PINNACLE GLOBAL GROUP INC, S-4, 1999-10-27

PINNACLE GLOBAL GROUP INC
S-4, 1999-10-27
FINANCE SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1999.

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
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PINNACLE GLOBAL GROUP, INC.
(Exact name of registrant as specified in its charter)

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TEXAS 6211 76-0583569
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
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5599 SAN FELIPE, SUITE 555 ROBERT E. GARRISON II
HOUSTON, TEXAS 77056 PRESIDENT AND
(713) 993-4610 CHIEF EXECUTIVE OFFICER
(Address including zip code, and 5599 SAN FELIPE, SUITE 555
telephone number, including area code, of HOUSTON, TEXAS 77056
Registrant's principal executive offices) (713) 993-4610
(Name, address, including zip code, and
telephone number, including area code of
agent for service)

WITH COPIES TO:
JAMES M. HARBISON, JR. JOHN T. UNGER
PORTER & HEDGES, L.L.P. SNELL & SMITH P.C.
700 LOUISIANA, 34TH FLOOR 1000 LOUISIANA, SUITE 1200
HOUSTON, TEXAS 77002-2764 HOUSTON, TEXAS 77002
TELEPHONE: (713) 226-0600 TELEPHONE: (713) 652-3311
FAX: (713) 226-0204 FAX: (713) 651-8010
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________
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CALCULATION OF REGISTRATION FEE

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PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $.01 par value per share......... 7,125,233 17,445,010 $4,850
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(1) Shares issuable in exchange for SMM common stock.

(2) Pursuant to Rule 457(f)(2), the registration fee is calculated based on the
book value of the SMM common stock to be received by the Registrant,
computed as of June 30, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[PINNACLE LOGO]

PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT

The Boards of Directors of Pinnacle Global Group, Inc. and Sanders Morris
Mundy Inc., a Houston-based independently owned investment banking firm, have
unanimously approved a merger agreement that would result in Harris Webb &
Garrison, Inc., Pinnacle's wholly owned investment banking subsidiary, being
merged into Sanders Morris Mundy. The combined company would be renamed Sanders
Morris Harris Inc., and would become a wholly owned subsidiary of Pinnacle. The
addition of Sanders Morris Mundy would more than triple Pinnacle's pro forma
combined revenues for the year ended December 31, 1998.

If the merger is completed, Sanders Morris Mundy shareholders will receive
approximately 117.33 Pinnacle common shares for each Sanders Morris Mundy common
share. Pinnacle shareholders will continue to own their existing common shares
after the merger. The Sanders Morris Mundy shareholders will own approximately
50.0% of the outstanding Pinnacle common shares after the merger.

We are asking the Pinnacle shareholders to approve the issuance of the
Pinnacle common shares to the Sanders Morris Mundy shareholders in the merger.

We cannot complete the merger unless the shareholders of both Pinnacle and
Sanders Morris Mundy approve their merger related proposals. We and Sanders
Morris Mundy have each scheduled special meetings of shareholders to vote on the
merger proposals.

The accompanying Proxy Statement/Prospectus gives you detailed information
about the proposed merger. We encourage you to read this document carefully,
INCLUDING "RISK FACTORS" ON PAGES 13 THROUGH 24.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE MERGER DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS
OR THE PINNACLE COMMON STOCK TO BE ISSUED UNDER THIS DOCUMENT OR DETERMINED IF
THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

____________________________________________
Robert E. Garrison II
PRESIDENT AND CHIEF EXECUTIVE OFFICER

This Proxy Statement/Prospectus is dated , 1999
and is first being mailed to Pinnacle shareholders on or about ,
1999.
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REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information
about Pinnacle from documents we have filed with the SEC but have not included
in or delivered with this document. If you write or call us, we will send you
these documents without charge. You may contact us at:

Pinnacle Global Group, Inc.
5599 San Felipe, Suite 555
Houston, Texas 77056
(713) 993-4610

PLEASE REQUEST DOCUMENTS FROM US BY , 2000. If you request any
incorporated documents, we will mail the requested documents by first class
mail, or another equally prompt means, by the next business day after we receive
your request.

See "Where To Find More Information" on pages 88 and 89 for more information
about the documents referred to in this document.
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TABLE OF CONTENTS

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PAGE
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QUESTIONS AND ANSWERS ABOUT THE
MERGER............................. 1

SUMMARY.............................. 2
The Companies...................... 2
Reasons for the Merger............. 2
Merger Recommendation to Pinnacle
Shareholders..................... 3
The Merger......................... 3
The Special Meeting and the
Approval Process Generally....... 6
Risk Factors....................... 7

SUMMARY UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA............ 8

PINNACLE SUMMARY HISTORICAL FINANCIAL
DATA............................... 9

SMM SUMMARY HISTORICAL FINANCIAL
DATA............................... 10

UNAUDITED COMPARATIVE PER SHARE
DATA............................... 11

RISK FACTORS......................... 13

THE MERGER........................... 25
General............................ 25
Background of the merger........... 25
Reasons for the merger............. 28
Business combination costs--
anticipated consolidation
benefits......................... 30
Opinion of financial advisor....... 30
Material United States federal
income tax consequences of the
merger........................... 32
Regulatory approvals............... 34
Accounting treatment............... 34
Quotation on the Nasdaq National
Market........................... 34
Federal securities law
consequences..................... 34
No dissenters' or appraisal
rights........................... 35
Interests of certain persons in the
merger........................... 35

COMPARATIVE MARKET PRICE DATA........ 37
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THE SPECIAL MEETING.................. 38
Matters to be considered at the
special meeting.................. 38
Your board's recommendations....... 38
Voting at the special meeting;
record date...................... 38
Proxies............................ 38
Solicitation of proxies............ 39

THE MERGER AGREEMENT................. 39
Closing of the merger.............. 39
Manner and basis of converting
securities....................... 39
Terms of the merger................ 40

UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA............ 44

BUSINESS OF THE SANDERS FIRM......... 50
General............................ 50
Brokerage services................. 50
Investment banking and
underwriting..................... 51
Research........................... 52
Principal transactions............. 52
Accounting, administration, and
operations....................... 53
Competition........................ 53
Regulation......................... 54
Net capital requirements........... 56
Employees.......................... 57

SMM SELECTED FINANCIAL DATA.......... 58

SMM MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............. 59
Tax status......................... 59
Components of revenues and
expenses......................... 59
Results of operations.............. 61
Liquidity and capital resources.... 64
Warrants........................... 64
Market and business risk........... 65
Matters related to Year 2000....... 65
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OUR MANAGEMENT AFTER THE MERGER...... 67
Board of directors and executive
officers......................... 67
Key employees...................... 70
Board of director classes; director
compensation..................... 72

EXECUTIVE COMPENSATION............... 73
Incentive plan..................... 73

CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................... 75

PRINCIPAL SHAREHOLDERS OF SMM........ 76

OUR PRINCIPAL SHAREHOLDERS AFTER
MERGER............................. 77

DESCRIPTION OF OUR CAPITAL STOCK..... 79
Common stock....................... 79
Preferred stock.................... 79
Anti-takeover provisions........... 80
Limitation on directors' liability
and indemnification of directors
and officers..................... 81
Transfer agent and registrar....... 81
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COMPARISON OF RIGHTS OF SHAREHOLDERS
OF PINNACLE AND SMM................ 82
Summary of material differences
between the current rights of SMM
shareholders and rights they will
have as our shareholders
following the merger............. 82

LEGAL MATTERS........................ 88

EXPERTS.............................. 88

WHERE TO FIND MORE INFORMATION....... 88

INDEX TO FINANCIAL STATEMENTS........ F-1

Appendix A--Agreement and Plan of
Reorganization..................... A-1

Appendix B--Plan of Merger........... B-1

Appendix C--Opinion of Howard Frazier
Barker Elliott, Inc................ C-1
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[PINNACLE LOGO]

PINNACLE GLOBAL GROUP, INC.
5599 SAN FELIPE, SUITE 555
HOUSTON, TEXAS 77056

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ,

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To our Shareholders:

A special meeting of our shareholders will be held on at
a.m. local time, at The Houstonian Hotel, 111 North Post Oak Lane,
Houston, Texas 77024, for the following purposes:

1. To consider and vote on a proposal to approve the issuance of 7,125,233
shares of our common stock to the shareholders of Sanders Morris
Mundy Inc. as part of a merger of the Sanders firm with Harris Webb &
Garrison, Inc., our investment banking subsidiary. Sanders Morris Mundy,
which would survive the merger, would be renamed "Sanders Morris
Harris Inc." and would become our wholly owned subsidiary as a result of
the merger.

2. To transact other business related to the first proposal that may
properly come before the special meeting or any postponement or
adjournment of the meeting.

The close of business on November 30, 1999 has been fixed by our Board of
Directors as the record date for determination of the Pinnacle shareholders
entitled to notice of, and to vote at, the special meeting or any postponement
or adjournment of the meeting.

YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting, we
urge you to complete, sign and return the enclosed proxy card in the enclosed
postage-paid envelope. You may revoke your proxy at any time before it is voted
by delivering to us at 5599 San Felipe, Suite 555, Houston, Texas 77056,
Attention: Pamela S. Caloway, Secretary, a written notice of revocation or a
duly executed, later-dated proxy or by attending the special meeting and voting
in person.

By Order of the Board of Directors

Pamela S. Caloway
SECRETARY

Houston, Texas
, 1999

YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE,
COMPLETE AND MAIL THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.

PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES EITHER NOW OR LATER.
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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: AS A PINNACLE SHAREHOLDER, WHAT DO I NEED TO DO NOW?

A: After carefully reading and considering the information contained in this
document, please complete and sign your proxy card. Then mail your signed
proxy card in the enclosed return envelope as soon as possible so that your
shares may be represented at the special meeting and voted as you wish.

Q: IF MY PINNACLE SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES ON THE MERGER PROPOSAL FOR ME?

A: Your broker will vote your Pinnacle shares on the merger proposal only if
you provide instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares.

Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You can change your vote at any time before your proxy is voted at the
Pinnacle special meeting. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to Pinnacle at the address on page . Third, you can attend the
Pinnacle special meeting and vote in person. Simply attending the meeting,
however, will not revoke your proxy. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to
change your vote.

Q: IF I AM A SHAREHOLDER, SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. Pinnacle shareholders will keep their existing share certificates. SMM
shareholders will surrender their certificates before the merger is
completed.

Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A: We are working to complete the merger as quickly as possible. In addition
to shareholder approvals, we must also satisfy all necessary regulatory
clearances and approvals. We expect the merger to be completed by the end
of January 2000.

Q: WHERE CAN I FIND MORE INFORMATION ABOUT PINNACLE?

A: This document is accompanied by the latest annual report on Form 10-K for
Pinnacle, as well as Pinnacle's latest quarterly report on Form 10-Q. You
may obtain additional information about Pinnacle as described under "Where
To Find More Information" on page .

Q: WHO DO I CONTACT IF I HAVE QUESTIONS ABOUT THE MEETING OR THE MERGER?

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PINNACLE SHAREHOLDERS: SANDERS MORRIS MUNDY SHAREHOLDERS:

Pinnacle Global Group, Inc. Sanders Morris Mundy Inc.
5599 San Felipe, Suite 555 3100 Chase Tower
Houston, Texas 77056 Houston, Texas 77002
(713) 993-4610 (713) 224-3100
Attention: Robert E. Garrison II Attention: Ben T. Morris
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SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO FULLY UNDERSTAND THE
MERGER AND RELATED MATTERS, AND FOR A MORE COMPLETE DESCRIPTION OF THE MERGER'S
LEGAL TERMS, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE TO FIND MORE INFORMATION" ON PAGES 88
AND 89. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE OR DOCUMENT
REFERENCE DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM.

THE COMPANIES

PINNACLE GLOBAL GROUP, INC.
5599 San Felipe, Suite 555
Houston, TX 77056
(713) 993-4610

Pinnacle is a publicly owned holding company that provides a broad range of
financial services through its wholly owned operating entities. Pinnacle's
financial services include investment banking, merchant banking, institutional
and retail brokerage, investment management, secondary market loan and loan
servicing placement and trust related services. Pinnacle serves a diverse group
of institutional, corporate and individual clients located mostly within the
southwestern United States; however, its fixed-income securities business is
conducted for clients throughout the United States, Europe and Japan, and its
loan and servicing placement business is conducted on a national basis.

Pinnacle is the successor issuer to TEI, Inc., which is now a wholly owned
subsidiary of Pinnacle. During 1995, 1996 and 1997, TEI disposed of all of its
operations other than its liquid waste business and related facility located in
Charlotte, North Carolina. Pinnacle has determined to discontinue its liquid
waste operations effective December 31, 1998.

You should review Item 1--Business of our annual report on Form 10-K
accompanying this document for a more complete description of our business.

SANDERS MORRIS MUNDY INC. (SEE PAGES 50 TO 57)
600 Travis, Suite 3100
Houston, TX 77002
(713) 224-3100

Sanders Morris Mundy (which we will sometimes call "SMM" or the "Sanders
firm") is a full-service investment banking, brokerage and financial services
firm. Its other significant activities include co-managing the underwriting of
corporate securities, private placement of corporate securities, trading of
equity securities and equity research. Sanders Morris Mundy has also raised over
$160 million through three limited partnership funds for investments in private
and public companies. Through its staff of more than 100 employees, Sanders
Morris Mundy serves a broad array of institutional, corporate and individual
clients located throughout the United States and abroad. It has branch offices
in New York, Chicago and Denver.

REASONS FOR THE MERGER (SEE PAGES 28 TO 29)

The boards of directors of both companies have identified benefits likely to
result from the merger. The boards of directors believe the merger will:

- create the largest Texas-based investment banking firm, thus providing
added scale and greater resources to compete more effectively against
other firms in our markets;

- give us proven institutional research and sales capabilities;

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- create greater revenue and operating income diversification among
Pinnacle's operating subsidiaries;

- enhance Pinnacle's management team and investment banking expertise
through the addition of Sanders Morris Mundy's executives and key
employees; and

- provide unquantified cross-selling opportunities and operating
efficiencies through expanding the firm's client base and consolidating
the infrastructure of the investment banking activities of the two firms.

These and other reasons for the merger are explained in greater detail on
pages 28 to 29 of this document.

MERGER RECOMMENDATION TO PINNACLE SHAREHOLDERS (SEE PAGE 38)

Your board of directors believes the merger is fair to you and in your best
interest and unanimously recommends that you vote FOR the issuance of the
Pinnacle common shares in the merger.

THE MERGER

THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A, AND THE RELATED PLAN OF
MERGER IS ATTACHED AS APPENDIX B, TO THIS DOCUMENT. WE ENCOURAGE YOU TO READ THE
MERGER AGREEMENT AND RELATED PLAN BECAUSE THEY ARE THE LEGAL DOCUMENTS THAT
GOVERN THE MERGER.

ABOUT THE MERGER GENERALLY (SEE PAGE 25)

The merger agreement calls for the merger of our investment banking
subsidiary, Harris Webb & Garrison, Inc., with the now independently owned
investment banking firm of Sanders Morris Mundy Inc. As part of the merger, and
subject to the approval of our shareholders, we propose to issue 7,125,233 of
our common shares to the current SMM shareholders. As a result of the merger:

- We will acquire 100% ownership of the Sanders firm, which will survive the
merger under the new name "Sanders Morris Harris Inc.";

- Our Harris Webb & Garrison subsidiary will cease its independent existence
and become part of the new Sanders Morris Harris Inc. subsidiary; and

- The SMM shareholders will own approximately 50.0% of Pinnacle's
outstanding common shares.

We will account for the merger as a purchase of SMM, as described under "The
Merger--Accounting treatment" (page 34).

You should review "The Merger--General" (page 25) for a more complete
description of the transaction.

WHAT WILL HAPPEN TO THE OUTSTANDING SECURITIES OF PINNACLE AND SMM
(SEE PAGE 39)

NO CONVERSION OF PINNACLE STOCK. Nothing will happen to your Pinnacle
shares as a result of the merger. They will not be converted, and you will not
need to surrender them for any exchange. After the merger, your certificates
will represent the same number of our common shares as they represented before
the merger. However, because the number of our outstanding common shares will
double if the merger is completed, the percentage ownership of Pinnacle now
represented by your Pinnacle shares will be reduced by one-half.

CONVERSION OF SMM STOCK. As a result of the merger, SMM shareholders will
receive, for each SMM common share, 117.33 Pinnacle common shares. We will not
issue any fractional shares. Instead,

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a SMM shareholder will receive one additional Pinnacle common share for any
fractional share the shareholder would have otherwise received in the merger.

EXAMPLE:

- If you own 50 SMM common shares, then after the merger you will receive
5,867 Pinnacle common shares as a result of rounding your Pinnacle
fractional share up to the next whole share.

After the merger is completed, SMM shareholders will no longer have any
rights as SMM shareholders. SMM shareholders will turn in their SMM stock
certificates before completion of the merger and will receive their Pinnacle
shares from our transfer agent promptly after the merger.

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION FOR PINNACLE AND SMM
COMMON STOCK (SEE PAGES 37 TO 38)

PINNACLE. Shares of our common stock are listed for quotation on the Nasdaq
National Market. On October 12, 1999, the last full trading day before the
public announcement of the proposed merger, our common stock closed at $4 5/8
per share. On , 1999, Pinnacle common stock closed at $ per
share. We urge you to obtain current market quotations. We have never paid cash
dividends.

SMM. No market value information is available for the SMM common shares
since there is no established trading market for them. Since inception, SMM has
made periodic cash distributions to its shareholders. SMM made cash
distributions of approximately: $644,000 in 1996, $1.8 million in 1997 and
$2.3 million in 1998.

After the merger, we do not expect to pay dividends in the foreseeable
future.

THE PINNACLE SHARES ISSUED IN THE MERGER WILL BE LISTED (SEE PAGE 34)

We will list the shares of our common stock to be issued in the merger for
quotation on the Nasdaq National Market.

WHAT OUR OWNERSHIP WILL LOOK LIKE AFTER THE MERGER

We will issue 7,125,233 of our common shares to the SMM shareholders in the
merger, representing about 50% of our outstanding common shares after the
merger. Our existing shareholders will own the remaining 50% of the outstanding
common shares after the merger.

DISSENTERS' AND APPRAISAL RIGHTS ARE NOT AVAILABLE (SEE PAGE 35)

Neither the Pinnacle nor SMM shareholders will have any dissenters or
appraisal rights as a result of the merger.

THE COMPOSITION OF OUR BOARD OF DIRECTORS AND RELATED MATTERS AFTER THE MERGER
(SEE PAGE 67)

After the merger, our board of directors will have 15 members, including our
12 current directors plus three directors designated by the Sanders firm. Don A.
Sanders, Chairman of the Executive Committee and a director of the Sanders firm,
will become our Vice-Chairman and a director. Ben T. Morris, President, Chief
Executive Officer and a director of the Sanders firm, will be appointed a
director and a member of the Executive Committee of our board of directors.
George L. Ball, Chairman and a director of the Sanders firm, will become a
director of our company, as well as Chairman of Sanders Morris Harris. The board
of the resulting Sanders Morris Harris subsidiary will consist of 11 members,
seven designated by us and four designated by the Sanders firm. Ben T. Morris

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will be appointed President and Chief Executive Officer of Sanders Morris
Harris. In addition, Ben T. Morris and George L. Ball will be appointed to the
boards of each of our other financial services subsidiaries.

THE DIRECTORS AND MANAGEMENT OF SMM HAVE ADDITIONAL INTERESTS IN THE MERGER
(SEE PAGES 35 TO 36)

When you consider the SMM board's reasons for the merger, you should be
aware that some SMM officers and directors may have interests in the merger that
may be different from, or in addition to, yours. For example, we have agreed to
provide the three SMM designees who will become Pinnacle directors when the
merger closes;

- indemnification agreements substantially similar to those given to our
existing directors and

- directors' and officers' liability insurance coverage comparable to
policies provided to our existing directors.

THE MERGER PARTIES INTEND THE MERGER TO BE TAX-FREE UNDER FEDERAL INCOME TAX
LAWS (SEE PAGES 32 TO 34)

The merger has been structured as a reorganization for federal income tax
purposes. Accordingly, SMM shareholders generally will not recognize any gain or
loss for federal income tax purposes on the exchange of their SMM common stock
for Pinnacle common stock in the merger. The companies themselves, as well as
our shareholders, will not recognize gain or loss as a result of the merger. It
is a condition of the obligations of SMM to complete the merger that SMM receive
a legal opinion that the merger will be a reorganization for federal income tax
purposes.

This summary addresses only U.S. federal income taxes. It does not address
other taxes that may be relevant to you, such as state, local or foreign taxes.
In addition, the tax consequences described above and elsewhere in this document
may not apply to all SMM shareholders, including those specifically referred to
on page 33.

Your tax consequences from the merger will depend on the facts of your own
situation. You should consult your tax advisor for a full understanding of your
tax consequences from the merger.

OUR FINANCIAL ADVISOR SAYS THE TRANSACTION IS FINANCIALLY FAIR TO OUR
SHAREHOLDERS (SEE PAGES 30 TO 32)

In deciding to approve the merger, our board of directors considered the
opinion of Howard Frazier Barker Elliott, Inc., our financial advisor. Howard
Frazier Barker Elliott rendered an opinion to our board that, based on and
subject to the limitations contained in the opinion, the consideration to be
paid by us in the merger is fair, from a financial point of view, to our
shareholders. This opinion is dated the same date as this Proxy
Statement/Prospectus and is attached as Appendix C. We encourage you to read
this opinion.

THERE ARE CONDITIONS TO THE MERGER (SEE PAGE 40)

The completion of the merger depends upon meeting a number of conditions,
including

- obtaining Pinnacle and SMM shareholder approval;

- approval of the listing on the Nasdaq National Market of Pinnacle common
shares to be issued to SMM shareholders in the merger; and

- satisfying other conditions customary in similar transactions.

None of the merger parties will waive any condition to closing requiring
Pinnacle shareholder approval under Texas law or rules of the Nasdaq National
Market, or involving compliance with other applicable laws.

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REGULATORY APPROVALS ARE REQUIRED (SEE PAGE 34)

Under the Hart-Scott-Rodino Antitrust Improvements Act, the merger can not
be completed until both companies have given certain information and materials
to the Federal Trade Commission and Department of Justice and a required waiting
period has expired or been terminated. The companies submitted pre-merger
notification and report forms during the week of November __, 1999.

Both Harris Webb & Garrison and SMM must file a notice and application for
approval of the merger with the NASD. The companies submitted the required
notices and applications during the week of November __, 1999.

The merger may also require the approval of the Texas Banking Commissioner
if the Commissioner determines the issuance of our shares in the merger will
result in a change of control of Pinnacle Management & Trust Company, our wholly
owned state-chartered trust company. No other unsatisfied federal or state
regulatory requirements must be met to complete the merger.

HOW THE MERGER AGREEMENT CAN BE TERMINATED (SEE PAGE 42)

Pinnacle and SMM can terminate the merger agreement without completing the
merger, and either party may terminate the merger agreement if the merger is not
completed by March 15, 2000, or if our shareholders fail to approve the issuance
of our shares in the merger. We can also terminate the merger agreement if the
SMM shareholders fail to approve the merger.

SMM may terminate the merger agreement if the Pinnacle board of directors
withdraws, modifies or amends its approval of the issuance of the Pinnacle
common shares under the merger agreement in any way adverse to SMM, or approves
or recommends an alternative transaction.

THE COMPANIES MUST PAY TERMINATION FEES IN SPECIFIED CIRCUMSTANCES (SEE
PAGE 42)

The merger agreement requires Pinnacle or SMM to pay a termination fee of
$1.5 million to the other party if the merger agreement is terminated in
specified circumstances.

THE SPECIAL MEETING AND THE APPROVAL PROCESS GENERALLY (SEE PAGES 38 TO 39)

DATE, TIME AND PLACE OF OUR SPECIAL MEETING

We will hold our special meeting of shareholders on , , at
The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024, at
a.m. (Houston, Texas time).

PURPOSES OF THE SPECIAL MEETING

The purpose of our special meeting is to consider and vote on: (1) the
issuance of our common shares in the merger and (2) such other business as may
be properly presented to the meeting.

WHO MUST APPROVE THE MERGER

PINNACLE. The presence, in person or by proxy, at the special meeting of
the holders of a majority of our outstanding common shares on the record date is
necessary for a quorum. The holders of at least a majority of the shares present
at the meeting must approve the issuance of our common shares in the merger.
Shareholders holding 1,392,011 shares, or 19.5% of all of our outstanding
shares, have committed to vote for the share issuance. As of the record date,
our directors and executive officers and their affiliates beneficially owned
of our common shares.

SMM. The holders of at least two-thirds of the outstanding SMM common
shares must approve the merger agreement. All SMM shareholders have agreed to
vote for the merger, thus insuring its

6
<PAGE>
approval. As of the date of this Proxy Statement/Prospectus, the directors and
executive officers of SMM and their affiliates beneficially owned 49,850 SMM
common shares.

RISK FACTORS (SEE PAGES 13 TO 24)

Before deciding how to vote at the Pinnacle special meeting, you should
review "Risk Factors".

7
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

This summary unaudited pro forma financial data shows financial results as
if our company and the Sanders firm had been combined for the periods shown. Pro
forma combined figures are simply an arithmetical combination of our company's
and SMM's separate historical financial results, with certain adjustments.
Transaction costs will be incurred to complete the merger. The costs include
legal, financial advisor, accounting and consulting fees, and printing, mailing
and registration expenses. Under accounting rules, we are acquiring the Sanders
firm. This will create goodwill (and related amortization charges) in the pro
forma combined financial results. The amount of goodwill will be based on the
difference between the fair value of our common shares transferred to the SMM
shareholders in the merger and the fair value of SMM's identifiable net assets.
You should not assume that the two companies would have achieved the depicted
results if they actually had been combined at the dates and for the periods
shown or that they will achieve these results in the future. This summary
unaudited pro forma combined financial data should be read along with the
unaudited pro forma combined financial statements included in this Proxy
Statement/Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED)(1)
Total revenues.............................................. $61,341 $33,815
Total expenses.............................................. 50,378 27,404
------- -------
Income before income taxes and minority interests........... 10,963 6,411
Minority interests.......................................... 714 34
Income tax provision........................................ 4,446 2,737
------- -------
Income from continuing operations........................... $ 5,803 $ 3,640
======= =======
Basic and diluted earnings per share from continuing
operations................................................ $ 0.41 $ 0.26
======= =======
Weighted average shares--basic and diluted.................. 14,250 14,250
======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA (UNAUDITED)(1)
Cash, cash equivalents, securities available for sale and
securities owned.......................................... $ 91,476
Total assets................................................ 183,476
Total liabilities........................................... 82,823
Shareholders' equity........................................ 99,563
</TABLE>

- ------------------------

(1) The unaudited pro forma combined financial data presented (1) may not
indicate the results that would have been obtained had the merger actually
occurred on the dates assumed, (2) is based on preliminary estimates of the
fair value of the net assets to be acquired and certain assumptions
management deems appropriate and (3) should be read in conjunction with
other historical and pro forma financial statements and the related notes
included later in this document.

8
<PAGE>
PINNACLE SUMMARY HISTORICAL FINANCIAL DATA

This summary financial information for Pinnacle for the years 1994 to 1998
was taken from and should be read along with the audited financial statements
contained in our most recent annual report on Form 10-K accompanying this Proxy
Statement/Prospectus. Information for the six months ended June 30, 1998 and
1999 was taken from financial statements that have not been audited but which we
believe fairly present our financial position and results of operations for the
periods and should be read along with our most recently filed quarterly report
on Form 10-Q accompanying this Proxy Statement/ Prospectus. See "Where To Find
More Information" on page 88.

PINNACLE GLOBAL GROUP, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents............................ $ 6,250 $14,967 $11,422 $12,810 $13,293 $13,192 $ 13,979
Securities available for sale........................ 7,483 3,695 18,426 15,336 14,638 14,456 8,638
Total assets......................................... 52,917 42,277 43,034 39,043 34,995 39,066 136,357
Shareholders' equity................................. 48,238 39,665 40,433 37,665 33,700 37,667 62,583
</TABLE>

9
<PAGE>
SMM SUMMARY HISTORICAL FINANCIAL DATA

This summary of financial information for SMM for the fiscal years 1994 to
1998 have been derived from and should be read with the SMM audited consolidated
financial statements and their notes. SMM audited consolidated financial
statements as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998 are included elsewhere in this document.
Information at and for the six months ended June 30, 1998 and 1999 is taken from
financial statements that have not been audited but which SMM believes fairly
present its financial position and results of operations for those periods. The
information below should also be read in conjunction with "SMM's Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the separate SMM financial statements and related notes included elsewhere in
this Proxy Statement/ Prospectus.

SANDERS MORRIS MUNDY INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Income before cumulative effect of a change in
accounting principle and minority interests........ 1,509 884 3,747 6,501 10,735 6,799 5,502
Net income........................................... 1,509 884 3,665 5,802 10,021 6,314 5,468
Earnings per share--basic and diluted................ $ 23.66 $ 15.12 $ 60.32 $ 95.36 $167.24 $105.30 $ 90.80
Weighted average shares outstanding--basic and
diluted............................................ 64 59 61 61 60 60 60
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATA
(END OF PERIOD)
Securities owned..................................... $ 1,879 $ 857 $ 1,838 $ 5,049 $13,478 $16,133 $ 13,175
Total assets......................................... 4,675 5,524 8,972 13,889 25,699 27,008 27,584
Stockholders' equity................................. 2,910 3,794 7,422 11,044 18,765 15,015 17,445
</TABLE>

10
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA

The following table presents comparative per share data for our company and
SMM on a historical basis, for our company and SMM on a pro forma combined
basis, and on a equivalent pro forma combined basis for SMM. The data gives
effect to the merger as if it had occurred at the beginning of the periods
presented for cash dividends and earnings per common share purposes and as of
June 30, 1999 for book value per common share purposes. We paid no cash
dividends during the periods presented. The unaudited pro forma combined and
equivalent financial data do not reflect any cost savings or other synergies
anticipated by our management as a result of the merger.

This data should be read in conjunction with the unaudited pro forma
condensed combined financial statements of Pinnacle and SMM on pages 44 to 49,
the separate historical financial statements and related notes of Pinnacle
contained in our reports filed with the SEC accompanying this document, and the
separate historical financial statements and related notes of SMM included in
this document. The unaudited pro forma combined financial data does not
necessarily indicate the operating results or financial position that would have
occurred had the merger been completed at the beginning of the earliest period
presented and should not be construed as indicating future operations.

<TABLE>
<CAPTION>
AS OF AND FOR THE
------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
PINNACLE
Earnings per share from continuing operations--basic and
diluted:
Historical(a)............................................. $ 0.03 $ 0.10
Pro Forma Combined(c)..................................... 0.41 0.26

Cash Dividends declared per common share:
Historical................................................ $ -- $ --
Pro Forma Combined(d)..................................... -- --

Book Value per common share:
Historical(b)............................................. $ 9.46 $ 9.58
Pro Forma Combined........................................ 6.99

SMM
Earnings per share--basic and diluted:
Historical(a)............................................. $167.24 $ 90.80
Pro Forma Equivalent(e)................................... 47.73 29.94

Cash Dividends declared per common share:
Historical................................................ $ -- $ --
Pro Forma Equivalent(e)................................... -- --

Book Value per common share:
Historical(b)............................................. $313.18 $289.69
Pro forma Equivalent(e)................................... 819.76
</TABLE>

- ------------------------

(a) The historical earnings (loss) per common share is based upon the weighted
average number of common and common equivalent shares outstanding for each
period.

(b) The historical book value per common share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period.

(c) The unaudited pro forma earnings per common share is based upon the weighted
average number of common and common equivalent shares outstanding for each
period plus shares issued in the acquisition of SMM.

11
<PAGE>
(d) There are no pro forma cash dividends per share because Pinnacle has not
paid cash dividends in the past. Pinnacle does not intend to pay cash
dividends in the foreseeable future.

(e) The equivalent pro forma amounts are determined by multiplying the pro forma
combined earnings per share from continuing operations, pro forma combined
book value per share and pro forma combined dividends per share by the
merger's 117.33-for-one exchange ratio.

12
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THESE RISKS IN DECIDING HOW TO VOTE OR IN
EVALUATING AN INVESTMENT IN OUR COMPANY. SOME OF THEM, INCLUDING MARKET,
REGULATORY, LIQUIDITY AND CREDIT RISKS, ARE INHERENT IN THE FINANCIAL SERVICES
BUSINESS. OTHERS ARE SPECIFIC TO US OR THE PROPOSED TRANSACTION. ALL OF THE
IDENTIFIED RISKS CAN BE SUBSTANTIAL.

THE MERGER WILL DRAMATICALLY IMPACT VOTING AND MANAGEMENT CONTROL OF OUR
COMPANY.

The 30 shareholders of the Sanders firm are all SMM executives or employees
who will be joining the company in management and professional capacities. As a
result of the proposed transaction, these SMM principals will own about 50% of
Pinnacle's outstanding common shares. If they act in concert, they will, as a
practical matter, be able to effectively exercise control over the company's
affairs, including the election of the entire board of directors and, subject to
Texas law applicable to related party transactions, any matter submitted to a
vote of shareholders.

You should also note that our current management (our officers and directors
as a group) now beneficially own 26.2% of Pinnacle's outstanding common shares.
Immediately after the SMM transaction:

- current management's common ownership would be diluted to about 13.1%;

- new management members from the Sanders firm (represented by those who
will become company officers and directors as a result of the transaction)
would beneficially own a combined 36.4% of our outstanding common shares;
and

- all post-closing management (including those from both the current
management group and the Sanders group) would together beneficially own
almost 50% of Pinnacle's outstanding common shares.

Thus, from both the shareholder and management perspectives, the proposed
transaction is going to significantly impact "control" of our company.

WE HAVE ONLY A LIMITED COMBINED OPERATING HISTORY OF OUR OWN, AND WE HAVE NO
COMBINED OPERATING HISTORY WITH THE SANDERS FIRM.

We became a financial services company just this past January. That was when
our publicly-owned predecessor, TEI, Inc., which was then in the liquid waste
business, combined with three previously independent and privately owned
financial services firms to form Pinnacle as it exists today. Thus, as a
financial services company, we have less than a full year's operating history
behind us. At the same time, we have no combined operating history with the
Sanders firm. Our short operating history as a financial services company,
combined with our lack of experience with the Sanders firm, makes it difficult
to evaluate both the results of the January transaction and the prospects for
the proposed Sanders transaction.

WE HAVE ONLY RECENTLY BECOME PROFITABLE AND OUR PROFITS HAVE BEEN MODEST.

From January 28, 1999, when we completed the transaction with TEI, Harris
Webb & Garrison, Pinnacle Management & Trust, and Spires Financial, through
June 30, 1999, we had net income of $.64 million. Before the January
transaction:

- TEI had incurred operating losses during each of the last three years;

- Harris Webb & Garrison and Pinnacle Management & Trust Company each had
profitable operations for the first time in 1997; and

13
<PAGE>
- for fiscal 1998, the pro forma combined operating income for all the
companies participating in the January transaction was $496,000.

Thus, we have not yet demonstrated that we can sustain meaningful
profitability on a continuing basis, and we may not be able to do so in the
future.

WE COULD EXPERIENCE INTEGRATION AND RELATED PROBLEMS FOLLOWING THE PROPOSED
MERGER.

Integration problems (people, systems, procedures, etc.) can follow any
business combination, but they may be more likely to occur when the two
combining entities consider themselves as approximate equals, as would be
indicated by the number of Pinnacle shares to be issued in the proposed
transaction. The Sanders firm has more revenues than we do, and it has a longer
operating history than we have. The Sanders firm will be contributing new
management at both the parent company and subsidiary levels. Under these
circumstances:

- cultures may not mesh and management and operating philosophies may
diverge; and

- we could experience difficulty in establishing a new and unified corporate
identity.

Factors like these might jeopardize what could have otherwise been a
successful combination from a strictly financial point of view.

THE SECURITIES BUSINESS IS VOLATILE.

In recent years, the stock market has experienced significant volatility,
including some of the largest single-day point declines in history. After the
stock market declines in October 1987, October 1989 and October 1997, many firms
in the industry suffered financial losses. In some areas, the level of
individual investor trading activity decreased. Reduced trading volume and lower
prices usually mean reduced transaction revenues for financial services firms. A
future severe market fluctuation could seriously impact our business, financial
condition and operating results, since lower price levels of securities may
result in:

- reduced volumes of securities transactions resulting in lower commission
revenues; and

- reduced management fees calculated as a percentage of managed assets.

Sudden sharp declines in market values of securities and the failure of
issuers and counter parties to perform their obligations can result in illiquid
securities which could make it difficult for us to sell securities, hedge
securities positions, and invest funds under management.

The securities business is also vulnerable to the following risks,
particularly in volatile or illiquid trading markets:

- trading losses

- losses resulting from the ownership or underwriting of securities

- risks associated with principal activities

- the failure of counter parties to meet commitments

- customer fraud

- employee fraud

- issuer fraud

- litigation and errors

- misconduct and failures in processing transactions

Our retail broker-dealer operations, as well as our investment banking,
institutional sales, proprietary trading, investment advisory and other
services, will be even more susceptible to these risks during volatile trading
markets and fluctuations in the volume of market activity.

We are also subject to risks inherent in extending credit to the extent our
clearing brokers permit our customers to purchase securities on margin. The
margin risk increases during rapidly declining markets when collateral value may
fall below the amount our customer owes us. Any resulting losses could adversely
effect our business, financial condition and operating results.

14
<PAGE>
OUR INDUSTRY IS PARTICULARLY SENSITIVE TO GENERAL ECONOMIC AND POLITICAL
CONDITIONS.

The securities business is directly affected by:

- economic and political conditions

- broad trends in business and finance

- legislation and regulations affecting the national and international
business and financial communities

- currency values

- inflation

- market conditions

- the availability and cost of short-term or long-term funding and
capital

- the credit capacity of the securities industry in the marketplace

- the level and volatility of interest rates

Any of these factors can contribute to reduced levels of trading activity,
securities offerings and merger and acquisition activities, all of which can
result in lower revenues from our brokerage, trading, institutional sales and
investment banking activities. See "Business of the Company--Effects of Interest
Rates" in our annual report on Form 10-K accompanying this Proxy
Statement/Prospectus for a discussion of the effects of interest rates on our
business and that of the Sanders firm.

WE ARE A RELATIVELY SMALL COMPANY IN AN INCREASINGLY COMPETITIVE INDUSTRY.

FINANCIAL SERVICES. Our financial services business and the securities
business in general are highly competitive. The principal competitive factors
influencing our financial services business are:

- professional staff

- reputation in the marketplace

- existing client relationships

- ability to commit capital to client transactions

- mix of market capabilities

Our ability to compete effectively in our securities brokerage and
investment banking activities will also be influenced by the adequacy of our
capital levels and by our ability to raise additional capital.

We compete directly with national and regional full service broker-dealers
and, to a lesser extent, with discount brokers, dealers, investment banking
firms, investment advisors and some commercial banks. We also compete for asset
management and fiduciary services with commercial banks, private trust
companies, insurance companies and others. Domestic commercial banks and large
international banks have recently entered the securities business, including
markets in which we compete. We expect competition from banks to increase as a
result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve restrictions on commercial banks relating to
securities sales.

The financial services industry has become considerably more concentrated as
many securities firms have either ceased operations or been acquired by or
merged into other firms. Many of these larger firms have significantly greater
financial and other resources than we do, and can offer their customers more
products and services, lower pricing, broader research capabilities, and access
to international markets and other products, which we cannot provide.

We also face competition from a rapidly developing discount or electronic
brokerage services industry. These competitors may have lower costs and may
offer their customers more attractive pricing or other terms. We also anticipate
competition from underwriters who attempt to effect public offerings using
non-traditional means of distribution, including through electronic media like
the Internet. Issuers themselves may try to sell their securities directly to
purchasers, including through electronic media. If issuers and purchasers of
securities can transact business without financial intermediaries like us, then
our business could suffer. See "Business of the Company--Competition" in our
annual report on Form 10-K accompanying this Proxy Statement/Prospectus, and
"Business of SMM--Competition" (pages 53 to 54) for a more detailed discussion
of the competitive environment surrounding us.

15
<PAGE>
LIQUID WASTE. The liquid waste industry is fragmented and competitive. Our
liquid waste subsidiary competes with other liquid waste processing facilities
and alternative disposal methods, both legal and illegal. In addition,
competitive products and services will continue to be successfully developed and
marketed by others. The market for the various resellable by-products we recover
is also competitive, and is served by several large companies and a number of
smaller, owner-operated companies.

We also face competition from customers who seek to enhance and develop
their own methods of disposal instead of using the services of third parties
like us. Increased use of internal processing and disposal methods could also
hurt our business.

Some competitors in our liquid waste business offer a broader range of
services, have greater name recognition, offer services or products at a lower
cost and have greater financial and other resources than we do. Also, as the
liquid waste market matures, competition will likely increase.

As a result of these competitive factors, our liquid waste business may not
be saleable, or saleable at a price that would enable us to recover our
investment, and assuming we do not sell it, may not become profitable or
generate cash flow adequate for its operations and to support its growth. See
"Business of the Company--Competition" in our annual report on Form 10-K
accompanying this Proxy Statement/Prospectus for a further discussion of
competitive factors involving our liquid waste business.

WE MUST RETAIN AND RECRUIT KEY PERSONNEL.

GENERAL. We depend on the continuing efforts of our executive officers and
senior management. That dependence may be intensified by our decentralized
operating strategy. If executive officers or members of senior management leave
us, until we attract and retain qualified replacements, our business or
prospects could be adversely affected. Further, the recent success of the
companies we acquired earlier this year can in some measure be attributed to the
entrepreneurial spirit of their senior management. To the extent that we, as a
larger, more structured organization than any of the companies we acquired, fail
to sustain this entrepreneurial attitude, the impetus for our continued success
could be reduced.

FINANCIAL SERVICES PERSONNEL. We derive our financial services revenues
from the efforts of senior management and retail investment executives, and
research, investment banking, retail and institutional sales, trading, asset
management and administrative professionals. Our future success depends, in a
large part, on our ability to attract, recruit and retain qualified financial
services professionals. Demand for these professionals is high and their
qualifications make them particularly mobile. Those circumstances have led to
escalating compensation packages in the industry. Up front payments, increased
payouts and guaranteed contracts have made recruiting these professionals more
difficult and can lead to departures from current employers. Departures can also
cause client defections due to close relationships between clients and the
professionals. If our attempts to attract, recruit and retain skilled
professionals are impaired for any reason, our business could suffer.

THE FULL AND IMMEDIATE EXPECTED BENEFITS FROM THE PROPOSED MERGER MAY DEPEND ON
A SINGLE INDIVIDUAL.

Don A. Sanders co-founded the Sanders firm and now serves as chairman of its
executive committee. The Sanders firm believes, as do we, that the prior growth
and success of the Sanders firm is in large part attributable to Mr. Sanders'
efforts and his personal and business relationships. Notwithstanding that
Mr. Sanders is enthusiastic about the proposed transaction, has agreed to assume
a full time management position with us, will be our largest single shareholder
if the proposed transaction is concluded, and is in reported good health, it
remains that (a) Mr. Sanders is 63 years old and (b) he will have no contractual
commitment to continue with us as an executive, or in any other management
capacity, once the transaction is completed.

16
<PAGE>
If Mr. Sanders should become incapacitated, or he for any reason decides
soon after the transaction not to remain active with the company, we might not
realize, at least on a short-term basis, the full expected benefits of the
proposed transaction.

SOME OF OUR BUSINESS IS GEOGRAPHICALLY CONCENTRATED.

Because our investment banking and trust management businesses focus on
investors and capital market clients based in the southwestern United States, a
significant economic downturn in that region could adversely affect our
revenues. Investment banking and trust management accounted for approximately
83% of our pro forma combined revenues for 1998, and 77% of our revenues for the
six months ended June 30, 1999. So, an economic downturn in the Southwest could
adversely affect all companies in the region and reduce our underwriting and
brokerage business from those companies. In addition, a regional economic
downturn could adversely affect our retail clients or emerging and middle-market
companies or growth industries within the region we predominantly serve, which
could in turn adversely affect us.

Our liquid waste business is concentrated within a 150-mile radius of
Charlotte, North Carolina. A significant economic downturn in that area could
adversely affect our liquid waste revenues.

OUR BUSINESS ATTRACTS LITIGATION AND SECURITIES LAW LIABILITY.

Our financial services business involves substantial risks of liability.
From time to time we may be named as defendants in civil litigation and
arbitration proceedings arising from our business activities as broker-dealers.
The plaintiffs in litigation or arbitration may allege misconduct by our
investment executives, claiming, for example, that investments sold by them were
unsuitable for the plaintiffs' portfolios, or that they engaged in excessive
trading in the plaintiffs' accounts. Though we have not historically incurred
material liability for these problems, we are not immune to them and substantial
liabilities from these matters could occur.

In recent years, there has been a substantial amount of litigation involving
the securities brokerage industry, including class action lawsuits seeking
substantial damages and other suits seeking punitive damages. Companies engaged
in the underwriting of securities, as we are, are subject to substantial
potential liability, including for material misstatements or omissions in
prospectuses and other communications in underwritten offerings of securities or
statements made by securities analysts. These liabilities can arise under
federal securities laws, similar state statutes and common law doctrines. The
risk of liability may be higher for an underwriter that, like us, is active in
the underwriting of securities offerings for emerging and middle-market
companies, because of the higher degree of risk and volatility associated with
the securities of these companies. The defense of these or any other lawsuits or
arbitration proceeding may divert the efforts and attention of our management
and staff, and we may incur significant legal expense in defending litigation or
arbitration proceedings. See also "--Our business is highly regulated" for a
discussion of regulatory matters affecting the financial services industry.

THERE IS POTENTIAL ENVIRONMENTAL LIABILITY ASSOCIATED WITH OUR LIQUID WASTE
BUSINESS.

Through our Energy Recovery Resources subsidiary, we process and dispose of
various types of non-hazardous wastes at a North Carolina processing facility.
Though ERR is for sale, we have not sold it yet, and we will be subject to
environmentally related risks as long as we own it and possibly

17
<PAGE>
thereafter, depending on the terms of sale. Acts or omissions that could give
rise to environmental liabilities attributable to our liquid waste business and
the nature of the liabilities include:

<TABLE>
<CAPTION>
ACT/OMISSION NATURE OF LIABILITY
------------ -------------------
<S> <C>
- - one of our owned or operated facility causes - substantial monetary penalties
environmental damage

- - waste transported by us causes environmental - an order reducing or terminating the responsible
damage at another site operations

- - we fail to comply with environmental and land - the revocation or denial of permits or other
use laws and regulations or a permit or consent approvals necessary for continued operation or
order expansion of a facility

- - a facility owned or operated by us or the soil - liability for environmental damage at our
or groundwater at the facility is or becomes facility or on adjacent property or
contaminated environmental damage at another site associated
with waste we transport

- liability under CERCLA or comparable state laws

- criminal liability for us or our officers
</TABLE>

Also, citizens' groups, adjacent landowners or governmental entities could
oppose the issuance of one of our permits or approvals or allege violations of
our operating permits or laws or regulations to which we are subject. Any of
these liabilities could have a material adverse effect on ERR's, and thus our,
business, results of operations and financial condition. The Comprehensive
Environmental Response Compensation and Liability Act (or CERCLA) and comparable
state laws impose retroactive strict joint and several liability on various
parties associated with a site at which there has occurred or been threatened a
release of any hazardous substance. Liability under the Resource Conservation
and Recovery Act (or RCRA), CERCLA and comparable state laws may include
responsibility for costs of site investigations, site clean up, site monitoring,
natural resources damages and property damages. Liabilities under RCRA, CERCLA
and comparable state laws can be substantial. If imposed on us, they could
materially and adversely affect our whole company. See "Business of the
Company--Government Regulation" in our annual report on Form 10-K accompanying
this Proxy Statement/Prospectus.

During the ordinary course of our operations, we may receive citations or
notices from governmental authorities claiming noncompliance with our permits or
environmental or land use laws and regulations. We would work with the
authorities to resolve issues raised by these citations or notices, but we may
not always be successful, and our failure to resolve a significant issue could
adversely affect our ability to sell our liquid waste operations, or the
proceeds we would receive from such a sale, or our continuing liquid waste
operations if we cannot sell ERR.

WE DEPEND ON SYSTEMS AND SOFTWARE.

Our financial services business depends on communications and information
systems. Any failure or interruption of these systems, or of the systems of our
clearing brokers, could cause delays in securities trading activities. The
delays could hurt our operations. Systems failure or interruptions can be caused
by a natural disaster, power or telecommunications failure, act of God, act of
war or other events. If there is a failure or interruption, back-up procedures
and capabilities may be inadequate.

Through our Spires subsidiary, we use integrated, proprietary software to
solicit and develop client relationships over the Internet. Because this
software is Internet-based and dependent, any failure of the Internet could
adversely effect Spires' ability to solicit and execute orders. Spires'
proprietary

18
<PAGE>
software is also dependent on the efforts of in-house systems and development
personnel for maintenance and system upgrades, as well as source data and
programs supplied by third parties under existing agreements. If we cannot
either retain or attract qualified systems and development personnel or access
third-party source data and programs, Spires' business and operating results,
and thus those of the whole company, could decline. See "Business--Services" and
"Business--Intellectual Property" in our annual report on Form 10-K accompanying
this Proxy Statement/Prospectus for a discussion of the services we provide
through Spires and its proprietary software.

OUR OPERATING RESULTS MAY FLUCTUATE.

Our revenues and operating results may fluctuate from quarter to quarter and
from year to year due to a combination of factors like:

- the number of underwritten and merger and acquisition transactions
completed by our clients;

- the level of institutional and retail brokerage transactions;

- levels of assets under our management;

- variations in our personnel costs;

- litigation expenses; and

- the expenses of establishing any new business units.

Our revenues from an underwriting transaction will be recorded only when the
underwritten security begins trading. Revenues from a merger or acquisition
transaction are recorded only when the retainer fees are received or the
transaction closes. Accordingly, the timing of recognition of revenue from a
significant transaction can materially affect our quarterly and annual operating
results.

WE MAY BE CONSTRAINED BY NET CAPITAL REQUIREMENTS.

The SEC, the NASD, and various other securities exchanges and other
regulatory bodies in the United States have rules imposing net capital
requirements which affect each of our broker-dealer subsidiaries. These rules
are designed to ensure that broker-dealers maintain adequate net capital in
relation to their liabilities and the size of their customers' business. These
net capital rules have the effect of requiring that a substantial portion of a
broker-dealer's assets be kept in cash or highly liquid investments. Failure to
maintain the required net capital may subject a firm to suspension or revocation
of its registration by the SEC and suspension or expulsion by the NASD and other
regulatory bodies. Ultimately, it could require the firm's liquidation. Also,
under Texas law, our Texas trust subsidiary, Pinnacle Management & Trust
Company, is required to maintain a minimum net capital of $1.5 million.

Compliance with these net capital rules could limit operations that require
intensive capital, such as underwriting or trading activities. Our trust
management subsidiary could also be limited operationally by the net capital
requirements. These net capital rules could also restrict our ability to
withdraw capital in situations where our broker-dealer and trust company
subsidiaries have more than the minimum required capital. We may be limited in
our ability to pay dividends, implement our strategies, pay interest or repay
principal on our debt and redeem or repurchase our outstanding shares. In
addition, a change in these net capital rules or new rules affecting the scope,
coverage, calculation or amount of the net capital requirements, or a
significant operating loss or significant charge against net capital, could have
similar effects.

OUR BUSINESS IS HIGHLY REGULATED.

FINANCIAL SERVICES. Like the securities industry in general, our registered
broker-dealer and investment advisor subsidiaries are subject to extensive
regulation in the United States at both the

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federal and state levels. As broker-dealers, our Harris Webb & Garrison and
Spires subsidiaries, as well as the Sanders firm, are subject to the regulations
covering all aspects of the securities business. Regulated activities include:

- sales methods

- trade practices among broker-dealers

- use and safekeeping of customers' funds and securities

- capital structure

- record keeping

- limitations on business activities

- conduct of directors, officers and employees

As a matter of public policy, regulatory bodies are charged with
safeguarding the integrity of the securities and other financial markets and
with protecting the interests of customers participating in those markets. In
addition, self-regulatory organizations, called "SROs," and other regulatory
bodies in the United States, such as the SEC, the New York Stock Exchange, the
NASD, and the Municipal Securities Rulemaking Board, require strict compliance
with their rules and regulations. Failure to comply could result in adverse
consequences, including (1) censure, (2) civil penalties, (3) fines,
(4) cease-and-desist orders, (5) the suspension of a broker-dealer, investment
adviser or futures commission merchant, (6) the statutory disqualification of
officers or employees or (7) other consequences which could adversely effect us.
Even if none of these actions are taken, the administrative or judicial
proceedings or arbitrations could have a material adverse effect on our
perceived creditworthiness, reputation and competitiveness. Financial services
clients or others who allege that they have been damaged by a violation of
applicable regulations also may seek to obtain compensation from us, including
the unwinding of their transactions with us. Additional legislation or
regulations, or changes in the methods or enforcement of existing regulations by
governmental entities or SROs may materially and adversely affect us.

Our financial services businesses may be materially affected not only by
regulations applicable to our subsidiaries as financial market intermediaries,
but also by regulations of general application. For example, the volume of our
underwriting, merger and acquisition and principal investment business in a
given period could be affected by (1) existing and proposed tax legislation,
(2) antitrust policy and other governmental regulations and policies (including
the interest rate policies of the Federal Reserve Board), and (3) changes in
interpretation or enforcement of existing laws and rules that affect the
business and financial communities. From time to time, various antitakeover
legislation and legislation that could affect the benefits from financing
leveraged transactions with high-yield securities have been proposed. If
enacted, they could adversely affect the volume of merger and acquisition
business. This could in turn adversely affect our underwriting, advisory and
trading revenues related to that business.

