25% of the amount granted on the second an- not have a material effect on the consolidated fi nancial condition of the niversary of the grant, 25% on the third anniversary of the grant, 25% on the Company, although a resolution could have a material impact on the Com- fourth anniversary of the grant and 25% six months before expiration. In pany’s consolidated statement of operations for a particular future period and 2008, options were generally granted for a three year term and generally on the Company’s effective income tax rate for any period in which such vested at the rate of 33% of the amount granted on both the fi rst and second resolution occurs. anniversary of the grant and 33% three months before expiration. At Decem- ber 31, 2009, the number of shares of Class A Stock available under the EIP, The Company permanently reinvests eligible earnings of its foreign but not yet awarded, was 495,860. subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if such earnings were repatriated. For the year ended Stock option activity under the EIP since January 1, 2008 is summarized as December 31, 2009, profi t before income taxes for foreign operations follows. was $5.3 million ($192,000 in 2008 and nil in 2007). Year ended Year ended December 31, 2009 December 31, 2008 12. Employee Compensation Plans Weighted Weighted Share-based Compensation average average Number of exercise Number of exercise The Company has share-based compensation plans which are accounted for shares price shares price at fair value in accordance with the applicable accounting guidance. The Options outstanding, Company estimates the fair value of share-based awards using the Black- beginning of year 950,732 $31.04 979,475 $29.32 Scholes option-pricing model and applies to it a forfeiture rate based on Options granted 27,165 $12.31 322,261 $33.61 historical experience. The accuracy of this forfeiture rate is reviewed at least Options exercised (146,934) $20.71 (224,115) $24.97 annually for reasonableness. Key input assumptions used to estimate the fair value of share-based awards include the expected term and the expected Options forfeited or expired (410,256) $32.70 (126,889) $33.87 volatility of the Company’s Class A Stock over the term of the award, the risk-free interest rate over the expected term, and the Company’s expected Options outstanding, end of year 420,707 $31.82 950,732 $31.04 annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appro- Options vested, end of year 190,457 $29.70 579,149 $29.35 priate in calculating fair values of the Company’s outstanding unvested share-based awards. Estimates of fair value are not intended to predict actual Weighted average fair value of future events or the value ultimately realized by persons who receive share- options granted based awards. during the year $3.40 – $6.99 –

The fair value of each award grant was estimated on the grant date The aggregate intrinsic value of options outstanding as of December using the Black-Scholes option- pricing model with the following as- 31, 2009 was $1.9 million. The aggregate intrinsic value of options sumptions: vested as of December 31, 2009 was $1.1 million. The aggregate intrinsic value of options that are expected to vest is $1.8 million as of Grant date assumptions December 31, 2009. 2009 2008 2007 2006 2005 2004 The following table summarizes stock options outstanding and exercis- Expected term (1) 5 years 2.4 years 5 years 5 years 5 years 5 years able as at December 31, 2009. Expected volatility factor (2) 39.17% 36.41% 39.67% 26.57% 23.50% 21.08% Weighted Weighted Risk-free interest Weighted average average rate (3) 3.32% 2.13% 4.54% 4.51% 3.89% 3.01% average exercise exercise Range of remaining price of Number price of Actual dividends (4) $0.44 $0.44 $0.40 $0.38 $0.36 $0.36 exercise Number contractual outstanding exercisable vested (1) The expected term was determined based on actual awards. prices outstanding life options (vested) options (2) The volatility factor was measured using the weighted average of historical $9.60 - $25.00 145,322 1.4 years $20.83 103,841 $23.16 daily price changes of the Company’s Class A Stock over a historical period $25.01 - $39.45 275,385 1.8 years $37.62 86,616 $37.54 commensurate to the expected term of the awards. $9.60 - $39.45 420,707 1.2 years $31.82 190,457 $29.70 (3) The risk-free interest rate was based on periods equal to the expected term of the awards based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the status of the Company’s non-vested (4) Actual dividends were used to compute the expected annual options for the year ended December 31, 2009. dividend yield. Year ended December 31, 2009 Equity Incentive Plan Number of Weighted Under the Company’s 2006 Equity Incentive Plan, adopted December 11, Options average fair value 2006 and its 1996 Equity Incentive Plan, as amended March 10, 2005 (to- Non-vested beginning of year 371,583 $8.63 gether “EIP”), the Compensation and Stock Option Committee of the Board Granted 27,165 $3.32 of Directors of the Company may grant options to purchase Class A Stock to Vested (164,123) $7.51 ofﬁ cers and key employees of the Company and its subsidiaries. Grants of options are made to the Company’s non-employee directors on a formula Forfeited or expired (4,375) $5.57 basis. Except in 2008, options were generally granted for a ﬁ ve-year term and Non-vested end of year 230,250 $8.85

