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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-30066
PINNACLE GLOBAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0583569
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5599 SAN FELIPE, SUITE 555
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
Registrant's telephone number, including area code: (713) 993-4610
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 24, 2000, the registrant had 14,111,301 outstanding shares of
Common Stock, par value $0.01 per share, and at such date, the aggregate market
value of the shares of Common Stock held by nonaffiliates of the registrant was
$29,282,436. For purposes of this computation, all executive officers, directors
and 5% beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors
and beneficial owners are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Notice of Annual Meeting of Shareholders and definitive Proxy
Statement pertaining to the 2000 Annual Meeting of Shareholders (the "Proxy
Statement") and filed pursuant to Regulation 14A is incorporated herein by
Reference into Part III of this report.
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PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
INDEX
PART I.
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Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 13
Item 3. Legal Proceedings........................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......................... 13
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters... 14
Item 6. Selected Financial Data..................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................. 20
Item 8. Financial Statements and Supplementary Data................................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................. 45
PART III.
Item 10. Directors and Executive Officers of the Registrant.......................... 45
Item 11. Executive Compensation...................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 45
Item 13. Certain Relationships and Related Transactions.............................. 45
PART IV.
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............. 46
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PART 1.
ITEM 1. BUSINESS
GENERAL
Pinnacle Global Group, Inc. provides a broad range of financial services
through its wholly owned operating subsidiaries. Our financial services include
institutional and retail brokerage, investment banking, merchant banking,
secondary market loan and loan servicing placement, trust related services and
asset management. We serve a diverse group of institutional, corporate and
individual clients.
We are the successor issuer to TEI Inc., which is now a wholly owned
subsidiary. During 1995, 1996 and 1997, we disposed of all of its operations
other than its liquid waste business and the related facility located in
Charlotte, North Carolina. The liquid waste business is operated as a
discontinued operation through our subsidiary Energy Recovery Resources, Inc.
From January 1997 through the first quarter of 1998, our management
actively evaluated strategies and financial alternatives for maximizing
shareholder value. In late April 1998, we reached an agreement in principle to
combine with three Houston-based financial services firms. These firms were
Harris Webb & Garrison, Inc., a full service regional investment banking,
brokerage and financial services firm serving the southwestern United States,
Pinnacle Management & Trust, a Texas state-chartered trust company and
investment management firm, and Spires Financial, L.P., a regional institutional
brokerage services and investment banking firm specializing in fixed-income
securities and whole loan and loan servicing transactions.
On January 29, 1999, Pinnacle completed the combination of Harris Webb &
Garrison, Pinnacle Management & Trust and Spires Financial, with Pinnacle
emerging as the new public holding company. In the combination, just over 50% of
our outstanding common shares were issued to TEI's former shareholders in
exchange for their TEI common shares, and slightly less than 50%, or 3,562,500
common shares, were issued to the former owners of the financial services firms.
Immediately after the combination, our board included six former TEI directors
and six designees of the financial services firms. Executive officers of the
financial services firms became our primary executive officers, with TEI's
former president and chief executive officer continuing as our Vice-Chairman.
In March 1999, our management decided to discontinue the operations of
Energy Recovery Resources' liquid waste business effective December 31, 1998.
These operations, which are conducted primarily in Charlotte, North Carolina and
surrounding areas, involve the treating, recycling, and handling of wastewater,
waste oil and other non-hazardous fluid waste for owners and operators of
underground and above ground storage tanks and other commercial and industrial
waste generators. Our management believes the sale of the liquid waste business
and related Charlotte, North Carolina facility will be accomplished during 2000.
On January 31, 2000, we completed the merger of Harris Webb & Garrison, our
investment banking subsidiary, with Sanders Morris Mundy Inc. Sanders Morris
Mundy survived the merger, was renamed "Sanders Morris Harris Inc" and became
our wholly owned subsidiary. In the Sanders merger, we issued 7,125,220 of our
common shares to the former shareholders of the Sanders firm, increasing our
total outstanding common shares to approximately 14.25 million. As a result of
the Sanders merger, three former directors of the Sanders firm became Pinnacle
directors, with one director, Don A. Sanders, becoming our Vice-Chairman. The
other two Sanders director designees retained primary management responsibility
of the new Sanders Morris Harris subsidiary. Sanders Morris Mundy is a twelve
year-old investment banking and brokerage firm based in Houston, Texas, with
branch offices in New York City, Denver and Chicago.
Pinnacle was incorporated in Texas in August 1998 in connection with the
January 1999 combination. Our principal executive offices are located at 5599
San Felipe, Suite 555, Houston, Texas 77056, and our telephone number is (713)
993-4610.
The historical financial information contained in this document for 1995
through 1998 does not include any results of operations or the financial
position of our current businesses acquired in the January 1999 combination nor
does it reflect the January 2000 Sanders merger. Our operations prior to 1999
reflect only corporate activities and the results of our discontinued
operations. The historical financial information contained in this document for
1999 relates to our
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financial condition after giving effect to the January 1999 combination and our
results of operations include operations of the financial firms since the date
of acquisition, January 31, 1999. None of our historical financial information
contained in this document includes any financial data or results of operations
of Sanders Morris Mundy Inc. The following description of our business includes
the operations of the combined company after giving effect to both the January
1999 combination and the January 2000 Sanders merger, except for our
discontinued business.
BUSINESS STRATEGY
Our business strategy is to (1) increase our asset management and trust
business; (2) expand our fixed-income securities trading activities; (3)
increase our capital markets activities; (4) improve the profitability of our
brokerage operations; and (5) enhance the range of financial services we offer
our clients. Additionally, management plans to supplement our internal growth
with strategic acquisitions. We also believe certain cross-selling opportunities
among the financial services firms, and certain unquantified potential operating
efficiencies, will be available. The principal elements of our business strategy
are:
- INCREASE ASSET MANAGEMENT AND TRUST BUSINESS. Our management intends
to grow the business by expanding its asset management and trust
services related business by improving Pinnacle Management & Trust's
interface with our brokerage subsidiaries, and by increasing the
assets under our management through acquisitions and internal growth.
We believe that the brokerage network added through the Sanders merger
will enhance Pinnacle Management & Trust's marketing opportunities.
- EXPAND FIXED-INCOME SECURITIES ACTIVITIES. We believe that Spires'
proprietary technology and growing sales force represent an
opportunity to profitably expand its fixed-income securities trading
business. We believe the increased capital and inventory capacity that
we provide Spires has allowed for the successful implementation of
this strategy.
- INCREASE CAPITAL MARKETS ACTIVITIES. We intend to increase our
investment banking and merchant banking business by committing greater
resources to, and by carefully focusing our investment research
coverage on companies, industries and geographic regions that
management believes offer the greatest opportunities. We have added
significant scale and depth to our investment banking and financial
advisory activities with the completion of the Sanders merger as
indicated by the number of underwritings, private placements and
advisory transactions in which the Sanders firm has historically
participated. We also believe that consolidation within the investment
banking industry will offer greater opportunities for high caliber
firms that maintain their local and industry-specific focus.
- IMPROVE PROFITABILITY OF BROKERAGE OPERATIONS. We intend to improve
the profitability of our brokerage operations primarily by hiring
additional experienced and productive investment executives and by
providing our financial advisors with specialized training, product
offerings, information systems, support and access to the services of
each of our financial services companies. Our management believes
that the implementation of this strategy will be aided by the Sanders
merger, which brings us the industry reputation, distribution and
proprietary investment research capabilities of that firm.
- ENHANCE PERSONALIZED, HIGH-END SERVICE. We seek to provide excellent
investment advice suited to each client. To that end, our financial
services subsidiaries have traditionally sought to attract and retain
clients by offering a high level of personal service. We intend to
increase that commitment by providing our clients with advanced
account and investment information systems, flexibility in determining
appropriate fee schedules for certain services based upon the level of
client needs, and by providing an array of investment and financial
planning services.
- SUPPLEMENT GROWTH WITH STRATEGIC ACQUISITIONS. Our management plans to
actively pursue opportunities to acquire or combine with other firms
with complementary businesses to strengthen or expand the firm's
geographic or product offering base. We acted on this strategy by
joining our firm with Sanders Morris Mundy in January 2000. Our
management believes that additional attractive acquisition
opportunities exist, particularly among smaller, specialized regional
financial firms that want to affiliate with a larger company while
still retaining their identity and entrepreneurial culture. In
addition, we believe that the consolidation
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trend in the financial services industry will allow us to hire proven
financial professionals who prefer the ambience and opportunities
inherent in a creative regional firm. Management believes that
acquisitions may also allow us to realize cost benefits by leveraging
our infrastructure.
SERVICES
We provide our financial services through our operating subsidiaries
Sanders Morris Harris, Pinnacle Management & Trust, and Spires Financial. The
financial services offered by each of these entities, which we refer to as
"SMH," "PMT," and "Spires," are described below.
SMH
GENERAL. With the closing of the Sanders merger in January 2000, we
significantly expanded the scale and resources of our brokerage, investment
banking and supporting investment research activities. For the year ended
December 31, 1999, Sanders Morris Mundy had total revenues of approximately
$34.6 million and net income of $5.6 million, as compared to total revenue of
$5.3 million and a net income of approximately $16,000 generated by HWG, our
predecessor investment banking subsidiary.
RETAIL BROKERAGE. Our strategic plan in the retail brokerage business is to
attract and retain experienced financial advisors, especially those able to
utilize our sophisticated investment programs. Our retail brokerage business is
focused on high net worth individuals with whom we have developed and maintained
relationships over time, including a core group of individual investors
originally developed by the founders of Sanders Morris Mundy. As a full service
broker, we offer our retail clients brokerage services relating to corporate
debt and equity securities, including the securities of companies followed by
our research analysts, underwritings that we co-manage or in which we
participate, private placements of securities in which we serve as placement
agent, mutual funds, 401(k) plans, wrap-fee programs, money market funds, and
insurance products. Commissions are charged on agency transactions in
exchange-listed securities and securities quoted on the Nasdaq National Market
or in the over-the-counter market. In addition to retail commissions, we
generate fee revenue from asset-based advisory services and managed accounts
where the charges are based on a percentage of the assets held in the client's
account in lieu of commissions on a transaction-by-transaction basis.
We provide our retail clients with a broad range of services delivered
in a personalized, service-oriented manner. In addition to recommending and
effecting transactions in securities, we provide other services to our retail
clients that include portfolio strategy, investment research service,
financial planning, assistance in the sale of restricted securities and tax,
trust and estate advice. Clients can access their personal portfolio on-line
and use our extensive research library.
At February 29, 2000, we had 103 Series 7-licensed individuals who
average over 15 years experience in the securities brokerage business. We
generally do not hire inexperienced brokers or trainees to work as retail
brokers. We believe we can attract and retain experienced brokers by
providing them with a high level of support, a corporate culture that
encourages performance, employee stock ownership, advanced technologies,
competitive compensation packages, and the opportunity for them and their
clients to participate in private placements and public offerings of
securities we manage or underwrite.
INSTITUTIONAL BROKERAGE. As a result of the Sanders merger, we gained
institutional equity brokerage capabilities. Our institutional stock brokerage
strategy is to provide equity research coverage and trading services focused on
companies that have a presence in the southwestern United States. Our clients
are a broad array of institutions throughout North America, Europe and Asia.
Areas of concentration include the construction industry, environmental
services, biotechnology and healthcare, oil and gas exploration and production,
oilfield services, pipelines, restaurants and food-related providers, specialty
retailing, telecommunication and technology. We provide our institutional
clients with research and execution trading services in both exchange-listed
equity securities and equity securities quoted on Nasdaq. We also distribute to
institutional clients equity securities from offerings that we co-manage or
underwrite.
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SMH's institutional clients include banks, retirement funds, mutual funds,
endowments, investment advisors and insurance companies. At February 29, 2000,
SMH had 14 institutional brokers and 16 analysts. SMH entered the institutional
brokerage business in 1996 through the acquisition of Williams MacKay Jordan &
Co., Inc., a Houston-based registered broker-dealer specializing in
institutional sales and securities analysis.
Our officers and directors have in the past, and expect in the future, to
invest in the same securities as our retail and institutional clients, where
suitable and permitted by applicable law and regulations. We believe
co-investment creates an identity of interest that is generally beneficial,
particularly in investments we develop or where we play a major ongoing role.
Other than the Environmental Opportunities Funds, Corporate Opportunities Funds
and Sanders Opportunities Funds, our accounts are conducted on an individual
client basis. In many cases, one of our registered broker employees holds a
limited power of attorney permitting discretionary agency and certain other
transactions on a client's behalf.
INVESTMENT RESEARCH. The Sanders merger significantly increased our
proprietary investment research capabilities. At February 29, 2000, our
research department consisted of 16 professionals. We use our proprietary
equity research analysis to drive or assist a large portion of our business.
This analysis is based on economic fundamentals, using tools such as
price-to-earnings multiples, price-to-book value comparisons, both absolute
and relative to historic norms, and our research department's own earnings
forecasts. We intend to rely primarily on our own research rather than on
research products purchased from outside research organizations. We believe
that the services provided by our research department have a significant
impact on our revenue-generating activities, including retail and
institutional brokerage, market-making, and investment banking.
INVESTMENT BANKING AND UNDERWRITING ACTIVITIES. Our investment banking
strategy is to build a balanced mix of corporate securities underwriting,
private financings, and financial advisory services. As a result of the Sanders
merger, we added significant expertise in corporate securities underwriting and
private financings. We believe that the number and dollar amount of
underwritings and private placements in which Sanders Morris Mundy has
participated will contribute significantly to increased public and industry
awareness of our company, and will result in increased demand for our investment
banking and corporate advisory services. Through February 29, 2000, we acted as
placement agent in 77 private placements, 61 of which were attributable to the
former Sanders firm, with gross proceeds totaling approximately $580 million,
and acted as a co-managing underwriter in 30 public offerings with gross
proceeds totaling approximately $1.6 billion, all of which were attributable to
the former Sanders firm. We have a total of 17 professionals performing
investment banking services in Houston and New York.
We regularly participate 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. Our syndicate
department coordinates the distribution of co-managed equity underwritings,
accepts invitations to participate in underwritings managed by other investment
banking firms and allocates our selling allotments to our 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.
We also serve as placement agent or financial advisors in private
placements of securities under a variety of fee structures depending on the
amount and type of capital raised, including cash and equity contingent fees,
cash and equity non-contingent fees, adjustable cash and equity fees or a
combination of two or more of the foregoing. In 1999, SMH initiated 12 private
placements with gross proceeds totaling $89 million, and in the months of
January and February 2000, SMH initiated 3 private placements with gross
proceeds totaling $43 million. Our officers and directors have in the past, and
expect in the future, to invest in the securities involved in the private
placement on the same basis as other investors, where suitable and permitted by
applicable law and regulations. We believe these co-investments create an
identity of interest with our investors, and thus benefit them.
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Our financial advisory services include advising on mergers, acquisitions
and divestitures, fairness opinions, and financing strategies. We also provide
valuations, litigation support and financial consulting services. These
financial advisory services are typically provided to emerging or middle market
companies in the southwestern United States.
PROPRIETARY FUNDS. In January 1996, SMH organized Environmental
Opportunities Fund, L.P. and Environmental Opportunities Fund (Cayman), L.P.,
raising $38 million for investments primarily in private and public companies
providing environmental or industrial services and related products, an area in
which SMH has developed a specialty practice. In 1998, SMH 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. SMH then formed Corporate
Opportunities Fund, L.P. and Corporate Opportunities Fund (Institutional), L.P.
in 1998 with capital commitments of $48 million for investment principally in
private companies and small public companies with enterprise values of less than
$250 million, particularly those in the healthcare, technology, and medical
industries. In late 1999, SMH organized and commenced sales of interests in the
Sanders Opportunities Funds, which are intended to invest primarily in small to
medium capitalization companies, both public and private, that are significantly
undervalued.
We hold an interest in these funds and also earn management and advisory
fees based on a fixed percentage per annum of total commitments during the
investment period of the fund (generally four years) and a fixed percentage
of the limited partnership profit above specified hurdle rates. For the two
Environmental Opportunities Funds and the Corporate Opportunities Fund, we
receive 2% per annum of total commitments, and 20% of the limited partnership
profits above specified hurdle rates. We receive 1% per annum of total
commitments during the investment period (generally four years), and of total
capital contributions thereafter, and 10% of the limited partnership profit
above specified hurdle rates for the Sanders Opportunity Fund, which
initially closed on $7.4 million in February 2000. We have agreed to allocate
to the managers of the funds and employees designated by the managers from
40% to 45% of our 20% and 10% back-in interests in the profits of these
limited partnership funds. Over time, the Sanders fund is expected to receive
additional funds. We account for all of these funds at the fair value of the
underlying securities.
MERCHANT BANKING. Our merchant banking activities focus on providing
private equity capital for middle-market growth companies within a broad range
of industries, including, among others, business services, communications,
computing, distribution, direct marketing of electronic financial services,
energy, information technology, Internet, media entertainment, retail, specialty
chemicals and biotechnology. These transactions may take a variety of forms,
such as buyouts, growth buildups, consolidation of several private companies in
conjunction with public and private offerings, expansion capital and venture
capital financings. In addition, PGG Capital, our subsidiary and sister company
to SMH, holds a significant equity position in BioCyte Therapeutics, Inc., an
early stage biotechnology company focusing on diagnostics and therapeutics for
cancer-related diseases.
MARKET MAKING AND PRINCIPAL TRANSACTIONS. We make markets, buying and
selling as principal, in securities quoted on Nasdaq or other over-the-counter
markets. In lieu of commissions, we create revenue in return for the risk we
assume based on the markup or markdown of each transaction. Principal
transactions with clients 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 clients and to other dealers,
not to generate profits based on trading for our 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. At February 29, 2000, through SMH,
we made markets in the common stock or equity securities of 70 companies that
were quoted on Nasdaq, and 10 companies that were traded in the over-the-counter
market.
The level of positions carried in our trading accounts fluctuates
significantly depending on the firm's assessment of economic and market
conditions, the allocation of capital among various stocks, client demand,
underwriting commitments, and market trading volume. The aggregate value of our
inventories is limited by certain net capital requirements under the Exchange
Act. At February 29, 2000, trading inventories at SMH totaled $1.8 million.
We have established procedures designed to reduce the systemic risks of our
proprietary trading activities. Our trading inventory positions and profit and
loss statements are reviewed daily by senior management of SMH and monthly by
its board of directors. However, these procedures may not prevent losses, which
could have a material adverse effect on SMH's business, financial condition,
results of operations or cash flows.
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PMT
TRUST, ASSET MANAGEMENT AND RELATED SERVICES. Through PMT, we provide a
variety of trust services, including investment management, estate settlement,
retirement planning, mineral interest management, funeral and cemetery trust
administration, real estate, retirement plan and other administrative services,
such as custody of assets and record keeping. We meet with each client to
develop asset management strategies that are consistent with the client's needs
and investment objectives. Consideration is given to the client's financial and
investment objectives, risk tolerance, investment restrictions and time horizon.
We believe this total investment management approach provides clients with
increased diversification, reduced risk and greater control over their
portfolios.
We license trust accounting software that provides our clients with many
additional benefits, including flexible statement packages and access to account
information on the Internet through a link established between PMT's "home page"
and the licensor of the software's database.
Our revenues are derived mainly from asset management and fiduciary fees
based on a percentage of assets under administration. At December 31, 1999, PMT
had approximately $488 million of assets under administration. The management
fee charged is based on a rate schedule which is changed from time to time.
Rates vary depending on the services being provided and the amount of assets
involved. We believe that this structure, as opposed to transactional
commissioned-based arrangements, more closely aligns our interests with our
clients and helps develop long-term client relationships. We also believe that
the Sanders merger broadened cross-selling opportunities within SMH's client
base.
SPIRES
INSTITUTIONAL BROKERAGE. Through Spires, we provide brokerage services
to institutional clients relating primarily to fixed-income securities, such
as municipal securities, U.S. government and agency securities,
mortgage-related securities, including those issued through Government
National Mortgage Association, Federal National Mortgage Association and
Federal Home Loan Mortgage Corp., and corporate investment-grade and
high-yield bonds. Commissions are charged on all institutional securities
transactions based on rates formulated by Spires.
TRADING. Rather than trading a wide variety of securities in direct
competition with Wall Street firms, we have developed a niche strategy to
proprietarily trade certain fixed-income securities, including U.S. government
securities, certain mortgage related securities and collateralized mortgage
obligations. In our trading activities, we generally act as a wholesaler. We buy
round-lot and odd-lot positions, sell round-lot and odd-lot positions and act as
market-maker in round-lot and odd-lot positions. Many of our counterparties in
these transactions are other broker-dealers. Our trading operations generally
seek to generate profits based on trading spreads, rather than through
speculation on the direction of the market. The size of the securities positions
varies substantially depending on economic and market conditions, the allocation
of capital among types of inventories, customer demands and trading volume. The
aggregate value of inventories we carry is limited by the net capital
requirements of the Exchange Act.
We have established procedures designed to reduce the risks of our trading
activities. We employ a hedging strategy designed to insulate the net value of
our trading inventory from fluctuations in the general level of interest rates.
However, it is not possible to hedge completely the risks of interest rate
fluctuations for some of the fixed-income securities that we trade, primarily
because the price movements of financial instruments typically used to hedge
long positions in such securities may not precisely mirror the price movements
of the hedged securities under all market conditions. In addition to our hedging
procedures, we seek to mitigate the risks associated with our proprietary
trading activities by subjecting our trading inventory positions and profit and
loss statements to daily review by Spires' senior management. However, such
procedures may not prevent losses, which could adversely affect Spires'
business, financial condition, results of operations or cash flows.
OTHER ACTIVITIES. To promote its business with the institutional investor,
Spires developed its own proprietary portfolio management and trading system,
Spires Financial Network, which is made up of databases, search engines, and
analytics delivered to the client via the internet. See "- Intellectual
Property."
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We are also active as a secondary market broker for residential, consumer
and commercial loans, and derive revenue from the placement of mortgage
servicing and newly "securitized" mortgaged collateral on a nationwide basis.
CLIENTS
Clients of our broker dealer subsidiaries, SMH and Spires, vary according
to the nature of the services provided. SMH's retail brokerage services are
generally focused on high net worth individuals. SMH's investment banking,
underwriting, investment research and principal transaction activities are
targeted at emerging and middle market companies throughout the United States.
At February 29, 2000, SMH had over 500 institutional clients throughout the
United States, Europe and Asia, and Spires had over 800 institutional clients
throughout the United States, Europe and Japan. These institutional clients
consist mostly of pension funds, money managers, mutual and hedge funds,
insurance companies, commercial banks and thrift companies.
Our trust subsidiary, PMT, provided trust services to approximately 396
accounts at December 31, 1999. These clients consist mainly of high net worth
individuals and their estates and trusts, 401(k) and other employee-directed
company sponsored retirement plans and charitable and other non-profit
corporations. PMT also provides trust services relating to trust funds of owners
and operators of funeral homes, cemeteries and related businesses.
INTELLECTUAL PROPERTY
Through Spires, we have developed proprietary trading tools in connection
with our fixed-income securities business. As the structures of fixed-income
securities have become increasingly complex, successful investors need reliable,
accurate and timely information to make prudent investment decisions. To satisfy
this need, we have invested significantly in an integrated proprietary trading
tool known as the "Spires Financial Network," or "SFN." SFN is delivered to
Spires' clients by direct dial-up or over the Internet. Through the Internet,
Spires' employees and clients access proprietary databases, search engines and
analytics of Spires through its "home page." Minimal investment is required by
the client since all computing is performed on Spires' servers in Houston,
Texas. Only mouse clicks and screen graphics are transmitted over the Internet.
SFN proprietary databases provide current and 14-year historical market
information relating to mortgage-backed securities, collateralized mortgage
obligations and other matters. The system stores and maintains detailed
information on the $2.7 trillion mortgage-backed securities market. SFN also
provides detailed databases of dealer inventories, client portfolios, and
third-party supplied institutional portfolio positions, giving customers a
value-added view of these markets. The company's unique virtual inventory of
mortgage securities offerings is maintained daily on the internet. SFN's
proprietary search engines and analytics include:
- Portfolio Pro - reduces the client's entire portfolio to a single
security by blending cash flows of each position in the portfolio
according to selected interest rate scenarios; and
- Bond Locator - permits database-searching capabilities by CUSIP,
description or profile and enables clients to better achieve liquidity
and execution by matching buyers and sellers of similar securities.
These databases also accelerate securities selection and improve overall
yield and total rate of return by isolating the best investment alternatives
based on the client's investment criteria. In December 1997, Spires obtained
a Bloomberg-Registered Trademark- Data License allowing Spires to consolidate
its data source requirements with one premier provider. As a result, Spires
can redistribute selected Bloomberg data through SFN to its clients.
SFN is supported by a staff of six full-time system development,
programming and support personnel. These people are responsible for system
maintenance and support and development of proprietary software tools based on
information provided by Spires' brokerage and trading professionals and its
institutional clients. Our management believes that SFN is a key element in the
success of Spires' institutional brokerage and trading activities.
7
<PAGE>
MARKETING
The marketing efforts of our broker-dealer subsidiaries, SMH and Spires,
are conducted by an in-house staff of approximately 30 individuals at
Spires' five offices and 90 at SMH's five offices. SMH and Spires target
their client groups through mailings, telephone calls, in-person
presentations and firm-sponsored workshops. Due to the nature of SMH's
business, its regional name recognition and the reputation of its management,
business is obtained through referrals from other investment bankers or
initiated directly by the client, as well as through senior level calling
programs. We also believe that Spires' SFN proprietary technology has been
critical to its client development success.
Our trust subsidiary, PMT, conducts its marketing and business development
efforts on a company-wide basis. All PMT employees are encouraged to be actively
involved in business development efforts through maintenance of professional and
personal relationships and active involvement in community events. PMT markets
to specific client groups through mailings, telephone calls, multi-media client
presentations and company-sponsored or co-sponsored workshops and seminars.
We believe cross-selling opportunities existing among SMH, PMT and Spires
based on the relationships developed by the individual companies.
Existing and potential clients can also gain a variety of information
about our firm and services we provide through our internet websites at
www.pinnacleglobal.com, www.smhhou.com, www.pinnacletrust.com and
www.spiresfin.com.
RELATIONSHIP WITH CLEARING BROKERS
Our broker-dealer subsidiaries, SMH and Spires, both use the services of
clearing brokers. Currently, SMH clears all transactions, and carries accounts
for clients, with the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation under a fully disclosed clearing arrangement. Spires
clears its transactions, and carries client accounts, primarily through Banc of
America Securities LLC and other clearing brokers. Both Pershing and Banc of
America Securities LLC serve as principal and clearing broker in all
transactions. Spires uses other clearing brokers in addition to Banc of America
Securities LLC. These clearing brokers also provide SMH and Spires with
information necessary to generate commission runs, transaction summaries, data
feeds for various reports including compliance and risk management, execution
reports, trade confirmations, monthly account statements, cashiering functions
and handling of margin accounts. We believe these arrangements produce clearing
costs that are competitive within the industry.
Each of SMH and Spires has an uncommitted financing arrangement with its
clearing broker which finances its customer accounts, certain broker-dealer
balances and firm trading positions. Although these customer accounts and
broker-dealer balances are not reflected on our balance sheet for financial
accounting reporting purposes, both SMH and Spires have generally agreed to
indemnify these clearing brokers for losses it may sustain in connection with
the accounts. Therefore we retain risk on these accounts. SMH and Spires are
each required to maintain certain cash or securities on deposit with its
clearing broker.
EFFECTS OF INTEREST RATES
Our financial service business is affected by general economic conditions,
including movements of interest rates. As interest rates increase, the prices of
equity securities may decline, partially reflecting the increased competition
posed by more attractive rates on fixed-income securities and partially
reflecting the fact that interest rate increases may tend to dampen economic
activity by increasing the cost of capital for investment and expansion, thereby
reducing corporate profits and the value of equity securities. As interest rates
decline, equity securities may tend to rise in value. The impact of these
fluctuations and changes may affect the profitability of our brokerage,
investment banking and market-making activities. Commission revenue may also be
affected by changes in interest rates and any resulting indirect impact on the
value of equity securities. Our interest income and interest expense may
likewise change as interest rates change.
Our revenues relating to asset-based advisory services and managed accounts
are typically from fees generally based on the market value of assets under
management. Consequently, significant fluctuations in the values of securities,
which can occur with changes in interest rates or changes in other economic
factors, may materially affect the amount of assets under management, and thus,
our revenues and profitability.
8
<PAGE>
Our inventory of fixed-income securities may fluctuate as interest rates
change. As interest rates decrease, the prices of fixed-income securities may
increase, partially reflecting the increased demand for securities with higher
coupon rates. As interest rates increase, fixed-income securities may tend to
decrease in value reflecting the availability of newer securities with higher
coupon rates. Commission revenue may also be affected by changes in interest
rates and any resulting indirect impact on the value of fixed-income securities.
COMPETITION
Our financial services business and the securities business in general are
highly competitive. The principal competitive factors influencing our financial
services business is our:
- professional staff
- reputation in the marketplace
- existing client relationships
- ability to commit capital to client transactions and 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, and other investment banking
firms, investment advisors and commercial banks. We also compete for asset
management and fiduciary services with commercial banks, private trust
companies, mutual fund 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 domestic and international banks to increase as a result of
recent legislative and regulatory initiatives in the United States to remove
or relieve restrictions on commercial banks relating to the sale of
securities.
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 product offerings, lower pricing, broader research
capabilities, access to international markets and other products and services
we do not offer, which may give these firms a competitive advantage over us.
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
than we do. We also anticipate competition from underwriters who attempt to
affect public offerings using non-traditional means of distribution,
including through electronic media like the Internet. In addition, issuers
may try to sell their securities directly to purchasers, including through
electronic media such as the Internet. If issuers and purchasers of
securities can transact business without financial intermediaries, such as
our company, our financial condition and operating results could be adversely
affected.
GOVERNMENT REGULATION
The securities industry is one of the nation's most extensively regulated
industries. The SEC is responsible for carrying out the federal securities laws
and serves as a supervisory body over all national securities exchanges and
associations. The regulation of broker-dealers has to a large extent been
delegated by the federal securities laws to Self Regulatory Organizations,
called "SROs". These SROs include, among others, all the national securities and
commodities exchanges and the NASD. Subject to approval by the SEC and certain
other regulatory authorities, SROs adopt rules that govern the industry and
conduct periodic examinations of the operations of our broker-dealer
subsidiaries - SMH and Spires. SMH and Spires are also subject to regulation
under the laws of the states, Puerto Rico and certain foreign countries in which
they are registered to conduct securities, investment banking, insurance or
commodities business. Broker-dealers are subject to regulations which cover all
aspects of the securities business, including:
- sales methods,
- trade practices among broker-dealers,
9
<PAGE>
- use and safekeeping of clients' funds and securities,
- capital structure of securities firms,
- 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.
Many of these regulations involve the relationship between broker-dealers
and their clients including, in some instances, "suitability" determinations as
to certain client transactions, limitations on the amounts that may be charged
to clients, timing of proprietary trading in relation to clients' trades and
disclosures to clients. Violations of any of these customer regulations or other
applicable regulations can lead to revoking broker-dealer licenses, imposing
censures or fines or suspending, or terminating a firm, its officers or
employees.
As a registered broker-dealer, our brokerage subsidiaries are subject to
certain net capital requirements of Rule 15c3-1 under the Exchange Act. The net
capital rules, which specify minimum net capital requirements for registered
broker-dealers, are designed to measure the financial soundness and liquidity of
broker-dealers. 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 required
levels.
The net capital rules also:
(1) require that broker-dealers notify the SEC, in writing, two
business days before making withdrawals or other distributions of
equity capital or lending money to certain related persons if the
withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer's excess net capital, and that they notify the SEC
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;
(2) 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 if the aggregate indebtedness of the
broker-dealer's consolidated entities would exceed 1,000% of the
broker-dealer's net capital and in certain other circumstances;
and
(3) provide that the SEC may, by order, prohibit withdrawals from
capital of 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 if 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 our brokerage subsidiaries that require intensive use of capital,
such as underwriting and trading activities, and also could restrict our ability
to withdraw capital, which, in turn, could limit our ability to pay dividends,
and redeem or purchase shares of our outstanding common stock.
We are in compliance with the net capital requirements. However, in the
past, when Sanders Morris Mundy had required additional net capital in order to
participate as an underwriter in a securities offering, one or more of its
10
<PAGE>
shareholders advanced funds on a subordinated basis to Sanders Morris Mundy to
satisfy the net capital requirements. We do not expect that shareholders will
advance any future funds necessary to satisfy any net capital requirements.
Under the National Securities Markets Improvement Act of 1996 and the
Investment Advisors Supervision Coordination Act, investment advisors, such as
SMH, 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. SMH is currently registered as an investment advisor in Texas
and Georgia.
Our brokerage subsidiaries are also subject to "Risk Assessment Rules"
imposed by the SEC which require that certain broker-dealers maintain and
preserve certain information, prescribe risk management policies and procedures
and report on the financial condition of certain affiliates whose financial and
securities activities are reasonably likely to have a material impact on the
financial and operational condition of the broker-dealers. Certain "Material
Associated Persons" (as defined in the Risk Assessment Rules) of the
broker-dealers and the activities conducted by such Material Associated Persons
may also be subject to SEC regulation. In addition, the possibility exists that,
on the basis of the information it obtains under the Risk Assessment Rules, the
SEC could seek authority over our unregulated subsidiaries either directly or
through its existing authority over our regulated subsidiaries.
Our trust subsidiary, PMT, operates in a highly regulated environment and
is subject to extensive supervision and examination by Texas regulatory
agencies. As a Texas chartered trust company, PMT is subject to the Texas Trust
Company Act, the rules and regulations promulgated under that act and
supervision by the Texas Banking Commissioner. These laws are intended primarily
for the protection of PMT's clients, rather than for the benefit of investors.
The Texas Trust Company Act provides for, and regulates, a variety of matters,
such as:
- periodic examinations by the office of the Texas Banking
Commissioner;
- furnishing periodic financial statements to the Commissioner;
- minimum net capital maintenance requirements;
- fiduciary record-keeping requirements;
- bonding requirements for the protection of clients;
- restrictions on investments of restricted capital;
- lending and borrowing limitations;
- prohibitions against engaging in certain activities;
- prior regulatory approval 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);
- broad regulatory powers if the trust company violates certain
provisions of Texas Trust Company Act or is determined to be in a
"hazardous condition" (as the law defines that term); and
- other matters.
While we believe PMT is in material compliance with these laws, rules and
regulations, PMT may not be able to continue compliance in the future, or these
laws, rules or regulations may change adversely, either of which could have a
material adverse effect on PMT. Our ability to comply with laws relating to our
financial service business depends upon establishing and maintaining an
effective compliance system to monitor compliance, and our ability to attract
and retain qualified compliance personnel. While we believe that 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
us.
RISKS ASSOCIATED WITH DISCONTINUED OPERATIONS
From 1995 through 1997, we disposed of all of TEI's operating businesses
other than its liquid waste business. In the December 1997 sale of assets of a
former subsidiary, the purchaser agreed to complete customer contracts of the
subsidiary in process at the time of sale. We remain primarily liable to
complete the contracts, and agreed to reimburse the purchaser if its aggregate
completion costs exceeded the aggregate contract price. During the fourth
quarter of 1998, we recorded a loss of about $1.3 million (net of tax) for
potential liability associated with these contracts, principally from the
cancellation of a major customer contract. During the third quarter of 1999, the
purchaser informed us that additional costs would be incurred to complete the
customer contracts. As a result, we recorded an additional loss of about $73,000
(net of tax) during the third quarter of 1999. In March 2000, we were informed
by the customer that
11
<PAGE>
while the projects under the contracts were substantially complete, payment on
the contracts would not be made. Under the purchase agreement, we are liable to
the purchaser for contract payments not made by the customer, and thus, we
recorded an additional liability of $1,200,000. In March 2000, we paid the
purchaser $420,000 with respect to our obligations.
As a result of our decision to focus on the financial services industry,
we discontinued our liquid waste business effective December 31, 1998. During
the fourth quarter of 1998, we recorded an estimated loss on disposition of
this business of about $2.2 million (net of tax). We recorded an additional
loss of $230,000 (net of tax) during the third quarter of 1999 based on
estimated operating losses from the liquid waste business through the
anticipated sale date. In the fourth quarter of 1999, based in part on
discussions with a third party, we recorded an additional estimated loss
provision of $1,000,000. We may not be able to sell this business at a price
we consider adequate, or if sold, recover our current investment. Our liquid
waste business may also incur operating losses in the future in excess of the
recorded amount, and we may have to record additional losses in future
periods based on the eventual sales price of the discontinued business.
In addition, our discontinued liquid waste operation is 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. While we do not accept, and do not intend to accept, hazardous
substances at our facilities, if our liquid waste operations result in the
release or improper disposal of hazardous substances, we could incur liability
under the Comprehensive Environmental Response and Compensation and Liability
Act. Although we believe our liquid waste operations are in material compliance
with applicable laws and regulations, we may not continue in compliance in the
future. Any failure to comply with these laws, regulations and policies could
have a material adverse effect on our business, results of operations or
financial condition and could result in continuing risk of liability to us for
these failures under any proposed sale of the liquid waste business.
EMPLOYEES
At December 31, 1999, we had 108 employees, excluding employees of
discontinued operations. Of these employees, 19 were engaged in retail
brokerage, 30 in institutional sales, 14 in investment banking, 2 in securities
analysis and research, 12 in trust services, 6 in systems development and
support and 18 in accounting, administration and support operations. As a result
of the Sanders merger, we added an additional 108 employees as of February 29,
2000, of which 30 were engaged in retail and institutional sales, 12 in
investment banking, 16 in securities analysis and research and 50 in accounting,
administration and support operations. None of our employees are subject to
collective bargaining agreements. We believe our relations with our employees
generally are good.
RISK MANAGEMENT
Our financial services business involves substantial risks of liability.
From time to time we or our operating subsidiaries may be named as a defendant
in civil litigation and arbitration arising from our business activities as a
broker-dealer, fiduciary or in connection with our investment management
functions. The plaintiffs in such litigation or arbitration may allege
misconduct on the part of our investment or trust executives, claiming, for
example, that investments sold to the plaintiffs were unsuitable for their
portfolios, or that the investment executives engaged in excessive trading in
the plaintiffs' accounts. While historically we have not incurred material
liability in litigation or arbitration, substantial liabilities in connection
with such matters may occur in the future.
In recent years, there has been a substantial amount of litigation
involving the securities industry, including class action lawsuits that
generally seek substantial damages and other suits seeking punitive damages.
Companies engaged in the underwriting of securities, including our company,
through SMH, are subject to substantial potential liability, including material
misstatements or omissions in prospectuses and other communications in
underwritten offerings of securities or statements made by securities analysts,
under federal laws, such as Rule 10b-5 under the Exchange Act and Section 11 of
the Securities Act and similar state statutes and common law doctrines. The risk
of liability may be higher for an underwriter which, like SMH, is active in the
underwriting of securities offerings for emerging and middle-market companies
due to the higher degree of risk and volatility associated with the securities
of those companies.
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<PAGE>
The defense of these or any other lawsuits or arbitrations may divert
the efforts and attention of management and staff and those of our
subsidiaries from other responsibilities, and we may incur significant legal
expense in defending such litigation or arbitration.
ITEM 2. PROPERTIES
We lease office facilities in Houston (five locations) and Austin, Texas;
New York, New York; Morris Plains, New Jersey; Chicago, Illinois; Denver,
Colorado and Westport, Connecticut, aggregating approximately 50,000 square
feet. Two of our Houston leases expire in 2004, two Houston leases in 2002, one
Houston lease in 2003, the Austin and Morris Plains leases in 2000, the Denver
and Chicago leases in 2001, and the Westport lease in 2003. The leases are on
rental and other terms that we believe are commercially reasonable. We believe
our existing facilities are well maintained and adequate for existing and
planned operations.
As part of our plan to discontinue the liquid waste operations, we intend
to sell our real property located in Charlotte, North Carolina, consisting of
about six acres of land, related office space and a 14,800 square foot
processing plant built in 1997. We anticipate the sale to occur in 2000, but due
to unforeseen circumstances a sale may not be completed within that time frame.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings which are of an ordinary or
routine nature incidental to our operations. We believe we have adequately
reserved for such litigation matters and that they will not have a material
adverse effect on our financial condition or results of operations.
In October 1999, a brokerage customer initiated an arbitration proceeding
against HWG alleging wrongdoing in the execution of a trade. The customer is
seeking damages of $532,000, and a hearing date has not been scheduled. We are
contesting the allegations vigorously, however, due to the uncertainty involved
in actions of this nature, we are unable to determine the likelihood of an
unfavorable outcome in the proceeding.
In November 1999, SMH received a letter from the chairman of the audit
committee of Waste Management, Inc. asking for information concerning
investments by SMH, its clients, and the Environmental Opportunities Funds in a
number of private and public companies that either purchased assets from Waste
Management or were acquired by Waste Management while John E. Drury was both
employed by Waste Management and associated with Sanders Morris Mundy. Mr. Drury
is a current shareholder and former executive officer and director of Waste
Management, is a former shareholder and director of Sanders Morris Mundy and as
a result of the Sanders merger is a 2.2% shareholder of our company. SMH has
provided information in response to the Waste Management request.
Waste Management has not made any formal claim against SMH. However, Waste
Management's investigation is continuing. Based on our own investigation and
discussions with management of SMH, we believe there is no factual basis or
legal basis for any Waste Management claim against SMH. While we believe that
neither the existence nor the ultimate resolution of the Waste Management
investigation will have a material adverse effect on the financial condition of
SMH, we cannot predict the outcome of the investigation and if a claim is made
we cannot determine the significance of the related costs and management
attention required to defend it.
We may also be exposed to certain liabilities and claims associated with
our discontinued liquid waste business. See "Item 1. Business-Risks Associated
with Discontinued Operations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 29, 1999, we held a special meeting of our shareholders for the
following purpose:
- To consider and vote on a proposal to approve the issuance of
7,125,220 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.
- To transact other business related to the first proposal that may
have properly come before the special meeting.
13
<PAGE>
Holders, present in person or represented by proxy, of 3,973,420 of our
common shares were present at the special meeting, which shares represented
55.76% of our total issued and outstanding shares entitled to vote at the
special meeting. While the meeting was legally convened and called to order, due
to last minute developments involving both our company and Sanders Morris Mundy,
the meeting was adjourned until January 28, 2000, at 10:00 a.m. Central Standard
Time. The adjournment of the meeting was made on a motion by Robert E. Garrison
II, the Chairman of the special meeting, which was seconded by one of our
shareholders present at the meeting. The motion was then submitted to an oral
vote and approved.