Our trust subsidiary, Pinnacle Management & Trust, also operates in a highly
regulated environment and is subject to extensive supervision and examination by
Texas regulatory agencies. As a Texas chartered trust company, Pinnacle
Management & Trust is subject to the Texas Trust Company Act, the rules and
regulations under that act, and supervision by the Texas Banking Commissioner.
These laws are intended primarily for the protection of Pinnacle Management &
Trust's clients, not its investors. The Texas Trust Company Act requires or
imposes:

- periodic examinations by the office of the Texas Banking Commissioner;

- furnishing periodic financial statements to the Banking Commissioner;

- minimum net capital maintenance;

- fiduciary record-keeping;

- bonding for the protection of clients;

- restrictions on investments of restricted capital;

- lending and borrowing limitations;

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- prohibitions against certain activities;

- prior approval from the Banking Commissioner for certain corporate events
(E.G., mergers, sale/ purchase of all or substantially all of the assets
and transactions transferring control of the trust company); and

- broad regulatory powers if the trust company violates certain provisions
of Trust Company Act or is determined to be in a "hazardous condition."

While we believe Pinnacle Management & Trust is in material compliance with
these laws and regulations, it may not be able to continue compliance, or these
laws or regulations may change adversely. Either event could have a material
adverse effect on Pinnacle Management & Trust, and thus our company as a whole.

Our ability to comply with laws and rules relating to our financial services
business will depend in large part upon maintaining a system to monitor
compliance, and our ability to attract and retain qualified compliance
personnel. Although we believe we are in material compliance with these laws and
regulations, we may not be able to comply in the future. Any noncompliance could
have a material adverse effect on our company.

LIQUID WASTE. The operations of our liquid waste subsidiary, Energy
Recovery Resources, are subject to numerous and continually evolving federal,
state and local laws, regulations and policies that govern environmental
protection, zoning and other matters, including the Clean Water Act, Resource
Conservation and Recovery Act and the Clean Air Act. If existing regulatory
requirements change, we may have to make significant unanticipated capital and
operating expenditures. Although we believe ERR is in material compliance with
applicable laws and regulations, it may not stay in compliance. Governmental
authorities may seek to impose fines and penalties on ERR or to revoke or deny
the issuance or renewal of operating permits for failure to comply with
applicable laws and regulations. Under these circumstances, we might be required
to reduce or cease ERR's operations or conduct site remediation until a problem
is remedied. In addition, if our liquid waste operations result in the release
of hazardous substances, we could incur liability under the Comprehensive
Environmental Response Compensation and Liability Act.

Our ERR facility also requires permits and approvals from federal, state and
local governments. These permits, approvals or applications may be denied,
revoked or modified under various circumstances. In addition, if new
environmental legislation or regulations are enacted or existing legislation or
regulations are amended or are enforced differently, ERR may have to obtain
additional operating permits or approvals for its facility. The process of
obtaining a required permit or approval may be lengthy and expensive. The
issuance of the permits or the obtaining of the approval may be opposed by the
public. If ERR cannot obtain or maintain all required permits and approvals for
its liquid waste processing facility, its business, results of operations and
financial condition could be adversely affected.

WE MAY HAVE PROBLEMS KEEPING SUFFICIENTLY INSURED.

While we will maintain liability insurance, it will be subject to coverage
limits. Some policies exclude coverage for certain securities laws violations
and environmental contamination, risks to which we may be particularly
susceptible. Liability insurance may not continue to be available to us on
commercially reasonable terms. Potential liabilities we may incur may not be
covered by our insurance. The dollar amount of potential liabilities may exceed
our policy limits. The insurance carrier may not satisfy its obligations under
the policy. See "--Our business attracts litigation and securities law
liabilities" and "--There is potential environmental liability associated with
our liquid waste business" for a discussion of potential liabilities associated
with our businesses.

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WE COULD SUFFER LOSSES DUE TO FRAUD OR MISTAKES OF CUSTOMERS OR EMPLOYEES.

We will be exposed to the risk of significant losses from customer fraud,
employee errors, misconduct and fraud (including unauthorized transactions by
brokers and traders) and failures relating to processing of securities
transactions. Our risk management procedures and internal controls may not
prevent these losses or detect them before they become meaningful.

THERE ARE MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH OUR MARKET-MAKING,
PRINCIPAL TRADING, ARBITRAGE AND UNDERWRITING ACTIVITIES.

Our market making, principal trading and underwriting activities will
involve the purchase, sale or short sale of securities as principal. These
activities will subject our capital to significant risks from markets that may
be illiquid or are susceptible to rapid fluctuations in liquidity. These market
conditions could limit our resale of purchased securities or the repurchase of
securities sold short. They could also subject our capital to significant risks,
including market, credit, counter party and liquidity risks. Market risk relates
to the risk of fluctuating values and the ability of third parties to whom we
have extended credit to repay us. Counter party risk relates to whether a
counter party on a transaction will fulfill its contractual obligations, which
may include delivery of securities or payment of funds. Liquidity risk relates
to our inability to liquidate assets or redirect illiquid investments.

In our underwriting and merchant banking activities, we may have large
position concentrations in securities of, or commitments to, a single issuer or
issuers engaged in a specific industry. Also, the trend in all major capital
markets toward larger commitments on the part of lead underwriters means that an
underwriter (including a co-manager) may retain significant position
concentrations in individual securities. These concentrations increase our
exposure to specific credit and market risks.

OUR PREVIOUSLY DISPOSED OF OPERATIONS COULD POSE SPECIAL RISKS.

From 1995 through 1997, TEI, Inc., before becoming a company subsidiary,
disposed of all of its operating businesses other than its liquid waste
business. In connection with TEI's December 1997 sale of assets of one of its
former subsidiaries, the purchaser agreed to complete customer contracts of the
subsidiary in process at the time of sale. TEI remains primarily liable to
complete the contracts, and has agreed to reimburse the purchaser if its
aggregate completion costs exceed the aggregate contract price. Past estimates
of completion costs have varied significantly, and it is possible that excess
completion costs could be incurred to complete the contracts. Through June 30,
1999, the purchaser has incurred about $1.6 million in costs on contracts
totaling about $2.2 million in contract price. However, the purchaser recently
informed TEI that the estimated cash to complete the contracts will be about
$2.4 million, resulting in about $400,000 in additional liability to TEI. If the
purchaser does not complete the contracts, or if it incurs more excess costs in
completing the contracts, TEI could incur more liability to either the former
customers or the purchaser.

WE COULD EXPERIENCE Y2K PROBLEMS.

The "Year 2000" problem refers to the inability of computer programs to
correctly interpret the century from a date in which the year is represented by
only two digits. A computer system that is not Year 2000 compliant will not be
able to correctly process certain data, or in extreme situations, could disable
an entire system.

As registered broker-dealers, each of Harris Webb & Garrison, Spires
Financial and SMM was required to conduct a complete review of the potential
impact of Year 2000 issues and report its findings to the NASD and the SEC
before August 31, 1998. An updated report was filed before April 30, 1999. An
initial report was filed with the NASD and SEC by Harris Webb & Garrison on
August 6, 1998, and by Spires and SMM on August 31, 1998, each without response
from the NASD or the SEC. Pinnacle Management & Trust was required to file, and
did file, a Year 2000 report with the

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Texas Banking Commissioner, who accepted the report without comment. We cannot
guarantee that any Year 2000 problems in other companies' software, equipment or
systems on which it relies will be timely resolved or that other companies'
failure to resolve their problems, or resolutions incompatible with our systems,
would not have material adverse effect on our company. For more detailed
information relating to both companies' Year 2000 problems and state of
readiness, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" in our annual report on Form 10-K accompanying
this document and, "SMM Management's Discussion and Analysis of Financial
Condition and Results of Operations--Matters related to Year 2000" (pages 65 to
66) for a more complete discussion of our Year 2000 efforts.

OUR STOCK PRICE MAY BE VOLATILE DUE TO THIN TRADING AND OTHER FACTORS.

The market price of our common stock may be subject to significant
fluctuations in response to many factors, including variations in our reported
financial results and changing conditions in the economy in general, in our
businesses in particular, or in the industry of one of our major client groups.
Also, the stock markets periodically experience significant price and volume
volatility which may affect the market price of our common stock for reasons
unrelated to us or our operating performance.

These potential problems could be accentuated by a lack of public float in
the market for our shares. If the merger is completed, about 77.8% of our
outstanding shares will be in the hands of our officers, directors and
employees, leaving about 22.2% in the hands of the general public. Resultant
"thin trading" could depress our stock price and contribute to heightened price
volatility.

LATER ISSUED PREFERRED STOCK COULD REDUCE THE VALUE OR VOTING POWER OF YOUR
COMMON STOCK.

Our charter allows our board to serially issue preferred stock and to
determine its rights, powers and preferences. Future preferred stock issued
under the board's authority could enjoy preferences over your common stock as to
dividends, distributions and voting power. Holders of preferred stock could, for
example, be given the right to separately elect some number of our directors in
all or specified events, or an independent veto right over certain transactions,
and redemption rights and liquidation preferences assigned to preferred
stockholders could affect the residual value of your common stock.

THERE COULD BE IMPEDIMENTS TO A TAKEOVER OR CHANGE OF CONTROL OF OUR COMPANY,
EVEN IF THE CHANGE COULD BENEFIT OUR STOCKHOLDERS.

Provisions of our corporate documents and Texas law may delay or prevent an
attempt to obtain control of our company, whether by means of a tender offer,
business combination, proxy contest or otherwise. These provisions include:

- the authorization of "blank check" preferred stock;

- classification of the board of directors;

- a limitation on the removal of directors only for cause, and then only on
approval of the holders of two-thirds of the outstanding voting stock;

- a restriction on the ability of shareholders to take actions by less than
unanimous written consent; and

- a restriction on business combinations with interested parties.

See "Description of Our Capital Stock" (pages 79 to 81) for a discussion of
the attributes associated with ownership of our capital stock.

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YOU SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS.

With the exception of historical information, the matters in this Proxy
Statement/Prospectus and those matters incorporated into this document by
reference to our SEC filings may include forward-looking statements that involve
risks and uncertainties. Discussions containing forward-looking statements may
be found throughout this document and specifically in the material under
"Summary," "Risk Factors," "The Merger--Reasons for the merger" and "--Business
combination costs--anticipated consolidation benefits," "Business" (of both our
company and the Sanders firm), and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (of both our company and the
Sanders firm). Forward-looking statements represent management's current
expectations and are inherently uncertain. Our actual results may differ
significantly from management's expectations, and thus from the results
discussed in the forward looking statements. Factors that may cause such
differences include those described in "Risk Factors," "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (of both us and SMM).

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THE MERGER

GENERAL

We are furnishing this Proxy Statement/Prospectus to our shareholders to
solicit proxies for use at the Pinnacle special meeting.

At the Pinnacle special meeting, our shareholders will be asked to approve
the issuance of 7,125,233 Pinnacle common shares to the SMM shareholders in the
merger.

The terms of the merger are set forth in the merger agreement. Under the
merger agreement:

- We will acquire 100% ownership of the Sanders firm, which will survive the
merger under the new name "Sanders Morris Harris Inc.";

- Our Harris Webb & Garrison subsidiary will cease its independent existence
and become part of the new Sanders Morris Harris Inc. subsidiary; and

- The SMM shareholders will own approximately 50% of Pinnacle's outstanding
common shares.

This Proxy Statement/Prospectus also serves as our prospectus, which is part
of the registration statement on Form S-4 we filed with the SEC under the
Securities Act, to register the Pinnacle common shares to be issued in the
merger.

BACKGROUND OF THE MERGER

In early 1999, after our January 1999 acquisition of three financial firms,
George L. Ball, Chairman of SMM, contacted Titus H. Harris, Jr., Chairman of our
company, to suggest a meeting with our management about a potential combination
with SMM. Mr. Ball, Mr. Harris and Don A. Sanders, co-founder and a director of
SMM, worked together for many years for the New York office of E.F. Hutton and
have known each other personally and professionally in Houston from their
affiliations with SMM and Harris Webb & Garrison, our wholly owned subsidiary.
Mr. Harris then told other members of our management, including Robert E.
Garrison II, our President and Chief Executive Officer, of his discussions with
Messrs. Ball and Sanders.

On April 8, 1999, Mr. Garrison, Mr. Harris, Mr. Ball and two other
representatives of our company met at a private club to discuss publicly
available information regarding our company, financial services provided by each
of the companies, general industry trends and conditions and a potential
combination of the two companies. Mr. Garrison agreed to prepare and submit to
SMM, after internal review of the business and financial information of SMM, a
suggestion as to the relative values of the two companies. Because this meeting
was productive, on April 9, 1999, the parties entered into a nondisclosure
agreement to facilitate an exchange of more information.

During the week of April 12, 1999, representatives of both parties exchanged
information relating to business, financial and accounting matters of the
companies. Representatives of each company internally reviewed this information.

In late April 1999, Mr. Garrison submitted his valuation analysis to
Mr. Ball. On April 30, 1999, the same parties from the initial meeting met again
at Mr. Ball's residence. The parties discussed the merits of the valuation
analysis.

From May 1 through May 17, the parties exchanged additional information and
internally reviewed the potential benefits of a combination of the two companies
and a possible structure for the transaction.

On May 19, 1999, members of management of both companies met at SMM's
offices to (1) discuss transaction structure and valuation and general corporate
governance issues and (2) determine whether any issues had arisen which would
prevent the companies from entering into a transaction. The parties

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discussed in detail the valuation analyses and methodologies, and after much
discussion, agreed conceptually to a 50/50 ownership position in our company by
the respective shareholder groups of SMM and Pinnacle. In late May 1999,
Mr. Ball and Edward C. Hutcheson, Jr., then our consultant and now our Chief
Operating Officer, had a follow-up telephone conversation relating to
transaction structure and corporate governance issues.

On June 3, 1999, our board met and discussed the potential combination with
SMM and was updated on the status of the negotiations as well as other matters.
Our board directed its Executive Committee to advise Pinnacle management on
discussions involving the potential combination with SMM until the next board
meeting or the preparation of a definitive agreement, whichever occurred first.

On June 25, 1999, Mr. Sanders, Mr. Harris and Mr. Garrison met at a private
club to discuss in detail corporate governance issues and the corporate name of
the surviving investment banking subsidiary. On July 6, 1999, Ben T. Morris,
President and Chief Executive Officer of SMM, and Mr. Garrison met at our
offices to renew discussions on corporate governance matters.

During June and July 1999, Pinnacle was also in discussions to acquire an
east coast institutional brokerage firm. On or about July 22, 1999,
Mr. Garrison met with SMM management at SMM's offices to inform them, after
issuance of a press release, that Pinnacle had signed a letter of intent to
acquire the east coast firm. Mr. Garrison indicated, assuming completion of
satisfactory due diligence and resolution of potential cultural and operational
matters, Pinnacle would like to complete the acquisition of the east coast firm
before any combination with SMM since no shareholder approval or SEC
registration would be required for that transaction.

On August 18, 1999, Mr. Ball and Mr. Morris met with members of our
management at our offices to discuss potential strategic advantages of combining
the two companies including cross-selling opportunities and potential cost
savings. Messrs. Ball and Morris said that the parties should either dedicate
themselves to complete the transaction or terminate discussions between them.
All parties unanimously agreed to proceed with the transaction.

By mutual agreement, Pinnacle and the east coast institutional brokerage
firm terminated their letter of intent on August 23, 1999.

The parties met again during the last week of August and the first week of
September 1999, to reach a verbal agreement in principle as to the basic terms
of the transaction. Specifically, they discussed:

- Mr. Harris will remain Chairman, and Mr. Garrison will remain President
and Chief Executive Officer of Pinnacle;

- Mr. Sanders, Mr. Ball and Mr. Morris will be appointed directors of
Pinnacle. Mr. Sanders will also be appointed vice-chairman of the parent
company, and Mr. Morris will be elected as a member of Pinnacle's
Executive Committee;

- SMM's management would retain primary management control of the combined
investment banking subsidiary and representatives of SMM would be
appointed directors of our other financial services subsidiaries; and

- The former SMM shareholders would own approximately 50% of our outstanding
shares after the merger.

On September 20, 1999, management of both companies met at our offices for a
comprehensive discussion of all elements of the transaction and certain
post-closing operational matters of the combined investment banking subsidiary.
The parties provided written evidence of their prior agreement as to the basic
terms of the transaction.

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As is typical in business transactions, the type and amount of consideration
ultimately agreed to was not empirically determined. Instead, it resulted from
intense arm's length negotiating among the senior executives of both companies,
with due regard for the historical operating results and anticipated future
prospects of each company. In the final analysis, the consideration resulted
from the negotiators' perceptions of the relative values of the companies and
the recognition by all parties that the indicated value of the proposed
transaction would need to be accretive to the Company's pro forma combined
operating results for the twelve months ended December 31, 1998 and would afford
potential for earnings growth in future periods.

We then engaged outside counsel to prepare a draft of a definitive merger
agreement. Initial drafts of the merger agreement containing the proposed terms
of the transaction were circulated on September 23, 1999. Many telephone
discussions among the parties concerning various aspects of the proposed merger
and the related documents continued through the first week of October 1999.
During this time, extensive discussions and negotiations took place and revised
drafts of the documents were circulated to the various parties on October 4th,
7th and 8th. The items raised and ultimately agreed to during this process
included, among others:

- the agreement by members of our board and management, and their affiliates
to vote their shares in favor of the merger agreement;

- our agreement to the level of permitted pre-closing distributions by SMM
to its shareholders;

- the parties' agreements as to SMM's existing employee benefit plans;

- a prohibition on Pinnacle soliciting or discussing any alternative
transaction, except (A) it may consider written offers upon a
determination that our board's fiduciary duty requires it to do so, or
(B) it may disclose to the our shareholders the board's position on
certain tender offers; and

- the obligation of both parties to pay a $1.5 million termination fee if
the merger agreement is terminated under specified circumstances.

During the negotiation process, Pinnacle and SMM met with their advisors to
discuss the accounting for the merger. Based on the transaction as structured
and the advice received, we decided that the merger should be accounted for as a
purchase with Pinnacle as the accounting acquiror. We explored the changes that
would need to be made to the transaction for SMM to be deemed the accounting
acquiror. However, we decided that the changes to the economics and corporate
governance matters of the merger necessary for SMM to be treated as the
accounting acquiror were not viable.

At a special board meeting held on October 12, 1999, our board considered
the proposed merger agreement. Our management presented a comprehensive analysis
of the proposed merger, including an overview of SMM, and a description of its
operations, financial conditions and competitive positions. The SMM board also
discussed the potential for expansion and improvement of the combined
enterprise's business as a result of cross-selling opportunities and cost
savings, which our management believed could be achieved.

During our board meeting, Howard Frazier Barker Elliott verbally described
the valuation methods used in connection with its financial analysis of the
merger (see "--Opinion of financial advisor" on pages 30 to 32). The board
reviewed with our counsel the principal features of the proposed merger
agreement and the merger. The board also received formal due diligence reports,
and then unanimously approved the merger agreement in its final form.

The merger agreement was then executed by the appropriate officers of the
signing companies on October 12, 1999.

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REASONS FOR THE MERGER

Our management believes combining Pinnacle and SMM has the potential to
realize improved operating and financial performance as compared to the
two entities operating independently. The combined entity will create one of the
largest investment banking firms based in the Southwest, with pro forma combined
revenue of approximately $61.3 million for the year ended December 31, 1998.
Specifically, our management believes the addition of the Sanders firm will:

- create the largest Texas-based investment bank, thus providing us with
added scale and greater resources to compete more effectively against
other firms in our markets;

- expand the geographic scope of our retail brokerage and investment banking
activities;

- provide us with proven institutional research and sale capabilities;

- diversify and significantly increase revenue and operating income
attributable to our existing brokerage and investment banking subsidiary;

- enhance our management team and investment banking expertise through the
addition of SMM's management and key employees; and

- provide unquantified cross selling opportunities among our other financial
services subsidiaries and unquantified cost savings through consolidating
the infrastructure of the two companies' investment banking activities.

For these reasons, our board believes that the merger and the related share
issuances are in the best interest of our company and our shareholders. In
reaching its conclusions, our board considered:

- the judgment, advice and analyses of our management with respect to the
strategic, financial and potential operational benefits of the merger,
based in part on the business, financial and legal due diligence
investigations performed on SMM;

- management's belief that the long-term trend in the financial services
industry remains positive, despite the recent volatility in the industry,
especially in light of an increase in investment funds as a result of
several industry conditions;

- the accretive effect of the merger on Pinnacle's pro forma combined
earnings per share;

- the reputation of the Sanders firm and the reputation and experience of
its management team;

- unquantified cross-selling opportunities and operating efficiencies that
may result from the merger;

- the advice of, and financial analyses prepared by, Howard Frazier Barker
Elliott, see "--Opinion of financial advisor" on pages 30 to 32;

- the advice of counsel that the merger should be tax-free to the
corporation for federal income tax purposes;

- the corporate governance aspects of the merger, including that Pinnacle
directors would initially constitute all but three of our board members
and a clear majority of the board and that our existing management would
initially maintain primary management responsibility of our company after
the merger; and

- the number of our common shares to be issued to the SMM shareholders in
the merger, and our shareholder's resulting percentage ownership of the
combined enterprise.

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DISADVANTAGES. In addition to anticipated advantages, our board considered:

- the recent volatility of the equity markets and the related impact on the
financial services industry:

- the challenges inherent in combining our operating management with the
management of SMM and establishing a single unified corporate culture,
which is not assured; and

- the ability of the combined enterprise to achieve the benefits sought by
the merger will significantly depend on success in leveraging existing
client relationships among our company and the Sanders firm, which also
cannot be assured.

This discussion of the information and factors considered by our board is
not exhaustive. Because it considered so many factors in evaluating the merger,
our board did not find it practicable to, and did not quantify or otherwise
assign relative weights to, specific factors it considered. In addition,
individual members of our board may have given different weight to different
factors.

THE SANDERS FIRM

The SMM board has determined that the terms and conditions of the merger are
in the best interests of SMM and its shareholders. In making its determination,
the SMM board considered:

- the merger would combine the complementary businesses of Pinnacle and SMM
and create the potential for cross-selling opportunities;

- the merger would effectively diversify the Sanders firm into a broader
array of financial services including, Pinnacle's trust services and
fixed-income securities business, and give them a competitive edge in the
consolidating financial services industry;

- SMM would possess greater financial resources as a publicly held company
with access to Pinnacle's current cash surplus;

- with greater financial resources, SMM could pursue internal and external
(e.g., acquisitions) growth opportunities, as well as diversification and
enhanced recruiting opportunities;

- the reputation and experience of the management teams of Pinnacle and its
financial services subsidiaries;

- the merger would provide the SMM shareholders with a significant increase
in liquidity and, SMM believes, increased shareholder value;

- the advice of tax professionals that the Pinnacle common shares issuable
to the SMM shareholders should be received tax-free for federal income tax
purposes;

- the former SMM shareholders would own about 50% of Pinnacle's outstanding
shares after the merger; and

- the board of directors of Pinnacle would consist of three members
designated by SMM, so that the former SMM shareholders would be assured
continued representation in the leadership of Pinnacle, and SMM's
management would have significant roles at Pinnacle and maintain primary
management responsibility of the resulting investment banking subsidiary.

The SMM board also considered the following negative factors: (1) the
uncertainty inherent in combining the operations and the strategies of Pinnacle
and SMM and (2) the ability of Pinnacle to achieve the benefits intended by the
merger in a timely manner.

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BUSINESS COMBINATION COSTS--ANTICIPATED CONSOLIDATION BENEFITS

We expect to incur non-recurring merger related costs estimated at $400,000
to $500,000. The estimate includes direct transaction costs consisting of legal,
financial advisor, accounting, consulting, printing, mailing and registration
and shareholder meeting fees and expenses. Although there may be opportunities
for operational and administrative cost savings, no potential savings have been
quantified. In addition, our board views potential revenue growth to be of far
greater importance than anticipated cost savings in its determination to
recommend the merger related proposal.

OPINION OF FINANCIAL ADVISOR

Howard Frazier Barker Elliott, Inc. has acted as our financial advisor in
connection with the merger. Howard Frazier has advised our Board of Directors
that, in its opinion, the consideration to be paid by Pinnacle in the merger is
fair, from a financial point of view, to our shareholders. The full text of the
Howard Frazier opinion, which describes the procedures followed, assumptions
made and other matters considered in the opinion, is included in this document
as Appendix C. You should read the full opinion.

HOWARD FRAZIER'S OPINION IS DIRECTED TO OUR BOARD OF DIRECTORS AND ADDRESSES
ONLY THE MERGER CONSIDERATION. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS
DECISION TO PROCEED WITH THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER AS TO HOW THE SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER
OR ANY OTHER RELATED MATTER.

In arriving at its written opinion, Howard Frazier, among other things:

- reviewed Pinnacle's Annual Report on Form 10-K and related financial
information for the year ended December 31, 1998, and Quarterly Reports on
Form 10-Q and related financial information for the quarters ended
March 31, 1999 and June 30, 1999;

- reviewed financial information for Pinnacle's predecessor entities for the
years ended December 31, 1995 through 1998;

- reviewed SMM's financial information for the years ended December 31, 1994
through 1998, and related financial information for the quarters ended
March 31, 1999 and June 30, 1999;

- reviewed certain information relating to the business, earnings, cash
flow, assets and prospects of SMM and Pinnacle furnished to Howard Frazier
by SMM and Pinnacle;

- conducted discussions with members of senior management of SMM and
Pinnacle concerning their respective businesses and prospects;

- reviewed the historical market prices and trading activity for Pinnacle's
common stock and compared them with those of certain companies which
Howard Frazier deemed reasonably similar to Pinnacle;

- compared the results of operations of SMM and Pinnacle with those of
certain companies which Howard Frazier deemed reasonably similar to SMM
and Pinnacle;

- analyzed the nature and financial terms of certain business combinations
involving companies in lines of business Howard Frazier believes to be
generally comparable to those of SMM and Pinnacle;

- considered the pro forma effect of the merger on certain of Pinnacle's
income statement and balance sheet items;

- reviewed the Merger Agreement; and

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<PAGE>
- reviewed such other matters as Howard Frazier deemed necessary, including
an assessment of general economic, market and monetary conditions.

In preparing its opinion, Howard Frazier relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
Pinnacle and SMM. Howard Frazier did not independently verify the furnished
information, or undertake an independent appraisal of the assets of Pinnacle or
SMM. Howard Frazier's opinion is based upon market, economic, financial and
other conditions as they exist and can be evaluated as of the date of the
opinion. Howard Frazier expressed no opinion as to the price at which the
securities to be issued in the merger may trade after the merger.

Howard Frazier assumed that there had been no material change in Pinnacle's
or SMM's financial condition, results of operations, business or prospects since
the date of the last financial statements made available to Howard Frazier.
Howard Frazier relied on advice of counsel to Pinnacle as to all legal matters
with respect to Pinnacle, the merger and the merger agreement, and upon Pinnacle
with respect to the accounting treatment to be accorded the transaction. In
addition, Howard Frazier did not make an independent evaluation appraisal or
physical inspection of the assets or individual properties of Pinnacle or SMM,
nor was it furnished with any such appraisals.

The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to particular
circumstances. Therefore, the Howard Frazier opinion is not readily susceptible
to partial analysis or summary description. Furthermore, in arriving at its
opinion, Howard Frazier did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis or factor. Accordingly, Howard
Frazier believes that its analysis must be considered as a whole and that
considering any portion of its analysis and the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Howard Frazier made
many assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Pinnacle and SMM. Estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values. In
addition, analyses relating to the value of the businesses do not purport to be
appraisals or to reflect the prices at which businesses may actually be sold.

RELATIVE CONTRIBUTION ANALYSIS. Howard Frazier reviewed Pinnacle and SMM
historical financial information for the period ended December 31, 1998, and
analyzed the contributions of each of Pinnacle and SMM to pro forma revenues,
pre-tax and net income and cash flow of the combining companies. Howard Frazier
also analyzed the contributions of each of Pinnacle and SMM to specific balance
sheet items, including working capital, stockholders' equity and long-term debt.
Howard Frazier also considered the relative size and financial strengths of
Pinnacle and SMM.

SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using public information,
Howard Frazier compared selected historical financial data and operating results
of Pinnacle and SMM and the post-merger companies to the corresponding data of
certain publicly traded companies deemed to be similar with regard to their
business and operations. In the opinion of Howard Frazier, the comparable
companies were:

First Albany Companies, Inc.
Morgan Keegan, Inc.
Jefferies Group, Inc.
MFC Bancorp, Ltd.
Fahnestock Viner Holdings, Inc.
Dain Rauscher Corp.
JW Genesis Financial Corp.
Freedom Securities Corp.
Stifel Financial Corp.

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<PAGE>
To measure Pinnacle's and SMM's current operating performance against that
of certain comparable publicly-traded companies, Howard Frazier, among other
factors considered for both Pinnacle and SMM, and compared to similar data for
comparable public companies:

- total revenues,

- operating expense levels,

- operating earnings (i.e., earnings before interest and taxes) margins,

- operating cash flow (i.e., cash flow before interest and taxes) margins,

- profit margins on before and after tax net income, and

- cash flow.

This information was considered for the year ended December 31, 1998 and the six
months ended June 30, 1999 for both SMM and Pinnacle.

To measure Pinnacle's and SMM's capital structures against those of the
comparable public companies, Howard Frazier considered, among other factors,
Pinnacle's and SMM's (1) ratio of total debt to total capital, and (2) ratio of
total debt to total assets compared to similar data for the comparable public
companies. This information was considered for the year ended December 31, 1998
and the six months ended June 30, 1999 for both SMM and Pinnacle.

SELECTED COMPARABLE TRANSACTION ANALYSIS. Howard Frazier researched various
merger and acquisition databases to review transactions involving sales of
companies comparable to Pinnacle and SMM within the past three years. Financial
disclosure was available for 15 transactions of comparable companies. The
following transactions comprised the group (buyer/seller):

Dean Witter, Discover & Co./Morgan Stanley Group Inc.
Bank America Corp./Robertson Stephens & Co.
CIBC Wood Gundy Securities, Inc./
Oppenheimer & Co. Inc.
Fleet Financial Group Inc./Quick & Reilly Group Inc.
U.S. Bancorp/Piper Jaffray Companies Inc.
Bank Atlantic Bancorp/Ryan, Beck & Co.
Key Corp/McDonald & Co. Investments, Inc.
Chase Manhattan Corp./Hambrecht & Quist Group, Inc.
Bankers Trust, Corp./Alex. Brown Inc.
Nations Bank Corp./Montgomery Securities
First Union Corp./Wheat First Butcher
Singer Inc.
Travelers Group, Inc./Salomon, Inc.
Fifth Third Bancorp/Ohio Co.
Bank Boston Corp./Robertson Stephens & Co.
Wachovia Corp./Interstate/Johnson Lane, Inc.

Pinnacle will pay Howard Frazier $50,000 for its opinion. In addition,
Pinnacle has agreed to reimburse Howard Frazier for all its related expenses,
and to indemnify Howard Frazier against certain liabilities, including
liabilities under federal securities laws.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

It is a condition to the obligations of SMM to complete the merger that it
receive a legal opinion from Porter & Hedges, L.L.P., our outside counsel, that
the merger constitutes a reorganization, within the meaning of Section 368 of
the Code, for United States federal income tax purposes. The following
discussion summarizes the opinion of Porter & Hedges, L.L.P. as to the material
United States federal income tax consequences of the merger. A copy of the
opinion is included as an exhibit to the Registrant Statement of which this
document is a part.

LIMITATIONS. This discussion is based upon the Internal Revenue Code of
1986, as amended, the regulations promulgated under the Internal Revenue Code,
Internal Revenue Service and other administrative rulings, and judicial
authority now in effect, all of which are subject to change, possibly with
retroactive effect. Any change could affect the continuing validity of this
discussion. This discussion does not address all aspects of United States
federal income taxation that may be relevant to

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<PAGE>
a shareholder in light of the shareholder's particular circumstances or to those
SMM shareholders subject to special rules, such as:

- shareholders who are not citizens or residents of the United States,

- financial institutions,

- tax-exempt organizations,

- insurance companies,

- dealers in securities,

- traders in securities electing mark to market,

- shareholders who acquired their SMM shares through the exercise of options
or similar derivative securities or otherwise as compensation, or

- shareholders who hold their SMM shares through a tax-qualified retirement
plan or as part of a straddle or conversion transaction.

This discussion assumes that SMM shareholders hold their respective SMM
shares as capital assets within the meaning of Section 1221 of the Internal
Revenue Code.

The legal opinion will assume the merger will be completed according to the
terms of the merger agreement and will rely on representations made by SMM,
Pinnacle and others, including those contained in the merger agreement and in
certificates of officers of SMM and Pinnacle delivered in connection with the
opinion. If any of these assumptions or representations is inaccurate, the tax
opinion cannot be relied upon and the tax consequences of the merger could
differ from those described here. The opinion is not binding on the courts or
the IRS and does not prevent the courts or the IRS from adopting a contrary
position. Neither SMM nor Pinnacle intends to obtain a ruling from the IRS with
respect to the tax consequences of the merger.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO PINNACLE
SHAREHOLDERS. Holders of Pinnacle common stock will not recognize any gain or
loss for United States federal income tax purposes as a result of the merger.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO SMM SHAREHOLDERS. Except
as provided elsewhere in this document, holders of shares of SMM stock will:

- not recognize any gain or loss for United States federal income tax
purposes as a result of the exchange of their SMM common shares for
Pinnacle common shares in the merger, and

- have a tax basis in the Pinnacle common shares received in the merger
equal to the tax basis of the SMM common shares surrendered in the merger.

- have a holding period for the Pinnacle common shares received in the
merger that will include the holding period of the SMM common shares
surrendered in the merger.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO PINNACLE, SMM AND HARRIS
WEBB & GARRISON. None of Pinnacle, SMM, or Harris Webb & Garrison subsidiary
will recognize gain or loss for United States federal income tax purposes as a
result of the merger.

THIS DISCUSSION PROVIDES ONLY A SUMMARY OF THE MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IT IS NOT A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER. IN ADDITION, WE DO NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH,
OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, WE DO NOT ADDRESS
ANY

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<PAGE>
NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER.
ACCORDINGLY, WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX
CONSEQUENCES RESULTING FROM THE MERGER, WITH RESPECT TO YOUR INDIVIDUAL
CIRCUMSTANCES.

REGULATORY APPROVALS

Under the Hart-Scott-Rodino Antitrust Improvements Act, the Antitrust
Division of the U.S. Department of Justice and the U.S. Federal Trade Commission
must review transactions such as the merger. The federal agencies conducting
these reviews determine whether the merger complies with antitrust laws. The
Hart-Scott-Rodino Act requires both companies to notify these federal agencies
of the merger. The required waiting period must expire or terminate before the
merger can be completed. Both companies filed the notification reports with the
Antitrust Division and the Federal Trade Commission during the week of
November , 1999.

At any time before or after the merger closes, the Antitrust Division, the
Federal Trade Commission, state antitrust authorities or a private person could
seek to enjoin the merger or cause either of the companies to divest certain
assets. The merger agreement conditions the merger on the receipt of all
required governmental consents and approvals, including expiration or
termination of the waiting period under the Hart-Scott-Rodino Act.

Under NASD Rules, both Harris Webb & Garrison and SMM must file notice and
application for approval of the merger with the NASD. The companies submitted
the notices and applications with the NASD during the week of November , 1999.

The merger may require approval of the Texas Banking Commissioner if the
Commissioner determines the issuance of the Pinnacle shares in the merger will
result in a change of control of our trust company subsidiary, Pinnacle
Management & Trust Company. We intend to contact the office of The Texas Banking
Commissioner to determine their position on the change of control issue. The
merger is conditioned upon any required approval of the Texas Banking
Commissioner.

Other than the approval described above, we are not aware of any other
significant government or regulatory approval we need to complete the merger. If
we discover any other approvals are required, we will seek to obtain them.

ACCOUNTING TREATMENT

We intend to account for the merger as our "purchase" of SMM. Accordingly,
SMM's results of operations will be included in our consolidated results of
operations after the completion date of the merger. In preparing our
consolidated financial statements, we will establish a new accounting basis for
the SMM assets and liabilities based upon their fair value and our purchase
price, plus merger costs.

QUOTATION ON THE NASDAQ NATIONAL MARKET

We will apply to have the shares of our common stock that are issuable in
the merger approved for quotation on the Nasdaq National Market. Completion of
the merger is conditioned on that approval.

FEDERAL SECURITIES LAW CONSEQUENCES

This document does not cover resales of our common stock received by the SMM
shareholders in the merger, and no person is authorized to make any use of this
document for any resale.

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All of our common shares received by SMM shareholders in connection the
merger will be freely transferable, except for persons subject to the lock-up
agreement being executed under the merger agreement and for common shares
received by persons who are deemed to be "affiliates" (as that term is defined
under the Securities Act of 1933) of SMM before the merger. Shares of our common
stock received by affiliates may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act of 1933
(or Rule 144, in the case of persons who become affiliates of Pinnacle) or as
otherwise permitted under the Securities Act of 1933. Persons who may be deemed
to be affiliates of SMM generally include individuals or entities that control,
are controlled by, or are under common control with, SMM, and may include
certain officers and directors as well as principal stockholders of SMM. The
merger agreement requires certain of our affiliates and affiliates of SMM to
execute at closing lock-up agreements which generally prohibit them from
selling, offering to sell or otherwise disposing of our common shares for a
period of one year after the closing of the merger. See "The Merger
Agreement--Terms of the merger--Lock-up Agreements" (page 42).

NO DISSENTERS' OR APPRAISAL RIGHTS

Under Texas law, neither Pinnacle nor SMM shareholders will have any
appraisal rights or dissenters' rights with respect to their shares.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

When considering the SMM board's reasons for the merger, you should be aware
the SMM directors and officers identified below have interests in the merger
that are different from, or in addition to, yours.

BOARD AND MANAGEMENT REPRESENTATION. Don A. Sanders, Ben T. Morris and
George L. Ball, each of whom is currently a director and shareholder of the
Sanders firm, will become directors of Pinnacle on closing of the merger. When
the merger closes, Mr. Sanders will become Pinnacle's Vice-Chairman and
Mr. Morris will become a member of Pinnacle's three-member Executive Committee.
Messrs. Sanders, Morris and Ball will also remain directors of the resulting
Sanders Morris Harris subsidiary and be its principal executive officers. R.
Larry Kinney, Director of Trading Activities of the Sanders firm, will also
remain as a director of the Sander Morris Harris subsidiary. Messrs. Morris and
Ball will be appointed to the boards of Pinnacle's other financial services
subsidiaries.

PRE-MERGER DISTRIBUTIONS. The merger agreement allows SMM to distribute to
the SMM shareholders the following items before closing:

- 150,000 shares of common stock of Earthcare Company;

- 25,000 shares of convertible preferred stock of OptiMark
Technologies, Inc.; and

- 50% of (1) SMM's taxable income for the year ending December 31, 1999 and
(2) SMM's taxable income from January 1, 2000 to the closing of the
merger, less certain corporate level tax adjustments.

The permitted distributions will be made to the SMM shareholders pro rata
based on their SMM share ownership. Messrs. Sanders, Morris, Ball and Kinney
will receive together over 70% of the distributions based on their SMM
ownership.

BONUSES TO SMM MANAGEMENT. The merger agreement permits SMM to distribute
compensatory warrants held in SMM's Key Executive Plan to executive participants
of the plan. The Key Executive Plan will be frozen on closing of the merger.

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The merger agreement also permits SMM to pay year-end employee and executive
bonuses for 1999 in amounts consistent with SMM's past practices.

INDEMNIFICATION ARRANGEMENTS. As members of Pinnacle's board of directors,
each of Messrs. Sanders, Morris and Ball will be provided indemnification
agreements substantially similar to those currently in effect between Pinnacle
and its current officers and directors. In addition, Messrs. Sanders, Morris and
Ball will be provided directors' and officers' liability insurance comparable to
policies provided to Pinnacle's current directors and officers.

EXISTING PINNACLE INVESTMENT. George L. Ball currently owns 100 shares of
Pinnacle common stock.

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<PAGE>
COMPARATIVE MARKET PRICE DATA

PINNACLE COMMON STOCK

Our common stock trades on the Nasdaq National Market under the symbol
"PING." It began trading January 29, 1999, upon completion of the combination of
our company with three Houston-based financial services firms. As a result of
the combination transactions, our company became the successor public company to
TEI, Inc., whose common stock traded on the Nasdaq National Market under the
symbol "TANK." The TEI common stock began trading on June 19, 1991, and was
removed from quotation on the Nasdaq National Market on January 28, 1999. In the
combination transactions, each outstanding TEI common share was converted into
.25 of a share of Pinnacle common stock, with just over 50% of our outstanding
shares being issued to TEI's former shareholders. A total of 3,562,500 shares of
our common stock, representing slightly less than 50% of our outstanding stock,
was issued to the former owners of the three financial service firms. The
following table shows the quarterly high and low sale prices of (1) the TEI
common stock for 1997 and 1998 (after giving effect to the one-for-.25 share
exchange in the combination transactions) and (2) the Pinnacle common stock for
1999, as reported on the Nasdaq National Market for the calendar quarters
indicated:

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1997
First Quarter............................................. 9 1/4 6 1/4
Second Quarter............................................ 7 3/4 6 1/4
Third Quarter............................................. 7 3/4 6 1/8
Fourth Quarter............................................ 9 5 1/4

1998
First Quarter............................................. 7 3/4 5 5/8
Second Quarter............................................ 10 7
Third Quarter............................................. 10 1/2 6
Fourth Quarter............................................ 9 6 1/8

1999
First Quarter............................................. 8 3/8 5 1/16
Second Quarter............................................ 6 1/4 4 1/2
Third Quarter............................................. 6 4 1/2
Fourth Quarter (through October 25, 1999)................. 5 5/8 4 1/2
</TABLE>

On October 12, 1999, the last full trading day before the public
announcement of the signing of the merger agreement, the closing sales price of
our common stock was $4 5/8. On , 1999, the last full trading day
for which quotations were available before the date of this Proxy Statement/
Prospectus, the last sale price per share of our common stock was $ . We
urge you to obtain current market quotations before making any decision with
respect to the merger. At , 1999, there were about
record holders of our common stock.

SECURITIES OF THE SANDERS FIRM

No market value information is available for the SMM securities since there
is no established trading market for them. SMM is a S corporation for federal
income tax purposes. Since inception, SMM has made periodic cash distributions
to its shareholders. SMM made cash distributions of approximately: $644,000 in
1996, $1.8 million in 1997, and $2.3 million in 1998.

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<PAGE>
POST-MERGER DIVIDEND POLICY

After the merger, we intend to retain earnings to finance the expansion of
our businesses. Any future dividends will be at the discretion of our board of
directors and will be determined after consideration of factors such as our
earnings, financial condition, cash flows from operations, current and
anticipated cash needs, expansion plans and any restrictions that may be imposed
under our current and future credit facilities.

THE SPECIAL MEETING

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

At the special meeting, our stockholders will be asked to approve:

- the issuance of 7,125,233 shares of our common stock to the SMM
shareholders in the merger; and

- such other business as may properly be presented to the meeting.

YOUR BOARD'S RECOMMENDATIONS

Your board of directors has unanimously approved the SMM merger agreement
and the issuance of our shares as part of the merger, and unanimously recommends
that our shareholders vote FOR approval of the proposal. See "The
Merger--Interests of certain persons in the merger."

VOTING AT THE SPECIAL MEETING; RECORD DATE

We have set November 30, 1999, as the record date to determine those
shareholders entitled to notice of and to vote at the special meeting. Only
holders of record at the close of business on the record date are entitled to
notice of and to vote at the special meeting. On the record date, there were
of our common shares outstanding. It takes a majority of our
outstanding shares present in person or represented by proxy, to constitute a
quorum at the special meeting. Each issued and outstanding share is entitled to
one vote on the approval of the share issuance. The affirmative vote of the
holders of at least a majority of the shares present, in person or by proxy, at
the special meeting is required to approve the share issuance. Shareholders
holding 1,392,011 of our shares, or 19.5% of all outstanding shares, have agreed
to vote their shares in favor of the proposal. Their agreement is irrevocable.

PROXIES

Shares represented by a proxy in the form enclosed, signed and returned to
us before or at the special meeting, and not revoked, will be voted at the
special meeting in accordance with the proxy's voting instructions. Shares
represented by proxies with no voting instructions will be voted FOR adoption of
the proposal.

Shareholders are asked to complete, sign, date and promptly return the
enclosed proxy card in the postage paid envelope to ensure that their shares are
voted at the special meeting. A proxy may be revoked at any time before the
exercise of any authority it grants. Revocation may be by:

- execution and delivery of a later-dated proxy covering the same shares,

- giving written notice of revocation to our corporate secretary before the
vote at the special meeting, or

- voting in person at the special meeting.

Attendance at the meeting is not enough to revoke a proxy.

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<PAGE>
If a shareholder does not return a signed proxy card (and does not vote in
person at the special meeting), his shares will not be voted. A failure to vote
will be the same as a vote against the proposal. Since approval of the share
issuance requires the affirmative vote of at least a majority of the outstanding
shares present at the meeting, abstentions and broker non-votes will also have
the same effect as negative votes.

Your board of directors knows of no matters to be presented at the special
meeting other than those described in this Proxy Statement/Prospectus. If other
matters are properly brought before the meeting, the persons named as proxies
intend to use their judgment in voting on those matters.

SOLICITATION OF PROXIES

Solicitation of proxies for the special meeting may be made in person or by
mail, telephone, telecopy or telegram. We will bear the cost of the proxy
solicitation. Our officers and employees, who will receive no compensation above
their regular salaries for their services, may solicit proxies from our
shareholders in person or by mail, telephone, telecopy or telegram. We have
asked banking institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of our
common stock held of record by those holders, and, upon request, we will
reimburse them for their reasonable forwarding expenses.

YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS.

THE MERGER AGREEMENT

THIS DISCUSSION SUMMARIZES THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT
WITH THE SANDERS FIRM AND ITS SHAREHOLDERS. A COPY OF THE AGREEMENT IS INCLUDED
IN THIS DOCUMENT AS APPENDIX A. THIS SUMMARY IS QUALIFIED BY REFERENCE TO THE
FULL AGREEMENT, WHICH YOU ARE ENCOURAGED TO READ.

CLOSING OF THE MERGER

The agreement calls for the merger to be completed when the articles of
merger are filed in Texas. If our shareholders approve the issuance of our
shares as part of the merger, and all other merger conditions are satisfied or
waived, the merger should be completed not later than five business days after
our special meeting.

MANNER AND BASIS OF CONVERTING SECURITIES

NO CONVERSION OF OUR COMMON STOCK. Nothing will happen to your Pinnacle
shares as a result of the merger. They will not be converted, and you will not
need to surrender them for any exchange. After the merger, your certificates
will represent the same number of our common shares as they represented before
the merger.

CONVERSION OF SMM COMMON STOCK. Upon completion of the merger, each
outstanding share of SMM common stock will automatically convert into 117.32867
of our common shares. As a result, the former SMM shareholders will own about
50% of our total outstanding common shares when the merger is completed. Shortly
after the merger, we will mail each record holder of SMM common stock a
certificate to replace his certificates representing his SMM shares. Once the
merger is completed, there will be no further registration of transfers on SMM's
stock transfer books for previously outstanding SMM shares.

No fractional shares will be issued in the merger. Instead, the number of
our shares to be exchanged for SMM shares will be rounded upward to the nearest
whole share.

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<PAGE>
TERMS OF THE MERGER

REPRESENTATIONS AND WARRANTIES. In the merger agreement, the parties have
each made various customary representations and warranties as to, among other
things:

<TABLE>
<S> <C>
- - their corporation's organization and
compliance with law
- - their capitalization
- - the authority and enforceability of the
agreement
- - absence of conflicts
- - their businesses and financial condition
- - required approvals or consents
- - their financial statements
- - litigation
- - material contracts
- - compliance with broker-dealer regulatory
requirements
- - employee benefit matters
- - labor matters
- - tax matters
- - environmental matters
- - year 2000 matters
</TABLE>

These representations and warranties will expire when the merger closes.

VOTING AGREEMENT. Members of our board and management, and their
affiliates, who together hold 1,392,011 of our common shares as of October 25,
1999, or 19.5% of the then outstanding shares, have agreed to vote their shares
in favor of the merger proposal. All of the SMM shareholders have agreed to vote
their SMM shares in favor of the merger.

CONDITIONS TO THE MERGER. The obligations of the parties to complete the
merger are subject to satisfaction or waiver of certain conditions on or before
the closing. These include:

- The continuing truthfulness of the representations made in the merger
agreement.

- The absence of a governmental order, law or private action preventing the
transaction or seeking to prevent it.

- All parties' compliance with the merger agreement's terms.

- Compliance with all broker-dealer regulatory requirements applicable to
both us and SMM in connection with the transaction.

- Our required shareholder approval.

- The required approval by the SMM shareholders.

- The Texas Banking Commissioner approval if he determines that the issuance
of shares in the merger results in change of a control of our
state-chartered trust subsidiary.

- The absence of a material adverse change in either of the two companies.

- Receipt of customary opinions of counsel.

- Delivery of a tax opinion.

- Listing on the Nasdaq National Market of our common shares to be issued in
the merger.

- Receipt of releases from the SMM shareholders.

- Delivery of "affiliate letters" from certain SMM shareholders.

OBLIGATIONS PENDING CLOSING. The merger agreement imposes obligations and
restrictions on its parties pending the transaction. The affirmative obligations
include:

- Conducting business in the usual manner.

- Permitting inspection of records.

- Delivery of periodic financial statements.

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- Notification of emergencies or adverse events.

- Maintenance of confidentiality.

- Obtaining required approvals and consents.

For both merger participants, the agreement prohibits or restricts to agreed
levels:

- amendments to material organizational documents

- changes in capitalization

- dividends and distributions

- new debt

- bonuses and salary increases

- new leases and other long-term commitments

- acquisitions and mergers

- dispositions of material assets

- capital expenditures

- payment of non-current liabilities

- any collective bargaining agreements

We agreed to prepare and file an application with the Texas Banking
Commissioner for his approval of any change of control of our state-chartered
trust subsidiary that may result from the issuance of our shares in the merger.

OTHER AGREEMENTS. Each merger party has agreed to (1) call a meeting of
shareholders as soon as practicable after effectiveness of the registration
statement filed for the merger and (2) hold the meeting within 40 days following
the mailing of the definitive proxy statement/prospectus in our case, and within
25 days after effectiveness of the registration statement in the case of SMM.

The merger agreement permits SMM to pay year-end employee and executive
bonuses for 1999 consistent with past years.

The merger agreement provides that the SMM shareholders will agree at
closing to releases us (and SMM after the merger) and our affiliates from any
claims they may have against those parties before completion of the merger or
which are based on an act or omission occurring before completion of the merger,
except for employment obligations and obligations under the merger agreement.

PRE-CLOSING DISTRIBUTIONS BY SMM. The merger permits SMM to make limited
distributions to its shareholders before the closing. The permitted
distributions, which are to be made from SMM's taxable income, are to compensate
the SMM shareholders for bearing the tax burden on SMM's earnings through the
date the merger is completed and to provide them with some of the economic
benefits from those earnings. The permitted distributions will include cash and
investment securities held by SMM. The distributions are generally limited to
50% of SMM's taxable income for taxable periods ending before the merger's
closing date.

The merger agreement also permits SMM to distribute warrants held by its
executive incentive plan under which SMM allocates to its key executives
warrants SMM receives as compensation for underwriting and other services. SMM
plans to distribute to its participating executives warrants having an estimated
fair market value of about $4.4 million at June 30, 1999.

41
<PAGE>
LOCK-UP AGREEMENTS. When the transaction is completed, a designated group
of our and their shareholders will be required to deliver to us letters under
which they will agree for a period of one year not to sell, grant any option or
otherwise transfer any shares of our common stock or securities convertible
into, or exercisable for, our common shares. The designated group consists of:

- each officer or director of our company at the time of closing;

- each SMM shareholder who becomes, as a result of the merger, a holder of
2.5% or more of our outstanding common shares; and

- each SMM shareholder who, as a result of the merger, becomes a member of
any SEC Rule 13d-1 group which holds 10% or more of our outstanding common
shares.

RULE 144 REPORTS. As long as any former SMM shareholder remains subject to
SEC Rule 144 or 145 with respect to his sale of our shares, we have agreed to
make and keep current public information available as prescribed by Rule 144(c)
and to furnish a written statement to that effect to the extent reasonably
requested by the former SMM shareholder.

TERMINATION. The Agreement may be terminated at any time before the
transaction is completed by:

- mutual consent of their board of directors and ours;

- their board of directors or ours if the transaction is not completed by
March 15, 2000 (or any later mutually agreed date), other than because of
a breach of the agreement by the terminating party;

- by either party if our shareholders fail to approve at our special meeting
the issuance of our shares in the merger;

- by their board of directors if our board of directors (A) withdraws or
modifies, in a manner adverse to SMM, its recommendation for approval of
the transaction or (B) approves or recommends an "Alternative
Transaction"; or

- by us if their shareholders fail to approve the merger agreement.

In the agreement, an "Alternative Transaction" generally means any
third-party proposal for a merger, consolidation, acquisition, business
combination, sale of all or a substantial portion of the assets or other
reorganization involving our company or any of our subsidiaries, or any proposal
or offer for the acquisition of a substantial equity position in our company or
any of our subsidiaries, other than the Sanders merger.