42 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 42 3/18/10 3:00:12 PM In the year ended December 31, 2009, the Company has included ap- management employees. The Compensation and Stock Option Commit- proximately $1.2 million ($2.5 million in 2008 and $2.3 million in 2007) tee of the Board of Directors of the Company may grant stock awards and of compensation expense in its consolidated statement of operations re- restricted stock awards pursuant to the ESP. ESP awards are being ac- lating to the expensing of stock options. counted for as equity awards and valued at grant date fair value. ESP awards are generally awarded for a three or fi ve year term and 100% vest As of December 31, 2009, there was approximately $868,000 of total at the end of the term. unrecognized compensation cost related to unvested share-based compensation arrangements granted under the EIP. The cost is expected to be The Company has awarded restricted Class A Stock to certain employees recognized over a weighted average period of 1.3 years. as part of their compensation package pursuant to the ESP. These awards are granted from time to time throughout the year based upon the rec- On January 28, 2010, the Company awarded 194,500 shares of Class A ommendation of the Compensation and Stock Option Committee of the Stock to employees under the EIP. These shares of Class A Stock will vest Board of Directors of the Company. These ESP awards are priced at fair on January 27, 2015, provided the employees continue to be employed value on the date of grant and typically require the completion of a service by the Company until that date. period (determined by the Compensation Committee). Dividends may or may not accrue during the service period, depending on the terms of in- Stock Appreciation Rights dividual ESP awards. At December 31, 2009, the number of shares of The Company has awarded Oppenheimer stock appreciation rights Class A Stock available under the ESP, but not yet awarded, was 98,785. (“OARs”) to certain employees as part of their compensation package based on a formula refl ecting gross production and length of service. The following table summarizes the status of the Company’s non-vested These awards are granted once per year in January with respect to the ESP awards for the year ended December 31, 2009. prior year’s production. The OARs vest fi ve years from grant date and will Number of shares be settled in cash at vesting. The OARs are being accounted for as liability of Class A Stock Weighted Remaining awards and are revalued on a monthly basis. The adjusted liability is being subject to average fair contractual amortized on a straight-line basis over the vesting period. ESP awards value life Non-vested beginning The fair value of each OARs award was estimated as at December 31, of year 508,447 $34.87 1.2 years 2009 using the Black-Scholes option-pricing model. Granted 259,430 $11.89 3.4 years Fair value Vested (9,307) $19.07 – Number Remaining as at Forfeited or expired (5,548) $37.94 1.1 years of OARs Strike contractual December 31, Grant date outstanding price life 2009 Non-vested end of year 753,022 $27.13 2.0 years January 13, 2005 225,485 $24.53 – $8.69 At December 31, 2009, all outstanding ESP awards were non-vested. The January 13, 2006 242,890 $20.53 1 year $16.44 aggregate intrinsic value of ESP awards outstanding as of December 31, January 12, 2007 348,650 $35.44 2 years $11.69 2009 was approximately $25.0 million. The aggregate intrinsic value of January 10, 2008 469,735 $37.78 3 years $11.47 ESP awards that are expected to vest is $23.8 million as of December 31, January 12, 2009 444,340 $12.74 4 years $21.77 2009. In the year ended December 31, 2009, the Company included ap- Total 1,731,100 proximately $5.9 million ($4.8 million in 2008 and $1.1 million in 2007) of compensation expense in its consolidated statements of operations Total weighted relating to ESP awards. average values $26.74 2.4 years $14.49 As of December 31, 2009, there was approximately $8.1 million of total At December 31, 2009, all outstanding OARs were unvested. The ag- unrecognized compensation cost related to unvested ESP awards. The gregate intrinsic value of OARs outstanding and expected to vest as of cost is expected to be recognized over a weighted average period of 2.0 December 31, 2009 was $12.3 million. In the year ended December 31, years. 2009, the Company included approximately $10.2 million (credit of $7.5 million in 2008 and $5.5 million in 2007) in compensation expense in its Defi ned Contribution Plan consolidated statement of operations relating to OARs awards. The liability related to the OARs was approximately $10.7 million as of December The Company, through its subsidiaries, maintains a defi ned contribution 31, 2009. plan covering substantially all full-time U.S. employees. The Oppenheimer & Co. Inc. 401(k) Plan provides that Oppenheimer may make discretionary As of December 31, 2009, there was approximately $11.4 million of total contributions. Eligible Oppenheimer employees may make voluntary unrecognized compensation cost related to unvested OARs. The cost is contributions which may not exceed $16,500, $15,500 and $15,500 per expected to be recognized over a weighted average period of 3.3 years. annum in 2009, 2008 and 2007, respectively. The Company made contributions to the 401(k) Plan of $2.5 million, $736,400 and $5.5 million in On January 19, 2010, 403,580 OARs were awarded to Oppenheimer 2009, 2008 and 2007, respectively. employees related to fi scal 2009 performance. These OARs will be expensed over 5 years (the vesting period). Deferred Compensation Plans The Company maintains an Executive Deferred Compensation Plan Employee Share Plan (“EDCP”) and a Deferred Incentive Plan (“DIP”) in order to offer certain On March 10, 2005, the Company approved the Oppenheimer & Co. Inc. qualifi ed high-performing fi nancial advisors a bonus based upon a for- Employee Share Plan (“ESP”) for employees of the Company and its sub- mula refl ecting years of service, production, net commissions and a valu- sidiaries resident in the U.S. to attract, retain and provide incentives to key ation of their clients’ assets. The bonus amounts resulted in deferrals in