The last minute developments causing the adjournment involved:
- One of our directors withdrawing his support for the Sanders
merger, and
- An information request by the audit committee of Waste Management
directed to Sanders Morris Mundy concerning investments by the
Sanders firm, its clients, and the Environmental Opportunities
Funds in a number of private and public companies that either
purchased assets from Waste Management or were acquired by Waste
Management while John Drury was both employed by Waste Management
and associated with Sanders Morris Mundy. Mr. Drury is a
shareholder and former executive officer and director of Waste
Management and a former shareholder and director of the Sanders
firm, and a current shareholder of our company. See "Item 3.
Legal Proceedings."
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock trades on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol "PING." Our common stock began trading on January
29, 1999. Prior to that time, there was no established public trading market for
our common stock. As a result of the January 1999 combination, we became the
successor issuer to TEI, Inc. whose common stock was 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 connection with the combination, each outstanding share of
TEI common stock was converted into 0.25 of a share of our common stock, with
just over 50% of our outstanding common shares being issued to TEI's former
shareholders. A total of 3,562,500 of common shares, representing slightly less
than 50% of our outstanding shares, were issued to the former owners of HWG, PMT
and Spires. The following table sets forth the quarterly high and low sale
prices of our common stock during 1999 for the calendar quarters indicated, and
the quarterly high and low sale prices of the TEI common stock through January
29, 1999 for the calendar quarters indicated and after giving effect to the one
for .25 share exchange of the TEI common stock effected in connection with the
combination, each as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH LOW
--------------- ---- ----
<S> <C> <C>
1999:
First Quarter........................................9 5 1/16
Second Quarter.......................................6 1/4 4 1/2
Third Quarter........................................6 4 1/2
Fourth Quarter.......................................5 3/4 3 7/8
1998:
First Quarter........................................7 3/4 5 5/8
Second Quarter.......................................10 7
Third Quarter........................................10 1/2 6
Fourth Quarter.......................................9 5 1/4
</TABLE>
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<PAGE>
At March 24, 2000, there were 342 record holders of our common stock. To
date, we have not paid cash dividends on our common stock. It is our policy to
continue retaining earnings for use in our operations and to fund our future
activities.
ITEM 6. SELECTED FINANCIAL DATA
The following data for 1995 through 1998 reflects our historical operating
results and financial condition prior to the January 1999 combination and the
January 2000 Sanders merger, and does not include any historical operating
results or financial condition data of any of the financial service firms for
those periods. The following data for 1999 reflects (1) our results of
operations, including the operations of the three financial services firms
acquired in the January 1999 combination, HWG, PMT and Spires, from January 31,
1999 through December 31, 1999 and (2) our financial condition after giving
effect to the January 1999 combination. This data does not include any of the
historical operating results or financial condition of Sanders Morris Mundy,
which was combined with our operations in January 2000.
As more fully described in Notes 1, 2 and 10 to the Consolidated Financial
Statements, all of our businesses owned through TEI have been sold or are
accounted for as discontinued operations.
The statement of operations data for all periods reflects Energy
Recovery Resources' liquid waste operations as discontinued. Periods prior to
1997 reflect the operations of the Tank Testing Group, Engineered Systems,
Inc. and Mankoff, Inc. as discontinued. Accordingly, the historical selected
financial data is not indicative of future operations.
The following data should be read together with the Consolidated
Financial Statements and their related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included later in
this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues .................. $18,972,765 $ 1,524,405 $ 1,530,264 $ 910,142 $ 740,013
Income (loss) from
continuing operations ........ (2,897,711) 106,260 3,621 (456,379) (552,775)
Income (loss) from
discontinued operations,
net of tax ................... (1,797,227) (4,077,020) (2,785,237) 1,211,479 (8,036,330)
--------------- --------------- ---------------- ---------------- ---------------
Net income (loss) ............... $ (4,694,938) $ (3,970,760) $ (2,781,616) $ 755,100 $(8,589,105)
=============== =============== ================ ================ ===============
Basic and diluted earnings (loss)
per share:
From continuing
operations ................ $ (0.43) $ 0.03 $ 0.00 $ (0.13) $ (0.16)
From discontinued
operations ................ (0.26) (1.14) (0.78) 0.34 (2.26)
--------------- --------------- ---------------- ---------------- ---------------
Net earnings (loss)
per share .................... $ (0.69) $ (1.11) $ (0.78) $ 0.21 $ (2.42)
=============== =============== ================ ================ ===============
Weighted average common
shares outstanding ........... 6,828,378 3,562,753 3,561,003 3,559,253 3,557,503
=============== =============== ================ ================ ===============
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $10,494,979 $13,292,644 $ 12,810,100 $ 11,421,710 $ 14,967,107
Securities owned and securities
available for sale............... 89,051,079 14,637,575 15,335,619 18,425,979 3,694,873
Total assets........................ 298,466,181 34,995,239 39,042,721 43,033,894 42,276,610
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read together with the Consolidated
Financial Statements and their related notes and "Selected Financial Data"
included later in this Annual Report.
GENERAL
We provide diversified financial services through our subsidiaries,
including institutional and retail brokerage, investment banking, merchant
banking, secondary market loan and loan servicing placement, trust related
services and investment management. All of these activities are highly
competitive and are sensitive to many factors outside our control, including
those factors listed under "Factors Affecting Forward-Looking Statements."
We closely monitor our operating environment to enable us to respond
promptly to market cycles. In addition, we seek to lessen earnings volatility by
controlling expenses, increasing fee-based business and developing new revenue
sources. Nonetheless, operating results of any individual period should not be
considered representative of future performance.
On January 29, 1999, we completed the combination of HWG, PMT and Spires.
In the combination, just over 50% of our outstanding common shares were issued
to TEI's former shareholders and slightly less than 50%, or 3,562,500 of our
common shares, were issued to the former owners of the financial services firms.
The combination was accounted for as separate purchases of each of the three
financial services firms.
In March 1999, the Company's new management decided to discontinue the
operations of TEI's liquid waste subsidiary effective December 31, 1998. These
operations, which are conducted primarily in Charlotte, North Carolina and
surrounding areas, involve the treating, recycling, and handling of waste-water,
waste oil and other non-hazardous fluid waste for owners and operators of under
and above ground storage tanks and other commercial and industrial waste
generators. Management believes the sale of the liquid waste business and
related Charlotte, North Carolina facility will be consummated in 2000.
On January 31, 2000, we completed the merger of HWG with Sanders Morris
Mundy Inc. Sanders Morris Mundy survived the merger, was renamed "Sanders
Morris Harris Inc." and became our wholly owned subsidiary. In the Sanders
Merger, we issued 7,125,220 of our common shares to the former shareholders
of the Sanders firm, increasing our total outstanding shares to approximately
14.25 million.
During the last several years, strong equity markets and record returns
have stimulated our brokerage business. Additionally, the strong markets and
economy have driven an increase in our investment banking business. Stock market
volatility generally affects our brokerage division more than our investment
banking division If stock market volatility dictates a general shift away from
our brokerage business, we believe that we have the ability to shift our focus
to more investment banking activities, such as public or private underwritings,
mergers and acquisitions and other types of financial advisory services. We
believe that the Sanders merger will contribute significantly to increased
public and industry awareness of our company and will result in increased demand
for our investment banking and corporate advisory services.
While recent markets have been strong, they have also been volatile. Given
the uncertainty in the market, we anticipate the trend toward investors seeking
professional asset management expertise to manage their portfolios to continue.
Our philosophy, through PMT, is focused toward long-term management and growth
of assets, regardless of client's asset mix.
Due to strong equity markets, rising interest rates, a flat yield curve,
and significant interest rate volatility, our fixed-income business at Spires'
experienced declining margins in 1999. Based on equity market gains in 1999,
institutional investor focused their attention primarily on equity markets. As a
result, investment manager allocations were heavily weighted toward equity
securities. Interest rate volatility, a key factor in bond transaction volume,
was significant during 1999, with rates fluctuating more than 170 basis points
during the period. While fixed-income yields became more attractive, the
relatively flat yield curve between shorter term fixed-income securities as
compared to those with longer maturities created little incentive for investors
to purchase the longer maturity fixed-income products that are more profitable
for Spires. For example, at December 31, 1999 only approximately 25 basis points
separated the yield on two-year notes from the 30-year bond. As a result,
Spires' average transaction margin, the difference between the sales price of a
bond and its cost, remained low during 1999. Spires' financial results have been
and may continue to be subject to fluctuations due to these factors and others.
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The following discussion of the results of operations for 1998 reflects our
historical operating results prior to the January 1999 combination and the
January 2000 Sanders merger, and does not include any historical operating
results of any of the financial service firms for that period. The discussion of
the results of operations for 1999 reflects the operations of the three
financial services acquired in the January 1999 combination, HWG, PMT and
Spires, from January 31, 1999 through December 31, 1999. This discussion does
not include any of the operating results of Sanders Morris Mundy, which was
combined with our operations in January 2000.
COMPONENTS OF REVENUES AND EXPENSES
REVENUES. Our revenues are comprised primarily of (1) commission revenue
from retail and institutional brokerage transactions, fees from asset-based
advisory services, and principal and agent transactions at HWG and Spires, and
(2) investment banking revenue from corporate finance fees, mergers and
acquisitions fees and merchant banking fees at HWG and (3) fees from asset
management and fiduciary services at PMT. We also earn interest on the cash held
and dividends received from the equity securities held by PMT for its corporate
capital account and have gains (or losses) in Spires' inventory account.
Interest income results from interest earned on Spires' inventories of
fixed-income securities prior to sale and from interest and dividends earned on
investments in HWG's capital account. Other sources of revenue include revenue
earned from gains on the sale of securities held in PMT's corporate account, and
from realized and unrealized gains (or losses), net of hedging, on fixed-income
securities in Spires' possession.
EXPENSES. Our expenses consist of (1) compensation and benefits and (2)
brokerage and clearing costs, (3) interest expense and (4) other expenses.
Compensation and benefits is our largest expense item and includes wages,
salaries, commissions to retail and institutional brokers and investment and
merchant bankers, and benefits. During 1999, compensation and benefits
represented 59% as a percentage of total expenses, and 57% as a percentage of
total revenues. Compensation and benefits have both a variable component based
on revenue production, and a fixed component. The variable component includes
institutional and retail sales commissions, bonuses, overrides, trading desk
incentives, and management compensation. Retail and institutional commissions
are based on a competitive commission schedule. The investment banking group and
the research group receive a salary and discretionary bonus as compensation. The
fixed component includes administrative and executive salaries, payroll taxes,
employee benefits and temporary employee costs.
Brokerage and clearance expenses include clearing and settlement costs
associated with the retail and institutional brokerage business at HWG and
Spires. HWG clears its transactions through the Pershing Division of Donaldson,
Lufkin and Jenrette Securities Corporation, and Spires clears transactions
primarily through Banc of America Securities LLC and other clearing brokers.
Other expenses include (1) occupancy and equipment expenses, such as
rent and utility charges for facilities, (2) communications and data
processing expense, such as third-party systems, data, and software program
providers and development and maintenance expenses associated with SFN and
(3) interest expense paid by Spires to finance its inventory of fixed-income
securities, either through loans or repurchase agreements.
Amortization expense reflects the amortization of the goodwill created
through the combination of the three financial services firms, HWG, PMT and
Spires.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total revenues for the year ended December 31, 1999 were $18,973,000
compared to $1,524,000 in 1998. The increase in revenues was due to the
acquisition of the three financial services firms on January 29, 1999. Total
expenses for the period were $18,600,000 compared to $1,365,000 in the previous
year. Income from continuing operations before taxes was $373,000 compared to
$160,000 in the previous year.
Provision for income taxes was $3,575,000 compared to $54,000 in the
previous year. The provision in 1999 included a 2,807,000 charge to provide a
valuation allowance for deferred tax assets that do not meet the more likely
than not criteria for recognition. While the charge is included in continuing
operations, these deferred tax assets resulted from losses and tax basis
differences from the Company's discontinued operations. Loss from continuing
operations, net of tax, was $3,203,000 compared to income of $106,000 in the
previous year. Loss from discontinued operations, net of tax declined to
$933,000 from $2,733,000 in 1998. Loss on disposition of discontinued
operations, net
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of tax, was $1,797,000 in 1999 compared to $4,077,000 in 1998. Basic and diluted
income (loss) per share from continuing operations was $(0.43) in 1999 compared
to $0.03 per share for the year ended December 31, 1998.
Commissions revenue in 1999 was $8,268,000 primarily from retail and
institutional brokerage operations at Spires and HWG. Principal transactions
revenue was $3,649,000 consisting primarily of trading gains, net of hedging
costs. Investment banking revenue was $1,609,000 primarily from investment
banking fees earned from advisory services and private security offerings.
Fiduciary, custodial and advisory fees were $2,027,000 primarily from fee-based
account business at PMT. Interest and dividend income rose to $2,810,000 from
$1,524,000 in 1998, primarily due to interest earned on our securities.
Employee compensation and benefits increased $10,425,000 from $453,000 in
1998 to $10,878,000 in 1999 primarily due to additional employees in connection
with the January 1999 combination. Employee compensation and benefits includes
commissions paid to retail and institutional brokers and investment bankers at
HWG and Spires. Communications and data processing costs were $1,134,000 in
1999, compared to $22,000 in 1998. The increase of $1,112,000 was primarily
related to upgrades in technology and services, including quotes and market data
services. Occupancy costs increased from $75,000 in 1998 to $1,118,000 in 1999,
primarily due to rent expense for office and equipment leases of the financial
services firms.
The effective tax rate from continuing operations during the year ended
December 31, 1999 was 877% compared to 34% for the year ended December 31,
1998. The rate in 1999 was affected by nondeductible goodwill amortization
and an increase in the valuation allowance for deferred tax assets that do
not meet the more likely than not criteria for recognition as discussed above.
DISCONTINUED OPERATIONS
Losses from discontinued operations, net of tax, were $1,797,000 in 1999
compared to a loss of $4,077,000 in 1998. The loss from discontinued operations
in 1999 consists of $933,000, net of tax, related to a revision of the estimated
loss on the disposition of Energy Recovery Resources, Inc., and $865,000 related
to the a revision of our obligation to fund the cost to complete customer
contracts in connection with the December 1997 sale of Engineered Systems, Inc.
and an increase in the related reserve against amounts due from customers that
may not be collected. Although we made our best estimate of losses, discontinued
operations may incur additional operating losses and we may need to record
additional loss provisions on the disposition of discontinued operations in
future periods.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Interest and dividend income declined by $6,000 to $1,524,000 during 1998
from $1,530,000 during 1997, as a result of a decrease in the average balance of
cash and investments of approximately $1,500,000. This decrease was partially
offset by an increase of approximately 0.5% in the average rate earned on such
investments.
Employee compensation and benefits decreased by $73,000 to $453,000 in 1998
as a result of reductions in staff. Occupancy expenses decreased from $128,000
in 1997 to $75,000 in 1998 due to reduced rent expense at our corporate offices.
General and administrative expenses decreased by $38,000 to $814,000 during
1998 from $852,000 during 1997, primarily from a decrease in property taxes
resulting from the sale of our former corporate headquarters.
Losses from discontinued operations, net of tax, were $4,077,000 in 1998
compared to a loss of $2,785,000 in 1997. The loss from discontinued operations
in 1998 reflects a $569,000 net after tax loss of Energy Recovery Resources,
Inc. for the year and a write down of our investment in Energy Recovery
Resources, Inc. of $2,164,000, net of tax, based on the estimated net realizable
value of the business. Under the terms of our sale of Engineered Systems, Inc.,
the purchaser is responsible for completing customer contracts in place as of
the sale date. However, we remain liable for costs incurred by the purchaser in
excess of amounts collected from customers. Through the third quarter of 1998,
we believed, based in part on information provided by the purchaser, that we had
no additional liability under the contracts in process. Subsequent to December
31, 1998, the purchaser notified us that a major customer cancelled its contract
and other contracts in process have or are expected to result in costs in excess
of amounts recoverable from customers. As a result, we recorded a charge to
discontinued operations, net of tax, of $1,344,000 for the estimated contract
losses. The
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<PAGE>
loss from discontinued operations in 1997 consisted of a $188,000 loss on
disposition of Engineered Systems Inc., $2,194,000 from estimated contract
losses at Engineered Systems Inc. and $403,000 of net losses from the operations
of Energy Recovery Resources, Inc.
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of our assets is highly liquid and short-term in
nature, consisting of cash and assets readily convertible into cash. Securities
borrowed and securities loaned, along with receivables from customers and
payables to customers, fluctuate as a result of the changes in the level of
positions held to facilitate customer transactions and changes in market
conditions. Receivables from others and payables to others fluctuate primarily
due to the change in adjustment to securities owned on a trade date basis.
We intend to satisfy a large portion of our funding needs with our own
capital resources, consisting largely of internally generated earnings and
liquid assets we held before the January 1999 combination. Cash, cash
equivalents and liquid assets, consisting of receivables from broker-dealers and
clearing organizations, deposits with clearing brokers, securities owned, and
securities available for sale represented about 90% of our total assets at
December 31, 1999. At December 31, 1999, we had approximately $14.5 million in
cash and cash equivalents and securities available for sale. We had $21.4
million in intangible assets at December 31, 1999 as a result of the
acquisitions of HWG, PMT and Spires in the January 1999 combination. Total
assets increased $263.5 million from $35.0 million at December 31, 1998 to
$298.5 million at December 31, 1999.
Increases in securities owned and securities sold, not yet purchased arise
out of Spires' ordinary course of business. At December 31, 1999, Spires had
just issued a new collateralized mortgage obligation which increased our long
positions in securities that had not been sold and accompanying short positions,
or hedges. Increases in receivables from and payable to clearing brokers and
dealers were related to Spires' policy of financing long and short inventory
positions for leverage. Spires' clearing arrangement with Banc of America
Securities, LLC required an increase in deposits held by clearing brokers and
dealers.
At December 31, 1999, HWG and Spires, our then registered broker-dealer
subsidiaries, were in compliance with the net capital requirements of the
Securities and Exchange Commission's Uniform Net Capital Rule and had capital in
excess of the required minimum. PMT was in compliance with the Texas Department
of Banking net capital requirement and had capital in excess of the required
minimum.
During July 1999, we signed a letter of intent to acquire a financial
services firm for $6.6 million in cash and 733,333 shares of our common
stock. The proposed transaction was subject to approval by our Board of
Directors, the receipt of approvals by various regulatory agencies, the
absence of adverse changes in the financial condition of the parties
involved, and the execution of a definitive agreement for the transaction. On
August 24, 1999, we announced that merger discussions had been terminated.
On October 12, 1999, we entered into a definitive agreement to merge HWG
with Sanders Morris Mundy, a privately owned investment bank based in Houston,
Texas. The parties amended and restated the merger agreement on November 12,
1999. The new firm, Sanders Morris Harris, resulting from the merger became our
wholly owned subsidiary. Under the merger, we issued 7,125,220 common shares to
the former Sanders Morris Mundy shareholders. The merger, which was subject to
approval by our shareholders, governmental approvals and other typical
conditions, closed on January 31, 2000.
We are involved in litigation and routine claims from time to time. Certain
of our litigation and claims are covered by insurance with a maximum deductible
of $50,000. Until recently, we were contingently liable for up to $600,000 for
liabilities relating to services performed by Tanknology Corporation
International, Tanknology Canada, Inc. (1988) and USTMAN Industries, Inc. prior
to October 25, 1996. We had fully reserved for that contingency and in February
2000 we paid the purchaser $600,000 in exchange for a complete release of our
remaining obligations.
Management believes that cash generated from operations, existing cash
balances and available borrowing capacity will be sufficient to meet our
anticipated cash requirements for 2000.
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FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, (the
"Acts"). These forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, new products, anticipated market performance and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. To comply with the terms of the safe
harbor, we caution readers that a variety of factors could cause our actual
results to differ materially from the anticipated results or other expectations
expressed in the forward-looking statements. These risks and uncertainties, many
of which are beyond our control, include, but are not limited to (1) trading
volume in the securities markets; (2) volatility of the securities markets and
interest rates; (3) changes in regulatory requirements which could affect the
demand for our services or the cost of doing business; (4) general economic
conditions, both domestic and foreign, especially in the regions where we do
business; (5) changes in the rate of inflation and related impact on securities
markets; (6) competition from existing financial institutions and other new
participants in the securities markets; (7) legal developments affecting the
litigation experience of the securities industry; (8) successful implementation
of technology solutions and (9) demand for our services. We do not undertake any
obligation to publicly update or revise any forward-looking statements.
EFFECTS OF INFLATION
Historically, inflation has not had a material effect on our financial
condition, results of operations or cash flows; however, the rate of inflation
can be expected to affect our expenses, such as employee compensation, occupancy
and equipment. Increases in these expenses may not be readily recoverable in the
prices that we charge for our services. Inflation can have significant effects
on interest rates that in turn can affect prices and activities in the financial
services market. These fluctuations could have an adverse impact on our
financial services operations.
YEAR 2000 IMPACT
We developed a company-wide initiative to detect and resolve potential Year
2000 issues that might adversely impact our computer systems and facilities. Our
broker-dealer subsidiaries, HWG and Spires, were required to complete a review
of the potential impact and report their findings to the NASD and the SEC no
later than August 31, 1998. An updated report by both subsidiaries was due no
later than April 30, 1998. HWG filed its initial report with the NASD and the
SEC on August 6, 1998, and Spires filed its initial report with both agencies on
August 31, 1998.
PMT, our trust subsidiary, was required to conduct a complete review of the
potential impact of Year 2000 issues and report its findings to the Texas
Banking Commissioner. PMT filed its initial report with the Bank Commissioner on
August 3, 1998.
We also developed a multi-phase plan to resolve potential problems relating
to our information technology at all of our operations and embedded chip
technology at our Energy Recovery Resources, Inc. liquid waste facility.
The contingency plan developed for resolution of Year 2000 issues detailed
the course of action to follow at various stages of readiness. There were no
problems encountered that warranted implementation of the contingency plan. Our
operations continued with no noticeable disruptions of service.
Costs to prepare our systems for the Year 2000 were approximately $142,294,
comprised of $21,085 for capital expenditures and $121,209 for non-capital
expenditures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion relates to our market risk sensitive instruments
as of December 31, 1999, and thus, no discussion has been included regarding
such instruments held by Sanders Morris Mundy since the Sanders merger was not
consummated until January 31, 2000.
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HWG
HWG's market making, investing, and underwriting activities often involve
the purchase, sale, or short sale of securities and expose its capital to
significant risks, including market risk, equity price risk, and credit risk.
Market risk represents the potential loss we may incur as a result of absolute
and relative price movements, price volatility, and changes in liquidity in
financial instruments due to many factors over which we have virtually no
control. HWG's primary market risk arises from the fact that it owns a variety
of investments that are subject to changes in value and could result in material
gains or losses. HWG also engages in proprietary trading and makes dealer
markets in equity securities. In doing this, HWG may be required to maintain
certain amounts of inventories in order to facilitate customer order flow. HWG
is exposed to equity price risk due to changes in the level and volatility of
equity prices primarily in Nasdaq and over-the-counter markets. Changes in
market conditions could limit HWG's ability to resell securities purchased or to
purchase securities sold short. Direct market risk exposure to changes in
foreign exchange rates is not material.
HWG seeks to cover its exposure to market and equity price risk by limiting
its net long and short positions and by selling or buying similar instruments.
In addition, trading and inventory accounts are monitored on an ongoing basis,
and HWG has established position limits. Position and exposure reports are
prepared at the end of each trading day and are reviewed by traders, trading
managers, and management personnel. These reports show the amount of capital
committed to various issuers and industry segments. Securities held in HWG's
investment portfolio are guided by an investment policy and are reviewed on a
regular basis.
Credit risk represents the amount of accounting loss HWG would incur should
counterparties to its proprietary transactions fail to perform their contractual
obligations, such as delivery of securities or payment of funds. This risk
depends primarily on the credit worthiness of the counterparty. HWG seeks to
control credit risk by following an established credit approval process,
monitoring credit limits and requiring collateral where appropriate.
HWG monitors its market and counterparty risk on a daily basis through a
number of control procedures designed to identify and evaluate the various risks
to which it is exposed. HWG has established various committees to assess and to
manage risk associated with its investment banking and other activities. The
committees review, among other things, business and transactional risks
associated with potential clients and engagements. HWG seeks to control the
risks associated with its investment banking activities by review and approval
of transactions by the relevant committee, prior to accepting an engagement or
pursuing a material investment transaction.
HWG's trading equity securities are marked to market on a daily basis.
At December 31, 1999, HWG's trading equity securities were recorded at a fair
market value of $85,000. These trading equity securities are subject to
equity price risk. This risk would amount to $8,500 base on a potential loss
in fair market value from a hypothetical 10% decrease in the year end market
value of such equity securities. The actual equity price risk related to the
trading equity securities may differ substantially.
At December 31, 1999, HWG's investment portfolio was recorded at a fair
market value of $2.3 million. Since this portfolio is invested primarily in
cash and short-term U.S. treasuries, it is exposed to limited equity price risk.
As a result of the closing of the Sanders merger on January 31, 2000, we
expect our market risk sensitive instrument portfolio held by our newly
combined investment banking subsidiary, SMH, to be significantly larger, but
within the same general risk categories.
PMT
PMT revenues are primarily from asset management and fiduciary fees based
on a percentage of assets under administration. As a result, PMT is subject to
equity price risk since its fees are directly affected by changes in the equity
prices of the assets under its management. Similarly, PMT's fee income is
subject to interest rate risk to the extent changes in interest rates affect the
carrying value of assets under management. While these market risks are present,
quantification remains difficult due to the number of other variables that
affect PMT's fee income.
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At December 31, 1999, PMT had equity securities under management with a
fair market value of $429 million. PMT's fee income for 1999 would have been
reduced by approximately $23,000 assuming a hypothetical 10% decrease in the
year end market value of its equity securities under management. PMT's fee
income could also be reduced from changes in interest rates to the extent it
reduces the carrying value of securities under management.
SPIRES
Exposure to risk and the ways we manage the various types of risks on the
day-to-day basis are critical to Spires' survival and financial success. Spires
monitors its market, credit and liquidity risks on a daily basis through a
number of control procedures designed to identify and evaluate the various risks
to which we are exposed. However, Spires' risk management procedures and
internal controls may not prevent all losses from occurring as a result of such
risks.
Spires' primary market risk is that it owns a variety of investments that
are subject to changes in value and could result in material gains or losses.
Spires also engages in proprietary trading and makes dealer markets in
securities which include, among others, mortgage related securities (e.g.
mortgage-backed securities and collateralized mortgage obligations), U.S.
government and agency obligations, indexed debt instruments, interest-only and
principal-only obligations, and other debt obligations. Spires maintains
inventory in these and other securities for market making, customer order flow,
and arbitrage purposes. To invest in these opportunities and to properly
leverage its capital, Spires borrows funds. This leverage and the price
volatility in these positions arising from changes in interest rates, market
volatility, and prepayment expectations create risk. Spires also acts as
principal in customer-related transactions in financial instruments, which
exposes it to risks of default by customers and counterparties.
Spires' management is responsible for maintaining inventory, managing risk
position, establishing acceptable risk tolerances and hedging strategies,
setting inventory position limits, and overseeing the purchasing/selling
activities of the firm's trading personnel. Trading and inventory accounts are
monitored on an ongoing basis, and Spires has established written position
limits. Position and exposure reports are prepared at the end of each trading
day. The reports are reviewed independently by Spires' senior management and
corporate accounting group. Spires' management also reviews and monitors
inventory pricing, concentration, and credit ratings.
Market risk represents the potential loss Spires may incur as a result of
absolute and relative price movements in financial instruments due to changes in
interest rates, credit spreads, liquidity spreads, foreign exchange rates, and
other political factors. Spires is not subject to direct market risk due to
changes in foreign exchange rates. However, Spires is subject to market risk as
a result of changes in interest rates as they are affected by global economic
conditions. The principal source of this risk arises from maintaining
inventories in and trading and market-making in securities which include
mortgage related securities (e.g. mortgage-backed securities and collateralized
mortgage obligations), U.S. government and agency obligations, indexed debt
instruments, interest-only and principal-only obligations, and other debt
obligations. Inventory positions are carried for resale to institutional
brokerage clients and other broker-dealers. All inventories are held for trading
purposes.
Spires seeks to cover its exposure to market risk by limiting its net long
or short positions and by hedging strategies that involve selling or buying
similar instruments. These strategies seek to insulate Spires from changes in
interest rates, prepayment expectations, and market volatility. Hedges are
constructed to manage the price volatility risk of Spires' inventory by
offsetting the price volatility of the inventory position with an instrument
whose price change moves in the opposite direction to the inventory position but
with equal magnitude. Spires understands that hedging is not a perfect insurance
policy and that there is always "basis risk" between the performance of the
hedge and the inventory over time. This basis risk is discussed in greater
detail below and remains one of the business risks of doing business in
fixed-income securities. Spires does not employ derivative financial instruments
(e.g. swaps, caps, floors) in its hedging strategies.
The following table shows the quoted market values of Spires' securities
inventory owned ("long"), its inventory hedge in the form of securities sold,
not yet purchased ("short"), net positions, and overall gains and losses as of
December 31, 1999:
<TABLE>
<CAPTION>
Security Type Long Short Net Gain (Loss)
- ----------------------------------------------- --------------- ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ - $ (120,173,984) $(120,173,984) $ 77,363
Collateralized mortgage obligations (CMO) 80,215,739 - 80,215,739 (31,989)
--------------- ----------------- ----------------- -------------
Totals $ 80,215,739 $ (120,173,984) $ (39,958,245) $ 45,374
=============== ================== ================= =============
</TABLE>
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Spires has also prepared a sensitivity analysis to estimate its exposure
to interest rate risk from its inventory position. The net potential change
in fair value of the inventory long positions at December 31, 1999, assuming
all other factors remained constant except for a hypothetical 50 basis point
change in interest rates, would be $125,000, after offsetting corresponding
effect of the interest rate change on the inventory short positions. The
actual interest rate risk related to Spires' inventory position may differ
substantially.
The ratio of 1.495 mortgage-backed securities/CMOs is used to fully
hedge long inventory. Unless management approval is given, long inventory
must be hedged.
The information regarding Spires' market risk included above does not
consider basis risk. Basis risk is the risk that the change in market value of
Spires' inventory and the change in market value of the items used to hedge that
inventory may not always be offsetting. For example, an unfavorable basis change
could result in an inventory gain that is less than the loss in Spires' hedge,
or an inventory loss that is greater than the gain in Spires' hedge. Basis risk
is one of the business risks of doing business in fixed-income securities.
Factors that influence Spires' basis risk include credit spread risk,
liquidity spread risk, prepayment risk on mortgage securities/CMOs, and changes
in the shape of the yield curve. Credit spread risk arises from the potential
that changes in an issuer's credit rating or credit perception could affect the
value of financial instruments. Liquidity spread risk arises from the potential
that changes in the liquidity (ease of marketability) of a financial instrument
or market sector could affect the value of a financial instrument. Prepayment
risk arises from the potential that changes in the prepayment speed of a
mortgage security or CMO could affect the value of that security. Yield curve
risk arises from the potential that shifts in the yield curve could affect the
value of a financial instrument.
Spires' management believes that its securities inventory at December 31,
1999, consisting entirely of securities of high quality, exposed Spires to
little risk associated with changes in either credit or liquidity spreads.
However, unpredictable prepayment rates on mortgage-backed securities/CMOs and
changes in the shape of the yield curve were key components contributing to
Spires' basis risk.
As of December 31, 1999, Spires' inventory of securities sold under
agreements to repurchase was $37,091,000 at an average rate of 6.25% and Spires
had no borrowed or loaned securities.
A derivative financial instrument represents a contractual agreement
between counterparties and has value that is derived from changes in the value
of some other underlying asset such as the price of another security, interest
rates (such as the Prime Rate, or LIBOR), indices (i.e. S&P 500), or the value
referenced in the contract.
We do not act as dealer, trader, or end-user of complex derivative
contracts such as swaps, collars, and caps. However, Spires does act as a dealer
and trader of mortgage-derivative securities, called collateralized mortgage
obligations (CMOs or REMICs). Mortgage-derivative securities redistribute the
risks associated with their underlying mortgage collateral, by redirecting cash
flows according to specific formulas or algorithms, to various tranches or
classes, designed to meet specific investor objectives.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants .......................................................... 25
Consolidated Balance Sheet as of December 31, 1999 and 1998 ................................ 26
Consolidated Statement of Operations for the three years in the period ended
December 31, 1999 ....................................................................... 27
Consolidated Statement of Shareholders' Equity for the three years in the period ended
December 31, 1999 ....................................................................... 28
Consolidated Statement of Cash Flows for the three years in the period ended
December 31, 1999 ....................................................................... 29
Notes to Consolidated Financial Statements ................................................. 30
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Pinnacle Global Group, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Pinnacle
Global Group, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 17, 2000
25
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................ $ 10,494,979 $ 13,292,644
Receivable from brokers-dealers and clearing organizations ....................... 162,423,140 -
Deposits with clearing brokers ................................................... 8,463,479 -
Securites owned .................................................................. 85,001,572 -
Securities available for sale .................................................... 4,049,507 14,637,575
Intangible assets, net of accumulated amortization of $815,865 ................... 21,413,644 -
Furniture and equipment .......................................................... 1,090,313 25,116
Deferred income taxes ............................................................ - 2,656,777
Other assets ..................................................................... 3,081,748 1,308,167
Net assets of discontinued operations ............................................ 2,447,799 3,074,960
---------------- ---------------
Total assets ............................................................ $ 298,466,181 $ 34,995,239
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities ..................................... $ 1,954,092 $ 1,295,476
Payable to clearing brokers-dealers .......................................... 117,921,940 -
Securities sold, not yet purchased ........................................... 120,275,441 -
Deferred income taxes ........................................................ 737,339 -
---------------- ---------------
Total liabilities ....................................................... 240,888,812 1,295,476
---------------- ---------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized;
no shares issued and outstanding ............................................ - -
Common stock, $.01 par value; 100,000,000 shares authorized;
7,125,292 and 3,801,559 shares issued at December 31, 1999
and 1998, respectively ...................................................... 71,253 38,016
Additional paid-in capital.................................................... 58,928,713 33,248,729
Receivables for shares issued ................................................ (1,311,675) -
Retained earnings (deficit)................................................... (88,249) 4,606,689
Accumulated other comprehensive loss ......................................... (22,673) (6,000)
Treasury stock at cost, 238,806 shares at December 31, 1998................... - (4,187,671)
---------------- ---------------
Total shareholders' equity .............................................. 57,577,369 33,699,763
---------------- ---------------
Total liabilities and shareholders' equity .............................. $ 298,466,181 $ 34,995,239
================ ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
26
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Commissions .............................................. $8,268,088 $ - $ -
Principal transactions ................................... 3,649,195 - -
Investment banking ....................................... 1,608,993 - -
Fiduciary, custodial and advisory fees ................... 2,026,938 - -
Interest and dividends ................................... 2,810,370 1,524,405 1,530,264
Other income ............................................. 609,181 - -
--------------- --------------- ---------------
Total revenues ...................................... 18,972,765 1,524,405 1,530,264
--------------- --------------- ---------------
Expenses:
Employee compensation and benefits ....................... 10,878,451 453,235 526,412
Floor brokerage, exchange and clearance fees ............. 784,849 - -
Communications and data processing ....................... 1,133,659 21,701 30,873
Interest ................................................. 1,369,061 - -
Occupancy ................................................ 1,117,939 75,312 128,397
Amortization of intangible assets ........................ 815,865 - -
Other general and administrative ......................... 2,500,100 814,365 851,694
--------------- --------------- ---------------
Total expenses ...................................... 18,599,924 1,364,613 1,537,376
--------------- --------------- ---------------
Income from continuing operations before income taxes .......... 372,841 159,792 (7,112)
Provision (benefit) for income taxes ........................... 3,270,552 53,532 (10,733)
--------------- --------------- ---------------
Income (loss) from continuing operations ....................... (2,897,711) 106,260 3,621
Loss from discontinued operations, net of tax .................. (932,627) (2,732,626) (2,597,383)
Loss on disposition of discontinued operations, net of tax ..... (864,600) (1,344,394) (187,854)
--------------- --------------- ---------------
Net income (loss) .............................................. $(4,694,938) $(3,970,760) $(2,781,616)
=============== =============== ===============
Basic and diluted income (loss) per share:
From continuing operations ............................... $ (0.43) $ 0.03 $ 0.00
From discontinued operations ............................. (0.26) (1.14) (0.78)
--------------- --------------- ---------------
Net income (loss) per share .................................... $ (0.69) $ (1.11) $ (0.78)
=============== =============== ===============
Weighted average common shares outstanding ..................... 6,828,378 3,562,753 3,561,003
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
27
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
----------------------------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ----------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .......... 3,798,059 $ 37,981 (238,806) $ (4,187,671) $ 33,223,598
Issuance of common stock to
nonemployee directors ............... 1,750 18 - - 13,772
Comprehensive income (loss):
Net loss ....................... - - - - -
Net change in unrealized
appreciation on securities
available for sale ............. - - - - -
Total comprehensive loss ........ - - - - -
------------ ----------------------- ---------------- -----------------
Balance, December 31, 1997 .......... 3,799,809 37,999 (238,806) (4,187,671) 33,237,370
Issuance of common stock to
nonemployee directors ........... 1,750 17 - - 11,359
Comprehensive income (loss):
Net loss......................... - - - - -
Net change in unrealized
depreciation on securities
available for sale net of
deferred taxes of $3,091........ - - - - -
Total comprehensive loss ........ - - - - -
------------ ----------------------- ---------------- -----------------
Balance, December 31, 1998 .......... 3,801,559 38,016 (238,806) (4,187,671) 33,248,729
Issuance of common stock for
acquisitions..................... 3,562,539 35,625 - - 29,865,267
Retirement of treasury stock......... (238,806) (2,388) 238,806 4,187,671 (4,185,283)
Comprehensive income (loss):
Net loss ....................... - - - - -
Net change in unrealized
depreciation on securities
available for sale net of
deferred taxes of $8,589....... - - - - -
Total comprehensive loss ........ - - - - -
----------- ----------------------- ---------------- ------------------
Balance, December 31, 1999 7,125,292 $ 71,253 - $ - $ 58,928,713
============ ======================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
RECEIVABLES OTHER
FOR SHARES RETAINED COMPREHENSIVE
ISSUED EARNINGS(DEFICIT) INCOME(LOSS) TOTAL
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 .......... $ - $ 11,359,065 $ - $ 40,432,973
Issuance of common stock to - - - 13,790
nonemployee directors ..........
Comprehensive income (loss):
Net loss ....................... - (2,781,616) - (2,781,616)
Net change in unrealized
appreciation on securities - - - -
available for sale ............. --------------
Total comprehensive loss ........ - - - (2,781,616)
-------------- ---------------- ---------------- --------------
Balance, December 31, 1997 .......... - 8,577,449 - 37,665,147
Issuance of common stock to
nonemployee directors ...........
Comprehensive income (loss): - - - 11,376
Net loss.........................
Net change in unrealized - (3,970,760) - (3,970,760)
depreciation on securities
available for sale net of - - (6,000) (6,000)
deferred taxes of $3,091........ --------------
Total comprehensive loss ........ - - - (3,976,760)
-------------- ---------------- ---------------- --------------
Balance, December 31, 1998 .......... - 4,606,689 (6,000) 33,699,763
Issuance of common stock for
acquisitions..................... (1,311,675) - - 28,589,217
Retirement of treasury stock......... - - - -
Comprehensive income (loss):
Net loss ....................... - (4,694,938) - (4,694,938)
Net change in unrealized
depreciation on securities
available for sale net of - - (16,673) (16,673)
deferred taxes of $8,589....... --------------
Total comprehensive loss ........ - - - (4,711,611)
------------- ---------------- ---------------- --------------
Balance, December 31, 1999 $ (1,311,675) $ (88,249) $ (22,673) $ 57,577,369
============== ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
28
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ (4,694,938) $ (3,970,760) $ (2,781,616)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of securities available for sale................ (311,530) - -
Provision for loss on discontinued operations ............... 2,660,000 5,234,085 2,375,064
Depreciation................................................. 270,374 910,631 674,538
Gain on disposal of assets................................... - (7,701) (63,664)
Net amortization of premiums and discounts on
securities available for sale.............................. - (201,526) (246,537)
Deferred income taxes........................................ 2,370,170 (1,964,783) 1,205,456
Amortization of intangible assets............................ 815,865 - -
Changes in assets and liabilities, including discontinued
operations:
Increase in receivable from clearing brokers
and dealers.......................................... (160,818,209) - -
Increase in securities owned........................... (66,887,198) - -
Increase in deposits held by clearing brokers
and dealers.......................................... (7,335,776) - -
Increase in securities sold, not yet purchased......... 118,735,363 - -
(Increase) decrease in income tax receivable........... - 1,512,115 (1,512,115)
Increase in other assets............................... (1,092,814) (263,344) (313,242)
Increase in payable to clearing brokers and dealers.... 114,420,730 - -
Increase (decrease) in accounts payable and
accrued liabilities.................................. (316,463) - (1,227,408)
Operating losses and payments charged (1,471,148) 194,025 (2,193,860)
to reserve for discontinued operations............... ----------------- --------------- ---------------
Net cash provided by (used in) operating activities.... (3,655,574) 1,442,742 (4,083,384)
----------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (897,281) (879,876) (682,192)
Acquisition costs............................................... (648,244) (995,625) -
Proceeds from sale of assets.................................... 5,406 15,733 2,492,284
Purchase of securities available for sale....................... (10,219,125) (28,856,556) (35,693,443)
Proceeds from maturities of securities available for sale....... 8,258,300 29,756,126 39,355,125
----------------- --------------- ---------------
Net cash provided by (used in) investing activities.... (3,500,944) (960,198) 5,471,774
----------------- --------------- -------------
CASH OF BUSINESSES ACQUIRED.......................................... 4,358,853 - -
----------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents... (2,797,665) 482,544 1,388,390
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 13,292,644 12,810,100 11,421,710
----------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $ 10,494,979 $13,292,644 $ 12,810,100
================= =============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
29
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Through a series of transactions on January 29, 1999, the shareholders of
TEI, Inc. ("TEI") exchanged all common shares of TEI for 3,562,753 common shares
of Pinnacle Global Group, Inc. (the "Company"), then a newly formed public
holding company. The Company simultaneously acquired three financial services
firms: Harris Webb & Garrison, Inc. ("HWG"), Pinnacle Management & Trust Company
("PMT"), and Spires Financial, L.P. ("Spires"), by exchanging 3,562,500 of its
common shares (slightly less than 50% of outstanding common shares) for all of
the ownership interests of the three financial services firms. TEI is now a
wholly owned subsidiary of the Company. As a result of the acquisitions, the
Company now provides a broad range of financial services including institutional
and retail brokerage, investment banking, merchant banking, secondary market
loan and loan servicing placement, trust related services and asset management.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
MANAGEMENT'S ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
consolidated assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
CASH EQUIVALENTS
Highly liquid investment instruments with original maturities of three
months or less when purchased are considered to be cash equivalents.