TERMINATION FEE. We have agreed to pay SMM $1.5 million if SMM and its
shareholders are not in material breach of the merger agreement and if:

- our shareholders do not approve the share issuance in the merger and
(1) at the time of our special meeting there exists or has been proposed
an Alternative Transaction, and (2) an Alternative Transaction is
completed within one year of the special meeting; or

- our board (1) either (A) withdraws or adversely modifies its
recommendation for the merger or (B) approves or recommends an Alternative
Transaction and (2) an Alternative Transaction exists or has been
proposed.

SMM has agreed to pay our company $1.5 million if we are not in material
breach of the merger agreement and the SMM shareholders fail to approve the
merger agreement.

INDEMNIFICATION. The agreement provides that each of our company, on the
one hand, and SMM and its shareholders, on the other, will indemnify the other
party or parties from all losses, expenses

42
<PAGE>
(including reasonable attorneys' fees and expenses) or liabilities, arising out
of (1) any breach or default in the performance by us of any of our covenants or
agreements contained in the Agreement and (2) any breach by the indemnifying
party of its representations in Article III or IV of the merger agreement, as
applicable. These representations expire when the merger closes. The merger
agreement also requires the SMM shareholders to severally indemnify us (and the
other SMM shareholders) from all losses, expenses (including reasonable
attorneys' fees and expenses) or liabilities arising out of (1) any breach or
default in the performance by such shareholder of any of his promises made in
the merger agreement, or (2) any breach by the shareholders of representation in
Article V of the merger agreement. The representations of the SMM shareholders
continue after the closing and relate to:

- ownership of SMM shares

- capacity, authority and enforceability

- agreement to vote their shares for approval of the merger

- absence of conflicts

- absence of litigation

- absence of rights to acquire SMM shares

- competing businesses

- their Pinnacle share ownership

AMENDMENT AND WAIVER. The merger agreement may be amended only by mutual
written agreement. Waivers under the agreement must be in writing.

43
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following unaudited pro forma condensed combined balance sheet as of
June 30, 1999 gives effect to the merger as if it occurred on that date. The
following unaudited pro forma condensed combined statements of operations for
the six months ended June 30, 1999 and for the year ended December 31, 1998 give
effect to the following transactions as if they occurred on January 1, 1998:
(1) the January 1999 combination with Harris Webb & Garrison, Inc., Pinnacle
Management & Trust Company and Spires Financial, L.P. and (2) the merger with
SMM. The unaudited pro forma condensed combined financial statements have been
derived from and should be read in connection with the unaudited financial
statements of Pinnacle and SMM for the six months ended June 30, 1999 and their
audited historical financial statements for the year ended December 31, 1998
included later in this Proxy Statement/Prospectus in the case of SMM, and
included in our most recent annual report on Form 10-K and most recent quarterly
report on 10-Q which accompany this Proxy Statement/Prospectus in the case of
Pinnacle.

The pro forma adjustments and the resulting unaudited pro forma condensed
combined financial statements were prepared based on available information and
certain assumptions and estimates described in the notes to the unaudited pro
forma condensed combined financial statements. A final determination of required
purchase accounting adjustments, including the allocation of the purchase price
to the assets acquired and liabilities assumed, has not been made, and the
allocation reflected in the unaudited pro forma condensed combined financial
statements should be considered preliminary. However, in the opinion of our
management, the final allocation will not have a material impact on the
unaudited condensed combined pro forma financial statements.

The unaudited pro forma condensed combined financial statements do not
purport to represent what our financial positions or results of operations would
have been had the merger occurred on the dates indicated or to project our
financial position or results of operations for any future period. Furthermore,
the unaudited pro forma condensed combined financial statements do not reflect
changes which may occur as the result of activities after the merger closes.

44
<PAGE>
PINNACLE GLOBAL GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 1999

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
PINNACLE SMM ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents...................... $ 13,979 $ 9,467 $ (500)(B)
(2,734)(A) $ 20,212
Securities available for sale.................. 8,638 -- -- 8,638
Receivable from broker-dealers and clearing
organizations................................ 31,282 -- -- 31,282
Deposits with clearing brokers................. 1,525 -- -- 1,525
Securities owned............................... 51,989 13,175 (2,538)(A) 62,626
Intangible assets, net......................... 21,880 302 25,307 (B) 47,489
Other assets................................... 2,850 4,640 -- 7,490
Net assets of discontinued operations.......... 4,214 -- -- 4,214
-------- ------- -------- --------

Total assets................................. $136,357 $27,584 $ 19,535 $183,476
======== ======= ======== ========

Liabilities:
Accounts payable and accrued liabilities....... $ 325 $ 8,865 $ -- $ 9,190
Payable to clearing broker-dealers............. 45,599 -- -- 45,599
Securities sold, not yet purchased............. 27,850 184 -- 28,034
-------- ------- -------- --------
Total liabilities............................ 73,774 9,049 -- 82,823
-------- ------- -------- --------
Minority interests............................... -- 1,090 -- 1,090
-------- ------- -------- --------

Shareholders' equity:
Common stock................................... 71 1 (1)(C)
71 (B) 142
Additional paid-in capital..................... 58,668 1,103 (1,103)(C)
36,909 (B) 95,577
Receivables for shares issued.................. (1,312) -- -- (1,312)
Retained earnings.............................. 5,248 16,341 (2,538)(A)
(2,734)(A)
(11,069)(C) 5,248
Accumulated other comprehensive loss........... (92) -- -- (92)
-------- ------- -------- --------
Total shareholders' equity................... 62,583 17,445 19,535 99,563
-------- ------- -------- --------

Total liabilities and shareholders'
equity................................... $136,357 $27,584 $ 19,535 $183,476
======== ======= ======== ========
</TABLE>

45
<PAGE>
PINNACLE GLOBAL GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PINNACLE PINNACLE
AS JANUARY 1999 AS
REPORTED ACQUISITIONS(D) ADJUSTMENTS ADJUSTED SMM
-------- --------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues........... $1,524 $18,068 $ -- $19,592 $41,749
Total expenses........... 1,365 15,205 896 (E)
892 (F) 18,358 31,014
------ ------- ------- ------- -------
Income from continuing
operations before
income taxes........... 159 2,863 (1,788) 1,234 10,735
Minority interests and
cumulative effect of
change in accounting... -- -- -- -- 714
Provision for income
taxes.................. 53 367 318 (G) 738 --
------ ------- ------- ------- -------
Income from continuing
operations............. $ 106 $ 2,496 $(2,106) $ 496 $10,021
====== ======= ======= ======= =======
Basic earnings per share
from continuing
operations............. $ 0.03
======
Weighted average shares
outstanding............ 3,563 3,562 (H) 7,125
======
Diluted earnings per
share from continuing
operations............. $ 0.03
======
Weighted average shares
outstanding............ 3,563 3,562 (H) 7,125
======

PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Total revenues........... $ -- $61,341
Total expenses...........
1,006 (I) 50,378
------- -------
Income from continuing
operations before
income taxes........... (1,006) 10,963
Minority interests and
cumulative effect of
change in accounting... -- 714
Provision for income
taxes.................. 3,708 (J) 4,446
------- -------
Income from continuing
operations............. $(4,714) $ 5,803
======= =======
Basic earnings per share
from continuing
operations............. $ 0.41
=======
Weighted average shares
outstanding............ 7,125 (H) 14,250
=======
Diluted earnings per
share from continuing
operations............. $ 0.41
=======
Weighted average shares
outstanding............ 7,125 (H) 14,250
=======
</TABLE>

46
<PAGE>
PINNACLE GLOBAL GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR SIX MONTHS ENDED JUNE 30, 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PINNACLE PINNACLE
AS JANUARY 1999 AS PRO FORMA
REPORTED ACQUISITIONS(D) ADJUSTMENTS ADJUSTED SMM ADJUSTMENTS COMBINED
-------- --------------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $10,032 $1,527 $11,559 $22,256 $ -- $33,815
Total expenses....... 8,775 1,214 84 (E)
74 (F) 10,147 16,754 506 (I) 27,407
------- ------ ------- ------- ------- ------- -------
Income from
continuing
operations before
income taxes....... 1,257 313 (158) 1,412 5,502 (506) 6,408
Minority interests... -- -- -- 34 -- 34
Provision for income
taxes.............. 616 2 96 (G) 714 -- 2,023 (J) 2,737
------- ------ ------- ------- ------- ------- -------
Income from
continuing
operations......... $ 641 $ 311 (254) $ 698 $ 5,468 $(2,529) $ 3,637
======= ====== ======= ======= ======= ======= =======
Basic earnings per
share from
continuing
operations......... $ 0.10 $ 0.26
======= =======
Weighted average
shares
outstanding........ 6,532 593 (H) 7,125 7,125 (H) 14,250
======= =======
Diluted earnings per
share from
continuing
operations......... $ 0.10 $ 0.26
======= =======
Weighted average
shares
outstanding........ 6,532 593 (H) 7,125 7,125 (H) 14,250
======= =======
</TABLE>

47
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

A To record the distribution of securities owned ($2,538 at June 30, 1999) and
50% of SMM's earnings for the six months ended June 30, 1999 ($2,734) in
accordance with the terms of the merger.

B To record the purchase of SMM based on the issuance of 7,125,233 shares at
$5.19 per share, plus $500,000 of estimated transaction costs. The $5.19
share price is based on an average of the market value of Pinnacle common
stock for three days, one day before, the day of, and one day after the
announcement of the proposed merger.

<TABLE>
<S> <C>
Purchase Price.............................................. $ 37,480
Less identifiable net assets acquired--Note C............... (12,173)
--------
Goodwill.................................................... $ 25,307
========
</TABLE>

C To eliminate the adjusted historical equity accounts of SMM

<TABLE>
<S> <C>
SMM historical equity....................................... $17,445
Less distribution of securities owned....................... (2,538)
Less distribution of 50% of 1999 earnings................... (2,734)
-------
Adjusted historical equity.................................. $12,173
=======
</TABLE>

D To include the historical results of operations of Harris Webb & Garrison,
Inc., Pinnacle Management & Trust Company, and Spires Financial, L.P. for
the periods prior to their January 1999 acquisition by Pinnacle:

<TABLE>
<CAPTION>
HWG PMT SPIRES TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Total revenues....................................... $7,097 $2,010 $8,961 $18,068
Total expenses....................................... 5,988 1,341 7,876 15,205
------ ------ ------ -------
Income from continuing operations before income
taxes.............................................. 1,109 669 1,085 2,863
Provision for income taxes........................... 367 -- -- 367
------ ------ ------ -------
Income from continuing operations.................... $ 742 $ 669 $1,085 $ 2,496
====== ====== ====== =======

Month ended January 31, 1999:
Total revenues....................................... $ 449 $ 242 $ 836 $ 1,527
Total expenses....................................... 479 120 615 1,214
------ ------ ------ -------
Income (loss) from continuing operations before
income taxes....................................... (30) 122 221 313
Provision (benefit) for income taxes................. 2 -- -- 2
------ ------ ------ -------
Income (loss) from continuing operations............. $ (32) $ 122 $ 221 $ 311
====== ====== ====== =======
</TABLE>

E To record the increase in compensation and benefits of Spires based upon
employment contracts whereby certain employees of Spires receive total
compensation equal to 10% of Spires revenues.

F To record amortization of goodwill over 25 years on a straight-line basis
related to the acquisition of Harris Webb & Garrison, Pinnacle Management &
Trust and Spires Financial.

48
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (CONTINUED)

G To record the provision for income taxes for Pinnacle Management & Trust and
Spires Financial:

<TABLE>
<CAPTION>
PMT SPIRES TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1998:
Income from continuing operations.................. $669 $1,085 $1,754
Less additional Spires Financial compensation and
benefits......................................... -- 896 896
---- ------ ------
669 189 858
Income tax rate.................................... 37% 37% 37%
---- ------ ------
Provision for income taxes......................... $248 $ 70 $ 318
==== ====== ======

Month ended January 31, 1999:
Income from continuing operations.................. $122 $ 221 $ 343
Less additional Spires Financial compensation and
benefits......................................... -- 84 84
---- ------ ------
122 137 259
Income tax rate.................................... 37% 37% 37%
---- ------ ------
Provision for income taxes......................... $ 45 $ 51 $ 96
==== ====== ======
</TABLE>

H To adjust the weighted average shares for the shares issued in the
acquisitions of Harris Webb & Garrison, Pinnacle Management & Trust, Spires
Financial and SMM.

I To record amortization of goodwill over 25 years on a straight-line basis
related to the acquisition of SMM.

<TABLE>
<CAPTION>
12/31/98 6/30/99
-------- --------
<S> <C> <C>
Goodwill.................................................. $25,307 $25,307
Amortization period....................................... 25 25
------- -------
Annual amortization expense............................... $ 1,012 $ 1,012
=======
50%
-------
Amortization expense--six months.......................... $ 506
=======
</TABLE>

J To record the provision for income taxes for SMM:

<TABLE>
<CAPTION>
12/31/98 6/30/99
-------- --------
<S> <C> <C>
Income from continuing operations of SMM................... $10,021 $5,468
37% 37%
------- ------
$ 3,708 $2,023
======= ======
</TABLE>

49
<PAGE>
BUSINESS OF THE SANDERS FIRM

GENERAL

SMM was formed in 1987 by Don A. Sanders, Ben T. Morris, and John I. Mundy
to create a financial services and investment banking firm building on the
founders' core group of individual clients and emerging growth and small
capitalization corporate clients. SMM was incorporated as a Texas corporation in
June 1987 and is registered with the SEC as a broker/dealer.

SMM's primary businesses are individual investor securities brokerage,
institutional brokerage services, and investment banking services. It conducts
these activities from its Houston headquarters and offices in New York City,
Denver, and Chicago. SMM's retail and institutional brokerage and investment
banking services are directly supported by SMM's proprietary research and
trading department. SMM's research covers approximately 130 publicly-traded
companies most of which are located in the Southwest.

SMM's total revenues were $16.7 million in 1996, $24.9 million in 1997,
$41.7 million in 1998 and $22.3 million for the six months ended June 30, 1999.
Net income was $3.7 million, $5.8 million, $10.0 million, and $5.5 million for
the same periods.

SMM and its principal officers often invest in the same securities as its
clients, where suitable and permitted by applicable regulations (for example,
employees and their families cannot purchase securities in public offerings that
are deemed to be "hot issues" under NASD rules). SMM believes these
co-investments create an identity of interest that is generally beneficial,
especially in investments developed by SMM or where it plays a major on-going
role. Other than the Environmental Opportunities and Corporate Opportunities
Funds, its accounts are conducted on an individual basis. In many cases, a
registered SMM employee holds a limited power of attorney permitting
discretionary agency and certain other transactions on a client's behalf.

BROKERAGE SERVICES

INDIVIDUAL INVESTOR SERVICES. SMM's individual investor business is based
on the core group of private investors and customer base developed by
Mr. Sanders in his more than 30 years in the financial industry. SMM and Mr.
Sanders have continued to expand this market for client business over the years
by offering, where suitable, opportunities to invest in private placements or
public offerings that the firm has helped to develop. As a full-service broker,
SMM offers its customers corporate equity and debt securities, including stocks
followed by SMM's research analysts, underwritings, that SMM co-manages or
participates in as an underwriter, private placements in which SMM acts as the
placement agent mutual funds, 401(k) plans, wrap-fee services, money market
funds, as well as corporate, municipal and U.S. Government bonds. Commissions
are charged on agency transactions in listed securities and securities traded on
the Nasdaq National Market. When SMM executes trades as a principal, it charges
markups or markdowns in lieu of commissions. In addition to retail commissions,
SMM generates fee revenue from asset-based investment advisory services paid by
some clients in lieu of commissions or sales credits. See "--Principal
Transactions--Market-Making and Other Transactions."

In addition to Mr. Sanders, SMM has been able to recruit and retain several
experienced, productive brokers who have and seek to establish and maintain
business relationships with high net worth individuals. SMM generally does not
hire inexperienced brokers or trainees to work as retail brokers. SMM believes
that its array of proprietary private placements and public offerings has been a
key component in its ability to recruit new brokers. Continuing to add a select
group of experienced, highly productive brokers is one part of SMM's growth
strategy.

In addition to executing transactions, SMM provides other services to
individual investors, including portfolio strategy, research services and
assistance in the sale of restricted securities.

50
<PAGE>
INSTITUTIONAL BROKERAGE. SMM's institutional brokerage strategy is to
provide extraordinarily pertinent research coverage of companies, principally
concentrated in companies in the Southwest, to a wide spectrum of institutional
customers throughout North America, Europe, and Asia. Areas of emphasis include
consolidation companies, the construction industry, environmental services,
healthcare, natural gas exploration and production, oilfield services,
pipelines, restaurants and food-related companies, specialty retailing,
telecommunications, and technology. SMM provides institutional customers with
research and execution trading services in both Nasdaq and exchange-listed
equity securities. It also distributes equity securities to institutions in
connection with offerings co-managed or underwritten by SMM.

SMM's institutional customers include banks, retirement funds, mutual funds,
endowments, investment advisors, and insurance companies. SMM provides services
to a worldwide institutional client base. SMM currently has 14 institutional
brokers and 14 analysts. SMM entered the institutional brokerage business in
1996 through the acquisition of Williams MacKay Jordan & Co., Inc., a registered
broker-dealer based in Houston that specialized in institutional sales and
securities analysis. The acquired firm had seven institutional sales
representatives and five analysts at the time of acquisition.

SMM uses its trading knowledge and expertise to provide institutional
clients with value-added service, and makes a market in 51 stocks. SMM's total
institutional commission revenues are dependent on those clients' assessment of
the value of the research services, sales, and trading expertise provided by
SMM.

Commission revenue from SMM's individual clients and institutional
activities constituted approximately 21.9% of SMM's total revenues for fiscal
1998, and 22.3%, of SMM's total revenues for the first six months of 1999.

INVESTMENT BANKING AND UNDERWRITING

SMM's investment banking strategy is to build a balance of corporate
security underwriting, private financings, and financial advisory services. SMM
has acted as placement agent in 54 private placements and as a co-managing
underwriter in 29 public offerings. SMM believes that the number and dollar
amount of its private placements and underwritings have contributed
significantly to increased public and industry awareness of SMM and have
resulted in increased demand for SMM's investment banking and corporate advisory
services. The firm has 18 professionals performing investment banking services
in Houston and New York.

UNDERWRITING. SMM regularly participates in corporate securities
distributions as a member of an underwriting syndicate or of a selling group in
public offerings managed by other underwriters, including national and regional
firms. SMM's syndicate department coordinates the distribution of co-managed
equity underwritings, accepts invitations to participate in underwritings
managed by other investment banking firms and allocates SMM's selling allotments
to its various sales units.

Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriter or selling group member may incur
losses if it is forced to resell the securities it is committed to purchase at
less than the agreed purchase price. In addition, under the federal securities
laws, other statutes and court decisions with respect to underwriters'
liabilities and limitations on indemnification of underwriters by issuers, an
underwriter is subject to substantial potential liability for material
misstatements or omissions in prospectuses and other communications with respect
to underwritten offerings.

SMM has acted as a co-manager of 29 public securities offerings. In 1998,
SMM acted as co-managing underwriter in connection with eight public offerings
totaling approximately $485 million. In the first six months of 1999, SMM has
co-managed five issues totaling approximately $320 million.

51
<PAGE>
SMM is also active in the private placement market. In 1998, SMM initiated
six private placements totaling $32.3 million. In the first six months of 1999,
SMM has initiated nine private placements totaling $47.3 million.

Revenues from SMM's underwriting activities constituted approximately 28.3%
of SMM's total revenues for 1998 and 40.5% of its total revenues for the first
six months of 1999.

FINANCIAL ADVISORY SERVICES. SMM assists in arranging mergers,
acquisitions, and divestitures and in structuring, managing and marketing
private offerings of corporate securities. SMM also provides fairness opinions,
valuations and financial consulting services.

PROPRIETARY FUNDS. In January 1996, SMM organized Environmental
Opportunities Fund, L.P. and the Environmental Opportunities Fund (Cayman), L.P.
and raised $38 million for investments by these funds primarily in private and
public companies providing environmental or industrial services and related
products, an area where SMM has developed a specialty practice. In 1998, SMM
organized a second investment fund, Environmental Opportunities Fund II, L.P.
and Environmental Opportunities Fund II (Institutional), L.P., raising an
additional $75 million for investments in the environmental services area. SMM
then formed Corporate Opportunities Fund, L.P. and Corporate Opportunities Fund
(Institutional), L.P. in 1998 with capital commitments of $48 million for
investment primarily in private companies and small public companies with
enterprise values of less than $250 million, particularly those in the
healthcare, technology, and medical industries.

Management and advisory fees and equity in earnings from limited
partnerships constituted approximately 3.7% and 4.1%, respectively, of SMM's
total revenues in 1998, and 6.8% and 0.2%, respectively, of its total revenues
for the first six months of 1999.

RESEARCH

SMM uses its proprietary equity research analysis to drive or assist a large
portion of its business. SMM's research department, which currently consists of
14 professionals, uses a value-oriented, fundamental approach to investing. This
approach is based on an analysis of economic fundamentals, using tools such as
price-to-earnings multiples and price-to-book value comparisons, both absolute
and relative to historic norms and the research department's own earnings
forecasts. SMM relies primarily on its own research products, rather than on
research products purchased from outside research organizations. SMM believes
that the services provided by the research department have a significant impact
on its revenue-generating activities, including individual and institutional
brokerage, market-making, and investment banking.

PRINCIPAL TRANSACTIONS

MARKET-MAKING AND OTHER TRANSACTIONS. SMM engages in trading as a
principal, executing trades in Nasdaq equity securities or other
over-the-counter securities as a market-maker. It also sometimes acts as a
principal in municipal bonds, corporate debt, and U.S. government and agency
securities. In lieu of commissions, SMM markups or markdowns transactions to
create revenue in return for the risk it assumes. Principal transactions with
customers are generally effected at a net price within or equal to the current
interdealer price plus or minus a markup or markdown. The trading department's
objective is to facilitate sales to customers and to other dealers, not to
generate profits based on trading for SMM's own account.

Revenues from principal transactions depend on the general trend of prices
and the level of activity in the securities market, employee skill in
market-making activities and inventory size. Trading activities carried out as a
principal require a commitment of capital, and create an opportunity for profit
and risk of loss due to market fluctuations. As of September 30, 1998, SMM made
markets in

52
<PAGE>
the common stock or equity securities of 44 companies that were traded on
Nasdaq, and seven companies that were otherwise traded in the over-the-counter
market.

The level of positions carried in SMM's trading accounts fluctuates
significantly. The securities positions vary substantially depending on the
firm's assessment of economic and market conditions, the allocation of capital
among various stock, client demand, underwriting commitments, and market trading
volume. The aggregate value of inventories that SMM may carry is limited by
certain net capital requirements. See "--Net Capital Requirements."

SMM has established procedures designed to reduce the systematic risks of
its proprietary trading activities. It subjects its trading inventory positions
and profit and loss statements to daily review by senior management of SMM and
by its board of directors monthly. However, these procedures may not prevent all
of these losses, any of which could have a material adverse effect on SMM's
business, financial condition, results of operations or cash flows.

Revenues from SMM's trading activities constituted approximately 40.7% of
SMM's total revenues for 1998 and 28.8% of its total revenues for the first six
months of 1999.

SECURITY CLEARING SERVICES. SMM has contracted with the Pershing Division
of Donaldson, Lufkin & Jenrette Securities Corporation to provide it with
clearing services on a fully disclosed basis. In a fully disclosed clearing
transaction, the identity of SMM's clients is known to the clearing agent, and
the clearing agent performs a variety of services for SMM, including integrated
trade execution, clearing, maintaining custody of certain assets of the
correspondent's clients, financing client margin balances, mailing monthly
statements, and other customized services.

ACCOUNTING, ADMINISTRATION, AND OPERATIONS

SMM's accounting, administration and operations personnel are responsible
for financial controls, internal and external financial reporting, compliance
with regulatory and legal requirements, office and personnel services, SMM's
information and telecommunications systems and processing SMM's securities
transactions. Its operations department managers have worked on average more
than 16 years in the securities industry. SMM expects that its communications
and information systems are sufficient to accommodate its growth in the near
term; however, SMM believes anticipated future growth may require implementation
of new and enhanced communications and information systems and training of
personnel to operate the systems. Any difficulty or significant delay in the
implementation or operation of existing or new systems could adversely affect
SMM's ability to manage growth.

SMM is a member of the Securities Investor Protection Corporation, which
protects customer accounts held by SMM of up to $500,000 each (limited to
$100,000 for claims for cash) in the event of SMM's liquidation. Additionally,
SMM maintains insurance coverage via Pershing in order to insure customer
accounts in excess of Securities Investor Protection coverage up to a total of
$75,000,000 per account.

COMPETITION

The securities industry is intensely competitive. SMM competes directly with
national and regional full-service broker-dealers and a broad range of other
financial service firms. Many of SMM's competitors have substantially greater
capital and financial and other resources, and greater name recognition, than
SMM. In addition, SMM competes for assets with a variety of broker-dealers and
financial entities, including mutual funds, which have enjoyed significant
growth in recent years as many retail investors have sought the diversification
and other perceived benefits available from these investment vehicles.

Competition has intensified as many securities firms have either broadened
their operations or have been acquired by or merged into banks, insurance
companies, and other firms. The mergers and

53
<PAGE>
acquisitions have increased competition from these firms, many of which have
significantly greater equity capital, financial and other resources than SMM.
Many of these firms, because of their significantly greater financial capital
and scope of operations, are able to offer their customers more product
offerings, broader research capabilities, access to international markets and
other products and services not offered by SMM, which may provide such firms
with competitive advantages over SMM. The increasing competition and
consolidation in SMM's principal businesses could strengthen SMM's competitors
and adversely affect SMM's business.

SMM also faces competition from companies offering discount and/or online
brokerage services, including brokerage services provided over the Internet.
These services represent a rapidly expanding segment of the securities industry.
These competitors may have lower costs or provide greater services, and may
offer their customers more favorable commissions, fees or other terms than those
offered by SMM. Commissions charged to customers of discount and electronic
brokerage services have steadily decreased over the past several years, and SMM
expects the decreases to continue. The rapid development of discount and/or
online brokerages and the decrease of commissions at such brokerages may have a
material adverse effect on SMM's business, financial condition, results of
operations or cash flows.

SMM believes that the principal competitive factors in the securities
industry are the quality and ability of professional personnel, the quality of
the service offered as well as the relative prices of services and products
offered. SMM and many of its competitors use direct solicitation of potential
customers as a means of increasing business and furnish investment research in
an effort to help existing and attract potential clients. Many of SMM's
competitors also engage in advertising programs, which SMM does not use to any
significant degree.

SMM believes that its ability to compete for customers depends largely upon
the skill, reputation and experience of its professional staff and the perceived
value of its investments and research. SMM believes that these assets will
continue to prove attractive to that segment of the investment community that
relies on professional guidance.

REGULATION

SMM's business and the securities industry in general are subject to
extensive regulation in at both the federal and state levels, as well as by
self-regulatory organizations.

The SEC is the federal agency primarily responsible for the regulation of
broker-dealers and investment advisers doing business in the United States,
while the Board of Governors of the Federal Reserve System promulgates
regulations applicable to securities credit transactions involving broker-
dealers and other financial institutions. SMM is registered with the SEC as a
broker-dealer. Certain aspects of broker-dealer regulation have been delegated
to securities-industry self regulatory organizations, principally the NASD. The
NASD Regulation, Inc. has been designated by the SEC as SMM's primary regulator.
These self regulatory organizations adopt rules (subject to SEC approval) that
govern the industry, and, along with the SEC, conduct periodic examinations of
SMM's operations. Securities firms are also subject to regulation by state
securities administrators in those states in which they conduct business. SMM is
registered as a broker-dealer in all states (except Maine) and the District of
Columbia.

Broker-dealers are subject to regulations covering all aspects of the
securities industry, including:

- sales practices,

- trade practices among broker-dealers,

- capital requirements,

- the use and safekeeping of customers' funds and securities,

54
<PAGE>
- record-keeping,

- reporting requirements,

- supervisory and organizational procedures intended to ensure compliance
with securities laws, including the prevention of unlawful trading on
material nonpublic information,

- employee-related matters, including qualification and licensing of
supervisory and sales personnel,

- limitations on extensions of credit in securities transactions,

- clearance and settlement procedures,

- requirements for the registration, underwriting, sale and distribution of
securities, and

- compliance with the rules of the self regulatory organizations designed to
promote high standards of commercial honor and just and equitable
principles of trade.

A particular focus of the applicable regulations concerns the relationship
between broker-dealers and their customers. As a result, many aspects of the
relationship between broker-dealers and customers are subject to regulation,
including, in some instances, "suitability" determinations as to certain
customer transactions, limitations on the amounts that may be charged to
customers, timing of proprietary trading in relation to customers' trades and
disclosures to customers.

Under the National Securities Markets Improvement Act of 1996 and the
Investment Advisors Supervision Coordination Act, investment advisors such as
SMM with less than $25 million of investment advisory assets under management,
excluding discretionary accounts and separate partnerships, are regulated by the
securities administrators of the states in which they offer investment advisory
services. SMM is currently registered as an investment advisor in Texas and
Georgia.

SMM also is subject to "Risk Assessment Rules" imposed by the SEC. These
rules require, among other things, that certain broker-dealers maintain and
preserve certain information, describe risk management policies, procedures and
systems and report on the financial condition of certain affiliates whose
financial and securities activities are reasonably likely to have a material
impact on the broker-dealers' financial and operational condition.

Additional legislation, changes in rules promulgated by the SEC, state
regulatory authorities or self regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules may directly affect the
mode of operation and profitability of broker-dealers. The SEC, self regulatory
organizations and state regulatory authorities may conduct administrative
proceedings, which can result in censure, fines, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer, its
officers or employees. The principal purpose of regulating and disciplining
broker-dealers is the protection of customers and the securities markets, rather
than the protection of creditors and shareholders of broker-dealers.

As a registered broker-dealer, SMM is required to establish and maintain a
system to supervise the activities of its retail brokers and other securities
professionals. The supervisory system must be reasonably designed to achieve
compliance with applicable securities laws and regulations, as well as self
regulatory organization rules. The self regulatory organizations have
established minimum requirements for such supervisory systems; however, each
broker-dealer must establish procedures that are appropriate for the nature of
its business operations. Failure to establish and maintain an adequate
supervisory system may result in sanctions imposed by the SEC or a self
regulatory organization that could limit SMM's ability to conduct its securities
business. Moreover, under federal law, and certain state securities laws, SMM
may be held liable for damages resulting from the unauthorized conduct of its
registered personnel to the extent that SMM has failed to establish and maintain
an appropriate supervisory system.

55
<PAGE>
As part of its regular examination cycle, NASD Regulation inspected SMM in
August 1999. Following this inspection, various issues primarily regarding
supervisory procedure documentation, recordkeeping requirements, and supervision
relating to such requirements and procedures were brought to SMM's attention.
The NASD Regulation has not informed SMM if it will refer any of the identified
issues to its enforcement divisions for further consideration. Although SMM
believes that there are defenses in connection with these issues, the NASD
Regulation could commence enforcement proceedings with respect to one or more of
the issues. If one or more enforcement proceedings were commenced and one or
more proceedings were to result in a determination that SMM or its employees,
including executives with ultimate supervisory responsibility, violated or
failed to enforce securities rules or regulations, sanctions for the violations
could range from a letter of caution or censure, to financial costs and
penalties or various limitations on firm or employee activity, including
individual suspensions. These sanctions, including suspensions of SMM's
employees or executives, could have a material adverse effect on SMM's business,
financial condition, results of operations or cash flows. SMM has undergone NASD
Regulation inspections in prior years and has not had an enforcement proceeding
commenced with respect to any issues raised in previous inspections.

NET CAPITAL REQUIREMENTS

As a registered broker-dealer, SMM is subject to the net capital requirement
of Rule 15c3-1 under the Exchange Act. These net capital requirements, which
specify minimum net capital for registered brokers and dealers, are designed to
measure the general financial integrity and liquidity of a broker-dealer and
require that at least a minimum part of its assets be kept in relatively liquid
form.

Net capital is generally defined as net worth (assets minus liabilities, as
determined under generally accepted accounting principals), plus qualifying
subordinated borrowings, less the value of all of a broker-dealer's assets that
are not readily convertible into cash (such as goodwill, furniture, prepaid
expenses, exchange seats and unsecured receivables), and further reduced by
certain percentages of the market value of a firm's securities to reflect the
possibility of a market decline prior to disposition.

SMM is required to maintain minimum net capital, as defined in the net
capital requirements of the Exchange Act, equal to the greater of $250,000 or
6 2/3% of aggregate indebtedness. Aggregate indebtedness is defined as the total
money liabilities of a broker or dealer arising in any transaction excluding
certain specified liabilities (including indebtedness adequately collateralized
by securities which are carried long or by securities which collateralize a
secured demand note and fixed liabilities adequately secured by assets acquired
for use in the ordinary course of business). Failure to maintain the required
net capital may subject a firm to suspension or revocation of registration by
the SEC and suspension or expulsion by other regulatory bodies, and ultimately
may require its liquidation. Further, a decline in a broker-dealer's net capital
below certain "early warning levels," even though above minimum capital
requirements, could cause material adverse consequences to the broker-dealer.
For example, the net capital requirements prohibit payments of dividends,
redemption of stock, the prepayment of subordinated indebtedness and payments in
respect of subordinated indebtedness principal if thereafter net capital would
be less than 6 2/3% of aggregate indebtedness.

The SEC's net capital requirements also:

- require that broker-dealers notify it, in writing, two business days
before making withdrawals or other distributions of equity capital or
lending money to certain related persons if such withdrawals would exceed,
in any 30-day period, 30% of the broker-dealer's excess net capital and
that they provide such notice within two business days after any such
withdrawal or loan that would exceed, in any 30-day period, 20% of the
broker-dealer's excess net capital.

- prohibit a broker-dealer from withdrawing or otherwise distributing equity
capital or making related-party loans if after the distribution or loan
the broker-dealer has net capital of less than $300,000 or 6 2/3% of
aggregate indebtedness and certain other circumstances.

56
<PAGE>
- provide that the SEC may, by order, prohibit withdrawals of capital from a
broker-dealer for a period of up to 20 business days if the withdrawals
would exceed, in any 30-day period, 30% of the broker-dealer's excess net
capital and the SEC believes the withdrawals would be detrimental to the
financial integrity of the firm or would unduly jeopardize the
broker-dealer's ability to pay its customer claims or other liabilities.

Compliance with the SEC's net capital requirements could limit those
operations of SMM that require the intensive use of capital, such as
underwriting and trading activities, and also could restrict SMM's ability to
withdraw capital, which, in turn, could limit SMM's ability to pay dividends,
and redeem or purchase shares of its outstanding common stock.

SMM has been in compliance at all times with the net capital requirements.
As of September 30, 1999, SMM was required to maintain minimum net capital of
$250,000 and had total net capital of approximately $7.5 million, or
approximately $7.25 million in excess of its minimum net capital requirement. In
the past, when SMM has required additional net capital in order to participate
as an underwriter in a securities offering, one or more of its shareholders have
extended a temporary subordinated loan to SMM in order to meet the required net
capital requirements. No such subordinated loans have been required during 1999.

EMPLOYEES

As of September 30, 1998, SMM had 109 full-time and part-time employees, of
whom 39 were employed as registered salespersons serving individual and
institutional customers, 14 were employed as securities analysts, and 18 were
professionals in SMM's corporate finance department. At that date, SMM held more
than 9,000 active accounts. None of SMM's employees are covered by a collective
bargaining arrangement. SMM believes that relations with its employees are good.

57
<PAGE>
SMM SELECTED FINANCIAL DATA

The selected financial data for SMM for the fiscal years 1994 to 1998 have
been derived from and should be read with the SMM audited consolidated financial
statements and their notes. SMM audited consolidated financial statements as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998 are included elsewhere in this document.

The selected financial data as of and for the six months ended June 30, 1999
have been derived from SMM unaudited consolidated financial statements that, in
the opinion of SMM management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The interim
results set forth below for the six months ended June 30, 1999 may not be
indicative of results for the full year.

The consolidated financial data should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results in
Operations", and the consolidated financial statements and their notes.

SANDERS MORRIS MUNDY, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
Revenues:
Underwriting....................................... $ 5,197 $4,428 $ 6,939 $ 9,482 $11,835 $ 8,658 $ 9,009
Commissions........................................ 3,225 3,919 5,257 7,640 9,130 3,984 4,967
Trading gains, net................................. 2,203 1,544 3,154 3,623 16,990 10,537 6,417
Management and advisory fees from limited
partnerships..................................... -- -- 190 760 1,546 380 1,519
Equity in earnings of limited partnerships......... -- -- 383 2,159 1,693 1,940 34
Other.............................................. 13 14 760 1,264 555 324 310
-------- ------ ------- ------- ------- ------- -------
Total revenues................................... 10,638 9,905 16,683 24,928 41,749 25,823 22,256
-------- ------ ------- ------- ------- ------- -------
Expenses:
Employee compensation and benefits................. 5,523 5,212 8,849 12,215 23,144 15,092 12,543
Clearing and execution fees........................ 766 860 1,139 1,789 1,953 918 958
Other.............................................. 2,840 2,949 2,948 4,423 5,917 3,014 3,253
-------- ------ ------- ------- ------- ------- -------
Total expenses................................... 9,129 9,021 12,936 18,427 31,014 19,024 16,754
-------- ------ ------- ------- ------- ------- -------
Income before cumulative effect of a change in
accounting principle and minority interests........ 1,509 884 3,747 6,501 10,735 6,799 5,502
Cumulative effect of a change in accounting
principle.......................................... -- -- -- -- (285) -- --
Minority interests................................... -- -- 82 699 429 485 34
-------- ------ ------- ------- ------- ------- -------
Net income........................................... $ 1,509 $ 884 $ 3,665 $ 5,802 $10,021 $ 6,314 $ 5,468
======== ====== ======= ======= ======= ======= =======
Earnings per share--basic and diluted................ $ 23.66 $15.12 $ 60.32 $ 95.36 $167.24 $105.30 $ 90.80
======== ====== ======= ======= ======= ======= =======
Weighted average shares--basic and diluted........... 64 59 61 61 60 60 60
======== ====== ======= ======= ======= ======= =======
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATA
Assets:
Cash & cash equivalents............................ $ 2,129 $3,163 $ 4,737 $ 5,249 $ 8,814 $ 6,741 $ 9,467
Securities owned:
Marketable....................................... 1,705 517 1,364 1,881 3,566 5,460 3,650
Not readily marketable........................... 174 340 474 3,168 9,912 10,673 9,525
Other.............................................. 667 1,504 2,397 3,591 3,407 4,134 4,942
-------- ------ ------- ------- ------- ------- -------
Total assets..................................... $ 4,675 $5,524 $ 8,972 $13,889 $25,699 $27,008 $27,584
======== ====== ======= ======= ======= ======= =======
Liabilities.......................................... $ 1,765 $1,730 $ 1,458 $ 2,105 $ 5,848 $10,802 $ 9,049
Minority interests................................... -- -- 92 740 1,086 1,191 1,090
Stockholders' equity................................. 2,910 3,794 7,422 11,044 18,765 15,015 17,445
-------- ------ ------- ------- ------- ------- -------
Total liabilities, minority interests, and
stockholders' equity........................... $ 4,675 $5,524 $ 8,972 $13,889 $25,699 $27,008 $27,584
======== ====== ======= ======= ======= ======= =======
</TABLE>

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<PAGE>
SMM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TAX STATUS

SMM has elected to be treated as a S corporation for federal income tax
purposes. Accordingly, SMM's shareholders are individually responsible for
reporting for federal income tax purposes their appropriate share of SMM's
taxable income. Consequently, no provision for federal income taxes is included
in SMM's financial statements.

COMPONENTS OF REVENUES AND EXPENSES

REVENUES. Total revenues consist primarily of underwriting revenue,
commissions, net trading gains and losses, management and advisory fees,
interest income, equity in earnings of limited partnerships, and other income
including corporate finance fees. Revenue from underwriting and corporate
finance is substantially dependent on the market climate for public and private
offerings of equity and debt securities in the sectors in which SMM focuses its
efforts. Commission income is dependent on Nasdaq trading volume and spreads on
the securities of such companies. Net trading and investment gains or losses are
dependent on the market performance of securities held, the decisions of
management as to the long or short position as well as the dollar exposure in
these securities. Accordingly, SMM's revenues have fluctuated, and are likely to
continue to fluctuate, based on these factors.

Underwriting revenue includes net underwriting gain or loss, selling
concessions, placement agent fees, management fees, and other reimbursed
expenses (net of syndicate expenses) associated with securities offerings in
which SMM acts as an underwriter or placement agent. Underwriting activities
include both public offerings and private placements. SMM acts in varying
capacities in underwriting activities, which based on the underlying economics
of each transaction, determines its ultimate revenues from these activities and
if a transaction results in a profit or loss. Corporate finance revenues consist
of merger and acquisition and other corporate finance advisory fees. Corporate
finance fees have fluctuated, and are likely to continue to fluctuate, based on
the number and size of transactions completed by SMM.

SMM's investment banking and corporate finance activities consist of a broad
range of activities, including public and private transactions encompassing a
wide variety of securities and financial advisory services in merger,
acquisition and strategic partnering transactions. During 1998, SMM co-managed
eight public offerings that raised over $484 million and acted as placement
agent in six private placements raising $32.3 million excluding the investment
partnerships sponsored by SMM. During 1998, SMM completed or was advisor on 23
investment banking or corporate finance transactions. These assignments
represented more than $300 million in merger and acquisition and other advisory
transactions. SMM increased the number of personnel in its investment banking
and research departments in order to increase its focus on a number of industry
sectors that SMM believes offer favorable opportunities for it to gain market
share, as well as reduce concentrated exposure to cyclical declines in sectors
in which SMM operates.

Commission income consists of a portion of dealer spreads attributed to
SMM's securities trading activities as principal in Nasdaq-listed and other
over-the-counter securities, and is primarily derived from SMM's activities as a
market-maker. Commissions revenue also includes revenue from executing stock
exchange-listed securities and over-the-counter transactions as agent.

Trading gains or losses are combined and reported on a net basis. Gains and
losses result primarily from market price fluctuations that occur while holding
positions in SMM's trading security inventory, from changes in values of
warrants owned in connection with its key executive plan and the level of sales
credits. SMM realized significant trading gains in 1998 and 1999 from the sale
of all or a portion

59
<PAGE>
of its investments in Knight/Trimark Group, Inc. and Earthcare Company. Other
than its remaining position in Earthcare Company, which will be distributed to
the SMM shareholders before the merger closes, SMM does not hold any investments
at this time that it currently expects will result in gains similar to those
realized in these two investments.

SMM receives management and advisory fees in its capacity as the investment
manager to advisory clients and as a member of the general partner of investment
partnerships comprising three private equity funds. These fees are typically a
percentage of the assets from time to time under management. It also receives
incentive compensation in some cases. Incentive income will fluctuate with the
valuations of securities held by these partnerships. Equity in earnings of
limited partnerships includes investment increases and decreases in the value of
SMM's interest in the investment partnerships managed by SMM. The first two
investment funds invested primarily in the securities of companies engaged in
the environmental services and related products sectors and are subject to risks
associated with these sectors.

In each of the partnerships the general partner has a 1% general partner's
interest. After limited partners have received a return of their capital plus a
stated rate of return, distributions are allocated 50% to the limited partners
and 50% to the general partner until the general partner has received a
cumulative distribution equal to 20% of all distributions, then distributions
are allocated 80% to the limited partners and 20% to the general partner. SMM
has agreed to allocate to the managers of the investment partnerships and
employees designated by such managers from 40% to 45% of its interest in the 20%
distributions of the partnerships. SMM owns a 75% interest in the general
partner of the first fund and 100% of the general partner of the second and
third funds.

EXPENSES. Compensation and benefits expense includes base salaries as well
as commissions paid to sales personnel, incentive compensation paid to trading,
underwriting, and corporate finance professionals and to executive management
and profit-sharing for other employees. Incentive compensation varies primarily
based on profitability and revenue production. Incentive compensation related to
investment partnerships is accrued but not paid until SMM receives cash
distributions from the partnerships. Salaries, payroll taxes and employee
benefits are relatively fixed in nature. In 1991, SMM established an age-related
profit sharing plan for its employees, which permits SMM to make discretionary
contributions. SMM recorded a compensation expense of $440,168 in 1998 related
to this plan. In 1992, SMM established a Key Executive Plan under which the
executive officers and certain other key employees are eligible to participate
in a pool of warrants that SMM received in various capital raising and corporate
finance transactions (see--"Warrants"). In 1998, SMM recorded compensation
expense of approximately $9 million in connection with the increase in realized
and unrealized appreciation of warrants held by this plan. As part of the
merger, this plan will be suspended and no additional warrants will be
contributed to it. Warrants that are received after the merger in connection
with capital rasing and corporate finance transactions will be owned by Sanders
Morris Harris and any gains realized on the exercise of such warrants will
accrue to it not to specific executives. Gains on these warrants may not be
realized in the future.

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<PAGE>
RESULTS OF OPERATIONS

The following table sets forth revenues and expenses as a percentage of
revenues for the periods presented:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Underwriting..................................... 41.6% 38.0% 28.3% 33.5% 40.5%
Commissions...................................... 31.5% 30.6% 21.9% 15.4% 22.3%
Trading gains, net............................... 18.9% 14.5% 40.7% 40.8% 28.8%
Management and advisory fees from limited
partnerships................................... 1.1% 3.1% 3.7% 1.5% 6.8%
Equity in earnings of limited partnerships....... 2.3% 8.7% 4.1% 7.5% 0.2%
Other............................................ 4.6% 5.1% 1.3% 1.3% 1.4%
----- ----- ----- ----- -----
Total revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%

Expenses:
Employee compensation and benefits............... 53.0% 49.0% 55.4% 58.4% 56.4%
Clearing and execution fees...................... 6.8% 7.2% 4.7% 3.6% 4.3%
Other (1)........................................ 17.7% 17.7% 14.2% 11.7% 14.6%
----- ----- ----- ----- -----
Total Expenses............................. 77.5% 73.9% 74.3% 73.7% 75.3%
----- ----- ----- ----- -----
Income before cumulative effect of a change in
accounting principle and minority interests.... 22.5% 26.1% 25.7% 26.3% 24.7%
</TABLE>

- ------------------------

(1) Includes business development and sales support, professional services,
reserves for uncollectible accounts, occupancy and equipment, information
services, and other expenses.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998

Total revenues decreased 13.8% from $25.8 million in the first six months of
1998 to $22.3 million for the same period in 1999 due to increases in
underwriting commissions and management and advisory fees that were offset by
decreases in equity earnings of limited partnerships and trading gains.

Net trading gains decreased 39.1% from $10.5 million for the six months
ended June 30, 1998 to $6.4 million in 1999. The decrease was the result of
realization of lower gains on the exercise of warrants held by the Key Executive
Plan and the sale of the underwriting securities in the first six months of 1999
as compared to 1998. Underwriting revenue increased 4.1% from $8.65 million in
1998 to $9.0 million in 1999. Commission income increased 24.7% from
$4.0 million in the first six months of 1998 to $5.0 million in 1999 due to
increases in individual and institutional sales. Management and advisory fees
from limited partnerships increased 300% to $1.5 million from $380,000 in 1997.
This increase is attributable to the establishment of two new limited
partnerships in the second half of 1998. Equity in earnings of limited
partnerships decreased 98.2% from $1.9 million in 1997 to $34,000 in 1998. This
decline is the result of a decrease in unrealized appreciation in investments
held by limited partnerships.

Total expenses decreased 11.9% from $19.0 million in first six months of
1998 to $16.7 million in 1999 due primarily to a decrease in realization and
payment of deferred compensation under the Key Executive Plan.

Compensation and benefits expense decreased 16.9% from $15.1 million in the
first six months of 1998 to $12.5 million in 1999. The decrease was due
primarily to lower payments of deferred

61
<PAGE>
compensation under the Key Executive Plan. Average employee headcount increased
to 105 for the first six months of 1999 compared to 86 in 1999.

Clearing and execution fees increased 4.2% from $918,000 in the first six
months of 1998 to $958,000 in 1999 reflecting higher trading activities.

Other operating expenses increased 7.9% from $3.0 million in 1998 to
$3.3 million in 1999. This increase is primarily due to increased occupancy
expenses resulting from the opening of offices in Denver and Chicago and
increased information services expense.

Net income decreased 13.4% from $6.3 million for the first six months of
1998 compared to $5.5 million for 1999. This increase is attributable to a
similar decrease in revenues.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Total revenues increased 67.5% from $24.9 million in 1997 to $41.7 million
in 1998 due to increased trading gains, underwriting and corporate finance,
commission income, and management and advisory fees offset by a decrease in
equity earnings of limited partnerships.

Net trading gains increased 368.9% from $3.6 million in 1997 to
$16.9 million in 1998 due primarily to the realization of gains by SMM of
approximately $1.3 million from the sale of shares in Knight/Trimark
Group, Inc. and $1.6 million from the sale of shares in Earthcare Company and
realized and unrealized gains in connection with warrants held by the Key
Executive Plan of approximately $9.0 million. Underwriting revenue increased
24.2% from $9.5 million in 1997 to $11.8 million in 1998. This increase in
revenue was caused primarily by the increase in the number and size of public
and private placements and syndicate activities of SMM in 1998. Commission
income increased 19.5% from $7.6 million in 1997 to $9.1 million in 1998 through
higher production by a larger staff of individual and institutional sales
representatives. Management and advisory fees increased 103.4% from $760,000 in
1997 to $1.5 million in 1998 as SMM established two additional investment
partnerships in 1998. Equity in earnings of affiliated companies decreased 21.6%
from $2.2 million in 1997 to $1.7 million in 1998. The decrease resulted from a
decline in the value of investments held by investment partnerships.

Total expenses increased 68.3% from $18.4 million in 1997 to $31.0 million
in 1998 largely as a result of increases in sales compensation, employee
salaries, and benefits expense.

Compensation and benefits expense increased 89.5% from $12.2 million in 1997
to $23.1 million in 1998. The increase was due primarily to (1) the unrealized
and realized gains on warrants held in the Key Executive Plan, the sale of the
securities underlying such warrants, and the distribution of the proceeds of
such sales of approximately $9.0 million and (2) incentive compensation paid to
the managers of certain of SMM's limited partnerships of approximately
$1.0 million. In addition, employee headcount increased. Average employee
headcount was 74 in 1997 compared to 94 in 1998. The increases were concentrated
in revenue producers and support staff directly related to such individuals.

Clearing and execution fees increased 9.2% from $1.8 million in 1997 to
$2.0 million in 1998 due to the increase in sales and trading activities.

Other expenses increased 36.4% from $4.4 million in 1998 to $6.0 million in
1999. This increase reflected (1) increased occupancy and equipment expense due
to expanded office space, rent escalations, and higher depreciation expense,
(2) increased information services expense, due primarily to greater
telecommunications expenses from the additional employees and enhancement of
network technology, and (3) increases in provisions for uncollectible notes and
accounts receivable and arbitration and litigation costs.

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Net income increased 72.7% from $5.8 million in 1997 to $10.0 million in
1998. This increase was primarily due to the significant increase in net trading
gains discussed above and gains in revenues that were greater than the expense
increases.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996

Total revenues increased 49.4% from $16.7 million in 1996 to $24.9 million
in 1997 due to increases in trading and investment gains, underwriting and
corporate finance, commission income, management fees, and equity in earnings of
limited partnerships.

Net trading gains rose 14.9% from $3.2 million in 1996 to $3.6 million in
1997 driven by increases in the number and volume of trades executed by SMM.
Underwriting revenue increased 36.6% from $6.9 million in 1996 to $9.5 million
in 1997, as a result of the growth in the size and number of private and public
offerings in which SMM participated in 1997 compared to 1996. Commission income
increased 45.3% from $5.3 million in 1996 to $7.6 million in 1997 due primarily
to the inclusion for a full year of the institutional sales staff added in
October 1996 when SMM acquired Williams MacKay Jordan & Co., Inc. Management and
advisory fees increased 300% from $190,000 in 1996 to $760,000 as a result of
the inclusion of fees earned from the Environmental Opportunities Fund for a
full year as compared to three months in 1996. Equity in earnings of limited
partnerships increased from $32,000 in 1996 to $2.6 million in 1998 due to the
increase in the value of investments held by investment partnerships managed by
SMM.

Total expenses increased 34.7% from $12.9 million in 1996 to $18.4 million
in 1998. Higher compensation and benefits expense and occupancy and equipment
expense were the main factors in this increase.

Compensation and benefits expense increased 38.0% from $8.8 million in 1996
to $12.2 million in 1997. The increase was the result of the payment of deferred
compensation under the Key Incentive Plan and an increase in staff. Average
employee headcount was 74 in 1997 compared to 46 in 1996.

Clearing and execution fees increased 57.1% from $1.1 million in 1996 to
$1.8 million in 1997 reflecting the increase in sales and trading activities.

Other expenses increased 49.4% from $2.9 million in 1998 to $4.4 million in
1999. This increase was due to (1) increased occupancy and equipment expense due
to expansion of the Houston and New York offices and an increase in depreciation
expense due to acquisitions of computer and telecommunications equipment,
(2) increased information services expense from the greater number of employees
and expansion of facilities and enhancement of network technology, and
(3) increased expenses associated with the acquisition of Williams MacKay
Jordan & Co., Inc.

Net income increased 58.3% from $3.7 million in 1996 to $5.8 million in
1997, primarily as a result of increases in the value of investments held by
investment partnerships managed by SMM.