Oppenheimer Holdings Inc. 43

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 43 3/18/10 3:00:12 PM fi scal 2009 of approximately $5.8 million ($7.7 million in 2008 and $8.7 Many aspects of the Company’s business involve substantial risks of lia- million in 2007). These deferrals normally vest after fi ve years. The liability bility. In the normal course of business, the Company has been named is being recognized on a straight-line basis over the vesting period. The as defendant or co-defendant in lawsuits creating substantial exposure. EDCP also includes voluntary deferrals by senior executives that are not The Company is the subject of customer complaints, has been named as subject to vesting. The Company maintains a company-owned life insur- defendant or codefendant in various lawsuits seeking, in total, substan- ance policy, which is designed to offset approximately 60% of the EDCP tial damages and is involved in certain governmental and self-regulatory liability. The EDCP liability is being tracked against the value of a phantom agency investigations and proceedings. These proceedings arise primar- investment portfolio held for this purpose. At December 31, 2009, the ily from securities brokerage, asset management and investment bank- Company’s liability with respect to the EDCP and DIP totaled $29.5 million ing activities. The Company is also involved from time to time in govern- and is included in accrued compensation on the consolidated balance mental and self-regulatory agency investigations and proceedings. The sheet as at December 31, 2009. investigations include, among other things, inquiries from the Securities and Exchange Commission (the “SEC”), the Financial Industry Regula- In addition, the Company is maintaining a deferred compensation plan tory Authority (“FINRA”) and various state regulators. on behalf of certain employees who were formerly employed by CIBC Several state regulatory authorities have investigated the Company’s activities World Markets. The liability is being tracked against the value of an in- with respect to auction rate securities (“ARS”). Regulators (including the states) vestment portfolio held by the Company for this purpose and, therefore, have concluded, in many cases, that securities fi rms, primarily those that under- the liability fl uctuates with the fair value of the underlying portfolio. At wrote and supported the auctions for ARS, should be compelled to redeem December 31, 2009, the Company’s liability with respect to this plan them from customers. Underwriters and dealers in such securities have settled totaled $13.1 million. with various regulators and have commenced purchasing ARS from their clients. The Company recently reached settlements with two state regulatory agencies The total amount expensed in 2009 for the Company’s deferred compen- on ARS matters (see note 20 for further details). As a result, the Company will sation plans was $12.5 million (net credit of $3.9 million in 2008 and net re-purchase ARS from eligible clients pursuant to the terms of those settle- expense of $7.1 million in 2007). ments. Based on the terms of the settlements, the Company will make an initial national offer to eligible clients who currently hold accounts at Oppenheimer 13. Commitments and Contingencies no later than May 24, 2010. Eligible clients’ accounts will be aggregated on a “household” basis. The Company will make subsequent offers to clients hold- The Company and its subsidiaries have operating leases for offi ce space, ing ARS based on its availability of funds for such purpose. equipment and furniture and fi xtures expiring at various dates through 2019. Future minimum rental commitments under such offi ce and equip- The terms of the settlements described above do not require the Com- ment leases as at December 31, 2009 are as follows. pany to purchase over any short period of time all of the ARS currently held by former or current clients who purchased such securities prior to Expressed in thousands of dollars. the beginning of the market’s failure in February 2008. Such purchases, 2010 $39,962 if required over a short period of time, would likely have a material ad- 2011 36,745 verse effect on the Company’s fi nancial condition including its cash posi- 2012 29,064 tion. The Company will continue to assess whether it has suffi cient regulatory capital or borrowing capacity to make any purchase beyond 2013 17,528 that agreed upon in the settlements described above. 2014 12,477 2015 and thereafter 22,177 The Company is also named as a respondent in a number of arbitrations Total $157,953 by its current or former clients as well as lawsuits, including two class action lawsuits (subsequently consolidated into one lawsuit), related to its Certain of the leases contain provisions for rent increases based on sale of ARS. The Company has been and continues to review this situation changes in costs incurred by the lessor. and explore options to help bring liquidity to the Company’s clients holding ARS. The Company has taken or is considering taking various actions The Company’s rent expense for the years ended December 31, 2009, 2008 to facilitate the purchase of client-held ARS. However, there is no assur- and 2007 was $50.6 million, $47.1 million and $33.1 million, respectively. ance that these efforts, if undertaken, will be successful. The Company has established provisions for estimated losses from pending complaints, At December 31, 2009, the Company had capital commitments of ap- legal actions, regulatory investigations and proceedings. The ultimate proximately $4.0 million with respect to its obligations in its role as resolution may differ materially from the amounts accrued. Because litiga- sponsor for certain private equity funds. tion is inherently unpredictable, the Company cannot determine with certainty the ultimate resolution of pending litigation and other matters. At December 31, 2009, the Company had collateralized and uncollater- Consequently, the Company cannot estimate with certainty the losses or alized letters of credit for $187.2 million in favor of Options Clearing ranges of losses for matters, how such matters will be resolved, when Corporation. Collateral for these letters of credit include customer secu- they will ultimately be resolved or what the eventual relief might be. The rities with a market value of approximately $247.5 million pledged to materiality of legal matters to the Company’s future operating results two fi nancial institutions. depends on the level of future results of operations as well as the timing and ultimate outcome of such legal matters. Through its Debt Capital Markets business, the Company also participates, with other members of loan syndications, in providing fi nancing 14. Regulatory requirements commitments under revolving credit facilities in leveraged fi nancing transactions. As of December 31, 2009, the Company had $1.2 million The Company’s U.S. broker dealer subsidiaries, Oppenheimer and committed under such fi nancing arrangements. Freedom, are subject to the uniform net capital requirements of the