SECURITIES TRANSACTIONS
Securities owned, securities sold not yet purchased, and deposits held by
clearing brokers and dealers are valued at market value. Securities not readily
marketable are valued at fair value as determined by management. Realized and
unrealized gains and losses are included in income from operations.
Principal securities transactions are recorded on the trade date, as if
they had settled. Profit and loss arising from securities transactions entered
into for the account and risk of the Company are recorded on a trade date basis.
Customers' securities transactions are reported on a settlement date basis with
related commission income and expenses reported on a trade date basis.
SECURITIES AVAILABLE FOR SALE
Securities available for sale include marketable equity securities and debt
instruments owned by the Company`s PMT subsidiary with maturities greater than
three months when purchased. These securities are recorded at cost and are
adjusted for unrealized holding gains and losses due to market fluctuations.
These unrealized gains or losses, net of taxes, are recorded as a separate
component of other comprehensive income (loss). Gains and losses are recorded
upon sale based on the specific identification method.
30
<PAGE>
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is computed using
the straight-line method over five to ten years. Depreciation expense included
in continuing operations was $270,374, $11,417, and $33,533 for the years ended
December 31, 1999, 1998, and 1997, respectively. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in income for the
period. The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets, principally goodwill, are amortized using the
straight-line method over 25 years. Amortization expense was $815,865 for the
year ended December 31, 1999. The Company evaluates intangible assets for
impairment if events or changes in circumstances occur which indicate the
carrying amount may not be recoverable. If impairment is determined to exist,
the asset is written down to reflect the estimated future discounted cash flows
expected to be generated by the underlying business.
RESALE AND REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreement to resell
(reverse repurchase agreements or reverse repos) or sales of securities under
agreement to repurchase (repurchase agreements or repos) are accounted for as
collateralized financings. It is the policy of the Company to obtain the
possession of collateral with a market value equal to or in excess of the
principal amount loaned under resale agreements. Collateral is valued daily, and
the Company may require counterparties to deposit additional collateral or
return collateral pledged when appropriate.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under the intrinsic value
method. Under this method, the Company recognizes no compensation expense for
stock options granted when the number of underlying shares is known and exercise
price of the options granted is greater than or equal to the fair value of the
stock on the date of grant.
INCOME TAXES
The Company utilizes the liability method for deferred income taxes. The
liability approach requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events recognized in the Company's
financial statements or tax returns. All expected future events other than
changes in the law or tax rates, are considered in estimating future tax
consequences. A valuation allowance is provided for deferred tax assets when, in
management's judgment, such assets do not meet the more likely than not
recognition criteria.
The provision for income taxes includes federal, state, and local income
taxes currently payable and those deferred because of temporary differences
between the financial statements and tax bases of assets and liabilities.
COMMISSIONS
Commissions and related clearing expenses are recorded on the trade date as
securities transactions occur.
INVESTMENT BANKING
Investment banking revenues include gains, losses, and fees, net of
syndicate expenses, arising from securities offerings in which the Company acts
as an underwriter or agent. Investment banking revenues also include fees earned
from providing merger-and-acquisition and financial restructuring advisory
services. Investment banking management
31
<PAGE>
fees are recorded on offering date, sales concessions on settlement date, and
underwriting fees at the time the underwriting is completed and the income is
reasonably determinable. Other investment banking fees are recognized when the
services have been performed.
FIDUCIARY, CUSTODIAL AND ADVISORY FEES
Fiduciary, custodial and advisory fees are recorded based on a percentage
of each individual account's market value on the last day of the month.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform them with the 1999 presentation. The
reclassifications had no effect on retained earnings, net loss or cash flows.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 as amended establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 is effective beginning January 1, 2001. The Company has not
determined the impact of adoption of this statement.
2. ACQUISITIONS
On January 29, 1999, the Company acquired HWG, PMT, and Spires. The former
owners of HWG, PMT, and Spires received consideration consisting of 3,562,500
shares of the Company's common stock, which represented 49.98% of the
outstanding common stock. The acquisitions were accounted for as purchases and,
accordingly, the financial information of HWG, PMT, and Spires is included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price of approximately $31 million exceeded the fair value of
identifiable net assets acquired by approximately $22 million which has been
recorded as goodwill and is being amortized on a straight-line basis over 25
years. The following summarized unaudited pro forma financial information
assumes the acquisitions of HWG, PMT and Spires had occurred on January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Revenues................................................. $ 20,289,000 $ 19,552,000
Income (loss) from continuing operations................. (2,780,000) 1,758,000
Basic and diluted earnings (loss) per share
from continuing operations............................ (0.39) 0.25
</TABLE>
32
<PAGE>
On January 31, 2000, the Company acquired Sanders Morris Mundy Inc.
("SMM"), a privately owned investment banking firm. The former owners of SMM
received consideration consisting of 7,125,220 shares of the Company's common
stock, which represents approximately 50% of the outstanding common stock. The
acquisition was accounted for as a purchase and, accordingly, the financial
information of SMM will be included in the Company's consolidated financial
statements from February 1, 2000. The purchase price of approximately $37
million exceeded the fair value of identifiable net assets acquired by
approximately $21 million which will be recorded as goodwill and amortized on a
straight-line basis over 25 years. The purchase price has been allocated to the
individual assets acquired and liabilities assumed based upon preliminary
estimated fair value. The actual allocation may be different from the
preliminary allocation due to refinements in the estimates of the fair values of
the net assets acquired; however, such differences are not expected to be
material. The following summarized unaudited pro forma financial information
assumes the acquisition of SMM had occurred on January 1, 1999:
<TABLE>
<CAPTION>
1999
-----------------
<S> <C>
Revenues ......................................... $ 53,500,000
Loss from continuing operations .................. (240,000)
Basic and diluted earnings per share
from continuing operations.................... (0.02)
</TABLE>
These unaudited pro forma amounts are derived from the historical financial
information of the acquired businesses and reflect adjustments for amortization
of intangible assets and for income taxes. The unaudited pro forma financial
information does not necessarily represent results that would have occurred if
the acquisitions had taken place on the basis assumed above, nor are they
indicative of the results of future combined operations.
3. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
Securities owned and securities sold, not yet purchased at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
Sold, Not Yet
Owned Purchased
Marketable: ----------------- -----------------
<S> <C> <C>
Obligations of U.S. government................ $ 80,963,444 $ 120,173,985
Corporate stocks.............................. 93,630 101,456
Corporate bonds and commercial paper.......... 2,484,161 -
----------------- -----------------
83,541,235 120,275,441
Not readily marketable:
Corporate stocks and warrants................. 1,460,337 -
----------------- -----------------
$ 85,001,572 $ 120,275,441
================= =================
</TABLE>
Securities not readily marketable include investment 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 (c) that cannot be
offered or sold because of other arrangements, restrictions, or conditions
applicable to the securities or to the Company.
33
<PAGE>
4. SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------------ ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- ------------ ----------- ---------------
<S> <C> <C> <C>
1999:
U.S. Government and agency obligations...... $ 972,895 $ - $ (14,527) $ 958,368
Corporate bonds ............................ 99,540 - (9,304) 90,236
Marketable equity securities ............... 3,013,059 - (12,156) 3,000,903
--------------- ------------ ----------- ---------------
$ 4,085,494 $ - $ (35,987) $ 4,049,507
=============== ============ =========== ===============
1998:
U.S. Government and agency obligations...... $ 607,190 $ - $ (188) $ 607,002
Corporate bonds ............................ 9,216,698 22,757 (31,691) 9,207,764
Commercial paper ........................... 4,722,809 - - 4,722,809
Certificates of deposit..................... 99,969 31 - 100,000
--------------- ------------ ----------- ---------------
$14,646,666 $ 22,788 $ (31,879) $ 14,637,575
=============== ============ =========== ===============
</TABLE>
The contractual maturities of securities available for sale at December 31,
1999 were as follows:
<TABLE>
<S> <C>
Due after 1 year through 5 years .................. $ 777,094
Due after 5 years through 10 years ................ 271,510
Marketable equity securities ...................... 3,000,903
------------------
$ 4,049,507
==================
</TABLE>
In connection with the acquisition of the financial service firms, the
Company transferred approximately $10,805,000 of securities available for sale
to Spires.
5. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS AND CLEARING
ORGANIZATIONS
Amounts receivable from and payable to brokers and dealers and clearing
organizations at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
RECEIVABLE PAYABLE
------------------- -----------------
<S> <C> <C>
Receivable/payable to clearing brokers-dealers................. $ - $ 117,921,940
Receivable from clearing organizations ........................ 161,991,671 -
Fees and commissions receivable ............................... 431,469 -
------------------- -----------------
$ 162,423,140 $ 117,921,940
=================== =================
</TABLE>
6. DEPOSITS HELD BY CLEARING BROKERS AND DEALERS
Under its clearing agreements, HWG and Spires are required to maintain a
certain level of cash or securities on deposit with clearing brokers and
dealers. Should the clearing brokers and dealers suffer a loss due to the
failure of a customer of the Company to complete a transaction, the Company is
required to indemnify the clearing brokers and dealers. The Company has funds
invested in U.S. Treasury bills with a market value of $8,118,563 and in money
market
34
<PAGE>
accounts with a market value of $344,916 as of December 31, 1999, which are on
deposit with clearing brokers and dealers to meet this requirement.
7. FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Equipment............................................... $ 747,117 $ -
Furniture and fixtures.................................. 248,265 52,455
Leasehold improvements.................................. 392,644 -
Accumulated depreciation and amortization............... (297,713) (27,339)
--------------- ---------------
Furniture and equipment............................. $ 1,090,313 $ 25,116
=============== ===============
</TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
-------------- ---------------
ACCRUED LIABILITIES:
<S> <C>
Accounts payable................... $ 407,367 $ 595,412
Compensation....................... 798,427 32,836
Other.............................. 748,298 667,228
-------------- ---------------
Total accounts payable and
accrued liabilities......... $1,954,092 $ 1,295,476
============== ===============
</TABLE>
9. INCOME TAXES
The components of the income tax provision (benefit) for the years ended
December 31, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
-------------- ---------------- --------------
<S> <C> <C> <C>
Continuing operations:
Current.................... $ 37,609 $ - $ (3,136)
Deferred................... 3,232,943 53,532 (7,597)
-------------- ---------------- --------------
Total continuing
operations........... 3,270,552 53,532 (10,733)
Discontinued operations........ (862,773) (2,018,315) (142,202)
-------------- ---------------- --------------
Total.................. $2,407,779 $ (1,964,783) $ (152,935)
============== ================ ==============
</TABLE>
35
<PAGE>
The difference between the effective tax rate reflected in the income tax
provision for continuing operations and the statutory federal rate is analyzed
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Tax computed using the statutory rate..... $ 126,766 $ 54,329 $ (2,418)
Nondeductible amortization of goodwill.. 277,395 - -
State income taxes...................... 37,609 - -
Change in valuation allowance........... 2,806,708 - -
Other................................... 22,074 (797) (8,315)
--------------- -------------- ---------------
Total................................. $ 3,270,552 $ 53,532 $ (10,733)
=============== ============== ===============
</TABLE>
The effective tax rates for continuing operations for the years ended
December 31, 1999, 1998, and 1997 were 877.2%, 33.5%, and 50.9%, respectively.
The effective tax rate for discontinued operations was approximately 17.1%,
33.1%, and 5.9%, for the years ended December 31, 1999, 1998, and 1997,
respectively.
As a result of the changes in ownership due to the acquisitions of the
three financial services firms in January 1999 and the planned disposition of
discontinued operations, the Company's ability to utilize its net operating loss
carryforward and realize its deferred tax assets was limited. These limitations
were not expected to prevent the Company from realizing its deferred tax assets.
However, as a result of further changes in ownership due to the SMM merger in
January 2000 and the treasury shares purchased in March 2000, the Company now
believes that the deferred tax assets do not meet the more likely than not
criteria for recognition. Accordingly, a valuation allowance has been recorded
as of December 31, 1999.
The components of the deferred income tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carry forward ......................................... $ 1,030,949 $ 755,059
Difference in recognition of asset impairment ............................ 1,609,383 1,150,383
Difference in recognition of accrued liabilities ......................... 573,393 828,769
Difference in recognition of inventory reserve ........................... 36,663 36,663
Difference in recognition of allowance for doubtful accounts ............. 169,353 131,367
Other .................................................................... 27,757 199,867
-------------- ---------------
Total deferred tax assets ............................................. 3,447,498 3,102,108
-------------- ---------------
Deferred income tax liabilities:
Difference in recognition of accumulated depreciation..................... (771,915) (445,331)
Difference in recognition due to change in tax method..................... (42,829) -
Difference in recognition of unrealized gains on securities............... (563,385) -
-------------- ---------------
Total deferred tax liabilities......................................... (1,378,129) (445,331)
-------------- ---------------
Net deferred tax assets..................................................... 2,069,369 2,656,777
Valuation allowance.......................................................... (2,806,708) -
-------------- ---------------
Net deferred income tax asset(liability)............................ $ (737,339) $ 2,656,777
============== ===============
</TABLE>
36
<PAGE>
10. DISCONTINUED OPERATIONS
ENERGY RECOVERY RESOURCES, INC.
The Board of Directors adopted a plan to discontinue the operations of
Energy Recovery Resources Inc. ("ERRI") effective December 31, 1998.
Accordingly, the operating results of ERRI have been segregated from continuing
operations and reported as a discontinued operation in the statement of
operations. A provision for estimated loss on disposition of ERRI of $2,164,000
net of tax, consisting of a write down of goodwill and property and equipment,
was recorded during the fourth quarter of 1998. In the third quarter of 1999,
the Company revised its estimate of loss on disposition of ERRI and recorded a
provision of $230,000 net of tax, as a result of higher than anticipated
operating losses. During the fourth quarter of 1999, based in part on a purchase
offer anticipated from a third party, an additional provision of $1,000,000 was
recorded. The Company currently estimates that ERRI can be sold without the
Company incurring additional losses. However, the Company may not be able to
dispose of ERRI and recover its investment. Additionally, ERRI may incur
additional operating losses. It is reasonably possible that the Company would
need to record additional loss provisions on the disposition of ERRI in future
periods.
ENGINEERED SYSTEMS, INC.
Engineered Systems, Inc.'s ("ESI") operations were discontinued as of
December 31, 1995. The assets of ESI were disposed of on December 23, 1997, for
a $500,000 interest bearing note due in 2002. The purchaser also agreed to
complete customer contracts that were in process at the time of the sale.
However, the Company remains liable for costs incurred by the purchaser in
excess of amounts recoverable from customers. Through the third quarter of 1998,
the Company believed, based in part on information provided by the purchaser,
that it had no additional liability with respect to the contracts in process.
Subsequent to December 31, 1998, the Company was notified that a major customer
cancelled its contract and that the other contracts in process had incurred
costs in excess of amounts recoverable from customers. As a result, during the
fourth quarter of 1998 the Company recorded an additional loss related to ESI of
$1,344,000, net of tax. In the second quarter of 1999 the Company paid the
purchaser $1,000,000 to satisfy a portion of those liabilities. In the third
quarter of 1999 the Company was notified that additional costs would be incurred
to complete certain customer contracts and, therefore, the Company recorded an
additional loss of $73,000, net of tax. In March 2000 the Company was informed
by certain customers that payment would not be made based on delivery delays and
failure to perform under the terms of the contract. Therefore, the Company
recorded an additional loss of $1,200,000. Net liabilities recorded by ESI were
$1,720,000 at December 31, 1999. In March 2000 the Company paid the purchaser an
additional $420,000 to satisfy a portion of those liabilities. It is reasonably
possible that the Company could incur additional losses on the disposition of
ESI.
37
<PAGE>
A summary of selected financial information of discontinued operations for
each of the three years in the period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
ERRI................................ $ 3,637,000 $ 2,953,000 $ 2,726,000
ESI................................. - - 1,954,000
Cost of sales:
ERRI................................ 3,208,000 2,497,000 2,190,000
ESI................................. - - 3,646,000
Gross margin (loss):
ERRI................................ 429,000 456,000 536,000
ESI................................. - - 1,692,000
Selling, general & administrative:
ERRI................................ 856,000 1,173,000 1,088,000
ESI................................. - - 502,000
Net income (loss), net of tax:
ERRI................................ (933,000) (2,733,000) (403,000)
ESI................................. - - (2,194,000)
Loss on disposition, net of tax:
ESI................................. (865,000) (1,344,000) (188,000)
</TABLE>
11. STOCK OPTIONS
Under its 1998 Incentive Plan, the Board of Directors has reserved 15% of
the issued and outstanding Common Stock of the Company, or 1,100,000 shares of
Common Stock, whichever is greater for the purpose of issuing incentive awards
under the plan. The outstanding employee options generally vest over a period of
three years and have an exercise price equal to the closing price of the
Company's stock on the date of grant. The outstanding non-employee director
options vest immediately and have an exercise price equal to the closing price
of the Company's stock on the date of grant.
Under its 1991 Nonemployee Director Stock Option Plan, 200,000 authorized
shares were reserved for issuance, for the purpose of granting nonincentive
stock options to purchase Common Stock and restricted stock awards, subject to
certain restrictions for nonemployee directors. Under the original plan, each
eligible nonemployee director received (i) an option to purchase 1,500 shares of
common stock on January 1 of each year, beginning January 1, 1993, and (ii) 250
shares of restricted stock (collectively, an "Award"). Each director option was
for a term of five years. The purchase price for each share of restricted stock
was zero. Effective with the January 1, 1995 issue date, the 1991 Nonemployee
Director Stock Option Plan was amended to eliminate the annual issuance of the
director options for 1,500 shares of Common Stock to nonemployee directors. All
outstanding options authorized under the 1991 Nonemployee Director Stock Option
Plan were replaced with similar options under the 1998 Incentive Plan as part of
the January 1999 acquisition and restructure of the Company. All of these
replacement options have expired without exercise and no additional options,
restricted stock or other awards are to be granted under this plan.
Under its 1989 Stock Option Plan, the Board of Directors reserved 1,000,000
authorized shares of its Common Stock for the purpose of issuing nonincentive
stock options, incentive stock options, and restricted stock awards to key
employees. The exercise price for a nonincentive stock option could not be less
than 85% of the fair market value of the Common Stock on the date of grant. The
exercise price for each incentive stock option granted could not be less than
the fair market value of the Company stock on the date of grant. The purchase
price for restricted stock could be equal to or less than par value and may be
zero. The options under the plan vested on a graded schedule depending on the
Company's stock price. Fifteen percent of all options vested immediately as of
the date of grant and an additional 15% vested on the third anniversary of the
date of grant. An additional 70% vested within 3 years if the Company's stock
38
<PAGE>
price equals or exceeds certain criteria. Otherwise, these options vested on the
tenth anniversary of the date of grant. All outstanding options authorized under
the 1989 Stock Option Plan were replaced with similar options under the 1998
Incentive Plan as part of the January 1999 acquisition and restructure of the
Company. No additional options, restricted stock or other awards are to be
granted under this plan.
The Company had 517,950, 246,474, and 235,974 shares of Common Stock
available for grant under existing stock option plans at December 31, 1999,
1998, and 1997, respectively.
The following table sets forth pertinent information regarding stock option
transactions for each of the three years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF SHARES EXERCISE PRICE FAIR VALUE
------------ ----------------- ------------
<S> <C> <C> <C>
Outstanding at January 1, 1997.... 242,775 $ 12.76 -
Granted............................. - - -
Cancelled/Forfeited................. (61,650) $ 17.20 -
------------
Outstanding at December 31, 1997.. 181,125 $ 11.32 -
Granted............................. - - -
Cancelled/Forfeited................. (10,500) $ 16.24 -
------------
Outstanding at December 31, 1998.. 170,625 $ 11.04 -
Granted............................. 532,050 $ 4.63 $ 2.85
Cancelled/Forfeited................. (120,625) $ 11.46 -
------------
Outstanding at December 31, 1999.. 582,050 $ 5.09 -
============
</TABLE>
The following tables summarize information related to stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTION EXERCISABLE
------------------------------------------------ ----------------------------------
NUMBER WGTD. AVG. NUMBER
OUTSTANDING REMAINING WGTD. AVG. EXERCISABLE AT WGTD. AVG.
AT 12/31/99 CONTR. LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 4.63................. 532,050 9.83 $ 4.63 133,013 $ 4.63
$ 10.00 ............... 50,000 5.0 10.00 50,000 10.00
------------- ------- ---------- ----------- ----------
582,050 9.42 $ 5.09 183,013 $ 6.10
============= ======= ========== =========== ==========
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0.00%; risk-free interest rate
of 6.3%; the expected life of options is 6.0 years; and volatility of 59.2% for
the grants. Had the compensation cost for the Company's stock-based compensation
plan been determined based on fair value of the options, results of operations
would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
----------------- --------------- -----------------
<S> <C> <C> <C>
Income (loss) from continuing operations -- as reported ....... $ (2,897,711) $ 106,260 $ 3,621
Income (loss) from continuing operations -- pro forma ......... $ (3,220,906) $ 92,126 $ 12,575
Continuing operations income (loss) per share -- as reported .. $ (0.43) $ 0.03 $ -
Continuing operations income (loss) per share -- pro forma .... $ (0.47) $ 0.03 $ -
</TABLE>
39
<PAGE>
12. PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
par value $.10 per share. Shares of Preferred Stock may be issued from time to
time by the Board of Directors, without action by the shareholders, in one or
more series with such designations, preferences and special rights and
qualifications, limitations, and restrictions as may be designated by the Board
of Directors prior to the issuance of such series.
13. TREASURY STOCK
In March 2000 the Company reacquired 139,211 shares of its common stock at
a weighted average price of $3.97 per share, totaling $552,930.
14. EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted per-share computations for the periods indicated were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Computation of basic and diluted earnings (loss) per common
share for the year ended December 31, 1999:
Net income (loss) applicable to common stock............................... $ (4,694,938) $ (3,970,760) $(2,781,616)
================ =============== ===============
Weighted average number of common shares outstanding....................... 6,828,378 3,562,753 3,561,003
Common shares issuable under stock option plan............................. - - -
Less shares assumed repurchased with proceeds.............................. - - -
---------------- --------------- ---------------
Weighted average common shares outstanding............................. 6,828,378 3,562,753 3,561,003
================ =============== ===============
Basic and diluted earnings (loss) per common share..................... $ (0.69) $ (1.11) $ (0.78)
================ =============== ===============
</TABLE>
Stock options outstanding of 582,050, 170,625, and 181,125 at December 31,
1999, 1998 and 1997, respectively, have not been included in diluted earnings
per common share because to do so would have been antidilutive for the periods
presented.
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to underwriting commitments that were open at
December 31, 1999, were subsequently settled, and had no material effect on the
consolidated financial statements as of that date.
Total rental expense for operating leases for the years ended December 31,
1999, 1998, and 1997 was approximately $1,303,000, $70,000, and $34,000,
respectively. The Company and its subsidiaries have obligations under operating
leases that expire by 2004 with initial noncancelable terms in excess of one
year. Aggregate annual rentals for office space and computer and office
equipment are as follows:
<TABLE>
<S> <C>
2000 .................................$ 1,387,000
2001 ................................. 1,304,000
2002 ................................. 796,000
2003 ................................. 717,000
2004 ................................. 138,000
-----------
$ 4,342,000
===========
</TABLE>
40
<PAGE>
The Company is involved in litigation and routine claims from time to time.
Certain of the Company's litigation and claims are covered by insurance with a
maximum deductible of $50,000. In 1999, the Company received an arbitration
proceeding from a brokerage customer alleging wrongdoing in execution of a
trade. The plaintiffs are seeking damages of $532,000. A hearing date has not
been scheduled. The Company is contesting the case vigorously, but because of
the inherent unpredictability of litigation, particularly arbitration,
management is unable to determine the likelihood of an unfavorable outcome.
In November 1999, SMM received a letter from the chairman of the audit
committee of Waste Management, Inc. asking for information concerning
investments by SMM, its clients, and the Environmental Opportunities Funds in a
number of private and public companies that either purchased assets from Waste
Management or were acquired by Waste Management while John E. Drury was both
employed by Waste Management and associated with SMM. Mr. Drury is a current
shareholder and former executive officer and director of Waste Management, is a
former shareholder and director of SMM and as a result of the SMM merger is a
2.2% shareholder of the Company. SMM has provided information in response to the
Waste Management request.
Waste Management has not made any formal claim against SMM. However, Waste
Management's investigation is continuing. Based on the Company's own
investigation and discussions with management of SMM, management believes there
is no factual basis or legal basis for any Waste Management claim against SMM.
While management believes that neither the existence nor the ultimate resolution
of the Waste Management investigation will have a material adverse effect on the
financial condition of SMM, they cannot predict the outcome of the investigation
and if a claim is made cannot determine the significance of the related costs
and management attention required to defend it.
As discussed in Note 10 to the consolidated financial statements, the
Company has contingent liabilities and potential loss exposures related to
discontinued operations.
16. CONCENTRATIONS OF CREDIT RISK
Financial investments that potentially subject the Company to
concentrations of credit risk consist of primarily cash and cash equivalents,
securities available for sale, securities owned, and all receivables, including
those from discontinued operations. Risks and uncertainties associated with
financial investments include credit exposure, interest rate volatility,
regulatory changes, and changes in market values of equity securities. Future
changes in market trends and conditions may occur which could cause actual
results to differ materially from the estimates used in preparing the
accompanying financial statements.
The Company and its subsidiaries are engaged in various trading and
brokerage activities with counterparties that primarily include broker-dealers,
banks, and other financial institutions. If counterparties do not fulfill their
obligations, the Company may be exposed to risk. The risk of default depends on
the creditworthiness of the counterparty or issuer of the instrument. It is the
Company's policy to review, as necessary, the credit standing of each
counterparty.
17. NET CAPITAL REQUIREMENTS OF SUBSIDIARIES
Certain of the Company's subsidiaries are 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 (and the
rule of the "applicable" exchange also provides that equity capital may not be
withdrawn or cash dividends paid if the resulting net capital ratio would exceed
10 to 1). At December 31, 1999, HWG and Spires had net capital of $15,369,462,
which was $7,360,140 in excess of their required net capital of $8,009,322. PMT
is required by the Texas Department of Banking to maintain minimum capital,
which was $1,500,000 as of December 31, 1999.
41
<PAGE>
18. BUSINESS SEGMENT INFORMATION
The Company's continuing businesses operate in three reportable business
segments. HWG is an investment banking and brokerage services firm whose
activities primarily include securities underwriting, and retail and brokerage
services. Spires is a regional brokerage services firm whose activities
primarily include institutional brokerage services and trading of fixed income
and equity securities. PMT is a state chartered trust company providing a
variety of trust services including investment management, estate settlement,
and retirement planning. The following summarizes certain financial information
of each reportable segment for the year ended December 31, 1999:
<TABLE>
<CAPTION>
HWG SPIRES PMT
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues........................ $ 5,346,332 $ 10,542,600 $ 2,370,745
Income before income taxes...... 85,473 1,838,565 884,352
Total assets.................... 3,692,132 255,631,564 5,033,268
</TABLE>
The following table reconciles income before income taxes of the reportable
segments to the consolidated income from continuing operations before income
taxes reported in the consolidated statement of operations for the year ended
December 31, 1999:
<TABLE>
<S> <C>
Income before income taxes of reportable segments:
HWG........................................................ $ 85,473
Spires..................................................... 1,838,565
PMT........................................................ 884,352
----------------
2,808,390
Amortization of intangible assets.......................... (815,865)
Corporate revenues and expenses, net....................... (1,619,684)
----------------
Income from continuing operations before income taxes...... $ 372,841
================
</TABLE>
19. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ------------
<S> <C> <C> <C>
Cash paid for interest............................... $ 1,369,061 $ - $ 6,700
Cash paid for income taxes........................... 184,500 52,000 846,000
Cash received from income tax refunds................ 1,600 1,508,000 72,000
Non-cash investing and financing activities:
Notes received in connection with disposition
of discontinued operation...................... - - 500,000
Issuance of common stock in acquisition.......... 28,589,217 - -
Retirement of treasury stock..................... 4,187,671 - -
</TABLE>
42
<PAGE>
20. RELATED PARTIES
PMT obtained legal services from a PMT Board member. Included in general
and administrative expense is legal fees of $2,282 paid to the PMT Board member
during 1999.
HWG paid St. James Place Corp. ("St. James"), an affiliate providing
furniture and equipment, lease payments of $5,270. In connection with the
acquisition by the Company, HWG purchased the furniture and equipment it
previously leased from St. James for $285,131.
HWG earned insurance commissions of $250,502 from HWG Insurance Agency,
Inc. The sole shareholder of HWG Insurance Agency is an employee of HWG.
The Chairman of the Board of Directors is a member of the board of
directors of an investment banking client. Fee income of $66,394 and
reimbursable expenses of $16,074 were recorded from this client during 1999 and
remain outstanding at December 31, 1999.
The Company has an investment in BioCyte Therapeutics, Inc. ("BioCyte".)
The Company has a $500,000 note receivable from Biocyte and accrued interest
related to this note of $23,000 at December 31, 1999. In addition, the Company
had outstanding receivables from Biocyte of $128,061 at December 31, 1999. The
Company's president and chief executive officer also has an investment in
BioCyte and serves on its board of directors.
The Company issued Common Stock in lieu of cash to nonemployee directors
totaling $11,376 and $13,790 during 1998 and 1997, respectively.
The Company purchased diesel and boiler fuel and utilized freight services
from a company owned by the President of ERRI totaling $365,000, $207,000 and
$159,000 in 1999, 1998, and 1997, respectively.
43
<PAGE>
21. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
Sept. 30,
March 31, June 30, 1999 Dec. 31,
1999 1999 Restated(1) 1999(2)
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
1999:
Total revenues....................................... $ 4,608,000 $ 5,424,000 $ 5,077,000 $ 3,864,000
Income (loss) from continuing operations............. 565,000 76,000 197,000 (3,735,000)
Income (loss) from discontinued operations,
net of tax......................................... - - (303,000) (1,495,000)
---------------- --------------- --------------- ----------------
Net income (loss)............................. $ 565,000 $ 76,000 $ (106,000) $ (5,230,000)
================ =============== =============== ================
Basic and diluted earnings (loss) per share:
From continuing operations....................... $ 0.10 $ 0.01 $ 0.03 $ (0.52)
From discontinued operations..................... - - (0.04) (0.21)
---------------- --------------- --------------- ----------------
Net earnings (loss) per share.................... $ 0.10 $ 0.01 $ (0.01) $ (0.73)
================ =============== =============== ================
Weighted average common shares outstanding........... 5,937,753 7,125,253 7,125,253 7,125,253
================ =============== =============== ================
Three Months Ended
------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
1998: ---------------- --------------- --------------- ----------------
Total revenues....................................... $ 385,000 $ 374,000 $ 393,000 $ 372,000
Income (loss) from continuing operations............. (51,000) 27,000 83,000 47,000
Income (loss) from discontinued operations,
net of tax....................................... (40,000) 54,000 (342,000) (3,749,000)
---------------- --------------- --------------- ----------------
Net income (loss)............................. $ (91,000) $ 81,000 $ (259,000) $ (3,702,000)
================ =============== =============== ================
Basic and diluted earning (loss) per share:
From continuing operations....................... $ (0.02) $ (0.00) $ 0.02 $ 0.01
From discontinued operations..................... (0.01) 0.02 (0.09) (1.05)
---------------- --------------- --------------- ----------------
Net earnings (loss) per share.................... $ (0.03) $ 0.02 $ (0.07) $ (1.04)
================ =============== =============== ================
Weighted average common shares outstanding........... 3,562,753 3,562,753 3,562,753 3,562,753
================ =============== =============== ================
</TABLE>
(1) The quarterly information for the three months ended September 30, 1999
has been restated to reflect the reduction of investment banking revenues by
$74,150, income taxes by $25,211 and income from continuing operations by
$48,939. There was no effect on per share amounts.
(2) The quarterly information for the three months ended December 31, 1999
includes adjustments to record additional losses from discontinued operations of
$2.2 million and a valuation allowance on deferred tax assets of $2.8 million.
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent accountants to report under this Item 9.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this Item 10 is incorporated herein
by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item 11 is incorporated herein
by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item 12 is incorporated herein
by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item 13 is incorporated herein
by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.
45
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements of the Company and Report of
Independent Accountants are included under Part II Item 8 of this Form
10-K.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants ........................................................ 24
Consolidated Balance Sheet as of December 31, 1999 and 1998 .............................. 25
Consolidated Statement of Operations for the three years in the period ended
December 31, 1999 ...................................................................... 26
Consolidated Statement of Shareholders' Equity for the three years in the period ended
December 31, 1999 ...................................................................... 27
Consolidated Statement of Cash Flows for the three years in the period ended
December 31, 1999 ...................................................................... 28
Notes to Consolidated Financial Statements ............................................... 29
2. FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule should be read in
conjunction with the consolidated financial statements and notes
thereto.
Report of Independent Accountants ....................................................... S-1
Schedule II - Valuation and qualifying accounts ........................................ S-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the
required information is included elsewhere in the financial statements.
3. EXHIBITS
The exhibits filed in response to Item 601 of Regulation S-K are listed
in the Index to Exhibits contained elsewhere herein.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month period
ended December 31, 1999.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2000.
PINNACLE GLOBAL GROUP, INC.
By: /s/ ROBERT E. GARRISON II
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated and on the 29th day of March 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ TITUS H. HARRIS, JR. Chairman of the Board
----------------------------------
Titus H. Harris, Jr.
/s/ ROBERT E. GARRISON II President, Chief Executive Officer, and Director
---------------------------------- (Principal Executive Officer)
Robert E. Garrison II
/s/ DONALD R. CAMPBELL Vice Chairman, Director
---------------------------------- (Principal Financial and Accounting Officer)
Donald R. Campbell
/s/ PETER W. BADGER Director
----------------------------------
Peter W. Badger
/s/ T. CRAIG BENSON Director
----------------------------------
T. Craig Benson
/s/ TONY COELHO Director
----------------------------------
Tony Coelho
/s/ JAMES H. GREER Director
----------------------------------
James H. Greer
/s/ STEPHEN M. RECKLING Director
----------------------------------
Stephen M. Reckling
/s/ JOHN H. STYLES Director
----------------------------------
John H. Styles
/s/ W. BLAIR WALTRIP Director
----------------------------------
W. Blair Waltrip
/s/ RICHARD C. WEBB Director
----------------------------------
Richard C. Webb
</TABLE>
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Pinnacle Global Group, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated March 17, 2000 of Pinnacle Global Group, Inc. and Subsidiaries
included on page 24 of this Form 10-K also included an audit of the financial
statement schedule listed in Item 14(a) of this Form 10-K. In our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Houston, Texas
March 17, 2000
S-1
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C (1) COL. C (2) COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------
CHARGED
BALANCE AT TO OTHER BALANCE
BEGINNING ACCOUNTS- DEDUCTIONS- AT END OF
DESCRIPTION OF PERIOD ADDITIONS DESCRIBE DESCRIBE PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Allowance for doubtful accounts and
notes................................ $ - $ - $ - $ - $ -
============== ============= ============= ================ =============
DECEMBER 31, 1998
Allowance for doubtful accounts and
notes................................ $ 430,510 $ - $ (9,945) (A) $ (420,565) (B) $ -
============== ============= ============= ================ =============
DECEMBER 31, 1997
Allowance for doubtful accounts and
notes................................ $ 849,427 $452,065 $ - $ (870,982) (B)(C) $430,510
============== ============= ============= ================ =============
</TABLE>
(A) Amounts were reclassified to net assets of discontinued operations.
(B) Represents the charge off of receivables.
(C) Includes $178,425 attributable to discontinued operations.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended (Filed as
Appendix F to the Proxy Statement/Prospectus of the Company dated
December 31, 1998 (Reg. No. 333-65417) and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of the Company (Filed as an exhibit to the
Company's Form 10-K for the year ending December 31, 1998. (File No.
333-65417) and incorporated herein by reference).
10.1 Amended and Restated Agreement and Plan of Reorganization dated
November 12, 1999 among the Company, Harris Webb & Garrison, Inc.
("HWG"), Sanders Morris Mundy Inc. ("SMM") and the SMM shareholders
(Filed as Appendix A to the Definitive Proxy Statement on Schedule 14A
of the Company dated December 6, 1999 and incorporated herein by
reference).
10.2 Amended and Restated Plan of Merger dated November 12, 1999, among the
Company, HWG and SMM (Filed as Appendix B to the Definitive Proxy
Statement on Schedule 14A of the Company dated December 6, 1999 and
incorporated herein by reference).
10.3 Amended and Restated Agreement and Plan of Reorganization dated
October 2, 1998 among the Company, TEI, Inc. ("TEI"), 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 the Company dated
December 31, 1998 (Reg. No. 333-65417) and incorporated herein by
reference).
10.4 Plan of Merger dated October 2, 1998, among TEI, TEI Combination
Corporation and the Company (Filed as Appendix B to the Proxy
Statement/Prospectus of the Company dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by reference).
10.5 Plan of Merger dated October 2, 1998, among HWG, HWG Combination
Corporation and the Company (Filed as Appendix C to the Proxy
Statement/Prospectus of the Company dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by reference).
10.6 Plan of Merger dated October 2, 1998, among PMT, PMT Combination
Corporation and the Company (Filed as Appendix D to the Proxy
Statement/Prospectus of the Company dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by reference).
10.7 1998 Incentive Plan of the Company (Filed as an exhibit to the Proxy
Statement/Prospectus of the Company dated December 31, 1998 (Reg. No.
333-65417) and incorporated herein by reference).
10.8 Consulting Agreement, dated December 10, 1991, between TEI and T.G.
Bogle (Filed as an exhibit to TEI's Form 10-K for the year ending
December 31, 1991 (File No. 0-18899) and incorporated herein by
reference).
10.9 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).
10.10 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).
10.11 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).
10.12 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 31995 (File No. 0-18899) and incorporated
herein by reference).
10.13 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).
10.14 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).
<PAGE>
10.15 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).
10.16 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).
10.17 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 the Company
dated December 31, 1998 (Reg. No. 333-65417) and incorporated herein
by reference).
10.18 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 the Company dated December 31, 1998
(Reg. No. 333-65417) and incorporated herein by reference).
10.19 Office Lease Agreement dated January 19, 1999 between 5599 San
Felipe, Ltd. and the Company (Filed as an exhibit to the Company's
Fork 10-K for the year ending December 31, 1998 (File No. 333-65417)
and incorporated herein by reference).
*10.20 Letter Agreement dated April 7, 1999 between the Pershing Division
of Donaldson, Lufkin Jenrette Securities Corporation and Harris Webb &
Garrison, Inc.
10.21 Autotrust Agreement dated January 9, 1998 between SunGard Trust
Systems Inc. and Pinnacle Management & Trust Company (Filed as an
exhibit to the Proxy Statement/Prospectus of the Company dated
December 31, 1998 (Reg. No. 333-65417) and incorporated herein by
reference).
*10.22 Letter of Agreement dated August 31, 1999 between Montgomery
Correspondent Services, a division of Banc of America Securities LLC
and Spires Financial, L.P.
*10.23 Office Lease Agreement dated August 4, 1998 between Barnhart
Interests, Inc. and Spires Financial, L.P.
*21.1 List of Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
*27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* Filed herewith.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month period
ended December 31,1999.
<PAGE>
[LETTERHEAD]
EXHIBIT 10.20
FULLY DISCLOSED CLEARING AGREEMENT
OF
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
THIS AGREEMENT is made and entered into as of the 7th day of April, 1999, by
and between the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing"), a Delaware Corporation, and Harris, Webb &
Garrison, Inc. ("Broker"), a Texas Corporation.
1.0 APPROVAL
This Agreement shall be subject to approval by the New York Stock
Exchange, Inc. ("NYSE") and by any other self-regulatory organization vested
with the authority to review or approve it. Pershing shall submit this
Agreement to the NYSE and Broker shall submit the Agreement to any other such
organization from which Broker is required to obtain approval. In the event
of disapproval, the parties shall bargain in good faith to achieve the
requisite approval.
2.0 AGREEMENT
From the opening of business on the later of June 15, 1999, or the
effectiveness of the registration of Broker with the NASD, until the
termination of this Agreement as provided for in Paragraph 21 hereof,
Pershing shall carry the cash and margin accounts of the customers of Broker
introduced by Broker to Pershing, and accepted by Pershing, and shall clear
transactions on a fully disclosed basis for such accounts, in the manner and
to the extent set forth in this Agreement.
3.0 ALLOCATION OF RESPONSIBILITY
3.1 RESPONSIBILITIES OF THE PARTIES.
Pursuant to NYSE Rule 382, responsibility for compliance with all
applicable laws, rules, and regulations of the Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers, Inc.
("NASD"), the NYSE, and any other regulatory or self-regulatory agency or
organization shall be allocated between Pershing and Broker as set forth in
this Agreement. To the extent that a particular function is allocated to one
party under this Agreement, the other party shall supply that party with
information in its possession pertinent to the proper performance and
supervision of that function.
<PAGE>
3.2 RELATIONSHIP WITH CUSTOMERS.
Except as provided in Paragraph 27.11 of this Agreement, all
customers receiving services pursuant to this Agreement shall remain
customers of Broker. Pershing shall provide services under this Agreement to
Broker only to the extent explicitly required by specific provisions
contained in this Agreement and shall not be responsible for any duties or
obligations not specifically allocated to Pershing pursuant to this
Agreement. Broker shall enter into appropriate contractual arrangements with
customers on its own behalf. and such agreements shall make Broker, and not
Pershing, responsible to customers for the provision of services. Broker
shall not be deemed to be an agent of Pershing for any purpose, except to the
limited extent expressly set forth in paragraph 9.1.8 of this Agreement. nor
shall Pershing be deemed to have a fiduciary relationship with any of
Broker's customers. Broker acknowledges that Pershing does not control the
business or operations of Broker.
4.0 REPRESENTATIONS AND WARRANTIES
4.1 BROKER. Broker represents and warrants that:
4.1.1 CORPORATION DULY ORGANIZED. Broker is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation.
4.1.2 REGISTRATION. Broker is duly registered and in good standing as a
broker dealer with the SEC and is a member firm in good standing of the NASD.
4.1.3 AUTHORITY TO ENTER AGREEMENT. Broker has all requisite authority,
whether arising under applicable federal or state law or the rules and
regulations of any regulatory or self-regulatory organization to which Broker
is subject, to enter into this Agreement and to retain the services of
Pershing in accordance with the terms of this Agreement.