LIQUIDITY AND CAPITAL RESOURCES

SMM has historically satisfied its liquidity and regulatory capital needs
through three primary sources: (1) internally generated funds; (2) equity
capital; and (3) credit provided by SMM's clearing broker and that broker's
affiliates. SMM has from time to time used, and may continue to use, temporary
subordinated loans to meet the regulatory capital requirements to support its
underwriting activities. SMM has no material long-term debt.

SMM's principal assets consist of cash and cash equivalents, receivables
from other broker-dealers, including its clearing broker, securities held for
trading purposes and long-term investments. Long-term investments consist
primarily of investments in limited partnerships in which SMM serves as managing
partner, available-for-sale securities, and equity investments in privately held
companies. Although the

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investments in limited partnerships are for the most part illiquid, the
underlying investments of such partnerships are mostly in publicly traded,
liquid equity and debt securities.

As of June 30, 1999, SMM had liquid assets consisting primarily of cash and
cash equivalents of $9.5 million. Cash equivalents consist primarily of money
market funds. SMM also held $3.7 million in marketable securities in its trading
accounts.

SMM, as a broker-dealer, is registered with the SEC and is a member of the
NASD. As such, it is subject to the minimum net capital requirements established
by the SEC. SMM's regulatory net capital has historically exceeded these minimum
requirements. As of June 30, 1999, SMM was required to maintain minimum
regulatory net capital of $250,000 and had total regulatory net capital of
$7.5 million which exceeded its minimum requirement by $7.25 million.

Regulatory net capital requirements increase when SMM is involved in
underwriting activities, as they are based upon a percentage of the amount
underwritten. On occasion SMM has required additional net capital in order to
participate as an underwriter in a securities offering. In these cases, one or
more of SMM's shareholders have extended a temporary subordinated loan to SMM in
order to meet the required net capital requirements. SMM did not have any
subordinated loans outstanding to affiliates as of June 30, 1999, and did not
require any such subordinated loans during 1999.

SMM management believes its current level of equity capital, enhanced by
funds anticipated to be generated from operations, are adequate to meet its
liquidity needs and regulatory capital requirements associated with its
broker-dealer activities.

WARRANTS

In certain capital raising transactions, SMM received and holds warrants for
stock of the issuing corporation generally exercisable at the corporation's
offering price. In 1992, SMM established the Key Executive Plan as an incentive
for certain of its employees and transferred certain of the warrants that it
held to this plan. At the end of each year SMM transfers to the plan warrants
that it received during the year. The warrants are allocated to key employees as
additional incentive compensation. At December 31, 1998, the warrants held by
the plan were valued at approximately $3 million. The value of the warrants is
carried as an asset with any increases or decreases in the value of the warrant
recorded as trading gains. Upon the exercise of a warrant and the sale of the
underlying securities, SMM realizes a trading gain that is offset by
compensation expense in an equal amount.

MARKET AND BUSINESS RISK

GENERAL. The equity, and to a lesser extent, debt markets affect SMM's
business. Periods of high or low stock prices or volumes are beyond its control
and largely impossible to predict. SMM is constantly in conversation with
existing or prospective investment banking clients concerning possible capital
raising transactions. However, given the uncertainties involved in completing
such transactions, SMM is unable to predict when or whether any such
transactions will be successfully completed. Market, economic, interest rate,
and other exogent factors will affect the feasibility of these transactions.

SMM monitors its market and counter-party exposure on a daily basis through
control procedures designed to identify and evaluate the various risks entailed.
SMM has designated individuals and committees to review and manage, among other
things, the business and transactional risks associated with actual or potential
positions, clients, and transactions. SMM seeks to control the risks associated
with its investment banking activities by review and approval of transactions by
the relevant committee, before accepting an engagement or pursuing a material
investment transaction.

SMM's primary risk exposure is to equity and, and to a lesser degree, debt
price changes and the resulting impact on SMM's marketable trading and long-term
investments. Direct market risk exposure

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to changes in foreign exchange rates is not material. Equity and debt price risk
is managed primarily through the daily monitoring of capital commitments. SMM
has business risk exposure to changes in overall market volume and sentiment.

TRADING SECURITIES. At June 30, 1999, the fair value of SMM's trading
securities was $1.3 million in long positions and $184,000 in short positions.
The net potential loss in fair value at June 30, 1999, using a 10% hypothetical
decline in reported value of long positions (offset by a 10% hypothetical
increase in reported value of short positions) is $112,000.

LONG-TERM INVESTMENTS. SMM's long-term investments consist of investments
in investment partnerships that are managed by SMM, direct debt and equity
investments in privately held companies, and direct equity securities of public
companies, some restricted as to sale.

A majority of the underlying assets of the proprietary investment
partnerships are equity securities of domestic, publicly traded companies and
private companies. These underlying investments are marked to market and SMM
records its proportionate share of gains and losses. To the extent the
underlying investments of the investment partnerships and direct investments of
SMM are not readily marketable securities, they are valued at estimated fair
values.

As of June 30, 1999, the recorded value of SMM's long-term investment
securities (including the value of its investments in limited partnerships) was
$6.6 million. The net potential loss in fair value, using a 10% hypothetical
decline in reported value, is $660,000.

MATTERS RELATED TO YEAR 2000

The following year 2000 discussion is a "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Disclosure Act.

SMM uses certain software and related information technologies that may be
affected by the date change in the year 2000. SMM is also heavily reliant on
certain third parties for critical information processing, particularly its
clearing broker, Pershing Division of Donaldson Lufkin & Jenrette Securities
Corporation. Additionally, SMM relies on certain non-information technology
systems such as communications and building operations systems that could also
be affected by the date change. The failure of these non-information technology
systems could interrupt or shut down business operations for some period of
time.

The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. When the century date
change occurs, certain date-sensitive systems may recognize the year 2000 as
1900, or not at all. This inability to recognize or properly treat the year 2000
may result in a systems failure or cause systems to process critical financial
and operational information incorrectly.

SMM has assessed and continues to assess the level of the year 2000
readiness of its internal information technology systems, those of vendors on
which it places significant reliance and its non-information technology systems.
The year 2000 plan being followed by SMM contains four phases:

- Phase I--inventorying and prioritization of in-house and third party
information technology and non-information technology systems.

- Phase II--diagnostic assessment of critical information technology and
non-information technology systems for year 2000 compliance.

- Phase III--implementation and testing of solutions, including necessary
repair work, modifications, and replacements to system software and
hardware.

- Phase IV--execution of the contingency plan created during phases one
through three for those areas where residual risk is identified.

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SMM has substantially completed all phases of its year 2000 plan. The total
cost associated with SMM's year 2000 plan is not expected to be material to
SMM's financial position.

SMM has inquired of and obtained certain information regarding Pershing's
year 2000 plans and state of readiness. Pershing has indicated that (1) it has
established a task force to review and develop an action plan to address the
year 2000 issue, (2) its action plan addresses both information and
non-information technology issues, and (3) it believes that the activities that
it is undertaking should satisfactorily resolve year 2000 compliance exposure
within its own worldwide systems. Pershing has also indicated that it actively
participates in various industry wide testing of critical systems used to
interface with third party clients and service providers.

Pershing and SMM rely heavily on various third party systems or services to
conduct business, including Nasdaq Stock Market, Inc., New York Stock
Exchange, Inc. and regional and national telecommunications and market data
services providers. SMM is presently monitoring the progress of these and other
entities' year 2000 compliance. Due diligence that SMM has and is continuing to
perform to evaluate the readiness of key third party vendors includes point to
point testing with mission critical vendors, such as Nasdaq, Instinet, and
Bloomberg, conducting interviews with key third party vendors and analysis of
compliance letters received from third party vendors. To date SMM has not
encountered a vendor that does not expect to be fully compliant by the end of
the year. In addition, SMM intends to continue monitoring the progress of its
third party vendors through a combination of the following activities: reviewing
status updates whenever provided by third party vendors, performing additional
point to point testing when third party vendors provide this capability, and
reviewing results from the Securities Industries Association testing when made
available.

To mitigate material risks due to failure resulting from year 2000 issues,
SMM has prepared contingency plans for its mission critical systems. The failure
of Pershing or other critical service providers to satisfactorily address the
year 2000 issue, or the failure of SMM's contingency plans to mitigate any year
2000 failures, such as SMM's inability to submit trade orders timely and
Pershing's inability to clear SMM's trades, could have a material adverse effect
on SMM's operations, liquidity and financial condition.

The actual year 2000 related costs may differ materially from SMM's current
expectations. Specific factors that might cause such material differences
include, SMM's success in identifying all systems and programs that are not year
2000 ready; the success of SMM's business partners, vendors, and clients in
addressing the year 2000 issue; and SMM's ability to successfully implement
contingency plans, if required, and similar uncertainties.

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OUR MANAGEMENT AFTER THE MERGER

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

This table sets forth information about our directors and executive officers
upon completion of the Merger (ages as of October 25, 1999):

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS CLASS
- ---- -------- ----------------------------------------- ---------
<S> <C> <C> <C>
Titus H. Harris, Jr....................... 68 Chairman of the Board, Director Class III
Robert E. Garrison II(1).................. 57 President, Chief Executive Officer, Class III
Director
Don A. Sanders............................ 63 Vice-Chairman, Director Class I
Donald R. Campbell........................ 59 Vice-Chairman, Director Class III
Ben T. Morris(1).......................... 53 President, Chief Executive Officer of Class II
Sanders Morris Harris, Director
George L. Ball............................ 61 Chairman of the Board of Sanders Morris Class III
Harris, Director
Stephen M. Reckling....................... 37 Chairman and Chief Executive Officer of Class I
Pinnacle Management & Trust
Peter M. Badger(3)........................ 52 President and Chief Executive Officer of Class III
Spires, Director
Richard C. Webb........................... 66 Executive Vice-President of Sanders Class I
Morris Harris, Director
Sean Dobson............................... 30 Executive Vice President of Spires, Class I
Director
Edward C. Hutcheson, Jr................... 54 Chief Operating Officer
Tony Coelho(3)............................ 56 Director Class II
W. Blair Waltrip(1)(2).................... 44 Director Class II
James H. Greer(2)(3)...................... 72 Director Class II
John H. Styles............................ 64 Director Class I
T. Craig Benson(2)........................ 37 Director Class II
</TABLE>

- ------------------------

(1) Member of Executive Committee

(2) Member of Compensation Committee

(3) Member of Audit Committee

TITUS H. HARRIS, JR. has served as our Chairman of the Board since
January 1999. Mr. Harris co-founded Harris Webb & Garrison in February 1994 and
will be appointed as Executive Vice President and as a director of Sanders
Morris Harris when the merger closes. He also serves as a director of Pinnacle
Management & Trust, our wholly owned subsidiary. From September 1991 to
February 1994, he served as a registered representative at S.G. Cowen. Before
then, Mr. Harris served as Senior Vice President of Lovett Underwood Neuhaus &
Webb, (a division of Kemper Securities Group, Inc.) from January 1983 to
August 1991, and as Regional Sales Manager for the Houston-office of E.F. Hutton
and Co., Inc. from January 1978 to December 1982. Mr. Harris has over 40 years
experience in the securities industry.

ROBERT E. GARRISON II has served as our President, Chief Executive Officer
and a director since January 1999. Mr. Garrison co-founded Harris Webb &
Garrison and will be appointed a director of Sanders Morris Harris when the
merger closes. He also serves as a director of Pinnacle Management & Trust,
which he co-founded in 1994 and served as Chairman and Chief Executive Officer
through January 1999. Mr. Garrison serves as Chairman and a director of BioCyte,
and as a director of HWG Capital, L.L.C., both of which are affiliates of
Pinnacle Capital, Inc., our wholly owned subsidiary. From 1990 to 1991,
Mr. Garrison served as President and Chief Executive Officer of Medical Center
Bank &

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Trust Company. Before then he served as managing partner of the Lovett firm from
1983 to 1987, and Director of Research for Underwood Neuhaus and Co. from 1971
to 1982. Mr. Garrison serves as a director of FirstCity Financial Corp., a
public diversified financial services company, and Intelect
Communications, Inc., a public telecommunications equipment company. He has over
34 years experience in the securities industry. Mr. Garrison is a Chartered
Financial Analyst.

DON A. SANDERS will be appointed as our Vice-Chairman and a director when
the merger closes. He currently serves as Chairman of the Executive Committee
and a director of SMM, which he co-founded in 1987. From 1987 to 1996,
Mr. Sanders was President of SMM. Before joining SMM, he was employed by E.F.
Hutton & Co., Inc. where he served from 1959 in various executive capacities,
including as an Executive Vice President of E.F. Hutton from 1982 to 1987. He
also was a member of E.F. Hutton's board of directors from 1983 to 1987.
Mr. Sanders has over 40 years experience in the securities industry.

DONALD R. CAMPBELL has served as our Vice Chairman and a director since
January 1999. He will be appointed a director of Sanders Morris Harris when the
merger closes. Mr. Campbell has been President and Chief Operating Officer of
TEI since 1991, a director of TEI since September 1990, and Chief Executive
Officer since April 1994. Previously, he served in various executive capacities
for TEI, including Chief Financial Officer.

BEN T. MORRIS will be appointed a director and a member of our Executive
Committee when the merger closes. He will also become a director of each of our
other financial services subsidiaries. Mr. Morris will be appointed President
and Chief Executive Officer of Sanders Morris Harris on closing of the merger.
He currently serves as President, Chief Executive Officer, and a director of
SMM, which he co-founded. Mr. Morris served as the Chief Operating Officer of
Tatham Corporation from 1980 to 1984. Before then, he served in a number of
executive positions with Mid-American Oil and Gas, Inc. and predecessor
companies from 1973 to 1980, and was its President from 1979 to 1980. From 1967
to 1973, Mr. Morris was employed by what is now PricewaterhouseCoopers LLP, last
serving as audit manager. He is a director of Capital Title Group, Inc., a
public title agency and escrow services company. Mr. Morris is a certified
public accountant.

GEORGE L. BALL will be appointed a director when the merger closes. He will
also be appointed Chairman of the Board of Sanders Morris Harris and become a
director of each of our financial services subsidiaries. Mr. Ball currently
serves as Chairman of the Board and a director of SMM. He has been a director of
SMM since May 1992, and was non-executive Chairman of the Board from May 1992 to
July 1997. From September 1992 to January 1994, Mr. Ball was a Senior Executive
Vice President of Smith Barney Shearson Inc. From September 1991 to
September 1992, he was a consultant to J. & W. Seligman & Co. Incorporated. In
1982, Mr. Ball was elected President and Chief Executive Officer of
Prudential-Bache Securities, Inc., and in 1986 was elected Chairman of the
Board, serving in those positions until his resignation in 1991. He also served
as a member of the Executive Office of Prudential Insurance Company of America
from 1982 to 1991. Before joining Prudential, Mr. Ball served as President of
E.F. Hutton Group, Inc. He is a director of Leviathan Gas Pipeline Company,
general partner of Leviathan Gas Pipeline Partners, L.P., a publicly held
partnership engaged in the gathering, transportation and production of oil and
gas. Mr. Ball is a former governor of the American Stock Exchange and the
Chicago Board Options Exchange, and served on the Executive Committee of the
Security Industries Association.

STEPHEN M. RECKLING has served as Chairman and Chief Executive Officer of
Pinnacle Management & Trust and our director since January 1999. Mr. Reckling
will be appointed a director of Sanders Morris Harris when the merger closes. He
is one of the founders of Pinnacle Management & Trust and from June 1994 to the
present has served in various executive capacities at Pinnacle Management &
Trust, most recently as its Executive Vice President and Chief Investment
Officer and

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as a director. Mr. Reckling has over 13 years of investment management
experience, including experience at one national and two regional investment
banking firms.

PETER W. BADGER has served as President of Spires and our director since
January 1999. Mr. Badger will be appointed a director of Sanders Morris Harris
when the merger closes. Mr. Badger co-founded and has been a partner and
President of Spires since its inception in January 1995. He is also a director
of Pinnacle Management & Trust. From April 1976 to July 1994, he served as
Executive Vice President of Westcap Corporation. Mr. Badger has over 23 years
experience in the institutional fixed-income securities market. He has NASD
Series 24, 7 and 63 licenses.

RICHARD C. WEBB has served as our director since January 1999. Mr. Webb
co-founded Harris Webb & Garrison and he currently serves as its President and a
director. He is also a director of Pinnacle Management & Trust. Mr. Webb will be
appointed Executive Vice President and a director of Sanders Morris Harris when
the merger closes. From 1991 to 1994, he was Regional Partner of S.G. Cowen, the
correspondent broker of HWG. Before then, Mr. Webb served in various capacities
with the Lovett firm, which he co-founded in 1981. He is also a director of Kent
Electronics, Inc., a public electronic distribution company. Mr. Webb has served
on the boards of several Houston-based community organizations, including
science museum, education and hospital groups. He has over 39 years experience
in the securities industries.

SEAN DOBSON has served as our director since January 1999. Mr. Dobson is a
founding partner of Spires and serves as its Executive Vice
President--Trading & New Business Development. Mr. Dobson has over twelve years
experience in the mortgage securities market. Before joining Spires, he served
as a registered representative for the Westcap Corporation from February 1994 to
July 1994, registered representative for Arbor Financial Corp. from
January 1994 to February 1994, mortgage securities trader for the MMAR Group
from November 1989 to January 1994 and research director for Robert Thomas
Securities from October 1987 to November 1989. He has a NASD Series 7 and 63
licenses.

EDWARD C. HUTCHESON, JR. has served as our Chief Operating Officer since
August 1999, and before then as a consultant to the company beginning in
January 1999. From February 1997 to January 1999, he was a principal with HWG
Capital, an affiliate of Harris Webb & Garrison. In August 1994, Mr. Hutcheson
co-founded Crown Castle International, a public company which owns and operates
wireless communications towers and transmission systems. He served as Crown
Castle's Chief Executive Officer from its inception until October 1996, as
Chairman from inception to March 1997, and continues to serve as a director of
the company. From 1990 to 1993, Mr. Hutcheson was President, Chief Operating
Officer and a director of Baroid Corporation, a publicly held petroleum services
company. He also serves as a director of Trico Marine Services, a public company
which supplies marine support vessels to the oil and gas industry, and Titanium
Metals Corporation, a public company which produces titanium sponge and mill
products.

TONY COELHO has served as our director since January 1999, and has served as
a director of TEI since March 1990. Since September 1997, Mr. Coelho has served
as a consultant to TeleCommunications, Inc., a company that operates call
television and other telecommunications services. From October 1995 to
September 1997, he was Chairman and Chief Executive Officer of ETC w/tci, Inc.,
an education and training technology subsidiary of TeleCommunications, Inc. From
1989 to June 1995, he was a Managing Director of Wertheim and served as
President and Chief Executive Officer of Wertheim Schroder Investment Services.
Mr. Coelho currently serves as Chairman of the Board of International
Thoroughbred Breeders, Inc., an owner and operator of diversified gaming
properties in New Jersey and Nevada, and is a director of Service Corporation
International, a public company which owns and operates funeral homes,
cemeteries and related business.

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W. BLAIR WALTRIP has served as our director and has served as a director of
TEI since July 1988. He has been employed in various capacities for Service
Corporation International since 1977 and now serves as that company's Executive
Vice President and as a director.

JAMES H. GREER has served as our director since January 1999, and has served
as a director of TEI since March 1990. He has been Chairman of Shelton W. Greer
Co., Inc., a building specialty products company, for over 25 years. Mr. Greer
is also a director of Service Corporation International and AmeriCredit
Corporation, a consumer credit company.

JOHN H. STYLES has served as our director since June 1999. Mr. Styles has
been the Chairman, President and Chief Executive Office of HEALTHPLUS
Corporation since 1995. He served in the same capacities for Mid-America
Healthcare Group from 1984 until its sale in 1995 and for Outpatient
Healthcare, Inc. from 1985 until its sale in 1992. He was a founding shareholder
and director of Healthsouth, Inc. in 1984. Mr. Styles is also a private venture
capitalist, focusing on the healthcare and other growth industries.

T. CRAIG BENSON has served as our director since January 1999, and has
served as a director of TEI since March 1990. He has been employed in various
capacities for Service Corporation International since 1987 and now serves as
that company's Vice President--International Operations.

KEY EMPLOYEES

The following employees are expected to make significant contributions to
our business:

SANDERS MORRIS HARRIS INC.

R. LARRY KINNEY currently serves as Director of Trading Activities of SMM
and will continue in that capacity for Sanders Morris Harris. Mr. Kinney will
also be appointed a director of Sanders Morris Harris when the merger closes.
Before joining SMM in 1996, he was a Partner and Managing Director of Soundview
Financial Group where he headed equity trading activity. From 1990 to 1993,
Mr. Kinney was Managing Director of OTC Trading at Furman Selz Inc. Before then,
he was Senior Vice President of OTC Trading and International Equity Trading at
E.F. Hutton.

WYATT A. WILLIAMS, JR. currently serves as President--Institutional Sales
and Research of SMM and will continue in that capacity for Sanders Morris
Harris. Mr. Williams was a founder and served as President of Williams, MacKay
Jordan & Co., Inc. from 1990 to 1996, when it was acquired by SMM. From 1985 to
1990, he was employed by the Lovett firm. He began his career as an oil analyst
with Duff & Phelps, LLC in 1977, and was later promoted to group vice president,
heading that firm's energy research division.

BREDE C. KLEFOS currently serves as Sales Manager and Manager of the
Financial Advisory Division of SMM and will continue in that capacity for
Sanders Morris Harris. He was a sales manager for Smith Barney from 1993 to 1996
and for Shearson Lehman Brothers from 1987 to 1993. Before then, Mr. Klefos was
a financial consultant and branch manager for E.F. Hutton in Houston, Texas from
1979 to 1987.

KENNETH CH'UAN-K'AI LEUNG currently serves as Managing Director in SMM's
Corporate Finance Department and co-investment manager of Environmental
Opportunities Fund I and II, two private equity funds managed by SMM. He will
continue in those capacities when the merger closes. Before joining SMM in 1995,
Mr. Leung was a Managing Director at Smith Barney Shearson Inc. from 1978 to
1994. He was a Vice President of F. Eberstadt & Co. from 1974 to 1978 and an
Assistant Treasurer at Chemical Bank from 1967 to 1974. Mr. Leung was an
INSTITUTIONAL INVESTOR "All Star" analyst for 21 years.

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JAMES C. GALE currently serves as Managing Director in SMM's Corporate
Finance Department and is investment manager of the Corporate Opportunities Fund
sponsored by SMM. He will continue in those capacities when the merger closes.
From 1991 to 1998, Mr. Gale was head of investment banking for Gruntal & Co.
LLC. Prior to joining Gruntal & Co. LLC, he originated and managed private
equity investments for the Home Investment Co. From 1981 to 1987, Mr. Gale was a
senior investment banker at E.F. Hutton.

HOWARD Y. WONG currently serves as Senior Vice President and Chief Financial
Officer for both Harris Webb & Garrison and Pinnacle Management & Trust. He has
held those positions since August 1996. Mr. Wong formerly served as Vice
President and Trust Officer with River Oaks Trust Company from March 1989 to
July 1996. He has a NASD Series 27 license.

PINNACLE MANAGEMENT & TRUST

STEPHEN D. STRAKE serves as the President and Chief Operating Officer of
Pinnacle Management & Trust. Mr. Strake has over 13 years of banking experience
concentrated in marketing and relationship management for high net worth
individuals and their related businesses. He served in various officer positions
for Comerica Bank--Texas, N.A. from April 1993 to May 1996, and for First City
Bank--Texas, N.A. from December 1989 to April 1993. During his banking career,
Mr. Strake was involved in corporate finance, oil and gas exploration and
production lending, cash management and trust/ investment activities.

LYNN A. BERNARD, JR. serves as Executive Vice President and Chief Investment
Officer of Pinnacle Management & Trust. In 1990, Mr. Bernard founded and served
as a principal of L.A. Bernard & Associates, Ltd., an investment counseling firm
specializing in global asset management, until he joined Pinnacle Management &
Trust in 1997. Previously, he spent thirteen years with the investment banking
firm of Goldman, Sachs & Co. in various officer capacities, last serving as Vice
President in the Securities Sales Division in Houston where he represented
private individual and institutional clients. Mr. Bernard has over 21 years of
investment management experience.

LINDA A. HALCOMB serves as the Vice President and Manager of Operations of
Pinnacle Management & Trust. Ms. Halcomb has over 20 years of experience in
trust and financial services. She is a current member of the National
Association of Trust Auditors and Compliance Professionals and was formerly the
Southern Regional Director of the National Trust Systems Association.

SPIRES FINANCIAL, L.P.

TRACY G. ADAMS is a founding partner of Spires Financial and serves as its
Executive Vice President--Trading. Ms. Adams has twelve years experience in the
mortgage securities market. Before joining Spires Financial, she served as a
registered representative for Westcap Corporation from February 1994 to
July 1994, Senior Analyst for Arbor Financial from January 1994, and financial
analyst for Robert Thomas Securities from August 1987 to November 1989. She has
the NASD Series 24, 7 and 63 licenses.

STEVEN M. GORMAN is a founding partner of Spires Financial and serves as its
Director of Systems Development. Mr. Gorman has thirteen years experience as a
designer of fixed-income analytical software and database applications. Before
joining Spires Financial, he served as a Vice President for Westcap Corporation
from February 1994 to October 1994, Vice President for MMAR Group from
January 1992 to January 1994, and Vice President for Bear, Stearns & Company
from May 1986 to August 1992.

RON FURMAN is in charge of the whole loan and servicing sales division of
Spires Financial. Mr. Furman is a Senior Managing Director and Branch Manager of
Spires Financial's Morris Plains,

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<PAGE>
New Jersey office. He has 25 years experience trading secondary market whole
loans and loan servicing. Before joining Spires Financial, Mr. Furman served as
a Senior Vice President for Westcap Corporation from February 1984 to
October 1995, Senior Vice President for Prudential Securities from October 1982
to February 1984, Executive Vice President for Ameribond from September 1981 to
October 1982, and Senior Vice President for G.A. Thompson from September 1978 to
September 1981. He is a member of the Mortgage Bankers Association of America
and has the NASD Series 24, 7, and 63 licenses.

DEBBIE SHELLING REYNOLDS serves as Managing Director--Trading and Branch
Manager of Spires Financial's Westport, Connecticut office. Ms. Reynolds has
over fifteen years experience trading mortgage securities. Before joining Spires
Financial, she served as a mortgage securities trader for Donaldson, Lufkin &
Jenrette from February 1993 to February 1998, mortgage securities trader for
Kidder Peabody from March 1990 to February 1993, and mortgage securities trader
for Drexel Burnham Lambert from September 1983 to March 1990. She has the NASD
Series 24, 7 and 63 licenses.

DENNIS P. CIOLA serves as Managing Director and Branch Manager of Spires
Financial's Austin, Texas office. Mr. Ciola has over 15 years experience in
marketing and over seven years experience in the mortgage securities market.
Before joining Spires Financial he served as a registered representative for
Westcap Corporation from February 1994 to July 1994 and a registered
representative for MMAR Group from April 1991 to December 1993. He has the NASD
Series 24, 7 and 63 licenses.

LAWRENCE H. FORRESTER serves as Executive Vice President, Chief Financial
and Compliance Officer of Spires Financial, a position he has held since
January 1997. Mr. Forrester has 15 years experience in financial and compliance
matters with various broker-dealer firms in the Houston area. He earlier served
as Senior Vice President and Chief Financial Officer of Lynn Hayes
Financial, Inc. from May 1994 to November 1995. He has the NASD Series 63, 53,
27, 24 and 7 licenses.

BOARD OF DIRECTOR CLASSES; DIRECTOR COMPENSATION

Our board of directors is divided into three classes. Following a transition
period, each class will serve for three years, with one class being elected each
year at our annual shareholders' meeting. During the transition period, the
terms of the Class I directors will expire at the 2002 annual meeting, the term
of the Class II directors will expire at the 2000 annual meeting, and the term
of the Class III directors will expire at the 2001 annual meeting.
Classification of our board could lengthen the time required to change the
composition of a majority of its members. In general, at least two shareholder
meetings will be necessary for shareholders to change a majority of the members
of our board.

Each nonemployee director receives a fee of $1,500 for each meeting of our
board of directors, a fee of the $1,000 for each Executive Committee meeting
attended, and a fee of $750 for attendance at other committee meetings. No board
or committee fees are paid to employee directors. Directors may also be
periodically granted incentive awards under our 1998 incentive plan.

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<PAGE>
EXECUTIVE COMPENSATION

This table shows 1998, 1997 and 1996 compensation earned from the Sanders
firm by its executive officers who will become executive officers of our
company. No compensation information has been provided for our current executive
officers, other than Donald R. Campbell, since these executives were appointed
in January 1999 as a result of our combination with Harris Webb & Garrison,
Pinnacle Management & Trust and Spires Financial. Executive compensation
information for Donald R. Campbell is included in our annual report on
Form 10-K accompanying this document.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1) ALL OTHER
------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1)(2)
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Don A. Sanders....................................... 1998 $420,000 $225,000 $2,022,181
Chairman of Executive Committee of SMM 1997 420,000 256,175 303,085
1996 420,000 220,000 145,516
Ben T. Morris........................................ 1998 180,000 200,000 871,452
President and Chief Executive Officer of SMM 1997 180,000 211,560 106,684
1996 180,000 120,000 48,510
George L. Ball....................................... 1998 180,000 200,000 871,452
Chairman of the Board of SMM 1997 180,000 210,505 63,402
1996 105,000 120,000 0
</TABLE>

- ------------------------

(1) Does not include dividend distributions paid to the named individuals as
shareholders of SMM.

(2) Represents the named individuals allocable portion of the proceeds from the
exercise of warrants held by the SMM Key Executive Plan and the sale of the
underlying securities. The Key Executive Plan was established by SMM in 1992
to provide financial incentives to attract, motivate, and retain key
executives. Each year the Board of Directors of SMM designates for inclusion
in the plan warrants received by SMM during the year in payment for its
services to clients. The warrants are allocated by the Board of Directors
among the participants in the Plan based on their level of compensation and
contributions to the success of SMM each year.

INCENTIVE PLAN

We have adopted the 1998 Incentive Plan. The Incentive Plan is administered
by the Compensation Committee of our board of directors, currently consisting of
W. Blair Waltrip, James H. Greer and T. Craig Benson. It is contemplated that
the Committee will be reconstituted after the merger closes. Subject to the
express provisions of the Incentive Plan, the Committee is authorized to, among
other things, select grantees under the Incentive Plan and determine the size,
duration and type, as well as the other terms and conditions (which need not be
identical), of each Incentive Award. Key employees, including officers (whether
or not they are directors), and consultants of our company and our subsidiaries
and non-employee directors are eligible to participate in the Incentive Plan.

Under the Incentive Plan, the Committee may grant "Incentive Awards," which
can be:

- incentive stock options, as defined in Section 422 of the Internal Revenue
Code,

- "nonstatutory" stock options,

- stock appreciation rights,

- shares of restricted stock,

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<PAGE>
- performance units and performance shares,

- other stock-based awards, and

- supplemental payments dedicated to the payments of income taxes.

We may issue Incentive Awards under the Incentive Plan covering at any one time
an aggregate of the greater of (1) 1,100,000 shares of our common stock and
(2) 15% of the number of shares of our common stock issued and outstanding on
the last day of the immediately preceding calendar quarter. No more than
1,100,000 shares of our common stock will be available for incentive stock
options--our ISOs.

As of October 25, 1999, options covering 634,550 shares of our common stock
were outstanding, leaving 465,500 shares available for grant of future Incentive
Awards. However, on the first day of the quarter occurring immediately after the
quarter in which the merger closes, an aggregate of about 2.13 million shares
will be subject to the Incentive Plan, leaving us about 1.5 million shares
available for grant of future Incentive Awards.

Of these options, 102,500 represent replacement options for TEI options
outstanding before closing of the combination transaction in January 1999, and
532,050 represent options granted on the day before the public announcement of
the merger. The following table identifies options held by our directors and
executive offices:

<TABLE>
<CAPTION>
REPLACEMENT NEW
NAME OPTIONS(1) OPTIONS(2)
- ---- ----------- ----------
<S> <C> <C>
W. Blair Waltrip...................................... 7,500 5,000
James H. Greer........................................ 7,500 5,000
T. Craig Benson....................................... 7,500 5,000
Tony Coehlo........................................... 7,500 5,000
Donald R. Campbell.................................... 50,000 10,000
Robert E. Garrison II................................. 40,000
Edward C. Hutcheson, Jr............................... 27,000
Stephen M. Reckling................................... 38,000
Titus H. Harris, Jr................................... 20,400
Richard W. Webb....................................... 20,400
Peter W. Badger....................................... 21,700
Sean Dobson........................................... 21,700
John H. Styles........................................ 5,000
</TABLE>

- ------------------------

(1) Each of the replacement options have an exercise price of $10 per share and
are fully vested, except for the replacement options held by Mr. Campbell
which are vested as to 15,000 shares with the remaining 35,000 shares
vesting in December 2003.

(2) Each of the new options have an exercise price per share of $4 5/8 and are
vested as to 25% of the shares on the grant date with an additional 25%
vesting on each anniversary date, except for the 5,000 options granted to
each of the five nonemployee directors which are fully vested on the grant
date.

We intend to grant up to 550,000 additional options to key employees of SMM
within a short time after the merger closes.

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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In January 1999, we completed a business combination with TEI, Harris,
Webb & Garrison, Inc., Pinnacle Management & Trust Company and Spires Financial,
L.P., with Pinnacle emerging as the new public holding company and successor
issuer to TEI, which is now our wholly owned subsidiary. In that combination
transaction, just over 50% of our currently outstanding shares were issued to
TEI's former shareholders in exchange for their TEI shares and slightly less
than 50%, were issued to former owners of the other three financial services
companies in exchange for their shares in their companies. The Pinnacle common
shares beneficially held by our existing directors and executive officers were
received based on their share ownership of the combining companies, except for
shares underlying the October 1999 stock option grant. See "Executive
Compensation--Incentive plan" and "Our Principal Shareholders after Merger."

As part of the combination transactions, six former directors of TEI were
appointed to our board of directors, along with six persons designated by the
financial services companies. The executive officers of the financial services
companies became our executive officers, together with TEI's President and Chief
Executive Officer and Chief Operating Officer, who continued as our
Vice-Chairman.

In connection with the January 1999 combination, we lent $162,500 to
Mr. Garrison and $237,500 to Mr. Reckling. All proceeds of the loans were used
to exercise options to purchase 6,500 shares, in the case of Mr. Garrison, and
9,500 shares, in the case of Mr. Reckling, of Pinnacle Management & Trust common
stock, at an exercise price of $25 per share prior to closing the combination
transaction. The loans bear interest at a variable rate equal to the monthly
applicable federal rate periodically published by the Internal Revenue Service
for obligations of comparable maturity (ten years). The October published rate
was (6.16%). The loans are secured by pledges of all our shares issued to the
borrowers in the combination transaction in exchange for the shares of Pinnacle
Management & Trust common stock they received on exercise of their options. The
terms of these loans did not result from arm's length negotiation. While the
interest rate on these loans may be considered below-market, the other
provisions of the loans are on commercially reasonable terms.

Mr. Garrison owns 1,332,670 shares of BioCyte (an affiliate of PGG Capital,
our wholly owned subsidiary), or 13.6% of the outstanding shares on a fully
diluted basis. PGG Capital owns 2,000,000 shares in BioCyte, or 20.4% on a fully
diluted basis.

In June 1999, we loaned BioCyte $500,000 in exchange for an 8% convertible
promissory note and a warrant to purchase 80,000 BioCyte common shares. The
convertible note matures on December 8, 1999 and is convertible into BioCyte
common shares at a conversion price of $0.67 per share. The warrant expires in
June 2004 and has an exercise price of $1.25 per share.

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<PAGE>
PRINCIPAL SHAREHOLDERS OF SMM

This table shows beneficial ownership of SMM's common stock as of June 30,
1999, by:

- each beneficial owner of more than 5% of SMM's common stock,

- each of SMM directors and executive officers, and

- all SMM directors and executive officers as a group.

- ------------------------

(1) The principal business address of this beneficial owner is 600 Travis, Suite
3100, Houston, Texas 77002

(2) Includes 6,000 shares owned by the Sanders 1998 Children's Trust, of which
Mr. Morris is a co-trustee, and as to which Mr. Morris disclaims beneficial
ownership.

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<PAGE>
OUR PRINCIPAL SHAREHOLDERS AFTER MERGER

This table shows the beneficial ownership of PGG common stock immediately
after giving effect to the merger by:

- each person who is the beneficial owner of more than 5% of our common
stock,

- each of our directors and executive officers, and

- all of our directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
- ---- ---------------- --------
<S> <C> <C>
Don A Sanders(1).................................... 2,083,171 14.6%
Ben T. Morris(1)(2)................................. 1,905,418 13.4%
George L. Ball(1)................................... 1,201,546 8.4%
W. Blair Waltrip(3)(4)(5)........................... 322,556 2.3%
Peter W. Badger(6).................................. 338,330 2.4%
Robert E. Garrison II(7)............................ 315,263 2.2%
Sean Dobson(8)...................................... 261,727 1.8%
Titus H. Harris, Jr.(9)............................. 169,934 1.2%
Stephen M. Reckling(10)............................. 142,762 1.0%
Donald R. Campbell(11).............................. 36,665 *
Richard W. Webb(9).................................. 133,376 *
Edward C. Hutcheson, Jr.(12)........................ 30,973 *
John H. Styles(13).................................. 125,059 *
James H. Greer(14).................................. 29,250 *
Tony Coelho(15)..................................... 18,417 *
T. Craig Benson(15)................................. 52,347 *
All directors and executive officers as a group
(16 persons) (1-15)............................... 7,166,794 49.9%
</TABLE>

- ------------------------

* Less than 1% of outstanding shares.

(1) The principal business address of this beneficial owner is 600 Travis,
Suite 3100, Houston, Texas 77002.

(2) Includes 703,973 shares owned by the Sanders 1998 Children's Trust, of
which Mr. Morris is a co-trustee, and as to which Mr. Morris disclaims
beneficial ownership.

(3) Includes 12,500 shares issuable on exercise of stock options and 254,056
shares owned by the William Blair Waltrip Trust, of which Mr. Waltrip is
the trustee and beneficiary.

(4) Includes 26,250 shares owned by the Robert L. Waltrip 1992 Trust #1, of
which Robert L. Waltrip, Jr., W. Blair Waltrip, and Holly Waltrip Benson
are co-trustees.

(5) Includes 28,000 shares owned by the Waltrip 1987 Grandchildren's Trust for
the benefit of the grandchildren of R. L. Waltrip, of which Robert L.
Waltrip, Jr. and W. Blair Waltrip are co-trustees, as to which both Robert
L. Waltrip, Jr. and W. Blair Waltrip disclaim beneficial ownership.

(6) Includes 5,425 shares issuable on exercise of stock options and 253,333
shares held by Spires Financial P.B., Inc., an entity 100% owned by
Mr. Badger.

(7) Includes 10,000 shares issuable on exercise of stock options.

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<PAGE>
(8) Includes 5,425 shares issuable on exercise of stock options and 253,333
shares held by Spires Financial S.D., Inc. an entity 100% owned by
Mr. Dobson.

(9) Includes 5,100 shares issuable on exercise of stock options.

(10) Includes 9,500 shares issuable on exercise of stock options.

(11) Includes 17,500 shares issuable on exercise of stock options.

(12) Includes 6,750 shares issuable on exercise of stock options.

(13) Includes 5,000 shares issuable on exercise of stock options and 19,198
shares owned by Mr. Styles wife.

(14) Includes 12,500 shares issuable on exercise of stock options and 15,000
shares owned by Mr. Greer's wife.

(15) Includes 12,500 shares issuable on exercise of stock options.

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<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK

Our charter authorizes us to issue 110,000,000 shares of stock, consisting
of 100,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share. The following summary
description of our capital stock is not complete and does not give effect to
applicable statutory or common law. The summary is also subject to applicable
provisions of our charter.

COMMON STOCK

Our common shareholders are entitled to one vote per common share in the
election of directors and on all other matters on which shareholders are
entitled or permitted to vote. Holders of our common shares do not have
cumulative voting rights. Therefore, subject to any voting rights that may be
later granted to holders of our preferred stock, under our bylaws, holders of a
plurality of the common shares present in person or represented by proxy at the
meeting and entitled to vote can elect all of our directors. Subject to the
rights of any outstanding series of our preferred stock, the common shareholders
are entitled to dividends when and if declared by our board of directors out of
funds legally available for that purpose. Our common stock is not subject to any
calls or assessments. Upon liquidation or dissolution, common shareholders are
entitled to share ratably in all net assets distributable to shareholders after
payment of any liquidation preferences to holders of our preferred stock.
Holders of our common stock have no redemption, conversion or preemptive rights.

PREFERRED STOCK

We can issue shares of our preferred stock without shareholder approval. Our
board can issue up to 10,000,000 shares of preferred stock in one or more series
and can determine, for any series of preferred stock, the terms and rights of
the series, including:

- the number of shares, designation and stated value of the series,

- the rate and times at which dividends will be payable on shares of the
series, and the status of dividends as cumulative or non-cumulative and as
participating or non-participating,

- the voting rights, if any, for shares of the series,

- any prices, times and terms at or on which shares of the series may be
redeemed,

- any rights and preferences of shares of the series upon any liquidation,
dissolution or winding up of our affairs or any distribution of our
assets,

- any rights to convert shares of the series into, or exchange shares of the
series for, shares of any other class of our stock,

- the terms any of retirement or sinking fund for shares of the series,

- any limitations on the payment of dividends or making of distributions on,
or the acquisition of, our common stock or any other junior class of
stock,

- any conditions or restrictions on our indebtedness or issuances of any
additional stock, and

- any other powers, preferences and relative, participating, optional and
other special rights, and their limitations.

We have no current plans to issue any shares of our preferred stock. Any
issuance of our preferred stock may adversely affect the voting powers or rights
of the holders of our common stock.

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<PAGE>
ANTI-TAKEOVER PROVISIONS

Our charter and bylaws contain provisions that could impede us being
acquired by a tender or exchange offer, a proxy contest or otherwise. This
summary of these provisions is subject to the pertinent sections of our charter
and bylaws and the Texas Business Corporation Act.

PREFERRED STOCK. Although our board does not now intend to do so, it could
issue a series of our preferred stock that could, depending on its terms, impede
the completion of a merger, tender offer or other takeover attempt. Any board
decision to issue such stock will be based on the board's judgment as to the
best interests of the company and its shareholders. Our board could issue
preferred stock having terms that could discourage an acquisition attempt
through which an acquiror could otherwise change the composition of the board of
directors, including a tender or exchange offer or other transaction that some,
or a majority, of our shareholders might believe to be in their best interests,
or in which shareholders might receive a premium for their stock over its
then-market price.

REMOVAL OF DIRECTORS. Our charter provides that directors may be removed
only for cause, and then only by the affirmative vote of holders of at least
two-thirds of all outstanding voting stock.

SHAREHOLDER MEETINGS. Our charter provides that our shareholders can act at
an annual or special meeting. The charter is silent as to shareholder action by
written consent in lieu of a meeting. Therefore, under Texas law, shareholder
action by unanimous consent is permitted. Our charter and bylaws provide that
special meetings of shareholders can be called only by a majority of the board
of directors, the chairman of the board or the president. The business which can
be conducted at any special meeting of shareholders is limited to the business
brought before the meeting as set forth in the notice of the meeting. These
provisions would prevent non-director shareholders from taking action by written
consent or otherwise without proper notice to the board.

Our bylaws require advance notice to us of any business to be brought by a
shareholder before an annual meeting of shareholders and establish procedures to
be followed by shareholders in nominating persons for election to our board.
Generally, these provisions require written notice to the secretary of the
company by a shareholder if:

- if the shareholder proposes to bring any business before an annual
meeting, and

- if the shareholder wants to nominate any person for election to our board
of directors,

in each case not less than 60 nor more than 180 days before the anniversary date
of the immediately preceding annual meeting of shareholders (with certain
exceptions if the date of the annual meeting is different by more than specified
periods from the anniversary date).The shareholder's notice must set forth
specific information regarding the shareholder and his business and director
nominee, as described in our bylaws.

ANTI-TAKEOVER LEGISLATION. As a Texas corporation, we are subject to
Article 13 of the Texas Business Corporation Act. In general, Article 13
prevents an "affiliated shareholder" (defined generally as a person owning 20%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as the act defines that term) with a Texas corporation
for three years following the date the person became an affiliated shareholder
unless:

- before the person became an affiliated shareholder, the board of directors
of the corporation approved the transaction in which the affiliated
shareholder became interested or approved the business combination; or

- following the transaction in which the person became an affiliated
shareholder, the business combination was approved by the board of
directors of the corporation and authorized by the affirmative vote of the
holders of 66 2/3% of the outstanding voting stock of the corporation not

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<PAGE>
owned by the affiliated shareholder at a meeting of shareholders duly
called not less than six months after the transaction in which the
affiliated shareholder became affiliated.

Article 13's restrictions also do not apply to business combinations with an
affiliated shareholder who became affiliated through a transfer of shares by
will or intestate succession and was continuously affiliated until the business
combination announcement date or business combinations involving a domestic
wholly owned subsidiary not affiliated with the affiliated shareholder other
than through his interest in the parent corporation.

LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Texas law authorizes a Texas corporation to limit or eliminate the personal
liability of its directors to the corporation and its shareholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Texas law, directors are
accountable to Texas corporations and their shareholders for monetary damages
for conduct constituting gross negligence in the exercise of their duty of care.
Texas law enables Texas corporations to limit available relief to equitable
remedies such as injunction or rescission. Our charter limits the liability of
our directors to us or our shareholders to the fullest extent permitted by Texas
law. Specifically, no member of the our board of directors will be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability:

- for any breach of the member's duty of loyalty to the company or our
shareholders,

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as specified in the Texas Business Corporation Act, or

- for any transaction from which the member derived an improper personal
benefit.

Our charter provision may discourage derivative litigation against directors
and discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though the action, if
successful, might otherwise have benefitted the company and our shareholders.
Our charter and bylaws provide indemnification to our officers and directors and
certain other persons with respect to certain matters, and we have agreements
with each of our existing directors and certain executive officers providing for
indemnification for certain matters. On closing the merger, similar
indemnification agreements will be entered into with each of the SMM designees
who will become directors of our company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Harris Trust and
Savings Bank, Chicago, Illinois.

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<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS OF PINNACLE AND SMM

If the merger is completed, SMM shareholders will receive shares of Pinnacle
common stock, and their rights will be governed by Pinnacle's charter and
bylaws. Pinnacle and SMM are each incorporated in Texas. Pinnacle's articles of
incorporation and bylaws will remain unchanged and the number of directors will
be increased from twelve to fifteen, twelve of whom will be current Pinnacle
directors and three of whom have been designated by SMM.

The summary contained in the chart below is not intended to be a complete
statement of the rights of holders of Pinnacle and SMM common stock under the
Texas Business Corporation Act or the charter or bylaws of either company.

SUMMARY OF MATERIAL DIFFERENCES BETWEEN THE CURRENT RIGHTS OF SMM SHAREHOLDERS
AND RIGHTS THEY WILL HAVE AS OUR SHAREHOLDERS FOLLOWING THE MERGER

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
AUTHORIZED CAPITAL
STOCK: The authorized capital stock of SMM consists of The authorized capital stock of Pinnacle consists
200,000 shares of common stock each having of 110,000,000 shares, 100,000,000 of which are
identical rights and privileges. At October 25, shares of Pinnacle common stock and 10,000,000 of
1999, 60,729 shares of SMM common stock were which are shares of preferred stock. The Pinnacle
outstanding. SMM's charter expressly denies charter grants specific authority to the board of
cumulative voting and preemptive rights. directors, without action by the shareholders, to
issue preferred stock with characteristics
designated by the board of directors. At October
25, 1999, 7,125,253 shares of Pinnacle common
stock were outstanding, and there were no
outstanding shares of Pinnacle preferred stock.
Pinnacle's charter denies cumulative voting and
preemptive rights.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
SHAREHOLDER PROPOSALS: The SMM bylaws and charter contain no provisions Pinnacle's bylaws require advance notice to
regarding shareholder proposals or nominations for Pinnacle of any business to be brought by a
director. shareholder before an annual meeting of
shareholders and establish procedures for
shareholders to nominate persons for election to
the Pinnacle board of directors. Generally,
written notice must be given to the secretary of
Pinnacle by a shareholder (1) if the shareholder
proposes to bring any business before an annual
meeting and (2) if the shareholder wants to
nominate any person for election to the Pinnacle
board of directors, in each case not less than 60
nor more than 180 days before the anniversary date
of the immediately preceding annual meeting of
shareholders (with certain exceptions if the date
of the annual meeting is different by more than
specified periods from the anniversary date). The
shareholder's notice must set forth specific
information regarding the shareholder and his
business and director nominee, as described in
Pinnacle's bylaws.

ELECTION OF DIRECTORS: The SMM bylaws provide for a single class of The Pinnacle charter classifies directors into
directors to be elected at the annual meeting of three classes, with each class being as nearly
shareholders and to serve until the next annual equal in number as possible. One class of
meeting of shareholders. directors is elected each year for a three year
term.
</TABLE>

83
<PAGE>

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
VACANCIES ON THE BOARD
OF DIRECTORS: The SMM bylaws provide that any vacancies on the The Pinnacle bylaws provide that any vacancies on
board of directors, including vacancies resulting the board of directors may be filled by the
from any increase in the number of directors, may affirmative vote of a majority of the remaining
be filled by the affirmative vote of a majority of directors, even if less than a quorum of the
the remaining directors even if less than a quorum board, or by the shareholders if no other
of the board. directors remain. Positions on the board of
directors to be filled by reason of an increase in
the number of directors shall be filled by the
vote of a majority of the directors or by an
election at an annual or special meeting of the
shareholders called for that purpose.

NUMBER AND TERM OF
DIRECTORS: The SMM bylaws provide for a board of at least The Pinnacle charter provides that the number of
three members, which may be increased or decreased directors constituting the whole board of
from time to time by resolution of the board, but directors cannot be less than three, that the
shall never be less than one, but no decrease can total number of directors shall be fixed by the
shorten the term of any incumbent director. The majority of directors then in office, and that no
SMM bylaws provide that directors are elected at decrease in the number of directors can shorten
each annual meeting and shall hold office until the term of any incumbent director. The Pinnacle
the next succeeding annual meeting and until their bylaws limit the maximum number of directors to
successors have been elected and qualified. fifteen. Pinnacle's charter provides that
directors are classified into three classes, each
class being as nearly equal in number as possible,
with one class of directors elected each year for
a three-year term. Pinnacle's charter provides
that each director holds office until the annual
meeting at which such director's term expires and
until his successor has been duly elected and
qualified.
</TABLE>

84
<PAGE>

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
REMOVAL OF DIRECTORS: The SMM bylaws provide that the entire board of The Pinnacle charter provides that no director may
directors or any individual director may be be removed except for cause, and then only by the
removed, either for or without cause, at any affirmative vote of holders of at least two-thirds
special meeting of the shareholders by the of all outstanding voting stock.
majority vote of the outstanding shares entitled
to vote at elections of directors. SMM's bylaws
also provide that a director may be removed for
cause at any meeting of directors by a majority
vote of the directors in office.

AMENDMENT OF BYLAWS: The SMM bylaws may be amended by the affirmative The Pinnacle charter provides that the board of
vote of a majority of the directors present at any directors is expressly authorized to adopt, amend
meeting of the board of directors at which a or repeal the bylaws, or adopt new bylaws, without
quorum is present or by unanimous written consent action on the part of the shareholders, except as
of all the directors, subject to repeal or change otherwise provided by applicable law or Pinnacle's
by action of the shareholders. bylaws. Pinnacle's bylaws provide that the bylaws
may be altered, amended or repealed, or new bylaws
may be adopted, by the affirmative vote of a
majority of the full board of directors at any
duly held meeting of directors, if notice of the
proposed amendment is contained in the notice of
the meeting. Pinnacle's bylaws also provide that
the bylaws may be amended, repealed or adopted by
the affirmative vote of the holders of a majority
of the shares represented at any duly held meeting
of the shareholders if notice of the proposed
amendment is contained in the notice of the
meeting.
</TABLE>

85
<PAGE>

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
ACTION BY WRITTEN
CONSENT AND SPECIAL
MEETINGS OF
SHAREHOLDERS: SMM's bylaws provide that any action required or The Pinnacle charter and bylaws are silent as to
permitted to be taken at a shareholders meeting shareholder action by written consent in lieu of a
may be taken without a meeting, without notice and meeting. Therefore, under the Texas Business
without a vote, if a written consent to the action Corporation Act, shareholders can take action only
is signed by holders of outstanding stock having by unanimous written consent of shareholders.
not less than the minimum number of votes which Pinnacle's charter provides that a special meeting
would be necessary to authorize or take the action of the shareholders may be called only by the
at a meeting. The SMM bylaws also provide that Chairman of the Board, the Chief Executive
special meetings of the shareholders may be called Officer, the President, by the written order of a
by the President or the board of directors. SMM's majority of the entire board of directors, and not
bylaws also provide that special meetings of the by the shareholders, except as otherwise provided
shareholders shall be called by the President or by law. Written or printed notice stating the
Secretary upon the written request of holders of purpose or purposes for which the meeting is
at least ten percent of all the outstanding shares called is required.
entitled to vote at the meeting. The request must
state the purpose or purposes of the meeting and
the matters proposed to be acted on at the
meeting.
</TABLE>

86
<PAGE>

<TABLE>
<CAPTION>
SMM SHAREHOLDER RIGHTS PINNACLE SHAREHOLDER RIGHTS
<S> <C> <C>
INDEMNIFICATION OF
DIRECTORS AND
OFFICERS: The SMM bylaws provide that the corporation shall The Pinnacle bylaws provide that the corporation
indemnify to the full extent permitted by law any shall indemnify to the full extent allowed by law
director, officer, employee or agent of the any person who was or is a party or is threatened
corporation that is made or threatened to be made to be made a party to any action or proceeding
a party to any action or proceeding because that because he or she is or was a director, officer,
person is or was a director, officer, employee or employee or agent of the corporation, or is or was
other corporate agent of the corporation or any serving at the request of the corporation as a
subsidiary of the corporation or serves or served director, officer, employee, partner, venturer,
any other enterprise at the corporation's request. proprietor, trustee, agent or similar functionary
SMM's bylaws also provide that the corporation may of another corporation, partnership, joint
purchase indemnification insurance if the board of venture, trust or other enterprise or employee
directors determines it is necessary. benefit plan. Pinnacle's bylaws also provide that
the corporation may purchase and maintain
indemnification insurance.