44 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 44 3/18/10 3:00:12 PM SEC under Rule 15c3-1 (the “Rule”). Oppenheimer computes its net in an actual merger or acquisition (“Precedent Transactions”). As part of capital requirements under the alternative method provided for in the this process, multiples of value relative to fi nancial variables, such as Rule which requires that Oppenheimer maintain net capital equal to earnings or stockholders’ equity, are developed and applied to the ap- two percent of aggregate customer-related debit items, as defi ned in propriate fi nancial variables of the subject company to indicate its value. SEC Rule 15c3-3. At December 31, 2009, the net capital of Oppen- The income approach involves estimating the present value of the sub- heimer as calculated under the Rule was $157.8 million or 13.72% of ject company’s future cash fl ows by using projections of the cash fl ows Oppenheimer’s aggregate debit items. This was $134.8 million in excess that the business is expected to generate, and discounting these cash of the minimum required net capital at that date. Freedom computes its fl ows at a given rate of return (“Discounted Cash Flow” or “DCF”). Each net capital requirement under the basic method provided for in the of these standard valuation methodologies requires the use of manage- Rule, which requires that Freedom maintain net capital equal to the ment estimates and assumptions. greater of $250,000 or 6-2/3% of aggregate indebtedness, as defi ned. At December 31, 2009, Freedom had net capital of $4.7 million, which In its Price Multiples valuation analysis, the Company used various operat- was $4.5 million in excess of the $250,000 required to be maintained ing metrics of comparable companies, including revenues, pre-tax and at that date. after-tax earnings, EBITDA on a trailing-twelve-month basis as well as price-to-book value ratios at a point in time. The Company analyzed At December 31, 2009, the regulatory capital of Oppenheimer E.U. Ltd. prices paid in Precedent Transactions that are comparable to the business was $3.0 million which was $1.2 in excess of the $1.8 million required conducted in the PCD. The DCF analysis included the Company’s assump- to be maintained at that date. Oppenheimer E.U. Ltd. computes its tions regarding growth rates of the PCD’s revenues, expenses, EBITDA, regulatory capital pursuant to the Fixed Overhead Method prescribed by and capital expenditures, adjusted for current economic conditions and the Financial Services Authority of the United Kingdom. expectations. The Company’s assumptions also included a discount rate of 13.7% and a terminal growth rate of 3.5% in its calculations. The At December 31, 2009, Oppenheimer and Freedom had $15.1 million Company weighted each of the three valuation methods equally in its and $13.4 million, respectively, in cash and U.S. Treasury securities seg- overall valuation. Given the subjectivity involved in selecting which valua- regated under Federal and other regulations. tion method to use, the corresponding weightings, and the input variables for use in the analyses, it is possible that a different valuation model and In accordance with the SEC’s No-Action Letter dated November 3, 1998, the selection of different input variables could produce a materially differ- the Company has computed a reserve requirement for the proprietary ent estimate of the fair value of our goodwill. accounts of introducing fi rms as of December 31, 2009. The Company had no deposit requirements as of December 31, 2009. Based on the analysis performed, the Company concluded that the PCD’s fair value exceeded its carrying amount including goodwill as of 15. Goodwill and intangibles June 30, 2009 and December 31, 2009. Despite the diffi cult operating environment over the past year, the PCD operating segment continued Goodwill arose upon the acquisitions of Oppenheimer, Old Michigan to produce strong revenues, cash fl ows, and earnings in the twelve- Corp., Josephthal & Co. Inc., Grand Charter Group Incorporated and month period ended December 31, 2009. the Oppenheimer Divisions. The Company defi nes a reporting unit as an operating segment. The Company’s goodwill resides in its Private Client Division (“PCD”). Goodwill of a reporting unit is subject to at least an 16. Segment Information annual test for impairment to determine if the fair value of goodwill of The Company has determined its reportable segments based on the a reporting unit is less than its estimated carrying amount. The Company Company’s method of internal reporting, which disaggregates its retail derives the estimated carrying amount of its operating segments by es- business by branch and its proprietary and investment banking busi- timating the amount of shareholders’ equity required to support the nesses by product. The Company’s segments are: Private Client which activities of each operating segment. includes commission and fee income earned on client transactions, net The goodwill of a reporting unit is required to be tested for impairment interest earnings on client margin loans and cash balances, stock loan between annual tests if an event occurs or circumstances change that activities and fi nancing activities; Capital Markets which includes invest- would more likely than not reduce the fair value of a reporting unit be- ment banking, market-making activities in over-the-counter equities, low its carrying amount. The Company performed an impairment analy- institutional trading in both fi xed income and equities, structured assets sis between annual tests as of June 30, 2009 due to the signifi cant dis- transactions, bond trading, trading in mortgage-backed securities, cor- count between the Company’s market capitalization and its book value porate underwriting activities, public fi nance activities, syndicate par- at that time. The Company also performed its annual test for goodwill ticipation as well as the Company’s operations in the United Kingdom, impairment as of December 31, 2009. Neither of the impairment analy- Hong Kong, and Israel; and Asset Management which includes fees ses resulted in impairment charges. from money market funds and the investment management services of Oppenheimer Asset Management Inc. and Oppenheimer’s asset man- The Company’s goodwill impairment analysis performed at June 30, agement divisions employing various programs to professionally manage 2009 and December 31, 2009 applied the same valuation methodolo- client assets either in individual accounts or in funds. The Company gies with consistent inputs as that performed at December 31, 2008, evaluates the performance of its segments and allocates resources to as follows: them based upon profi tability.

In estimating the fair value of the PCD, the Company used traditional The table below presents information about the reported revenue and standard valuation methods, including the market comparable approach proﬁ t before income taxes of the Company for the years ended Decem- and income approach. The market comparable approach is based on ber 31, 2009, 2008 and 2007. Asset information by reportable segment comparisons of the subject company to public companies whose stocks is not reported, since the Company does not produce such information are actively traded (“Price Multiples”) or to similar companies engaged for internal use.

Oppenheimer Holdings Inc. 45

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 45 3/18/10 3:00:12 PM . Year ended December 31, The change refl ects a reclassifi cation of gross credits derived from secondary Expressed in thousands of dollars 2009 2008 2007 trading in municipal securities from investment banking to commissions. Gross credits related to municipal securities where the Company participates Revenue: in the syndicate continue to be classifi ed as part of investment banking. Private Client (2) $543,890 $574,331 $662,486 Capital Markets 375,164 273,203 156,477 During the fourth quarter of 2009, the Company identifi ed deferred com- Asset Management (2) 58,616 61,527 87,051 pensation obligations and related deferred tax assets at its subsidiary Op- Other (1) 13,763 11,009 8,383 penheimer Israel (OPCO) Ltd. which existed at the date of acquisition of this business from CIBC. The Company has made adjustments to its purchase Total $991,433 $920,070 $914,397 price allocation resulting in an increase in compensation payable and net