4.1.4 SUBSTANTIAL COMPLIANCE WITH RULES AND REGULATIONS. Broker and each
of its employees is in substantial compliance with, and during the term of
this Agreement shall remain in substantial compliance with, the registration,
qualification, capital, financial reporting, customer protection, and other
requirements of every self-regulatory organization of which Broker is a
member, of the SEC, and of every state to the extent that Broker or any of
its employees is subject to the jurisdiction of that state.
4.1.5 NO PENDING ACTION, SUIT, INVESTIGATION OR INQUIRY. Broker has
disclosed to Pershing every action, suit, investigation, inquiry, or
proceeding (formal or informal) pending or threatened against or affecting
Broker, any of its affiliates, or any officer, director, or general
securities principal or financial and operations principal of Broker, or
their respective property or assets, by or before any court or other
tribunal, any arbitrator, any Governmental authority, or any self-regulatory
organization of which any of them is a member. Broker shall notify Pershing
promptly, but in any event within three business days, of the initiation of
any such action, suit, investigation, inquiry, or proceeding that may have a
material impact on the capital of Broker.
4.2 PERSHING. Pershing represents and warrants that:
4.2.1 CORPORATION DULY ORGANIZED. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") is a corporation duly organized, validly existing, and in
good standing under the laws of the state of Delaware.
4.2.2 REGISTRATION. DLJ is duly registered and in good standing as a
broker dealer with the SEC and is a member firm in good standing of the NYSE
and the NASD.
4.2.3 AUTHORITY TO ENTER AGREEMENT. DLJ has all requisite authority, whether
arising under applicable federal or state law, or the rules and regulations of
any regulatory or self-regulatory organization to which
2
<PAGE>
DLJ is subject, to enter into this Agreement and provide services in
accordance with the terms of this Agreement.
4.2.4 COMPLIANCE WITH REGISTRATION. Pershing and each of its employees is
in substantial compliance with, and during the term of this Agreement shall
remain in substantial compliance with the registration, qualification,
capital, financial reporting, customer protection, and other requirements of
every self-regulatory organization of which Pershing is a member, of the SEC,
and every state.
5.0 ESTABLISHING AND ACCEPTING NEW ACCOUNTS
5.1 ACCEPTANCE OF NEW ACCOUNTS. Broker shall be responsible for opening
and approving new accounts.
5.2 MAINTENANCE OF ACCOUNT INFORMATION. Pershing may rely without
inquiry on the validity of all customer information furnished to it by Broker.
5.3 PERSHING OPERATIONS MANUAL. Broker acknowledges receipt and
familiarity with the Pershing "Customer Reference Guide" and agrees to
familiarize itself with any modifications or supplements to such guide that
may be issued from time to time.
6.0 SUPERVISION OF ORDERS AND ACCOUNTS
6.1 RESPONSIBILITY FOR COMPLIANCE. Broker shall be solely responsible
for compliance with Suitability, "Know Your Customer" rules and other
requirements of federal and state law and regulatory and self-regulatory
rules and regulations governing transactions and accounts. Possession by
Pershing of surveillance records, exception reports, or other similar data
shall not obligate Pershing to establish procedures for dealing with such
material or to review or be aware of their contents. Pershing shall not be
required to make any investigation into the facts surrounding any transaction
that it may execute or clear for Broker or any customer of Broker.
6.2 COMPLIANCE PROCEDURES. Broker agrees to diligently supervise
compliance with all applicable laws, rules, and regulations of the SEC, NASD,
NYSE, and any other regulatory or self-regulatory agency or organization
having jurisdiction over Broker through the use of a compliance manual or
other written procedures. Broker shall review transactions and accounts to
assure compliance with prohibitions against manipulative practices and
insider trading and other requirements of federal and state law and
applicable regulatory and self-regulatory rules and regulations to which
Broker or its customer are subject. Without limiting the above, Broker shall
be responsible for compliance with the supervisory requirements in Section 1
5(b)(4) of the Securities Exchange Act of 1934, as amended, NASD Rule 3010,
NYSE Rules 342, 431 and 35 1, and similar rules adopted by any other
regulatory or self-regulatory agency or organization, to the extent
applicable.
6.3 KNOWLEDGE OF CUSTOMER'S FINANCIAL RESOURCES AND INVESTMENT
OBJECTIVES. Broker shall comply with Rule 405(1) of the NYSE or comparable
requirements of similar rules of any other self-regulatory organization to
which Broker is subject. Broker shall obtain all essential facts relating to
each customer, each cash and margin account, each order, and each person
holding a power of attorney over any account, in order to assess the
suitability of transactions when required by applicable rules, the
authenticity of orders, signatures, endorsements, certificates, or other
documentation, and the frequency of trading. Broker warrants that, to the
best of its knowledge, it will not open or maintain accounts for persons who
are minors or who are otherwise legally incompetent and that it will comply
with NYSE Rule 407 and other laws, rules, or regulations that govern the
manner and circumstances in which accounts may be opened or transactions
authorized.
6.4 FURNISHING OF INVESTMENT ADVICE. Broker shall be solely responsible
for any recommendation or advice it may offer to its customers.
3
<PAGE>
6.5 DISCRETIONARY ACCOUNTS. Broker shall be solely responsible for
obtaining customer approval for and supervising discretionary accounts.
6.6 OPTION ACCOUNTS. Before engaging in option trading for any
customer, Broker shall deliver to the customer a current disclosure statement
of the Options Clearing Corporation and any effective supplements. Broker
shall obtain the required signatures on all option agreements, shall obtain
proper approval of the opening of all option accounts and shall otherwise
comply with all applicable laws, rules and regulations relating to options
accounts and option trading. Broker shall deliver to Pershing a copy of a
signed option agreement for each customer approved by it for options trading
in a form acceptable to Pershing.
6.7 ACCOUNTS OF EMPLOYEES OF MEMBER ORGANIZATIONS, SELF-REGULATORY
ORGANIZATIONS, AND FINANCIAL INSTITUTIONS. Broker shall give required notices
and obtain required approvals of employers in each case in which a customer
is an employee of a broker-dealer, a self-regulatory organization, or a
financial institution.
7.0 EXTENSION OF CREDIT
7.1 PRESUMPTION OF CASH ACCOUNT. Pershing may, but is not required to,
permit customers of Broker to purchase securities on margin, but all
transactions for a customer will be deemed to be cash transactions, and
payment for those transactions will be required in the manner applicable to
cash transactions, unless, on or prior to settlement, Broker has furnished
Pershing with a properly executed and binding customer margin agreement and
consent to loan of securities in a form acceptable to Pershing.
7.2 MARGIN REQUIREMENTS. All margin accounts introduced by Broker shall
be subject to Pershing's margin requirements as in effect from time to time.
Pershing reserves the right (but shall not be obligated) to refuse to accept
any transaction in a margin account or croup of accounts without the actual
receiptof the necessary margin and to impose a higher margin requirement for
a particular account when, in Pershing's discretion, the past history or
nature of the account or other factors or the securities held in it warrant
such action. In all instances, Broker shall be responsible for determining
the amount of credit suitable for every account and may require higher margin
than imposed by Pershing for any particular account, group of accounts, or
all accounts introduced by Broker to Pershing.
7.3 MARGIN MAINTENANCE AND COMPLIANCE WITH REGULATION T AND SEC RULE
15c3-3m.
7.3.1 INITIAL MARGIN. Broker shall be responsible for the initial margin
requirement for any transaction until such initial margin has been received
by Pershing, in acceptable form.
7.32 MARGIN CALLS. After the initial margin for a transaction has been
received, subsequent margin calls may be made by Pershing at its discretion.
Pershing shall calculate the maintenance requirement and notify Broker of any
amounts due. Broker shall be responsible for issuing the margin call to its
customer and obtaining the amount due directly from Broker's customer. If
Broker fails to take the appropriate action, Pershing reserves the right to
collect the amount due directly from Broker's customer. Broker agrees to
cooperate with Pershing in complying with and obtaining margin in response to
such calls. If any customer fails to meet a maintenance call, Broker shall be
liable to Pershing for any loss or damage it may incur unless the Broker
establishes that the loss or damage was directly attributable to Pershing's
failure to give proper and timely notification to Broker or customer.
7.3.3 ACTIONS UPON FAILURE TO MEET MARGIN CALLS OR DELIVER SECURITIES. In
the event that satisfactory margin is not provided within the time specified
by Pershing, or securities sold are not delivered as required, Pershing may
take such actions as Pershing deems appropriate, including but not limited to
the sale or purchase of securities in connection with the account. Broker
shall cooperate with Pershing by entering appropriate orders to buy-in or
sell-out securities in any such instance. Compliance with a request
4
<PAGE>
to withhold action shall not be deemed a waiver by Pershing of any of its
rights under this Agreement, including but not limited to the right to close
out a contract or position if in Pershing's judgment changing conditions
render such action advisable, with or without prior notification to customer
or Broker.
7.4 CHARGING OF INTEREST AND DISCLOSURES PURSUANT TO RULE l0b-16.
Interest charged with respect to debit balances in customers' accounts shall
be determined in accordance with the fully disclosed pricing schedule
attached to this Agreement. Broker shall send each margin customer a written
disclosure statement, in a form acceptable to Pershing, at the time of the
opening of a margin account as required by SEC Rule lOb-16.
7.5 UNSECURED DEBITS OR UNSECURED SHORT POSITIONS. Pershing shall
charge against the account of Broker an amount equal to the value of any
unsecured debit or short position (on a "mark to market" basis) in a customer
account if that position has not been promptly resolved by payment or
delivery. Any remaining debit shall be charged against Broker's Deposit
Account and be considered a claim against Broker pursuant to Paragraph 19 of
this Agreement.
8.0 MAINTENANCE OF BOOKS AND RECORDS
8.1 STOCK RECORDS. Pershing shall maintain stock records and other
prescribed books and records of all transactions executed or cleared through
it in accordance with generally accepted practices in the securities industry.
8.2 REGULATOR`- REPORTS AND RECORDS. Broker shall prepare, submit, and
maintain copies of all reports, records, and regulatory filings required of
Broker by any entity that regulates it, including, but not limited to, copies
of all account agreements and similar documentation obtained pursuant to
paragraph 5.0 of this Agreement and any reports and records required to be
made or kept under the Currency and Foreign Transactions Reporting Act of
1970, the Money Laundering Act of 1986, and any rules and regulations
promulgated pursuant thereto. To the extent that Pershing is required to
prepare or submit any reports or records by any entity that regulates it,
Broker shall cooperate in providing Pershing with any information needed in
order to prepare such reports or records.
8.3 AUDIOTAPING OF TELEPHONE CONVERSATIONS - Broker understands that
for quality control, dispute resolution or other business purposes, Pershing
records some or all telephone conversations between Broker and Pershing.
Broker hereby consents to such recording and will inform its employees,
representatives and agents of this practice. It is further understood that
all such conversations are deemed to be solely for business purposes.
9.0 RECEIPT AND DELIVERY OF FUNDS AND SECURITIES
9.1 RECEIPT AND DELIVERY OF FUNDS AND SECURITIES.
9.1.1 CASHIERING FUNCTIONS. Pershing shall perform normal and reasonable
cashiering functions for customer accounts introduced by Broker. These
functions shall include receipt and delivery of securities purchased, sold,
borrowed, and loaned; receipt and payment of funds owed by or to customers;
and provision of custody for securities and funds. Broker shall provide
Pershing with the basic data and documents that are necessary or appropriate
to permit Pershing to perform its obligations under this Paragraph, including
but not limited to copies of records documenting receipt of customers' funds
and securities received directly by Broker. Such data and documents must be
compatible with the requirements of Pershing's data processing systems.
9.1.2 PURCHASES. Broker shall be responsible for purchases made for
customers until actual and complete payment has been received by Pershing.
When payment is tendered to Pershing in the form of a check, Broker shall
remain responsible until the check has been paid and the proceeds actually
received and finally
5
<PAGE>
credited to Pershing (without any subsequent chargeback) by its bank.
Pershing shall use due diligence in depositing any checks that it receives
directly from customers of Broker.
9.1.3 SALES. Broker shall be responsible for sales until Pershing has
received, in acceptable form, the securities involved in a transaction. If
Pershing does not receive delivery of securities in an acceptable form,
Pershing may buy-in all or part of the securities for the accounts of the
customer of Broker or Broker.
9.1.4 WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. In the case of the
purchase or sale of securities on a "when issued" basis, and in the case of a
purchase or sale where distribution or delivery is otherwise delayed (except
pursuant to a margin agreement), Broker shall remain responsible, as set
forth in this Agreement, until necessary and satisfactory payment of funds or
delivery of securities, as required by the margin rules, has been received by
Pershing.
9.1.5 FUNDS AND SECURITIES RECEIVED BY BROKER. Broker shall promptly
deposit with Pershing funds or securities received by Broker from its
customers, together with such information as may be relevant or necessary to
enable Pershing to record such remittances and receipts in the respective
customer accounts.
9.1.6 FAILURE TO SETTLE OR PAY. In the event of a failure to timely
deposit required funds or securities, Pershing may take appropriate remedial
action. Without waiving or otherwise limiting its right to take other
remedial action, Pershin=> may at its option charge interest at rates as
agreed in Schedule A to this Agreement. Broker may pass such charges on to
its customers but Broker remains responsible therefor until actually paid.
9.1.7 SETTLEMENT AND DELIVERY. Broker shall obtain each customer's
agreement to accept partial deliveries and to abide by other clearance
arrangements as may be directed by any exchange or association. With respect
to any settlements which involve the drafting of securities, draft charges,
including interest expense, will be borne by Broker.
9.1.8 CHECK WRITING AUTHORITY. Pershing may, but is not required to,
authorize certain of Broker's employees to sign checks to Broker's customers
for amounts due to, and requested by them, with respect to their accounts.
Broker shall designate in writing the names of any employees it wishes to
receive the authorization described in this subparagraph. All checks must be
signed by two employees who have received authorization from Pershing. No
check or checks totaling more than $100,000 shall be provided to any customer
by Broker on the same business day. All expenses incurred in connection with
the issuance of checks under the authority described in this subparagraph
shall be charged to Broker. Broker remains responsible for the disbursement
and delivery of such checks to its customers. Any lien on the customer's
property granted by the customer to Broker or Pershing shall extend to any
funds which may be segregated in a separate account in connection with the
exercise of the authority described in this subparagraph.
9.2 TRANSFER OF SECURITIES AND ACCOUNTS. Upon receiving written or oral
instructions from Broker, or written instructions from a customer, Pershing
shall make reasonable efforts to effectuate such transfers of securities or
accounts as may be requested. Whenever practicable, Pershing shall first
notify the Broker before acting on a customer's written request.
9.3 RESTRICTED AND CONTROL STOCK REQUIREMENTS. Broker shall be
responsible for determining whether any securities held in Broker's or its
customer accounts are restricted or control securities as defined by
applicable laws, rules, or regulations. Broker is responsible for assuring
that orders executed for such securities comply with such laws, rules, and
regulations.
9.4 PAYMENT OF DIVIDENDS AND HANDLING OF EXCHANGE OR TENDER OFFERS,
RIGHTS, WARRANTS AND REDEMPTIONS. Whenever Pershing has been instructed to
retain custody of the securities in any account, Pershing may hold the
securities in the customer's name, the name of Pershing or its nominee, or in
the names of nominees of any depository used by Pershing. Pershing shall
perform the services required in connection with holding the securities in
custody in each account, including (1) collection and payment of dividends
and interest; (2) transmittal and handling (through Broker) of tenders or
exchanges pursuant to tender offers and exchange offers; (3) transmittal of
proxy materials and other shareholder communications
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if Pershing is appropriately compensated; and (4) handling of exercises or
expirations of rights, options, warrants and redemptions.
9.5 CORPORATE ACTION REQUESTS/SOLICITING DEALER AGREEMENTS: Broker
requests and authorizes Pershing to execute as Broker's agent-in-fact any and
all Soliciting Dealer Agreements for corporate actions involving securities
or other interests held by Broker's customers on the books of Pershing.
Pershing agrees to provide notice of the pending corporate action to Broker
at its designated locations. Pershing further agrees to collect and submit
corporate action requests from Broker and submit them to the soliciting party
in accordance with the instructions received from the soliciting party.
Pershing agrees to use its best efforts to communicate corporate action
information to Broker and, where applicable, Broker's customers, but shall
not be liable for a) any delays in the communication of corporate action
information or b) delays in the transmission of collected corporate action
requests to the soliciting party unless caused by Pershing's gross
negligence. All fees received from the soliciting party will be credited to
Broker. In consideration of providing this service to Broker, Broker agrees
to indemnify and hold harmless Pershing, its affiliates, officers, agents and
employees from all claims, suits, investigations, damages and defense costs
(including reasonable attorneys fees) that arise in connection with this
paragraph.
9.6 COD-ORDERS. Broker shall not introduce any retail or individual
accounts requiring settlement on a "delivery versus payment" or "receive
versus payment" basis without the prior written approval of Pershing. If such
approval has been given, Broker shall arrange for timely settlement of all
such transactions. Broker shall be responsible for complying with the
requirements of NYSE Rule 387 with respect to those transactions, except that
Pershing shall be responsible for delivering confirmations pursuant to NYSE
Rule 387.
10.0 SAFEGUARDING OF FUNDS AND SECURITIES
Except as otherwise provided in this Agreement, Pershing shall be
responsible for the safekeeping of all money and securities received by it
pursuant to this Agreement. However, Pershing will not be responsible for any
funds or securities delivered by a customer to Broker until such funds or
securities are actually received by Pershing or deposited in bank accounts
maintained by Pershing.
11.0 CONFIRMATIONS AND STATEMENTS
11.1 PREPARATION AND TRANSMISSION OF CONFIRMATIONS AND STATEMENTS.
Pershing shall prepare confirmations and summary periodic statements and
shall, to the extent required, transmit them to customers and Broker in a
timely fashion except to the extent Broker has agreed to transmit
confirmations to customers. Confirmations and statements shall be prepared on
forms disclosing that the account is carried on a fully disclosed basis for
the Broker in accordance with applicable rules, regulations and
interpretations. Broker will have the ultimate regulatory responsibility for
compliance with the prospectus delivery requirements of the Securities Act of
1933, as amended, regardless of its retention of a prospectus fulfillment
service to perform delivery of same.
11.2 EXAMINATION AND NOTIFICATION OF ERRORS. Broker shall examine
promptly all confirmations, statements, and other reports provided to Broker
by Pershing. Broker must promptly notify Pershing of any error claimed by
Broker in any account. If Broker fails to notify Pershing promptly of any
error the existence of which was, or should reasonably have been,
discoverable by review of confirmations, statements, and reports provided to
Broker by Pershing, Broker shall be deemed to have waived its right to make
any claim against Pershing with respect to such error.
12.0 ACCEPTANCE AND EXECUTION OF TRANSACTIONS
12.1 RESPONSIBILITY TO ACCEPT OR REJECT TRADES. Pershing shall execute
transactions in customers' accounts and release or deposit money or
securities to or for accounts only upon Broker's instructions. Pershing
reserves the right to accept written or oral transaction orders from Broker's
customers in circumstances where it determines that the customers are unable
to execute those transactions through
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Broker. Notwithstanding any instructions to the contrary, Pershing may, after
giving reasonable notice, (i) refuse to confirm a transaction or cancel a
confirmation, (ii) reject a delivery or receipt of securities or money, (iii)
refuse to clear a trade executed by Broker, or (iv) refuse to execute a trade
for the account of a customer or Broker.
12.2 RESPONSIBILITY FOR ERRORS IN EXECUTION. Broker shall be responsible
for transmission to Pershing of all customer orders and for any errors in the
Broker's recording or transmission of such orders. Pershing shall be
responsible for any errors it might make in the further transmission and
execution of such orders after their receipt, in proper and complete form,
from Broker.
12.3 SETTLEMENT OF CONTRACTS AND TRANSACTION. Unless otherwise agreed in
writing, Pershing shall have no obligation to settle contracts and
transactions in securities (i)between Broker and other brokers and dealers,
(ii) between Broker and its customers and (iii) between Broker and third
persons.
13.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF BROKER
13.1 OTHER CLEARING AGREEMENTS. During the term of this Agreement,
Broker shall not enter into any other similar agreement or obtain the
services contemplated by this Agreement from any other party or supply the
services contemplated by the Agreement without the prior written approval of
Pershing.
13.2 DISCIPLINARY ACTION, SUSPENSION, OR RESTRICTION. If Broker becomes
subject to disciplinary action, suspension, or restriction by a federal or
state agency, stock exchange, or regulatory or self regulatory organization
having jurisdiction over Broker or Broker's securities or commodities
business, Broker shall notify Pershing immediately, orally and in writing,
and provide Pershing a copy of any decision relating to such action,
suspension, or restriction. Broker shall reimburse Pershing for the fees and
expenses associated with any legal advice Pershing may seek with respect to
the effect of such action, suspension, or restriction on the rights and
obligations of Pershing under this Agreement. Pershing may take any action it
reasonably deems to be necessary (i) to assure that it will continue to
comply with all applicable legal, regulatory, and self-regulatory
requirements, notwithstanding such action, suspension, or restriction, and
(ii) to comply with any requests, directives, or demands made upon Pershing
by any such federal or state agency, stock exchange, or regulatory or
self-regulatory organization.
13.3 PROVISION OF FINANCIAL INFORMATION. Broker shall furnish Pershing
copies of FOCUS Reports, financial statements for the current fiscal year,
the executed Forms X-17a-5 (Parts I and IIA) filed with the SEC, any
amendments to Broker's Form BD, and any other regulatory or financial reports
Pershing may from time to time require. Broker shall provide such reports to
Pershing at the time Broker files such reports with its primary examining
authority. Broker shall also notify Pershing in advance of withdrawals of
more than 10% of its net capital.
13.4 FIDELITY BOND. Broker shall maintain throughout the term of this
Agreement fidelity insurance coverage in at least the minimum amount required
under NASD rules.
Pershing may require that Broker obtain additional fidelity insurance
coverage if it reasonably determines that such coverage is necessary to
assure Broker's performance of its obligations under this Agreement.
13.5 EXECUTING BROKERS. If Broker wishes to act as an "Executing Broker"
as such term is understood in that certain letter dated January 25, 1994 from
the Division of Market Regulation of the Securities and Exchange Commission,
as the same may be amended, modified or supplemented from time to time (the
"No-Action Letter'") then all terms herein shall have the same meaning as
ascribed thereto either in the Agreement or in the No-Action Letter as the
sense thereof shall require. Broker may, from time to time, execute trades
(either directly or through Pershing) for Prime Brokerage Accounts in
compliance with the requirements of the No-Action Letter. (The No-Action
Letter requires, INTER ALIA, that a contract be executed between Pershing and
Prime Broker, and between Broker and Prime Brokerage Customer prior to the
transaction of any business hereunder). Broker shall promptly notify
Pershing, but in no event later than 5:00 p.m. New York time of trade date in
a mutually acceptable fashion, of such trades in sufficient detail
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for Pershing to be able to report and transfer any trade executed by Broker
on behalf of a Prime Brokerage Account to the relevant Prime Broker. Broker
understands and agrees that if Prime Broker shall disaffirm or "dk" any trade
executed by Broker on behalf of a Prime Brokerage Account; Broker shall open
an account for such Prime Brokerage Account in its range of accounts and
shall transfer or deliver the trade to such account at the risk and expense
of Broker to the same extent as for any account introduced by Broker pursuant
to the Agreement. Broker understands and agrees that all Prime Brokerage
Accounts shall be conducted in accordance with the requirements of the
No-Action Letter and any relevant agreement between Broker and a Prime
Brokerage Customer, or between Pershing and relevant Prime Broker. Broker
further agrees to supply Pershing with such documents, papers and things,
which from time to time are reasonably required by Pershing to carry out the
intention of this Paragraph. Broker agrees that it shall know its customer,
obtain appropriate documentation, including new account form, conduct its own
credit check and determine the availability of shares for any short sales.
Broker shall maintain facilities to clear any disaffirmed trades.
14.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF PERSHING
14.1 USE OF THIRD PARTY SERVICES. Pershing may, at its reasonable
option, and consistent with common industry practice, retain one or more
independent data processing or other service bureaus to perform functions
(including, but not necessarily limited to pricing services or proxy mailing
services) superfluous assigned to Pershing under this Agreement. If any such
service bureau fails to perform an assigned function accurately, in
accordance with specifications, or within the customary time periods,
Pershing shall cause the service bureau to correct any error in its next
regularly scheduled processing operation and to deliver any overdue work as
soon as reasonably practicable. Except as stated in this subparagraph,
Pershing shall not be responsible for any losses, damages, liability, or
expenses claimed by Broker or its customers arising from any such failure
beyond the amount of such losses, damages or expense which Pershing is able
to recover pursuant to the terms of its agreement with such service bureau.
14.2 BACKUP WITHHOLDING. Broker hereby agrees to take necessary measures
to comply with the backup withholding requirements of Section 3406 and the
nonresident alien withholding requirements of Section 1441 of the Internal
Revenue Code of 1986, as amended, with respect to its customer accounts.
Broker agrees to furnish to Pershing in writing or by electronic transmission
any tax information in its possession relating to each customer account
transferred to Pershing and to each future customer (including the customer's
taxpayer identification number and any certifications provided by the
customer on IRS Forms W-9, W-8, or 1001 or any authorized substitute) and
agrees that Pershing may rely on such information. Pershing agrees to notify
Broker of any account not in compliance with such back-up withholding
requirements. Broker hereby authorizes Pershing to employ any procedures
permitted under applicable law or regulation to achieve compliance with
withholding obligations under the federal income tax law, including
procedures pertaining to backup withholding on orders to purchase or sell
securities which are received from customers by telephone or electronic
transmission.
15.0 SERVICES FOR WHICH PERSHING IS NOT RESPONSIBLE
Unless otherwise expressly agreed in writing, Pershing shall not
provide nor be responsible for providing any of the following services:
15.1 Accounting, bookkeeping, record-keeping, cashiering, or other
services involving commodity transactions, or any other transactions not
involving securities; or any matter not contemplated by the Agreement.
15.2 Preparation of Broker's payroll records, financial statements, or
any analysis thereof;
15.3 Preparation or issuance of checks in payment of Broker's expenses,
other than expenses incurred by Pershing on behalf of Broker pursuant to
this Agreement;
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15.4 Payment of commissions to Broker's sales personnel.
16.0 LIABILITY OF PERSHING
16.1 PERSHING INDEMNIFICATION. In addition to any other obligations it
may possess under other provisions of this Agreement, Pershing shall
indemnify, defend, and hold harmless Broker from and against all claims,
demands, proceedings, suits, actions, liabilities, expenses, attorney's fees,
and costs in connection therewith arising out of any reckless, dishonest,
fraudulent, or criminal act or omission on the part of any of its officers or
employees with respect to the services provided by Pershing under this
Agreement. Notwithstanding the foregoing, Pershin1-1 shall have no liability
to any of Broker's customers for any loss suffered by any customer.
Pershing's liability will be only to Broker and then only to the extent
expressly set forth in this Agreement.
16.2 DEFENSE OF THIRD PARTY CLAIMS. If, within 10 days after receiving
written notice of any claim, demand, suit, proceeding, or action with
respect to which Broker may have any colorable claims to indemnification
under this Agreement, Pershing shall fail to institute the defense of Broker
in connection with such claim, demand, suit, proceeding, or action, or if
thereafter Pershing shall fail diligently to pursue such defense, Broker
shall have the right to defend such action or settle such action. The
reasonable costs and expenses, including attorney's fees, associated with
such a defense or settlement shall be borne by Pershing. The exercise of the
right to participate in or assume the responsibility for any such defense
shall not limit in any way Broker's right to indemnification under this
Paragraph.
16.3 DAMAGES. Pershing shall not be liable for special, indirect,
incidental, consequential or punitive damages which Broker, a customer of
Broker, or any other third party may incur or experience, whether such
damages are incurred or experienced as a result of entering into or relying
on this Agreement or otherwise, even if Pershing has been advised of the
possibility of such damages. Broker and Pershing each agree not to assist any
claim for punitive damages against the other.
16.4 PERCHING RIGHT TO COMPETE. Nothing in this Agreement shall be
deemed to restrict in any way the right of Pershing or any affiliate of
Pershing to compete with Broker in any or all aspects of Broker's business.
17.0 LIABILITY OF BROKER
17.1 BROKER INDEMNIFICATION. In addition to any other obligations it may
possess under other provisions of this Agreement, Broker shall indemnify,
defend, and hold harmless Pershing, and any controlling person of Pershing,
from and against all claims, demands, proceedings, suits, and actions and all
liabilities, expenses, attorney's fees (including fees and costs incurred in
enforcing it's right to indemnification), and costs in connection therewith
arising out of one or more of Broker's or any of its employee's negligent,
dishonest, fraudulent or criminal act or omission or any of the following:
17.1.1 FAILURE TO MAKE PAYMENT OR DELIVER SECURITIES. Failure of Broker or
a customer of Broker to make any payment or deliver any securities when due.
A check received by Pershing from a customer shall not constitute payment
until it has been paid and the proceeds are actually received and finally
credited to Pershing (without any subsequent chargeback) by its bank.
17.1.2 MARGIN CALLS. Failure of a customer to meet any initial margin call
or any maintenance call, except that Pershing shall be responsible for the
portion of any such loss or damage that Broker establishes was directly
attributable to Pershing's failure to give notification to the Broker as
required in paragraph 7.2 of this Agreement.
17.1.3 BROKER'S FAILURE TO PERFORM. Failure of Broker to perform any duty,
obligation, or responsibility with respect to customer accounts as set forth
in this Agreement. Broker's indemnification obligation under this
subparagraph shall not be affected by the participation of Pershing or any
person controlling it or controlled by it within the meaning of the
Securities Exchange Act of 1934, as amended, in any transaction
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giving rise to such an obligation, unless such participation constitutes
recklessness, fraud, or criminal conduct.
17.1.4 IMPROPER CONDUCT BY AGENTS. Any negligent, dishonest, fraudulent,
or criminal act or omission on the part of any of Broker's officers,
directors, employees or agents.
17.1.5 FAILURE OF A CUSTOMER TO PERFORM OBLIGATIONS. Any failure by any of
Broker's customers to perform any commitment or obligation with respect to a
transaction carried by Pershing under this Agreement, whether or not such
failure was under the control of Broker.
17.1.6 CUSTOMER CLAIMS AND DISPUTES. Any claim or dispute between Broker
and a customer with respect to services provided under this Agreement,
including but not limited to any claim or dispute concerning the validity of
a customer order in the form the order was transmitted to Pershing by Broker
and any claim arising in connection with Pershing's guarantee of any
signature of any customer of Broker.
17.1.7 WARRANTIES. Any adverse claim with respect to any security
delivered or cleared by Pershing, including a claim of a defect in title with
respect to securities that are alleged to have been forged, counterfeited,
raised or otherwise altered, or if they are alleged to have been lost or
stolen. The parties agree that Pershing shall be deemed to be an intermediary
between Broker and customer and shall be deemed to make no warranties other
than as provided in Section 8-306(3) of the Uniform Commercial Code.
17.1.8 DEFAULT OF THIRD PARTY BROKER. Any default by a third party broker
with whom the Broker deals on a principal or agency basis in a transaction
either not executed by Pershing or not cleared by Pershing even if permitted
by Pershing as provided herein.
17.1.9 CHECK SIGNING. Any negligence, fraud, malfeasance, or error of any
employee of Broker with respect to the use of the checksigning authority
granted under paragraph 9.1.8 of this Agreement.
17.1.10 PRIOR SELF-CLEARING ARRANGEMENTS. Any guarantee, indemnification,
or hold harmless agreement in connection with Broker's business or customers
that Pershing may provide to the National Securities Clearing Corporation,
the Depository Trust Company, or any other clearing, depository, or
selfregulatory organization with respect to transactions self-cleared by
Broker prior to transfer of such functions to Pershing.
17.1.11 BREACH OF WARRANTY BY BROKER. Any breach by Broker of any
representation or warranty made by it under this Agreement.
17.1.12 DEPOSIT OF CHECKS TO CUSTOMER ACCOUNTS Any failure to exercise due
diligence in reviewing checks received from customers to insure that same are
in proper form, or in the issuance of instructions to Pershing regarding the
accounts into which checks are to be deposited.
17.1.13 ASSETS NOT HELD IN BROKERAGE ACCOUNT - Any claim asserted against
Pershing alleging the inaccuracy of any information appearing on Broker's
customer brokerage account statements with respect to assets not held in the
brokerage account, regardless of whether such information was provided by
Broker, customer or a third-party.
17.2 DEFENSE OF THIRD PARTY CLAIMS. If, within 10 days after receiving
written notice of any claim, demand, suit, proceeding, or action with
respect to which Pershing may have any colorable claim to indemnification
under this Agreement, Broker shall fail to institute the defense of Pershing
in connection with such claim, demand, suit, proceeding, or action, or if
thereafter Broker shall fail diligently to pursue such defense, Pershing
shall have the right to defend such action or settle such action. The costs
and expenses, including attorney's fees, associated with such a defense or
settlement shall be borne by Broker. The exercise of the right to participate
in or assume the responsibility for any such defense shall not limit in any
way Pershing's rights to indemnification under this Paragraph.
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18.0 FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
18.1 COMMISSIONS. Pershing shall charge each of Broker's customers the
commission. markup and any other charge or expense that Broker instructs it
to charge for each transaction. If instructions are not received with respect
to a transaction in the time period required by Pershing to implement those
instructions, Pershing shall charge the customer the commission, markup, or
other charge or expense prescribed in the basic commission schedule delivered
to Pershing by Broker. This basic schedule may be amended from time to time
by Broker by written instructions delivered to Pershing. Pershing, shall only
be required to implement such amendments to the basic schedule to the extent
such amendments are within the usual capabilities of Pershing's data
processing and operations systems and only within such reasonable time
limitations as Pershing may deem necessary to avoid disruption of its normal
operating capabilities.
18.2 RESPONSIBILITY FOR PRICING. Broker shall establish the commissions,
mark-ups and other charges or expenses to be charged to customers in
accordance with all applicable laws, rules, and regulations of the SEC, NASD,
NYSE, and other regulatory and self-regulatory agencies and organizations.
Pershing shall exercise no control or influence over the establishment of
such commissions, mark-ups or other charges or expenses. This provision shall
not affect Pershing's right to charge Broker or Broker's customers reasonable
fees for the services provided under this Agreement, including SEC
transaction fees, fees for inactive accounts, and other appropriate fees.
Broker may instruct Pershing to charge such fees to its customers but remains
liable for the payment thereof. Broker shall notify its customers of fees
charged to them.
18.3 SETTLEMENT. Commissions charged Broker's customers shall be
collected by Pershing and credited to Broker, after deducting Pershing's
compensation referred to in Subparagraph 18.4 below and any other amount owed
to Pershing pursuant to this Agreement. Such commissions shall be remitted to
Broker on a monthly basis, approximately ten days after the final settlement
date of each month. More frequent remittances may be advanced to Broker if
the parties so agree and if the estimated current activity in the accounts
and prior experience justify such advances.
18.4 FEES FOR CLEARING SERVICES. As compensation for services provided
pursuant to this Agreement, Pershing shall deduct from the commissions,
mark-up, mark-down or fees charged Broker's customers the amounts set forth
in the fully disclosed pricing schedule attached hereto as Schedule A. The
compensation schedule may be changed by Pershing at any time on thirty days
prior written notice to Broker or from time to time as may be agreed by both
parties. Broker shall promptly notify Pershing of any change in the nature or
mix of the business engaged in by Broker.
19.0 DEPOSIT ACCOUNT
19.1 ESTABLISHMENT OF DEPOSIT ACCOUNT. To further assure Broker's
performance of its obligations under this Agreement, including but not
limited to its indemnification obligations under Paragraph 17, Broker shall,
on or before the execution of this Agreement, establish an account at
Pershing to be designated as the Broker's Deposit Account (the "Deposit
Account"). The Deposit Account shall at all times contain cash, securities,
or a combination of both, having a market value of at least the amount set
forth in Schedule A. The securities placed in the Deposit Account shall
consist only of direct obligations issued by or guaranteed as to principal
and interest by the United States Government. In the event of a substantial
change in the nature and extent of Broker's business operations, Pershing may
require immediately that an additional amount be deposited in the Deposit
Account. If such a deposit is not made in the amount specified whether or not
Broker agrees that the amount is justified under this subparagraph, Pershing
shall have the right to terminate this Agreement forthwith.
19.2 PERSHING RIGHT TO OFFSET COMMISSIONS AND DEPOSIT ACCOUNT. If (i)
Pershing shall have any claim against Broker or a customer of Broker which has
not been resolved within five business days after Pershing presents such claim
to Broker, or (ii) if Pershing shall suffer any loss or incur any expense for
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which it is entitled to be indemnified pursuant to this Agreement, and Broker
shall fail to make such indemnification within five business days after being
requested to do so, Pershing may deduct the amount of such claim, loss, or
expense from the commissions to be credited to Broker on the next monthly or
other periodic settlement date pursuant to Paragraph 18.3. If the amount of
these commissions is less than the amount of such claim, loss, or expense,
Pershing may withdraw from the Deposit Account cash or securities (or both)
having a market value equal to the amount of such deficiency. Broker shall be
obligated to make an immediate deposit in the Deposit Account of cash or
securities sufficient to bring the Account back to a value of at least the
amount required by Schedule A.
19.3 TERMINATION OF DEPOSIT ACCOUNT. Upon the termination of this
Agreement, or as soon there after as practical, Pershing shall pay and
deliver to Broker the funds and securities in the Deposit Account, less any
amounts which it is entitled under the preceding paragraph; provided,
however, that Pershing may retain in the Deposit Account such amount for such
period as it deems appropriate for its protection from any claim or
proceeding of any type, then pending or threatened, until the final
determination of such claim or proceeding is made. If a threatened claim or
proceeding is not resolved or if a legal action or proceeding is not of this
Agreement, any amount retained with respect to such claim, proceeding, or
action shall be instituted within a reasonable time after the termination
paid or delivered to Broker.
20.0 PROPRIETARY ACCOUNTS OF INTRODUCING BROKERS AND DEALERS
(PAIB)
Pershing agrees to establish a separate reserve account for
proprietary assets held by Broker so that Broker can treat these assets as
allowable assets under SEC Rule I Sc3-1. Pershing agrees to perform the
required computation on behalf of Broker in accordance with the following
provisions, procedures and interpretations set forth in the SEC's No-Action
Letter regarding Proprietary Accounts of Introducing Brokers and Dealers
(PAIB) dated November 3, 1998:
20.1 Pershing will perform a separate computation for PAIB assets (PAIB
reserve computation) of Broker in accordance with the customer reserve
computation set forth in SEC Rule 15c3-3 (customer reserve formula) with the
following modifications:
A. Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula will not be included as a
credit in the PAIB reserve computation:
B. Note E(3) to Rule 15c3-3a which reduces debit balances by one percent
under the basic method and subparagraph (a)(I)(ii)(A) of Rule 15c3-1
which reduces debit balances by three percent under the alternative
method will not apply; and
C. Neither Note E(I) to Rule 15c3-3a nor NYSE Interpretation /04 to Item
10 of Rule 15c3-3a regarding securities concentration charges is
applicable to the PAIB reserve computation.
20.2 PAIB reserve computation will include all the proprietary accounts
of Broker. All PAIB assets will be kept separate and distinct from customer
assets under the customer reserve computation set forth in SEC Rule 15c3-3.
20.3 PAIB reserve computation will be prepared within the same time
frames as those prescribed by Rule 15c3-3 for the customer reserve formula.
20.4 Pershing will establish and maintain a separate "Special Reserve
Account for the Exclusive Benefit of PAIB Customers" with a bank in
conformity with the standards of Rule 15c3-3(f) (PAIB Reserve Account). Cash
and/or qualified securities as defined in the Rule will be maintained in the
PAIB Reserve Account in an amount equal to the PAIB reserve requirement.
20.5 If the PAIB reserve computation results in a deposit requirement,
the requirement can be satisfied to the extent of any excess debit in the
customer reserve formula of the same date. However, a deposit requirement
resulting from the customer reserve formula cannot be satisfied with excess
debits from the PAIB reserve computation.
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20.6 Within two business days of entering into this agreement, Broker
must notify its designated examining authority (DEA) in writing that it has
entered into a PAIB agreement with its clearing broker-dealer.
20.7 Upon discovery that any deposit made to the PAIB Reserve Account
did not satisfy its deposit requirement, Pershing will immediately notify its
DEA and the SEC. Unless a corrective plan is found to be acceptable by the
SEC and the DEA, Pershing will provide written notification within five
business days of the date of discovery to Broker that PAIB assets held by
Pershing will not be deemed allowable assets for net capital purposes.
21.0 COMMUNICATION WITH CUSTOMERS
21.1 NOTICE TO CUSTOMERS. Pershing shall, upon the opening of an account
pursuant to paragraph 5 of this Agreement, mail to each customer a copy of
the Notice to Customers required by NYSE Rule 382(c).
21.2 CUSTOMER INQUIRIES AND COMPLAINTS. Broker and Pershing each agree
to forward to the other any written complaint received from a customer
regarding a function the other has agreed to perform pursuant to this
Agreement.
21.3 RESTRICTION ON ADVERTISING. Neither Pershing nor Broker shall
utilize the name of the other in any way without the other's prior written
consent nor shall either party employ the other's name in such a manner as to
create the impression that the relationship between them is anything other
than that of clearing broker and introducing broker. Broker shall not hold
itself out as an agent of Pershing or as a subsidiary or company controlled
directly or indirectly by or affiliated with Pershing.
22.0 TERMINATION OF AGREEMENT
This Agreement shall continue until terminated as hereinafter provided:
22.1 Termination Upon 90-Day Notice. This Agreement may be terminated by
either party without cause upon ninety days prior written notice delivered in
person or by registered or certified mail. If either party terminates the
Agreement pursuant to this subparagraph, Pershing shall have the right to
impose reasonable limitations upon Broker's activities during the period
between the giving of notice and the transfer of Broker's accounts.
22.2 CHANGE IN COMPENSATION SCHEDULE. If, pursuant to paragraph 18.4 of
this Agreement, Pershing shall make any unilateral change in the compensation
schedule described in that subparagraph, and that change causes the increase
in Pershing's compensation to exceed 10 percent during any calendar year,
Broker may, upon 15 days prior written notice to Pershing, terminate this
Agreement on the effective date of such unilateral change.
22.3 DEFAULT. If either party defaults in the performance of its
obligations under this Agreement, or otherwise violates the provisions of
this Agreement, the nondefaulting party may terminate this Agreement by
delivering written notice to the defaulting party (i) specifying the nature
of the default and (ii) notifying the defaulting party that unless the
default is cured within a period of ten days from receipt of the notice, this
Agreement will be terminated without further proceedings by the nondefaulting
party.