LIMITATION OF DIRECTOR
LIABILITY: SMM's charter provides that no director is liable Pinnacle's charter provides that no director is
to the corporation or its shareholders or for liable to the corporation or its shareholders or
monetary damages for an act or omission in the for monetary damages for an act or omission in the
director's capacity as director except for: director's capacity as director except for:
- a breach of the director's duty of loyalty to - a breach of the director's duty of loyalty to
the corporation or its shareholders, the corporation or its shareholders,
- an act or omission not in good faith or that - an act or omission not in good faith that
involves intentional misconduct or a knowing constitutes a breach of duty to the corporation
violation of law, or an act or omission involving intentional
- a transaction from which the director received misconduct or a knowing violation of law,
an improper benefit (whether or not the benefit - a transaction from which the director received
resulted from an action taken within the scope an improper benefit, whether or not the benefit
of the director's office), or resulted from an action taken within the scope
- an act or omission for which the liability of of the director's office,
the director is expressly provided by statute, - an act or omission for which the liability of
or the director is expressly provided by
- an act related to an unlawful stock repurchase applicable statute.
or payment of a dividend.
</TABLE>

87
<PAGE>
LEGAL MATTERS

Porter & Hedges, L.L.P., Houston, Texas, will pass on certain legal matters
in the merger, including the validity of our shares of common stock offered by
this Proxy Statement/Prospectus and certain United States federal income tax
matters relating to the merger.

EXPERTS

The consolidated financial statements of Sanders Morris Mundy Inc. as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 included in this Registration Statement have been so included
in reliance on the report (which contains an explanatory paragraph relating to
the Company's investment partnerships and an accounting change as described in
Note 2) of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Pinnacle Global Group, Inc.
incorporated in this Registration Statement by reference to the Annual Report on
Form 10-K of Pinnacle Global Group, Inc. as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE TO FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy our filed reports, statements or
other information at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our public filings are also
available from commercial document retrieval services and at the Internet World
Wide Web site maintained by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information about us also may be inspected at the NASD's
offices at 1735 K Street, Washington, D.C. 20006. If you have trouble retrieving
electronically filed or other information about us, you should also search under
our former names--"TEI, Inc." and "Tanknology Environmental, Inc."

Additional information about our company can be found at our Web Site at
"http://www.pinnacleglobalgroup.com."

We filed the Registration Statement to register with the SEC the shares of
our common stock to be issued to SMM shareholders in the merger. This Proxy
Statement/Prospectus is a part of the Registration Statement and constitutes
both a prospectus and a proxy statement for our special meeting.

As allowed by SEC rules, this Proxy Statement/Prospectus does not contain
all the information you can find in the Registration Statement or its exhibits.

The SEC allows us to "incorporate by reference" information into this Proxy
Statement/Prospectus, which means that we can disclose important business and
financial information by referring you to another document separately filed with
the SEC. The information incorporated by reference is deemed to be part of this
Proxy Statement/Prospectus, except for any information superseded by information
contained directly in the Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by

88
<PAGE>
reference the following documents previously filed by us with the SEC. These
documents contain important information about our company and our finances.

<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 0-18899) PERIOD
- ------------------------------ -------------------------------------
<S> <C>
Annual Report on Form 10-K........... Year ended December 31, 1998

Quarterly reports on Form 10-Q....... Three months ended March 31, 1999 and
six months ended June 30, 1999
</TABLE>

We are also incorporating by reference additional documents we may file with
the SEC between the date of this Proxy Statement/Prospectus and the date of our
special meeting.

If you are one of our shareholders, we may have sent you some of the
documents incorporated by reference, but you can still obtain those documents
through us, or the SEC, or the SEC's Internet World Wide Web site described
above. Documents incorporated by reference are available from us without charge,
excluding their exhibits unless specifically incorporated by reference as an
exhibit to this Proxy Statement/Prospectus. Documents incorporated by reference
in this Proxy Statement/ Prospectus may be obtained from us upon request in
writing or by telephone at the following address and phone number:

Pinnacle Global Group, Inc.
5599 San Felipe, Suite 555
Houston, Texas 77056
Attention: Robert E. Garrison II
Telephone: (713) 993-4610

IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY
, 2000 TO RECEIVE THEM BEFORE THE SPECIAL MEETING. Requested
documents will be mailed to you by first-class mail, or other equally prompt
means, within one business day after we receive your request.

You should rely only on the information contained or incorporated by
reference in this Proxy Statement/Prospectus to vote your shares at the special
meeting. We have not authorized anyone to provide you with information that is
different from that contained in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus is dated , 1999. You should not assume that the
information contained in the Proxy Statement/Prospectus is accurate as of any
other date, and neither the mailing of this Proxy Statement/Prospectus to our
shareholders nor the issuance of our common stock in the merger shall create any
contrary implication.

89
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Sanders Morris Mundy Inc.

Report of Independent Accountants......................... F-2

Consolidated Statement of Financial Condition
as of December 31, 1998 and 1997........................ F-3

Consolidated Statement of Income
for the three years in the period ended December 31,
1998.................................................... F-4

Consolidated Statement of Changes in Stockholders' Equity
for the three years in the period ended December 31,
1998.................................................... F-5

Consolidated Statement of Changes in Subordinated
Borrowings
for the three years in the period ended December 31,
1998.................................................... F-6

Consolidated Statement of Cash Flows
for the three years in the period ended December 31,
1998.................................................... F-7

Notes to Consolidated Financial Statements................ F-8

Consolidated Statement of Financial Condition
as of June 30, 1999 (unaudited)......................... F-16

Consolidated Statement of Income
for the six months ended June 30, 1999 and 1998
(unaudited)............................................. F-17

Consolidated Statement of Cash Flows
for the six months ended June 30, 1999 and 1998
(unaudited)............................................. F-18

Notes to Consolidated Interim Financial Statements
(unaudited)............................................. F-19
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Sanders Morris Mundy Inc.

In our opinion, the accompanying consolidated statement of financial
condition and the related consolidated statements of income, changes in
stockholders' equity, changes in subordinated borrowings, and cash flows present
fairly, in all material respects, the consolidated financial position of Sanders
Morris Mundy Inc. and subsidiaries (the Company) at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.

As discussed in Note 2, the accompanying financial statements for the years
ended December 31, 1997 and 1996 have been restated to adjust for the Company's
equity interests in investment partnerships. Additionally, in 1998 the Company
changed its accounting for organization and start-up costs pursuant to the
provisions of Statement of Position 98-5.

PricewaterhouseCoopers LLP

Houston, Texas
February 24, 1999

F-2
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS

Cash and cash equivalents................................... $ 8,814,452 $ 5,249,459
Receivables................................................. 1,668,602 1,880,733
Securities owned:
Marketable, at market value............................... 3,565,901 1,880,732
Not readily marketable, at estimated fair value........... 9,911,947 3,168,023
Leasehold improvements, furniture and equipment, net........ 1,309,278 1,228,642
Goodwill, less accumulated amortization of $93,797 and
$52,109, respectively..................................... 323,077 364,765
Other assets................................................ 105,438 116,466
----------- -----------
$25,698,695 $13,888,820
=========== ===========

LIABILITIES, MINORITY INTERESTS, AND STOCKHOLDERS' EQUITY

Payable to brokers and dealers.............................. $ 32,252 $ 12,701
Securities sold, not yet purchased, at market value......... 19,404 416,007
Accounts payable and other accrued liabilities.............. 579,993 498,002
Accrued profit sharing...................................... 450,000 325,000
Deferred compensation....................................... 4,134,659 655,941
Sales commissions payable................................... 478,740 148,902
State income taxes payable.................................. 152,856 48,187
----------- -----------
Total liabilities....................................... 5,847,904 2,104,740
----------- -----------
Commitments and contingencies
Minority interests.......................................... 1,085,856 739,825
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, 200,000 shares authorized,
70,459 shares issued, 59,959 shares outstanding......... 705 705
Less--treasury stock (10,500 shares at par)............... (105) (105)
----------- -----------
600 600
Additional paid-in capital................................ 846,544 846,544
Retained earnings......................................... 17,917,791 10,197,111
----------- -----------
Total stockholders' equity.............................. 18,764,935 11,044,255
----------- -----------
$25,698,695 $13,888,820
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Underwriting........................................ $11,834,567 $ 9,481,744 $ 6,939,087
Commissions......................................... 9,129,954 7,639,843 5,256,688
Trading gains, net.................................. 16,989,945 3,623,462 3,154,061
Management and advisory fees from limited
partnerships...................................... 1,545,612 760,000 190,000
Interest income..................................... 362,555 356,332 243,088
Equity in earnings of limited partnerships.......... 1,693,472 2,159,044 382,982
Other............................................... 193,213 908,019 516,569
----------- ----------- -----------
Total revenues.................................... 41,749,318 24,928,444 16,682,475
----------- ----------- -----------
Expenses:
Employee compensation and benefits.................. 23,143,838 12,215,256 8,848,930
Clearing and execution fees......................... 1,953,140 1,789,229 1,138,751
Occupancy and equipment............................. 1,139,532 1,068,723 617,349
Information services................................ 730,535 558,408 290,275
Travel and entertainment............................ 733,299 445,203 186,315
Management fee...................................... 180,000 356,894 164,614
Depreciation and amortization expense............... 340,193 284,522 123,308
Advertising and public relations.................... 201,053 267,560 91,380
Other............................................... 2,592,695 1,441,146 1,474,795
----------- ----------- -----------
Total expenses.................................... 31,014,285 18,426,941 12,935,717
----------- ----------- -----------
Income before cumulative effect of a change in
accounting principle and minority interests......... 10,735,033 6,501,503 3,746,758
Cumulative effect of a change in accounting
principle........................................... (284,694) -- --
Minority interests in earnings of consolidated
companies........................................... 429,659 699,025 82,147
----------- ----------- -----------
Net income............................................ $10,020,680 $ 5,802,478 $ 3,664,611
=========== =========== ===========

Earnings per share--basic and diluted................. $ 167.24 $ 95.36 $ 60.32
=========== =========== ===========
Weighted average shares--basic and diluted............ 59,917 60,847 60,755
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
------------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........ 65,800 $658 (7,300) $ (73) $ 670,284 $ 3,123,522 $ 3,794,391

Net income...................... -- -- -- -- -- 3,664,611 3,664,611
Distribution to shareholders.... -- -- -- -- -- (643,500) (643,500)
Issuance of shares.............. 1,500 15 -- -- 168,736 -- 168,751
Issuance of shares for
acquisition................... 3,159 32 -- -- 438,148 -- 438,180
------ ---- ------- ----- ---------- ----------- -----------
Balance, December 31, 1996...... 70,459 705 (7,300) (73) 1,277,168 6,144,633 7,422,433

Net income...................... -- -- -- -- -- 5,802,478 5,802,478
Distribution to shareholders.... -- -- -- -- -- (1,750,000) (1,750,000)
Purchase of treasury stock...... -- -- (3,200) (32) (430,624) -- (430,656)
------ ---- ------- ----- ---------- ----------- -----------
Balance, December 31, 1997...... 70,459 705 (10,500) (105) 846,544 10,197,111 11,044,255

Net income...................... -- -- -- -- -- 10,020,680 10,020,680
Distribution to shareholders.... -- -- -- -- -- (2,300,000) (2,300,000)
------ ---- ------- ----- ---------- ----------- -----------
Balance, December 31, 1998...... 70,459 $705 (10,500) $(105) $ 846,544 $17,917,791 $18,764,935
====== ==== ======= ===== ========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF CHANGES IN SUBORDINATED BORROWINGS

<TABLE>
<S> <C>
Subordinated borrowings at January 1, 1996.................. $ 700,000

Increase--issuance of subordinated notes.................... 2,500,000
Decrease--payment of subordinated notes..................... (3,200,000)
-----------

Subordinated borrowings at December 31, 1996................ --

Increase--issuance of subordinated notes.................... 1,250,000
Decrease--payment of subordinated notes..................... (1,250,000)
-----------
Subordinated borrowings at December 31, 1997................ --

Increase--issuance of subordinated notes.................... 3,500,000
Decrease--payment of subordinated notes..................... (3,500,000)
-----------

Subordinated borrowings at December 31, 1998................ $ --
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:-
Net income........................................... $10,020,680 $ 5,802,478 $ 3,664,611
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 340,193 284,522 123,308
Bad debt expense................................... 350,000 -- 312,135
Minority interests in earnings of consolidated
subsidiaries..................................... 429,659 699,025 82,147
Cumulative change in accounting principle.......... 284,694 -- --
Change in:
Receivables...................................... (137,869) (565,081) (635,259)
Securities owned................................. (5,386,111) (3,210,424) (981,941)
Other assets..................................... (273,666) (55,542) 19,666
Payable to brokers and dealers................... 19,551 1,944 (12,892)
Securities sold, not yet purchased............... (396,603) 233,706 93,860
Accounts payable and other accrued liabilities... 81,991 (59,369) 457,232
Accrued profit sharing........................... 125,000 46,696 33,511
Deferred compensation............................ 435,736 557,280 98,661
Sales commissions payable........................ 329,838 (23,843) 123,746
State income taxes payable....................... 104,669 (109,501) 133,938
Deferred income.................................. -- -- (500,000)
----------- ----------- -----------
Net cash provided by operating activities...... 6,327,762 3,601,891 3,012,723
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................. (379,141) (857,588) (273,435)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock........................... -- (430,656) --
Distribution to shareholders......................... (2,300,000) (1,750,000) (643,500)
Contributions paid from (distributions paid to)
minority interests................................. (83,628) (51,347) 10,000
Issuance of common stock............................. -- -- 168,751
Decrease in subordinated borrowings.................. -- -- (700,000)
----------- ----------- -----------
Net cash used in financing activities.......... (2,383,628) (2,232,003) (1,164,749)
----------- ----------- -----------
Net increase in cash and cash equivalents.............. 3,564,993 512,300 1,574,539
Cash and cash equivalents at beginning of year......... 5,249,459 4,737,159 3,162,620
----------- ----------- -----------
Cash and cash equivalents at end of year............... $ 8,814,452 $ 5,249,459 $ 4,737,159
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest............................... $ 40,570 $ 21,079 $ 38,017
Cash paid for income taxes........................... 25,812 45,038 23,750
Noncash investing activities (Note 6).................. -- -- 438,180
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Sanders Morris Mundy Inc. (the Company) was incorporated in the state of
Texas for the purpose of serving as a broker/dealer and to enter into certain
investment banking activities. The Company commenced operations in 1987 and
currently operates as a nonclearing broker with its customers' accounts carried
by a clearing broker/dealer, Broadcort Capital Corp. (Broadcort) at December 31,
1998, pursuant to a fully-disclosed clearing arrangement.

In addition, the Company manages, through its majority interests in certain
management companies, limited partnerships which invest in debt and equity
securities in companies primarily operating in the environmental industry and in
small capitalization companies.

In October 1996, the Company purchased 100% of the stock of a broker/dealer,
Williams McKay Jordan & Co., Inc. (WMJ), for $438,180 (Note 6). The acquisition
was accounted for under the purchase method of accounting and the results of
operations of WMJ are included in the consolidated financial statements from the
date of acquisition.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.

SECURITIES OWNED

Substantially all marketable securities are carried at fair value based on
quoted market prices or amounts that approximate fair value. Not readily
marketable securities are valued at fair value based on either internal
valuation models or management's estimate of amounts that could be realized
under current market conditions assuming an orderly liquidation over a
reasonable period of time. Unrealized gain or loss from marking securities owned
to market value is included in income under the caption "Trading gains, net."
Securities not readily marketable include securities (a) for which there is no
market on a securities exchange or no independent publicly quoted market,
(b) that cannot be publicly offered or sold unless registration has been
effected under the Securities Act of 1933 or other applicable securities acts,
or (c) that cannot be offered or sold because of other arrangements,
restrictions or conditions applicable to the securities or to the Company.
Proprietary transactions and the related income/expense are recorded on the
trade date. Realized gains and losses from sales of securities are computed
using the average cost method.

COMMISSIONS

Commissions are recorded on a trade-date basis as securities transactions
occur.

F-8
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASEHOLD IMPROVEMENTS, FURNITURE AND EQUIPMENT

Leasehold improvements, furniture and equipment are carried at cost less
accumulated depreciation and amortization. Amortization of leasehold
improvements is computed on a straight-line basis over the term of the lease.
Depreciation of office furniture and equipment is computed on a straight-line
basis over a seven-year period.

GOODWILL

The excess of cost over the net asset value at acquisition of WMJ is being
amortized on a straight-line basis over ten years.

UNDERWRITING

Underwriting revenues include gains, losses and fees, net of syndicate
expenses, arising from securities offerings in which the Company acts as an
underwriter or agent. Underwriting management fees are recorded on the offering
date, sales concessions are recorded on the settlement date, and underwriting
fees are recorded at the time the underwriting is completed and the related
income is reasonably determinable.

INCOME TAXES

The Company has elected to be treated as an S Corporation for federal income
tax purposes. Accordingly, stockholders are individually responsible for
reporting for federal income tax purposes their appropriate share of the
Company's taxable income or loss. Accordingly, no provision for federal income
taxes is included in the consolidated financial statements.

The Company is directly liable for state income taxes. The provision for
state income taxes is calculated under the liability method and is included in
other expenses in the consolidated statement of income.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Management has determined that the fair value of the Company's financial
instruments is equivalent to the carrying amount of such financial instruments
as presented or disclosed in the consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-9
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES

The Company owns securities which are valued at estimated or quoted market
values at the statement of financial condition date. As a result of changes in
market and other conditions, it is at least reasonably possible that changes to
the values of securities could occur in the short-term and be material to the
Company's financial statements.

RESTATEMENT

The consolidated financial statements for the years ended December 31, 1997
and 1996 have been restated to reflect the investments in limited partnerships
on the equity method and the deferred compensation related to the increase in
the equity in the partnerships. The effect of the restatement was to reduce net
income by $74,799 ($1.23 per share) for the year ended December 31, 1996 and to
increase net income by $1,368,128 ($22.48 per share) for the year ended
December 31, 1997.

CHANGE IN ACCOUNTING PRINCIPLE

In 1998, Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," (SOP 98-5) was adopted. SOP 98-5 requires that organization costs
be expensed as they are incurred. Additionally, any organization costs
previously capitalized and unamortized are to be charged against earnings. The
cumulative effect of adopting SOP 98-5 was a charge of $284,694 which is
reported as a cumulative effect of a change in accounting principle in the
consolidated statement of income.

NEW ACCOUNTING PRONOUNCEMENT

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of Effective Date of Financial Accounting
Standard No. 133" (SFAS 137) which results in a one-year delay of the
implementation of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). As a
result, the provisions of SFAS 133 will now become effective for all reporting
periods beginning after June 15, 2000 and retroactive application of SFAS 133 is
not permitted. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. Under SFAS 133, these derivatives
must be measured at fair value and recognized as either assets or liabilities in
the statement of financial condition. In addition, hedge accounting should only
be provided for those transactions that meet certain specified criteria. The
accounting for changes in fair value of a derivative will be dependent upon the
intended use of the derivative and its designation. The Company does not believe
that the impact of adopting SFAS 133 will be material.

RECLASSIFICATIONS

Certain 1996 and 1997 amounts have been reclassified to conform to their
1998 presentation.

F-10
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. RECEIVABLES

The receivables balance at December 31 is comprised of the following:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Notes receivable--nonaffiliated parties.............. $ 801,174 $ 715,253
Notes receivable--related parties.................... 429,995 501,790
Receivable from brokers and dealers.................. 85,930 194,194
Other accounts receivable............................ 701,503 469,496
Allowances for bad debts............................. (350,000) --
---------- ----------
$1,668,602 $1,880,733
========== ==========
</TABLE>

At December 31, 1998, the major amounts of notes receivable from
nonaffiliated parties consist of two promissory notes from an unrelated company.
The first note for $425,000 bears interest at 8% and matures on December 31,
2002. The second note in the amount of $265,253, is noninterest-bearing and
matures on December 31, 2002.

At December 31, 1997, notes receivable from nonaffiliated parties primarily
include two promissory notes from an unrelated party. The first note for
$300,000 bears interest at 8% and matures on December 31, 1998. The second note
in the amount of $265,253, is noninterest-bearing and matures on December 31,
1998.

Notes receivable from related parties are interest bearing loans provided to
certain executives and employees of the Company. At December 31, 1998, the notes
have tiered maturities from 1999 through 2002 and are structured to be
incentives for the employees to remain at the Company. As each maturity date is
reached, a portion of the notes and applicable interest is forgiven if the
employee remains employed by the Company. Such forgiveness is recorded as
employee compensation expense in the consolidated statement of income.

4. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED

Marketable securities owned and securities sold, not yet purchased, consist
of the following at market values:

<TABLE>
<CAPTION>
SOLD, NOT YET
OWNED PURCHASED
---------- -------------
<S> <C> <C>
1998
U.S. securities:
Corporate stocks................................... $3,562,997 $ 19,404
Options and warrants............................... 2,904 --
---------- --------
$3,565,901 $ 19,404
========== ========
1997
U.S. securities:
Corporate stocks................................... $1,871,917 $416,007
Options and warrants............................... 8,815 --
---------- --------
$1,880,732 $416,007
========== ========
</TABLE>

F-11
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED (CONTINUED)
Securities not readily marketable consist of investments in limited
partnerships, equities, options and warrants. The investments in limited
partnerships, which are accounted for using the equity method, consist of
Environmental Opportunities Fund, L.P., Environmental Opportunities Fund
(Cayman), L.P., Environmental Opportunities Fund II, L.P., Environmental
Opportunities Fund II (Institutional), L.P., Corporate Opportunities Fund, L.P.,
and Corporate Opportunities Fund (Institutional), L.P.

A summary of the results of operations and net assets for the limited
partnerships is as follows:

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Result of operations:
Investment income.............................. $ 538,892 $ 154,788
Realized gain (loss) on investments............ 21,951,470 (3,000,083)
Change in unrealized gain on investments....... (12,051,868) 15,217,265
Increase in partners' capital resulting from
operations................................... 8,577,404 11,565,908
Total assets..................................... 56,183,338 46,012,647
Total liabilities................................ 182,670 24,050
</TABLE>

5. LEASEHOLD IMPROVEMENTS, FURNITURE AND EQUIPMENT

Leasehold improvements, furniture and equipment consists of the following at
December 31:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS 1998 1997
---------------- ----------- -----------
<S> <C> <C> <C>
Leasehold improvements............... 5 $ 1,034,825 $ 977,283
Furniture and fixtures............... 7 858,297 786,533
Office equipment..................... 7 882,283 632,448
----------- -----------
2,775,405 2,396,264
Accumulated depreciation............. (1,466,127) (1,167,622)
----------- -----------
Leasehold improvements, furniture and
equipment, net..................... $ 1,309,278 $ 1,228,642
=========== ===========
</TABLE>

F-12
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SUPPLEMENTAL CASH FLOW INFORMATION

In October 1996, the Company acquired all of the capital stock of WMJ,
through the issuance of 3,159 shares of the Company's common stock. The
acquisition was accounted for as a purchase and the purchase price was allocated
as follows:

<TABLE>
<S> <C>
Receivables and securities owned............................ $ 328,149
Furniture and equipment, net................................ 12,127
Goodwill.................................................... 416,874
Other assets, net........................................... 10,079
Less liabilities assumed.................................... (329,049)
---------
Net assets acquired with common stock....................... $ 438,180
=========
</TABLE>

There were no noncash investing activities during 1997 or 1998.

7. CONCENTRATIONS OF RISK

In the normal course of business, the Company enters into securities sales
transactions as principal. If the securities subject to such transactions are
not in the possession of the Company, the Company is subject to risk of loss if
it must acquire the security on the open market at a price which exceeds the
contract amount of the transaction.

The Company executes, as agent, securities transactions on behalf of its
customers. If either the customer or a counterparty fails to perform, the
Company may be required to discharge the obligations of the nonperforming party.
In such circumstances, the Company may sustain a loss if the market value of the
security is different from the contract value of the transaction. The Company's
customer security transactions are transacted on either a cash or margin basis.
In margin transactions, the customer is extended credit by the clearing broker,
subject to various regulatory margin requirements, collateralized by cash and
securities in the customer's account. In connection with these activities, the
Company executes customer transactions with the clearing broker involving the
sale of securities not yet purchased (short sales). If the customer fails to
satisfy its obligation, the Company may be required to purchase financial
instruments at prevailing market prices in order to fulfill the customer's
obligations.

As an introducing securities broker and dealer, the Company is engaged in
various trading and brokerage activities involving securities of various
industries. A substantial portion of the Company's transactions involve
securities relating to the environmental industry. Accordingly, the overall
economic impact of environmental industry trends could directly impact the
Company's ability to maintain current trading activity levels.

The Company's policy is to monitor its market exposure, customer risk and
counterparty risk through the use of a variety of credit exposure reporting and
control procedures, including marking-to-market securities and any related
collateral as well as requiring adjustments of collateral levels as necessary.
In addition, the Company has a policy of reviewing, as considered necessary, the
credit standing of each counterparty and customer with which it conducts
business.

8. COMMITMENTS AND CONTINGENCIES

The Company leases office space under noncancelable operating leases which
provide for base annual rentals and additional rentals based on the lessor's
operating expenses for the year. Rental

F-13
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
expense for the year ended December 31, 1998, 1997 and 1996 totaled $628,695,
$681,139 and $391,104, respectively. Future minimum rentals at December 31, 1998
approximate:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
1999........................................................ $ 859,184
2000........................................................ 853,121
2001........................................................ 861,932
2002........................................................ 807,599
2003........................................................ 241,500
Thereafter.................................................. 80,500
----------
$3,703,836
==========
</TABLE>

In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such underwriting commitments that were
open at December 31, 1998 and 1997, and which were subsequently settled, had no
material effect on the consolidated financial statements as of that date.

9. BENEFIT PLANS

The Company maintains a defined contribution profit sharing plan for all
eligible employees, as defined by the plan document. The annual contributions by
the Company are discretionary. During 1998 and 1997, the Company accrued
contributions of $450,000 and $325,000, respectively. Such contributions were
funded subsequent to December 31, 1998 and 1997, respectively.

Effective January 1, 1996, the Company adopted a defined contribution plan
in accordance with section 401(k) of the Internal Revenue Code for all eligible
employees, as defined by the plan document. Eligible employees may contribute a
percentage of pretax earnings to the plan. Matching contributions by the Company
are optional and discretionary. For the year ended December 31, 1998, there were
no expenses under this plan. For the years ended December 31, 1997 and 1996,
expenses under this plan were $1,188,320 and $1,572,688, respectively.

10. DEFERRED COMPENSATION PLANS

As part of certain underwriting agreements with its customers, the Company
is awarded warrants which it immediately contributes to a deferred compensation
plan for key executives and employees. The Company is contractually obligated to
pay to plan participants all proceeds, if any, from the exercise of the warrants
and subsequent sale of the underlying stock. Expenses under this plan, which
corresponds to the increases in value of such warrants were $9,006,570,
$1,188,320 and $1,572,688 for the years ended December 31, 1998, 1997 and 1996,
respectively.

The Company has an agreement with certain of its employees which entitles
them to participate in a portion of the appreciation in its investment in
certain limited partnership interests. Expenses under this plan were $435,736,
$557,280 and $98,661 for the years ended December 31, 1998, 1997 and 1996,
respectively.

F-14
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. NET CAPITAL REQUIREMENTS

The Company is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. However, in connection with the fully
disclosed clearing arrangement with Broadcort, the Company is committed to
maintaining at all times a ratio of aggregate indebtedness to net capital not in
excess of 10 to 1. At December 31, 1998 and 1997, the Company had net capital,
as defined, of $6,528,705 and $5,189,749, respectively, which was $6,278,705 and
$4,939,749, respectively, in excess of the required minimum net capital of
$250,000. The Company's aggregate indebtedness to net capital ratio was .43-to-1
and .219-to-1 at December 31, 1998 and 1997, respectively.

F-15
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

(UNAUDITED)

<TABLE>
<CAPTION>
ASSETS
JUNE 30,
1999
-----------
<S> <C>
Cash and cash equivalents................................... $ 9,467,277
Receivables................................................. 3,059,036
Securities owned:
Marketable, at market value............................... 3,650,431
Not readily marketable, at estimated fair value........... 9,524,555
Leasehold improvements, furniture and equipment, net........ 1,295,309
Goodwill.................................................... 302,234
Other assets................................................ 285,418
-----------
$27,584,260
===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Payable to brokers and dealers
Securities sold, not yet purchased, at market value......... $ 183,946
Accounts payable and other accrued liabilities.............. 340,847
Accrued profit sharing...................................... 250,000
Deferred compensation....................................... 5,961,869
Accrued bonuses payable..................................... 1,206,000
Sales commissions payable................................... 865,496
State income taxes payable.................................. 240,879
-----------
Total liabilities....................................... 9,049,037
-----------
Minority interests.......................................... 1,090,213
-----------
Stockholders' equity:
Common stock, $0.01 par value, 200,000 shares authorized,
71,229 shares issued, 60,729 shares outstanding......... 1,475
Less--treasury stock (10,500 shares at par)............... (105)
-----------
1,370
Additional paid-in capital................................ 1,102,953
Retained earnings......................................... 16,340,687
-----------
Total stockholders' equity.............................. 17,445,010
-----------
$27,584,260
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-16
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Underwriting.............................................. $ 9,008,645 $ 8,657,608
Commissions............................................... 4,967,482 3,984,174
Trading gains, net........................................ 6,417,372 10,537,032
Management and advisory fees from limited partnerships.... 1,518,912 380,000
Interest income........................................... 186,423 192,549
Equity in earnings of limited partnerships................ 34,372 1,939,878
Other..................................................... 123,219 131,588
----------- -----------
Total revenues.......................................... 22,256,425 25,822,829
----------- -----------
Expenses:
Employee compensation and benefits........................ 12,542,802 15,091,722
Clearing and execution fees............................... 957,615 918,254
Occupancy and equipment................................... 736,072 501,253
Information services...................................... 511,845 315,916
Travel and entertainment.................................. 398,691 295,428
Management fee............................................ -- 166,197
Depreciation and amortization expense..................... 185,354 155,800
Advertising and public relations.......................... 24,152 43,357
Other..................................................... 1,397,839 1,536,129
----------- -----------
Total expenses.......................................... 16,754,370 19,024,056
----------- -----------
Minority interests in earnings of consolidated companies.... 34,357 485,161
----------- -----------
Net income.................................................. $ 5,467,698 $ 6,313,612
=========== ===========
Earnings per share--basic and diluted....................... $ 90.80 $ 105.30
=========== ===========
Weighted average shares--basic and diluted.................. 60,220 59,957
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-17
<PAGE>
SANDERS MORRIS MUNDY INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:-
Net income................................................ $ 5,467,698 $ 6,313,612
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 185,354 155,800
Bad debt expense........................................ 100,000 300,000
Minority interests in earnings of consolidated
subsidiaries.......................................... 34,357 485,161
Change in:
Receivables........................................... (1,490,434) (519,587)
Securities owned...................................... 846,930 (11,008,217)
Other assets.......................................... (179,980) (350,812)
Payable to brokers and dealers........................ (32,252) 8,116
Securities sold, not yet purchased.................... 164,542 (207,023)
Accounts payable and other accrued liabilities........ (239,146) (91,116)
Accrued profit sharing................................ (200,000) (100,000)
Deferred compensation................................. 1,827,210 6,619,244
Accrued bonuses payable............................... 938,000 2,136,000
Sales commissions payable............................. 654,756 322,743
State income taxes payable............................ 88,023 9,430
----------- ------------
Net cash provided by operating activities........... 8,165,058 4,073,351
----------- ------------
Cash flows from investing activities:
Capital expenditures...................................... (150,542) (128,342)
----------- ------------
Cash flows from financing activities:
Issuance of common stock.................................. 257,179 --
Distribution to shareholders.............................. (7,044,802) (2,300,000)
Distributions paid to minority interests.................. (30,000) (20,140)
----------- ------------
Net cash used in financing activities............... (6,817,623) (2,320,140)
----------- ------------
Net increase in cash and cash equivalents................... 1,196,893 1,624,869
Cash and cash equivalents at beginning of period............ 8,270,384 5,116,239
----------- ------------
Cash and cash equivalents at end of period.................. $ 9,467,277 $ 6,741,108
=========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ -- $ 38,153
Cash paid for income taxes................................ 10,369 13,024
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-18
<PAGE>
SANDERS MORRIS MUNDY INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

The interim consolidated financial statements as of June 30, 1999 and for
each of the six-month periods ended June 30, 1999 and 1998 are unaudited and
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary to fairly present the financial
condition, results of operations and cash flows with respect to the interim
financial statements have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.

2. PROPOSED MERGER

During October 1999, the Company entered into an agreement and plan of
reorganization (the "Agreement") with Pinnacle Global Group, Inc. ("Pinnacle").
Under the terms of the Agreement, the Company and Harris Webb & Garrison, Inc.,
a subsidiary of Pinnacle, would merge. If consummated, current shareholders of
the Company would receive stock of Pinnacle for all of the shares of the
Company. The merger is subject to (i) approval of shareholders of the Company
and Pinnacle, (ii) SEC and Nasdaq approvals and (iii) other related and
customary conditions.

3. NASD EXAMINATION

As part of its regular examination cycle, NASD Regulation inspected the
Company in August 1999. Following these inspections, various issues primarily
regarding registration and bookkeeping requirements, order execution procedures,
and supervision relating to such requirements and procedures were brought to the
Company's attention. The NASD Regulation has not informed the Company if it will
refer any of the identified issues to its enforcement divisions for further
consideration. Although the Company believes that there are defenses in
connection with these issues, the NASD Regulation could commence enforcement
proceedings with respect to one or more of the issues. If one or more
enforcement proceedings were commenced and one or more proceedings were to
result in a determination that the Company or its employees, including
executives with ultimate supervisory responsibility, violated or failed to
enforce securities rules or regulations, sanctions for the violations could
range from a letter of caution or censure, to financial costs and penalties or
various limitations on firm or employee activity, including individual
suspensions. These sanctions, including suspensions of the Company's employees
or executives, could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. The Company has
undergone NASD Regulation inspections in prior years and has not had an
enforcement proceeding commenced with respect to any issues raised in previous
inspections.

4. CLEARING ARRANGEMENT

In May 1999, the Company entered into a new fully-disclosed clearing
arrangement with the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation.

F-19
<PAGE>
APPENDIX A

AGREEMENT AND PLAN
OF
REORGANIZATION
DATED OCTOBER 12, 1999,
AMONG
PINNACLE GLOBAL GROUP, INC.,
HARRIS WEBB & GARRISON, INC.
AND
SANDERS MORRIS MUNDY INC.
AND
ITS SHAREHOLDERS
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION.............................. 1
1.1 Definitions................................................. 1
1.2 Interpretation.............................................. 6
1.3 Knowledge................................................... 6

ARTICLE II THE MERGER.................................................. 6
2.1 The Merger.................................................. 6
2.2 Merger Consideration........................................ 6
2.3 Closing and Effective Time of the Merger.................... 6

ARTICLE III REPRESENTATIONS AND WARRANTIES OF PGG PARTIES............... 7
3.1 Organization of PGG Parties................................. 7
3.2 Authority Relative to this Agreement........................ 7
3.3 No Violations............................................... 7
3.4 Consents and Approval....................................... 7
3.5 PGG Capitalization.......................................... 8
3.6 PGG Subsidiaries............................................ 8
3.7 SEC Filings................................................. 9
3.8 PGG Financial Statements.................................... 9
3.9 Absence of Certain Changes.................................. 9
3.10 No Undisclosed Liabilities.................................. 10
3.11 PGG Properties.............................................. 10
3.12 Taxes and Tax Returns....................................... 10
3.13 Litigation.................................................. 11
3.14 Environmental Matters....................................... 11
3.15 Employee Benefit Plans...................................... 12
3.16 Material Contracts.......................................... 13
3.17 Governmental Licenses and Permits; Compliance with Laws..... 14
3.18 Broker-Dealer Matters....................................... 14
3.19 Investment Advisor Matters.................................. 15
3.20 No Investment Company....................................... 15
3.21 Compliance with TTCA........................................ 15
3.22 Labor Matters............................................... 15
3.23 Transactions with Affiliates................................ 15
3.24 Year 2000 Compliance........................................ 16
3.25 Opinion of Financial Advisor................................ 16
3.26 Letters from Shareholders................................... 16
3.27 State Takeover Statutes..................................... 16
3.28 Brokers..................................................... 16

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SMM....................... 17
4.1 Organization of SMM......................................... 17
4.2 Authority Relative to this Agreement........................ 17
4.3 No Violations............................................... 17
4.4 Consents and Approval....................................... 17
4.5 SMM Capitalization.......................................... 18
4.6 Subsidiaries................................................ 18
4.7 SEC Filings................................................. 18
</TABLE>

A-i
<PAGE>

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
4.8 SMM Financial Statements.................................... 19
4.9 SMM Partnerships............................................ 19
4.10 Absence of Certain Changes.................................. 19
4.11 No Undisclosed Liabilities.................................. 20
4.12 SMM Properties.............................................. 20
4.13 Taxes and Tax Returns....................................... 21
4.14 Litigation.................................................. 21
4.15 Environmental Matters....................................... 22
4.16 Employee Benefit Plans...................................... 22
4.17 Material Contracts.......................................... 22
4.18 Governmental Licenses and Permits; Compliance with Laws..... 24
4.19 Broker-Dealer Matters....................................... 24
4.20 Investment Advisor Matters.................................. 24
4.21 No Investment Company....................................... 25
4.22 Labor Matters............................................... 25
4.23 Transactions with Affiliates................................ 25
4.24 Year 2000 Compliance........................................ 25
4.25 Brokers..................................................... 25

ARTICLE V REPRESENTATIONS AND AGREEMENTS OF THE SMM SHAREHOLDERS...... 25
5.1 Ownership and Status of SMM Shares.......................... 25
5.2 Power of the SMM Shareholder................................ 25
5.3 Approval of Merger.......................................... 26
5.4 No Conflicts................................................ 26
5.5 No Litigation............................................... 26
5.6 Preemptive and Other Rights; Waiver......................... 26
5.7 Control of Related Business................................. 26
5.8 No PGG Stock Ownership...................................... 27

ARTICLE VI PGG COVENANTS PENDING CLOSING............................... 27
6.1 Conduct of PGG's Business................................... 27
6.2 Forbearance by PGG.......................................... 27
6.3 Access and Information...................................... 28
6.4 Supplemental Information.................................... 28
6.5 PGG Registration Statement.................................. 28
6.6 PGG Shareholders' Meeting................................... 29
6.7 Confidentiality............................................. 29
6.8 No Solicitation............................................. 29
6.9 Consummation of Merger...................................... 29

ARTICLE VII COVENANTS OF SMM PENDING CLOSING............................ 30
7.1 Conduct of Business......................................... 30
7.2 Forbearance by SMM.......................................... 30
7.3 Access and Information...................................... 31
7.4 Supplemental Information.................................... 31
7.5 Confidentiality............................................. 31
7.6 SMM Shareholders' Meeting................................... 32
7.7 Consummation of Merger...................................... 32

ARTICLE VIII MUTUAL CONDITIONS........................................... 32
8.1 No Adverse Proceedings...................................... 32
</TABLE>

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<TABLE>
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<S> <C> <C> <C>
8.2 Registration Statement Effective............................ 32
8.3 Listing of Merger Shares.................................... 32
8.4 Broker-Dealer Regulatory Requirements....................... 32
8.5 PGG Shareholder Approval.................................... 32
8.6 SMM Shareholder Approvals................................... 32
8.7 Approval of Banking Commissioner............................ 32

ARTICLE IX CONDITIONS TO OBLIGATIONS OF PGG PARTIES.................... 33
9.1 Representations True at Closing............................. 33
9.2 No Adverse Changes.......................................... 33
9.3 Opinion of SMM Counsel...................................... 33
9.4 Affiliate Agreements........................................ 33
9.5 Releases.................................................... 33

ARTICLE X CONDITIONS TO SMM PARTIES OBLIGATIONS....................... 33
10.1 PGG Representations True at Closing......................... 33
10.2 No Adverse PGG Changes...................................... 33
10.3 Opinion of PGG's Counsel.................................... 33
10.4 Tax Opinion................................................. 33

ARTICLE XI ADDITIONAL AGREEMENTS....................................... 34
11.1 Application to Banking Commissioner......................... 34
11.2 Consents and Approvals...................................... 34
11.3 Publicity................................................... 34
11.4 Expenses.................................................... 34
11.5 Conveyance Taxes............................................ 34
11.6 Qualified Retirement Plans.................................. 35
11.7 Rule 144 Reports............................................ 35
11.8 Lock-Up Agreements.......................................... 36
11.9 Standstill.................................................. 36
11.10 Board Representation........................................ 37

ARTICLE XII NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES....... 37
12.1 Nature of Statements........................................ 37
12.2 Survival of Representations and Warranties.................. 37

ARTICLE XIII INDEMNIFICATION............................................. 38
13.1 Indemnification by the SMM.................................. 38
13.2 Indemnification by the SMM Shareholders..................... 38
13.3 Indemnification by the PGG Parties.......................... 38
13.4 Requests for Indemnification................................ 38

ARTICLE XIV AMENDMENT AND TERMINATION................................... 39
14.1 Amendment................................................... 39
14.2 Waiver...................................................... 39
14.3 Termination................................................. 40
14.4 Consequences of Termination................................. 40
14.5 PGG Termination Fee......................................... 40
14.6 SMM Termination Fee......................................... 41

ARTICLE XV GENERAL PROVISIONS.......................................... 41
15.1 Non-Business Days........................................... 41
15.2 Shareholder Consents........................................ 41
</TABLE>

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<TABLE>
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<S> <C> <C> <C>
15.3 SMM Shareholders' Agreement................................. 41
15.4 Notices..................................................... 42
15.5 Entire Agreement............................................ 42
15.6 Assignment; Binding Effect.................................. 42
15.7 Counterparts................................................ 42
15.8 Governing Law; Jurisdiction................................. 42
15.9 Severability of Provisions.................................. 43
15.10 Specific Performance........................................ 43
15.11 Joint Drafting.............................................. 43
15.12 Captions.................................................... 43
15.13 No Third-Party Beneficiaries................................ 43
</TABLE>

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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (this "AGREEMENT") dated as of
October 12, 1999, among Pinnacle Global Group, Inc., a Texas corporation
("PGG"), and Harris Webb & Garrison, Inc., a Texas corporation and a wholly
owned subsidiary of PGG ("HWG"), both of which are together referred to in this
Agreement as the "PGG PARTIES," and Sanders Morris Mundy Inc., a Texas
corporation ("SMM"), and the undersigned shareholders of SMM (the "SMM
SHAREHOLDERS") who collectively own, at the date of this Agreement, all of SMM's
issued and outstanding capital stock and who, collectively with SMM, are
referred to in this Agreement as the "SMM PARTIES";

W I T N E S S E T H

WHEREAS, the parties to this Agreement (the "PARTIES") wish to effect a
business combination in which HWG will merge into SMM in a merger (the "MERGER")
to be consummated under the Texas Business Corporation Act (the "TBCA") and a
Plan of Merger in the form attached as Annex A to this Agreement (the "PLAN OF
MERGER"); and

WHEREAS, the Parties intend that the Merger will qualify as a
"REORGANIZATION" under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended;

NOW, THEREFORE, the Parties agree that:

ARTICLE I
DEFINITIONS AND INTERPRETATION

1.1 DEFINITIONS In this Agreement:

"AFFILIATE" means a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with
another Person with the terms "control" and "controlled" meaning for purposes of
this definition, the power to direct the management and policies of a Person,
directly or indirectly, whether through the ownership of voting securities or
partnership or other ownership interests, or by contract or otherwise.

"ALTERNATIVE TRANSACTION" means any proposal or offer for a merger,
consolidation, acquisition, business combination, sale of all or a substantial
portion of assets, liquidation, recapitalization or other reorganization
involving PGG or any of its Subsidiaries (but excluding ERRI), or any proposal
or offer for the acquisition in any manner of a substantial equity interest in
PGG or any of its Subsidiaries (but excluding ERRI), other than the Merger.

"BROKER-DEALER REGULATORY REQUIREMENTS" means all Laws and rules and
regulations of all self-regulatory organizations which regulate the
registration, licensing, reporting, control or activities of a "broker" or
"dealer", as those two terms are defined in Section 3(a) of the Exchange Act,
including the Exchange Act, the Securities Investor Protection Act, the rules of
the NASD, state securities Laws, and the rules and regulations of state
securities commissions.

"BROKER-DEALER SUBSIDIARY" means each Subsidiary of PGG which is or is
required to be registered as a broker-dealer under any Broker-Dealer Regulatory
Requirement.

"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which
banks located in Houston, Texas are authorized or obligated to close.

"CHARTER DOCUMENTS" means (i) in the case of any Person which is a
corporation, its articles or certificate of incorporation and bylaws, and each
certificate or other document setting forth the designation, amount and relative
rights, limitations and preferences of any class or series of the corporation's
capital stock, (ii) in the case of any Person which is a partnership, its
partnership agreement

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and, if it is a limited partnership, its certificate of limited partnership, and
(iii) in the case of any Person which is a limited liability company, its
articles or certificate of organization and its regulations or limited liability
company agreement.

"CLOSING" has the meaning specified in Section 2.3.

"CLOSING DATE" means (i) the fifth Business Day immediately following the
earliest date upon or by which all conditions to the respective obligations of
the Parties set forth in Articles VIII, IX and X shall have been satisfied or
waived, or (ii) such other date as PGG and SMM may agree.

"CODE" means the United States Internal Revenue Code of 1986, as amended.

"COMPENSATORY WARRANTS" means all stock purchase warrants and options
received by SMM in payment for services to its clients, which the Board of
Directors has designated as being subject to the SMM Key Executive Plan.

"DAMAGES" mean all obligations, claims, liabilities, damages, penalties,
deficiencies, losses, investigations, proceedings, judgments, fines, and
reasonable costs and expenses (including reasonable costs and expenses incurred
in connection with the performance of obligations, interest, bonding and court
costs and attorneys', accountants', engineers', consultants' and investigators'
fees and disbursements) and disbursements incurred in connection with any
investigation or defense of any of the foregoing.

"DISTRIBUTABLE INVESTMENT SECURITIES" means and includes the 150,000 shares
of common stock of EarthCare Company and the 25,000 shares of convertible
preferred stock of OptiMark Technologies, Inc. owned by SMM at the date of this
Agreement.

"EFFECTIVE TIME" means the time and date when the Merger become effective
under the Plan of Merger.

"ENVIRONMENTAL CLAIM" means any claim by a Person alleging or imposing
actual or potential liability (including potential liability for any
investigatory cost, containment cost, control cost, prevention cost, remediation
cost, cleanup cost, governmental response cost, natural resources damage,
property damage, personal injury, or penalty) arising out of, based on,
resulting from or relating to (i) the presence, storage, transport, disposal,
use, discharge, release or threatened release of any Hazardous Substance at any
location, whether or not owned by the Person against which the claim is made, or
(ii) circumstances forming the basis for any liability under, or any violation
or alleged violation of, any Environmental Law.

"ENVIRONMENTAL LAWS" means all applicable U.S. federal, foreign, state,
local and other Laws, including common Laws and administrative or judicial
interpretations of those Laws by any Governmental Entity, relating to pollution
or the protection of human health and safety from the effects of pollution or
the environment (which includes its ambient air, surface water, ground water,
land surface and subsurface strata), including Laws relating to emissions,
discharges, releases or threatened releases of Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution, use, existence,
treatment, storage, disposal, transport, recycling, reporting or handling of
Hazardous Substances, but not including zoning and land use Laws.

"ENVIRONMENTAL PERMITS" means all permits, licenses, registrations,
certifications, exemptions, approvals and other authorizations of or by any
Governmental Entity required under any Environmental Law for PGG or SMM, or any
of their respective Subsidiaries, to conduct its or their operations as
presently conducted.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA AFFILIATE" means, with respect to any Person, any trade or business,
whether or not incorporated, which together with that Person would be deemed a
single employer within the meaning of Section 4001 of ERISA or Section 414 of
the Code.

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"ERRI" means Energy Recovery Resources Inc., a Subsidiary of PGG.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated under that Act.

"GAAP" means United States generally accepted accounting principles
consistently applied throughout the specified period and, if applicable, the
immediately preceding comparable period.

"GOVERNMENTAL ENTITY" means any U.S. federal, state, local or foreign court,
executive office, legislature, governmental agency or ministry, commission, or
administrative, regulatory or self-regulatory authority or instrumentality.

"HAZARDOUS SUBSTANCES" means chemicals, pollutants, contaminants, wastes
(including ambient wastes, hazardous wastes and liquid industrial wastes), or
other substances (including toxic, deleterious or hazardous substances), as
defined, listed or regulated pursuant to Environmental Laws, including asbestos
or asbestos-containing materials, polychlorinated biphenyls, pesticides and
oils, and petroleum and petroleum products (as those exemplary terms are defined
in or regulated under the United States National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. SectionSection 300.1 ET. SEQ. and other
Environmental Laws).

"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of 1940, as
amended, and the rules and regulations of the SEC promulgated thereunder.

"INVESTMENT ADVISORY RELATED AGREEMENTS" means any agreements and
arrangements of the following types to which SMM, PGG, or any Subsidiary of PGG
is a party or by which it is bound and which are currently actively in effect,
as they may have been amended, supplemented, waived or otherwise modified:
(i) written agreements and arrangements for the performance of investment
advisory, investment sub-advisory or investment management services with respect
to securities, real estate, commodities, currencies or any other asset class for
clients or on behalf of third parties; (ii) written agreements and arrangements
for the distribution of securities of any "investment company" within the
meaning of the Investment Company Act or funds underlying variable annuities,
variable life insurance or other similar products or the maintenance of
shareholder accounts for any of the foregoing products or the marketing of
investment advisory or investment management services or the maintenance of
accounts for such services; (iii) written trust agreements, custody
arrangements, transfer agent agreements, fund administration agreements, and
similar services agreements with respect to any of the foregoing; and (iv) all
other written agreements and arrangements of a similar nature that are material
to SMM, PGG or any Subsidiary of PGG.

"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC promulgated thereunder.

"LATEST PGG BALANCE SHEET" has the meaning specified in Section 3.8.

"LATEST SMM BALANCE SHEET" has the meaning specified in Section 4.8.

"LAW" means a law, statute, ordinance, rule, code or regulation enacted or
promulgated, or order, directive, instruction or other legally binding guideline
or policy issued or rendered by, any Governmental Entity.

"LIEN" means a lien, mortgage, deed of trust, deed to secure debt, pledge,
hypothecation, assignment, deposit arrangement, easement, preference, priority,
assessment, security interest, lease, sublease, charge, claim, adverse claim,
levy, interest of other Persons, or other encumbrance of any kind.

"LOCK-UP AGREEMENTS" has the meaning specified in Section 11.8.

"MAILING DATE" has the meaning specified in Section 6.6.

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"MATERIAL ADVERSE EFFECT" means when used with reference to a Party, a
material adverse effect on the financial condition, business or results of
operations of that Party and its Subsidiaries taken as a whole, without giving
effect to the consummation of the Merger.

"MERGER" has the meaning specified in the preamble of this Agreement.

"MERGER SHARES" means the 7,125,203 shares of PGG Common Stock to be issued
by PGG to the SMM Shareholders in connection the Merger as contemplated in
Section 2.2 and the Plan of Merger.

"NASD" means the National Association of Securities Dealers, Inc.

"PGG COMMON STOCK" means the Common Stock, $.01 par value per share, of PGG.

"PGG DISCLOSURE SCHEDULE" means the Disclosure Schedule signed for
identification purposes only by the President and Chief Executive Officer or
Chief Financial Officer of PGG, which the PGG Parties have delivered to, and
which has been reviewed and accepted by, the SMM Parties on or before the date
of this Agreement, and which contains information relevant to the
representations and warranties made by the PGG Parties in Article III.

"PGG FAIRNESS OPINION" means the opinion of Howard Frazier Barker
Elliot, Inc. referred to in Section 3.25.

"PGG SEC FILINGS" has the meaning specified in Section 3.7.

"PGG SHAREHOLDERS" means and includes all Persons who from time to time
before the Closing are holders of PGG Common Stock.

"PGG SHAREHOLDERS' MEETING" means the special meeting of the PGG
Shareholders referred to in Section 6.6, as it may be continued following any
temporary adjournment or adjournments thereof.

"PGG STOCK OPTIONS" means the presently outstanding employee and director
stock options granted under PGG's stock option plans for the purchase of an
aggregate 634,550 shares of PGG Common Stock.

"PLAN OF MERGER" has the meaning specified in the preamble of this
Agreement.