Profi t (loss) before income taxes: deferred tax assets of $666,000 and $1.5 million, respectively, from previously reported amounts. These adjustments have resulted in an increase in Private Client (3) $24,825 $64,264 $84,207 the recorded amount of excess of fair value of assets acquired over cost of Capital Markets (4) (5) (4,854) (93,975) 27,155 $847,000 from previously reported amounts. These prior period items have Asset Management 15,892 12,303 16,944 not impacted the reported amount of total revenues, total expenses, net Other (1) (1,050) (18,635) (912) profi t (loss) or stockholders equity for any prior period. Total $34,813 $(36,043) $127,394 19. Acquisition (1) For the year ended December 31, 2007, other revenue and profi t before income taxes include approximately $2.5 million relating to a gain on On January 14, 2008, the Company acquired CIBC World Markets Corp.’s extinguishment of the Company’s zero coupon promissory notes. U.S. Investment Banking, Corporate Syndicate, Institutional Sales and Trad- (2) The Asset Management and the Private Client segments earned perfor- ing, Equity Research, Options Trading and a portion of the Debt Capital mance fees of approximately $5.1 million and $5.4 million, respectively, Markets business which includes Convertible Bond Trading, Loan Syndica- in 2009 ($552,900 and $815,300, respectively, in 2008 and $21.3 mil- tion and Trading, High Yield Origination and Trading as well as Oppen- lion and $22.0 million, respectively, in 2007). These fees are based on participation as general partner in various alternative investments. heimer Israel (OPCO) Ltd., formerly CIBC Israel Ltd., and businesses operating in the United Kingdom on September 5, 2008 (now operating as Oppen- (3) For the year ended December 31, 2009, the Private Client segment was negatively impacted by the low interest rate environment. Revenue from heimer E.U. Ltd.) and Hong Kong, China on November 4, 2008 (now operat- margin interest, money fund products and, since March 2008, sponsored ing as Oppenheimer Investments Asia Ltd.). The acquired businesses along FDIC-covered deposits totaled $45.5 million ($89.7 million in 2008 and with the Company’s existing Investment Banking, Corporate Syndicate, Insti- $111.4 million in 2007). tutional Sales and Trading and Equities Research divisions were combined to (4) For the year ended December 31, 2008, the Capital Markets segment form the Oppenheimer Investment Banking Division (OIB Division) within the includes accrued expenses of $40.2 million for deferred incentive com- Capital Markets business segment. pensation to former CIBC employees for awards made by CIBC prior to the January 14, 2008 acquisition by the Company. The acquisition was accounted for under the purchase method, which re- (5) For the year ended December 31, 2008, the Capital Markets segment quires the acquiring entity to allocate the cost of an acquired business to the includes transition service charges of $27.3 million paid to CIBC for in- assets acquired and liabilities assumed based on their estimated fair values as terim support of the acquired businesses which substantially terminated upon the transition of such businesses to Oppenheimer’s platform in at the date of acquisition. Consideration paid in cash is measured based on mid August 2008. the amount of cash paid, while non-cash consideration is recorded at esti- (6) For the year ended December 31, 2009, revenue from foreign operations mated fair value. was $29.6 million ($11.6 million in 2008 and nil in 2007). The purchase price for the transaction is comprised of (1) an earn-out based 17. Related party transactions on the annual performance of the OIB Division for the calendar years 2008 through 2012 (in no case to be less than $5 million per year) to be paid in the The Company does not make loans to its offi cers and directors except fi rst quarter of 2013 (the “Earn-Out Date”). On the Earn-Out Date, 25% of under normal commercial terms pursuant to client margin account agree- the earn-out will be paid in cash and the balance may be paid, at the Com- ments. These loans are fully collateralized by employee-owned securities. pany’s option, in any combination of cash, the Company’s Class A Stock (at the then prevailing market price) and/or debentures to be issued by the 18. Prior period items Company payable in two equal tranches – 50% one year after the Earn-Out Date and the balance two years after the Earn-Out Date, (2) warrants to Certain prior period amounts in the consolidated statement of operations purchase 1,000,000 shares of Class A Stock of the Company at $48.62 per have been reclassifi ed to conform to the current presentation. share exercisable fi ve years from the January 2008 closing, (3) consideration at closing equal to the fair market value of net securities owned in the amount The following table identifi es the revenue amounts as reported originally of $48.2 million, (4) cash consideration at closing in the amount of $2.7 mil- and as reclassifi ed. lion for offi ce facilities, (5) a cash payment at closing in the amount of $1.1 million to extinguish a demand note, and (6) cash paid to cover acquisition Expressed in thousands of dollars. costs of $1.8 million. Year ended Year ended December, 2008 December, 2007 Intangible assets arose upon the acquisition of the New Capital Markets Busi- ness and are comprised of customer relationships and the estimated fair value As reported Reclassifi ed As reported Reclassifi ed of a below-market lease on the premises located at 300 Madison Avenue in Revenue: New York City. Customer relationships are carried at $817,800 (which is net Commissions $494,773 $532,682 $366,437 $382,053 of accumulated amortization of $123,200) at December 31, 2009 and are Investment banking $121,450 $83,541 $119,350 $103,734 being amortized on a straight-line basis over 180 months commencing in

46 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 46 3/18/10 3:00:12 PM January 2008. The below-market lease, which represents the difference be- million is included in interest expense in the consolidated statement of op- tween what the Company is paying to occupy the premises at 300 Madison erations ($40.2 million in 2008 of which $33.2 million is included in com- Avenue, New York, NY and the fair market value of comparable real estate in pensation and related expenses and $7.0 million is included in interest ex- midtown Manhattan, is carried at $12.8 million (which is net of accumulated pense). The estimated amounts are based on forfeiture assumptions and amortization of $8.5 million) at December 31, 2009 and is being amortized actual amounts may differ from these estimates. over the life of the lease (60 months commencing in January 2008).