22.4 DISABILITY. This Agreement may be terminated by Pershing or Broker
immediately in the event that the other party is enjoined, disabled,
suspended, prohibited, or otherwise becomes unable to engage in the
securities business or any part of it by operation of law or as a result of
any administrative or judicial proceeding or action by the SEC, any state
securities law administrator, or any regulatory or self-regulatory
organization having jurisdiction over such party.
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22.5 CONVERSION OF ACCOUNTS. In the event that this Agreement is
terminated for any reason, Broker shall arrange for the conversion of
Broker's and its customer accounts to another clearing broker or to Broker if
it becomes self-clearing. Broker shall give Pershing notice (the "Conversion
Notice") of (i) the name of the broker that will assume responsibility for
clearing services for Customers and Broker, (ii) the date on which such
broker will commence providing such services, (iii) Broker's undertaking, in
form and substance satisfactory to Pershing, that Broker's agreement with
such broker provides that such broker will accept on conversion all Broker
and customers accounts then maintained by Pershing, and (iv) the name of an
individual or individuals within new clearing broker's organization whom
Pershing may contact to coordinate the conversion. The Conversion Notice
shall accompany Broker's notice of termination given pursuant to this
paragraph. If Broker fails to give Conversion Notice to Pershing, Pershing
may give to Broker's customers such notice as Pershing deems appropriate of
the termination of this Agreement and may make such arrangements as Pershing
deems appropriate for transfer or delivery of customer and Broker accounts.
The expense of providing such notice and making such arrangements shall be
charged to Broker.
22.6 SURVIVAL. Termination of this Agreement in any manner shall not
release Broker or Pershing from any liability or responsibility to the other
with respect to transactions effected prior to the effective date of such
termination, whether or not claims relating to such transactions shall have
been made before or after such termination.
22.7 TERMINATION FEE. If Broker terminates this Agreement pursuant to
subparagraph 22.1 or 22.2 above, or Pershing terminates this Agreement
pursuant to subparagraph 22.3 or 22.4 above within the period specified in
Schedule A, Broker shall pay to Pershing a termination fee as stated in
Schedule A.
23.0 CONFIDENTIAL NATURE OF DOCUMENTS AND OTHER INFORMATION
Neither Pershing nor Broker shall disclose the terms of this
Agreement or information obtained as a result thereof to any outside party
except to regulatory or self-regulatory organizations with appropriate
jurisdiction, pursuant to judicial process or to authorized employees of the
other on a need-to-know basis. Any other publication or disclosure of the
terms of this Agreement may be made only with the prior written consent of
the other party. Broker and Pershing shall each maintain the confidentiality
of documents and information received from the other party pursuant to this
Agreement. Pershing and Broker each agree that any information regarding the
identity of the other's customers shall be kept confidential and not used by
the other except as required in connection with obligations under this
agreement.
Broker acknowledges that the services Pershing provides hereunder
involve Broker access to proprietary technology, trading and other systems,
and that techniques, algorithms and processes contained in such systems
constitute trade secrets and shall be safeguarded by Broker, and the Broker
shall exercise reasonable care to protect Pershing's interest in such trade
secrets. Broker agrees to make the proprietary nature of such systems known
to those of its consultants, staff, agents or clients who may reasonably be
expected to come into contact with such systems. Broker agrees that any
breach of this confidentiality provision may result in its being liable for
damages as provided by law.
24.0 ACTION AGAINST CUSTOMERS BY PERSHING
Pershing may, in its sole discretion and at its own expense, upon
written notice to Broker institute and prosecute in its name any action or
proceeding against any of Broker's customers in relation to any controversy
or claim arising out of Pershing's transactions with Broker or with Broker's
customers. Nothing contained in this Agreement shall be deemed either (a) to
require Pershing to institute or prosecute such an action or proceeding; or
(b) to impair or prejudice its right to do so, should it so elect, nor shall
the institution or prosecution of any such action or proceeding relieve
Broker of any liability or responsibility which Broker would otherwise have
had under this Agreement. Broker shall assign to Pershing its rights against
its customers to the extent requested by Pershing and necessary to effectuate
the provisions of this Paragraph.
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25.0 NOTICES
Any notice or request required or permitted to be given under this
Agreement shall be sufficient if it is in writing and sent by hand or by
certified mail, return receipt requested, to the parties at the following
address:
Broker: Harris, Webb & Garrison, Inc.
5599 San Felipe
Suite 301
Houston, TX 77056
Attn: Mr. Harry C. Webb, Jr.
Pershing: Pershing Division
Donaldson, Lufkin & Jenrette Securities Corporation
1515 W. 22nd Street, Suite 1000
Oak Brook, IL 60523
Attn: Mr. Barry R. Rundle
cc: Legal and Compliance Department
26.0 ARBITRATION
26.1 ARBITRATION REQUIREMENT. Any dispute between Broker and Pershing
that cannot be settled shall be taken to arbitration as set forth in
paragraph 26.3 below.
26.2 ARBITRATION DISCLOSURE.
- ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
- THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL.
- PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
- THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO
SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY
LIMITED.
- THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
26.3 ARBITRATION AGREEMENT.
ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS
AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE NEW
YORK STOCK EXCHANGE, INC., OR THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., AND IN ACCORDANCE WITH THE RULES OBTAINING OF THE
SELECTED ORGANIZATION AND SHALL BE CONDUCTED AS A BROKER TO BROKER OR
MEMBER VS MEMBER DISPUTE. ARBITRATION MUST BE COMMENCED BY SERVICE
UPON THE OTHER PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN
NOTICE OF INTENTION TO ARBITRATE. THEREIN ELECTING THE ARBITRATION
TRIBUNAL.
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NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT
AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION
AND WHO IS A MEMBER OF A PUTATIVE CLASS AND WHO HAS NOT OPTED OUT OF
THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS
ACTION UNTIL: (i) THE CLASS CERTIFICATION IS DENIED; (ii) THE CLASS IS
DECERTIFIED; OR (iii) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE
COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT
CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE
EXTENT STATED HEREIN.
27.0 GENERAL PROVISIONS
27.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the respective successors and assigns of Broker
and Pershing. No assignment of this Agreement by Broker shall be effective
unless Pershing's written consent shall be first obtained.
27.2 27.2 SEVERABILITY. If any provision or condition of this Agreement
shall be held to be invalid or unenforceable, the validity or enforceability
of the remaining provisions and conditions shall not be affected hereby.
27.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute a single agreement.
27.4 ENTIRE AGREEMENT/AMENDMENTS. This Agreement represents the entire
agreement between the parties with respect to the subject matter contained
herein. This Agreement may not be changed orally, but only by an agreement in
writing signed by the parties.
27.5 CAPTIONS. Captions herein are for convenience only and are not of
substantive effect.
27.6 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to the conflicts of laws principles thereof.
27.7 CITATIONS. Any reference to the rules or regulations of the SEC,
the NYSE or any other regulatory or self-regulatory organization are current
citations. Any changes in the citations (whether or not there are any changes
in the text of such rules or regulations) shall be automatically incorporated
herein.
27.8 CONSTRUCTION OF AGREEMENT. Neither this Agreement nor the
performance of the services hereunder shall be considered to create a joint
venture or partnership between Pershing and Broker or between Broker and
other brokers for whom Pershing may perform the same or similar service.
27.9 THIRD PARTIES. This Agreement is between the parties hereto and is
not intended to confer any benefits on third parties, including, but not
limited to, customers of Broker.
27.10 NON-EXCLUSIVITY OF REMEDIES. The enumeration herein of specific
remedies shall not be exclusive of any other remedies. Any delay or failure
by a party to this Agreement to exercise any right, power, remedy or
privilege herein contained, or now or hereafter existing under any applicable
statute or law, shall not be construed to be a waiver of such right, power,
remedy, or privilege. No single, partial, or other exercise of any such right
power, remedy, or privilege shall preclude the further exercise thereof or
the exercise of any other right, power, remedy, or privilege.
27.11 SEC RELEASE 34-315ll PROVISION Pursuant to the interpretation of
Introducing Accounts on a Fully Disclosed Basis contained in SEC Release
34-41511, it is hereby agreed between Broker and Pershing that,
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insofar as the "financial responsibility rules" of the SEC and Securities
Investor Protection Act only are applicable, the accounts Broker introduces
to Pershing on a fully disclosed basis shall be considered to be accounts of
Pershing and not Broker's accounts. Nothing in this paragraph will otherwise
change or affect the provisions of this Agreement which provide that the
customer account remains Broker's customer account for all other purposes,
including but not limited to, supervision, suitability and indemnification.
IN WITNESS WHEREOF the parties have hereto affixed their hands and
seals by their duly authorized officers on the day and date first above
written.
This Agreement contains a pre-dispute arbitration clause in paragraph 26 on
page 20. Broker acknowledges receiving a copy of this Agreement.
BROKER: Harris, Webb & Garrison, Inc.
By: Mr. Harry C. Webb, Jr. 4-13-99
Title: Senior Vice President
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: Mr. Barry R. Rundle
Title: Senior Vice President
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[LOGO]
NETEXCHANGE-TM-: ADDENDUM TO FULLY DISCLOSED CLEARING AGREEMENT OF PERSHING
DIVISION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
THIS ADDENDUM to Fully Disclosed Clearing Agreement of Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation (Addendum), effective as
of the 13th day of May, 1999, is entered into by and between the Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation (Pershing)
and Harris, Webb & Garrison, Inc. (Broker).
For and in consideration of the mutual promises and covenants contained
herein, the receipt, sufficiency, and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, hereby contract and
agree as follows:
A. BACKGROUND AND PURPOSE. Pershing and Broker entered into a Fully
Disclosed Clearing Agreement of Pershing Division Donaldson, Lufkin &
Jenrette Securities Corporation, dated as of the 7th day of April, 1999 (the
Agreement), pursuant to which Pershing currently carries cash and margin
accounts of the customers of Broker introduced to Pershing by Broker and
accepted by Pershing, and clears transactions on a fully disclosed basis for
such accounts, all pursuant to the terms and conditions of the Agreement.
Pershing has now developed certain services and software, referred to as
NetExchange. There are three versions of NetExchange; one that is used
primarily by Broker's investment professional, whether agents or employees,
called NetExchange Pro-TM-, and two variations that are used primarily by its
customers called NetExchange Client-TM- (custom or non-custom). Pershing and
Broker desire to amend the Agreement to provide (among other things) for
Pershing to offer and Broker to obtain the benefit of certain of such
NetExchange services. However, Pershing shall continue to act solely as
clearing agent for Broker's transactions and nothing in this Addendum shall
alter Pershing's obligations with respect thereto. Similarly, Broker shall
continue to be responsible for all matters of supervision of its accounts and
representatives, know-your-customer and suitability obligations imposed on
Broker as the introducing broker/dealer for Broker's customers' accounts, and
all other obligations imposed by the Agreement.
B. REFERENCES TO AGREEMENT. This Addendum hereby amends the Agreement
by supplementing it with a new paragraph to be added to the end of the
Agreement, consisting of the provisions set forth below, which shall be
applicable solely with respect to the provision of NetExchange services or
NetExchange Software (as defined below) by Pershing, and the receipt of, and
payment for, such services and NetExchange Software by Broker. In the event
of a conflict between the terms of this Addendum and those of the Agreement,
the terms of the Agreement shall govern, except as to matters specifically
covered herein. The terms used herein that are defined in the Agreement shall
have the same meanings in this Addendum as are given them in the Agreement,
unless otherwise defined herein, and except that Agreement, as used in this
Section B means the Agreement as in effect immediately prior to the execution
of this Addendum.
1. NETEXCHANGE. Subject to receipt by Pershing of the Fees set forth
in the NetExchange Pricing Schedule, as amended by Pershing in its sole and
absolute discretion from time to time (attached hereto) and approval by
Pershing of Broker's home page (as defined below), Pershing will provide
NetExchange services and NetExchange Software (as defined below), features of
which may enable Broker's customers or its representatives to contact Broker
through Broker's Internet address. Broker's Internet address may either: (a)
tie directly to Broker's home page (as defined below) hosted on the Pershing
server or (b) tie directly to Broker's existing home page hosted on Broker's
server and then to Pershing's server via a leased telecommunications facility
or other means. The Pershing server would route the communications directly
to a point that links the Pershing server and the Broker's communication port
or server via a leased telecommunications facility, as applicable, and hand
them off to the Broker (or as the Broker otherwise directs). Broker will
determine which communications to direct to Pershing for handling. To
facilitate the use of NetExchange. upon receipt of payment as set forth in
the attached Schedule, Pershing shall provide the design and architecture for
the computerized screen or series of screens that customers or
representatives of Broker will view when contacting Broker using the Internet
(Broker's home page). For the NetExchange Client platform, the home page may
feature Broker's name and logo and an introduction (to be provided by Broker)
to the Broker's services and offerings and such other information as Pershing
may require or permit. Alternatively, at the request of Broker, Pershing may
accept Broker's proposed home page design, provided that Pershing determines,
in its sole discretion, that the proposed design and content meet with all
Pershing requirements. At Pershing's option and in Pershing's sole
discretion, Pershing may consult with third parties to assist in the design
and content of Broker' home page. In all cases, Pershing retains the right to
establish standards for the style and content of Broker's home page and to
modify
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such standards from time to time in its sole discretion. For the NetExchange
Client non-custom platform, there is no customization available. The Broker,
and the Broker-Pershing relationship is identified at initial point of entry.
2. OWNERSHIP OF NETEXCHANGE. As between Pershing and Broker, Pershing
shall at all times be and remain the sole and exclusive owner of the
NetExchange proprietary computer software, home page design(s),
methodologies, techniques, software libraries, and know-how used by Pershing
or incorporated into the NetExchange services, including all improvements,
modifications, or enhancements thereto (the NetExchange Software). Except
with respect to intellectual property rights in trademarks and copyrights
belonging to Broker, Pershing retains all rights, title and interest in and
to NetExchange Software and NetExchange services, including without
limitation, all applicable copyrights (including without limitation, the
exclusive right to reproduce, distribute copies of, display and perform the
copyrighted work and to prepare derivative works), copyright registrations
and applications, trademark rights (including without limitation,
registrations and applications), patent rights, trade names, mask-work
rights, trade secrets, moral rights, authors' rights, and all renewal and
extensions thereof, regardless of whether any of such rights arise under the
laws of the United States or any other state, country or jurisdiction. If at
any time Broker proposes or makes agreed-to modifications to the home page,
all copyrightable aspects thereof shall be deemed to be and treated as a work
made for hire within the meaning of the Copyright Act of 1976, as amended.
3. CONFIDENTIAL INFORMATION. The contents of this Agreement, including
all Schedules hereto, and the content and source-code and object-code
embodiments of the NetExchange Software, are confidential information and
subject to the provisions of the Agreement, as are any of the following
related thereto: recommendations, strategies, requirements, discoveries,
designs, inventions, computer software, processes, improvements,
developments, methods, formulae, factors and parameters and values of such
factors and parameters used in formulae, techniques, engineering, know-how,
trade secrets, systems, documentation, drawings, renderings, plans, artwork,
descriptions, specifications, historical or technical or research data,
custom-designed computer codes, proprietary computer codes, and proprietary
information of third parties (regardless of whether any such item is
susceptible to patent, copyright, or any other form of protection).
Notwithstanding anything in the Agreement to the contrary, Pershing may use
and disclose compiled statistical information for planning and other
purposes, provided that the identity of Broker and Broker's customers is not
discernible. In addition, Pershing may disclose information with respect to
Broker to third parties in connection with Pershing's development of
NetExchange, including Broker's home page.
4. DISCLAIMER OF WARRANTIES. BROKER EXPRESSLY AGREES THAT BROKER'S USE
OF NETEXCHANGE SERVICES AND NETEXCHANGE SOFTWARE PROVIDED FOR USE IN
ACCESSING NETEXCHANGE IS AT BROKER'S SOLE RISK. NEITHER PERSHING NOR ANY OF
ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONTRACTORS, AFFILIATES,
INFORMATION PROVIDERS, LICENSORS, OR OTHER SUPPLIERS PROVIDING DATA,
INFORMATION, SERVICES OR SOFTWARE, INCLUDING BUT NOT LIMITED TO THE NEW YORK
STOCK EXCHANGE, INC., WARRANTS THAT THE SERVICE WILL BE UNINTERRUPTED OR
ERROR FREE; NOR DO ANY OF THEM MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY
BE OBTAINED FROM THE USE OF NETEXCHANGE SERVICES OR NETEXCHANGE SOFTWARE, OR
AS TO THE TIMELINESS, SEQUENCE, ACCURACY, COMPLETENESS. RELIABILITY OR
CONTENT OF ANY DATA, INFORMATION, SERVICES, OR TRANSACTIONS PROVIDED THROUGH
NETEXCHANGETM, OR WITH RESPECT TO ANY NETEXCHANGE SOFTWARE. THE NETEXCHANGE
SERVICE AND NETEXCHANGE'SOFTWARE IS PROVIDED ON AN AS IS, AS AVAILABLE BASIS,
WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
OTHER THAN THOSE WARRANTIES WHICH ARE IMPLIED BY AND INCAPABLE OF EXCLUSION,
RESTRICTION OR MODIFICATION UNDER THE LAWS APPLICABLE TO THIS AGREEMENT.
5. RIGHTS IN DATA. Pershing warrants that it has the right to license
all of the products it will provide. Furthermore, Pershing warrants that all
of the NetExchange services and NetExchange software do not and will not
infringe upon any copyright, trademark, or other intellectual property right
of a third party.
6. ADDITIONAL BROKER RESPONSIBILITIES
6.1 ACCESS AND ACCESS SECURITY. Broker shall determine whether and
which of its customers, employees or agents shall have access to NetExchange.
Broker shall solely be responsible for the assignment, distribution, and
maintenance of all passwords, codes, and other security measures designed to
ensure that access to NetExchange is granted only to those individuals who
are authorized by Broker. Nothing in this paragraph shall affect or diminish
Pershing's right, in its sole discretion, to refuse to provide any or all
NetExchange services to Broker, its agents or employees or any customer(s) of
Broker.
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6.2 INDEMNIFICATION. The indemnification rights and responsibilities
shall apply to the provision of NetExchange exactly as it is set forth in the
Agreement. This indemnification shall include, but not be limited to: (a)
damages incurred as a result of an act or omission with respect to the
NetExchange security procedures then in effect by Pershing, by Broker, by a
customer of Broker, or by any other individual or entity accessing any account
or information of a customer of Broker; (b) any breach of the representation
and warranty set forth in Paragraph 6.4 and (c) any intellectual property
infringement by Broker or Broker's customers.
6.3 NO UNAUTHORIZED USE OF NETEXCHANGE. Broker will not copy,
modify, distribute or transfer (by any means), display, sublicense, rent,
reverse engineer, decompile or disassemble the NetExchange Software.
6.4 NO PROFESSIONAL USERS. Broker acknowledges that certain
information available via NetExchange Client cannot be viewed by an individual
who is a member of any exchange or the National Association of Securities
Dealers, or of any corporation of which an exchange owns a majority of the
capital stock, or of a member firm or member corporation of any exchange or
the National Association of Securities Dealers. Inc. or of any corporation,
firm or individual engaged in business of dealing either as a broker or a
principal in securities, bills of exchange, acceptances or other forms of
commercial paper (hereinafter Professional User). Broker acknowledges that
Broker is solely responsible for ensuring that no such individual views that
information except in their capacity as public customers. Broker represents
and warrants that Broker will not use or permit any other Professional User to
access those features of NetExchange Client from which they are prohibited
from viewing except in their capacity as public customers.
6.5 OPTIONS PRICE REPORTING AUTHORITY REQUIREMENTS. In the event
Broker intends to allow access to information concerning options contracts to
its customers or itself: Broker hereby certifies that, for each customer to
whom it instructs Pershing to provide access to information concerning options
contracts, it has obtained a written agreement in which the customer agrees
that he or she: (1) shall receive options information solely for such person's
own use, (2) shall not retransmit or otherwise furnish options information to
any other person, (3) shall acknowledge that options information is and shall
remain the property of the respective exchange or other market on which a
reported transaction took place or a reported quotation was entered and (4)
shall acknowledge that (i) neither the Options Price Reporting Authority
(OPRA), OPRA's processor nor any OPRA Participant guarantees the timeliness,
sequence, accuracy or completeness of any options last sale price, quotation
information or other market information provided by OPRA, (ii) neither OPRA,
OPRA's processor nor any OPRA Participant shall be liable in any way to such
customer, broker or any other person for any loss, damages, cost or expense
which may arise from any failure of performance by OPRA, OPRA's processor or
any OPRA Participant, or from any delays, inaccuracies, errors in or omissions
of, any Options Information, or in the transmission or delivery thereof,
whether or not due to any negligent act or omission on the part of OPRA,
OPRA's processor or any OPRA Participant, and (iii) in no event shall OPRA,
OPRA's processor or any OPRA Participant be liable for any incidental,
special, indirect, or consequential damages, including but not limited to lost
profits, trading losses, or damages resulting from inconvenience, or loss of
use of the Service. Such written agreement shall state that it is for the
express benefit of OPRA, OPRA's processor and each OPRA Participant.
In addition, Broker, on its own behalf, acknowledges its
understanding of OPRA's responsibilities under subparagraph (4) above. In
addition, Broker agrees that it shall maintain and preserve for at least three
years sufficient records to identify the names and addresses of its customers
to whom it is authorized to provide the Service, together with copies of all
customer agreements and billing records. At the request of OPRA, Broker agrees
to permit representatives of OPRA to have access to such records, and to
provide to OPRA any information that OPRA may reasonably request concerning
its customers.
Broker further acknowledges that its acknowledgements and agreements
as stated above should are for the express benefit of OPRA, OPRA's processor
and each OPRA participant.
6.6 RECEIPT OF INFORMATION FROM REALITY ONLINE INC. Broker
acknowledges that it has read and executed the agreement attached hereto as
the Reuters Schedule and thereby has the right to distribute the information
provided by Reality Online Inc.
7. LIMITATION OF LIABILITY
7.1 THE LIABILITY OF THE PARTIES SHALL BE LIMITED TO THE SAME EXTENT
AS IT IS LIMITED IN THE AGREEMENT.
7.2 Broker acknowledges and agrees that the fees charged by Pershing
reflect the allocation of risks including, but not limited to, the foregoing
limitation of liability. A modification of the allocation of risks set forth
in this Agreement would affect the fees charged by Pershing, and in
consideration of such fees, Broker agrees to such allocations of risks.
8. GRANT OF LICENSES
8.1 Broker hereby grants to Pershing a non-exclusive,
non-transferable, irrevocable, fully paid-up, worldwide license to use
Broker's trade name(s), trademark(s) and service mark(s) in connection with
the design and implementation of NetExchange.
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8.2 Pershing hereby grants to Broker a non-exclusive,
non-transferable, irrevocable, fully paid-up, worldwide license to use
copyrightable aspects of Broker's home page owned by Pershing, such use to be
limited to use solely for the purpose of using the NetExchange services and
solely in conjunction with this Agreement.
9. INJUNCTIVE RELIEF. In addition to all other remedies available at
law or in equity, either party shall be entitled to injunctive relief to
enforce the terms of this Addendum and Broker agrees not to raise as a defense
in any such action that that party would be adequately compensated by monetary
damages.
10. TERMINATION OF NETEXCHANGE SERVICE. The parties may terminate this
Addendum and these services pursuant to the provisions in the Agreement. In
addition, Pershing may block access to the use of NetExchange without prior
notice in the event such services are discontinued due to circumstances beyond
Pershing's control or to avoid systems or mechanical failure or due to
regulatory or legal mandate.
11. ADDITIONAL SERVICES. From time to time Pershing may introduce new
products and services or cause new products and services to be made available
through NetExchange. These products and services may include such things as
delayed securities quotes, investment research and news. Use of such products
and services shall be subject to payment of the fees determined by Pershing
and governed by the terms and conditions of this section 11.
In witness whereof, the parties have executed this Addendum.
PERSHING DIVISION OF DONALDSON, BROKER: Harris, Webb & Garrison, Inc.
LUFKIN & JENRETTE SECURITIES CORPORATION
By: /s/ Barry R. Rundle By: /s/ Harry C. Webb
Barry R. Rundle Harry C. Webb
Its: SVP Its: COO
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ANY QUESTIONS REGARDING THE REALITY ONLINE INC. AGREEMENT SHOULD BE DIRECTED TO:
MR. BRIAN BURDICK, REALITY ONLINE INC., 1000 MADISON AVENUE, NORRISTOWN, PA
19406
(610) 650-8600 EXT. 8202
EXHIBIT B - REUTERS SERVICES - NETEXCHANGE-TM- PROFESSIONAL CLIENT AGREEMENT
REUTERS SERVICES - PROFESSIONAL CLIENT AGREEMENT, dated 05/07/99
between Reality Online Inc. a REUTERS Company ("Reality") with its principal
office at 1000 Madison Ave., Norristown, PA 19403 and Harris, Webb & Garrison,
Inc. (Client) with its principal offices at 5599 San Felipe, Suite 301,
Houston, TX 77056 (Client Address).
WHEREAS Client wishes to distribute the Reuters Services via a Net
Exchange-TM- Pro Site to Subscribers, as defined herein, NOW THEREFORE, in
consideration of the promises set forth below and the mutual agreements
contained herein and for other good and valuable consideration, the parties,
intending to be legally bound, agree as follows:
1. DEFINITIONS
1.1. CONTENT shall mean the text, information, data, images (still and
moving) and sound recordings included in the Reuters Services.
1.2. DISTRIBUTOR shall mean PC Financial Network, a service of Donaldson,
Lufkin & Jenrette Securities Corporation, with its principal office at One
Pershing Plaza, Jersey City, NJ 07399.
1.3. NET EXCHANGE PRO SITE shall mean a World Wide Web site developed,
operated and hosted by Distributor on behalf of Client, which site shall have
a password-protected area accessible only to Subscribers.
1.4. REUTERS SERVICES shall mean the Reuters North American Securities
News content delivered by Distributor via the NetExchange-TM- Site.
1.5. PRO SERVICE shall mean an electronic, subscription-based,
information service, which includes access to the Reuters Services, provided
by Distributor to Subscribers.
1.6. SUBSCRIBER shall mean a member of Clients firm, acting in a
professional status, who subscribes to the Pro Service via a NetExchange-TM-
Pro Site.
2. TERMS
2.1. Client shall ensure that all Subscribers agree not to copy all or
part of any of the Content except for purposes of downloading and/or printing
by Subscribers in the normal course of their brokerage business activities.
2.2. Client shall ensure that all Subscribers agree not to distribute,
disseminate or republish all or part of any of the Content in any hardcopy or
electronic form, including print, on-line services, CD-ROM, DVD and facsimile,
or in any other form, except for hardcopy or facsimile distribution by
Subscribers to their individual brokerage clients in the normal course of the
Subscribers brokerage business activities.
2.3. Client and its Subscribers acknowledge that Reuters will not be
liable for any damages (including special or consequential damages) of any
kind resulting in any way from (a) the use of the Content, or (b) failures,
delays or interruptions in the delivery of the Content or in the availability
of all or any portion thereof.
2.4. Client and its Subscribers acknowledge that Reuters does not warrant
the accuracy, completeness, currentness, merchantability or fitness for a
particular purpose of the Content.
2.5. Client and its Subscribers acknowledge that Reuters owns all rights
(including copyright), title and interest in the Content.
2.6. Client will be considered to have met its obligations hereunder by
providing the following text on all NetExchange-TM- Pro Site pages which
contain Content: Copyright Reuters, Ltd. Use is subject to the terms and
conditions of USER AGREEMENT, where the words User Agreement are a hyper-text
link which accesses a page containing the User Agreement (attached as Exhibit
1).
For: REALITY ONLINE INC. For: Harris, Webb & Garrison, Inc.
By: By: Harry C. Webb
Name: Name: Harry C. Webb
Title: Title: COO
Date: Date: 5-21-99
23
<PAGE>
Exhibit I - User Agreement
BY ACCESSING, DOWNLOADING, VIEWING OR USING ANY DATA FROM REUTERS YOU AGREE TO
THE TERMS OF THIS AGREEMENT WITH REUTERS, LTD (REUTERS). CONTINUED ACCEPTANCE
OF AND COMPLIANCE WITH THE TERMS OF THIS AGREEMENT ARE A CONDITION OF YOUR
RIGHT TO ACCESS OR USE THE DATA. ACCESSING OR USING THE DATA AFFIRMS YOUR
ACCEPTANCE OF THIS AGREEMENT AND ITS TERMS. IF YOU NOT DESIRE TO ACCEPT THE
TERMS OF THIS AGREEMENT, DO NOT ACCESS OR USE THE DATA AND EXIT NOW.
DATA LICENSE. In consideration of access to the Data, Reuters grants you a
non-exclusive, non-transferable and limited license to use the Data for your
own internal business or personal use for a period of thirty (30) days.
subject to all terms and conditions provided herein.
PROPRIETARY RIGHTS. You agree that all rights, title and interest (including
all copyrights, trademarks, service marks and other intellectual property
rights) in and to the Data, belong exclusively to Reuters.
DISCLAIMER. The Data is provided "as is" and without warranty of any kind.
Reuters does not warrant, guarantee or make any representations concerning the
Data, including accuracy, reliability, completeness, currentness,
functionality or otherwise. Reuters does not make any warranties, express or
implied, including, without limitation, any implied warranties of
merchantability and/or fitness for a particular purpose, with respect to the
Data. Reuters does not warrant the Data to be free of any error or defect.
YOU:
(1) assume the entire risk as to the suitably, use, results of use,
performance, accuracy, completeness, currentness and performance of the
Data;
(2) waive any claim of detrimental reliance upon the Data; and
(3) agree to independently verify, through other sources, the accuracy,
completeness and currentness of the Data.
LIMITED LIABILITY. Reuters entire liability, and your sole and exclusive
remedy, as to any defective Data shall be retransmission of the Data or
defective portion thereof. Reuters shall not be liable for any direct,
indirect, consequential or incidental damages (including damages for loss of
business profits, business interruption, loss of business information and the
like) arising out of your use or inability to use the Data, even if advised of
the possibility of such damages.
TERMINATION. This agreement shall remain in effect for thirty (30) days,
unless sooner terminated by Reuters. This agreement may be terminated at any
time by Reuters and shall automatically be terminated in the event you fail to
comply with any terms of this Agreement. The Proprietary Rights, Disclaimer
and Limited Liability provisions shall survive any termination of this
Agreement.
INJUNCTIVE RELIEF. You agree that legal remedies alone provide inadequate
protection of the Data and intellectual property rights embodied therein, and
that in addition to other relief Reuters may seek temporary or permanent
injunctions to enforce their respective rights. You hereby waive the
requirement of any bond in the event Reuters seeks injunctive relief.
SEVERABILITY. Any provision hereof found by a tribunal of competent
jurisdiction to be illegal or unenforceable shall be automatically conformed
to the minimum requirements of law and all other provisions shall remain in
full force and effect. Waiver of any provision hereof in one instance shall
not preclude enforcement on future occasions. Headings and subheadings are for
purposes of reference and convenience and have no substantive effect.
ENTIRE AGREEMENT. This Agreement: (1) constitutes the complete and exclusive
agreement among the parties with respect to the Data; and (2) supersedes all
other communications, representations, statements and understandings, whether
oral or written, among the parties concerning its subject matter.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
OPTIONS PRICE REPORTING AUTHORITY
Subscriber Agreement
(Last Sale and Quotation Information)
TO THE PARTICIPANT EXCHANGES IN THE OPTIONS PRICE REPORTING AUTHORITY:
The undersigned ("Subscriber") hereby applies for the privilege of
receiving current options last sale information and current options quotation
information (the "Information") from a committee of Participant Exchanges
designated as the Options Price Reporting Authority ("OPRA") pursuant to a
plan for the consolidated reporting of last sale and quotation information in
eligible option contracts (the "Plan"), which Plan has been authorized by the
Securities and Exchange Commission. The Plan and the options price reporting
system described therein are administered by the Participant Exchanges through
OPRA. At the date of this Agreement, the Participant Exchanges are:
AMERICAN STOCK EXCHANGE, INC.
CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED
NEW YORK STOCK EXCHANGE, INC.
PACIFIC STOCK EXCHANGE, INCORPORATED
PHILADELPHIA STOCK EXCHANGE, INC.
For the purpose of this application, and as a condition of being approved
to receive the Information, Subscriber hereby represents and agrees with each
Participant Exchange as follows:
1. Subscriber's full name and business address is: Harris Webb & Garrison
5599 San Felipe, Ste. 301
Houston, TX 77056
2. The business conducted by Subscriber is: Investment Banking/Broker
Dealer
3. For the privilege of receiving the Information, Subscriber agrees to pay
OPRA a fee in such amount and at such times as shall be established by OPRA
from time to time and set forth in a written notice to Subscriber plus any
applicable federal, state or local taxes. No increase in such fees shall be
effective less than thirty (30) days after written notice of such increase
is sent to Subscriber.
4. Subscriber acknowledges that the Information is and shall remain the
property of the respective Participant Exchange on which the reported
transaction took place or the reported quotation was entered and Subscriber
shall make no use of the Information except in compliance with the terms of
this Agreement.
5. Subscriber shall receive the Information only at its principal place of
business and/or its branch offices and only for its individual use in its
business. Subscriber shall not, without the prior approval of OPRA,
furnish the Information, nor permit the Information to be furnished, to any
other person or place.
6. Subscriber is not engaged in, and will not engage in, the operation of any
illegal business and will not use, or permit anyone else to use, the
Information for any illegal purpose.
7. Subscriber shall at all reasonable times permit OPRA, through its agents or
the agents of any of the Participant Exchanges, to have access to the
locations where the Information is received for the purpose of observing
the use made of the Information and to inspect all equipment and apparatus
used in connection therewith.
8. NEITHER OPRA, OPRA's PROCESSOR NOR ANY PARTICIPANT EXCHANGE GUARANTEES THE
TIMELINESS, SEQUENCE, ACCURACY OR COMPLETENESS OF ANY OPTIONS INFORMATION,
AND NEITHER OPRA, OPRA's PROCESSOR NOR ANY PARTICIPANT EXCHANGE SHALL BE
LIABLE IN ANY WAY TO VENDOR, TO ANY OF VENDOR'S CUSTOMERS, OR TO ANY OTHER
PERSON FOR ANY LOSS, DAMAGES, COST OR EXPENSE WHICH MAY ARISE FROM ANY
FAILURE OF PERFORMANCE BY OPRA, OPRA's PROCESSOR OR ANY PARTICIPANT
EXCHANGE, OR FROM ANY DELAYS, INACCURACIES, ERRORS IN, OR OMISSIONS OF ANY
OPTIONS
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
INFORMATION OR THE TRANSMISSION OR DELIVERY THEREOF, WHETHER OR NOT
DUE TO ANY NEGLIGENT ACT OR OMISSION ON THE PART OF OPRA, OPRA'S PROCESSOR
OR ANY PARTICIPANTEXCHANGE. IN NO EVENT SHALL OPRA, OPRA'S PROCESSOR OR ANY
PARTICIPANT EXCHANGE BE LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, TRADING
LOSSES, OR DAMAGES RESULTING FROM INCONVENIENCE OR LOSS OF USE OF THE
SERVICE.
9. The Subscriber's privilege of receiving the Information hereunder shall
continue in force until the expiration of thirty (30) days after written
notice shall have been delivered by Subscriber to OPRA or by OPRA to
Subscriber of an intention to terminate this Agreement, unless sooner
terminated by OPRA in accordance with paragraph 10 hereof.
10. Notwithstanding the provisions of paragraph 9 above, Subscriber's privilege
of receiving the Information hereunder may be denied or terminated
forthwith at any time by OPRA upon a determination that Subscriber has
violated any provision of this Agreement or that such action is necessary
or appropriate in the public interest or for the protection of investors.
In the event OPRA does not approve Subscriber's application to receive the
Information or subsequently terminates Subscriber's privilege of receiving
the Information for reasons other than the non-payment of fees specified
from time to time by OPRA as provided in paragraph 3 hereof, such action
shall be taken only after Subscriber has been given notice and opportunity
for a hearing; provided, however, that OPRA may terminate Subscriber's
privilege of receiving the Information prior to such notice and hearing
where it is determined that immediate termination is appropriate and in the
public interest or for the protection of investors, in which event
Subscriber shall be entitled to notice and hearing as soon as practicable
following such termination. When Subscriber is adversely affected by final
action of OPRA pursuant to this paragraph, Subscriber shall be entitled to
have such action reviewed in accordance with the applicable rules and
regulations of the Securities and Exchange 'commission.
11. Nothing herein shall be deemed to prevent or restrict any Participant
Exchange from discontinuing to furnish options last sale information or
quotation information for dissemination pursuant to the Plan (referred to
above), nor to restrict OPRA from making such changes in the speed of
transmission, the characteristics of the electrical signals representing
the Information or the manner of disseminating the same, as OPRA shall from
time to time determine to be appropriate: but in the event of any such
discontinuance or change, OPRA shall give such notice thereof as is
reasonable under the circumstances.
12. Subscriber agrees that neither OPRA nor any Participant Exchange shall be
liable to it or to any other person, firm or corporation for any amount
which Subscriber may be obligated to pay the supplier or lessor of any
equipment through which Subscriber receives the Information upon the
termination of any agreement pursuant to which such equipment is furnished
to Subscriber.
13. Subscriber certifies the accuracy of the information provided herein and
agrees to inform OPRA promptly at its address set forth below of any
changes in such Information and to furnish OPRA any additional information
requested by it in connection with Subscriber's receipt of the Information.
14. The terms and conditions hereof shall be subject to any applicable
provisions of the Securities Exchange Act of 1934 (as amended) and any
rules and regulations promulgated thereunder.
Subscriber agrees that the provisions hereof shall extend and be applicable to
options last sale information or quotation information reported by any other
:exchange which commences the trading of options and becomes a Participant in
OPRA.
Dated: Name of Subscriber:
By:
B1LLING INFORMATION TO BE COMPLETED BY SUBSCRIBER
Notify OPRA promptly of any changes to the following information)
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
Subscriber Name:
Bill to the attention of:
Address:
Phone Number:
Fax Number:
Vendor providing service:
For purpose of qualifying for OPRA's reduced member subscriber fee, Subscriber
certifies that It is a member or associate member In good standing of the
following Participant Exchanges (check all that apply):
/ / American Stock Exchange
/ / Chicago Board Options Exchange
/ / New York Stock Exchange
/ / Pack Stock Exchange
/ / Philadelphia Stock Exchange
FOR OPRA USE ONLY
APPROVED:
Subscriber No. OPTIONS PRICE REPORTING
AUTHORITY
Location No. 400 SOUTH LASALLE STREET
Start Date CHICAGO, ILLINOIS 60605
Number of Devices USA
(312)-786-7195
By
Date of Approval
Subscriber remains responsible for all fees due to OPRA hereunder, even if a
third party has agreed to pay such fees on behalf of Subscriber
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
AGREEMENT FOR RECEIPT OF CONSOLIDATED NETWORK A DATA
AND NYSE MARKET DATA
This Agreement permits the undersigned "Subscriber to arrange with
authorized vendors or with the New York Stock Exchange, Ink. ("NYSE"), as
appropriate to receive any one or more Types of Market Data* and to use that
Market Data for interrogation* display, tape* display or other purposes not
entailing retransmission. This Agreement governs whichever Type(s) of Market
Data, means of receipt and use(s) Subscriber receives, arranges and makes.
Subscriber and NYSE agree to all terms and conditions of this Agreement.
Subscriber Name: Harris Webb & Garrison
5599 San Felipe, Ste. 301
Houston, TX 77056 USA
Name and Title of Individual Signing: Harry C . Webb
Billing address if different than above: same as above
Taxpayer ID or Social Security No. ###-##-####
Type of Business: Investment Banking
Tel. No. 713-993-4600
CHECK BOX IF MEMBER OF:
<TABLE>
<S> <C> <C>
American Stock Exchange, Inc. / / Cincinnati Stock Exchange, Inc. / / New York Stock Exchange, Inc. / /
Boston Stock Exchange, Inc. / / Midwest Stock Exchange, Inc. / / Pacific Stock Exchange, Inc. / /
Chicago Board Options Exchange, Inc. / / National Association of / / Philadelphia Stock Exchange, Inc. / /
Securities Dealers, Inv.
</TABLE>
SUBSCRIBER , NEW YORK STOCK EXCHANGE, INC.
On behalf of the CTA Plan Participants (in respect of CTA
Network A last sale information) and the CQ Plan
Participants (in respect of CQ Network A quotation
information) and on its own behalf solely (in respect of
NYSE Securities Information*)
By: Harry C. Webb By:
Dated: Dated:
PART 1: PROVISIONS OF GENERAL APPLICABILITY
1. DEFINITIONS
(a) "Authorizing SRO" means each of the authorizing self-regulatory
organizations (i.e., each CTA Plan Participant, each CQ Plan Participant and
NYSE).
(b) "Interrogation," as used to differentiate devices and displays, refers
to (i) displaying Market Data for a security in response to Subscriber's
specific inquiries or (ii) displaying changes in Market Data as they occur
for a limited number of securities specified by Subscriber.
(c) "Market Data" means (i) CTA Network A last sale information, (ii) CQ
Network A quotation information, (iii) NYSE bond last sale information, (iv)
NYSE bond quotation information, (v) NYSE index information and (vi) each
other category of market information made available by NYSE as NYSE may
designate from time to time. Each of the above categories includes all
information that derives from the category's information. Stock and bond last
sale prices and information deriving from those prices cease to be "Market
Data" 15 minutes after the Authorizing SRO(s) make the prices available over
their low speed data transmission facilities. NYSE may alter such period from
time to time on 60 days' written notice to Subscriber.
(d) "NYSE Securities Information" means the Types of Market Data
enumerated or referred to in clauses (iii)-A) of Paragraph 1(c).
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
(e) "Person" includes any natural person or proprietorship or any
corporation, partnership or other organization.
(f) "Processor means the processor under the CTA Plan and CQ
(g) "Subscriber Device" means a component of Subscriber Equipment' that
provides an interrogation display, a tape display or both displays.
(h)"Subscriber Equipment" means any display device, computer, software,
wires, transmission facility or other equipment by which Subscriber receives,
displays or otherwise uses Market Data.
(i) "Tape," as used to differentiate devices and displays, refers to
displaying on a current and continuous basis (i) last sale prices as made
available over the data transmission facilities of one or more Authorizing
SROs or as retransmitted by an authorized vendor or (ii) a subset of the
prices so made available or retransmitted that Subscriber selects on the
basis of, for example, transaction size or security.
(j) "Type of Market Data" means the Market Data in any of the categories
enumerated or referred to in Paragraph 1(c).