"PERMITTED LIENS" means (i) those Liens with respect to assets of PGG, any
Subsidiary of PGG or SMM set forth in Section 3.11 of the PGG Disclosure
Schedule or Section 4.11 of the SMM Disclosure Schedule, respectively,
(ii) those Liens reflected in the PGG SEC Filings, in the case of the PGG and
its Subsidiaries and their respective assets or properties, or the SMM SEC
Filings, in the case of SMM, (iii) Liens for water and sewer charges and current
taxes not yet due and payable or being contested in good faith, and (iv) other
Liens (including mechanics', couriers', workers', repairers', landlords',
materialmen's, warehousemen's and other similar Liens) arising in the ordinary
course of business as would not in the aggregate materially adversely affect the
value of, or materially adversely interfere with the use of, the property
subject thereto.

"PERSON" means an individual, corporation, partnership, association, joint
stock company, limited liability company, Governmental Entity, business trust,
unincorporated organization, or other legal entity.

"PROXY STATEMENT" means the proxy statement of PGG to be included in the
Registration Statement for the purpose of obtaining the approval of the PGG
Shareholders of the issuance of the Merger Shares in connection with the Merger.

"REGISTRATION STATEMENT" means the Registration Statement on Form S-4 to be
filed with the SEC for the purpose of registering the Merger Shares under the
Securities Act.

"RELEASES" means the Releases required to be delivered to SMM and the PGG
Parties by the SMM Shareholders, as provided in Section 9.5.

"SEC" means the Securities and Exchange Commission or any successor agency.

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"SMM COMMON STOCK" means the Common Stock, $.01 par value per share, of SMM.

"SMM DISCLOSURE SCHEDULE" means the Disclosure Schedule signed for
identification purposes only by the President and Chief Executive Officer or
Chief Financial Officer of SMM, which SMM has delivered to, and which has been
reviewed and accepted by, the PGG Parties on or before the date of this
Agreement, and which contains information relevant to the representations and
warranties made by SMM in Article IV.

"SMM INTERIM FINANCIAL STATEMENTS" has the meaning specified in
Section 4.8.

"SMM KEY EXECUTIVE PLAN" means the Sanders Morris Mundy Inc. Key Executive
Plan, as adopted by the Board of Directors of SMM on October 1, 1992, and as
amended through the date of this Agreement.

"SMM PARTNERSHIPS" means all general and limited partnerships of which SMM
or any Subsidiary of SMM is a general partner, and all joint ventures of which
SMM or any Subsidiary of SMM is a joint venturer; including any such limited or
general partnership or joint venture the financial statements of which have been
consolidated with those of SMM for purposes of the consolidated financial
statements of SMM referenced in Section 4.8.

"SMM SHAREHOLDERS' AGREEMENT" means the Second Amended and Restated Buy-Sell
Agreement dated April 30, 1999, together with all Addenda thereto, among SMM and
the SMM Shareholders.

"SMM SEC FILINGS" has the meaning specified in Section 4.7.

"SMM SHAREHOLDERS MEETING" means the special meeting of the SMM Shareholders
referred to in Section 7.6, as it may be continued following any temporary
adjournment or adjournments thereof.

"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.

"SUBORDINATION AGREEMENTS" means any agreement between SMM or a
Broker-Dealer Subsidiary, on the one hand, and any other Person, on the other
hand, by which such Person subordinates to the claims of other creditors of SMM
or such Broker-Dealer Subsidiary, as the case may be, the payment of
indebtedness which SMM or such Broker-Dealer Subsidiary excludes from the
calculation of its "aggregate indebtedness" as defined in SEC Rule 15c3-1(c).

"SUBSIDIARY" of a Party means an Affiliate of that Party more than 50% of
the aggregate voting power (or any other voting, membership, partnership or
joint venture equity interest in the case of a Person that is not a corporation)
of which is beneficially owned by that Party directly or indirectly through one
or more other Persons.

"TAX" means any tax of any kind, however denominated, including any
interest, penalties or other additions to tax that may become payable in respect
thereof or in respect of a failure to comply with any requirement relating to
any Tax Return, imposed by any U.S. federal, foreign, state or local
Governmental Entity, including all income, gross income, gross receipts,
profits, goods and services, social security, old age security, sales and use,
ad valorem, excise, franchise, business license, occupation, real property
gains, payroll and employee withholding, unemployment insurance, real and
personal property, stamp, environmental, transfer, workers' compensation,
severance, alternative minimum, windfall, and capital taxes, and other
obligations of the same or a similar nature to any of the foregoing.

"TAXING AUTHORITY" means any Governmental Entity responsible for the
imposition, assessment, enforcement or collection of any Tax.

"TAX RETURNS" means all Tax returns, declarations, reports, estimates,
information returns and statements required to be filed with any Taxing
Authority, or provided to any partner, shareholder, joint venturer or member
under U.S. federal, foreign, state, or local Laws (including reports with
respect to backup withholding and payments to Persons other than Taxing
Authorities), and annual tax returns on

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behalf of employee benefit plans sponsored by PGG or SMM or any of their
respective Subsidiaries or ERISA Affiliates.

"TBCA" has the meaning specified in the preamble of this Agreement.

"TEXAS BANKING COMMISSIONER" means the banking commissioner of Texas or a
Person designated by the banking commissioner of Texas and acting under the
direction and authority of the banking commissioner.

"TRUST COMPANY SUBSIDIARY" means any Subsidiary of PGG which is or is
required to be organized as a trust company under the TTCA.

"TTCA" means the Texas Trust Company Act.

"WAGES" has the meaning given such term by Section 3401(a) of the Code.

"WARN ACT" means the Worker Adjustment and Retraining Notification Act of
1988.

1.2 INTERPRETATION. Capitalized terms defined in this Agreement are
equally applicable to both their singular and plural forms. References in this
Agreement to a designated "Article" or "Section" refer to an Article or Section
of this Agreement, unless otherwise specifically indicated. All pronouns in this
Agreement shall be construed as including both genders and the neuter. In this
Agreement, "including" is used only to indicate examples, without limitation to
the indicated examples, and without limiting any generality which precedes it.

1.3 KNOWLEDGE. When a representation and warranty in Article III is made
to the "knowledge" of PGG or the PGG Parties, it means receipt of notice by or
actual knowledge of the Chairman of the Board, the President and Chief Executive
Officer, the Chief Financial Officer or the Chief Compliance Officer of either
PGG or HWG, or the President of any other Subsidiary of PGG. When a
representation and warranty in Article IV is made to the "knowledge" of SMM or
the SMM Shareholders, it means receipt of notice by or actual notice of the
Chairman of the Board, President, Chief Financial Officer or Chief Compliance
Officer of SMM, or any SMM Shareholder.

ARTICLE II
THE MERGER

2.1 THE MERGER. Simultaneously with the execution and delivery of this
Agreement, the Plan of Merger is being executed and delivered by its parties.
Subject to satisfaction of the conditions set forth in this Agreement and in the
Plan of Merger, at the Effective Time HWG shall be merged with and into SMM in
accordance with the TBCA and the Plan of Merger.

2.2 MERGER CONSIDERATION. As more fully provided in, and subject to the
terms and provisions of, the Plan of Merger, each share of SMM Common Stock
outstanding immediately before the Effective Time will, as a result of the
Merger, be converted into 117.32867 shares of PGG Common Stock.

2.3 CLOSING AND EFFECTIVE TIME OF THE MERGER. The closing of the Merger
(the "CLOSING") shall take place at the offices of Porter & Hedges, L.L.P., 700
Louisiana Street, Houston, Texas, on the Closing Date. As soon as practicable
after the Closing, SMM and HWG will cause Articles of Merger incorporating the
Plan of Merger to be executed and filed with the Secretary of State of Texas as
required by the TBCA.

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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF
PGG PARTIES

The PGG Parties jointly and severally represent and warrant to the SMM
Parties that:

3.1 ORGANIZATION OF PGG PARTIES. Each PGG Party is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Texas. Each PGG Party has full authority and corporate power to conduct its
business as it is currently being conducted and, unless it will not survive the
Merger, as to be conducted following consummation of the Merger. Each PGG Party
is duly qualified to do business, and in good standing, in each jurisdiction
where the nature of its properties or business requires such qualification. The
PGG Parties have delivered to SMM true, correct and complete copies of the
Charter Documents of each PGG Party.

3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each PGG Party has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement. The execution and delivery of this Agreement, the consummation
of the Merger, and the issuance and delivery of the Merger Shares upon
consummation of the Merger, have been duly authorized by the respective Boards
of Directors of the PGG Parties, and except for the approval by the PGG
Shareholders of the issuance of the Merger Shares in connection with the Merger,
no other corporate proceedings on the part of either PGG Party are necessary to
authorize this Agreement, the issuance and delivery of the Merger Shares, or the
consummation of the Merger. This Agreement has been duly executed and delivered
by each PGG Party. Assuming the valid authorization, execution and delivery of
this Agreement by each SMM Party, this Agreement is a valid and binding
obligation of each PGG Party, enforceable against each PGG Party in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, motorium or other Laws relating to or affecting
creditors' rights generally or by equitable principles.

3.3 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by the respective PGG Parties, the issuance and delivery by PGG of the
Merger Shares in connection with the Merger, and the consummation of the Merger
will not:

(i) constitute a breach or violation of or default under the Charter
Documents of either PGG Party or any of the PGG Subsidiaries or, assuming
the obtainment of the consents and approvals described in clause (i) of
Section 3.4, any Law applicable to either PGG Party or any of the PGG
Subsidiaries; or

(ii) except as accurately reflected in Section 3.3 of the PGG Disclosure
Schedule, violate or conflict with or result in a breach of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under or result in the termination of, or accelerate
the performance by, or result in a right of termination under, or result in
the creation of any Lien upon the assets or properties of PGG or any of its
Subsidiaries under, any contract, indenture, loan document, license, permit,
order, decree or instrument to which PGG or any of its Subsidiaries is a
party or by which any of them or their assets or properties are bound.

3.4 CONSENTS AND APPROVAL. No consent, order, approval, waiver or
authorization of, or registration, application, declaration or filing with, any
Person is required with respect to either PGG Party or any Subsidiary of PGG in
connection with the execution and delivery of this Agreement, the issuance of
the Merger Shares or the consummation of the Merger, except for:

(i) consents, authorizations, approvals, filings or exemptions in
connection with the applicable provisions of all Broker-Dealer Regulatory
Requirements insofar as they pertain to the Merger;

(ii) the consents and approvals described on Section 3.4 of the PGG
Disclosure Schedule;

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(iii) the approval by the PGG Shareholders, as contemplated in
Section 6.6, of the issuance of the Merger Shares; and

(iv) other cases, considered individually and in the aggregate, in which
any failure to make such registration, application, declaration or filing or
to obtain any such consent, order, approval, waiver or other authorization
is not reasonably likely to have a Material Adverse Effect on PGG.

The affirmative vote of the holders of not less than a majority of the
outstanding shares of PGG Common Stock representing a quorum at the PGG
Shareholders' Meeting is the only vote of the holders of PGG capital stock
necessary to approve this Agreement or the Merger.

3.5 PGG CAPITALIZATION. The authorized capital stock of PGG consists of
(i) 100 million shares of PGG Common Stock and (ii) 10 million shares of
Preferred Stock, $.10 par value, of PGG ("PGG PREFERRED STOCK"). At October 12,
1999, 7,125,253 shares of PGG Common Stock, and no shares of PGG Preferred
Stock, were issued and outstanding, 634,550 shares of PGG Common Stock were
reserved for issuance upon exercise of the PGG Stock Options, and no shares of
PGG Common Stock were held by PGG as treasury shares. All of the issued and
outstanding shares of PGG Common Stock are duly and validly issued, fully paid
and nonassessable, and were issued free of preemptive rights, in compliance with
any rights of first refusal, and in compliance with all Laws. Section 3.5 of the
PGG Disclosure Schedule sets forth the names of the recipients, the number of
options granted, the exercise price, and the term of all PGG Stock Options.
Except for the PGG Stock Options, no subscription, warrant, option, convertible
security, stock appreciation or other right (contingent or other) to purchase or
acquire any shares of any class of capital stock of PGG or any of its
Subsidiaries is authorized or outstanding, and there is not outstanding any
commitment of PGG or any of its Subsidiaries to issue any shares, warrants,
options or other such rights or to distribute to holders of any class of its
capital stock any evidences of indebtedness or assets. Neither PGG nor any of
its Subsidiaries has any contingent or other obligation to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. PGG is not a
party, and has no knowledge that any PGG Shareholders are parties, to any voting
agreement, voting trust or similar agreement or arrangement relating to PGG's
capital stock or any agreement or arrangement relating to or providing for
registration rights with respect to its capital stock.

Upon their issuance upon consummation of the Merger, the Merger Shares will
be duly authorized, validly issued, fully paid and nonassessable and, will
represent 50% (rounded to the nearest one-hundredth of a percentage point) of
the total number of shares of PGG Common Stock outstanding immediately following
consummation of the Merger (assuming no exercises of the PGG Stock Options
between the date of this Agreement and the Effective Time).

3.6 PGG SUBSIDIARIES. Section 3.6 of the PGG Disclosure Schedule sets
forth with respect to each PGG Subsidiary (i) its jurisdiction of incorporation,
formation, or organization, (ii) each jurisdiction in which it is qualified to
do business as a foreign entity, (iii) its authorized, issued, and outstanding
shares of capital stock, membership, partnership, or other equity interests, and
(iv) the holder or holders of all outstanding shares of capital stock and the
percentage ownership of each such holder or holders. Each Subsidiary of PGG is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full authority and corporate power
to conduct its business as presently being conducted. Each Subsidiary of PGG is
duly qualified to do business, and in good standing, in each jurisdiction where
the nature of its properties or business requires such qualification. All of the
outstanding shares of capital stock of each Subsidiary of PGG are validly
issued, fully paid and nonassessable and are owned of record and beneficially by
PGG or a wholly owned direct or indirect Subsidiary of PGG, free and clear of
all Liens. There are no outstanding subscriptions, options, warrants, calls,
rights, convertible securities, obligations to make capital contributions or
advances, voting trust arrangements, shareholders' agreements or other
agreements, commitments or understandings relating to the issued and outstanding
capital stock of any Subsidiary of PGG. Except as described in Section 3.6 of

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the PGG Disclosure Schedule or the PGG SEC Filings, PGG does not, directly or
indirectly, have any equity investment in any corporation, limited liability
company, partnership, joint venture or other business entity.

3.7 SEC FILINGS. The PGG Parties have filed all forms, reports and
documents required to be filed by them with the SEC since January 1, 1996, and
PGG has made available to SMM true and complete copies of (i) the Annual Reports
on Form 10-K of PGG and its predecessor issuer for the years ended December 31,
1996, 1997 and 1998, (ii) all Annual Reports filed with the SEC by each
Broker-Dealer Subsidiary pursuant to SEC Rule 17a-5(d) for the years ended
December 31, 1996, 1997 and 1998, (iii) all other reports (including Current
Reports on Form 8-K), statements and registration statements filed by PGG and
its predecessor issuer with the SEC since December 31, 1998 and (iv) all Form
ADVs and Form BDs, and all amendments thereto, filed by each Broker-Dealer or
Investment Advisory Subsidiary since the date of organization of such
Broker-Dealer Subsidiary (collectively, the "PGG SEC FILINGS"). The PGG SEC
Filings, including all financial statements or schedules included in them,
(i) comply in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and (ii) did not at the time of their
filing (or if amended, supplemented or superseded by a later filing, on the date
of the later filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

3.8 PGG FINANCIAL STATEMENTS. The consolidated balance sheets and
consolidated statements of operations, stockholders' equity and cash flows of
PGG and its Subsidiaries included in the PGG SEC Filings fairly present in all
material respects the consolidated financial position of PGG and its
Subsidiaries at their respective dates and the consolidated results of
operations of PGG and its Subsidiaries for the respective periods then ended, in
accordance with GAAP, subject, in the case of unaudited interim financial
statements, to (i) year-end adjustments (which consist of normal recurring
accruals) and (ii) the absence of explanatory footnote disclosures required by
GAAP. PGG's unaudited consolidated balance sheet at June 30, 1999 included in
the PGG SEC Filings is herein called the "LATEST PGG BALANCE SHEET."

3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 3.9 of the
PGG Disclosure Schedule, since June 30, 1999, PGG and its Subsidiaries have
conducted their businesses only in the ordinary course, consistent with past
practice, there has not occurred a Material Adverse Effect, or any event that
could reasonably be expected to result in a Material Adverse Effect, on PGG, and
neither PGG nor any of its Subsidiaries has:

(i) amended its Charter Documents;

(ii) issued, sold or delivered, or agreed to issue, sell or deliver, any
of its capital stock, bonds or other securities, or granted or agreed to
grant any options, warrants or other rights calling for the issue, sale or
delivery of its securities;

(iii) borrowed or agreed to borrow any funds, or incurred or become
subject to any absolute or contingent obligation or liability, except trade
accounts payable and accrued operating expenses incurred in the ordinary
course of business since June 30, 1999;

(iv) paid any obligation or liability other than current liabilities
reflected in the Latest PGG Balance Sheet and current liabilities incurred
since June 30, 1999, in the ordinary course of business;

(v) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind in respect of its
capital stock (other than dividends paid or distributions made by a
Subsidiary to PGG or another Subsidiary), or purchased, redeemed or
otherwise acquired, or agreed to purchase or redeem or otherwise acquire,
directly or indirectly, any of its outstanding capital stock;

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(vi) sold, transferred or otherwise disposed of, or agreed to sell,
transfer or otherwise dispose of, any of its assets, properties or rights,
other than in the ordinary course of business or cancelled or otherwise
terminated, or agreed to cancel or otherwise terminate, any debts or claims;

(vii) entered into or agreed to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets, properties or
rights, or requiring any consent of any party to the transfer or assignment
of any such asset, property or right;

(viii) suffered any material casualty Damages, destruction or physical
losses, or waived or surrendered any rights of value which are material;

(ix) made or permitted any amendment or termination of any material
contract, agreement or license to which it is a party or by which it or any
of its assets or properties are subject;

(x) made, directly or indirectly, any accrual or arrangement for or
payment of bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer, director or employee of
PGG or any of its Subsidiaries;

(xi) except for normal merit raises in the case of individual employees,
granted any general pay increases to its employees or agents, or adopted any
new or made any increase in any existing profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement or other employee
benefit plan for or with any of its employees or agents;

(xii) incurred or become subject to any material claim or liability for
any Damages or alleged Damages for actual or alleged negligence or other
tort or breach of contract; or

(xiii) made or agreed to make any capital expenditures in excess of
$100,000 in the aggregate.

3.10 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Latest PGG
Balance Sheet or in Section 3.10 of the PGG Disclosure Schedule, PGG and its
Subsidiaries have no liabilities or obligations, known or unknown, fixed or
contingent, other than (i) those arising since June 30, 1999 in the ordinary
course of business and consistent with past practice, (ii) liabilities and
obligations arising after the date of this Agreement without violation of
Section 6.2, or (iii) liabilities and obligations that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect on PGG.

3.11 PGG PROPERTIES. PGG and its Subsidiaries have good and marketable
title to the properties and assets reflected in the Latest PGG Balance Sheet
(other than properties and assets disposed of in the ordinary course of business
since June 30, 1999, which, in the aggregate, are not material), free of all
Liens except Permitted Liens.

3.12 TAXES AND TAX RETURNS. Except as described in Section 3.12 of the PGG
Disclosure Schedule:

(i) all Tax Returns required to be filed with any Taxing Authority by or
on behalf of PGG or any of its Subsidiaries have been duly filed on a timely
basis in accordance with all applicable Laws;

(ii) at the time of their filings all such Tax Returns were complete and
correct;

(iii) all Taxes required to be paid by PGG or any of its Subsidiaries on
or before the date of this Agreement have been paid, and the reserves for
Taxes reflected in the Latest PGG Balance Sheet are adequate to cover all
Taxes that had not been paid, but which under GAAP were accruable, through
the date of the Latest PGG Balance Sheet;

(iv) there are no Liens for Taxes upon any assets of PGG or any of its
Subsidiaries, except Liens for Taxes not yet due for current Tax periods
ending after the date of this Agreement;

(v) there are no outstanding deficiencies, assessments or written
proposals for the assessment of Taxes proposed, asserted or assessed against
PGG or any Subsidiary of PGG, and, to the knowledge of the PGG Parties, no
grounds exist for any such assessment of Taxes;

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(vi) neither PGG nor HWG is an investment company within the meaning of
Section 368(a)(2)(F) of the Code;

(vii) neither PGG nor any of its Subsidiaries is an obligor on, and none
of its assets have been financed directly or indirectly by, any tax exempt
bonds;

(viii) neither PGG nor any of its Subsidiaries is now, or has been during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a
real property holding corporation within the meaning of Section 897(c)(2) of
the Code;

(ix) neither PGG nor any of its Subsidiaries has filed a consent under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of its assets;

(x) no extension of the statute of limitations on the assessment of any
Taxes has been granted to or applied for by PGG or any Subsidiary of PGG;

(xi) neither PGG nor any of its Subsidiaries (x) is a party to any Tax
sharing or allocation agreement, (y) has been a member of a consolidated,
combined or unitary group (other than a group of which PGG (or TEI, Inc., as
its predecessor by Merger) is or was the common parent corporation), for
purposes of filing Tax Returns, and (z) has any liability for the Taxes of
any Person (other than PGG or its Subsidiaries) as a transferee or
successor, by contract or otherwise; and

(xii) none of the Tax Returns of PGG or any of its Subsidiaries are the
subject of an audit or examination by a Governmental Entity.

3.13 LITIGATION. Except as disclosed in Section 3.13 of the PGG Disclosure
Schedule, there is no suit, action, investigation or proceeding pending or, to
the knowledge of the PGG Parties, threatened against PGG or any of its
Subsidiaries at Law or in equity before or by any Governmental Entity or before
any arbitrator or mediator of any kind, that is reasonably likely to have a
Material Adverse Effect on PGG, and there is no judgment, decree, injunction,
rule or order of any Governmental Entity, arbitrator or mediator to which PGG or
any PGG Subsidiary is subject that is reasonably likely to have a Material
Adverse Effect on PGG. Neither PGG Party has knowledge of any grounds on which
any suit, action, investigation or proceeding of the nature referred to in this
Section 3.13 might be commenced with any reasonable likelihood of success.

3.14 ENVIRONMENTAL MATTERS. Except as reflected in Section 3.14 of the PGG
Disclosure Schedule, and except to the extent that the inaccuracy of any of the
following, individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on PGG:

(i) PGG and its Subsidiaries hold, and are in compliance with and have
been in compliance with, all Environmental Permits, and are otherwise in
compliance with, and have been in compliance with, all applicable
Environmental Laws, and there is no condition that is reasonably likely to
prevent or interfere with compliance by the PGG or any of its Subsidiaries
with any Environmental Law;

(ii) no modification, revocation, reissuance, alteration, transfer or
amendment of any Environmental Permit, or any review by, or approval of, any
Governmental Entity or other third party of any Environmental Permit is
required in connection with the execution or delivery of this Agreement, the
consummation of the Merger or the operation of the business of PGG or any of
its Subsidiaries on and immediately following the Closing Date;

(iii) neither PGG nor any of its Subsidiaries has received any
Environmental Claim, nor has any Environmental Claim been threatened against
PGG any of its Subsidiaries;

(iv) neither PGG nor any of its Subsidiaries has entered into, agreed to
or is subject to any judgment, decree, order or other directive issued by,
or consent arrangement with, any Governmental Entity under any Environmental
Law, including any such judgment, decree, order or other directive

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relating to compliance with any Environmental Law or to the investigation,
cleanup, remediation or removal of Hazardous Substances;

(v) there are no circumstances that could reasonably be expected to
(x) give rise to liability, and no Person has made any claim against PGG or
any of its Subsidiaries, under any agreements with any Person under which
PGG or any of its Subsidiaries would be required to defend, indemnify, hold
harmless, or otherwise be responsible for any violation by or other
liability or expense of such Person, or alleged violation by or other
liability or expense of such Person, arising under any Environmental Law or
relating to the possession, use, storage, transportation or disposition of
Hazardous Substances, or (y) prevent PGG or any of its Subsidiaries from
complying with its contractual obligations relating to any such matter;

(vi) there are no other circumstances or conditions that are reasonably
likely to give rise to a liability or obligation of PGG or any of its
Subsidiaries under any Environmental Law; and

(vii) no environmental report, survey, review or audit relating to PGG,
its Subsidiaries, their predecessors, or their past or present assets or
operations, has been prepared by or at the direction or for the benefit of,
or has been delivered to, PGG or any of its Subsidiaries.

3.15 EMPLOYEE BENEFIT PLANS. Section 3.15 of the PGG Disclosure Schedule
accurately sets forth each retirement, pension, bonus, stock purchase, profit
sharing, stock option, deferred compensation, severance or termination pay,
insurance, medical, hospital, dental, vision care, drug, sick leave, disability,
salary continuation, unemployment benefits, vacation, incentive or other
compensation plan or arrangement or other employee benefit which is maintained,
or otherwise contributed to or required to be contributed to, by PGG or any of
its Subsidiaries or any ERISA Affiliate of PGG or any its Subsidiaries for the
benefit of employees or former employees of PGG or any of its Subsidiaries (the
"PGG EMPLOYEE PLANS"). Each of PGG and its Subsidiaries has complied, and
currently is in compliance, both as to form and operation, in all material
respects, with the terms of each PGG Employee Plan and all applicable provisions
of ERISA and each other Law or regulation imposed or administered by any
Governmental Entity with respect to each of the PGG Employee Plans. Except as
set forth in Section 3.15 of the PGG Disclosure Schedule, neither PGG nor any of
its Subsidiaries has at any time maintained, adopted, established, contributed
to or been required to contribute to, otherwise participated in or been required
to participate in, or had any liability with respect to, any "employee benefit
plan" within the meaning of Section 3(3) of ERISA. All contributions to, and
payments from, each PGG Employee Plan which may have been required to be made in
accordance with the terms of any such PGG Employee Plan and, where applicable,
the Laws which govern such PGG Employee Plan, have been made in a timely manner.
All material reports, Tax Returns and similar documents with respect to any PGG
Employee Plan required to be filed with any Governmental Entity or distributed
to any PGG Employee Plan participant have been duly filed on a timely basis or
distributed. There are no pending investigations by any Governmental Entity
involving or relating to any PGG Employee Plan, no threatened (to the knowledge
of the PGG Parties) or pending claims (except for claims for benefits payable in
the normal operation of the PGG Employee Plans), suits or proceedings against
any PGG Employee Plan or asserting any rights or claims to benefits under any
PGG Employee Plan which could give rise to a liability of PGG or any Subsidiary
of PGG, nor, to the knowledge of the PGG Parties, are there any facts that could
give rise to any such liability in the event of any such investigation, claim,
suit or proceeding. No notice has been received by PGG or any of its
Subsidiaries of any complaints or other proceedings of any kind involving PGG or
any of its Subsidiaries or any of the employees of PGG or any of its
Subsidiaries before any Governmental Entity relating to any PGG Employee Plan.
The assets of each PGG Employee Plan are at least equal to the liabilities of
such PGG Employee Plan.

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3.16 MATERIAL CONTRACTS. Section 3.16 of the PGG Disclosure Schedule lists
all of the following written or oral executory contracts, agreements and
commitments (collectively, the "PGG CONTRACTS"):

(i) all employment, consulting or personal service agreements or
contracts with any present or former officer, director or employee of PGG or
any of its Subsidiaries who has an annual salary of $125,000 or more;

(ii) all loan or credit agreements, and all bonds, debentures,
promissory notes or other instruments of indebtedness, relating to the
borrowing of money by PGG or any of its Subsidiaries;

(iii) all guaranty, suretyship or similar arrangements under which PGG or
a PGG Subsidiary guaranteed or is otherwise contingently or secondarily
liable for any indebtedness, liability or obligation of any Person other
than PGG or one of its Subsidiaries;

(iv) all leases or subleases of real property used in the conduct of
business of PGG or any PGG Subsidiary providing for annual rental payments
to be paid by or on behalf of PGG or any PGG Subsidiary of more than
$100,000 in each case;

(v) all contracts or agreements committing PGG or any Subsidiary of PGG
to make a capital expenditure in excess of $100,000;

(vi) all contracts between any Broker-Dealer Subsidiary and each broker
or dealer which clears transactions for any Broker-Dealer Subsidiary or to
which any Broker-Dealer Subsidiary transmits customer funds or securities in
connection with transactions in which any Broker-Dealer Subsidiary acts as
an introducing broker or dealer;

(vii) all Subordination Agreements pertaining to indebtedness of any
Broker-Dealer Subsidiary;

(viii) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of PGG or any Subsidiary of PGG other than in the ordinary course
of business;

(ix) all contracts, agreements with or commitments to any Person (other
than the standard indemnification provisions contained in underwriting
agreements entered into in the ordinary course of business) containing any
provision or covenant relating to the indemnification or holding harmless by
PGG or any Subsidiary of PGG which could result in a liability to PGG or a
Subsidiary of PGG in excess of $100,000 or more;

(x) all contracts, agreements and undertakings with any Governmental
Entity or other Person which contain any provision or covenant limiting
(x) the ability of PGG or any Subsidiary of PGG to engage in any line of
business, to compete with any Person, to do business with any Person or in
any location or to employ any Person or (y) the ability of any Person to
compete with or obtain products or services from PGG or any Subsidiary of
PGG; and

(xi) all outstanding proxies, powers of attorney or similar delegations
of authority granted by PGG or any Subsidiary of PGG to any other Person.

The PGG Parties have delivered to SMM a true and correct copy of each PGG
Contract. Each PGG Contract is in full force and effect and constitutes a legal,
valid and binding obligation of PGG or the PGG Subsidiary which is a party to
it, and, to the knowledge of the PGG Parties, of each other Person that is a
party to it. Except as set forth in Section 3.16 of the PGG Disclosure Schedule,
neither PGG nor any of its Subsidiaries is, and to the knowledge of the PGG
Parties, no other party to any PGG Contract is, in violation or breach of or in
default under such PGG Contract, or with or without notice or lapse of time or
both, would be in violation or breach of or in default under any such PGG
Contract, except for any

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violation, breach or default which, individually or in the aggregate, could not
result in a Material Adverse Effect on PGG. Except as set forth in Section 3.16
of the PGG Disclosure Schedule, no PGG Contract provides that any party thereto
other than PGG or a PGG Subsidiary may terminate such PGG Contract by reason of
the execution of this Agreement or the consummation of the Merger.

3.17 GOVERNMENTAL LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as
described in the PGG SEC Filings or Section 3.17 of the PGG Disclosure Schedule,
neither PGG nor any of its Subsidiaries has received notice of any revocation or
modification of any license, certification, tariff, permit, registration,
exemption, approval or other authorization by any Governmental Entity, the
revocation or modification of which has had or is reasonably likely to have a
Material Adverse Effect on PGG. The conduct of the business of PGG and its
Subsidiaries complies with all applicable Laws, except for violations or
failures to comply, if any, that, individually or aggregate, are not reasonably
likely to have a Material Adverse Effect on PGG.

3.18 BROKER-DEALER MATTERS. Neither PGG nor any Subsidiary of PGG other
than the Broker-Dealer Subsidiaries is or is required to be registered as a
broker-dealer under any Broker-Dealer Regulatory Requirement. Except as set
forth in Section 3.18 of the PGG Disclosure Schedule, and except to the extent
that any inaccuracy in the following representations and warranties is not
reasonably likely to result in a Material Adverse Effect on PGG:

(i) each Broker-Dealer Subsidiary is registered as a broker-dealer with
the SEC and under all applicable state Laws which require it to be so
registered, and such registrations are in full force and effect;

(ii) each Affiliate of each Broker-Dealer Subsidiary, and each officer,
employee, consultant, agent or independent contractor of each Broker-Dealer
Subsidiary or any such Affiliate, who is required by reason of the nature of
his employment by such Broker-Dealer Subsidiary or such Affiliate to be
registered as a broker-dealer, broker-dealer agent, registered
representative or sales person with the SEC or the securities commission of
any state or any self-regulatory body or other Governmental Entity, is duly
registered or appointed as such, and such registration or appointment is in
full force and effect;

(iii) no Broker-Dealer Subsidiary nor, to the knowledge of the PGG
Parties, any Affiliate or "associated person" (within the meaning of the
Exchange Act) of any Broker-Dealer Subsidiary, is ineligible pursuant to
Section 15(b) of the Exchange Act to serve as a broker-dealer or as an
associated person to a registered broker-dealer;

(iv) each Broker-Dealer Subsidiary is a member organization in good
standing of the NASD, the Securities Investor Protection Corporation, and
such other organizations in which its membership is required in order to
conduct its business as now conducted;

(v) each Broker-Dealer Subsidiary is, and has been since its inception,
in compliance with all Broker-Dealer Regulatory Requirements relating to its
maintenance of minimum net capital and its compliance with a maximum
indebtedness-to-net-capital ratio under SEC Rule 15c3-1, its maintenance of
reserves under SEC Rule 15c3-1, the filing of quarterly and annual reports
under Section 17 of the Exchange Act and Rule 17a-5 thereunder, and all
other Broker-Dealer Regulatory Requirements;

(vi) in connection with its broker-dealer activities, each Broker-Dealer
Subsidiary meets, and has met since its inception, all requirements
specified in SEC Rule 15c3-3(k)(2) for exemption from all possession,
control and reserve requirements under SEC Rule 15c3-3; and

(vii) all Subordination Agreements pertaining to indebtedness of a
Broker-Dealer Subsidiary comply with all requirements of Appendix D to SEC
Rule 15c3-1.

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3.19 INVESTMENT ADVISOR MATTERS. Neither PGG nor any Subsidiary of PGG is
or is required to be registered as an investment advisor under the Investment
Advisors Act or under any applicable state Laws. Neither PGG nor any Subsidiary
of PGG is a party to any Investment Advisory Agreement.

3.20 NO INVESTMENT COMPANY. Neither PGG nor any Subsidiary of PGG is, or
may be deemed to be, an investment company under the Investment Company Act.
Neither PGG nor any Subsidiary of PGG provides investment advisory services to
any investment company within the meaning of the Investment Company Act.

3.21 COMPLIANCE WITH TTCA. Each Trust Company Subsidiary is, and has been
at all times since its organization, in compliance with all requirements and
provisions of the TTCA applicable to such Subsidiary and its "trust business"
(as that term is defined in the TTCA). Without limiting the generality of the
foregoing:

(i) no Trust Company Subsidiary is now, or has been since its
organization, "insolvent" within the mean of the TTCA;

(ii) no Trust Company Subsidiary is now engaged, or has never engaged,
in an "unauthorized trust activity" within the meaning of the TTCA;

(iii) there does not now exist, and there has never existed, with respect
to any Trust Company Subsidiary, any "hazardous condition" within the
meaning of the TTCA;

(iv) no officer, director, manager or shareholder of any Trust Company
Subsidiary, and, to the knowledge of the PGG Parties, no affiliate (within
the meaning of the TTCA) of any such Subsidiary, has engaged in any
transaction with such Subsidiary which is prohibited by Section 4.107 of the
TTCA;

(v) each Trust Company Subsidiary maintains, and has maintained at all
times since its organization, "restricted capital" (as defined in the TTCA)
in at least the minimum amount required by the TTCA;

(vi) each Trust Company Subsidiary has invested its restricted capital
only in investments permitted under Section 5.101 of the TTCA; and

(vii) no Trust Company Subsidiary has ever received a determination
letter from the Texas Banking Commissioner to the effect that a condition
exists or existed that may warrant the issuance of an enforcement order
under Chapter 6 of the TTCA, and no cease and desist order has ever been
entered against any Trust Company Subsidiary under Section 6.002 of the
TTCA.

3.22 LABOR MATTERS. To the knowledge of the PGG Parties, there is no labor
strike, dispute, slowdown, work stoppage, unresolved labor union grievance or
labor arbitration proceedings pending or threatened against PGG or any of its
Subsidiaries, and there are no current union organizing activities among
employees of PGG or its Subsidiaries. Since the enactment of the WARN Act,
neither PGG nor any of its Subsidiaries has effectuated (i) a "plant closing"
(as defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of any employment facility or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of PGG or any of its Subsidiaries. Neither PGG nor any of
its Subsidiaries has been affected by any transaction or engaged in any layoffs
or employment terminations sufficient in number to trigger application of any
similar state or local Law. No employees of PGG or any of its Subsidiaries have
suffered an "employment loss" (as defined in the WARN Act) since December 31,
1995.

3.23 TRANSACTIONS WITH AFFILIATES: Except as set forth in the PGG SEC
Filings or Section 3.16 or 3.23 of the PGG Disclosure Schedule, no Affiliate of
PGG:

(i) is a party to or has any interest in any contract or agreement with
PGG or any of its Subsidiaries;

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(ii) has any outstanding loan to or receivable from PGG or any of its
Subsidiaries; or

(iii) has any ownership interest (other than a stock ownership interest
representing less than 1% of the outstanding stock of any corporation which
is publicly traded), directly, indirectly, or beneficially, in any customer
of or supplier to PGG or any of its Subsidiaries.

3.24 YEAR 2000 COMPLIANCE. All operating system, application and other
computer software owned by or licensed to PGG or any of its Subsidiaries, and
all computer hardware and related equipment owned or leased by PGG or any of its
Subsidiaries, is currently Year 2000 compliant, or to the extent it is not, PGG
and its Subsidiaries have in place and are implementing detailed plans to ensure
that such software and hardware will be Year 2000 compliant no later than
November 31, 1999. To the knowledge of the PGG Parties, and after inquiry to all
third parties who provide or purchase material goods or services to or from PGG
or any of its Subsidiaries, such third parties have implemented or are
implementing plans to ensure that computer hardware and software used by either
PGG or one of its Subsidiaries on the one hand, or such third party, on the
other hand, in connection with the provisions of such goods and services, is, or
will be by November 31, 1999, Year 2000 compliant. Each Broker-Dealer Subsidiary
has filed with the SEC and the NASD, and has delivered to SMM copies of, all
reports required to be filed by each Broker-Dealer Subsidiary with either of
those two Governmental Entities regarding Year 2000 issues which might affect
the broker-dealer operations of such Broker-Dealer Subsidiary. In this
Section 3.24 and in Section 4.24, "Year 2000 compliant" means software, hardware
and equipment will create, store and generate output data relating to millennial
dates (dates on or after January 1, 2000) and leap year dates without errors or
omissions, and that the occurrence in or use by such software, hardware and
equipment of millennial dates and leap year dates will not adversely affect the
performance of such software, hardware and equipment with respect to date
dependent data, computations, output or other functions (including calculating,
computing, sequencing and storing instructions).

3.25 OPINION OF FINANCIAL ADVISOR. On the date of this Agreement, PGG has
received the opinion of Howard Frazier Barker Elliot, Inc. that the
consideration to be paid by PGG in the Merger, taken as a whole, is fair to the
PGG Shareholders from a financial point of view.

3.26 LETTERS FROM SHAREHOLDERS. On or before the date of this Agreement,
PGG has received and delivered to SMM letters from each of Titus H. Harris, Jr.,
Robert E. Garrison, II, Stephen M. Reckling, Richard W. Webb, Donald R.
Campbell, Sean Dobson, Spires Financial S.D., Inc., Peter W. Badger, Spires
Financial P.B., Inc., the William Blair Waltrip Trust, the Robert L. Waltrip
1992 Trust and the Waltrip 1987 Grandchildren's Trust, expressing favorable
views with respect to the Merger and agreeing to vote all shares of PGG Common
Stock held by them for approval of the issuance of the Merger Shares in
connection with the Merger.

3.27 STATE TAKEOVER STATUTES. No state takeover statute or similar Law
applies or purports to apply to PGG in connection with this Agreement or the
Merger.

3.28 BROKERS. Except for Howard Frazier Barker Elliot, Inc. which has
acted as financial advisor to PGG in connection with the Merger, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with this Agreement or the Merger based upon
arrangements made by or on behalf of either PGG Party.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SMM

SMM represents and warrants to the PGG Parties that:

4.1 ORGANIZATION OF SMM. SMM is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Texas. SMM has full
authority and corporate power to conduct its business as it is currently being
conducted and as to be conducted following consummation of the Merger. SMM is
duly qualified to do business, and in good standing, in each jurisdiction where
the nature of its properties or business requires such qualification. SMM has
delivered to the PGG Parties true, correct and complete copies of the Charter
Documents of SMM.

4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. SMM has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation of
the Merger have been duly authorized by the Board of Directors of SMM, and,
except for the approval by the SMM Shareholders of the Merger as contemplated in
Section 7.6, no other corporate proceedings on the part of SMM are necessary to
authorize this Agreement or the consummation of the Merger. This Agreement has
been duly executed and delivered by SMM. Assuming the valid authorization,
execution and delivery of this Agreement by each PGG Party, this Agreement is a
valid and binding obligations of SMM, enforceable against SMM in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws relating to or affecting creditors'
rights generally or by equitable principles.

4.3 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by SMM and the consummation of the Merger will not:

(i) constitute a breach or violation of or default under the Charter
Documents of SMM or any of its Subsidiaries, or, assuming the obtainment of
the consents and approvals described in clauses (i) and (ii) of
Section 4.4, any Law applicable to SMM or any of its Subsidiaries, or

(ii) except as accurately reflected in Section 4.3 of the SMM Disclosure
Schedule, violate or conflict with or result in a breach of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under or result in the termination of, or accelerate
the performance by, or result in a right of termination under, or result in
the creation of any Lien upon the assets or properties of SMM or any of its
Subsidiaries under, any contract, indenture, loan document, license, permit,
order, decree or instrument to which SMM or any of its Subsidiaries is a
party or by which any of them or their assets or properties are bound.

4.4 CONSENTS AND APPROVAL. No consent, order, approval, waiver,
authorization of, or registration, application, declaration or filing with, any
Person is required with respect to SMM or any Subsidiary of SMM in connection
with the execution and delivery of this Agreement or the consummation of the
Merger, except for:

(i) consents, authorizations, approvals, filings or exemptions in
connection with the applicable provisions of all Broker-Dealer Regulatory
Requirements insofar as they pertain to the Merger;

(ii) the consents of the other parties to all Investment Advisory
Related Agreements to which SMM is a party;

(iii) the consents and approvals described on Section 4.4 of the SMM
Disclosure Schedule; and

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4.5 SMM CAPITALIZATION. The authorized capital stock of SMM consists of
200,000 shares of common stock, $1 par value, of which, at the date of this
Agreement, 60,729 shares are issued and outstanding and 10,500 shares are held
by SMM as treasury shares. All of the issued and outstanding shares of SMM
Common Stock are duly and validly issued, fully paid and nonassessable, and were
issued free of preemptive rights, in compliance with any rights of first
refusal, and in compliance with all Laws. No subscription, warrant, option,
convertible security, stock appreciation or other right (contingent or other) to
purchase or acquire any shares of any class of capital stock of SMM is
authorized or outstanding and there is not outstanding any commitment of SMM to
issue any shares, warrants, options or other such rights or, except as
specifically contemplated in this Agreement, to distribute to holders of any
class of its capital stock any evidences of indebtedness or assets. Except under
the SMM Shareholders' Agreement, SMM has no contingent or other obligation to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Section 4.5 of the SMM Disclosure Schedule lists all SMM
Shareholders and the number of shares of SMM Common Stock owned by each. Except
as set forth in Section 4.5 of the SMM Disclosure Schedule, SMM is not a party
to any voting agreement, voting trust or similar agreement or arrangement
relating to its capital stock or any agreement or arrangement relating to or
providing for registration rights with respect to its capital stock.

4.6 SUBSIDIARIES. Section 4.6 of the SMM Disclosure Schedule sets forth
with respect to each Subsidiary of SMM (i) its jurisdiction of incorporation,
formation or organization, (ii) each jurisdiction in which it is qualified to do
business as a foreign entity, (iii) its authorized, issued and outstanding
shares of capital stock, membership, partnership, or other equity interests, and
(iv) the holder or holders of all of its outstanding shares of capital stock,
membership, partnership or other equity interests and the percentage ownership
interest of each such holder or holders. Each Subsidiary of SMM is a
corporation, limited liability company or partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization and has full authority and corporate, limited
liability company or partnership power, as the case may be, to conduct its
business as presently being conducted. Each Subsidiary of SMM is duly qualified
to do business, and in good standing, in each jurisdiction where the nature of
its properties or business requires such qualification. Except as described in
Section 4.6 of the SMM Disclosure Schedule, all of the outstanding shares of
capital stock of each corporate Subsidiary of SMM are validly issued, fully paid
and nonassessable and are owned of record and beneficially by SMM or a wholly
owned direct or indirect Subsidiary of SMM, free and clear of all Liens. There
are no outstanding subscriptions, options, warrants, calls, rights, convertible
securities, obligations to make capital contributions or advances, voting trust
arrangements, shareholders' agreements or other agreements, commitments or
understandings relating to the issued and outstanding capital stock or other
equity or ownership interests of any Subsidiary of SMM. Except for the
Distributable Investment Securities, the Compensatory Warrants and the SMM
Partnerships, and except as described in Section 4.6 of the SMM Disclosure
Schedule, SMM does not, directly or indirectly, have any equity investment in
any corporation, limited liability company, partnership or joint venture or
other business entity.

4.7 SEC FILINGS. SMM has filed all forms, reports and documents required
to be filed by it with the SEC since SMM's inception, and SMM has made available
to the PGG Parties true and complete copies of (i) SMM's Annual Reports filed
with the SEC pursuant to SEC Rule 17a-5(d) for the years ended December 31,
1996, 1997 and 1998, and (ii) all other reports, statements and registration
statements (including Form ADVs and Form BDs, and all amendments thereto) filed
by SMM with the SEC since the date of organization of SMM (collectively, the
"SMM SEC FILINGS"). The SMM SEC Filings, including all financial statements or
schedules included in them, (i) comply in all material respects with the
requirements of the Exchange Act, and (ii) did not at the time of filing (or if
amended, supplemented or superseded by a later filing, on the date of the later
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

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4.8 SMM FINANCIAL STATEMENTS. SMM has delivered to the PGG Parties the
unaudited consolidated balance sheet and statements of operations, stockholders'
equity and cash flows of SMM and its Subsidiaries at June 30, 1999 and for the
six months then ended (the "SMM INTERIM FINANCIAL STATEMENTS"). The consolidated
balance sheets and consolidated statements of operations, stockholders' equity
and cash flows of SMM and its Subsidiaries included in the SMM SEC Filings and
the SMM Interim Financial Statements, respectively, fairly present in all
material respects the consolidated financial position of SMM and its
Subsidiaries at their respective dates and the consolidated results of
operations of SMM and its Subsidiaries for the respective periods then ended, in
accordance with GAAP, subject, in the case of the SMM Interim Financial
Statements, to year-end adjustments (which consist of normal recurring accruals)
and the absence of explanatory footnote disclosures required by GAAP. SMM's
unaudited consolidated balance sheet at June 30, 1999 included in the SMM
Interim Financial Statements is herein called the "LATEST SMM BALANCE SHEET."

4.9 SMM PARTNERSHIPS. With respect to the SMM Partnerships:

(i) Section 4.9 of the SMM Disclosure Schedule lists and describes
(x) each SMM Partnership, (y) the percentage partnership or joint venture
interest held therein by SMM or any Subsidiary of SMM, and (z) the names and
percentage partnership or joint venture interest held by all other partners
or venturers of such SMM Partnership;

(ii) SMM has delivered to the PGG Parties a true and correct copy of the
Charter Documents of each SMM Partnership;

(iii) SMM has delivered to the PGG Parties (x) the audited financial
statements (or, if audited financial statements are not available, the
unaudited financial statements) of each SMM Partnership (consisting of at
least a balance sheet and statements of income and partners' capital) for
the most recently ended fiscal year of such SMM Partnership and (y) the
unaudited financial statements of each SMM Partnership (consisting of at
least a balance sheet and statement of income) for the most recently ended
interim fiscal period for which such financial statements have been prepared
in the regular course of such SMM Partnership's business; and

(iv) all financial statements of the respective SMM Partnerships
referenced above in clause (iii) of this Section 4.9 fairly present in all
material respects the financial position of the respective SMM Partnerships
at the respective dates thereof and the results of operations of the
respective SMM Partnerships for the respective periods then ended, in
accordance with GAAP, subject to (x) in the case of unaudited financial
statements, the absence of explanatory footnote disclosures required by
GAAP, and (y) in the case of interim financial statements, year-end
adjustments (which consist of normal recurring accruals).

4.10 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 4.10 of
the SMM Disclosure Schedule, since June 30, 1999, SMM and its Subsidiaries have
conducted their businesses only in the ordinary course, consistent with past
practice, there has not occurred a Material Adverse Effect or any event that
could reasonably be expected to result in a Material Adverse Effect on SMM, and
neither SMM nor any of its Subsidiaries has:

(i) amended its Charter Documents;

(ii) issued, sold or delivered, or agreed to issue, sell or deliver, any
capital stock, bonds or other securities, or granted or agreed to grant any
options, warrants or other rights calling for the issue, sale or delivery of
its securities;

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(iv) paid any obligation or liability other than current liabilities
reflected in the Latest SMM Balance Sheet and current liabilities incurred
since June 30, 1999, in the ordinary course of business;

(v) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind in respect of its
capital stock (other than as contemplated herein with respect to the
Distributable Investment Securities and other than dividends paid or
distributions made by a Subsidiary to SMM or another SMM Subsidiary), or
purchased, redeemed or otherwise acquired, or agreed to purchase or redeem
or otherwise acquire, directly or indirectly, any of its outstanding capital
stock;

(vi) sold, transferred or otherwise disposed of, or, except as
contemplated herein with respect to the Distributable Investment Securities
and the Compensatory Warrants, agreed to sell, transfer or otherwise dispose
of, any of its assets, properties or rights, other than in the ordinary
course of business, or cancelled or otherwise terminated, or agreed to
cancel or otherwise terminate, any debts or claims;

(viii) suffered any material casualty Damages, destruction or physical
losses, or waived or surrendered any rights of value which are material;

(ix) made or permitted any amendment or termination of any material
contract, agreement or license to which it is a party or by which it or any
of its assets or properties are subject;

(x) other than as contemplated in this Agreement with respect to the
Compensatory Warrants, made, directly or indirectly, any accrual or
arrangement for or payment of bonuses or special compensation of any kind or
any severance or termination pay to any present or former officer, director
or employee of SMM or any of its Subsidiaries;

(xi) except for normal merit raises in the case of individual employees,
and other than as contemplated in this Agreement with respect to the
Compensatory Warrants, granted any general pay increases to its employees or
agents, or adopted any new or made any increase in any existing profit
sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan for or with any of its employees
or agents;

(xii) incurred or become subject to any material claim or liability for
any Damages or alleged Damages for actual or alleged negligence or other
tort or breach of contract; or

(xiii) made or agreed to make any capital expenditures in excess of
$100,000 in the aggregate.

4.11 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Latest SMM
Balance Sheet or in Section 4.11 of the SMM Disclosure Schedule, SMM and its
Subsidiaries have no liabilities or obligations, known or unknown, fixed or
contingent, other than (i) those arising since August 31, 1999 in the ordinary
course of business and consistent with past practice, (ii) liabilities and
obligations arising after the date of this Agreement without violation of
Section 7.2, or (iii) liabilities and obligations that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect on SMM.

4.12 SMM PROPERTIES. SMM and its Subsidiaries have good and marketable
title to the properties and assets reflected in the Latest SMM Balance Sheet
(other than properties and assets disposed of in the ordinary course of business
since June 30, 1999, which, in the aggregate, are not material), free of all
Liens except Permitted Liens.

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4.13 TAXES AND TAX RETURNS. Except as described in Section 4.13 of the SMM
Disclosure Schedule:

(i) all Tax Returns required to be filed with any Taxing Authority by or
on behalf of SMM, any of its Subsidiaries or any SMM Partnership have been
duly filed on a timely basis in accordance with all applicable Laws;

(ii) at the time of their filings all such Tax Returns were complete and
correct;

(iii) all Taxes required to be paid by SMM, any of its Subsidiaries or
any SMM Partnership on or before the date of this Agreement have been paid,
and the reserves for Taxes of SMM and its Subsidiaries reflected in the
Latest SMM Balance Sheet are adequate to cover all Taxes that have not been
paid, but which under GAAP were accruable, through the date of the Latest
SMM Balance Sheet;

(iv) there are no Liens for Taxes upon any assets of SMM or any of its
Subsidiaries, except Liens for Taxes not yet due for current Tax periods
ending after the date of this Agreement;

(v) there are no outstanding deficiencies, assessments or written
proposals for the assessment of Taxes proposed, asserted or assessed against
SMM or any Subsidiary of SMM, and, to the knowledge of the SMM Parties, no
grounds exist for any such assessment of Taxes;

(vi) at all times from its inception through the date of this Agreement,
there has been in effect a valid election with the IRS for SMM to be treated
as a Subchapter S corporation within the meaning of Section 1361 of the
Code;

(vii) no Subsidiary of SMM is a Subchapter C corporation under the Code;

(viii) at all times since its inception, each SMM Partnership has been
properly classified as a partnership under the Code, and, for purposes of
the Code, is not a corporation, association, regulated investment company,
real estate investment trust or publicly traded partnership;

(ix) neither SMM, any of its Subsidiaries nor any SMM Partnership is an
obligor on, and none of its assets have been financed directly or indirectly
by, any tax exempt bonds;

(x) neither SMM nor any of its Subsidiaries is now, or has been during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a
real property holding corporation within the meaning of Section 897(c)(2) of
the Code;

(xi) neither SMM nor any of its Subsidiaries has filed a consent under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of its assets;

(xii) no extension of the statute of limitations on the assessment of any
Taxes has been granted to or applied for by SMM, any Subsidiary of SMM or
any SMM Partnership;

(xiii) neither SMM, any of its Subsidiaries nor any SMM Partnership
(x) is a party to any Tax sharing or allocation agreement, (y) has been a
member of a consolidated, combined or unitary group for purposes of filing
Tax Returns, and (z) has any liability for the Taxes of any other Person as
a transferee or successor, by contract or otherwise; and

(xiv) none of the Tax Returns of SMM, any Subsidiary of SMM or any SMM
Partnership are the subject of an audit or examination by a Governmental
Entity.