The earn-out, which will amount to no less than $25.0 million, was assigned a 20. Subsequent events fair value of $11.1 million at acquisition date. The difference between the full On January 29, 2010, the Company announced a cash dividend of $0.11 liability and the grant date fair value is being amortized over 60 months com- per share (totaling $1.4 million) payable on February 26, 2010 to Class A and mencing in January 2008 and approximately $2.8 million for the year ended Class B Stockholders of record on February 12, 2010. December 31, 2009 ($2.8 million in 2008) is included as interest expense in the consolidated statement of operations. If the earn-out exceeds $5.0 million in On February 23, 2010 and February 26, 2010, the Company reached settle- any of the fi ve years from 2008 through 2012, the excess will fi rst reduce the ment agreements with the New York Attorney General (“NYAG”) and the excess of fair value of acquired assets over cost and second will create goodwill, Massachusetts Securities Division (“MSD”), respectively, to offer to purchase as applicable. The earn-out for 2009 and 2008 was $5.0 million in each year. auction rate securities (“ARS”) held by “eligible” current and former clients who purchased the securities through the Company before the auction rate As part of the transaction, the Company borrowed $100.0 million from market collapsed in 2008. In aggregate, the settlements require the Company CIBC in the form of a fi ve-year Subordinated Note to support the New to purchase, at par, ARS with a par value of approximately $31.5 million at Capital Markets Business. See note 7. In addition, CIBC is providing a ware- December 31, 2009, from eligible clients no later than August 7, 2010 and to house facility, initially up to $1.5 billion, to OPY Credit Corp., to extend fi - establish redemption funds of $4.5 million and $2.8 million no later than Au- nancing commitments to third-party borrowers identifi ed by the Company. gust 28, 2010 and February 29, 2011, respectively, as well as to make addi- Underwriting of loans pursuant to the warehouse facility will be subject to tional purchases at future dates as funds become available. In addition, the joint credit approval by Oppenheimer and CIBC. See note 4. Company has agreed to reimburse the MSD for external costs not to exceed In addition, in conjunction with the transaction, the Company agreed to pay $250,000. The Company has recorded a liability of $1.1 million in December to CIBC an estimated $46.4 million over three years from 2008 through 2009 for its estimated exposure which is represented by the difference be- 2010 (2008 - $5.3 million; 2009 - $15.9 million; 2010 - $37.2 million) for tween the ARS’ par value and estimated fair value based upon present value future payments of deferred incentive compensation to former CIBC em- calculations, which are subject to change based on future events, including ployees for awards made by CIBC prior to January 14, 2008. The Company interest rate movements and issuer redemptions. Issuer redemptions have recorded approximately $9.4 million of such expense in the consolidated been at par and the Company believes will continue at par. Future periods’ statement of operations for the year ended December 31, 2009 of which results may be affected by changes in issuer redemption rates, subsequent $7.4 million is included in compensation and related expenses and $2.0 offers made by the Company, or changes in the fair value of the ARS.

21. Quarterly Information (unaudited) (Expressed in thousands of dollars, except per share amounts.)

Year ended December 31, 2009 Year ended December 31, 2008 Fiscal Quarters Fourth (3) Third Second (2) First Year Fiscal Quarters Fourth Third Second First Year Revenue $273,377 $262,067 $250,724 $205,265 $991,433 Revenue $209,767 $222,187 $256,241 $231,875 $920,070

Proﬁ t (loss) before Proﬁ t (loss) before income taxes $10,609 $14,050 $12,976 $(2,822) $34,813 income taxes $(7,728) $(3,711) $2,185 $(26,789) $(36,043)

Net proﬁ t (loss) $6,463 $7,908 $7,130 $(2,014) $19,487 Net proﬁ t (loss) $(3,824) $(2,477) $1,646 $(16,115) $(20,770)

Earnings (loss) per share: Earnings (loss) per share: Basic $0.49 $0.60 $0.55 $(0.15) $1.49 Basic $(0.29) $(0.18) $0.12 $(1.19) $(1.57) Diluted $0.48 $0.59 $0.54 $(0.15) $1.45 Diluted $(0.29) $(0.18) $0.12 $(1.19) $(1.57)

Dividends per share $0.11 $0.11 $0.11 $0.11 $0.44 Dividends per share $0.11 $0.11 $0.11 $0.11 $0.44

Market price of Market price of Class A Stock (1): Class A Stock (1): High $34.16 $30.38 $22.83 $14.72 $34.16 High $25.62 $31.51 $46.99 $48.19 $48.19 Low $22.85 $20.56 $9.00 $6.70 $6.70 Low $7.70 $20.51 $27.27 $34.50 $7.70

(1) The price quotations above were obtained from the New York Stock (3) During the fourth quarter of 2009, the Company recorded an adjust- Exchange web site. ment to refl ect a contractual obligation to the principals of its Evanston (2) The Company identifi ed certain under/over accruals in communications Financial Corporation subsidiary. This out-of-period adjustment, which and technology expenses relating to prior periods which the Company was not signifi cant to any prior period, resulted in an increase to other adjusted in the second quarter of 2009. These out-of-period adjust- expenses of $952,000 for the three months ended December 31, 2009. ments, which were not signifi cant to any prior period, resulted in a decrease of communications and technology expenses of $955,000 for the three months ended June 30, 2009. Oppenheimer Holdings Inc. 47

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 47 3/18/10 3:00:13 PM Branch Ofﬁ ces (U.S.)