2. PROPRIETARY NATURE OF DATA-Each Authorizing SRO asserts a proprietary
interest in its "Relevant Market Data" (i.e., the Market Data that it
furnishes to the Processor and in case of NYSE, that it otherwise makes
available).
3. NYSE CAPACITY; ENFORCEMENT-Whenever this Agreement requires "NYSE" to
take any action, or to receive any payment, information or notice, as to any
Type of Market Data, NYSE acts on behalf of the Authorizing SRO(s) for the
Type of Market Data. Any Authorizing SRO may enforce this Agreement as to its
Relevant Market Data, by legal proceeding or otherwise, against Subscriber
and may likewise proceed against any person that obtains its Relevant Market
Data other than as this Agreement contemplates. Subscriber shall pay the
reasonable attorneys' fees that any Authorizing SRO incurs in enforcing this
Agreement against Subscriber.
4. CHARGES
(a) PAYMENT-Subscriber shall pay in United States dollars the applicable
charge(s) as from time to time in effect, plus any applicable tax. Charges
apply for receipt of Market Data whether or not used.
(b) BILLING-Subscriber will be billed in advance for recurring data and
equipment charges on a periodic basis (monthly unless otherwise notified)
based upon information that Subscriber or authorized vendors report.
Subscriber will be billed upon incurrence for one-time charges, such as those
relating to installations, relocations and provision of additional equipment
facilities. Subscriber shall pay invoices promptly upon receipt. Errors in
and omissions from invoices, and errors or delays in sending, or failures to
send or receive, invoices, do not relieve Subscriber of its payment
obligations.
5. DATA SECURITY
(a) RETRANSMISSION PROHIBITED-Subscriber shall use Market Data only for
its individual use in its business. Subscriber shall neither furnish Market
Data to any other person nor retransmit Market Data among its premises.
(b) CONTROL OF EQUIPMENT-Subscriber shall assure that it or its partners
or officers and employees have sole control or physical possession of, and
sole access to Market Data through, Subscriber Equipment.
(c) DISPLAYS ACCESSIBLE TO THE GENERAL PUBLIC-Notwithstanding the
limitations of Paragraphs 5(a) and 5(b), Subscriber may install one or more
Subscriber Devices on enclosed portions of premises to which the general
public has access if Subscriber (i) controls the premises and access to them
and (ii) gives NYSE written notice of the installation. Subscriber may permit
individuals who are passing through or visiting the premises to operate or to
view the devices on a sporadic basis, and for limited periods of time, during
their temporary presence on the premises.
(d) EQUIPMENT SECURITY-Subscriber understands that this Paragraph 5
requires Subscriber to carefully locate and protect Subscriber Equipment.
Subscriber shall abide by any written requirements that NYSE specifies to
regulate the location or connection of Subscriber Equipment or to otherwise
assure compliance with this Paragraph 5. Subscriber guarantees that any
person installing or maintaining Subscriber Equipment will comply with this
Paragraph 5.
(e) INSPECTION-At any reasonable time, Subscriber shall assure that
authorized representatives of NYSE have access to the premises at which
Subscriber Equipment is located, and, in the presence of Subscriber's
officials, the rights to examine the equipment and to observe Subscriber's
use of the equipment.
6. DATA NOT GUARANTEED-Neither NYSE, any other Authorizing SRO nor the
Processor (the "disseminating parties") guarantees the timeliness, sequence,
accuracy or completeness of Market Data or of other market information or
messages disseminated by any disseminating party. No disseminating party
shall be liable in any way to Subscriber or to any other person for (a) any
inaccuracy, error or delay in, or omission of, (i) any such data, information
or message, or (ii) the transmission or delivery of any such data,
information or message, or (b) any loss or damage arising from or occasioned
by (i) any such inaccuracy, error, delay or omission (ii) of
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
nonperformance, or (iii) interruption in any such data, information or
message, due either to any negligent act or omission by any disseminating
party or to any "force majeure" (i.e., flood, extraordinary weather
conditions, earthquake or other act of God, fire, war, insurrection, riot,
labor dispute, accident, action of government, communications or power
failure, equipment or software malfunction) or any other cause beyond the
reasonable control of any disseminating party.
7. DISSEMINATION DISCONTINUANCE OR MODIFICATION-The Authorizing SROs may
discontinue disseminating any Type of Market Data, may change or eliminate
any transmission method and may change transmission speeds or other signal
characteristics. The Authorizing SROs shall not be liable for any resulting
liability, loss or damages to Subscriber.
8. DURATION; SURVIVAL-Subject to Paragraph 7, either Subscriber or NYSE
may terminate this Agreement in 30 days' written notice to the other. In
addition, this Agreement terminates 90 days after Subscriber no longer has
the ability to receive Market Data as contemplated by this Agreement.
Withdrawal of an Authorizing SRO other than NYSE from the CTA Plan and the CQ
Plan terminates this Agreement solely as to that Authorizing SRO. Withdrawal
of NYSE from the CTA Plan and CQ Plan terminates this Agreement as to all
other Authorizing SROs. Paragraphs 3, 5(d), 6, 15(c), 15(e) and 16(e) survive
termination of this Agreement.
9. ENTIRE AGREEMENT: MODIFICATIONS-This writing contains the entire
agreement between the parties in respect of its subject matter. This
Agreement supersedes each previous agreement between Subscriber and NYSE
pursuant to which Subscriber has been receiving Market Data except insofar as
the earlier agreement covers receipt of Market Data through direct or
indirect access to the high speed line described in the CTA Plan or the CQ
Plan or any comparable high speed transmission facility that NYSE uses to
make NYSE Securities Information available. The parties may only modify this
Agreement by a writing signed by or on behalf of each of them.
10. ASSIGNMENTS-Subscriber may not assign all or part of this Agreement
without the written consent of NYSE.
11. GOVERNING LAW; CONSTRUCTION-The laws of the State of New York govem
this Agreement It shall be interpreted in accordance with those laws. In
prohibiting Subscriber from doing any act, this Agreement also prohibits
Subscriber from doing the act indirectly (e.g., by causing or permitting any
other person to the act).
12. APPLICABILITY OF 1934 ACT AND PLANS-This Agreement is subject to the
Securities and Exchange Act of 1934, the rules under that act, the CTA Plan
(as to CTA Network A last sale information) and the CQ Plan (as to CQ Network
A quotation information).
13. NOTICES; NOTIFICATION OF CHANGES-The parties shall send communications
relating to this
Agreement to: NEW YORK STOCK EXCHANGE, INC: SUBSCRIBER (AS ABOVE)
11 Wall Street
New York, New York 10005
Attention: Director of Market Data
Subscriber and NYSE may each change its address by written notice to the
other. Subscriber shall give NYSE prompt written notice of any change in (a)
the Subscriber information listed above, (b) any other information provided
to NYSE in connection with initiating the receipt of any Type of Market Data,
or (c) any description provided pursuant to Paragraph 15(d).
PART II: SPECIAL PROVISIONS
This Part II applies only to the extent that Subscriber's activity or
equipment falls within the scope of one or more of Paragraphs 14 through 16.
14. SECURITIES PROFESSIONALS: FURNISHING DATA TO CUSTOMERS AND BRANCH OFFICES
(a) SCOPE-This Paragraph 14 applies if Subscriber is a securities
professional, such as a registered broker-dealer or investment adviser, and
is an exception to Paragraphs 5(a), 5(b) and 5(c).
(b) LIMITED PROVISION OF DATA-Solely in the regular course of its
securities business, Subscriber may occasionally furnish limited amounts of
Market Data to its customers and clients and to its branch offices.
Subscriber may so furnish Market Data to its customers and clients who are
not on Subscriber's premises solely (i) in written advertisements,
educational material, sales literature or similar written communications. or
(ii) during telephonic voice communication not entailing the use of
computerized voice synthesization or similar technology. Subscriber may so
furnish Market Data to its branch offices solely (i) as provided in the
preceding sentence, or (ii) through manual entry of the data over its
teletype network. Subscriber shall not permit any customer or client to take
physical possession of Subscriber Equipment. Subscriber shall abide by any
additional limitations that NYSE specifies in writing.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
15. REPORTING: RECORDS: EQUIPMENT DESCRIPTION
(a) SCOPE-This Paragraph 15 applies whenever an authorized vendor cannot
know (e.g., by virtue of installing equipment or recognizing electronically a
unique device identifier) all information necessary to bill Subscriber for
applicable charge(s). For example, this Paragraph 15 typically applies to (i)
Subscriber Devices not leased from NYSE or an authorized vendor, (ii)
portable Subscriber Devices and Subscriber Devices that use portable
components (e.g., software) to receive Market Data and (iii) Subscriber's
receipt of Market Data through synthesized voice responses over telephones.
(b) REPORTING-Subscriber shall furnish to NYSE in writing such
information, in such form and at such times, as NYSE may reasonably specify
from time to time to permit billing of Subscriber for applicable charge(s).
However, if an authorized vendor provides Market Data to any Subscriber
Device, Subscriber shall furnish information regarding the device to the
vendor instead of NYSE unless NYSE notifies Subscriber otherwise in writing.
(c) RECORDS-Subscriber shall maintain the records upon which it bases its
reporting for two years following the period to which the records relate.
Solely to monitor Subscriber's compliance with this Paragraph 15, authorized
representatives of NYSE may examine and verify those records at any
reasonable time in the presence of Subscriber's officials.
(d) EQUIPMENT DESCRIPTIONS-Upon NYSE's written request, Subscriber shall
provide NYSE with a description acceptable to NYSE of any Subscriber
Equipment that an authorized vendor or an Authorizing SRO does not supply.
(e) INDEMNIFICATION-Subscriber shall indemnify and hold harmless each
Authorizing SRO from and against any liability, loss or damages caused by (i)
any inaccuracy in or omission from, (ii) Subscriber's failure to furnish or
to keep, or (iii) Subscribers delay in furnishing or keeping, any report or
record that this Paragraph 15 requires. Subscriber shall do so even if
Subscriber depends on information from a third party and the third party
caused the inaccuracy, omission, failure or delay. Without limiting the
generality of the foregoing, if NYSE determines that, as a consequence of any
such inaccuracy, omission, failure or delay, applicable Subscriber charges
were not billed when incurred, Subscriber may be billed for those charges and
Subscriber shall promptly pay those charges plus any applicable tax.
16. EQUIPMENT SUPPLIED BY AUTHORIZING SROS
(a) SCOPE: DEFINITION This Paragraph 16 applies to Subscriber Equipment
that one or more Authorizing SROs supply ("SRO Equipment").
(b) OWNERSHIP-The Authorizing SRO(s) or their supplier(s) own SRO
Equipment. Subscriber shall not relocate, remove or alter SRO Equipment, or
attach to SRO Equipment any equipment other than authorized equipment that an
authorized vendor supplies, without NYSE's written consent. Subscriber shall
return SRO Equipment in the same condition as it was when installed except
for normal wear and tear and for failures for which the Authorizing SROs are
responsible under Paragraph 16(d).
(c) ACCESS TO PREMISES-Subscriber shall assure that authorized
representatives of the Authorizing SRO's and of their suppliers and service
contractors may install, repair, maintain, relocate and replace SRO
Equipment, and may remove any SRO Equipment that Subscriber no longer wants
or to which it is no longer entitled, at any reasonable time.
(d) SITE PREPARATION AND MAINTENANCE-Subscriber shall prepare the site
for SRO Equipment in a manner acceptable to the Authorizing SROs and shall
bear all costs of providing adequate space and power. The authorizing SROs
shall maintain SRO Equipment subject to applicable charges. Maintenance
includes repair or replacement of failed SRO Equipment and parts as
necessary. Extraordinary charges may apply if Subscriber caused the failure.
(e) WARRANTY AND SCOPE OF LIABILITY-THE AUTHORIZING SROS PROVIDE NO
WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Paragraph
16(d) sets forth the Authorizing SROs' entire liability for performance of
SRO Equipment. The Authorizing SROs' liability to Subscriber for any
liability, loss or damages relating to SRO Equipment other than for the cost
of maintaining, repairing or replacing SRO Equipment, whether based in
contract, in tort (including negligence and strict liability) or any other
theory, shall in the aggregate not exceed the lesser of (i) $1000 or (ii) the
total charges to Subscriber under this Agreement for the period preceding the
breach or injury. The foregoing limitations do not apply to personal injury
claims. In no event shall any Authorizing SRO be liable (i) for any indirect,
incidental, special, consequential or punitive liability, loss or damages
relating to SRO Equipment, regardless of the form of the action and
foreseeability of the liability, loss or damages, or (ii) for any liability,
loss or damages due to any "force majeure" (see Paragraph 6) or for any other
cause beyond the reasonable control of the Authorizing SRO.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
AMERICAN STOCK EXCHANGE SERVICE ORDER FORM
VENDOR NAME___________________CONTACT NAME__________________
DATE SENT_____________________PHONE NUMBER__________________FAX NUMBER__________
MARKET DATA SERVICES
Phone: 212-306-1340 Fax: 212-306-2086
E-mail: Michelle Freeman: [email protected]
Lisa Jalcubowski: [email protected]
Christine Bavaro: [email protected]
A m e x.
PLEASE IDENTIFY:
/ / Request For Approval - New Account / / Name Change / / Relocation
/ / New Location / / Vendor Account Number Change / / Billing Address Change
If a name change, include old name & vendor account # here: _______________
* VERY IMPORTANT: Customer's Existing Amex Account Number: 17996 TYPE A3
--------------
Customer's Broker Dealer Number: 28188
---------------------
CUSTOMER NAME: HARRIS WEBB & GARRISON
-------------------------------------------------------
BILLING INFORMATION (Not required if Amex account # is supplied above)**:
Contact ______________________________ Phone # ______________________________
Street Address________________________ Floor/Suite __________________________
City__________________________________ State______Country_______Zip Code_____
SERVICE LOCATION (Required):
Vendor Account # _____________________
Contact ______________________________ Phone # ______________________________
Street Address________________________ Floor/Suite __________________________
City__________________________________ State______Country_______Zip Code_____
Notes:
* If a Member Firm, a Broker Dealer Number must be provided in order for member
rates to apply.
* Attach an addendum if there is a third party payor.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
<TABLE>
<C> <C> <C>
AMERICAN
STOCK EXCHANGE MARKET COMMUNICATIONS AGREEMENT FOR RECEIPT OF
86 Trinity Place Tel.: (212) 306-1340 CONSOLIDATED NETWORK B DATA AND
New York, New York 10006-1881 Fax: (212) 306-5838 (2086) AMEX MARKET DATA
</TABLE>
This Agreement permits the undersigned "Subscriber" to arrange with authorized
vendors or with the American Stock Exchange, Inc. ("AMEX"), as appropriate, to
receive any one or more Types of Market Data' and to use that Market Data for
interrogation' display, tape' display or other purposes not entailing
retransmission. This Agreement governs whichever Type(s) of Market Data, means
of receipt and use(s) Subscriber receives, arranges and makes. Subscriber and
AMEX agree to all terms and conditions of this Agreement.
(Type or Print)
<TABLE>
<S> <C> <C>
Taxpayer ID or Social Security Number.
Subscriber's Name: Harris Webb & Garrison ###-##-####
(Company Name)
Address: 5599 San Felipe, Ste. 301 Type of Business: Investment Banking
City, State ,Zip: Houston, TX 77056 Tel. No. 713-993-4600
Fax No. 713-993-4699
Country: USA
</TABLE>
SUBSCRIBER
Name: Harris, Webb & Garrison (Individual Name)
Title: COO
By: Harry C. Webb
Dated: 5-21-99
Indicate following memberships:
<TABLE>
<S> <C> <C>
American Stock Exchange, Inc. / / Chicago Stock Exchange, Inc. / / New York Stock Exchange, Inc. / /
Boston Stock Exchange, Inc. / / Cincinnati Stock Exchange, Inc. / / Pacific Stock Exchange, Inc. / /
Chicago Board Options Exchange, Inc. / / National Association of / / Philadelphia Stock Exchange, Inc. / /
Securities Dealers, Inc.
</TABLE>
PART 1: PROVISIONS OF GENERAL APPLICABILITY
1. DEFINITIONS
(a) "Authorizing SRO" means each of the authorizing self-regulatory
organizations (i.e., each CTA Plan Participant, each CQ Plan Participant and
AMEX).
(b) "Interrogation", as used to differentiate devices and displays,
refers to (i) displaying Market Data for a security in response to
Subscriber's specific inquiries or (ii) displaying changes in Market Data as
they occur for a limited number of securities specified by Subscriber..
(c) "Market Data" means (i) CTA Network Blast sale information, (ii) CQ
Network B quotation information, (iii) AMEX Index Information and (iv) each
other category of market information made available by AMEX as the AMEX may
designate from tire to time. Each of the above categories includes all
information that derives from the category's information. Last sale prices
and information deriving from those prices cease to be "Market Data" 15
minutes after the Authorizing SRO(s) make the prices available over their low
speed data transmission facilities. AMEX may alter such period from time to
time on 60 days' written notice to Subscriber.
(d) "AMEX Securities Information" means the Types of Market Data
enumerated or referred to in clauses (iii) and (iv) of Paragraph 1(c).
(e) "Person" includes any natural person or proprietorship or any
corporation, partnership or other organization.
(f) "Processor" means the processor under the CTA Plan and CQ Plan.
(g) "Subscriber Device" means a component of Subscriber Equipment' that
provides an interrogation display, a tape display or both displays.
(h) "Subscriber Equipment" means any display device, computer, software,
wires, transmission facility or other equipment by which Subscriber receives,
displays or otherwise uses Market Data.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
(i) "Tape", as used to differentiate devices and displays, refers to
displaying on a current and continuous basis (i) Market Data as currently made
available (or as may be made available in the future) over the data transmission
facilities of one or more Authorizing SROs or as retransmitted by an authorized
vendor or (ii) a subset of the Market Data so made available or retransmitted
that Subscriber selects on the basis of, for example, transaction size or
security.
(j) "Type of Market Data" means the Market Data in any of the categories
enumerated or referred to in Paragraph 1(c).
2. PROPRIETARY NATURE OF DATA - Each Authorizing SRO asserts a proprietary
interest in its "Relevant Market Data" (i.e., tile Market Data that it furnishes
to the Processor and in case of AMEX, that it otherwise makes available).
3. AMEX CAPACITY; ENFORCEMENT - Whenever this Agreement requires "AMEX" to
take any action, or to receive any payment, information or notice, as to any
Type of Market Data, AMEX acts on behalf of the Authorizing SRO(s) for the Type
of Market Data Any Authorizing SRO may enforce this Agreement as to its Relevant
Market Data, by legal proceeding or otherwise, against Subscriber and may
likewise proceed against any person that obtains its Relevant Market Data other
than as this Agreement contemplates. Subscriber shall pay the reasonable
attorneys' fees that any Authorizing SRO incurs in enforcing this Agreement
against Subscriber.
4. CHARGES
(a) PAYMENT - Subscriber shall pay in United States dollars the applicable
charge(s) as from time to time in effect, plus any applicable tax. Charges apply
for receipt of Market Data whether or not used.
(b) BILLING - Subscriber will be billed in advance fm recurring data and
equipment charges on a periodic basis (monthly unless otherwise notified) based
upon information that Subscriber or authorized vendors report Subscriber will be
billed upon incurrence for one-time charges, such as those relating to
installations, relocations and provision of additional equipment facilities.
Subscriber shall pay invoices promptly upon receipt- Errors in and omissions
from invoices, and errors or delays in sending, or failures to send or receive,
invoices, do not relieve subscriber of its payment obligations.
5. DATA SECURITY
(a) RETRANSMISSIONS PROHIBITED - Subscriber shall use Market Data only for its
individual use in its business. Subscriber shall neither furnish Market Data to
any other person nor retransmit Market Data among its premises.
(b) CONTROL OF EQUIPMENT - Subscriber shall assure that it or its partners or
officers and employees have sole control or physical possession of, and sole
access to Market Data through, Subscriber Equipment.
(c) DISPLAYS ACCESSIBLE TO THE GENERAL PUBLIC -Notwithstanding the limitations
of Paragraphs 5(a) and 5(b), subscriber may install one or more Subscriber
Devices on closed portions of premises to which the general public has access if
Subscriber (i) controls the premises and access to them and (ii) gives AMEX
written notice of the installation. Subscriber permit individuals who are
passing through or visiting the premises to operate or to view the devices on a
sporadic basis, and for limited periods of time, during their temporary presence
un the premises.
(d) EQUIPMENT SECURITY - Subscriber understands that this Paragraph 5 requires
Subscriber to carefully locate and protect Subscriber Equipment. Subscriber
shall abide by any written requirements that AMEX specifies to regulate the
location or connection of Subscriber Equipment or to otherwise assure compliance
with this Paragraph 5. Subscriber guarantees that any person installing or
maintaining Subscriber Equipment will comply with this Paragraph 5.
(e) INSPECTION - At any reasonable time, Subscriber shall assure that
authorized representatives of AMEX have access to the premises at which
Subscriber Equipment is located, and, in the presence of Subscriber's officials,
the rights to examine the equipment and to observe Subscriber's use of the
equipment.
6. DATA NOT GUARANTEED - Neither AMEX, any other Authorizing SRO nor the
Processor (the "disseminating parties') guarantees the timeliness, sequence,
accuracy or completeness of Market Data or of other market information or
messages disseminated by any disseminating party. No disseminating party shall
be liable in any way to Subscriber or to any other person for (a) any
inaccuracy, error or delay in, or omission of, (i) any such data, information or
message or (ii) the transmission or delivery of any such data, information or
message, or (b) any loss or damage arising from or occasioned by (i) any such
inaccuracy, error, delay or omission, (i) non-performance, or (iii) interruption
in any such data, information or message, due either to any negligent act or
omission by any disseminating party or to any "force majeure" (i.e., flood,
extraordinary weather conditions, earthquake or other act of God, fire, war,
insurrection, riot, labor dispute, accident, action of government,
communications or power failure, equipment or software malfunction) or any other
cause beyond the reasonable control of any disseminating party.
7. DISSEMINATION DISCONTINUANCE OR MODIFICATION - The Authorizing SROs may
discontinue disseminating any Type of Market Data, may change or eliminate any
transmission method and may change transmission speeds or other signal
characteristics. The Authorizing SROs shall not be liable for any resulting
liability, loss or damages to Subscriber.
8. DURATION; SURVIVAL - Subject to Paragraph 7, either Subscriber or AMEX may
terminate this Agreement on 30 days' written notice to the other. In addition,
this Agreement terminates 90 days after Subscriber no longer has the ability to
receive Market Data as contemplated by this Agreement Withdrawal of an
Authorizing SRO other than AMEX from the CTA Plan and the CQ Plan terminates
this Agreement solely as to that Authorizing SRO. Withdrawal of AMEX from the
CTA Plan and CQ Plan terminates this Agreement as to all other Authorizing SROs.
Paragraphs 3, 5(d), 6, 15(c), 15(e) and 16(e) survive termination of this
Agreement.
9. ENTIRE AGREEMENT; MODIFICATIONS - This writing contains the entire
agreement between the parties in respect of its subject matter. This Agreement
supersedes each previous agreement between Subscriber and AMEX pursuant to which
Subscriber has been receiving Market Data except insofar as the earlier
agreement covers receipt of Market Data through direct or indirect access to the
high speed line described in the CIA Plan or the CQ Plan or any comparable high
speed transmission facility that AMEX uses to make Market Data available. The
parties may only modify this Agreement by a writing signed by or on behalf of
each of them.
10. ASSIGNMENTS - Subscriber may not assign all or part of this Agreement
without the written consent of AMEX.
11. GOVERNING LAW; CONSTRUCTION - The laws of the State of New York govern
this Agreement. It shall be interpreted in accordance with those laws. In
prohibiting Subscriber from doing any act, this Agreement also prohibits
Subscriber from doing the act indirectly (e.g., by causing or permitting any
other person to do the act).
12. APPLICABILITY OF 1934 ACT AND PLANS - This Agreement is subject to the
Securities and Exchange Act of 1934, the rules under that act, the CTA Plan (as
to CTA Network B fast sale information) and the CQ Plan (as to CQ Network B
quotation information).
13. NOTICES; NOTIFICATION OF CHANGES - The parties shall send communications
relating to this Agreement to:
American Stock Exchange, Inc. Subscriber (as above)
86 Trinity Place
New York, New York 10006-1881
Attention: Market Communications
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
Subscriber and AMEX may each change its address by written notice to the
other. Subscriber shall give AMEX prompt written notice of any change in (a)
the Subscriber information listed above, (b) any other information provided
to AMEX in connection with initiating the receipt of any Type of Market Data
or (c) any description provided pursuant to Paragraph 15(d).
PART II: SPECIAL PROVISIONS
This Part II applies only to the extent that Subscriber's activity or equipment
falls within the scope of one or more of Paragraphs 14 through 16.
14. SECURITIES PROFESSIONALS: FURNISHING DATA TO CUSTOMERS AND BRANCH OFFICES
(a) SCOPE - This Paragraph 14 applies if Subscriber is a securities
professional, such as a registered broker-dealer or investment adviser, and is
an exception to Paragraphs 5(a), 5(b) and 5(c).
(b) LIMITED PROVISION OF DATA - Solely in the regular course of its
securities business, Subscriber may occasionally furnish limited amounts of
Market Data to its customers and clients and to its branch offices. Subscriber
may so furnish Market Data to its customers and clients who are not on
Subscriber's premises solely (i) in written advertisements, educational
material, sales literature or similar written communications or (ii) during
telephonic voice communication not entailing the use of computerized voice
synthesization or similar technology. Subscriber may so furnish Market Data to
its branch offices solely (i) as provided in the preceding sentence or (ii)
through manual entry of the data over its teletype network. Subscriber shall not
permit any customer or client to take physical possession of Subscriber
Equipment. Subscriber shall abide by any additional limitations that AMEX
specifies in writing.
15. REPORTING; RECORDS; EQUIPMENT DESCRIPTION
(a) SCOPE - This Paragraph 15 applies whenever an authorized vendor cannot
know (e.g., by virtue of installing equipment or recognizing electronically a
unique device identifier) all information necessary to bill Subscriber for
applicable charge(s). For example, this Paragraph 15 typically applies to (i)
Subscriber Devices not leased from AMEX or an authorized vendor, (ii) portable
Subscriber Devices and Subscriber Devices that use portable components (e.g.,
software) to receive Market Data and (iii) Subscriber's receipt of Market Data
through synthesized voice responses over telephones.
(b) REPORTING- Subscriber shall furnish to AMEX in writing such information,
in such form and at such times, as AMEX may reasonably specify from time to time
to permit billing of Subscriber for applicable charge(s). However, if an
authorized vendor provides Market Data to any Subscriber Device, Subscriber
shall furnish information regarding the device to the vendor instead of AMEX
unless AMEX notifies Subscriber otherwise in writing.
(c) RECORDS - Subscriber shall maintain the records upon which it bases its
reporting for two years following the period to which the records relate. Solely
to monitor Subscriber's compliance with this Paragraph 15, authorized
representatives of AMEX may examine and verify those records at any reasonable
time in the presence of Subscriber's officials.
(d) EQUIPMENT DESCRIPTIONS - Upon AMEX's written request, Subscriber shall
provide AMEX with a description acceptable to AMEX of any Subscriber Equipment
that an authorized vendor or an Authorizing SRO does not supply.
(e) INDEMNIFICATION - Subscriber shall indemnify and hold harmless each
Authorizing SRO from and against any liability, loss or damages caused by (i)
any inaccuracy in or omission from, (ii) Subscriber's failure to furnish or to
keep, or (ii) Subscriber's delay in furnishing or keeping, any report or record
that this Paragraph 15 requires. Subscriber shall do so even if Subscriber
depends on information from a third party and the third party caused the
inaccuracy, omission, failure or delay. Without limiting the generality of the
foregoing, if AMEX determines that, as a consequence of any such inaccuracy,
omission, failure or delay, applicable Subscriber charges were not billed when
incurred, Subscriber may be billed for those charges and Subscriber shall
promptly pay those charges plus any applicable tax.
<PAGE>
16. EQUIPMENT SUPPLIED BY AUTHORIZING SROS
(a) SCOPE: DEFINITION - This Paragraph 16 applies to Subscriber Equipment
that one or more authorizing SROs supply ("SRO Equipment").
(b) OWNERSHIP - the Authorizing SRO(s) or their suppliers) own SRO Equipment.
Subscriber shall not relocate, remove or alter SRO Equipment, or attach to SRO
Equipment any equipment other than authorized equipment that an authorized
vendor supplies, without AMEX's written consent. Subscriber shall return SRO
Equipment in the same condition as it was when installed except for normal wear
and tear and for failures for which the Authorizing SROs are responsible under
Paragraph 16(d).
(c) ACCESS TO PREMISES - Subscriber shall assure that authorized
representatives of the Authorizing SROs and of their suppliers and service
contractors may, install, repair, maintain, relocate and replace SRO Equipment,
and may remove any SRO Equipment that Subscriber no longer wants or to which it
is no longer entitled, at any reasonable time.
(d) SITE PREPARATION AND MAINTENANCE - Subscriber shall prepare the site for
SRO Equipment in a manner acceptable to the Authorizing SROs and shall bear all
costs of providing adequate space and power. The Authorizing SROs shall maintain
SRO Equipment subject to applicable charges. Maintenance includes repair or
replacement of failed SRO Equipment and parts as necessary. Extraordinary
charges may apply if Subscriber caused the failure.
(e) WARRANTY AND SCOPE OF LIABILITY - THE AUTHORIZING SROs PROVIDE NO
WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATTON, IMPLIED WARRANTY OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Paragraph 16(d) sets forth
the Authorizing SROs' entire liability for performance of SRO Equipment. The
Authorizing SROs' liability to Subscriber for any liability, loss or damages
relating to SRO Equipment other than for the cost of maintaining, repairing or
replacing SRO Equipment, whether based in contract, in tort (including
negligence and strict liability) or any other theory, shall in the aggregate not
exceed the lesser of (i) $1,000 or (ii) the total charges to Subscriber under
this Agreement for the period preceding the breach or injury. The foregoing
limitations do not apply to personal injury claims. In no event shall any
Authorizing SRO be liable (i) for any indirect, incidental, special,
consequential or punitive liability, loss or damages relating to SRO Equipment,
regardless of the foam of the action and foreseeabilitv of the liability, loss
or damages or (ii) for any liability, loss or damages due to any "force majeure"
(see Paragraph 6) or for any other cause beyond the reasonable control of the
Authorizing SRO.
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
THE VENDOR AND ITS AGENTS MAY NOT MODIFY OR WAIVE ANY TERM OF THIS
AGREEMENT. ANY ATTEMPT TO MODIFY THIS AGREEMENT, EXCEPT BY NASDAQ, IS VOID.
THE NASDAQ STOCK MARKET, INC. ("NASDAQ") CONSOLIDATED SUBSCRIBER AGREEMENT
1. The word "CORPORATIONS" means The Nasdaq Stock Market, Inc. and its
affiliates. The word "INFORMATION" means certain data and other information:
relating to securities or other financial instruments, products, vehicles or
devices; or relating to Persons regulated by the Corporations or to
activities of the Corporations; or gathered by the Corporations from other
sources. The word "OR" includes the word "AND". The phrase "CLAIMS OR LOSSES"
means any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs, judgments, settlements, and expenses of
whatever nature, whether incurred by or issued against an indemnified party
or a third party, including, without limitation, (1) indirect, special,
punitive, consequential or incidental loss or damage, (including, but not
limited to, trading losses, loss of anticipated profits, loss by reason of
shutdown in operation or increased expenses of operation, or other indirect
loss or damage) and (2) administrative costs, investigatory costs, litigation
costs, and auditors' and attorneys' and fees and disbursements (including
in-house personnel). The word "PERSON" means any natural person,
proprietorship, corporation, partnership, or other entity whatsoever. The
phrase "NON-PROFESSIONAL SUBSCRIBER" means any natural person who is neither:
(a) registered or qualified in any capacity with the SEC, the Commodities
Futures Trading Commission, any state securities agency, any securities
exchange or association, or any commodities or futures contract market or
association; (b) engaged as an "investment advisor" as that term is defined
in Section 201 (11) of the Investment Advisors Act of 1940 (whether or not
registered or qualified under that Act); nor, (c) employed by a bank or other
organization exempt from registration under federal or state securities laws
to perform functions that would require registration or qualification if such
functions were performed for an organization not so exempt. The phrase
"PROFESSIONAL SUBSCRIBER" means all other persons who do not meet the
definition of Non-Professional Subscriber. When it appears alone, the word
"SUBSCRIBER" encompasses all Non-Professional and Professional Subscribers.
The phrase "VENDOR'S SERVICE" means the service from a vendor, including the
data processing equipment, software, and communications facilities related
thereto, for receiving, processing, transmitting, using and disseminating the
Information to or by Subscriber.
2. Subscriber is granted the right to receive from Nasdaq the Information
under the terms stated herein or in the NASD Rules. "NASD Rules" shall mean
all applicable laws (including intellectual property, communications, and
securities laws), statutes, and regulations, the rules and regulations of the
SEC, the rules and regulations of the Corporations including, but not limited
to, those requirements established by the Corporations' rule filings (with
such SEC approval as may be required), the Corporations' decisions and
interpretations and any User Guides, or successors of the components of the
NASD Rules, as they may exist at the time. If any payment is due directly to
Nasdaq under this Agreement, payment in full is due Nasdaq in immediately
available U.S. funds, within 30 days of date of invoice, whether or not use
is made of the Information. Interest shall be due from the date of the
invoice to the time that the amount(s) that are due have been paid.
Subscriber shall assume full and complete responsibility for the payment of
any taxes, charges or assessments imposed on Subscriber or Nasdaq (except for
U.S. federal, state, or local income taxes, if any, imposed on Nasdaq) by any
foreign or domestic national, state, provincial or local governmental bodies,
or subdivisions thereof, and any penalties or interest, relating to the
provision of the Information to Subscriber.
3. The Information is licensed only for the personal use of the
Non-Professional Subscriber and the internal use in the business of the
Professional Subscriber. By representing to Vendor that Subscriber is a
non-professional, or by continuing to receive the Information at a
nonprofessional subscriber rate, Subscriber is affirming to Vendor and the
Corporations that Subscriber meets the definition of Non-Professional
Subscriber as set forth in paragraph 1 above. Subscriber will promptly give
written notice to Vendor of any change in the name or place of residence or
place of business at which the Information is received. Subscriber may not
sell, lease, furnish or otherwise permit or provide access to the Information
to any other Person or to any other office, or place. Subscriber will not
engage in the operation of any illegal business; use or permit anyone else to
use the Information, or any part thereof, for any illegal purpose; or violate
any NASD Rule. Professional Subscribers may, on a non-continuous basis,
furnish limited amounts of the Information to customers: in written
advertisements, correspondence, or other literature; or during voice
telephonic conversations not entailing computerized voice, automated
information inquiry systems, or similar technologies. Subscriber may not
present the Information rendered in any unfair, misleading, or
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
discriminatory format. Subscriber shall take reasonable security precautions
to prevent unauthorized Persons from gaining access to the Information.
4. Subscriber acknowledges that Nasdaq, in its sole discretion, may from
time to time make modifications to its system or the Information. Such
modifications may require corresponding changes to be made in Vendor's
Service. Changes or the failure to make timely changes by Vendor or
Subscriber may sever or affect Subscriber's access to or use of the
Information. Nasdaq shall not be responsible for such effects.
5. Nasdaq grants to Subscriber a nonexclusive, non-transferable license
during the term of the Agreement to receive and use the Information
transmitted to it by Vendor and thereafter to use such Information for any
purpose not inconsistent with the terms of the Agreement or with the NASD
Rules. Subscriber acknowledges and agrees that the Corporations have
proprietary rights in the Information that originates on or derives from
markets regulated or operated by the Corporations and compilation or other
rights in Information gathered from other sources. Subscriber further
acknowledges and agrees that the Corporations' third party Information
providers have exclusive proprietary rights in their respective Information.
In the event of any misappropriation or misuse, Nasdaq or its third party
information providers shall have the right to obtain injunctive relief for
its respective materials. Subscriber will attribute source as appropriate
under all the circumstances.
6. Subscriber acknowledges that Nasdaq, as a subsidiary of NASD, when
required to do so by NASD in fulfillment of NASD's statutory obligations, may
by notice to Vendor unilaterally limit or terminate the right of any or all
Persons to receive or use the Information, and that Vendor will immediately
comply with any such notice and will terminate or limit the furnishing of the
Information and confirm such compliance by notice to Nasdaq. Any affected
Person will have available to it such procedural protections as are provided
by the Exchange Act and applicable rules thereunder. Neither Nasdaq nor NASD
shall have any liability when complying with such NASD notice.
7. Subscriber will maintain such accurate and verifiable records regarding
the use of the Information and including the number and location of all
devices that receive the Information, as may be required, and will make these
records available for a period of 3 years in a form acceptable to Nasdaq for
inspection by Nasdaq's auditors upon reasonable notice. Subscriber shall make
its premises available to Nasdaq for review of said records and for physical
inspection of Vendor's Service and of Subscriber's use of the Information,
all at reasonable times, upon reasonable notice, to ensure compliance with
this Agreement.
8. To the extent permitted by applicable law, Subscriber acknowledges and
agrees that the termination of the Vendor's Service for failure to make
payments shall not be deemed or considered to be, and Subscriber waives any
right to represent or assert that any such exercise constitutes, an act or
omission or an improper denial or limitation of access by Nasdaq to any
service or facility operated by Nasdaq as contemplated in Section 11A of the
Exchange Act, or any other provision of the Exchange Act, or any rule,
regulation, or interpretation adopted thereunder.
9. NASDAQS WARRANTIES/DISCLAIMER OF WARRANTIES. NASDAQ SHALL ENDEAVOR TO
OFFER THE INFORMATION AS PROMPTLY AND ACCURATELY AS IS REASONABLY
PRACTICABLE. IN THE EVENT THAT THE INFORMATION IS NOT AVAILABLE AS A RESULT
OF A FAILURE BY NASDAQ TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT,
NASDAQ WILL ENDEAVOR, GIVING DUE REGARD FOR THE COST, TIME, AND EFFECT ON
OTHER USERS, TO CORRECT ANY SUCH FAILURE. IN THE EVENT THAT THE INFORMATION
IS NOT AVAILABLE, IS DELAYED, IS INTERRUPTED, IS INCOMPLETE, OR IS NOT
ACCURATE OR IS OTHERWISE MATERIALLY AFFECTED FOR A CONTINUOUS PERIOD OF FOUR
(4) HOURS OR MORE DURING THE TIME THAT NASDAQ REGULARLY TRANSMITS THE
INFORMATION DUE TO THE FAULT OF NASDAQ (EXCEPT FOR A REASON PERMITTED IN THIS
AGREEMENT OR IN NASDAQ'S AGREEMENT WITH THE VENDOR), SUBSCRIBER'S OR ANY
OTHER PERSON'S EXCLUSIVE REMEDY AGAINST NASDAQ SHALL BE (A) IF SUBSCRIBER
OR.ANY 'OTHER PERSON CONTINUES TO RECEIVE THE INFORMATION OR ANY OTHER DATA
AND/OR INFORMATION OFFERED BY NASDAQ, A PRORATED MONTH'S CREDIT OF ANY MONIES
DUE, IF ANY, FOR THE AFFECTED INFORMATION DIRECTLY TO NASDAQ FROM SUBSCRIBER,
OR, IF APPLICABLE, FROM SAID OTHER PERSON, FOR THE PERIOD AT ISSUE OR, (B) IF
SUBSCRIBER OR ANY OTHER PERSON NO LONGER RECEIVES EITHER THE INFORMATION OR
ANY OTHER DATA AND/OR INFORMATION OFFERED BY NASDAQ,
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
A PRORATED MONTH'S REFUND OF ANY MONIES DUE FOR THE AFFECTED INFORMATION
DIRECTLY TO NASDAQ FROM SUBSCRIBER, OR, IF APPLICABLE, FROM SAID OTHER
PERSON, FOR THE PERIOD AT ISSUE. SUCH CREDIT OR REFUND SHALL, IF APPLICABLE,
BE REQUESTED BY WRITTEN NOTICE TO NASDAQ WITH ALL PERTINENT DETAILS. BEYOND
THE WARRANTIES STATED IN THIS SECTION, THERE ARE NO OTHER WARRANTIES OF ANY
KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION,
TIMELINESS, TRUTHFULNESS, SEQUENCE, COMPLETENESS, ACCURACY, FREEDOM FROM
INTERRUPTION), ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF
DEALING, OR COURSE OF PERFORMANCE, OR THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE.
10. CORPORATIONS' LIMITATION OF LIABILITY. (A) EXCEPT AS MAY OTHERWISE BE SET
FORTH HEREIN, THE CORPORATIONS SHALL NOT BE LIABLE TO SUBSCRIBER, ITS VENDOR
OR ANY OTHER PERSON FOR INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL, OR
INCIDENTAL LOSS OR DAMAGE (INCLUDING, BUT NOT LIMITED TO, TRADING LOSSES,
LOSS OF ANTICIPATED PROFITS, LOSS BY REASON OF SHUTDOWN IN OPERATION OR
INCREASED EXPENSES OF OPERATION, COST OF COVER, OR OTHER INDIRECT LOSS OR
DAMAGE) OF ANY NATURE ARISING FROM ANY CAUSE WHATSOEVER, EVEN IF THE
CORPORATIONS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(B) THE CORPORATIONS SHALL NOT BE LIABLE TO SUBSCRIBER OR ANY OTHER
PERSON FOR ANY UNAVAILABILITY, INTERRUPTION, DELAY, INCOMPLETENESS, OR
INACCURACY OF THE INFORMATION THAT LASTS LESS THAN FOUR (4) CONTINUOUS HOURS
DURING THE TIME THAT NASDAQ REGULARLY TRANSMITS THE INFORMATION OR IF THE
INFORMATION IS MATERIALLY AFFECTED FOR LESS THAN FOUR (4) CONTINUOUS HOURS
DURING THE TIME THAT NASDAQ REGULARLY TRANSMITS THE INFORMATION.