4.14 LITIGATION. Except as disclosed in Section 4.14 of the SMM Disclosure
Schedule, there is no suit, action, investigation or proceeding pending or, to
the knowledge of the SMM Parties, threatened against SMM or any of its
Subsidiaries at Law or in equity before or by any Governmental Entity or before
any arbitrator or mediator of any kind, that is reasonably likely to have a
Material Adverse Effect on SMM, and there is no judgment, decree, injunction,
rule or order of any Governmental Entity, arbitrator or mediator to which SMM or
any SMM Subsidiary is subject that is reasonably likely to have a Material

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Adverse Effect on SMM. No SMM Party has knowledge of any grounds on which any
suit, action, investigation or proceeding of the nature referred to in this
Section 4.14 might be commenced with any reasonable likelihood of success.

4.15 ENVIRONMENTAL MATTERS. Neither SMM nor any of its Subsidiaries has
ever owned, leased or occupied any real property other than office space leased
at 600 Travis, Suite 3100, Houston, Texas 77002; 126 East 56(th) Street, New
York, New York, 10022; 767 Fifth Avenue, New York, New York 10153; 200 West
Adams Street, Suite 2000, Chicago, Illinois, 60606; and 2000 South Colorado
Blvd., Suite 3400, Denver, Colorado 80222. The business conducted by SMM and its
Subsidiaries at such locations has consisted of only the operations of a
securities broker-dealer, investment banking activities, the purchase and sale
of securities for their own account and the accounts of their customers, and
ancillary activities. No Environmental Permits are required for either SMM or
its Subsidiaries to operate their businesses as now or previously conducted, and
SMM and each of its Subsidiaries is and has been in compliance with all
applicable Environmental Laws.

4.16 EMPLOYEE BENEFIT PLANS. Section 4.16 of the SMM Disclosure Schedule
accurately sets forth each retirement, pension, bonus, stock purchase, profit
sharing, stock option, deferred compensation, severance or termination pay,
insurance, medical, hospital, dental, vision care, drug, sick leave, disability,
salary continuation, unemployment benefits, vacation, incentive or other
compensation plan or arrangement or other employee benefit which is maintained,
or otherwise contributed to or required to be contributed to, by SMM or any of
its Subsidiaries or any ERISA Affiliate of SMM for the benefit of employees or
former employees of SMM or any of its Subsidiaries (the "SMM EMPLOYEE PLANS").
Each of SMM and its Subsidiaries has complied, and currently is in compliance,
both as to form and operation, in all material respects, with the terms of each
SMM Employee Plan and all applicable provisions of ERISA and each other Law or
regulation imposed or administered by any Governmental Entity with respect to
each of the SMM Employee Plans. Except as set forth in Section 4.16 of the SMM
Disclosure Schedule, neither SMM nor any of its Subsidiaries has at any time
maintained, adopted, established, contributed to or been required to contribute
to, otherwise participated in or been required to participate in, or had any
liability with respect to, any "employee benefit plan" within the meaning of
Section 3(3) of ERISA. All contributions to, and payments from, each SMM
Employee Plan which may have been required to be made in accordance with the
terms of any such SMM Employee Plan and, where applicable, the Laws which govern
such SMM Employee Plan, have been made in a timely manner. All material reports,
Tax Returns and similar documents with respect to any SMM Employee Plan required
to be filed with any Governmental Entity or distributed to any SMM Employee Plan
participant have been duly filed on a timely basis or distributed. There are no
pending investigations by any Governmental Entity involving or relating to a SMM
Employee Plan, no threatened (to the knowledge of the SMM Parties) or pending
claims (except for claims for benefits payable in the normal operation of the
SMM Employee Plans), suits or proceedings against any SMM Employee Plan or
asserting any rights or claims to benefits under any SMM Employee Plan which
could give rise to a liability of SMM or any of its Subsidiaries, nor, to the
knowledge of the SMM Parties, are there any facts that could give rise to any
liability of SMM or any of its Subsidiaries in the event of any such
investigation, claim, suit or proceeding. No notice has been received by SMM or
any of its Subsidiaries of any complaints or other proceedings of any kind
involving SMM or any of its Subsidiaries or any of the employees of any of SMM
before any Governmental Entity relating to any SMM Employee Plan. The assets of
each SMM Employee Plan are at least equal to the liabilities of such SMM
Employee Plan.

4.17 MATERIAL CONTRACTS. Section 4.17 of the SMM Disclosure Schedule lists
all of the following written or oral executory contracts, agreements and
commitments (collectively, the "SMM CONTRACTS"):

(i) all employment, consulting or personal service agreements or
contracts with any present or former officer, director or employee of SMM or
any of its Subsidiaries who has an annual salary of $125,000 or more;

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(ii) all loan or credit agreements, and all bonds, debentures,
promissory notes or other instruments of indebtedness, relating to the
borrowing of money by SMM or any of its Subsidiaries;

(iii) all guaranty, suretyship or similar arrangements under which SMM or
any of its Subsidiaries has guaranteed or is otherwise contingently or
secondarily liable for any indebtedness, liability or obligation of any
Person;

(iv) all leases or subleases of real property used in the conduct of
business of SMM or any of its Subsidiaries providing for annual rental
payments to be paid by or on behalf of SMM or any of its Subsidiaries of
more than $50,000 in each case;

(v) all contracts or agreements committing SMM or any of its
Subsidiaries to make a capital expenditure in excess of $100,000;

(vi) all contracts between SMM and each broker or dealer which clears
transactions for SMM or to which SMM transmits customer funds or securities
in connection with transactions in which SMM acts as an introducing broker
or dealer;

(vii) all Subordination Agreements pertaining to indebtedness of SMM;

(viii) all Investment Advisory Related Agreements to which SMM is a party;

(ix) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of SMM or any Subsidiary of SMM other than in the ordinary course
of business;

(x) all contracts, agreements with or commitments to any Person (other
than standard indemnification provisions contained in underwriting
agreements entered into in the ordinary course of business) containing any
provision or covenant relating to the indemnification or holding harmless by
SMM which could result in a liability to SMM or any Subsidiary of SMM in
excess of $25,000 or more;

(xi) all contracts, agreements and undertakings with any Governmental
Entity or other Person which contain any provision or covenant limiting
(x) the ability of SMM or any Subsidiary of SMM to engage on any line of
business, to compete with any Person, to do business with any Person or in
any location or to employ any Person or (y) the ability of any Person to
compete with or obtain products or services from SMM or any Subsidiary of
SMM; and

(xii) all outstanding proxies, powers of attorney or similar delegations
of authority granted by SMM or any Subsidiary of SMM or any Subsidiary of
SMM to any other Person.

SMM has delivered to the PGG Parties a true and correct copy of each SMM
Contract. Each SMM Contract is in full force and effect and constitutes a legal,
valid and binding obligation of SMM or the SMM Subsidiary which is a party to
it, and, to the knowledge of the SMM Parties, of each other Person that is a
party to it. Except as set forth in Section 4.17 of the SMM Disclosure Schedule,
neither SMM nor any of its Subsidiaries is, and to the knowledge of the SMM
Parties, no other party to any SMM Contract is, in violation or breach of or in
default under such SMM Contract, or with or without notice or lapse of time or
both, would be in violation or breach of or in default under any such SMM
Contract, except for any violation, breach or default which, individually or in
the aggregate, could not result in a Material Adverse Effect on SMM. Except as
set forth in Section 4.17 of the SMM Disclosure Schedule, no SMM Contract
provides that any party thereto other than SMM or an SMM Subsidiary may
terminate such SMM Contract by reason of the execution of this Agreement or the
consummation of the Merger.

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4.18 GOVERNMENTAL LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as
described in the SMM SEC Filings or Section 4.18 of the SMM Disclosure Schedule,
neither SMM nor any of its Subsidiaries has received notice of any revocation or
modification of any licence, certification, tariff, permit, registration,
exemption, approval or other authorization by any Governmental Entity, the
revocation or modification of which has had or is reasonably likely to have a
Material Adverse Effect on SMM. The conduct of the business of SMM and its
Subsidiaries complies with all applicable Laws, except for violations or
failures to comply, if any, that, individually or aggregate, are not reasonably
likely to have a Material Adverse Effect on SMM.

4.19 BROKER-DEALER MATTERS. Except as set forth in Section 4.19 of the SMM
Disclosure Schedule, and except to the extent that any inaccuracy in the
following representations and warranties is not reasonably likely to result in a
Material Adverse Effect on SMM:

(i) SMM is registered as a broker-dealer with the SEC and under all
applicable state Laws which require it to be so registered, and such
registrations are in full force and effect;

(ii) each Affiliate of SMM, and each officer, employee, consultant,
agent or independent contractor of SMM or any such Affiliate, who is
required by reason of the nature of his employment by SMM or such Affiliate
to be registered as a broker-dealer, broker-dealer agent, registered
representative or sales person with the SEC or the securities commission of
any state or any self-regulatory body or other Governmental Entity, is duly
registered or appointed as such, and such registration or appointment is in
full force and effect;

(iii) neither SMM nor, to the knowledge of the SMM Parties, any Affiliate
or "associated person" (within the meaning of the Exchange Act) of SMM, is
ineligible pursuant to Section 15(b) of the Exchange Act to serve as a
broker-dealer or as an associated person to a registered broker-dealer;

(iv) SMM is a member organization in good standing of the NASD, the
Securities Investor Protection Corporation, and such other organizations in
which its membership is required in order to conduct its business as now
conducted;

(v) SMM is, and has been since its inception, in compliance with all
Broker-Dealer Regulatory Requirements relating to its maintenance of minimum
net capital and its compliance with a maximum indebtedness-to-net-capital
ratio under SEC Rule 15c3-1, its maintenance of reserves under SEC
Rule 15c3-1, the filing of quarterly and annual reports under Section 17 of
the Exchange Act and Rule 17a-5 thereunder, and all other Broker-Dealer
Regulatory Requirements;

(vi) in connection with its broker-dealer activities, SMM meets, and has
met since its inception, all requirements specified in SEC
Rule 15c3-3(k)(2) for exemption from all possession, control and reserve
requirements under SEC Rule 15c3-3; and

(vii) all Subordination Agreements pertaining to indebtedness of SMM
comply with all requirements of Appendix D to SEC Rule 15c3-1.

No SMM Subsidiary is or is required to be registered as a broker-dealer with
the SEC or under any applicable state Law.

4.20 INVESTMENT ADVISOR MATTERS. Neither SMM nor any SMM Subsidiary is or
is required to be registered as an investment adviser under the Investment
Advisers Act. SMM is registered as an investment adviser under all applicable
state Laws which require it to be so registered, and such registrations are in
full force and effect. Each Affiliate of SMM, and each officer, employee,
consultant, agent or independent contractor of SMM or any such Affiliate, who is
required by reason of the nature of his employment by SMM or such Affiliate to
be registered as an investment adviser or investment adviser representative with
the securities commission of any state or any self-regulatory body or other
Governmental Entity, is duly registered or appointed as such, and such
registration or appointment is in full force and effect. No SMM Subsidiary (i)
is or is required to be registered as an investment advisor with

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the SEC or under any applicable state Law or (ii) is a party to any Investment
Advisory related agreements.

4.21 NO INVESTMENT COMPANY. Neither SMM nor any Subsidiary of SMM is, or
may be deemed to be, an investment company under the Investment Company Act. SMM
does not have any Investment Advisory Related Agreements with, or provides
investment advisory services to, any investment company within the meaning of
the Investment Company Act.

4.22 LABOR MATTERS. To the knowledge of the SMM Parties, there is no labor
strike, dispute, slowdown, work stoppage, unresolved labor union grievance or
labor arbitration proceedings pending or threatened against SMM, and no current
union organizing activities among employees of SMM or any of its Subsidiaries.

4.23 TRANSACTIONS WITH AFFILIATES: Except as specifically contemplated by
this Agreement or as set forth in Section 4.17 or Section 4.23 of the SMM
Disclosure Schedule, no Affiliate of SMM:

(i) is a party to or has any interest in any contract or agreement with
SMM or any of its Subsidiaries;

(ii) has any outstanding loan to or receivable from SMM or any of its
Subsidiaries; or

4.24 YEAR 2000 COMPLIANCE. All operating system, application and other
computer software owned by or licensed to SMM, and all computer hardware and
related equipment owned or leased by SMM, is currently Year 2000 compliant, or
to the extent it is not, SMM has in place and is implementing detailed plans to
ensure that such software and hardware will be Year 2000 compliant no later than
November 31, 1999. To the knowledge of the SMM Parties, and after inquiry to all
third parties who provide or purchase material goods or services to or from SMM
such third parties have implemented or are implementing plans to ensure that
computer hardware and software used by either SMM or such third party in
connection with the provisions of such goods and services, is, or will be by
November 31, 1999, Year 2000 compliant. SMM has filed with the SEC and the NASD,
and has delivered to PGG copies of, all reports required to be filed by SMM with
either of those two Governmental Entities regarding Year 2000 issues which might
affect the broker-dealer operations of SMM.

4.25 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this Agreement
or the Merger based upon arrangements made by or on behalf of any SMM Party.

ARTICLE V
REPRESENTATIONS AND AGREEMENTS OF THE SMM SHAREHOLDERS

Each SMM Shareholder, severally as to himself, herself or itself only,
represents and warrants to, and agrees with, all other Parties that:

5.1 OWNERSHIP AND STATUS OF SMM SHARES. The SMM Shareholder is the record
and beneficial owner (or if the SMM Shareholder is a trust or the estate of a
deceased natural person, the legal owner) of the number of SMM Shares set
opposite the SMM Shareholder's name in Section 4.5 of the SMM Disclosure
Schedule, free and clear of all Liens.

5.2 POWER OF THE SMM SHAREHOLDER. The SMM Shareholder has the full power,
legal capacity and authority to execute this Agreement and to perform the SMM
Shareholder's obligations under this Agreement. This Agreement constitutes the
legal, valid and binding obligation of the SMM Shareholder, enforceable against
the SMM Shareholder in accordance with its terms, except as enforceability may
be

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limited by bankruptcy, insolvency, reorganization, moratorium or other Laws
relating to or affecting creditors' rights generally or by equitable principles.
If the SMM Shareholder is a trust, (i) its trustee or trustees executing this
Agreement on its behalf are duly named and serving trustees of the SMM
Shareholder, (ii) the execution and delivery by such trustee or trustees are
within their trust powers, (iii) the performance by the SMM Shareholder of this
Agreement are within the powers and purposes of the SMM Shareholder under the
terms of all documents creating, evidencing or governing the SMM Shareholder,
and (iv) neither the execution, delivery, nor performance by the SMM Shareholder
of this Agreement will violate, constitute a breach of or conflict with any
documents creating, evidencing or governing the SMM Shareholder.

5.3 APPROVAL OF MERGER. The SMM Shareholder, acting in each capacity in
which he is entitled, by reason of SMM's Charter Documents, or any applicable
Laws, to vote to approve or disapprove the Merger, agrees to vote all shares of
SMM Common Stock owned by the SMM Shareholder and entitled to vote on the
Merger, in any one or more of the manners prescribed or permitted by SMM's
Charter Documents and all applicable Laws, to approve this Agreement and the
Merger; PROVIDED, HOWEVER, that the obligations of the respective SMM
Shareholders under this Section 5.3 (but not under any other provisions of this
Agreement, including Sections 7.6 and 7.7), are subject to the condition that
the SEC shall not have advised PGG, and such obligations shall lapse and expire
at such time as the SEC may advise PGG, that SEC Form S-4 is not the appropriate
form for registration of the Merger Shares under the Securities Act due to the
voting commitments imposed by this Section 5.3.

5.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the SMM Shareholder will not:

(i) violate any Laws:

(ii) breach or constitute a default under any agreement or instrument to
which the SMM Shareholder is a party or by which the SMM Shareholder or any
of the SMM Shareholder's shares of SMM Common Stock are bound; or

(iii) result in the creation or imposition of, or afford any Person the
right to obtain, any Lien upon the shares of SMM Common Stock owned by the
SMM Shareholder.

5.5 NO LITIGATION. No Litigation is pending or, to the knowledge of the
SMM Shareholder, threatened against the SMM Shareholder which:

(i) questions or involves the validity or enforceability of any of the
SMM Shareholder's obligations under this Agreement; or

(ii) seeks to prevent or delay the consummation by the SMM Shareholder
of the Merger, or seeks Damages in connection with any consummation by the
SMM Shareholder of the Merger.

5.6 PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the right of the SMM
Shareholder to receive Merger Shares as a result of the Merger, the SMM
Shareholder either:

(i) does not have any statutory or contractual preemptive or other right
of any kind (including any right of first offer or refusal) to acquire any
equity interest in SMM; or

(ii) hereby irrevocably waives each such right of that type that the SMM
Shareholder has or may have.

5.7 CONTROL OF RELATED BUSINESS. Except as set forth in Section 4.23 of
the SMM Disclosure Schedule, the SMM Shareholder is not, and none of his
immediate family member are, in any case alone or

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with one or more other Persons, the controlling Affiliate of any Entity,
business or trade (other than SMM, if the SMM Shareholder is an Affiliate of
SMM) that:

(i) is engaged in any line of business which is the same as or similar
to any line of business in which SMM or any Subsidiary of SMM is engaged;

(ii) is a significant customer of or supplier to SMM or any Subsidiary
of SMM; or

(iii) is, or has within the three-year period ending on the date of this
Agreement, engaged in any transaction or been a party to any agreement with
SMM or any Subsidiary of SMM (other than transaction inherent in his
relationship as a shareholder or employee of SMM or a Subsidiary of SMM).

5.8 NO PGG STOCK OWNERSHIP. Except as set forth in Section 5.8 of the SMM
Disclosure Schedule, the SMM Shareholder does not own, and will not own
immediately before the Effective Time, either directly or indirectly, and either
of record or beneficially, any shares of PGG Common Stock.

ARTICLE VI
PGG COVENANTS PENDING CLOSING

The PGG Parties agree that pending the Closing:

6.1 CONDUCT OF PGG'S BUSINESS. PGG and its Subsidiaries shall conduct
their operations according to their ordinary and usual course of business, and
shall use their best efforts to preserve intact their business organizations,
keep available the services of their officers and employees and maintain normal
business relationships with customers, clients and others having business
relationships with them. PGG shall confer on a regular and frequent basis with
one or more representatives of SMM to report on operational matters of
materiality and to report the general status of ongoing operations of PGG. PGG
shall notify SMM of:

(i) any unexpected emergency or other material change in the normal
course of business or in the operation of the properties of PGG and its
Subsidiaries;

(ii) any significant development in any regulatory proceedings,
governmental complaints, investigations or hearings (or communication
indicating that any may be contemplated) involving PGG or any of its
Subsidiaries and which could have a Material Adverse Effect on PGG; and

(iii) any matter or event which comes to the knowledge of the PGG Parties
which makes or could make any representation and warranty made concerning
PGG or any of its Subsidiaries in Article III untrue.

PGG shall keep SMM fully informed of such events and permit representatives
of SMM access to all materials prepared in connection with any such event.

6.2 FORBEARANCE BY PGG. PGG shall not:

(i) amend or propose to amend its Charter Documents;

(ii) issue any shares of PGG Common Stock or securities convertible into
or exchangeable for shares of PGG Common Stock, or enter into any agreement
or commitment for the issuance or purchase of any such shares or securities,
except that PGG may issue shares of PGG Common Stock upon any exercise of
any PGG Stock Options;

(iii) split, combine or reclassify any outstanding shares of PGG Common
Stock;

(iv) declare, pay or set aside for payment any dividend or other
distribution in respect of any outstanding shares of PGG Common Stock;

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(v) incur, or cause or permit any Subsidiary of PGG to incur,
indebtedness for borrowed money, other than short-term borrowings in the
ordinary course of business;

(vi) increase the compensation levels of its officers or management
level employees or grant any general salary increases other than merit
increases and year-end employee and executive bonuses in the ordinary course
of business and consistent with past practices, or cause or permit any to
its Subsidiaries to do so;

(vii) enter into any material lease agreements or other long-term
commitments or cause or permit any Subsidiaries to do so;

(viii) acquire or negotiate for the acquisition of any business either
directly or indirectly through a Subsidiary of PGG;

(ix) sell or agree to sell all or substantially all, or any material
portion, of its assets or the assets of any Subsidiary of PGG (other than
ERRI), or to merge or consolidate, or cause or permit any Subsidiary of PGG
(other than ERRI) to merge or consolidate, with any other entity; or

(x) take any of the other actions or permit to occur any of the other
events specified in Section 3.9 which are within the control of PGG or its
Subsidiaries.

6.3 ACCESS AND INFORMATION. PGG shall give SMM and its representatives
full access during normal business hours to all the properties, books,
contracts, commitments and records of PGG and its Subsidiaries so that SMM may
have full opportunity to make such investigation of PGG and its Subsidiaries as
they shall reasonably request in advance. PGG will furnish SMM all information
concerning PGG and its Subsidiaries required for inclusion in any application,
filing, statement or notice made by SMM to, or filed or joined in by SMM with,
any Governmental Entity in connection with this Agreement or the Merger. None of
the information furnished to SMM under this Section 6.3 shall, at the date
furnished, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.

6.4 SUPPLEMENTAL INFORMATION. PGG shall, within five days following each
such filing, furnish SMM with a copy of each Current Report on Form 8-K, each
Quarterly Report on Form 10-Q and each Annual Report on Form 10-K filed by PGG
with the SEC. PGG shall also furnish SMM copies of PGG's interim monthly
consolidated financial statements as soon as practicable but in any event within
35 days after the end of each month, together with any information ordinarily
prepared in connection with such financial statements. All financial statements
included in each such Quarterly Report on Form 10-Q and Annual Report on
Form 10-K shall be prepared in conformity with GAAP, shall present fairly in all
material respects, in accordance with GAAP, the consolidated financial position
of PGG and its Subsidiaries at the end of the periods covered thereby and the
results of their consolidated operations for the periods covered thereby,
subject, in the case of unaudited interim financial statements, to year-end
adjustments (consisting of normal recurring accruals) and the omission of
explanatory footnote materials required by GAAP.

6.5 PGG REGISTRATION STATEMENT. PGG will prepare and file with the SEC a
registration statement under the Securities Act (which will include the Proxy
Statement) complying with all the requirements of the Securities Act, for the
purpose of registering the Merger Shares. PGG shall use its best efforts to
cause the Registration Statement to become effective as soon as practicable, to
qualify the Merger Shares under the securities or blue sky Laws of such
jurisdictions as may be required, and to keep the Registration Statement and
such qualifications current and in effect for as long as necessary to consummate
the Merger. In addition, PGG shall use its best efforts to cause the Merger
Shares to be listed in the Nasdaq National Market tier of the Nasdaq Stock
Market and to be freely tradeable except to the extent any Merger Shares
received by the SMM Shareholders are subject to the provisions of SEC Rule 145
or a Lock-Up Agreement or are restricted under applicable rules related to
reorganizations under Section 368 of the Code. All information concerning PGG or
any of its Subsidiaries included in the Registration Statement

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will be, on the date of its filing and on the date it becomes effective, true
and correct in all material respects without omission of any material fact
required to be stated to make the information set forth therein not misleading,
and the Registration Statement will comply as to form with all applicable
provisions of the Securities Act.

6.6 PGG SHAREHOLDERS' MEETING. As soon as practicable following the
effectiveness of the Registration Statement, PGG shall call a special meeting of
the PGG Shareholders to be held to vote to approve the issuance of the Merger
Shares in connection with the Merger. PGG will use its best efforts to hold the
PGG Shareholders' Meeting no later than 40 days following the date of mailing of
the definitive proxy statement to be furnished to PGG Shareholders in connection
with the PGG Shareholders' Meeting (the "PROXY STATEMENT"). PGG will recommend
approval of the matters referred to above, and agrees to use its best efforts to
obtain a favorable vote thereon. As soon as practicable following the
effectiveness of the Registration Statement, and subject to the last sentence of
this Section 6.6, PGG will cause to be mailed to each PGG Shareholder a copy of
the Proxy Statement complying in all material respects with the Exchange Act.
All information concerning PGG or any of its Subsidiaries included in the Proxy
Statement will be, on the date of commencement of the mailing of the Proxy
Statement (the "MAILING DATE"), true and correct in all material respects
without omission of any material fact required to be stated to make the
information set forth therein not misleading. PGG shall not be required to mail
or otherwise furnish the Proxy Statement to PGG Shareholders unless it shall
have received a letter from Howard Frazier Barker Elliot, Inc., dated no earlier
than three days prior to the Mailing Date, which confirms as of the date thereof
the conclusion set forth in the PGG Fairness Opinion.

6.7 CONFIDENTIALITY. Except for information required or appropriate for
inclusion in any application, filing, statement or notice to be filed by PGG
with any Governmental Entity as contemplated in Section 7.3, all information and
data furnished by the SMM Parties to the PGG Parties under this Agreement shall
be received, held and treated confidentially by the PGG Parties, and none of
such information shall be used in any manner for the benefit of PGG or any of
its Subsidiaries or for the benefit of any business controlled by it or them. As
soon as practicable after any termination of this Agreement, the PGG Parties
shall return to SMM, and shall cause their representatives to return to SMM, all
documents (and all copies thereof) obtained from SMM under this Agreement.

6.8 NO SOLICITATION. PGG will immediately terminate any existing
activities, discussions and negotiations with third parties concerning any
possible Alternative Transaction. PGG will, and PGG will not cause or permit its
Subsidiaries and the respective officers, directors, representatives, agents or
representatives of PGG or its Subsidiaries to, directly or indirectly knowingly
encourage, solicit or initiate any discussions or negotiations with any Person
concerning any Alternative Transaction; PROVIDED, HOWEVER, that (i) if
(a) PGG's Board of Directors determines, after consultation with counsel, that
it is required to do so in the exercise of the fiduciary duties of PGG's
directors to the Company or its stockholders and (b) SMM shall have been given
advance written notice of PGG's intention to do so, PGG's Board of Directors may
respond to a written offer for an Alternative Transaction and (ii) nothing in
this Section 6.8 shall prohibit PGG or its Board of Directors from taking and
disclosing to the PGG Shareholders a position with respect to a tender offer by
a third party pursuant to Rules 14d-9 and 14e-2(a) under the Exchange Act or
from making such other disclosure to the PGG Shareholders which, as advised by
its counsel, is required under applicable Law. PGG will promptly communicate to
SMM the terms and conditions of any proposal for an Alternative Transaction that
it may receive and will keep SMM informed as to the status of any discussions or
other actions taken pursuant to such proposed or contemplated Alternative
Transaction.

6.9 CONSUMMATION OF MERGER. The PGG Parties shall use their best efforts
to perform and fulfill all conditions and obligations on their part to be
performed and fulfilled under this Agreement, to the end that the Merger shall
be consummated.

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ARTICLE VII
COVENANTS OF SMM
PENDING CLOSING

SMM agrees that pending the Closing:

7.1 CONDUCT OF BUSINESS. SMM shall conduct its operations according to its
ordinary and usual course of business, and shall use its best efforts to
preserve intact its business organization, keep available the services of its
officers and employees and maintain normal business relationships with
customers, clients and others having business relationships with it. SMM shall
confer on a regular and frequent basis with one or more designated
representatives of PGG to report on operational matters of materiality and to
report the general status of ongoing operations of SMM. SMM shall notify PGG of:

(i) any unexpected material emergency or other material change in the
normal course of business or in the operation of the properties of SMM;

(ii) any significant development in any regulatory proceedings,
governmental complaints, investigations or hearings (or communication
indicating that any may be contemplated) involving SMM and which could have
a Material Adverse Effect on SMM; and

(iii) any matter or event which comes to the knowledge of SMM and which
makes or could make any representation and warranty made concerning SMM in
Article IV untrue or inaccurate.

SMM shall keep PGG fully informed of such events and permit representatives
of PGG access to all materials prepared in connection with such events.

7.2 FORBEARANCE BY SMM. SMM shall not:

(i) amend or propose to amend its Charter Documents;

(ii) issue any shares of SMM Common Stock or securities convertible into
or exchangeable for shares of SMM Common Stock, or enter into any agreement
or commitment for the issuance or purchase of any such shares or securities;

(iii) split, combine or reclassify any outstanding shares of SMM Common
Stock;

(iv) declare, pay or set aside for payment any dividend or other
distribution in respect of any outstanding shares of SMM Common Stock;

(v) incur or permit any Subsidiary of SMM to incur any indebtedness for
borrowed money;

(vi) increase the compensation levels of its officers or management
level employees or grant any general salary increases, other than merit
increases and year-end employee and executive bonuses in the ordinary course
of business and consistent with past practices, or cause or permit any of
its Subsidiaries to do so;

(vii) enter into any material lease agreements or other long-term
commitments;

(viii) acquire or negotiate for the acquisition of any business either
directly or indirectly through a Subsidiary of SMM;

(ix) sell or agree to sell all or substantially all, or any material
portion, of its assets or the assets of any Subsidiary of SMM, or merge or
consolidate, or permit any Subsidiary of SMM to merge or consolidate with
any other Entity; or

(x) take any of the other actions or permit to occur any of the other
events specified in Section 4.10 which are within the control of SMM;

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PROVIDED, HOWEVER, that notwithstanding the foregoing restrictions:

(i) SMM will be permitted to (and shall) distribute to the SMM
Shareholders before the Closing, all Distributable Investment Securities
(which, for purposes of such distribution, shall be valued at their fair
market value at the date of their distribution);

(ii) SMM will be permitted to declare, accrue and pay cash distributions
to the SMM Shareholders in an aggregate amount not to exceed (x) 50% of the
sum of (a) SMM's taxable income for the taxable year ending December 31,
1999 (as reflected on line 23 of Schedule K to SMM's US federal income tax
return on Form 1120S for its taxable year ending December 31, 1999) and
(b) SMM's taxable income for the taxable period beginning January 1, 2000
and ending on the last day before the Closing Date (as reflected on line 23
of Schedule K to SMM's US federal income tax return on Form 1120S for such
taxable period), minus (y) the net corporate level capital gains realized by
SMM from (a) its 1999 sale of shares of Class A Common Stock of
Knight/Trimark Group, Inc. and (b) the distribution of the Distributable
Investment Securities (it being agreed that (a) any such declaration of
distributions before the Closing Date may be made in an amount which is not
fixed at the date of the declaration, but which is instead determined by
reference to the formula set forth in this clause (ii) and (b) SMM shall pay
in cash, before the later to occur of March 15, 2000 and the date upon which
SMM's federal income tax return is filed for the period in question, all
distributions declared under and permitted by this clause (ii) but which
shall not have been paid on or before the Closing Date);

(iii) SMM will be permitted to distribute all Compensatory Warrants to
those SMM executives designated as "Key Executives" under the SMM Key
Executive Plan; and

(iv) in accordance with its custom of prior years, SMM shall be
permitted to declare, accrue and pay year-end employee and executive bonuses
for the 1999 fiscal year, which are consistent in both nature and amount
with, and which represent a comparable percentage of SMM's annual net income
as was represented by, year-end bonuses paid by SMM in each of its last
three fiscal years.

7.3 ACCESS AND INFORMATION. SMM shall give PGG and its representatives
access during normal business hours to all the properties, books, contracts,
commitments and records of SMM so that PGG may have full opportunity to make
such investigation of SMM and its Subsidiaries as they shall reasonably request
in advance. SMM will furnish PGG all information concerning SMM required for
inclusion in any application, filing, statement or notice made by PGG to, or
filed or joined in by PGG with, any Government Entity in connection with this
Agreement or the Merger. None of the information furnished to PGG under this
Section 7.3, including any information concerning SMM furnished by it for
inclusion in the Registration Statement or the Proxy Statement included therein,
shall, at the date furnished, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.

7.4 SUPPLEMENTAL INFORMATION. SMM shall furnish PGG copies of SMM's
interim monthly financial statements as soon as practicable but in any event
within 35 days after the end of each month, together with any information
ordinarily prepared in connection with such financial statements. All such
financial statements shall be prepared in conformity with GAAP, shall present
fairly in all material respects, in accordance with GAAP, the financial position
of SMM and its Subsidiaries at the end of the periods covered thereby and the
consolidated results of their operations for the periods covered thereby,
subject to year-end adjustments (consisting of normal recurring accruals) and
the omission of explanatory footnote materials required by GAAP.

7.5 CONFIDENTIALITY. Except for information required or appropriate for
inclusion in any application, filing, statement or notice to be filed by SMM
with any Governmental Entity as contemplated in Section 6.3, all information and
data furnished to SMM by a PGG Party under this Agreement, whether furnished
orally or in writing, shall be received, held and treated confidentially by SMM,
and none of such

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information shall be used in any manner for the benefit of SMM or for the
benefit of any business controlled by it. As soon as practicable after any
termination of this Agreement, SMM shall return to the PGG Parties, and shall
cause its representatives to return to the PGG Parties, respectively, all
documents (and all copies thereof) obtained from them under this Agreement.

7.6 SMM SHAREHOLDERS' MEETING. As soon as practicable following
effectiveness of the Registration Statement, SMM shall call a special meeting of
its shareholders to be held to vote to approve the Merger (the "SMM
SHAREHOLDERS' MEETING"). SMM will use its best efforts to hold the SMM
Shareholders' Meeting no later than 25 days following the effectiveness of the
Registration Statement. SMM will recommend approval of the matters to be acted
upon at the SMM Shareholders' Meeting as provided above, and agrees to use its
best efforts to obtain a favorable vote thereon.

7.7 CONSUMMATION OF MERGER. SMM shall use its best efforts to perform and
fulfill all conditions and obligations on their part to be performed and
fulfilled under this Agreement, to the end that the Merger shall be consummated.

ARTICLE VIII
MUTUAL CONDITIONS

The respective obligations of all Parties to consummate the Merger are
subject to the fulfillment of each of the following conditions on or before the
Closing Date:

8.1 NO ADVERSE PROCEEDINGS. No order entered or Law promulgated or enacted
by any Governmental Entity shall be in effect which would prevent consummation
of the Merger, and no proceeding brought by a Governmental Entity or any other
Person shall have been commenced and be pending which seeks to restrain, enjoin,
prevent or materially delay or restructure the Merger.

8.2 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall
have become effective with the SEC, and no stop order suspending its
effectiveness shall have been issued and no proceedings for that purpose shall
have been instituted by the SEC, and the Registration Statement shall have
registered the issuance of all of the Merger Shares so as to make them freely
tradeable except to the extent contemplated in Section 6.5.

8.3 LISTING OF MERGER SHARES. The Merger Shares to be issued in connection
with the Merger shall have been approved for inclusion in the Nasdaq National
Market tier of the Nasdaq Stock Market, subject to official notice of issuance.

8.4 BROKER-DEALER REGULATORY REQUIREMENTS. All consents, authorizations,
approvals, filings or exemptions required under all applicable Broker-Dealer
Regulatory Requirements in connection with the Merger shall have been obtained
and not rescinded or adversely modified.

8.5 PGG SHAREHOLDER APPROVAL. The issuance of the Merger Shares in
connection with the Merger shall have been approved by the requisite vote of the
PGG Shareholders.

8.6 SMM SHAREHOLDER APPROVALS. The Merger shall have been approved by the
requisite vote of the SMM Shareholders.

8.7 APPROVAL OF BANKING COMMISSIONER. The Texas Banking Commissioner shall
have approved any change of control of each Trust Company Subsidiary that may
occur as a result of the issuance of the Merger Shares.

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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF PGG PARTIES

The respective obligations of the PGG Parties to consummate the Merger are
subject to the fulfillment of each of the following conditions on or before the
Closing Date:

9.1 REPRESENTATIONS TRUE AT CLOSING. The PGG Parties shall not have
discovered any material error, misstatement or omission in the representations
and warranties made by the SMM Parties in either of Articles IV or V; the
representations and warranties made by the SMM Parties in Articles IV and V
shall be deemed to have been made again as of the time of the Closing, and shall
then be true in all material respects; each SMM Party shall have performed and
complied with all agreements and conditions required to be performed or complied
with by it at or prior to the Closing; and the PGG Parties shall have received
certificates, each dated the Closing Date, of the President or a Vice President
of SMM, to the effect set forth in this Section 9.1.

9.2 NO ADVERSE CHANGES. Since the date of this Agreement, no event shall
have occurred which has had or could be reasonably expected to have a Material
Adverse Effect on SMM.

9.3 OPINION OF SMM COUNSEL. The PGG Parties shall have received an
opinion, dated the Closing Date, of Snell & Smith, counsel to SMM, in the form
attached as Exhibit A to this Agreement.

9.4 AFFILIATE AGREEMENTS. The PGG Parties shall have received from each
"affiliate" (within the meaning of SEC Rule 145) of SMM, on or before the
Closing Date, an affiliate's agreement in substantially the form attached as
Exhibit C to this Agreement.

9.5 RELEASES. The PGG Parties and SMM shall have received a Release, in
the form attached as Exhibit D to this Agreement, from each SMM Shareholder.

ARTICLE X
CONDITIONS TO SMM PARTIES OBLIGATIONS

The respective obligations of the SMM Parties to consummate the Merger are
subject to the fulfillment of each of the following conditions on or before the
Closing Date:

10.1 PGG REPRESENTATIONS TRUE AT CLOSING. SMM shall not have discovered
any material error, misstatement or omission in the representations and
warranties made by the PGG Parties in Article III, the representations and
warranties made by the PGG Parties in Article III shall be deemed to have been
made again as of the time of the Closing, and shall then be true in all material
respects; each PGG Party shall have performed and complied with all agreements
and conditions required to be performed or complied with by it at or prior to
the Closing; and SMM shall have received certificates, each dated the Closing
Date, of the President or Vice President of each of the PGG Parties, to the
effects set forth in this Section 10.1.

10.2 NO ADVERSE PGG CHANGES. Since the date of this Agreement, no event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on PGG.

10.3 OPINION OF PGG'S COUNSEL. SMM and the SMM Shareholders shall have
received an opinion, dated the Closing Date, of Porter & Hedges, L.L.P., counsel
to the PGG Parties, in the form attached as Exhibit B to this Agreement.

10.4 TAX OPINION. SMM shall have received an opinion, dated the Closing
Date, of Porter & Hedges, L.L.P., to the effect that:

(i) if consummated in accordance with the terms of this Agreement, the
Merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code;

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(ii) the Merger will not result in the recognition by the SMM
Shareholders of income, gain, loss or deduction for federal income tax
purposes;

(iii) for federal income tax purposes, the holding period and federal
income tax basis of the Merger Shares received by the respective SMM
Shareholders in connection with the Merger will include the holding period,
and equal the federal income tax basis, of the shares of capital stock of
SMM surrendered therefor; and

(iv) the Proxy Statement accurately describes the material federal
income tax consequences of the Merger to the SMM Shareholders.

ARTICLE XI
ADDITIONAL AGREEMENTS

11.1 APPLICATION TO BANKING COMMISSIONER. As soon as practicable after the
execution of this Agreement, all Parties required to do so by the TTCA shall
prepare and file with the Texas Banking Commissioner an application under
Section 4.002 of the TTCA seeking the Texas Banking Commissioner's approval of
any change of control of each Trust Company Subsidiary that may occur as a
result of the issuance of the Merger Shares, and upon being notified by the
Texas Banking Commissioner that the application is complete, shall either (i)
comply with the notice requirements of Section 4.002(d) of the TTCA or (ii)
request a waiver of the notice requirements from the Texas Banking Commissioner
under Section 4.002(e) of the TTCA. Thereafter, the appropriate Parties shall
take all such action and shall attend all such hearings and provide all such
information to the Texas Banking Commissioner as the Commissioner may require in
connection with the Commissioner's consideration of the application; PROVIDED,
HOWEVER, that nothing in this Section 11.1 shall require PGG or any Trust
Company Subsidiary to (i) agree to the imposition of any material limitation on
the ability of any Trust Company Subsidiary to conduct its trust business after
the Closing in substantially the same manner as before the Closing or (ii) make
any undertaking relating to any Trust Company Subsidiary or its assets,
properties, business, operations or practices which, in the reasonable judgment
of PGG and SMM, would or could have, after the Closing, a material adverse
effect on any Trust Company Subsidiary.

11.2 CONSENTS AND APPROVALS. All Parties shall use their best efforts to
obtain before the Closing, in addition to the approvals and consents referred to
in Sections 8.2 through 8.7, all other consents and approvals listed and
disclosed in Section 3.3 or 3.4 of the PGG Disclosure Schedule or the
corresponding sections of the SMM Disclosure Schedule.

11.3 PUBLICITY. No Party other than PGG or SMM shall issue any press
release or public announcement pertaining to the Merger. PGG and SMM shall
consult with each other concerning any such press release or public announcement
and shall use their best efforts to agree on its text before its public
dissemination and before making any filings with any Governmental Entity or
national securities exchange with respect to any such press release or public
announcement. In cases where PGG and SMM are unable to agree on a press release
or public announcement, the Party proposing it will not issue or make it unless
the proposing Party is required to do so by Law or by any listing agreement
with, or rules of, any national securities exchange (including the Nasdaq Stock
Market), in which case the Party so obligated shall use its reasonable efforts
to provide a copy of the press release or public announcement to the other Party
before its filing or public dissemination.

11.4 EXPENSES. Each PGG Party shall pay its own costs and expenses
incurred in connection with the Merger, and SMM shall pay its costs and expenses
and the costs and expenses of the SMM Shareholders (but not any fees or expenses
of any separate counsel for any SMM Shareholder) in connection with the Merger,
in each case whether or not the Merger is consummated.

11.5 CONVEYANCE TAXES. The Parties shall cooperate in the preparation of
all Tax Returns, questionnaires, applications or other documents regarding any
real property transfer tax, any stock transfer

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or stamp tax, or any other similar transfer or conveyance taxes which become
payable in connection with the Merger. This Section 11.4 does not apply or
extend to any federal, state, or local income Tax.

11.6 QUALIFIED RETIREMENT PLANS. In this Section 11.6:

(i) the "SMM 401(K) PLAN" means the Sanders Morris Mundy Inc. 401(k)
Plan;

(ii) the "SMM AGE-RELATED PLAN" means the Sanders Morris Mundy Inc.
Age-Related Profit Sharing Plan;

(iii) "SMM PLANS" means the plans identified in clause (i) and
(ii) above; and

(iv) the "PGG PLAN" means the Pinnacle Global Group, Inc. 401(k) Plan.

As soon as practicable following the Closing, PGG and SMM shall take such
action as may be necessary or appropriate to merge the SMM 401(k) Plan with and
into the PGG Plan subject to the condition that the SMM 401(k) Plan is
determined by PGG to be a qualified plan under Section 401(a) of the Code. As
soon as practicable following the Closing, PGG and SMM shall also take such
action as may be necessary or appropriate to either merge the SMM Age-Related
Plan with and into the PGG Plan or to terminate the SMM Age-Related Plan and
distribute its assets to participants thereunder, in either event subject to the
condition that the SMM Age-Related Plan is determined by PGG to be a qualified
plan under Section 401(a) of the Code. Prior to merging or terminating the SMM
401(k) Plan and the SMM Age-Related Plan, as applicable, the SMM Plans may be
amended as necessary or appropriate to comply with applicable Law and may be
submitted to the Internal Revenue Service pursuant to the Employee Plans
Compliance Resolutions System or under any other IRS corrective program.

Effective as of the Effective Time, the SMM Plans shall be "frozen" pending
their merger or termination, as applicable, and, therefore, as of and following
the Effective Time (i) no person who is not already a participant in an SMM Plan
shall be eligible to participate in either of the SMM Plans (except for any
alternate payee pursuant to a qualified domestic relations order) and (ii) no
further contributions shall be made to either of the SMM Plans except for such
contributions that have fully accrued as liabilities of SMM at the Closing Date
but which by such date have not been paid to the trusts maintained in connection
with the SMM Plans. PGG and SMM hereby agree to (i) take such action, including
adopting and implementing such SMM Plan amendments and preparing and executing
such other documents as may be necessary or appropriate to accomplish the intent
and purposes of this Section 11.6, (ii) cooperate in making all appropriate
filings under the Code or ERISA, and (iii) otherwise comply with the
requirements of the Code, ERISA or other applicable Law with respect to the SMM
Plans.

11.7 RULE 144 REPORTS. For as long as any SMM Shareholder remains subject
to SEC Rule 144 or SEC Rule 145 with respect to the SMM Shareholder's sale of
shares of PGG Common Stock, PGG will make available to such SMM Shareholder the
benefit of rules and regulations of the SEC which may permit such SMM
Shareholder to sell shares of PGG Common Stock without registration by:

(i) making and keeping "current public information" "available" (as both
those terms are defined in Rule 144) at all times;

(ii) timely filing with SEC in accordance with all applicable rules and
regulations, all reports and other documents (x) required of PGG for
Rule 144 or 145, as either Rule may be amended from time to time (or any
rule, regulation, or statute replacing Rule 144 or 145) to be available and
(y) required to be filed under Section 15d of the Exchange Act even if PGG's
duty to file those reports or documents is suspended or otherwise terminated
under the terms of Section 15d; and

(iii) furnishing a written statement by PGG that it has complied with the
reporting requirements of the Exchange Act and Rule 144, together with a
copy of the most recent annual or quarterly report of PGG and such reports
and documents filed by PGG with the SEC as may reasonably be requested by
any such SMM Shareholder.

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11.8 LOCK-UP AGREEMENTS. At the Closing, each SMM Shareholder who
immediately after the Closing will be (i) an officer or director of PGG, (ii) a
holder of shares of PGG Common Stock representing 2.5% or more of the total
number of shares of PGG Common Stock outstanding immediately after the Effective
Time, or (iii) a member of a "group" (within the meaning of SEC Rule 13d.1)
which holds shares of PGG Common Stock representing 10% or more of the total
number of shares of PGG Common Stock outstanding immediately after the Effective
Time, will deliver to PGG, and PGG will cause each person who is an officer or
director of PGG at the Closing Date, to deliver to PGG, a letter (collectively,
the "LOCK-UP AGREEMENTS"), reasonably satisfactory in form and substance to PGG,
under which each such Person will agree that for a period of one year following
the Closing Date such Person will not, without the prior written consent of the
Board of Directors of PGG, sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase or otherwise transfer any shares
of PGG Common Stock or any securities convertible into or exercisable for shares
of PGG Common Stock.

11.9 STANDSTILL. If this Agreement is terminated for any reason before the
Closing (other than pursuant to clause (iv) of Section 14.3), SMM will, and will
cause each of its Affiliates not to, at any time within two years following the
date of any termination of this Agreement:

(i) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights or options to acquire any voting securities of PGG or any of
its Affiliates other than as a result of a stock split, stock dividend or
similar recapitalization;

(ii) make or cause to be made any proposal for the acquisition of PGG or
its Affiliates, any assets or businesses of PGG or its Affiliates, or
securities of PGG or its Affiliates or for any other extraordinary
transaction involving PGG, including any merger, or other business
combination, restructuring, tender offer, exchange offer, recapitalization,
liquidation or similar transaction, except (x) as expressly permitted by
this Agreement or (y) proposals pursuant to customary business transactions
in the ordinary course of PGG's business;

(iii) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any
securities of PGG or its Affiliates other than with Persons who are
Affiliates of SMM;

(iv) make, or in any way cause or participate in, any "solicitation" of
"proxies" to vote (as those terms are defined in Regulation 14A under the
Exchange Act) with respect to PGG or its Affiliates, or communicate with,
seek to advise, encourage or influence any Person, in any manner, with
respect to the voting of, securities of PGG or its Affiliates other than
Persons who are Affiliates of SMM or become a "participant" in any "election
contest" (as those terms are defined or used in Rule 14a-11 under the
Exchange Act) with respect to PGG or its Affiliates;

(v) initiate, propose or otherwise solicit stockholders for the approval
of one or more stockholder proposals with respect to PGG or its Affiliates
or induce or attempt to induce any other Person to initiate any stockholder
proposal, or seek election to or seek to place a representative on the Board
of Directors of PGG or its Affiliates or seek the removal of any member of
the Board of Directors of PGG or its Affiliates;

(vi) in any manner, agree, attempt, seek or propose (or make any request
for permission with respect thereto) to deposit any securities of PGG or its
Affiliates, directly or indirectly, in any voting trust or similar
arrangement or to subject any securities of PGG or its Affiliates to any
other voting or proxy agreement, arrangement or understanding;

(vii) disclose any intention, plan or arrangement, or make any public
announcement (or request permission to make any such announcement), or
induce any other Person to take any action, inconsistent with the foregoing;

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(viii) enter into any negotiations, arrangements or understandings with
any third party with respect to any of the foregoing;

(ix) advise, assist or encourage or finance (or assist or arrange
financing to or for) any other Person in connection with any of the
foregoing; or

(x) otherwise act in concert with others, to seek to control or
influence the management, Board of Directors or policies of PGG or its
Affiliates;

PROVIDED, that this Section 11.9 shall not restrict or inhibit the right of SMM
or any of its Affiliates, or any present shareholder of PGG, to exercise its
voting rights as a shareholder of PGG.

11.10 BOARD REPRESENTATION. Promptly after the Closing, PGG shall:

(i) increase by three the number of directors constituting the whole
board of directors of PGG;

(ii) cause Don A. Sanders, Ben T. Morris and George L. Ball, or such
other individuals (in lieu of the named individuals) as may be designated by
SMM and as are reasonably acceptable to PGG, to be appointed to PGG's Board
of Directors to fill the resulting vacancies;

(iii) cause Don A. Sanders (if he is then willing and able to serve) to
be elected as a Vice Chairman of the Board of PGG;

(iv) cause Ben T. Morris (if he is then willing and able to serve) to be
elected to the Executive Committee of the Board of Directors of PGG, which,
immediately following such election (but thereafter subject to the Charter
Documents of PGG), shall consist of Mr. Morris, Robert E. Garrison, II and
W. Blair Waltrip;

(v) cause George L. Ball and Ben T. Morris (if they are then willing and
able to serve) to be elected to the Board of Directors of each of the
following Subsidiaries of PGG: Spires Financial GP, Inc., Pinnacle
Management and Trust Company, and PGG Capital, Inc.; and

(vi) immediately upon the appointments made pursuant to this
Section 11.10, execute and deliver to each of Messrs. Sanders, Morris and
Ball an officer and director indemnification agreement substantially similar
in form and substance to the officer and director indemnification agreements
now in effect between PGG and its current officers and directors.

ARTICLE XII
NATURE AND SURVIVAL
OF
REPRESENTATIONS AND WARRANTIES

12.1 NATURE OF STATEMENTS. All, but only those, statements contained in
this Agreement or any Disclosure Schedule or certificate delivered by or on
behalf of a Party under this Agreement shall be deemed representations and
warranties made by that Party in connection with the transactions contemplated
by this Agreement.

12.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the PGG Parties in Article III, and the representations and
warranties made by the SMM Parties in Article IV, shall not survive, and shall
terminate upon, the Closing. Regardless of any investigation made at any time by
or on behalf of any Party or of any information any Party may have as a result
of any such investigation, all representations and warranties made by the
respective SMM Shareholders in Article V shall survive the Closing and shall
continue in effect thereafter.

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ARTICLE XIII
INDEMNIFICATION

The respective indemnification obligations of the Parties are:

13.1 INDEMNIFICATION BY THE SMM. SMM agrees to pay and to indemnify and
hold harmless and defend each PGG Party and its Affiliates, and their respective
successors and assigns from and against any and all Damages caused by or arising
out of or in respect of:

(i) any breach or default in the performance by SMM of any covenant or
agreement of SMM contained in this Agreement; and

(ii) any breach of warranty or inaccurate or erroneous representation
made by an SMM in Article IV of this Agreement.

13.2 INDEMNIFICATION BY THE SMM SHAREHOLDERS. Each SMM Shareholder
severally agrees to pay and to indemnify and hold harmless each PGG Party, SMM,
each other SMM Shareholder, and their respective Affiliates (but, in the case of
SMM, only its Affiliates after the Closing), successors and assigns from and
against any and all Damages caused by, arising out of or in respect of:

(i) any breach or default in the performance by the SMM Shareholder of
any covenant or agreement made by the SMM Shareholder in this Agreement; or

(ii) any breach of warranty or inaccurate or erroneous representation
made by the SMM Shareholder in Article V of this Agreement.

13.3 INDEMNIFICATION BY THE PGG PARTIES. The PGG Parties jointly and
severally agree to pay and to indemnify and hold harmless and defend each SMM
Party and its Affiliates (but not SMM after the Closing), and their respective
successors and assigns from and against any and all Damages caused by or arising
out of or in respect of:

(i) any breach or default in the performance by any PGG Party of any
covenant or agreement of such PGG Party contained in this Agreement; and

(ii) any breach of warranty or inaccurate or erroneous representation
made by such PGG Party in Article III of this Agreement.

13.4 REQUESTS FOR INDEMNIFICATION. If any Party (an "INDEMNIFIED PARTY")
becomes aware of a fact, circumstance, claim, situation, demand or other matter
for which it or any other Indemnified Party has been indemnified under this
Article XIII (any such item being herein called an "INDEMNITY MATTER"), the
Indemnified Party shall give prompt written notice of the Indemnity Matter to
the Indemnifying Party, requesting indemnification therefor, specifying the
nature of and specific basis for the Indemnity Matter and the amount or
estimated amount thereof to the extent then feasible; provided, however, a
failure to give such notice will not waive any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are actually
materially prejudiced by such failure. The Indemnifying Party shall have the
right to assume the defense or investigation of such Indemnity Matter and to
retain counsel and other experts to represent the Indemnified Party and shall
pay the fees and disbursements of such counsel and other experts. If within
30 days after receipt of the request (or five days if litigation is pending) the
Indemnifying Party fails to give notice to the Indemnified Party that the
Indemnifying Party assumes the defense or investigation of the Indemnity Matter,
an Indemnified Party may retain counsel and other experts (whose fees and
disbursements shall be at the expense of the Indemnifying Party) to file any
motion, answer or other pleading and take such other action which the
Indemnified Party reasonably deems necessary to protect its interests or those
of the Indemnifying Party until the date on which the Indemnified Party receives
such notice from the Indemnifying Party. If an Indemnifying Party retains
counsel and other experts, any Indemnified Party shall have the right to retain
its own counsel and other experts, but the fees and expenses of such counsel and
other experts shall be at the expense of the

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Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party
mutually agree to the retention of such counsel and other experts or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would, in the opinion of counsel retained by the
Indemnifying Party, be inappropriate due to actual or potential differing
interests between them.