Arizona 6700 Daniels Parkway 318 Bear Hill Road Missouri 16427 North Scottsdale Road Fort Myers, FL 33912 Waltham, MA 02451 16401 Swingley Ridge Road Scottsdale, AZ 85254 239-561-2330 781-522-0085 Chesterfi eld, MO 63017 480-333-1800 636-733-1000 2601 South Bayshore Drive Maryland California Miami, FL 33133 100 International Drive 1312 West High Street 1950 University Avenue 305-860-2600 Baltmore, MD 21202 Jefferson City, MO 65109 573-636-3141 East Palo Alto, CA 94303 777 Brickell Avenue 410-223-1936 650-234-2400 Miami, FL 33131 Michigan 4717 Grand Avenue 305-577-3761 45-210 Club Drive 301 E. Liberty Street Kansas City, MO 64112 816-932-7015 Indian Wells, CA 92210 2000 PGA Boulevard Ann Arbor, MI 48104 760-772-6900 Palm Beach Gardens, FL 33408 734-747-8040 One North Brentwood Boulevard 561-383-3929 10880 Wilshire Boulevard 325 North Old Woodward Avenue St. Louis, MO 63105 314-746-2531 Los Angeles, CA 90024 4221 West Boy Scout Boulevard Birmingham, MI 48009 310-446-7100 Tampa, FL 33607 248-593-3719 4039 South Fremont Street 813-871-6207 111 North Sepulveda Boulevard 300 River Place Springfi eld, MO 65804 417-886-8005 Manhattan Beach, CA 90266 783 South Orange Avenue Detroit, MI 48207 310-798-7777 Sarasota, FL 34236 248-637-8344 Montana 941-951-1859 620 Newport Center Drive 6102 Abbott Road 2 Obrien Avenue Newport Beach, CA 92660 11575 Heron Bay Boulevard East Lansing, MI 48823 Whitefi sh, MT 59937 949-219-2999 Coral Springs, FL 33076 517-332-8000 406-863-1100 954-757-5758 580 California Street 130 Mayer Road North Carolina San Francisco, CA 94104 304 East Pine Street Frankenmuth, MI 48734 200 College Street 415-438-3000 Lakeland, FL 33801 989-652-3251 Asheville, NC 28801 863-686-5393 828-225-3118 One Post Street 2240 E. Hill Road San Francisco, CA 94104 Georgia Grand Blanc, MI 48439 6000 Fairview Road 415-399-5700 2500 Northwinds Parkway 810-694-2980 Charlotte, NC 28210 704-643-5445 Colorado Alpharetta, GA 30009 250 Pearl St NW 3200 Cherry Creek South Drive 770-667-1228 Grand Rapids, MI 49503 800 Green Valley Road Denver, CO 80209 7000 Central Parkway N.E. 616-456-4750 Greensboro, NC 27408 303-698-5300 336-574-7500 Atlanta, GA 30328 63 Kercheval Avenue 770-350-2612 4643 Ulster Street Grosse Pointe Farms, MI 48236 New Hampshire Denver, CO 80237 3414 Peachtree Road, N.E. 313-886-1200 30 Penhallow Street 720-554-1100 Atlanta, GA 30326 170 College Avenue Portsmouth, NH 03801 501 St. Vrain Lane 404-262-5300 Holland, MI 49423 603-436-7626 Estes Park, CO 80517 616-546-3557 Illinois New Jersey 970-586-1895 500 West Madison 555 W. Crosstown Parkway 18 Columbia Turnpike Connecticut Chicago, IL 60661 Kalamazoo, MI 49008 Florham Park, NJ 07932 1781 Highland Avenue 312-360-5500 269-381-4800 973-245-4600 Cheshire, CT 06410 227 East Center Drive 25 W. Nepessing Street 302 Carnegie Center 203-272-9400 Alton, IL 62002 Lapeer, MI 48446 Princeton, NJ 08540 100 Mill Plain Road 618-462-1968 810-664-0050 609-734-0400 Danbury, CT 06811 Kansas 1007 W. Ann Arbor Trail 3 Harding Road 203-748-2626 200 North Main Street Plymouth, MI 48170 Red Bank, NJ 07701 1291 Boston Post Road Hutchinson, KS 67501 734-454-3751 732-224-8942 Madison, CT 06443 620-663-5461 810 Michigan Street Park 80 West, Plaza 1 203-318-1050 10601 Mission Road Port Huron, MI 48060 Saddle Brook, NJ 07663 466 Heritage Road Leawood, KS 66206 810-987-1500 201-845-2300 Southbury, CT 06488 913-383-5139 202 Walnut Street 382 Springfi eld Avenue 203-264-6511 534 South Kansas Avenue Rochester, MI 48307 Summit, NJ 07901 750 Washington Boulevard Topeka, KS 66603 248-601-3900 908-273-2100 785-235-9281 Stamford, CT 06901 12900 Hall Road New York 203-328-1160 1223 North Rock Road Sterling Heights, MI 48313 300 Westage Business Center 333 Kennedy Drive Wichita, KS 67206 586-726-5000 Fishkill, NY 12524 845-897-8101 Torrington, CT 06790 620-636-8925 2714 West Jefferson Avenue 860-489-3151 Massachusetts Trenton, MI 48183 700 Veterans Memorial Hwy 734-675-0550 Florida One Federal Street Hauppauge, NY 11788 631-382-2506 4855 Technology Way Boston, MA 02110 3310 W. Big Beaver Road Boca Raton, FL 33431 617-428-5500 Troy, MI 48084 100 Jericho Quadrangle 561-416-8600 248-637-8300 155 Federal Street Jericho, NY 11753 516-733-1360 100 NE 3rd Avenue Boston, MA 02110 Minnesota Fort Lauderdale, FL 33301 617-375-7876 50 South Sixth Street 115 Broadhollow Road 954-356-8200 386 High Street Minneapolis, MN 55402 Melville, NY 11747 Fall River, MA 02720 612-337-2700 631-424-0700 508-324-4450