(C) IF ANY OR ALL OF THE CORPORATIONS ARE FOR ANY REASON HELD LIABLE TO
SUBSCRIBER OR TO ANY OTHER PERSON, WHETHER IN TORT OR IN CONTRACT, THE
LIABILITY OF ALL OR ANY OF THE CORPORATIONS WITHIN A SINGLE YEAR (FROM THE
EFFECTIVE DATE OF THE AGREEMENT) OF THE AGREEMENT, COMBINED WITH THE TOTAL OF
ALL CLAIMS OR LOSSES OF SUBSCRIBER'S VENDOR, AND ANY OTHER PERSON CLAIMING
THROUGH, ON BEHALF OF, OR AS HARMED BY SUBSCRIBER, IS LIMITED TO THE GREATER
OF: (I) IF SUBSCRIBER OR ANY OTHER PERSON CONTINUES TO RECEIVE THE
INFORMATION OR ANY OTHER DATA AND/OR INFORMATION OFFERED BY NASDAQ, A
PRORATED MONTH'S CREDIT OF ANY MONIES DUE DIRECTLY TO NASDAQ FROM SUBSCRIBER,
OR, IF APPLICABLE, FROM ANY OTHER PERSON, FOR THE PERIOD AT ISSUE OR, IF
SUBSCRIBER OR ANY OTHER PERSON NO LONGER RECEIVES EITHER THE INFORMATION OR
ANY OTHER DATA AND/OR INFORMATION OFFERED BY NASDAQ, A REFUND OF ANY MONIES
DUE DIRECTLY TO NASDAQ FROM SUBSCRIBER, OR, IF APPLICABLE, FROM ANY OTHER
PERSON, FOR THE PERIOD AT ISSUE; OR (H) $500.00.
(D) THIS SECTION SHALL NOT RELIEVE ANY OR ALL OF THE CORPORATIONS,
SUBSCRIBER OR ANY OTHER PERSON FROM LIABILITY FOR DAMAGES THAT RESULT FROM
THEIR OWN GROSS NEGLIGENCE OR WILLFUL TORTIOUS MISCONDUCT, OR FROM PERSONAL
INJURY OR WRONGFUL DEATH CLAIMS.
(E) SUBSCRIBER AND THE CORPORATIONS UNDERSTAND AND AGREE THAT THE TERMS
OF THIS SECTION REFLECT A REASONABLE ALLOCATION OF RISK AND LIMITATION OF
LIABILITY.
11. THIRD PARTY INFORMATION PROVIDERS' DISCLAIMERS OF WARRANTIES/LIMITATIONS
OF LIABILITIES. NASDAQ'S THIRD PARTY INFORMATION PROVIDERS MAKE NO WARRANTIES
OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION,
TIMELINESS, TRUTHFULNESS, SEQUENCE, COMPLETENESS, ACCURACY, FREEDOM FROM
INTERRUPTION), ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF
DEALING, OR COURSE OF PERFORMANCE, OR THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE AND THEY SHALL
HAVE NO LIABILITY FOR THE ACCURACY OF, OR FOR DELAYS OR OMISSIONS IN, ANY OF
THE INFORMATION PROVIDED BY THEM. NASDAQ'S THIRD PARTY INFORMATION PROVIDERS
SHALL ALSO HAVE NO LIABILITY FOR ANY DAMAGES, WHETHER DIRECT OR INDIRECT,
WHETHER
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
LOST PROFITS, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF THE SUBSCRIBER OR
ANY OTHER PERSON SEEKING RELIEF THROUGH SUBSCRIBER, EVEN IF THE THIRD PARTY
INFORMATION PROVIDERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
IN NO EVENT WILL THE LIABILITY OF THE THIRD PARTY INFORMATION PROVIDERS OR
THEIR AFFILIATES TO SUBSCRIBER OR ANY OTHER PERSON SEEKING RELIEF THROUGH
SUBSCRIBER PURSUANT TO ANY CAUSE OF ACTION, WHETHER IN CONTRACT, TORT, OR
OTHERWISE, EXCEED THE FEE PAID BY SUBSCRIBER OR ANY OTHER PERSON SEEKING
RELIEF THROUGH SUBSCRIBER, AS APPLICABLE.
12. Notwithstanding any other term or condition of this Agreement, Nasdaq,
its third party information providers or Subscriber shall not be obligated to
perform or observe their respective obligations undertaken in this Agreement
(except for obligations to make payments hereunder and regulatory
obligations) if prevented or hindered from doing so by any circumstances
found to be beyond their control.
13. Subscriber will indemnify and hold harmless the Corporations and their
employees, officers, directors, and other agents from any and all Claims or
Losses imposed on, incurred by or asserted as a result of or relating to: (a)
any noncompliance by Subscriber with the terms and conditions hereof; (b) any
third-party actions related to Subscriber's receipt and use of the
Information, whether authorized or unauthorized under the Agreement.
14. Each party warrants and represents and will indemnify and hold harmless
(and in every case, Nasdaq shall be permitted to solely defend and settle)
another party (including the Corporations) and their officers, directors,
employees, and other agents, against any Claims or Losses arising from,
involving, or relating to a claim of infringement or other violation of an
intellectual property right by the indemnifying party, its actions or
omissions, equipment, or other property. This right is conditioned on the
indemnified party giving prompt written notice to the indemnifying party (as
does not prejudice the defense) of the Claims or Losses and providing
cooperation in the defense of the Claims or Losses (without waiver of
attorney-client, work-product or other legal privilege, or disclosure of
information legally required to be kept confidential).
15. Subscriber agrees that Nasdaq may enforce the terms of this Agreement
against any Person, whether or not Vendor or Subscriber is a party to any
such action or against Subscriber itself. - In any action there shall be
available injunctive relief or damages, with the prevailing party being
awarded costs and attorneys' fees (including in-house counsel).
16. In the event of any conflict between the terms of this Agreement and of
the Vendor's agreement, the terms of this Agreement shall prevail as between
the Corporations and Subscriber.
17. In addition to terminations permitted under the Vendor's agreement, this
Agreement may be terminated by Subscriber on 30 days written notice to Vendor
and by the Corporations on 30 days written notice either to Vendor or
Subscriber. Nasdaq may also alter any term of this Agreement on 60 days
written notice either to Vendor or Subscriber, and any use after such date is
deemed acceptance of the new terms. In the event of Subscriber breach,
discovery of the untruth of any representation of Subscriber, or where
directed by NASD in its regulatory authority, Nasdaq may terminate this
Agreement on not less than three (3) days written notice to Subscriber
provided either by Nasdaq or Vendor.
18. Nasdaq does not endorse or approve any equipment, Vendor, or Vendor's
Service.
19. Natural persons executing this Agreement warrant and represent that they
are at least eighteen (18) years of age. Subscriber and the Person executing
this Agreement on behalf of Subscriber which is a proprietorship,
corporation, partnership or other entity, represent that such Person is duly
authorized by all necessary and appropriate corporate or other action to
execute the Agreement on behalf of Subscriber.
20. All notices, invoices, and other communications required to be given in
writing under this Agreement shall be directed to: Trading & Market Services,
The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006,
Attn.: Manager, Trading and Market Services, or to Subscriber at the last
address known to the Vendor, and shall be deemed to have been duly given upon
actual receipt by the parties, or upon constructive receipt if sent by
certified mail, postage pre-paid, return receipt requested, at such
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
address or to such other address as any party hereto shall hereafter specify
by written notice to the other party or parties hereto.
21. Except as otherwise provided herein, no provision of this Agreement may
be amended, modified, or waived, unless by an instrument in writing executed
by a duly authorized signatory of the party against whom enforcement of such
amendment, modification, or waiver is sought. No failure on the part of
Nasdaq or Subscriber to exercise, no delay in exercising, and no course of
dealing with respect to any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege under this
Agreement. If any of the provisions of this Agreement, or application thereof
to any Person or circumstance, shall to any extent be held invalid or
unenforceable, the remainder of this Agreement, or the application of such
terms or provisions to Persons or circumstances other than those as to which
they are held invalid or unenforceable, shall not be affected thereby and
each such term and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
22. The terms of this Agreement apply to those obligations that survive any
cancellation, termination, or rescission, namely, obligations relating to
intellectual property, indemnification, limitation of liability, warranties,
disclaimer of warranties, and Exchange Act related provisions.
23. This Agreement shall be deemed to have been made in the United States in
the District of Columbia and shall be construed and enforced in accordance
with, and the validity and performance hereof shall be governed by, the laws
of the District of Columbia, without reference to principles of conflicts of
laws thereof. Subscriber hereby consents to submit to the jurisdiction of the
courts of or for the District of Columbia in connection with any action or
proceeding instituted relating to this Agreement.
[FOR STAND-ALONE AGREEMENT, PLEASE INCLUDE SIGNATURE BLOCK.]
/ / Check here if you qualify as a non-professional as defined in paragraph 1.
SUBSCRIBER: Harris, Webb & Garrison, Inc. VENDOR:
BY: Harry C. Webb BY:
TITLE: COO TITLE:
DATE: 5-21-99 DATE:
* Whenever an asterisk follows the first use of a term, Paragraph I defines the
term.
<PAGE>
EXHIBIT 10.22
BANC OF AMERICA SECURITIES LLC [LOGO]
Montgomery Correspondent Services
a division of Banc of America Securities LLC
August 31, 1999
Spires Financial, L.P.
5151 San Felipe, Suite 1300
Houston, TX 77056
RE: FULLY DISCLOSED CLEARING AGREEMENT
Dear Mr. Badger:
This Agreement sets forth the terms and conditions under which Montgomery
Correspondent Services, a division of Banc of America Securities LLC
("Montgomery Correspondent Services" or the "Clearing Broker"), will clear and
carry on a fully disclosed basis your customer and proprietary accounts, and
you ("you" or the "Introducing Broker") will become a correspondent of
Montgomery Correspondent Services.
SECTION 1. CERTAIN REGULATORY REQUIREMENTS.
(A) LAWS AND REGULATIONS. This Agreement, and all transactions and
activities hereunder, are subject to the federal and state securities laws,
including the Securities Act of 1933 (the "Securities Act"), the Securities
Exchange Act of 1934 (the "Exchange Act"), the Investment Company Act of 1940
and the Investment Advisers Act of 1940, and to the Employee Retirement Income
Security Act of 1974 ("ERISA"), and to any other applicable federal, state,
local or non-U.S. law, and to any rule or regulation under the foregoing,
including the rules of the Securities and Exchange Commission (the "SEC"), of
any state securities authority, of the Board of Governors of the Federal Reserve
System including Regulation T, of any "foreign financial regulatory authority"
(as defined in Section 3 of the Exchange Act), of any "self-regulatory
organization" ("SRO") (as defined in Section 3 of the Exchange Act), including
the New York Stock Exchange, Inc. (the "NYSE") and the National Association of
Securities Dealers, Inc., (the "NASD") (each of the foregoing entities, a
"Financial Regulatory Authority") or of any other regulatory body or agency
having authority over a transaction or an account (collectively, the "Laws and
Regulations"). For purposes of this Agreement, if you are not a member of the
NYSE, you
BANC OF AMERICA SECURITIES LLC, MEMBER NYSE/MASD/SIPC, IS A SUBSIDIARY OF
BANK OF AMERICA CORPORATION.
<PAGE>
agree that in each case where there is a reference in this Agreement to a rule
of the NYSE (the "NYSE Rules") you will comply with the comparable rules of the
NASD.
(B) SIPC. Solely for the purposes of the financial responsibility
rules of the SEC and the Securities Investor Protection Act of 1970, the
Introduced Accounts shall be considered to be accounts of Montgomery
Correspondent Services, as your clearing broker.
SECTION 2. SERVICES TO BE PROVIDED BY MONTGOMERY CORRESPONDENT SERVICES.
Montgomery Correspondent Services will provide the following services to you
with respect to the accounts owned by your customers (the "Customers") and
your proprietary accounts (all such accounts, collectively, the "Introduced
Accounts"):
(A) EXECUTION, CLEARANCE AND SETTLEMENT. Montgomery Correspondent
Services will execute orders and/or clear and settle transactions for the
purchase and sale of securities in the Introduced Accounts. In the event you
execute orders for an Introduced Account away from Montgomery Correspondent
Services, Montgomery Correspondent Services will, on a best efforts basis,
attempt to clear and settle the transactions within a reasonable period.
(B) CONFIRMATIONS AND STATEMENTS. Montgomery Correspondent Services
will prepare trade confirmations and monthly or quarterly statements for
Customers as required by the Laws and Regulations; provided that you shall
provide Montgomery Correspondent Services on the day of any trade with any
information known to you and required for the order ticket and Customer
confirmation, including your role in any transaction. Montgomery
Correspondent Services will mail periodic statements and trade confirmations
to Customers.
(C) CASHIERING FUNCTIONS. Montgomery Correspondent Services will
perform all cashiering functions for the Introduced Accounts, including the
receipt, delivery, and transfer of securities purchased, sold, borrowed, and
loaned, the making and receipt of payments therefor, the custody and
safeguarding of securities and payments so received, the receipt and
distribution of dividends and other distributions, the processing of exchange
offers, rights offerings, warrants, tender offers, and redemptions, and such
other functions as may be agreed upon by the parties.
(D) PROVISION OF CERTAIN INFORMATION.
(i) Each business day with respect to the close of business on the
previous business day, Montgomery Correspondent Services will supply you with
copies of all margin activity statements, money lines, and daily commission
detail reports. Montgomery Correspondent Services will provide you with
copies of Customers' periodic statements on the day they are mailed to
Customers. Unless you notify Montgomery Correspondent Services within one
NYSE business day after your receipt of such information of any mistakes or
discrepancies therein, Montgomery Correspondent Services shall be entitled to
consider all such information correct absent manifest error.
<PAGE>
(ii) Montgomery Correspondent Services will advise you, with
respect to the Introduced Accounts, of the need for buying-in or selling-out
positions, of any failures to deliver or pay, and of any required margin
calls.
(iii) Montgomery Correspondent Services shall provide you, upon
your written request and at your expense, with all appropriate data in its
possession pertinent to the proper performance and supervision of any
function specifically allocated to you pursuant to the terms of this
Agreement.
(E) BOOKS AND RECORDS. Montgomery Correspondent Services will
establish and maintain all prescribed books and records of transactions
executed or cleared through it that are customarily maintained by a clearing
broker and that are not specifically assigned to you pursuant to the terms of
this Agreement, including a stock record, a daily record of required margin,
and other information required by NYSE Rule 432(a).
(F) SERVICES EXPRESSLY LIMITED. Unless otherwise agreed to in
writing, Montgomery Correspondent Services shall not provide to you any
services that are not expressly and specifically set forth in this Agreement.
Further, Montgomery Correspondent Services will not be bound to make any
investigation into the facts surrounding any transaction that it may have
with you on a principal or agency basis or that you may have with your
Customers or other persons.
SECTION 3. FEES TO MONTGOMERY CORRESPONDENT SERVICES; YOUR COMMISSIONS.
(A) FEES. You agree to pay Montgomery Correspondent Services for its
services pursuant to this Agreement the amounts set forth in Schedule A to
this Agreement, but not less per month than the minimum fee amount set out in
Schedule A (the "Minimum Monthly Fee"). The Minimum Monthly Fee requirement
may be met only through fees paid Montgomery Correspondent Services for the
services set out in Schedule A, and not by other income, including interest
income, paid to or earned by Montgomery Correspondent Services from the
Introduced Accounts. The Schedule A fee service amounts and the Minimum
Monthly Fee may be changed by Montgomery Correspondent Services at any time
after the first anniversary of this Agreement on thirty (30) days' prior
written notice to you.
(B) INTRODUCING BROKER COMMISSIONS. Clearing Broker will remit
monthly to you any commission revenue or markups due you, payable by the 15th
day of each calendar month for all amounts earned during the preceding month,
and after deduction of (a) all clearing and other charges, costs, or expenses
due Montgomery Correspondent Services in accordance with the terms of this
Agreement, including the Minimum Monthly Fee to the extent applicable; (b)
all charges payable by Montgomery Correspondent Services on your account; and
(c) all amounts due Montgomery Correspondent Services from you under this
Agreement including amounts arising from any losses, liabilities, or damages
in accordance with the terms hereof.
SECTION 4. PROCEDURES FOR INTRODUCED ACCOUNTS.
(A) OPENING AND MAINTAINING ACCOUNTS; RESPONSIBILITY OF INTRODUCING
BROKER
<PAGE>
(i) Customer Agreements; Documentation and Information. At or prior
to the time of the opening of each Introduced Account, you shall obtain,
verify and furnish Montgomery Correspondent Services with all information or
documentation concerning such Introduced Account which Montgomery
Correspondent Services may require including (i) a "Cash Account Agreement,"
(ii) for customers executing margin transactions, a "Margin Agreement, 'Vii)
in respect of any agency Introduced Account, the name of any principal for
whom the agent is acting and written evidence of the agent's authority, (iv)
tax-related documentation and certifications, and (v) any other document
necessary to comply with the Laws and Regulations. The Cash Agreement, the
Margin Agreement and any other agreements in respect of the Introduced
Accounts to which Montgomery Correspondent Services is a party or a
beneficiary (collectively, the "Customer Agreements") shall be on forms
supplied by Montgomery Correspondent Services. Montgomery Correspondent
Services will mail Customer Agreements and other documentation to Customers
or potential customers at your request. Within five days of any request of
Montgomery Correspondent Services, you shall furnish Montgomery Correspondent
Services with any other additional or supplementary documents regarding, and
agreements executed by, the Customer in respect of the Introduced Account on
forms supplied by Montgomery Correspondent Services. Montgomery Correspondent
Services reserves the right to negotiate the terms of its Customer Agreements
and other agreements executed by the Customers. All changes reflected in
writing on the Customer Agreements are deemed accepted by you if you do not
promptly, following your receipt of such agreement, object in writing to both
Montgomery Correspondent Services and the Customer. The terms of all existing
and future Customer Agreements are deemed incorporated herein by reference.
(ii) Requirement of Margin Agreements. All transactions in any
Introduced Account are to be considered cash transactions until such time as
Montgomery Correspondent Services has received and accepted a Margin
Agreement, duly and validly executed in respect of such Introduced Account.
(iii) Credit Review and Information. You will be solely responsible
for the conduct of your own credit review of any Customer. Each party will
make available upon request of the other the information it obtains from
standard industry services regarding the creditworthiness of any Introduced
Account.
(iv) Failure To Comply With Documentation Requirements. If any
documentary or agreement request made by Montgomery Correspondent Services
has not been satisfied, Montgomery Correspondent Services may in its sole
discretion refuse any or all orders or transactions for the Introduced
Account or close the Introduced Account at any time. If orders are placed or
transactions executed for an Introduced Account after Montgomery
Correspondent Services has given notice of insufficient documentation, no
commission credit will be granted to you on such orders or transactions. On
receipt of the necessary documents, this restriction will be lifted with
respect to future commissions, but no past commissions will be credited or
paid.
<PAGE>
(v) Rejection or Termination of Accounts. Montgomery Correspondent
Services reserves the right to reject any requested Introduced Account and to
terminate any previously accepted Introduced Account at any time.
(B) CUSTOMER PAYMENT AND DELIVERY OBLIGATIONS; MARGIN REQUIREMENTS.
(i) Responsibility for Payments and Deliveries. You are liable as
primary obligor to Montgomery Correspondent Services for all payments of
money and deliveries of securities by the Introduced Accounts including (a)
timely payments and deliveries following or in respect of a transaction, (b)
maintaining at all times margin in each Introduced Account to the
satisfaction of Montgomery Correspondent Services, (c) the payment of any
debit balance in an Introduced Account and the delivery of securities in
respect of any short sale or securities borrowing, (d) until funds are
credited to Montgomery Correspondent Services, all payments to Montgomery
Correspondent Services on checks received by it in connection with the
Introduced Accounts, (e) payment and delivery of "when issued" transactions
in the Introduced Accounts, (f) the delivery of securities sold and the
return of securities loaned in good delivery form, without restrictive
legends of any kind, and (g) any loss or damage Montgomery Correspondent
Services may incur resulting from any failure by a Customer in respect of an
Introduced Account to pay or make delivery as required. Your obligations
shall continue whether or not any margin extensions have been granted by
Montgomery Correspondent Services and whether or not such extensions have
been requested by you. You acknowledge that Montgomery Correspondent Services
has sole discretion to execute buy-ins or sell-outs in any Introduced
Account, or to exercise any other remedies available against the Customer or
Introduced Account, regardless of whether such action is required by the Laws
and Regulations. You further agree that you are liable as primary obligor to
Montgomery Correspondent Services for the obligations of your Customers under
their respective Customer Agreements as such may exist from time to time and
as further provided in Section 11(C) of this Agreement.
(ii) Determination of Margin Requirements. It shall be solely within
the discretion of Montgomery Correspondent Services to determine from time to
time and at any time the minimum amount, type and timing of the collateral
("margin") to be collected in respect of any Introduced Account or position
held in an Introduced Account. Montgomery Correspondent Services may require
more margin of an Introduced Account than is required by the Laws and
Regulations. Montgomery Correspondent Services shall be responsible for
generating all initial and maintenance margin calls and may itself send such
calls or may instruct you to send such calls. You shall remain responsible as
primary obligor for the collection of such margin payments as set forth in
the preceding paragraph.
(C) PRIME BROKERAGE CUSTOMERS. Where you act as an executing broker
for Introduced Accounts that prime broker their securities away from you (a
"Prime Brokerage Customer"), you shall notify Montgomery Correspondent
Services with respect to each account for which you intend to act as an
executing broker and you shall be solely responsible for conducting your own
credit review with respect to each such Prime Brokerage Customer. You shall
promptly notify Montgomery Correspondent Services, but in no event later than
5:00 p.m. New York time of trade date, in a mutually acceptable fashion, of
such trades in sufficient
<PAGE>
detail for Montgomery Correspondent Services to be able to report and
transfer any trade executed by you on behalf of a Prime Brokerage Customer to
the relevant prime broker. You understand and agree that if the prime broker
shall disaffirm or "DK" any trade executed by you on behalf of a Prime
Brokerage Customer, you shall, if you have not already done so, open an
account for such Prime Brokerage Customer with Montgomery Correspondent
Services and shall transfer or deliver the trade to such account for your
risk and expense to the same extent as for any other account introduced by
you pursuant to this Agreement and subject to the right of Montgomery
Correspondent Services to reject Introduced Accounts or individual trades.
You understand and agree that for certain Prime Brokerage Customers, Banc of
America Securities LLC may act as the prime broker. In certain instances,
Banc of America Securities LLC as the prime broker will notify you that a
problem exists and that it is unable to settle the trade and Banc of America
Securities LLC acting as the clearing broker will request that you open a
margin account for such Prime Brokerage Customer and transfer or deliver the
trade to such margin account for your risk and expense to the same extent as
for any account introduced by you pursuant to this Agreement and subject to
Montgomery Correspondent Services' right to reject an Introduced Account or
an individual trade. You understand and agree that all transactions for your
Prime Brokerage Customers shall be conducted in accordance with the
requirements of the SEC and of the Laws and Regulations generally governing
prime brokerage transactions. In this regard, you acknowledge that you will
enter into all prime brokerage agreements with your customers as principal
for your own account and that you are responsible for obtaining and
maintaining all prime brokerage documentation.
SECTION 5. TRADING AND TRADING PROCEDURES.
(A) TRANSMISSION OF ORDERS. An order for an Introduced Account may
be transmitted to Montgomery Correspondent Services only by you and your
agents. You shall be solely and exclusively responsible for approving all
orders for the Introduced Accounts and for establishing procedures to ensure
that such approved orders and transactions are transmitted properly to
Montgomery Correspondent Services for execution and/or clearance.
(B) ACCEPTANCE/REJECTION. Montgomery Correspondent Services reserves
the right to accept or reject for execution or clearance any order or
transaction for an Introduced Account. Further, Montgomery Correspondent
Services reserves the right, in its sole discretion, to restrict trading in
any Introduced Account, including your proprietary accounts, to liquidating
orders or cash transactions only, or to prohibit certain trading strategies
or trading of certain securities or types of securities.
(C) CONTRA BROKER. When you either execute your own orders or
otherwise designate the contra broker to any transaction, you shall be
responsible as primary obligor to Montgomery Correspondent Services for any
loss it suffers in the event that the contra broker fails to perform. Without
limiting the foregoing, Montgomery Correspondent Services shall have the
right in its sole discretion to refuse to trade with any contra broker or to
limit the size of any trade with a contra broker. In the event you trade with
a contra broker that has been not been approved by Montgomery Correspondent
Services, or in excess of an amount approved by Montgomery Correspondent
Services, Montgomery Correspondent Services shall have the right to reject
all or any part of the transaction for clearance and settlement. You agree to
take
<PAGE>
all appropriate capital charges on your books arising out of or incurred in
connection with your executing orders away from Montgomery Correspondent
Services. You agree to comply with all requirements of the Automated
Confirmation Transaction system ("ACT"), including the provisions by which
Montgomery Correspondent Services may limit your "Gross Dollar Thresholds" as
such term is defined in the ACT Rules.
SECTION 6. CHARGES AND INTEREST PAYMENTS TO INTRODUCED ACCOUNTS.
(A) COMMISSIONS AND MARK-UPS. You will have complete discretion over
the amount of commissions, mark-ups, or other charges or expenses in respect
of transactions in the Introduced Accounts (collectively, "Customer
Charges"); provided that any such Customer Charge shall be within the usual
and normal operational capabilities of Montgomery Correspondent Services. You
represent and warrant that no Customer Charge will violate the Laws and
Regulations.
(B) MARGIN INTEREST RATE. Montgomery Correspondent Services shall
determine the rate of margin interest charged on any Introduced Account that
has a debit balance. Interest income earned through such charges to any
Introduced Account shall be fully retained by Montgomery Correspondent
Services. Montgomery Correspondent Services shall inform you upon your
request of the interest rates it charges.
(C) DEFAULT CHARGES. Montgomery Correspondent Services shall
determine the charge, and the timing of such charge, to any Introduced
Account maintained by Montgomery Correspondent Services, including the
liquidation of securities held in the Introduced Account and the crediting of
the proceeds to satisfy any obligations owed to Montgomery Correspondent
Services, upon a loss or liability incurred by Montgomery Correspondent
Services resulting from transactions or positions in any Introduced Account,
including, but not limited to any item described in Section 4(B) of this
Agreement.
(D) FREE CREDIT BALANCES. Montgomery Correspondent Services shall
inform you, upon your request, of the interest rates it pays from time to
time on free credit balances in the Introduced Accounts.
SECTION 7. COMMUNICATIONS WITH CUSTOMERS AND OTHERS.
(A) NYSE RULE 382. You agree to provide written notice to your
existing Customers, and any future Customer, before Montgomery Correspondent
Services accepts the Introduced Account, as to the nature of the services to
be provided by Montgomery Correspondent Services pursuant to this Agreement,
and your and Montgomery Correspondent Services's respective obligations to
such Customers. Such written notice shall be in the form of a letter, in form
and content agreeable to both parties, that complies with NYSE Rule 382 (the
"Rule 382 Letter"). If Montgomery Correspondent Services so elects, it shall
mail the Rule 382 Letters, in which case you shall be responsible for
Montgomery Correspondent Services's costs incurred in connection with the
preparation and mailing of such Rule 382 Letters.
<PAGE>
(B) NOTATIONS ON MAILINGS. All confirmations, and monthly or
quarterly statements, and other notices to Introduced Accounts shall indicate
that the Introduced Accounts were introduced by you and that the role of
Montgomery Correspondent Services is that of a clearing broker only.
Inadvertent omission of such notations shall not be deemed to constitute a
breach of this Agreement. Copies of the forms of all of the foregoing shall
be furnished by Montgomery Correspondent Services to you.
(C) WRITTEN APPROVAL FOR REFERENCES TO CLEARING BROKER. You shall
not, without the prior written approval of Montgomery Correspondent Services,
state in an advertisement or sales literature or any public media, including
any electronic media such as a Web site or over the Internet, that you have
entered into this Agreement with Montgomery Correspondent Services, or make
any reference to Montgomery Correspondent Services or the services it
furnishes to you pursuant to this Agreement. Neither shall Montgomery
Correspondent Services disclose this Agreement or make reference to the
Introducing Broker in any advertisement or sales literature or any public
media without the prior written approval of the Introducing Broker.
(D) CUSTOMER CORRESPONDENCE, COMPLAINTS, ACTIONS.
(i) Customer inquiries and complaints shall be promptly investigated
and answered by the party responsible for the subject matter of the inquiry.
(ii) In the event any Customer correspondence is not directed to the
party who is responsible under the terms of this Agreement for the area to
which the correspondence relates, the original recipient of the Customer
correspondence shall immediately forward the correspondence to the other
party, which shall respond to it.
(iii) You and Montgomery Correspondent Services shall give the other
written notice of any customer complaint, threat of action or commencement of
litigation involving any of the Introduced Accounts or Customers in
connection with the services provided hereunder. Each shall also provide the
other with a copy of any formal complaint or other action and inform the
other of the disposition of any such action.
(iv) In the event that Montgomery Correspondent Services deems it
advisable to commence an action or proceeding against any of your Customers
for malfeasance, misfeasance or nonfeasance, Montgomery Correspondent
Services may do so after notice to you, or, upon the request of Montgomery
Correspondent Services, you shall institute such action or proceeding. In any
of such events, you shall indemnify Montgomery Correspondent Services in
accordance with the provisions of Section 11 of this Agreement.
SECTION 8. CERTAIN RESPONSIBILITIES OF INTRODUCING BROKER.
(A) DEPOSITS OF PAYMENTS AND SECURITIES. You shall promptly turn
over to Montgomery Correspondent Services any and all payments and securities
that you receive from Customers and, concurrently therewith, all such
information as may be relevant or
<PAGE>
necessary to enable Montgomery Correspondent Services to record promptly and
properly such payments and securities in the respective Introduced Accounts.
(B) RESPONSIBILITY AS TO INTRODUCED ACCOUNTS AND TRANSACTIONS.
Without limiting your general obligations in respect of the Introduced
Accounts, you shall be solely and exclusively responsible for the following
obligations in respect of all Introduced Accounts and transactions executed
with or for Introduced Accounts (including Introduced Accounts managed by any
investment adviser or other third party):
(i) ensuring that the Customers are not minors or subject to any
prohibitions under the Laws and Regulations generally relating to the
incapacity of any Introduced Account, or any conflict of interest relating to
such Introduced Account, such as those arising under Section 206(3) of the
Investment Advisers Act of 1940;
(ii) determining that any transactions introduced, or orders and
instructions given, to Montgomery Correspondent Services have been properly
authorized in advance by the Introduced Account and determining the
genuineness of all certificates, papers, and signatures provided by each
Introduced Account;
(iii) determining that all orders or transactions for Introduced
Accounts comply in all respects with the Laws and Regulations,
(iv) using due diligence to learn and know on a continuing basis the
essential facts concerning each Customer, including verifying the address
changes of each Customer, knowing all persons holding a power of attorney
over any Introduced Account, being familiar with each order in any Introduced
Account and at all times fully complying with NYSE Rule 405 and all similar
Laws and Regulations;
(v) determining the suitability of all transactions (including option
transactions) for Introduced Accounts, including with respect to the
frequency of trading in the Introduced Accounts and that any transaction is
consistent with the investment objectives of the Introduced Account;
(vi) ensuring that there is a reasonable basis for all recommendations
made to Customers;
(vii) the handling of any discretionary Introduced Accounts, as
required by NYSE Rule 408 or any other applicable Laws and Regulations;
(viii) compliance with any notice or approval requirement to any
employer of a Customer having an interest in, or controlling, an Introduced
Account, including obligations imposed by NYSE Rule 407 or any other
applicable Laws and Regulations;
(ix) compliance with any NASD regulation or interpretation governing
"Free-Riding and Withholding" and any other Law or Regulation governing
permitted purchases in a public offering;
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(x) compliance with any and all disclosure document and prospectus
delivery requirements, option agreement requirements, and supervisory
requirements, in connection with Introduced Accounts that enter into option
transactions;
(xi) compliance with Rule lob-16 ("Truth In Lending") under the
Exchange Act and "payment for order flow" disclosure; provided, however, that
any documents provided to Customers in connection therewith shall be approved
in writing by Montgomery Correspondent Services in advance of transmission;
(xii) delivering (or making available to Montgomery Correspondent
Services for delivery) any prospectus required pursuant to the prospectus
delivery requirements of the Securities Act or by other applicable Laws and
Regulations;
(xiii) specifically approving the opening of any new account, in
compliance with NYSE Rule 405(3) and other applicable Laws and Regulations,
before forwarding such account to Montgomery Correspondent Services as a
potential Introduced Account;
(xiv) compliance with all Laws and Regulations concerning transfers of
"restricted" or "control" securities in Introduced Accounts; and
(xv) obtaining and maintaining all documents necessary for the
performance of your responsibilities under this Agreement and retaining such
documents in accordance with all applicable Laws and Regulations.
You shall promptly furnish Montgomery Correspondent Services with such
documentation with regard to any of the foregoing matters as may be requested
by Montgomery Correspondent Services.
(C) SUPERVISORY PROCEDURES/TRAINING/INSIDER TRADING. You shall be
responsible for your compliance with applicable supervisory requirements
under the NYSE Rules, including NYSE Rule 342 and 351, or any related or
similar provisions of the Laws and Regulations, including those concerning
(i) supervising the activities and training of your principals and registered
representatives and other agents in the performance of their functions
allocated to you pursuant to the terms of this Agreement, (ii) periodic
reviews, investigations, and reports on insider trading and manipulative and
deceptive practices with respect to Introduced Accounts, (iii) hiring,
selecting, investigating, training, and supervising all of your personnel who
open, accept, approve, or authorize transactions in the Introduced Accounts;
(iv) establishing written compliance and supervisory procedures for the
conduct of the Introduced Accounts and ongoing review of all transactions in
Introduced Accounts, and (v) maintaining compliance and supervisory personnel
adequate to implement such procedures.
(D) REGISTERED PERSONNEL. You shall be responsible for, and you
represent that, before you commence any trading in options or other special
types of securities for any Introduced Account, you will have appropriately
registered representatives and principals with the appropriate SRO(s).
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SECTION 9. INFORMATION TO BE PROVIDED BY INTRODUCING BROKER.
(A) FINANCIAL INFORMATION. At the time you enter into this
Agreement, you shall provide Montgomery Correspondent Services with your most
recent annual audited financial statements, and if of a later date, most
recent semi-annual unaudited financial statement, and with your most recent
Financial and Operational Combined Uniform Single Reports ("FOCUS" Reports).
Subsequently, you shall provide Montgomery Correspondent Services with copies
of your annual audited, and semi-annual unaudited, financial statements as
well as copies of all financial information and reports you file with or
provide to the SEC or any SRO, including but not otherwise limited to FOCUS
Reports, at the same time you so file or provide such document. At the time
you provide any notice or report to the SEC or any SRO pursuant to Rule
17a-11 under the Exchange Act, or pursuant to the Rules referenced in Rule
17a-11(h) under the Exchange Act, you shall notify Montgomery Correspondent
Services by telephone and immediately thereafter provide a copy of such
notice or report. You shall also immediately inform Montgomery Correspondent
Services of any alleged deficiency or violation asserted by a Financial
Regulatory Authority or by your accountants, relating to capital,
recordkeeping or accounting matters, including deficiencies asserted in
routine inspections, whether or not any report on such matter is required by
the Exchange Act. You shall further provide Montgomery Correspondent
Services, monthly or more frequently if so requested by Montgomery
Correspondent Services, information and reports relating to your financial
condition, including but not otherwise limited to information regarding your
aggregate indebtedness ratio, net capital and excess net capital.
(B) FORM BD AND RESTRICTION AGREEMENT. You shall provide Montgomery
Correspondent Services at the time of the execution of this Agreement, with a
current composite Form BD and any "restriction agreement", and subsequently
with any amendment or supplement to your Form BD or restriction agreement. In
addition, upon request of Montgomery Correspondent Services, you shall
provide any information you file or have on file with any Financial
Regulatory Authority relating to you or any of your directors, officers and
agents.
(C) LITIGATION AND REGULATORY. You shall promptly provide to
Montgomery Correspondent Services, but in any event within three (3) business
days of the initiation of any such event, to the extent it relates or could
foreseeably relate in a material way to your business activities, all
information concerning every action, suit, investigation, inquiry, or
proceeding (formal or informal) pending or threatened against or affecting
you, any of your affiliates, or any officer, director, general securities
principal, financial or operations principal, or employee, independent
contractor, or other person associated with you, or their respective property
or assets, by or before any court or other tribunal, any arbitrator, any
governmental authority, or any SRO.
(D) OTHER INFORMATION.. You shall provide Montgomery Correspondent
Services with all appropriate data in your possession pertinent to the proper
performance and supervision of any function or responsibility specifically
allocated to Montgomery Correspondent Services pursuant to the terms of this
Agreement.
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SECTION 10. LIMITATIONS ON ACTIVITIES OF INTRODUCING BROKER.
(A) MARKET MAKING. Upon the execution of this Agreement, you shall
provide to Montgomery Correspondent Services a written list of all securities
with respect to which you area market maker. You shall give Montgomery
Correspondent Services prompt written notice of any change in the securities
as to which you make a market. You shall cease making a market in any
security or securities within one business day following any request by
Montgomery Correspondent Services that you so limit your activities.
(B) DISTRIBUTIONS AND LARGE POSITIONS. You shall provide to
Montgomery Correspondent Services two weeks prior written notice if you
desire to enter into any underwriting agreement or commitment. You agree that
you will not accept any underwriting commitment, without the prior written
consent of Montgomery Correspondent Services, which consent, if granted, may
limit the number or dollar value of any securities as to which you may
undertake a commitment. In addition, you will not accumulate a proprietary
position in the securities, whether debt or equity, of any single issuer that
is in excess of the dollar and percentage limits set out in Schedule A (the
"Issuer Limits").
(C) NO OTHER CLEARING AGENTS. You agree that Montgomery
Correspondent Services shall be your only clearing agent and that all
transactions in any customer or proprietary account serviced by your firm
shall be cleared exclusively through Montgomery Correspondent Services.
(D) NO STATEMENTS OR BILLINGS. You shall not generate and/or prepare
any statements, bills, or confirmations respecting any Introduced Account
unless expressly authorized to do so in writing by Montgomery Correspondent
Services.
(E) CHANGE IN BUSINESS. You shall not make any material change in
your line of business without the prior written consent of Montgomery
Correspondent Services. Such consent shall not be unreasonably withheld or
delayed. For this purpose, a material change in your line of business shall
include any change requiring an amendment to your Form BD or any "restriction
agreement" or any of the further changes set out in Schedule A (a "Material
Business Change").
SECTION 11. ERRORS, CONTROVERSIES AND INDEMNITIES.
(A) LIMITATIONS OF MONTGOMERY CORRESPONDENT SERVICES LIABILITY,
INCLUDING USE OF INDEPENDENT SERVICE PROVIDERS.
(i) Montgomery Correspondent Services's sole responsibility and
liability is expressly provided by the Agreement and is limited to you. In no
event shall Montgomery Correspondent Services be responsible to any person
for indirect or consequential damages arising out of any action or inaction
by it, regardless of any notice. Montgomery Correspondent Services shall not
be liable for any loss caused, directly or indirectly, by government
restrictions, exchange or market rulings, suspension of trading, war, strikes
or
<PAGE>
other conditions beyond the control of Montgomery Correspondent Services. In
the event that any communication network, data processing system, or computer
system used by Montgomery Correspondent Services or by you, whether or not
owned or provided by Montgomery Correspondent Services, is rendered
inoperable, other than on account of the failure of any such system to
accurately receive, process, or provide date/time data within, from, into,
and between the 20th and 21st centuries, including leap year calculations,
Montgomery Correspondent Services shall not be liable to you for any loss,
liability, claim, damage or expense resulting, either directly or indirectly,
therefrom.
(ii) Montgomery Correspondent Services may, at its reasonable
option, retain one or more independent data processing or other service
bureaus to perform functions allocated to Montgomery Correspondent Services
under this Agreement. Montgomery Correspondent Services will not be
responsible for any losses, damages, liability or expenses claimed by you or
your Customers arising from any such failure beyond the amount of such
losses, damages, or expenses incurred by you that Montgomery Correspondent
Services is able to recover pursuant to the terms of its agreement with such
service bureau.
(B) INDEMNIFICATION FROM MONTGOMERY CORRESPONDENT SERVICES.
Montgomery Correspondent Services hereby agrees to indemnify, defend and hold
harmless you and each person, if any, who controls you within the meaning of
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses, including attorney's fees and costs,
arising out of the bad faith, gross negligence or criminal acts or omissions
on the part of any of Montgomery Correspondent Services's directors, officers
or employees with respect to the services provided by Montgomery
Correspondent Services under this Agreement.
(C) INDEMNIFICATION FROM INTRODUCING BROKER. You hereby agree to
indemnify, defend and hold harmless Montgomery Correspondent Services, its
agents, officers and directors, and each person, if any, who controls
Montgomery Correspondent Services within the meaning of Section 20 of the
Exchange Act (collectively, "Indemnified Persons") from and against any and
all losses, claims, damages, liabilities and expenses, including attorney's
fees and costs, arising out of one or more of the following:
(i) any obligation of an Introduced Account as provided in Section
4(B) of this Agreement and failure of an Introduced Account to comply with a
Customer Agreement or other agreement with Montgomery Correspondent Services
that you have approved or are deemed to have approved pursuant to Section
4(A) of this Agreement, whether or not such failure is within your control;
(ii) your failure to properly perform your duties, obligations and
responsibilities as set forth in this Agreement; provided, however, that the
participation of any employee of Montgomery Correspondent Services in any
transactions referred to herein shall not affect your indemnification
obligations hereunder unless such participation by such employee of
Montgomery Correspondent Services was in bad faith or grossly negligent, in
which case, your indemnity shall only extend to the degree of your relative
fault;
<PAGE>
(iii) any dishonest, fraudulent, negligent or criminal act or
omission on the part of any of your shareholders, principals, officers,
partners, employees, registered representatives, agents or customers;
(iv) all claims or disputes between you and your Customers with
respect to the matters set forth in this Agreement, it being understood and
agreed that you guarantee the validity of Customer orders in the form such
orders are transmitted to Montgomery Correspondent Services by you and you
stand in the position of primary obligor to Montgomery Correspondent Services
for the purpose of assuring that each Customer will promptly and fully
perform its commitments and obligations with respect to all transactions in
its accounts carried by Montgomery Correspondent Services;
(v) any adverse claims with respect to any Customer securities
delivered to or cleared by Montgomery Correspondent Services, it being
understood and agreed that Montgomery Correspondent Services shall be deemed
to be an intermediary between you and your Customers and Montgomery
Correspondent Services shall be deemed to make no representations or
warranties other than as provided in Section 8-306(3) of the New York Uniform
Commercial Code;
(vi) any default by any over-the-counter contra broker as provided
in Section 5(C) of this Agreement and claim by any third-party or contra
broker arising out of Montgomery Correspondent Services's rejection of any
transaction pursuant to such Section;
(vii) your breach of any representation or warranty under this
reement; or
(viii) Montgomery Correspondent Services's guarantee of any
signatures with respect to transactions in the Introduced Accounts.