If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate with the Indemnifying Party and its counsel in contesting any
Indemnity Matter which the Indemnifying Party defends, or, if appropriate and
related to the Indemnity Matter in question, in making any counterclaim against
the person asserting the Indemnity Matter, or any cross-complaint against any
person. No Indemnity Matter may be settled by the Indemnified Party without the
consent of the Indemnifying Party, which consent will not be unreasonably
withheld. Unless the Indemnifying Party agrees in writing that the Damages to
the Indemnified Party resulting from such settlement are fully covered by the
indemnities provided herein and that such Damages are fully compensable in
money, no Indemnity Matter may be settled without the consent of the Indemnified
Party, which consent will not be unreasonably withheld. Except with respect to
settlements entered without the Indemnified Party's consent pursuant to the
immediately preceding sentence, to the extent it is determined that the
Indemnified Party has no right under this Article XIII to be indemnified by the
Indemnifying Party, the Indemnified Party shall promptly pay to the Indemnifying
Party any amounts previously paid or advanced by the Indemnifying Party with
respect to such matters pursuant to this Article XIII.

After the delivery of a notice of an Indemnity Matter hereunder, at the
reasonable request of the Indemnifying Party the Indemnified Party shall grant
the Indemnifying Party and its representatives full and complete access to the
books, records and properties of the Indemnified Party to the extent reasonably
related to the matters to which the notice relates. The Indemnifying Party will
not disclose to any third person (except its representatives) any information
obtained pursuant to the preceding sentence which is designated as confidential
by the Indemnified Party and which is not otherwise generally available to the
public or not already within the knowledge of the Indemnifying Party, except as
may be required by applicable law. The Indemnifying Party shall request its
representatives not to disclose any such information (unless already within its
knowledge or as may be required by applicable law). All such access shall be
subject to the normal safety regulations of the Indemnified Party, and shall be
granted under conditions which will not unreasonably interfere with the business
and operations of the Indemnified Party.

ARTICLE XIV
AMENDMENT AND TERMINATION

14.1 AMENDMENT. This Agreement may be amended by PGG and SMM, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval by the PGG Shareholders of the matters specified in
Section 6.6, but after such approval, no amendment shall be made which increases
the number of Merger Shares issuable to the SMM Shareholders in connection with
the Merger, without the further approval of the PGG's Shareholders. This
Agreement may be amended only by a written instrument executed by PGG and SMM.

14.2 WAIVER. At any time on or before the Closing Date, each of the
Parties may (i) extend the time for the performance of any of the obligations or
other act of any of the other Parties, (ii) waive any inaccuracies in the
representations and warranties made in this Agreement or in a Disclosure
Schedule of a Party, (iii) waive compliance with any of the agreements or
conditions of this Agreement which may be legally waived, and (iv) grant
consents under this Agreement. Any such extension, waiver or grant shall be
valid only if evidenced by a written instrument executed by the Party giving it.
Any such extension, waiver or grant on behalf of (i) the PGG Parties need only
be executed by PGG, and (ii) the SMM Parties need only be executed by SMM.

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14.3 TERMINATION. This Agreement may be terminated at any time before the
Closing by:

(i) the mutual consent of the Boards of Directors of PGG and SMM;

(ii) by the Board of Directors of PGG or SMM if the Merger has not been
consummated on or before March 15, 2000 (or any later date which may be
agreed to by the mutual written consent of the respective Board of Directors
of PGG); PROVIDED, HOWEVER, that such right to terminate this Agreement
shall not be available to any Party that has breached in any material
respect its obligations under this Agreement in any manner that has
proximately contributed to the failure of the Merger to occur on or before
such date, and PROVIDED, FURTHER, that this Agreement shall be extended not
more than 45 days after March 15, 2000 if (x) the Merger has not been
consummated as a result of the failure to receive the approvals or consents
set forth in Sections 8.2 through 8.5 and (y) the Parties are diligently
pursuing such approvals and consents;

(iii) by either the PGG or SMM if the PGG Shareholders shall have failed
to approve at the PGG Shareholders' Meeting the issuance of the Merger
Shares;

(iv) by the Board of Directors of SMM, if the Board of Directors of PGG
(x) withdraws, or modifies in a manner adverse to the SMM Parties, its
recommendation for approval of the issuance of the Merger Shares or
(y) approves or recommends an Alternative Transaction; and

(v) by PGG if the SMM Shareholders shall have failed to approve the
Merger and the Plan of Merger at the SMM Shareholders Meeting.

14.4 CONSEQUENCES OF TERMINATION. If this Agreement is terminated as
provided in Section 14.3, it shall become void and there shall be no liability
or obligation on the part of any Party or their respective officers or
directors, except that the provisions of Sections 6.7, 7.6, 11.3, 14.5, and 14.6
and, unless this Agreement is terminated under clause (iv) of Section 14.3,
Section 11.8, shall survive such a termination. Nothing in this Section 14.4
shall, however, relieve any Party from any liability for any breach of this
Agreement.

14.5 PGG TERMINATION FEE. PGG agrees that if the SMM Parties are not in
material breach of this Agreement and:

(i) if (x) SMM terminates this Agreement under clause (iii) of
Section 14.3, (y) at the time of the PGG Shareholders Meeting there exists
or has been proposed an Alternative Transaction that has been publicly
announced or otherwise communicated to PGG and the PGG Shareholders, and
(z) within one year thereafter PGG enters into a definitive agreement with
respect to an Alternative Transaction or an Alternative Transaction is
consummated; or

(ii) if (x) SMM terminates this Agreement under clause (iv) of
Section 14.3 and (y) at the time of termination of this Agreement there
exists or has been proposed an Alternative Transaction;

then PGG shall pay SMM $1.5 million (the "PGG TERMINATION FEE"). If this
Agreement is terminated under the circumstances described in clause (i) of this
Section 14.5, the PGG Termination Fee shall be paid promptly after consummation
of the Alternative Transaction referred to in clause (i). If this Agreement is
terminated under clause (ii) of this Section 14.5, the PGG Termination Fee shall
be paid promptly after the termination of this Agreement. Payment of the PGG
Termination Fee shall be made not later than three Business Days after SMM make
written demand on PGG for its payment, by wire transfer of immediately available
funds to an account designated by SMM in its written demand.

If PGG fails to pay the PGG Termination Fee on or before the date its
payment is due, the amount of the PGG Termination Fee shall be increased to
include costs and expenses (including fees and expenses of counsel) actually
incurred by SMM to enforce and collect under this Section 14.5, together with
interest on the PGG Termination Fee from the date it became due through its date
of payment at a rate equal to 5% plus the rate of interest publicly announced
and in effect from time to time during such period by Citibank,

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N.A., New York, New York, as its base rate of interest (but not to exceed the
maximum lawful rate of interest allowed by applicable Law).

14.6 SMM TERMINATION FEE. SMM agrees that if the PGG Parties are not in
material breach of this Agreement and PGG terminates this Agreement under
clause (v) of Section 14.3, then SMM shall pay PGG $1.5 million (the "SMM
TERMINATION FEE") promptly after the termination of this Agreement and not later
than three Business Days after PGG makes written demand on SMM for payment, by
wire transfer of immediately available funds to an account designated by PGG in
its written demand.

If SMM fails to pay the SMM Termination Fee on or before the date its
payment is due, the amount of the SMM Termination Fee shall be increased to
include costs and expenses (including fees and expenses of counsel) actually
incurred by PGG to enforce and collect under this Section 14.6, together with
interest on the SMM Termination Fee from the date it became due through its date
of payment at a rate equal to 5% plus the rate of interest publicly announced
and in effect from time to time during such period by Citibank, N.A., New York,
New York, as its base rate of interest (but not to exceed the maximum lawful
rate of interest allowed by applicable Law).

ARTICLE XV
GENERAL PROVISIONS

15.1 NON-BUSINESS DAYS. If the date on which any action (including the
delivery of notices) to be taken under this Agreement falls on a day which is
not a Business Day, the action will be deemed timely taken if on the next
following Business Day.

15.2 SHAREHOLDER CONSENTS. Pursuant to Articles 5.03 and 9.10 of the TBCA,
PGG, as the sole shareholder of HWG, approves this Agreement, the Merger and the
Plan of Merger.

15.3 SMM SHAREHOLDERS' AGREEMENT. SMM and the SMM Shareholders agree that:

(i) at the Effective Time, the SMM Shareholders' Agreement shall be
terminated without any further action on the part of any of its parties;

(ii) the execution and delivery of this Agreement by the SMM Parties
shall not be affected by, or constitute a breach or violation of, the SMM
Shareholders' Agreement;

(iii) if at the date of this Agreement there has begun to run, or if
after the date of this Agreement and prior to the Effective Time there
begins to run, any period of time (herein called a "LIMITATION PERIOD")
within which any party bound by or entitled to the benefits of, or whose
shares of SMM Common Stock are subject to, the SMM Shareholders' Agreement,
must give any notice, offer such shares for sale, accept any offer to
purchase any such shares, purchase shares of SMM Common Stock, make any
election or take any other action in order to preserve or maintain any right
or benefit of such party, then such Limitation Period shall cease to run and
shall be tolled as of the date of this Agreement, or, in the case of any
Limitation Period beginning after the date of this Agreement, shall not
begin to run unless and until such Limitation Period shall be resumed and
reinstated as provided in clause (v) below of this Section 15.3;

(iv) for so long as any Limitation Period is tolled under clause (iii)
of this Section 15.3, no party to the SMM Shareholders' Agreement may
exercise any right or option such party would otherwise have but for the
provisions of this Section 15.3; and

(v) if this Agreement is terminated pursuant to Article XIV, then as of
the close of business on the date this Agreement is terminated, the
provisions of this Section 15.3 shall terminate and any Limitation Period
shall resume and be reinstated, or shall commence, as the case may be, ten
days following such termination, and promptly thereafter SMM shall notify
each of the SMM Shareholders that the provisions of this Section 15.3 have
terminated.

A-41
<PAGE>
15.4 NOTICES. All notices or other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person or transmitted by telecopier (with
receipt confirmed) to a Party at the address or telecopy number, as applicable,
set forth below (as any such address or telecopier number may be changed from
time to time by notice similarly given):

<TABLE>
<S> <C>
(i) if to either PGG Party, to:

Pinnacle Global Group, Inc.
5599 San Felipe, Suite 555
Houston, Texas 77056
Attention: Robert E. Garrison, II
President and Chief Executive Officer
Telecopy No.: (713) 993-4698

with a copy to:

Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Attention: James M. Harbison, Jr.
Telecopy No.: (713) 228-1331

(ii) if to any SMM Party, to:

Sanders Morris Mundy Inc.
600 Travis, Suite 3100
Houston, Texas 77002
Attention: Ben T. Morris, President
Telecopy No.: (713) 224-1101

with copy to:

Snell & Smith
1000 Louisiana, Suite 1200
Houston, Texas 77002
Attention: John T. Unger
Telecopy No.: (713) 651-8010
</TABLE>

15.5 ENTIRE AGREEMENT. This Agreement, its Exhibits, the Disclosure
Schedules, and all documents delivered under this Agreement, constitute the
entire agreement, and supersede all of the prior agreements and undertakings,
both written and oral, among the Parties, or any of them, with respect to the
subject matter of this Agreement.

15.6 ASSIGNMENT; BINDING EFFECT. This Agreement may not be assigned by any
of its Parties. Subject to the preceding sentence, this Agreement shall be
binding upon the Parties and their respective successors and assigns.

15.7 COUNTERPARTS. This Agreement may be executed in counterparts which
together shall constitute a single agreement. Delivery by telephonic facsimile
transmission of a signed counterpart of this Agreement shall be effective as
delivery of a manually signed counterpart.

15.8 GOVERNING LAW; JURISDICTION. This Agreement and the rights and
obligations of the parties created hereby shall be governed by the internal Laws
of the State of Texas without regard to its conflict of law rules. The Parties
irrevocably consent to the non-exclusive jurisdiction of the courts of the State
of Texas in connection with any dispute between or among them arising under this
Agreement.

A-42
<PAGE>
15.9 SEVERABILITY OF PROVISIONS. If a provision of this Agreement or its
application to any Person or circumstance, is held invalid or unenforceable in
any jurisdiction, to the extent permitted by law, such provision or the
application of such provision to Persons or circumstances other than those as to
which it is held invalid or unenforceable and in other jurisdictions, and the
remaining provisions of this Agreement, shall not be affected.

15.10 SPECIFIC PERFORMANCE. Each Party agrees that one or more other
Parties would be irreparably damaged if any provision of this Agreement were not
performed in accordance with its specific terms or was otherwise breached.
Therefore, the Parties agree that each Party shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement or any of its provisions
and to specifically enforce this Agreement and its terms and provisions in any
action instituted in any court of the United States or any state thereof having
subject matter jurisdiction, in addition to any other remedy to which a Party
may be entitled, at law or in equity.

15.11 JOINT DRAFTING. This Agreement and its Exhibits have been jointly
drafted by the Parties and their counsel. Neither this Agreement nor any of its
Exhibits shall be construed against any Party based on its authorship.

15.12 CAPTIONS. The article and section headings in this Agreement are for
convenience only, and shall not affect the meaning or interpretation of this
Agreement.

15.13 NO THIRD-PARTY BENEFICIARIES. There are no third-party beneficiaries
of this Agreement, except that the respective Affiliates of the Parties are
entitled to the benefits of the respective indemnification obligations of the
Parties under Article XIII.

[SIGNATURE PAGE FOLLOWS]

A-43
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, all as of
the date first written above.

<TABLE>
<S> <C> <C>
PGG PARTIES:

PINNACLE GLOBAL GROUP, INC.

By: /s/ ROBERT E. GARRISON, II
-----------------------------------------
Robert E. Garrison, II, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

HARRIS WEBB & GARRISON, INC.

By: /s/ ROBERT E. GARRISON, II
-----------------------------------------
Robert E. Garrison, II, PRESIDENT

SMM:

SANDERS MORRIS MUNDY INC.

By: /s/ BEN T. MORRIS
-----------------------------------------
Ben T. Morris, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>

A-44
<PAGE>

<TABLE>
<S> <C> <C>
SHAREHOLDERS OF SANDERS MORRIS MUNDY INC.

*
-----------------------------------------
Don A. Sanders

/s/ BEN T. MORRIS
-----------------------------------------
Ben T. Morris, individually and as Trustee
of the Sanders 1998 Children's Trusts

/s/ WALTER P. ZIVLEY
-----------------------------------------
Walter P. Zivley, Trustee of the Sanders
1998 Children's Trust

/s/ GEORGE L. BALL
-----------------------------------------
George L. Ball

/s/ R. LARRY KINNEY
-----------------------------------------
R. Larry Kinney

*
-----------------------------------------
John E. Drury

*
-----------------------------------------
Wyatt A. Williams, Jr.

*
-----------------------------------------
John I. Mundy

/s/ BRUCE R. MCMAKEN
-----------------------------------------
Bruce R. McMaken

*
-----------------------------------------
James S. Jordan

/s/ CHARLES L. DAVIS
-----------------------------------------
Charles L. Davis
</TABLE>

A-45
<PAGE>
<TABLE>
<S> <C> <C>
/s/ MICHAEL S. CHADWICK
-----------------------------------------
Michael S. Chadwick

*
-----------------------------------------
Kenneth Ch'uan-K'ai Leung

*
-----------------------------------------
W. Bradley Deason

*
-----------------------------------------
Brede C. Klefos

*
-----------------------------------------
Humbert B. Powell, III

/s/ JOHN MALANGA
-----------------------------------------
John Malanga

*
-----------------------------------------
Bret D. Sanders

*
-----------------------------------------
William C. Conroy

*
-----------------------------------------
Melville L. Cody

*
-----------------------------------------
M. Lynn Detrick

*
-----------------------------------------
Rune Medhus

*
-----------------------------------------
Dave Giannini
</TABLE>

A-46
<PAGE>
<TABLE>
<S> <C> <C>
*
-----------------------------------------
Dean Oakey

*
-----------------------------------------
Irene Haas

*
-----------------------------------------
Karen D. Kane

/s/ SANDY WILLIAMS
-----------------------------------------
Sandy Williams

*
-----------------------------------------
Lori Johnson

/s/ ANN SMOOT
-----------------------------------------
Ann Smoot

/s/ THOMAS ANDERSON
-----------------------------------------
Thomas Anderson

*By /s/ BEN T. MORRIS
-----------------------------------------
Ben T. Morris, Agent and Attorney-in-Fact
</TABLE>

A-47
<PAGE>
APPENDIX B

PLAN OF MERGER

THIS PLAN OF MERGER ("PLAN OF MERGER") dated October 12, 1999, pursuant to
Article 5.01 of the Texas Business Corporation Act, as amended (the "TBCA"), is
among Pinnacle Global Group, Inc., a Texas corporation ("PGG"), Harris, Webb &
Garrison, Inc., a Texas corporation ("HWG"), and Sanders Morris Mundy Inc., a
Texas corporation ("SMM" or the "SURVIVING CORPORATION"). SMM and HWG are
hereinafter together referred to as the "MERGING CORPORATIONS."

W I T N E S S E T H:

WHEREAS, PGG is a corporation duly organized and validly existing under the
laws of the State of Texas, and has authorized capital stock consisting of
(i) 100 million shares of common stock, $.01 par value per share ("PGG COMMON
STOCK"), of which 7,125,253 shares are issued and outstanding, and
(ii) 10 million shares of Preferred Stock, $.10 par value per share, none of
which are issued or outstanding;

WHEREAS, HWG is a corporation duly organized and validly existing under the
laws of the State of Texas, and has authorized capital stock consisting of
50,000 shares of common stock, $1.00 par value per share ("HWG COMMON STOCK"),
of which 28,495 shares are issued and outstanding and owned and held by PGG;

WHEREAS, SMM is a corporation duly organized and validly existing under the
laws of the State of Texas, and has authorized capital stock consisting of
200,000 shares of common stock, $1 par value per share ("SMM COMMON STOCK"), of
which 60,729 shares are issued and outstanding and 10,500 shares are held by SMM
as treasury shares;

WHEREAS, the respective Boards of Directors of the Merging Corporations deem
it advisable and in the best interests of the respective Merging Corporations
and their respective shareholders that HWG be merged with and into SMM (the
"MERGER"), with SMM to be the surviving corporation of the Merger and to
continue in existence after the Merger under the name "SANDERS MORRIS
HARRIS INC.," as authorized by the laws of the State of Texas, under and
pursuant to the terms and conditions set forth in this Plan of Merger, and the
Board of Directors of each of the Merging Corporations has duly approved this
Plan of Merger and recommended its approval to the respective shareholders of
the Merging Corporations; and

WHEREAS, simultaneously with the execution of this Plan of Merger, PGG, SMM,
HWG and the shareholders of SMM have entered into an Agreement and Plan of
Reorganization of even date herewith (the "REORGANIZATION AGREEMENT"), which
provides for the execution of this Plan of Merger by PGG, SMM and HWG;

NOW, THEREFORE, for the purpose of setting forth the terms and conditions of
the Merger, the mode of carrying the Merger into effect, and such other details
and provisions concerning the Merger as are deemed necessary or desirable, the
parties to this Plan of Merger hereby agree, subject to the approval of this
Plan of Merger by the requisite consent of the shareholders of each of the
Merging Corporations, and subject to the conditions hereinafter set forth, as
follows:

1. MERGER. At the Effective Time, HWG shall be merged with and into SMM,
with SMM to be the surviving corporation which after the Effective Time shall
continue its corporate existence as a Texas corporation to be governed by the
laws of the State of Texas.

2. TERMS AND CONDITIONS OF MERGER. At the Effective Time:

(i) the Merging Corporations shall be a single corporation, which shall
be SMM, the corporation designated in this Plan of Merger as the surviving
corporation;

B-1
<PAGE>
(ii) the separate corporate existence of HWG shall cease; and

(iii) the Merger shall have the effects stated in Article 5.06(2), (3)
and (4) of the TBCA.

3. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective Time, as a
result of the Merger and without any action on the part of any holder thereof:

(i) each share of SMM Common Stock then issued and outstanding shall
(x) automatically become and be converted into the right to receive
117.32867 fully paid and nonassessable shares of issued and outstanding PGG
Common Stock, (y) cease to be outstanding and to exist, and (z) be canceled
and retired;

(ii) each share of SMM Common Stock held in the treasury of SMM shall be
canceled and retired; and

(iii) each share of HWG Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common
Stock, par value $.01 per share, of the Surviving Corporation, and the
shares of Common Stock of the Surviving Corporation resulting from such
conversion will constitute all of the issued and outstanding shares of
capital stock of the Surviving Corporation.

Upon and after the Effective Time, no transfer of shares of SMM Common Stock
issued and outstanding immediately before the Effective Time shall be made on
the stock transfer books of the Surviving Corporation.

Each holder of a certificate representing shares of SMM Common Stock
immediately before the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the shares of PGG Common Stock into which
his shares of SMM Common Stock shall have been converted as a result of the
Merger.

4. DELIVERY, EXCHANGE AND PAYMENT.

(A) SURRENDER OF CERTIFICATES. At or after the Effective Time: (i) each
holder of an outstanding certificate or certificates previously representing
shares of SMM Common Stock ("SHAREHOLDER"), will, on surrender of his
certificate to PGG, receive a certificate representing the number of shares of
PGG Common Stock into which such shares of SMM Common Stock shall have been
converted as a result of the Merger, and (ii) until any certificate representing
SMM Common Stock is surrendered pursuant to this Section 4, that certificate
will, for all purposes, be deemed to evidence ownership of the number of whole
shares of PGG Common Stock issuable in respect of that certificate under
Sections 3 and 5. All shares of PGG Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by PGG at the Effective Time.

(B) CERTAIN TRANSFERS. In the event of a transfer of ownership of shares of
SMM Common Stock that is not registered in the transfer records of SMM, the
certificate representing shares of PGG Common Stock issuable in respect of such
shares of SMM Common Stock may be issued to a transferee if the certificate
representing such shares of SMM Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to PGG and its transfer Agent that any applicable stock
transfer taxes have been paid.

(C) LOST CERTIFICATES. If any certificate representing shares of SMM Common
Stock shall have been lost, stolen or destroyed, upon receipt of (i) an
affidavit of that fact from the Shareholder claiming the certificate to be lost,
stolen or destroyed, (ii) such bond, security or indemnity as PGG or its
transfer agent may reasonably require, and (iii) any other documentation
necessary to evidence and effect the bona fide exchange thereof, PGG shall cause
its transfer agent to issue to such Shareholder a certificate representing the
shares of PGG Common Stock into which the shares of SMM Common Stock represented
by the lost, stolen or destroyed certificate would have been exchanged.

B-2
<PAGE>
(D) DIVIDENDS AND DISTRIBUTIONS. No dividends (or interest) or other
distributions declared or earned after the Effective Time with respect to PGG
Common Stock and payable to the holders of record thereof after the Effective
Time will be paid to the holder of any unsurrendered certificate representing
shares of SMM Common Stock for which shares of PGG Common Stock have been issued
in the Merger until the unsurrendered certificates are surrendered as provided
herein, but (i) on such surrender, PGG will cause to be paid, to the person in
whose name the certificate representing such shares of PGG Common Stock shall
then be issued, the amount of dividends or other distributions previously paid
with respect to such whole shares of PGG Common Stock with a record date, or
which have accrued, subsequent to the Effective Time, but prior to surrender,
and (ii) at the appropriate payment date or as soon as practicable thereafter,
PGG will cause to be paid to that person the amount of dividends or other
distributions with a record date, or which have been accrued, subsequent to the
Effective Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of PGG Common
Stock, subject in all cases to any applicable escheat laws. No interest will be
payable with respect to the payment of such dividends or other distributions on
surrender of outstanding certificates.

5. NO FRACTIONAL SHARES. Notwithstanding any other provision of this Plan
of Merger, no certificates for fractional share interests of PGG Common Stock
will be issued, and any Shareholder otherwise entitled to receive a fractional
share of PGG Common Stock but for this Section 5 will instead be entitled to
receive one additional whole share of PGG Common Stock.

6. ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS, COMMITTEES AND OFFICERS.

(A) ARTICLES OF INCORPORATION. At the Effective Time, Article I of the
Articles of Incorporation of SMM shall be amended to read as follows:

"Article I
The name of the Corporation is Sanders Morris Harris Inc."

From and after the Effective Time, the Articles of Incorporation of SMM, as
existing immediately before the Effective Time and as so amended by this Plan of
Merger, shall be the Articles of Incorporation of the Surviving Corporation,
subject to the right of the Surviving Corporation to amend its Articles of
Incorporation after the Effective Time in accordance with such Articles of
Incorporation and the TBCA.

(B) BYLAWS. From and after the Effective Time of the Merger, the bylaws of
SMM, as in effect immediately prior to the Effective Time of the Merger, shall
be the bylaws of the Surviving Corporation, until changed or amended as provided
therein.

(C) DIRECTORS. From and after the Effective Time, the directors of the
Surviving Corporation shall be Robert E. Garrison, II, Edward C. Hutcheson, Jr.,
Titus H. Harris, Jr., Richard C. Webb, Don A. Sanders, Ben T. Morris, R. Larry
Kinney, George L. Ball, Donald R. Campbell, Peter W. Badger and Stephen M.
Reckling. If before the Effective Time, any one or more of such persons dies or
refuses or becomes unable to serve as a director, then the remaining named
persons shall be the directors of the Surviving Corporation from and after the
Effective Time. The directors of the Surviving Corporation shall hold office
subject to the provisions of the TBCA and the Articles of Incorporation and
bylaws of the Surviving Corporation.

(D) COMMITTEES. From and after the Effective Time, all committees of the
Board of Directors of SMM existing immediately prior to the Effective Time of
the Merger shall be dissolved, and from and after the Effective Time there shall
be established an Executive Committee of the Board of Directors, the members of
which shall be (subject to the provisions of the TBCA and the bylaws of the
Surviving Corporation) Don A. Sanders, who shall be Chairman of the Executive
Committee, Ben T. Morris, R. Larry Kinney, George L. Ball, Robert E. Garrison,
II, Richard C. Webb, and Edward C. Hutcheson, Jr.

B-3
<PAGE>
All other committees of the Board of Directors of the Surviving Corporation
shall be as from time to time established and appointed by the Board of
Directors of the Surviving Corporation after the Effective Time, subject to the
provisions of the TBCA and the bylaws of the Surviving Corporation.

(E) OFFICERS. From and after the Effective Time, the officers of the
Surviving Corporation shall be as set forth below:

<TABLE>
<S> <C>
Chairman of the Board: George L. Ball
President and Chief Executive Ben T. Morris
Officer:
Executive Vice President R. Larry Kinney
Executive Vice President Titus H. Harris, Jr.
Executive Vice President Richard C. Webb
</TABLE>

All other officers of the Surviving Corporation shall be as elected by its
Board of Directors at its first meeting following the Effective Time. From and
after the Effective Time, the officers of the Surviving Corporation shall hold
office subject to the provisions of the TBCA and the bylaws of the Surviving
Corporation.

7. APPROVAL AND EFFECTIVE TIME OF MERGER. This Plan of Merger shall be
submitted to the shareholders of each of the Merging Corporations as provided by
the TBCA. After the approval of this Plan of Merger by the shareholders of each
Merging Corporation in accordance with the requirements of the TBCA, all
required documents shall be executed, filed and recorded and all required acts
shall be done in order to accomplish the Merger under the provisions of the TBCA
and this Plan of Merger. The Merger shall become effective upon the issuance of
a certificate of merger by the Secretary of State of the State of Texas
subsequent to the filing of Articles of Merger by the Merging Corporations with
the Secretary of State of the State of Texas (the "EFFECTIVE TIME").

8. OTHER PROVISIONS.

(A) FURTHER ASSURANCES. If at any time SMM shall consider or be advised that
any further assignment or assurance in law or other action is necessary or
desirable to vest, perfect or confirm, or record or otherwise, in SMM the title
to any property or rights of HWG acquired or to be acquired by or as a result of
the Merger, the proper officers and directors of the Merging Corporations,
respectively, shall be, and they hereby are, severally and fully authorized to
execute and deliver such deeds, assignments and assurances in law and take such
other action as may be necessary or proper in the name of SMM or HWG to vest,
perfect or confirm title to such property or rights in HWG and otherwise carry
out the purposes of this Plan of Merger.

(B) TERMINATION. This Plan of Merger may be terminated at any time before
the Effective Time of the Merger, whether before or after action thereon by the
shareholders of the Merging Corporations (if such shareholder approval is
required), by mutual consent of the Merging Corporations, expressed by action of
their respective Boards of Directors. This Plan of Merger shall be automatically
abandoned upon the valid termination of the Reorganization Agreement, in
accordance with the terms thereof, prior to the filing of Articles of Merger
referred to in Section 7 of this Plan of Merger with the Secretary of State of
the State of Texas.

(C) COUNTERPARTS. For the convenience of the parties and to facilitate the
filing and recording of this Plan of Merger, any number of counterparts hereof
may be executed, and each such counterpart shall be deemed to be an original
instrument.

(D) AMENDMENTS. The Merging Corporations, by mutual consent of their
respective Boards of Directors, and to the extent permitted by law, may amend,
modify, supplement and interpret this Plan of Merger in such manner as may be
mutually agreed upon by them in writing at any time before or after adoption
thereof by their respective shareholders, and, in the case of an interpretation,
the actions of such Boards shall be binding.

[SIGNATURE PAGE FOLLOWS]

B-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be
executed as of the date first above written.

<TABLE>
<S> <C> <C>
PINNACLE GLOBAL GROUP, INC.

By: /s/ ROBERT E. GARRISON, II
-----------------------------------------
ROBERT E. GARRISON, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER

HARRIS, WEBB & GARRISON, INC.

By: /s/ ROBERT E. GARRISON, II
-----------------------------------------
ROBERT E. GARRISON, II
PRESIDENT AND CHIEF EXECUTIVE OFFICER

SANDERS MORRIS MUNDY INC.

By: /s/ BEN T. MORRIS
-----------------------------------------
BEN T. MORRIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

B-5
<PAGE>
APPENDIX C

October 26, 1999
Mr. Robert E. Garrison II
President and CEO
Pinnacle Global Group, Inc.
5599 San Felipe, Suite 301
Houston, TX 77056

Dear Mr. Garrison:

You have requested Howard Frazier Barker Elliott, Inc., ("HFBE") to render
its opinion as to the fairness, from a financial point of view, to Pinnacle
Global Group, Inc. ("PGG" or the "Company"), a Texas corporation, and its
shareholders, of the consideration to be paid by PGG in the proposed merger (the
"Merger") of Harris Webb & Garrison, Inc. ("HWG"), a wholly owned subsidiary of
PGG, with and into Sanders Morris Mundy, Inc., ("SMM") pursuant to an Agreement
and Plan of Reorganization (the "Merger Agreement") among PGG, HWG, SMM and the
SMM shareholders. In the Merger, SMM, which will be renamed "Sanders Morris
Harris Inc.," will be the surviving corporation and all issued and outstanding
common stock of SMM will be converted into the right to receive an aggregate of
approximately 7,125,233 shares of PGG common stock.

As part of our financial advisory activities, HFBE engages in the valuation
of business and securities in connection with mergers and acquisitions, private
placements, and valuations for estate, corporate and other purposes. We are
experienced in these activities and have performed assignments similar in nature
to that requested by you on numerous occasions. The opinion of HFBE is solely
for the use of the Board of Directors and cannot be used for any other purpose
without our prior written consent.

In rendering our written opinion, HFBE: (i) reviewed PGG's Annual Report,
Form 10-K and related financial information for the year ended December 31,
1998, and Form 10-Q and related financial information for the quarters ended
March 31, 1999 and June 30, 1999; (ii) reviewed financial information for PGG's
predecessor entities for the years ended December 31, 1995 and through 1998;
(iii) reviewed SMM's financial information for the years ended December 31, 1994
through 1998, and related financial information for the quarters ended
March 31, 1999 and June 30, 1999; (iv) reviewed certain information relating to
the business, earnings, cash flow, assets and prospects of SMM and PGG furnished
to HFBE by SMM and PGG; (v) conducted discussions with members of senior
management of SMM and PGG concerning their respective business and prospects;
(vi) reviewed the historical market prices and trading activity for PGG's Common
Stock and compared them with that of certain companies which HFBE deemed to be
reasonably similar to PGG; (vii) compared the results of operations of SMM and
PGG with that of certain companies which it deemed to be reasonably similar to
SMM and PGG, respectively; (viii) analyzed the nature and financial terms of
certain business combinations involving companies in lines of business we
believe to be generally comparable to those of SMM and PGG; (ix) considered the
pro forma effect of the Merger on certain of PGG's income statement and balance
sheet items; (x) reviewed the Merger Agreement, and (xi) reviewed such other
matters as HFBE deemed necessary, including an assessment of general economic,
market and monetary conditions.

In preparing its opinion, HFBE relied on the accuracy and completeness of
all information supplied or otherwise made available to HFBE by PGG and SMM.
HFBE did not independently verify such information or assumptions, including
financial forecasts, or undertake an independent appraisal of the assets of PGG
or SMM. HFBE's opinion is based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of the opinion.
HFBE's opinion does not

C-1
<PAGE>
Mr. Robert E. Garrison II
Pinnacle Global Group, Inc.
October 26, 1999
Page 2

constitute a recommendation to any shareholder of PGG as to how any such
shareholder should vote on the issuance of the PGG common stock in the Merger.
The opinion does not address the relative merits of the Merger and any other
transaction or business strategies discussed by the Company's Board of Directors
as alternatives to the Merger or the decision of the PGG Board of Directors to
proceed with the Merger. No opnion is expressed by HFBE as to the price at which
the securities to be issued in the Merger to the shareholders of SMM may trade
at any time following the Merger.

HFBE assumed that there had been no material change in PGG's or SMM's
financial condition, results of operations, business or prospects since the date
of the last financial statements made available to HFBE. HFBE relied on advice
of counsel to PGG as to all legal matters with respect to PGG, the Merger and
the Merger Agreement and upon PGG with respect to the accounting treatment to be
accorded the transaction. In addition, HFBE did not make an independent
evaluation appraisal or physical inspection of the assets or individual
properties of PGG or SMM, nor was it furnished with any such appraisals.

The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to the
partial analysis or summary description. Furthermore, in arriving at our
opinion, HFBE did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis or factor. Accordingly, HFBE believes that our
analysis must be considered as a whole and that considering any portion of such
analysis and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In our analyses, HFBE made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of PGG and SMM. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of the businesses do not purport to be appraisals or to reflect the prices at
which businesses may actually be sold.

Neither HFBE nor our employees have any present or contemplated future
interest in the Company which might tend to prevent us from rendering a fair and
unbiased opinion.

Subject to and based upon the foregoing, it is our opinion that the
consideration to be paid by PGG in the proposed Merger is fair, from a financial
point of view, to PGG and its shareholders.

Sincerely,

<TABLE>
<S> <C>
HOWARD FRAZIER BARKER ELLIOTT, INC.

By: /s/ WILLIAM H. FRAZIER
----------------------------------------
William H. Frazier
Senior Managing Director

By: /s/ DAVID S. KULKARNI
----------------------------------------
David S. Kulkarni
Vice President
</TABLE>

C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act, the
articles of incorporation of a Texas corporation may provide that a director of
that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (1) a breach of the director's duty of loyalty
to the corporation or its shareholders, (2) acts or omissions not in good faith
that constitute a breach of duty of the director to the corporation or an act or
omissions not in good faith that constitute a breach of duty of the director to
the corporation or an act or omission that involves intentional misconduct or a
knowing violation of the law, (3) any transaction from which the director
received an improper benefit, or (4) an act or omission for which the liability
of a director is expressly provided by an applicable statute. Article IX of the
Registrant's Articles of Incorporation, as amended, states that a director of
the Registrant shall not be liable to the Registrant or its shareholders for
monetary damages except to the extent otherwise expressly provided by the
statutes of the state of Texas.

In addition, Article 2.02-1 of the Texas Business Corporation Act (the
"TBCA") authorizes a Texas corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The TBCA provides that unless a court of competent jurisdiction
determines otherwise, indemnification is permitted only if it is determined that
the person (1) conducted himself in good faith; (2) reasonably believed (a) in
the case of conduct in his official capacity as a director of the corporation,
that his conduct was in the corporation's best interests; and (b) in all other
cases, that his conduct was at least not opposed to the corporation's best
interests; and (3) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. A person may be indemnified under
Article 2.02-1 of the TBCA against judgments, penalties (including excise and
similar taxes), fines, settlements, and reasonable expenses actually incurred by
the person (including court costs and attorneys' fees), but if the person is
found liable to the corporation or is found liable on the basis that personal
benefit was improperly received by him, the indemnification is limited to
reasonable expenses actually incurred and shall not be made in respect of any
proceeding in which the person has been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. A corporation is
obligated under Article 2.02-1 of the TBCA to indemnify a director or officer
against reasonable expenses incurred by him in connection with a proceeding in
which he is named defendant or respondent because he is or was director or
officer if he has been wholly successful, on the merits or otherwise, in the
defense of the proceeding. Under Article 2.02-1 of the TBCA a corporation may
(1) indemnify and advance expenses to an officer, employee, agent or other
persons who are or were serving at the request of the corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another entity to the same extent that it may indemnify and
advance expenses to its directors, (2) indemnify and advance expenses to
directors and such other persons identified in (1) to such further extent,
consistent with law, as may be provided in the corporation's articles of
incorporation, bylaws, action of its board of directors, or contract or as
permitted by common law and (3) purchase and maintain insurance or another
arrangement on behalf of directors and such other persons identified in
(1) against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person.

II-1
<PAGE>
The Bylaws of the Registrant set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 of the TBCA
described above.

The Registrant maintains directors' and officers' insurance. Pinnacle has
entered into agreements to indemnify each of its directors and certain of its
executive officers regarding liabilities that may result from such officer's
service as an officer or director of Pinnacle.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following is a list of all the exhibits and financial statement
schedules filed as part of the Registration Statement:

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <C> <S>
*2.1 -- Agreement and Plan of Reorganization dated October 12, 1999,
among Registrant, Sanders Morris Mundy Inc. and the
shareholders of SMM (Included as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration
Statement).

*2.2 -- Plan of Merger dated October 12, 1999, between SMM and
Registrant (Included as Appendix B to the Proxy
Statement/Prospectus forming a part of this Registration
Statement).

3.1 -- Articles of Incorporation of Registrant, as amended
(Included as Appendix F to the Proxy Statement/Prospectus of
Registrant dated December 31, 1998 (Reg. No. 333-65417) and
incorporated.

3.2 -- Amended and Restated Bylaws of Registrant (Filed as an
exhibit to Registrant's Annual Report on Form 10-K as filed
with the Commission on April 1, 1999 and incorporated herein
by reference).

*5.1 -- Opinion of Porter & Hedges, L.L.P. as to the legality of the
securities being registered.

+8.1 -- Tax Opinion of Porter & Hedges, L.L.P.

10.1 -- Amended and Restated Agreement and Plan of Reorganization
dated October 2, 1998, among Registrant, TEI, Inc. ("TEI"),
Harris Webb & Garrison, Inc. ("HWG"), Pinnacle Management &
Trust Company ("PMT"), Spires Financial, L.P. ("Spires") and
certain direct and indirect owners of HWG, PMT and Spires
(Filed as Appendix A to the Proxy Statement/Prospectus of
Registrant dated December 31, 1998 (Reg. No. 333-65417) and
incorporated herein by reference).

10.2 -- Plan of Merger dated October 2, 1998, among TEI, TEI
Combination Corporation and Registrant (Included as
Appendix B to the Proxy Statement/Prospectus of Registrant
dated December 31, 1998 (Reg. No. 333-65417) and
incorporated herein by reference).

10.3 -- Plan of Merger dated October 2, 1998, among HWG, HWG
Combination Corporation and Registrant (Included as
Appendix C to the Proxy Statement/Prospectus of Registrant
dated December 31, 1998 (Reg. No. 333-65417) and
incorporated herein by reference).

10.4 -- Plan of Merger dated October 2, 1998, among PMT, PMT
Combination Corporation and the Registrant (Included as
Appendix D to the Proxy Statement/Prospectus forming a part
of this Registration Statement of Registrant dated
December 31, 1998 (Reg. No. 333-65417) and incorporated
herein by reference).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <C> <S>
10.5 -- 1998 Incentive Plan of Registrant (Filed as an exhibit to
the Proxy Statement/Prospectus of Registrant dated
December 31, 1998 (Reg. No. 333-65417) and incorporated
herein by referenced).

10.6 -- 1989 Stock Option Plan for TEI, as amended (Filed as an
exhibit to TEI's Form 10-K for the year ending December 31,
1992 (File No. 0-18899) and incorporated herein by
reference).

10.7 -- Asset Purchase Agreement between Tanknology Environmental,
Inc. and Mankoff Equipment, Inc. dated September 23, 1993
(Filed as an exhibit to TEI's Form 8-K dated October 1, 1993
(File No. 0-18899) and incorporated herein by reference).

10.8 -- Noncompete Agreement between Tanknology Environmental, Inc.
and Curt J. Mankoff (Filed as an exhibit to TEI's Form 8-K
dated October 1, 1993 (File No. 0-18899) and incorporated
herein by reference).

10.9 -- Asset Purchase Agreement between Tanknology Environmental,
Inc. and Jack Holder Enterprises, Inc. dated January 31,
1994 (Filed as an exhibit to TEI's Form 10-K for the year
ending December 31, 1994 (File No. 0-18899) and incorporated
herein by reference).

10.10 -- Agreement to sell assets, dated December 22, 1995, between
Mankoff, Inc. and Donald Kooperman (Filed as an exhibit to
TEI's Form 10-K for the year ending December 31, 1995 (File
No. 0-18899) and incorporated herein by reference).

10.11 -- Installment note between Mankoff, Inc. and Continental
Environmental, Inc., dated December 20, 1995 (Filed as an
exhibit to TEI's Form 10-K for the year ending December 31,
1995 (File No. 0-18899) and incorporated herein by
reference).

10.12 -- License Agreement between Tanknology Worldwide and Fulton
Hogan Limited, dated April 1, 1995 (Filed as an exhibit to
TEI's Form 10-K for the year ending December 31, 1995 (File
No. 0-18899) and incorporated herein by reference).

10.13 -- Stock Purchase Agreement between Tanknology Environmental,
Inc. and NDE Environmental Corporation dated October 7, 1996
(Filed as an exhibit to TEI's Form 8-K dated October 25,
1996 (File No. 0-18899) and incorporated herein by
reference).

10.14 -- Asset Purchase Agreement between Tanknology/Engineered
Systems, Inc., TEI, Inc. and Sorrento Electronics, Inc.
dated December 23, 1997 (Filed as an exhibit to TEI's
Form 10-K for the year ending December 23, 1997 (File
No. 0-18899) and incorporated herein by reference).

10.15 -- Sublease Agreement dated January 19, 1994 between Texas
Commerce Bank National Association and Harris Webb &
Garrison, Inc., as amended by that certain First Amendment
to Sublease Agreement dated February 23, 1994, the Second
Amendment to Sublease Agreement dated April 26, 1994, and
the Third Amendment to Sublease Agreement dated January 19,
1995 (Filed as an exhibit to the Proxy Statement/Prospectus
of Registrant dated December 31, 1998 (Reg. No. 333-65417)
and incorporated herein by reference).

10.16 -- Office Lease Agreement dated February 1, 1998 between 5599
San Felipe, Ltd. and Harris Webb & Garrison, Inc (Filed as
an exhibit to the Proxy Statement/Prospectus of Registrant
dated December 31, 1998 (Reg. No. 333-65417) and
incorporated herein by reference).
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <C> <S>
10.17 -- Letter Agreement dated January 4, 1994 between S.G. Cowen &
Company and Harris Webb & Garrison, Inc., as amended January
19, 1994 (Filed as an exhibit to the Proxy
Statement/Prospectus of Registrant dated December 31, 1998
(Reg. No. 333-65417) and incorporated herein by reference).

10.18 -- Autotrust Agreement dated February 9, 1998 between SunGard
Trust Systems Inc. and Pinnacle Management & Trust Company
(Filed as an exhibit to the Proxy Statement/ Prospectus of
Registrant dated December 31, 1998 (Reg. No. 333-65417) and
incorporated herein by reference).

*21.1 -- List of Subsidiaries of the Registrant

*23.1 -- Consent of PricewaterhouseCoopers LLP.

23.2 -- Consents of Porter and Hedges, L.L.P. (contained in opinions
filed as Exhibit 5.1 and Exhibit 8.1).

*23.3 -- Consent of Howard Frazier Barker Elliott, Inc.

*23.4 -- Consent of Don A. Sanders, a person named in the
Registration Statement as about to become a director who has
not signed the Registration Statement pursuant to Rule 438.

*23.5 -- Consent of Ben T. Morris, a person named in the Registration
Statement as about to become a director who has not signed
the Registration Statement pursuant to Rule 438.

*23.6 -- Consent of George L. Ball, a person named in the
Registration Statement as about to become a director who has
not signed the Registration Statement pursuant to Rule 438.

*99.1 -- Form of Proxy of Registrant (relating to the special meeting
described in the Proxy Statement/Prospectus forming a part
of this Registration Statement).
</TABLE>

- ------------------------

* Filed herewith.

+ To be filed by amendment.

ITEM 22. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

1. To respond to requests for information that is incorporated by reference
in the Joint Proxy Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of
Form S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
requests;

2. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective;

3. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;

4. That every prospectus (i) that is filed pursuant to
paragraph (3) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection

II-4
<PAGE>
with an offering of securities subject to Rule 415 will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective and that, for purposes of determining liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;

5. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

b. To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information change in the information
set forth in the Registration Statement;

c. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.

6. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

7. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

8. To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report, to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-5
<PAGE>
SECURITIES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Houston, State of Texas,
on October 27, 1999.

<TABLE>
<S> <C> <C>
PINNACLE GLOBAL GROUP, INC.

By: /s/ ROBERT E. GARRISON II
-----------------------------------------
Robert E. Garrison II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Titus H. Harris, Jr. and Robert E. Garrison II,
and each of them, either of whom may act without joinder of the other, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments and
supplements to this Registration Statement, and to file the same, or cause to be
filed the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, and each of them, or the substitute or substitutes of either
of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the indicated capacities
and on October 27, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT E. GARRISON II
------------------------------------------- Director, President and Chief Executive
Robert E. Garrison II Officer (Principal Executive Officer)

/s/ TITUS H. HARRIS, JR.
------------------------------------------- Chairman of the Board and Director
Titus H. Harris, Jr.

/s/ DONALD R. CAMPBELL
------------------------------------------- Director, Vice-Chairman (Principal Financial
Donald R. Campbell and Accounting Officer)

/s/ STEPHEN M. RECKLING
------------------------------------------- Director
Stephen M. Reckling
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER W. BADGER
------------------------------------------- Director
Peter W. Badger

/s/ RICHARD C. WEBB
------------------------------------------- Director
Richard C. Webb

/s/ TONY COEHLO
------------------------------------------- Director
Tony Coehlo

/s/ W. BLAIR WALTRIP
------------------------------------------- Director
W. Blair Waltrip

/s/ JAMES H. GREER
------------------------------------------- Director
James H. Greer

/s/ JOHN H. STYLES
------------------------------------------- Director
John H. Styles

/s/ T. CRAIG BENSON
------------------------------------------- Director
T. Craig Benson
</TABLE>

II-7

<PAGE>

EXHIBIT 5.1

October 26, 1999

Pinnacle Global Group, Inc.
5599 San Felipe, Suite 555
Houston, Texas 77056

Re: Opinion as to Legality of Common Stock of Pinnacle Global Group, Inc.

Gentlemen:

We have examined the articles of incorporation and bylaws, both as amended
to date, and the corporate proceedings of Pinnacle Global Group, Inc.
("Company"), relating to the registration under the Securities Act of 1933, as
amended, of 7,125,233 shares of Common Stock, $.01 par value ("Common Stock"),
which are being registered on behalf of the Company and have made such other
examinations as we deem necessary in the premises, and from such examinations we
are of the opinion that:

1. The Company is a validly organized and existing corporation under the
laws of the State of Texas.

2. The 7,125,233 shares of the Common Stock issuable upon consummation of
the merger of Harris Webb & Garrison, Inc. with and into Sanders Morris Mundy
Inc. will, when issued, be validly issued, fully paid and non-assessable
outstanding securities of the Company.

We consent to the use of this opinion and the reference to our firm in the
Proxy Statement/Prospectus.

Very truly yours,

/s/ PORTER & HEDGES, L.L.P.

PORTER & HEDGES, L.L.P.

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF PINNACLE GLOBAL GROUP, INC.

State of Incorporation
Name of Subsidiary or Organization
------------------ ---------------
<S> <C>

TEI, Inc. Texas

Energy Recovery Resources, Inc. Delaware

Tanknology/Engineered Systems, Inc. Delaware

Tanknology Worldwide, Inc. Delaware

Tanknology Environmental Services, Inc. Delaware

PGG Capital, Inc. Texas

Harris Webb & Garrison, Inc. Texas

Pinnacle Management & Trust Company Texas

Spires G.P. Combination Corp. Texas

Spires L.P. Combination Corp. Texas

Spires Financial G.P., Inc. Texas

Spires Financial Partners, Inc. Delaware

Spires Financial Funding, L.P. Delaware

Spires Financial, L.P. Delaware
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Pinnacle Global Group, Inc. of (i) our report dated
March 31, 1999 relating to the consolidated financial statements, which appears
in Pinnacle Global Group, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998 and (ii) our report dated March 31, 1999 relating to the
financial statement schedule, which appears in such Annual Report on Form 10-K.
We consent to the use in this Registration Statement on Form S-4 of our report
dated February 24, 1999 relating to the consolidated financial statements of
Sanders Morris Mundy Inc., which appears in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such Registration
Statement.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
October 26, 1999

<PAGE>

EXHIBIT 23.3

HOWARD FRAZIER BARKER ELLIOTT, INC.

We hereby consent to (i) the use of our opinion letter to the Board of
Directors of Pinnacle Global Group, Inc. (the "Company") included in Appendix
___ to the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Harris, Webb &
Garrison, Inc., the Company's wholly owned subsidiary, with an into Sanders
Morris Mundy Inc. and (ii) the references to such opinion in such Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we hereby admit that we
are experts with respect to any part of such Registration Statement within
the meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.

Howard Frazier Barker Elliott, Inc.

October 26, 1999

By: /s/ David S. Kulkarni
-----------------------------------
David S. Kulkarni,
Vice President

<PAGE>

EXHIBIT 23.4

CONSENT

In accordance with Rule 438 under the Securities Act of 1933, as amended,
the undersigned consents to being named in this Registration Statement on Form
S-4 as a person who is about to become a director of Pinnacle Global Group, Inc.

October 26, 1999

/s/ DON A. SANDERS
-------------------------
Don A. Sanders

<PAGE>

EXHIBIT 23.5

CONSENT

October 26, 1999

/s/ BEN T. MORRIS
-------------------------
Ben T. Morris

<PAGE>

EXHIBIT 23.6

CONSENT

October 26, 1999

/s/ GEORGE L. BALL
-------------------------
George L. Ball

<PAGE>

EXHIBIT 99.1

PINNACLE GLOBAL GROUP, INC.
5599 SAN FELIPE, SUITE 555
HOUSTON, TEXAS 77056

PROXY

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE PINNACLE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, _____

The undersigned shareholder of Pinnacle Global Group, Inc. ("Pinnacle")
hereby appoints each of Robert E. Garrison II and Jean Anne Mire attorneys and
proxies of the undersigned, with full power of substitution, to vote on behalf
of the undersigned at the Special Meeting of Shareholders of Pinnacle to be held
at The Houstonian Hotel, 111 North Post Oak, Houston, Texas 77024, on
_____________, _____, at ______ a.m., central time, and at any adjournments of
the meeting, all of the shares of Pinnacle common stock which the undersigned
may be entitled to vote.

1. Approval of the issuance of 7,125,233 shares of Pinnacle common stock in
the merger of Harris Webb & Garrison, Inc., our wholly owned subsidiary,
with Sanders Morris Mundy Inc.

2. In their discretion, upon other matters as may properly come before the
meeting: hereby revoking any proxy or proxies regarding such matters
heretofore given by the undersigned.

The board of directors recommends a vote FOR the proposal above and if
no specification is made, the shares will be voted FOR approval of the share
issuance in the merger. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting, the Proxy Statement/Prospectus, Pinnacle's annual
report on Form 10-K for the year ended December 31, 1998, Pinnacle's
quarterly report on Form 10-Q for the quarter ended September 30, 1999 and
Pinnacle's 1999 Definitive Proxy Statement on Schedule 14A, each of which has
been furnished with this Proxy.

Dated: _______________, _____

_____________________________
Shareholder's Signature

Signature should agree with name printed hereon. If Stock is held in the name of
more than one person, EACH joint owner should sign. Executors, administrators,
trustees, guardians, and attorneys should indicate the capacity in which they
sign. Attorneys should submit powers of attorney.

PLEASE SIGN AND RETURN IN THE ENVELOPE ENCLOSED