48 Oppenheimer Holdings Inc.

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 48 3/18/10 3:00:13 PM 125 Broad Street 711 Louisiana, Suite 1500 Principal Offi ces Offi cers New York, NY 10004 Houston, TX 77002 Oppenheimer Holdings Inc. A.G. Lowenthal 212-859-9481 713-650-2130 125 Broad Street Chairman of the Board New York, NY 10004 and Chief Executive Offi cer 200 Park Avenue 1400 Woodloch Forest Drive (212) 668-8000 New York, NY 10166 The Woodlands, TX 77380 FAX (212) 943-8728 E.K. Roberts, C.A. 212-667-4200 281-363-7500 [email protected] President and Treasurer 300 Madison Avenue Virginia New York, NY 10017 901 East Byrd Street Oppenheimer & Co. Inc. D.P. McNamara 212-856-4000 Richmond, VA 23219 Corporate Headquarters Secretary 804-343-5160 125 Broad Street 810 7th Avenue New York, NY 10004 Board of Directors New York, NY 10019 331 North Royal (212) 668-8000 J.L. Bitove 212-699-7828 Front Royal, VA 22630 FAX (212) 943-8728 R. Crystal 505 Park Avenue 877-258-8362 W. Ehrhardt*° Capital Markets M. Keehner*° New York, NY 10022 Washington 212-644-3260 300 Madison Avenue A.G. Lowenthal 500 108th Avenue NE New York, NY 10017 K.W. McArthur* 825 3rd Avenue Bellevue, WA 98004 (212) 856-4000 A.W. Oughtred New York, NY 10022 425-709-0400 www.opco.com E.K. Roberts 212-753-9110 719 Second Avenue B.Winberg*° Oppenheimer Asset Seattle, WA 98104 Ohio Management Inc. 206-757-3400 * members of the audit committee 255 East Fifth Street 200 Park Avenue ° members of the compensation Cincinnati, OH 45202 Washington, DC New York, NY 10166 and stock option committee 513-723-9200 2000 K Street NW (212) 907-4000 members of the nominating/ FAX (212) 907-4080 30100 Chagrin Boulevard Washington, DC 20006 corporate governance committee www.opco.com Pepper Pike, OH 44124 202-296-3030 216-765-5900 Auditors Oppenheimer Trust PricewaterhouseCoopers LLP Pennsylvania (International) Company 1525 Valley Center Pkwy 18 Columbia Turnpike Florham Park, NJ 07932 Counsel Bethlehem, PA 18017 Buenos Aires, Argentina (973) 245-4635 Blank Rome LLP 610-867-8631 San Martin 551 FAX (973) 245-4699 New York, NY Buenos Aires, Argentina 136 W. Main Street www.opco.com 011-541-393-7552 Bloomsburg, PA 17815 Registrar and Transfer Agent 570-784-4210 Caracas, Venezuela OPY Credit Corp. Mellon Investor Services LLP 480 Washington Blvd, Avenida Francisco De Miranda 300 Madison Avenue 60 North Main Street AIMS 074-29-135 Seguros Venezuela New York, NY 10017 Doylestown, PA 18901 (212) 885-4489 Jersey City, NJ 07310 215-348-8104 Piso 1 Ofi cina 1-B Campo Alegre, FAX (212) 885-4838 500 Old York Road Caracas 1061 Venezuela The Company’s fi nancial information Jenkintown, PA 19046 011-58-212-9530733 Freedom Investments, Inc. 215-576-3048 375 Raritan Center Parkway and press releases are available on Edison, NJ 08837 its website, www.opco.com, under 1180 Welsh Road (732) 934-3000 “Investor Relations”. North Wales, PA 19454 Capital Markets FAX (732) 225-6289 215-412-0586 A copy of the Company’s Annual Offi ces Evanston Financial Report on Form 10-K is available by 1818 Market Street (International) Corporation request from [email protected] Philadelphia, PA 19103 1180 Welsh Road, Suite 210 215-656-2803 Hong Kong, China North Wales, PA 19454 One Oxford Centre Henley Building (215) 412-0586 Pittsburgh, PA 15219 Unit 501 FAX (215) 631-9591 412-642-4301 No 5 Queens Road Central Hong Kong 101 South Centre Street 852-2855-688 Pottsville, PA 17901 570-622-4844 London, England 6 Gracechurch Street 1015 Mumma Road 1st Floor Wormleysburg, PA 17043 London EC3V 0AT 717-763-8200 United Kingdom 44-207-220-1900 Rhode Island 1 Financial Plaza Tel Aviv, Israel Providence, RI 02903 Oppenheimer Israel (OPCO) Ltd. 401-331-1932 Top Tower, 50 Dizengoff Street 15th Floor Texas Tel-Aviv 64332 Israel 13455 Noel Road 972-3-526-2666 Dallas, TX 75240 972-450-3806 505 Main Street Fort Worth, TX 76102 Design by Decker Design 817-333-3900 Photography by John Madere

513175F1_Op_Fin_x2-09PP001_financial_v18.indd 49 3/18/10 3:00:13 PM Oppenheimer & Co. Inc. Corporate Headquarters 125 Broad Street New York, NY 10004 Capital Markets 300 Madison Avenue New York, NY 10017 Oppenheimer Asset Management Inc. 200 Park Avenue New York, NY 10166

513175F1_Oppen_x3-09PP001_upfront_v28.indd Sec1:14 3/18/10 2:42:57 PM