(D) CUSTOMER CONTROVERSIES. Errors, misunderstandings or
controversies, except those specifically otherwise covered in this Agreement,
between the Customer and you or any of your employees which shall arise out
of your acts or omissions (including, without limiting the foregoing, your
failure to deliver promptly to Montgomery Correspondent Services any
instructions received by you from Customers with respect to the voting,
tender or exchange of shares held in an Introduced Account) shall be your
sole and exclusive responsibility. In the event that, by reason of such
error, misunderstanding or controversy, you in your discretion deem it
advisable to commence an action or proceeding against a Customer, you shall
indemnify and hold Montgomery Correspondent Services and the Indemnified
Parties harmless from any loss, liability, damage, claim, cost or expense
(including but not limited to reasonable fees and expenses of legal counsel)
which Montgomery Correspondent Services or the Indemnified Parties may incur
or sustain directly or indirectly in connection therewith or under any
settlement thereof. If such error, misunderstanding or controversy shall
result in the bringing of any action or proceeding against Montgomery
Correspondent Services or the Indemnified Parties, you shall indemnify and
hold Montgomery Correspondent Services and the Indemnified Parties harmless
from any loss, liability, damage, claim, cost or expense (including but not
limited to reasonable fees and expenses of legal counsel) which Montgomery
Correspondent Services or the Indemnified Parties may incur or sustain
directly or indirectly in connection therewith or under any settlement
thereof.
<PAGE>
(E) NOTIFICATION REQUIREMENTS. In case any proceeding (including any
Financial Regulatory Authority investigation) shall be instituted involving
any person in respect of which indemnity may be sought pursuant to this
Section, such person (hereinafter called the indemnified party) shall
promptly notify the person against whom such indemnity may be sought
(hereinafter called the indemnifying party) in writing and the indemnifying
party, upon request of the indemnified party, shall retain counsel
satisfactory to the indemnified party to represent the indemnified party. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for all such indemnified parties, and that all such fees
and expenses shall be reimbursed as they are incurred. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated in this Section, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without written consent
if (i) such settlement is entered into more than thirty (30) days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(F) SURVIVAL OF INDEMNITY. The indemnification provisions in this
Section 11, shall remain operative and in full force and effect, regardless
of the termination of this Agreement, and shall survive any such termination.
SECTION 12. COLLATERAL ACCOUNT; SECURITY INTEREST.
(A) THE COLLATERAL ACCOUNT. You shall establish and maintain an
account at Montgomery Correspondent Services (the "Collateral Account"),
which shall at all times contain either cash, or securities issued or
guaranteed as to principal and interest by the United States of America, that
are maintained through the Treasury Reserve Automated Debt Entry System
("TRADES") referred to in 31 C.F.R. ss. 357.0 and that have a remaining
maturity of ten (10) years or less, or a combination of both, having in the
aggregate a market value of not less than the amount set out in Schedule A
(the "Required Deposit"). The Collateral Account shall not be deemed to be
margin for any Introduced Account and shall not in any way constitute an
ownership interest in Banc of America Securities LLC. Montgomery
Correspondent Services shall have the right, in its discretion, to increase
the amount of the Minimum Deposit to be maintained in the Collateral Account.
You may not reduce the value of cash or securities in the
<PAGE>
Collateral Account below the Minimum Deposit until the latest of (i) the
termination of this Agreement, (ii) ten days after the last transaction in
respect of an Introduced Account has been settled and (iii) you have
transferred to another broker-dealer all margin accounts of your Customers or
other Introduced Accounts having a debit balance, other than accounts that
Banc of America Securities LLC has agreed in writing to accept.
(B) TRANSFERS TO COLLATERAL ACCOUNT. All transfers of funds by you
to the Collateral Account shall be in immediately available funds. All
securities transferred by you to the Collateral Account (i) shall be
transferred on the TRADES book-entry system of a Federal Reserve Bank for the
account of such participant therein as shall be designated from time to time
by Montgomery Correspondenthouse Services for credit to Montgomery
Correspondent Services or (ii) shall be transferred by any other method
acceptable to Montgomery Correspondent Services.
(C) SECURITY INTEREST; REMEDIES. You hereby grant Montgomery
Correspondent Services a first priority perfected security interest in all of
your right, title, and interest in the Collateral Account, all cash,
securities, financial assets, investment property, or other assets from time
to time held in or credited to the Collateral Account and all other assets
now or hereafter in the possession of Montgomery Correspondent Services and
all income or profits thereon, and all dividends and other payments with
respect to and all proceeds of the foregoing (the "Collateral") as security
for the repayment of all your obligations and liabilities to Montgomery
Correspondent Services, whether now outstanding or hereafter arising or
incurred, including but not limited to the indemnification obligations under
Section 11 hereof, the clearing fees and the Minimum Monthly Fee and any
other amounts owed by you to Montgomery Correspondent Services. Upon the
occurrence of an Event of Default (as defined below), Montgomery
Correspondent Services may, without further notice to you, offset any and all
liabilities, costs, or expenses (whether mature or contingent, liquidated or
unliquidated and regardless of the currency in which denominated) due to it
from you, against any and all liabilities, costs, or expenses (whether fixed,
assured or contingent, liquidated or unliquidated, and regardless of the
currency in which denominated) due you from it.
Montgomery Correspondent Services has the right to take any further action
necessary to perfect its security interest in the Collateral, including
marking its books and records to indicate the existence of such security
interest. Moreover, you agree to execute such documents and take such other
action as Montgomery Correspondent Services shall reasonably request, now and
in the future, in order to allow it to perfect its rights with respect to any
such Collateral.
You appoint Montgomery Correspondent Services as your attorney-in-fact, with
full power of substitution to act on your behalf (i) to sign, seal, execute
and deliver all documents, and do all such acts as may be required to realize
upon all rights in the Collateral, (ii) to demand, sue for, collect, receive
and give acquittance for any and all monies due or to become due upon or by
virtue of any Collateral, (iii) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect to any Collateral, (iv) to sell,
transfer, assign or otherwise deal in or with any Collateral or the proceeds
or avails thereof and (v) to extend the time of payment of any or all of the
Collateral and make allowance or other adjustments with reference thereto.
<PAGE>
In the event of a breach or default by you under this Agreement or any other
agreement, instrument or document between Banc of America Securities LLC and
you, or by you for the benefit, in whole or in part, of Banc of America
Securities LLC, or in the event of the occurrence of any Event of Default (as
described below), by or in respect of you (any such breach, default or Event
of Default, a "Default"), Montgomery Correspondent Services shall have, in
addition to the rights and remedies provided below, all rights and remedies
available to a secured creditor under common law and any other applicable
law, including Articles 8 and 9 of the New York Uniform Commercial Code
(whether or not the New York Uniform Commercial Code is otherwise applicable).
Upon the occurrence of a Default, Montgomery Correspondent Services is hereby
authorized, in its discretion: (1) to cancel any outstanding orders for the
purchase or sale of any securities or other property, and/or (2) to sell or
otherwise dispose of any or all of the Collateral or any of your other
securities or other property which may be in its possession or control
(either individually or jointly with others), and/or (3) to buy in any
securities or other property of which your account or accounts may be short,
and/or (4) otherwise foreclose upon any Collateral. Such sale, purchase or
cancellation may be made on the exchange or other market, if any, where such
business is then usually transacted, or at public auction or at private sale.
Except for such notice as may be required under applicable law, Montgomery
Correspondent Services may make such sale or transfer without advertising the
same and without any notice of the time or place of sale to you or to your
representatives, and without prior tender, demand or call of any kind upon
you or upon your representatives, all of which are expressly waived.
Furthermore, Montgomery Correspondent Services may be a purchaser at any sale
of Collateral under this section. Montgomery Correspondent Services and any
other purchaser may purchase the whole or any part of the Collateral free
from any right of redemption (which you hereby waive), and you shall remain
liable for any deficiency; it being understood that a prior tender, demand or
call of any kind from Montgomery Correspondent Services, or prior notice from
Montgomery Correspondent Services, of the time and place of such sale or
purchase shall not be considered a waiver of its right to sell or buy any
securities or other Property held by it, or which you may owe to it, at any
time as provided herein.
To the extent permitted by the laws of the State of New York, you agree to
pay Montgomery Correspondent Services the reasonable costs and expenses of
collection, including, but not limited to, attorneys' fees incurred and
payable or paid by it, for any debit balance and any unpaid deficiency in any
Introduced Account.
(D) INTEREST. Clearing Broker shall, from time to time, pay interest
to you on the cash held in the Collateral Account at such rate as shall be
set out by Montgomery Correspondent Services in a separate letter agreement.
SECTION 13. PAIB AGREEMENTS.
(A) ESTABLISHMENT OF PAIB RESERVE ACCOUNT. In connection with the
proprietary accounts of its introducing brokers ("PAIB"), Montgomery
Correspondent Services has
<PAGE>
established a separate "Special Reserve Account for the Exclusive Benefit of
Customers" (the "PAIB Account") with one or more banks in conformity with the
standards of paragraph (f) of Rule 15c3-3 under the Exchange Act.
(B) COMPUTATION OF THE PAIB RESERVE REQUIREMENT. Montgomery
Correspondent Services will perform a reserve computation for your
proprietary accounts together with the proprietary accounts of other
introducing brokers ("PAIB reserve computation") within the time frames
prescribed by Rule 15c3-3 under the Exchange Act for the customer reserve
computation (the "customer reserve formula"). Montgomery Correspondent
Services will conduct the PAIB reserve computation in accordance with the
customer reserve formula, subject to such applicable modifications thereto as
are appropriate for PAIB accounts.
(C) DEPOSITS. Montgomery Correspondent Services will make deposits
to the PAIB Account in accordance with the requirements set forth in Rule
15c3-3 for deposits to the customer reserve account, again subject to such
applicable modifications thereto as are appropriate for PAIB accounts.
(D) NOTIFICATION OF EXAMINING AUTHORITY. You agree and understand
that it is your responsibility to notify your designated examining authority
in writing within two business days of entering into this agreement.
(E) INTERPRETATIONS. Notwithstanding anything herein to the
contrary, Montgomery Correspondent Services shall be deemed to be in
compliance with the terms of this Agreement so long as it is in compliance
with all applicable regulatory requirements and attendant interpretations and
guidance relating to PAIB Accounts as from time-to-time in effect. Without
limitation, such requirements shall include the requirements and
interpretations set forth in that certain No-Action Letter dated November 3,
1998 and issued by the Securities and Exchange Commission's Division of
Market Regulation to Mr. Raymond J. Hennessey of the New York Stock Exchange
and Mr. Thomas Cassella of the National Association of Securities Dealers.
SECTION 14. ADDITIONAL REPRESENTATIONS AND WARRANTIES.
(A) THE INTRODUCING BROKER. You represent, warrant, and covenant as
follows, which representations, warranties and covenants shall be deemed
repeated on each day that Montgomery Correspondent Services executes an order
or clears and settles a trade for an Introduced Account:
(i) You have and shall maintain at all times during the life of
this Agreement "net capital," computed in accordance with Rule 15c3-1 of the
1934 Act, equal to the greatest of the amount required of you by such Rule,
the amount required under the Rules of any SRO of which you are a member, and
the amount set out in Schedule A (the "Minimum Capital Requirement"). You are
in compliance, and during the term of this Agreement will remain in
compliance with, all financial reporting and recordkeeping requirements
applicable to you under the Laws and Regulations. You shall immediately
notify Montgomery Correspondent Services if (i) your net capital is less than
the amount set forth in the preceding sentence, (ii) your excess net capital
is less than 10% of required net capital, (iii) if you compute your net
<PAGE>
capital under the "basic method," your aggregate indebtedness ratio reaches
or exceeds 10 to 1, or (iv) if you operate under the "alternative method,"
your net capital is less than 5% of aggregate debit items computed in
accordance with Rule 15c3-3.
(ii) You are a member in good standing of the NASD and your agents
that deal with any Introduced Accounts, or that trade for or supervise the
Introduced Accounts, are appropriately registered with the NASD or any other
required SRO. You agree to promptly notify Montgomery Correspondent Services
of any SRO memberships or affiliations. You are registered with the SEC under
Section 15 of the Exchange Act. You and your agents are registered or
licensed and are qualified to do business in each jurisdiction where such
registration or qualification shall be required in respect of transactions in
the Introduced Accounts or other services provided to the Customers.
(iii) You have all the requisite authority in conformity with all
applicable Laws and Regulations to enter into this Agreement and to retain
the services of Montgomery Correspondent Services in accordance with the
terms hereof and have taken all necessary action to authorize the execution
of this Agreement and the performance of your obligations hereunder.
(iv) You shall keep confidential any confidential information you
may acquire as a result of this Agreement regarding the business and affairs
of Montgomery Correspondent Services, which requirement shall survive the
life of this Agreement.
You shall carry a Securities Dealer Blanket Bond insurance policy in a
minimum dollar amount and with a maximum deductible set out in Schedule A and
otherwise acceptable to Montgomery Correspondent Services as to form, type of
coverage and insurance company, in order to fully protect and indemnify
Montgomery Correspondent Services and the Indemnified Parties against any
loss, liability, damage, cost, or expense (including but not otherwise
limited to fees and expenses of legal counsel) that Montgomery Correspondent
Services may suffer or incur, directly or indirectly, as a result of any act
of your employees, agents, or partners. The insurance policy should cover,
but is not limited to, the following items: employee fidelity, premises,
transit, forgery, securities, counterfeiting, facsimile signatures, central
handling of securities (if required), computer systems, and loss payee and
notification (with Banc of America Securities LLC designated as "joint loss
payee"). This insurance coverage shall remain in effect while Montgomery
Correspondent Services acts as your clearing agent and will include coverage
for any claims made or discovered within 90 days following the termination of
this clearing relationship. You further agree that if such a 90 day discovery
clause is exercisable at your option, you will exercise such option.
(B) BANC OF AMERICA SECURITIES LLC.
Banc of America Securities LLC represents, warrants, and covenants as follows:
(i) Banc of America Securities LLC is, and will remain during the
term of this Agreement, a member in good standing of the NASD and the NYSE
and duly registered with the SEC.
<PAGE>
(ii) Banc of America Securities LLC has all the requisite authority,
in conformity with all applicable Laws and Regulations, to enter into and
perform this Agreement and has taken all necessary action to authorize the
execution of this Agreement and the performance of its obligations hereunder.
(iii) Banc of America Securities LLC is, and during the term of this
Agreement will remain, in compliance with the capital and financial reporting
requirements of the SEC and of every SRO of which it is a member.
(iv) Banc of America Securities LLC represents and warrants that the
names and addresses of your customers that have or may come to its attention
in connection with the clearing and related functions it has assumed under
this Agreement are confidential and shall not be utilized by Banc of America
Securities LLC except in connection with the functions performed by
Montgomery Correspondent Services pursuant to this Agreement. Notwithstanding
the foregoing, should an Introduced Account request, on an unsolicited basis,
that Banc of America Securities LLC become its broker, you acknowledge and
agree that it may accept such account.
Banc of America Securities LLC shall keep confidential any confidential
information it may acquire as a result of this Agreement regarding your
business and affairs, which requirement shall survive the life of this
Agreement.
Banc of America Securities LLC represents and warrants that the
communications network, data processing systems and computer systems used by
Montgomery Correspondent Services in connection with its performance under
this Agreement will be able to accurately receive, process, or provide
date/time data within, from, into, and between the 20th and 21st centuries,
including leap year calculations, and will not be materially adversely
affected by dates prior to, on, after, or spanning January 1, 2000.
SECTION 15. TERMINATION.
(A) EVENTS OF DEFAULT. Notwithstanding any provision in this
Agreement, the following events or occurrences shall constitute an Event of
Default under this Agreement.
(i) either party hereto shall fail to perform or observe any term,
covenant, or condition to be performed hereunder (including, but not limited
to, any representation, warranty, or covenant relating to net capital
requirements) and such failure shall continue to be unremedied for a period
of ten (10) days after receipt of written notice from the nondefaulting party
to the defaulting party specifying the failure and demanding that the same be
remedied; or
(ii) any representation or warranty made by either party hereto
shall prove to be incorrect at any time in any material respect; or
(iii) a receiver, liquidator, or trustee of either party hereto or
any property held by either party, is appointed by court order and such order
remains in effect for more than thirty (30) days; or either party is
adjudicated bankrupt or insolvent; or a substantial amount of
<PAGE>
property of either party is sequestered by court order and such order remains
in effect for more than thirty (30) days; or a petition is filed against
either party under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed within thirty (30)
days after such filings; or
(iv) either party hereto files a petition in voluntary bankruptcy
or seeks relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect, or consents to the
filing of any petition against it under any such law; or
(v) either party hereto makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts generally as
they become due, or consents to the appointment of a receiver, trustee or
liquidator of either party, or of any property held by either party; or
(vi) either party is enjoined, disabled, suspended, prohibited, or
otherwise unable to engage in the securities business as a result of any
administrative or judicial proceeding or action by the SEC or any other
Financial Regulatory Authority.
(B) TERMINATION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. Upon the
occurrence of any such Event of Default, the nondefaulting party may, at its
option, by notice to the defaulting party declare that this Agreement shall
be thereby terminated and such termination shall be effective as of the date
such notice has been communicated to the defaulting party. If you default,
Montgomery Correspondent Services shall have sole discretion to determine
what orders, if any, it shall accept for any Introduced Account, and shall in
addition to all rights it has under this Agreement, have all rights granted
to it under the Customer Agreements incorporated by reference herein. In such
event, Montgomery Correspondent Services shall be entitled, upon the consent
of the Customer, to accept instructions directly from the Customer and to
transfer the accounts directly to Banc of America Securities, Inc.
(C) TERMINATION UPON MISREPRESENTATION OF CLEARING RELATIONSHIP AS
BRANCH, AFFILIATION OR AGENCY. Should you in any way hold yourself out as,
advertise or represent that your are the agent of, affiliated with, or a
branch of Montgomery Correspondent Services, Montgomery Correspondent
Services shall have the power, at its option, to terminate this Agreement and
you shall be liable for any, loss, liability, damage, cost or expense
(including but not limited to fees and expenses of legal counsel) sustained
or incurred by Montgomery Correspondent Services as a result of such
advertisement or representation.
(D) TERMINATION FOR OTHER REASONS. This Agreement may be canceled by
either of the parties hereto upon ninety (90) days' written notice.
(E) EARLY TERMINATION. In the event that this Agreement shall be
terminated for any reason prior to two (2) years following the date hereof,
you shall pay to Montgomery Correspondent Services a termination fee equal to
the expenses incurred by Montgomery
<PAGE>
Correspondent Services in establishing systems procedures and capacity for
servicing you and in discontinuing this Agreement. If there is insufficient
collateral in the Collateral Account to cover all or part of the termination
fee (in addition to any other liabilities of you to Montgomery Correspondent
Services), said fee shall be paid within ten (10) days after your receipt of
a statement of Montgomery Correspondent Services setting forth the expenses
incurred by Montgomery Correspondent Services.
(F) SURVIVAL. Termination shall not affect any of the rights and
liabilities of the parties hereto incurred before the date of termination.
SECTION 16. MISCELLANEOUS.
(A) AGREEMENT SUPERSEDES PREVIOUS AGREEMENTS/MODIFICATIONS. This
Agreement supersedes any previous agreement and may be modified only by a
writing signed by both parties to this Agreement. Such modification shall not
be deemed to be a cancellation of this Agreement.
(B) SUBMISSION OF AGREEMENT FOR APPROVAL. This Agreement and any
amendment ox modification shall be submitted to and/or approved by the NYSE
or such other SRO having authority to review and/or approve this Agreement or
any amendment or modification hereof. In the event of any such disapproval,,
the parties hereto agree to bargain in good faith to achieve the requisite
approval.
(C) ARBITRATION/LITIGATION. All disputes and controversies between
you and Montgomery Correspondent Services relating to or arising out of their
relationship or this Agreement shall be submitted to binding arbitration
under the auspices of and pursuant to the arbitration rules of the NYSE and
shall take place in the city of New York, New York.
(D) ASSIGNMENT. This Agreement shall be binding upon all successors,
assigns or transferees of both parties hereto, irrespective of any change
with regard to the name of or the personnel of you or Montgomery
Correspondent Services. Any assignment of this Agreement shall be subject to
the requisite review and/or approval of any SRO whose review and/or approval
must be obtained prior to the effectiveness and validity of such assignment.
No assignment of this Agreement by you shall be valid unless Montgomery
Correspondent Services consents to such an assignment in writing. Any
assignment by Montgomery Correspondent Services to any subsidiary that it may
create or acquire or control directly or indirectly will be deemed valid and
enforceable in the absence of any consent from you.
(E) GOVERNING LAW. The construction and effect of every provision of
this Agreement, the rights of the parties hereunder and any questions arising
out of the Agreement, shall be subject to the statutory and common law of the
State of New York without reference to the conflict of law provisions thereof.
(F) HEADINGS. The headings preceding the text, articles, and
sections hereof have been inserted for convenience and reference only and
shall not be construed to affect the meaning, construction, or effect of this
Agreement.
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(G) NOT A JOINT VENTURE OR AGENCY. Neither this Agreement nor any
operation hereunder shall create a general or limited partnership,
association, joint venture, branch, or agency relationship between you and
Montgomery Correspondent Services, and you shall not make any statement or
representation to the contrary.
(H) SERVICES COVERED BY THIS AGREEMENT. This Agreement shall cover
only the types of services set forth herein and is in no way intended nor
shall it be construed to bestow upon you any special treatment regarding any
other arrangements, agreements or understandings that presently exist or
which may hereafter exist between you and your affiliates, on the one hand,
and Montgomery Correspondent Services and its affiliates, on the other.
(I) SEVERABILITY. If any provision or condition of this Agreement
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision or condition. The
validity of the remaining provisions and conditions shall not be affected
thereby and this Agreement shall be carried out as if any such invalid or
unenforceable provision or condition were not contained herein.
(J) WAIVER. The enumeration herein of specific remedies shall not
be exclusive of any other remedies. Any delay or failure by any party to this
Agreement to exercise any right, power, remedy or privilege in the Agreement,
or under any applicable statute or law, shall not be construed to be a waiver
of, or to limit the exercise of, such right, power, remedy or privilege. No
single, partial or other exercise of any such right, power remedy or
privilege shall preclude the further exercise thereof or the exercise of any
other right, power, remedy or privilege.
(K) NOTICES. All notices, consents, directions, approvals,
restrictions, requests, or other communications required or permitted to be
delivered hereunder shall be given to the parties hereto, effective upon
delivery, at the addresses specified below:
If to Clearing Broker:
Montgomery Correspondent Services a
division of Banc of America Securities LLC
600 Montgomery Street San Francisco, CA
94111 Attn: Seth J. Gersch
With a copy to: Victor A. Warnement
Managing Director and
Director, Legal & Regulatory Affairs
Banc of America Securities LLC
100 North Tryon Street, NC1-007-20-01
Charlotte, North Carolina 28255
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If to Introducing Broker:
Spires Financial, L.P.
5151 San Felipe, Suite 1300
Houston, TX 77056
Attn: Peter Badger
Either party may change its address for notice purposes by giving written
notice pursuant to registered mail of the new address to the other party.
(L) INVESTIGATION OF INTRODUCING BROKER'S CREDIT. The Clearing
Broker shall have the right to investigate your credit and financial
worthiness.
(M) HIRING AWAY. Without the prior written consent of Montgomery
Correspondent Services, you will not during the period of this Agreement and
for one year following its termination, hire or attempt to hire any person
who is employed by Montgomery Correspondent Services or whose employment with
Montgomery Correspondent Services terminated within the one-year period prior
to the termination of this Agreement. The same policy shall apply to
Montgomery Correspondent Services with regard to the hiring of persons
employed by Introducing Broker.
Please evidence your agreement to the foregoing by executing and delivery to
Montgomery Correspondent Services the enclosed copy hereof, and the
information required by Sections 9(A) and (B) and 10(A) herein, whereupon you
and Montgomery Correspondent Services, a division of Banc of America
Securities LLC shall have entered into this Agreement.
Very truly yours,
MONTGOMERY CORRESPONDENT SERVICES
a division of Banc of America Securities LLC
By: /s/ Seth J. Gersch
Seth J. Gersch, President and Chief Executive Officer
Accepted and Agreed:
Name of Introducing Broker
By: /s/ Peter W. Badger
Peter Badger W. Badger, President and Partner
Date:
<PAGE>
EXHIBIT 10.23
HALLIBURTON CENTER
LEASE AGREEMENT
BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD.
AND
SPIRES FINANCIAL, L.P.
<PAGE>
LEASE AGREEMENT
THE STATE OF TEXAS
COUNTY OF HARRIS
THIS LEASE AGREEMENT (hereinafter called "Lease") is made and entered
into on this the 4THday of AUGUST, 1998, by and between BARNHART INTERESTS,
INC., AS AGENT FOR SAGE PLAZA ONE LTD. (hereinafter called "Landlord"), and
SPIRES FINANCIAL, L.P. (hereinafter called "Tenant").
WITNESSETH:
ARTICLE 1
LEASED PREMISES AND NET RENTABLE AREA
1.01. LEASED PREMISES. Landlord does hereby lease, demise and let to
Tenant, and Tenant does hereby lease from Landlord those certain premises
(hereinafter sometimes called the "Leased Premises") in the building known as
Halliburton Center (hereinafter called the "Building"), located at 5151 San
Felipe, Houston, Harris County, Texas. Such Leased Premises contains
approximately 7,427 Square Feet of Net Rentable Area, hereinafter defined, on
Level 13 of the Building and are outlined and/or hatched on the floor plan
drawing attached hereto and made a part hereof as Exhibit "A" and initialed
for identification by both parties.
1.02. The term "Net Rentable Area" as used herein shall mean, in the
case of a single tenant occupying a floor (hereinafter called "Single Tenant
Floor"), the total of (i) the entire area bounded by the four exterior walls
of the Building measured from the inside surface of the outer glass on such
floor, less the area contained within Building stairs, vertical ducts,
elevator shafts, flues, vents, stacks and pipe shafts, measured from the
centerline of the walls separating such areas, and (ii) an allocation of the
Building ground and basement lobbies and rest rooms, central plant, truck
dock, areaways, mail room and other facilities shared by tenants of the
Building. No deduction shall be made for columns and other structural
portions of the Building. All the area on any Single Tenant Floor that is
used for elevator lobbies, corridors, special stairways, rest rooms,
mechanical rooms, electrical rooms, telephone closets, and all vertical
penetrations that are included for the special use by Tenant shall be
included within the Net Rentable Area for such floor.
1.03. On each floor of the Building on which space is or will be
leased to more than one tenant, the Net Rentable Area attributable to each
such lease shall be the total of (i) the entire area included within the
leased premises covered by such lease, being the area bounded by the exterior
wall or walls of the Building measured from the inside surface of the outer
glass or finished walls bounding such leased premises, the centerline of all
walls separating such leased premises from elevator lobbies, public
corridors, restrooms, stairwell, mechanical rooms, electrical rooms and
telephone closets situated on such floor ("common areas"), and the
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<PAGE>
centerline of all walls separating such leased premises from other areas
leased or to be leased to other tenants on such floor, and (ii) a pro rata
portion of the area covered by the common areas, plus an allocation of the
Building ground and basement lobbies and rest rooms, central plant, truck
dock, areaways, mail room and other facilities shared by tenants of the
Building and columns and other structural portions of the Building. The Net
Rentable Area for the entire Building shall be deemed to be 519,966 square
feet for the purposes of this Lease. The Net Rentable Area contained within
the Leased Premises shall be deemed to be the number of square feet set forth
in Section 1.01 above.
ARTICLE 2
TERM
2.01. The provisions of this Article 2 are subject to and upon the
terms and conditions set forth in this Lease and any addendum or rider hereto.
2.02. The term of this Lease is sixty (60) months. The "Commencement
Date" shall be within five (5) business days after Landlord notifies Tenant
in writing that the Leased Premises is completed per plans and
specifications, or when Tenant occupies the Leased Premises to transact
business, whichever is earlier. If the Leased Premises are not ready for
occupancy by October 15, 1998, for reasons other than delays caused by
Tenant, Tenant shall have the right to terminate this Lease. The Lease will
terminate on the last day of the sixtieth (60th) month following the actual
"Commencement Date".
2.03. In the event Landlord fails to complete the Building or the
Leased Premises by the time of the Commencement Date for any reason or cause,
Landlord shall not be liable or responsible for any claims, damages or
liabilities in connection therewith or by reason thereof, and the date on
which the term of this Lease commences shall be the date on which the Leased
Premises are ready for occupancy by Tenant (except as provided in Section
2.04 below). In such event, the stated term in this Lease shall thereupon
commence, the expiration date shall be extended so as to give effect to the
full stated term, and Landlord and Tenant will, at the request of either,
execute a declaration specifying the beginning date of the term of this Lease.
2.04. In the event the Leased Premises are not ready for occupancy
by the Commencement Date of this Lease due to any delay whatsoever on the
part of Tenant, its agents or contractors, including, without limitation, any
delay in furnishing information or performance of its obligations required in
Exhibit "B", or as a result of Tenant Delay as defined in Exhibit "B", or if
Tenant fails to occupy the Leased Premises Leased Premises are ready for
occupancy, then Tenant shall commence rental payments hereunder on the
Commencement Date. The Commencement Date, expiration date and commencement of
installments of Base Rental or additional rent shall not be postponed or
delayed as a result of delays on the part of Tenant.
ARTICLE 3
CONSTRUCTION
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3.01. LEASEHOLD IMPROVEMENTS. Tenant shall comply with the Tenant
improvement schedule attached hereto and made a part hereof as Exhibit "B".
The Leased Premises shall be remodeled and improved in accordance with
Exhibit "B" and plans and specifications submitted and signed by Tenant.
Landlord shall provide Tenant with a finish allowance of $15.00/square foot
of Net Rentable Area ($111,405.00), plus demolition as set forth on Exhibit
B-2 (the "Allowance"), to include space planning and design, construction,
relocation costs, architectural and construction management, and MEP
drawings. The Allowance shall include costs for demolition of partitions as
shown on Exhibit "B-2" attached hereto. After receipt of the approved working
drawings and pricing letter agreement described in said Exhibit "B", Landlord
will partition and prepare said Leased Premises in accordance therewith;
however, Landlord shall not be required to install any partitions or
improvements which are not in conformity with the plans and specifications
for the Building or which are not approved by Landlord or Landlord's
architect, and Landlord shall be required to bear the expense of installing
only the items listed in Exhibit "B" hereto which can be installed at a cost
not to exceed the Allowance. All installations in excess of the Allowance
("Tenant's Costs") shall be for Tenant's account, and Tenant shall pay, as
additional rent hereunder, to Landlord, an amount therefor equal to
Landlord's actual cost thereof, including associated architectural and
engineering fees, if any, plus an additional charge of fifteen percent (15%)
to cover overhead, promptly upon being invoiced therefor. Additionally,
Tenant shall pay all ad valorem taxes and increased insurance premiums that
are payable on account of any of Tenant's improvements that are in addition
to those items (or quantities thereof) described on Exhibit "B" hereto.
Failure by Tenant to pay any sums described in this Section 3.01 in full
within thirty (30) days after its receipt of an invoice therefor will
constitute failure to pay rent when due and an event of default by Tenant
hereunder, giving rise to all remedies available to Landlord under this Lease
and at law for nonpayment of rent. It is stipulated that time is of the
essence in connection with Tenant's compliance with the terms of Exhibit "B".
Landlord may make insubstantial changes in its preparation of the Leased
Premises without Tenant's approval. Landlord may make substantial changes in
its preparation of the Leased Premises only with Tenant's approval, which
approval shall not be unreasonably withheld. Upon completion by Landlord of
the work to be performed by it in preparation of the Leased Premises
substantially in accordance with Exhibit "B", Landlord will tender possession
of such premises to Tenant, and Tenant will accept and occupy the Leased
Premises, if completed pursuant to Exhibit "B", subject to punch list items
which Landlord will complete as soon as reasonably possible. The work to be
performed by Landlord in the preparation of the Leased Premises shall be
deemed to have been completed substantially in accordance with Exhibit "B",
notwithstanding that adjustments may be required to be made by Landlord in
its work and that minor items of Landlord's work have not been fully
completed, so long as Tenant would be able to use the Leased Premises for the
purpose provided hereunder upon performance of Tenant's own construction and
installation of its fixtures and equipment. Completion substantially in
accordance with Exhibit "B" by Landlord may, but need not be, evidenced by a
certificate of completion or certificate of substantial completion issued by
Landlord's architect. Subject to Section 3.03, after such tender of
possession by Landlord, Tenant may enter the Leased Premises under all the
terms and conditions of this Lease (except that no rental shall be payable
until the commencement of the term as specified in Article 4 hereof) for the
purpose of performing its construction work in the Leased Premises and
installing its fixtures. Entry into possession by Tenant will constitute
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<PAGE>
acknowledgment by Tenant that the Leased Premises are in the condition called
for by this Lease and that Landlord has performed all of Landlord's visible
obligations relating to preparation of the Leased Premises, but subject to
punch list items.
3.02. PRIOR OCCUPANCY. Tenant, at its option, along with its
employees, suppliers, contractors, subcontractors and agents, shall be
permitted to enter the Leased Premises at any time prior to the scheduled
Commencement Date of the Lease, providing such entry and work shall be in
harmony with the Landlord's contractors and with no obligation on the part of
Tenant to pay rent during such period of prior occupancy, for the purposes of
installing furniture, fixtures and equipment (including telephone equipment),
as well as non "building standard" leasehold improvements, including, but not
limited to, millwork, wall and floor covering, and draperies. This prior
occupancy provision shall be separate and distinct from the obligations of
Landlord as to the completion of the "building standard" improvements per
Exhibit "B".
3.03. USE OF THE COMPLEX PRIOR TO THE COMMENCEMENT DATE. Prior to
the Commencement Date of the Lease, entry into the Complex, as defined in
Section 5.10 herein, shall be at Tenant's risk and Landlord shall not be
liable for (i) any injury, loss or damage to any of Tenant's installations or
decorations, and/or (ii) any injury or death arising in connection with any
outside contractor or others being with the Complex on Tenant's behalf and
Tenant agrees to protect, defend, indemnify, and save harmless Landlord from
all liabilities, costs, damages, fees and expenses arising out of the
activities of Tenant or its employees, agents, contractors, suppliers or
workmen in or about the Complex.
3.04. INITIAL CONSTRUCTION-NON STANDARD IMPROVEMENTS. With respect
to the initial construction of the Leased Premises, Tenant shall have the
right to undertake non "building standard" leasehold improvements (except
where same relate to base building structural, electrical, mechanical and/or
plumbing) through outside contractors of its own choosing, subject to
Landlord's reasonable approval, providing the entry and work on the part of
such outside contractors shall be in harmony with Landlord's contractors;
and, if at any time such entry and work by one or more persons furnishing
labor or materials for Tenant's work shall result in disharmony or
interference with Landlord's work, the consent granted by Landlord to Tenant
may be withdrawn upon twenty-four (24) hours written notice to Tenant.
3.05. CONSTRUCTION BY TENANT. With respect to construction by
Tenant, Tenant, its contractors or other agents shall provide Landlord
sufficient evidence that it (they) is (are) covered under such workmen's
compensation, public liability, and property damage insurance as Landlord may
reasonably request for its protection. All such labor shall be performed and
materials furnished at Tenant's own cost, expense and risk. With respect to
any contract for any such labor or materials, Tenant acts as a principal and
not as an agent of Landlord. Tenant agrees to indemnify and hold Landlord
harmless from all claims (including costs and expenses of defending against
such claims) arising or alleged to arise from any act or omission of Tenant
or Tenant's agents, employees, contractors, subcontractors, laborers,
materialmen or invitees or arising from any bodily injury or property damage
occurring or alleged to have occurred incident to Tenant's work at the Leased
Premises. Tenant shall have no authority to place any lien upon tile Leased
Premises or any interest therein or in any way to bind Landlord; and any
attempt to do so shall be void and of no effect. Landlord expressly disclaims
liability for the cost of labor
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<PAGE>
performed or materials furnished by Tenant. If, because of any actual or
alleged act or omission of Tenant, any lien, affidavit, charge or order for
the payment of money shall be filed against Landlord, the Leased Premises or
any portion thereof or interest therein, whether or not such lien, affidavit,
charge or order is valid or enforceable, Tenant shall, at its own cost and
expense, cause the same to be discharged of record by payment, bonding or
otherwise not later than thirty (30) days after notice to Tenant of the
filing thereof, but in all events, prior to the foreclosure thereof. All of
Tenant's construction of the Leased Premises shall be performed in a good and
workmanlike manner satisfactory to Landlords' architect in accordance with
applicable building codes, regulations and all other legal requirements, and
shall not interfere with or delay any work being done by Landlord's
contractors.
ARTICLE 4
BASE RENTAL
4.01. BASE RENTAL. As rental (hereinafter called "Base Rental" or
"Rent") for the Lease and the use of the Leased Premises, Tenant shall pay in
U. S. Dollars to Landlord or Landlord's assigns, at the Building office,
without demand and without deduction, abatement or setoff, and subject to
Base Rental Adjustment defined in Article 5 below, Base Rental as follows:
<TABLE>
<S> <C>
Leased Premises Net Rentable Area (NRA): 7,427
Years 1 through 5 :Annual Rate: $ 20.00/SF/YR NRA
(inclusive)
Annual Rental: $ 148,540.00
Monthly Rental: $ 12,378.33
</TABLE>
4.02. BASE RENTAL PAYMENTS. All rental payments are payable on the
first day of each calendar month, monthly in advance, in lawful money of the
United States of America, commencing on the first day of the first month of
the term of this Lease and continuing through the last day of the last year
of the term of this Lease. If the term of the Lease does not commence on the
first day of the calendar month or terminate on the last day of the calendar
month, as the case may be, Tenant shall pay in advance a pro rata part of
such sum as rental for such first or last partial month, as the case may be.
All past due installments of Rent shall bear interest at the maximum lawful
rate per annum from the date due until paid. The Annual Rate, Annual Rental
and Monthly Rental set forth above shall be subject to the Base Rental
Adjustment set forth in Article 5.
4.03. ADDITIONAL RENT. Tenant shall also pay, as additional rent,
all other sums of money as shall become due and payable by Tenant to Landlord
under this Lease. Landlord shall have the same remedies of default for the
payment of additional rent as are available to Landlord in the case of a
default in the payment of Base Rental.
ARTICLE 5
BASE RENTAL ADJUSTMENT
5
<PAGE>
5.01. The Base Rental Adjustment shall be calculated in accordance
with the factors set forth in the following sections of this Article 5.
5.02. BASIC COST AMOUNT. Tenant's Base Rental includes a component
applicable to Basic Cost (hereinafter defined). The "Initial Basic Cost"
(including the management fee) is hereby stipulated to be the actual
Operating Expenses for calendar year 1999.
5.03. INTENTIONALLY STRICKEN.
5.04. ANNUAL ESTIMATE OF BASIC COST. Prior to and no later than
thirty (30) days after the commencement of each calendar year of Tenant's
occupancy, Landlord shall provide an estimate of Basic Cost for said calendar
year. Tenant shall pay a Base Rental for said calendar year adjusted upward
or downward, as appropriate, by the amount of difference between the prior
calendar year's estimated costs and the coming year's estimated costs.
5.05. REVISIONS IN ESTIMATED BASIC COST. If real estate taxes or the
cost of utilities or janitorial services increase during a calendar year,
Landlord may revise the estimated Basic Cost during such year by giving
Tenant written notice to that effect, and thereafter Tenant shall pay to
Landlord, in each of the remaining months of such year, an additional amount
equal to its pro rata share of the amount of such increase in the estimated
Basic Cost divided by the number of months remaining in such year.
5.06. ACTUAL BASIC COST. Within one hundred fifty (150) days or as
soon thereafter as possible of the conclusion of each calendar year of the
term of the Lease, Landlord shall furnish to Tenant a statement of Landlord's
actual Basic Cost for said lease year. A lump sum payment will be made from
Landlord to Tenant or from Tenant to Landlord, as appropriate, within thirty
(30) days of the delivery of such statement equal to the difference in actual
Basic Cost and estimated Basic Cost for the just completed year. The effect
of this reconciliation payment is that Tenant will pay during the term of
this Lease its share of Basic Cost increases over the initial Basic Cost.
5.07. TENANT'S PROPORTIONATE SHARE OF BASIC COST. All increases in
Basic Cost shall be paid by Tenant in the proportion which Tenant's Net
Rentable Area bears to ninety-five percent (95%) of the total Net Rentable
Area in the Building or to the total Net Rentable Area leased in the Building
(if such total is greater than ninety-five percent (95%) of the total
Building area). Notwithstanding any other provision herein to the contrary,
it is agreed that in the event the Building is not substantially occupied
during any year of the lease term, an adjustment shall be made in computing
the Basic Cost for such year so that the Basic Cost shall be computed for
such year as though the Building had been substantially occupied during such
year. The Building shall be deemed substantially occupied if ninety-five
(95%) percent of the total Net Rentable Area is leased.
5.08. AUDIT. Tenant at its expense shall have the right at all
reasonable times and within one hundred twenty (120) days from the receipt of
Landlord's statement of Actual Basic Cost for any immediately preceding year
to audit Landlord's books and records relating to this Lease for such year
for which additional rental payments become due; or, at Landlord's sole
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discretion, Landlord will provide such audit prepared by a national certified
public accountant. Pending resolution by agreement, Tenant shall make any
payment due as shown by Landlord's accounting without prejudice to Tenant's
position.
5.09. OPERATING COST CREDIT/DEBIT. Except as otherwise set forth
above, to the extent that the operating costs of the Building are reduced as
a result of Tenant's use of the Leased Premises for special or unusual
purposes, such operating cost savings shall be passed on to Tenant to offset
its pro rata share of increases in such operating costs. Conversely, should
it be determined that the operating costs of the Building are increased as a
result of Tenant's use of the Leased Premises for special or unusual
purposes, such operating cost increases shall be paid for by Tenant.
5.10. BASIC COST DEFINED. The term "Basic Cost" means all annual
operating expenses of the Building, adjacent parking garage serving the
Building (hereinafter called "Building Parking Garage") access roads,
easements, truck docks and grounds serving the Building and Building Parking
Garage (hereinafter called "Building Grounds") (hereinafter collectively
called the "Complex") computed on the accrual basis, determined in accordance
with generally accepted accounting principles consistently applied, and shall
consist of all expenditures to maintain all facilities in the operation of
the Complex and such facilities in subsequent years as may be necessary or
desirable in the operation of the Complex. The term "operating expenses"
shall mean all expenses, costs and disbursements (but not replacement of
capital investment items, except as stated in Section 5.10.9 below, or
specific utility costs especially billed to and paid by specific tenants) of
every kind and nature which Landlord shall reasonably pay or become obligated
to pay in connection with, and in the ordinary course of, the ownership and
operation of the Complex, including but not limited to, the following:
5.10.1. All taxes and assessments and other governmental charges
whether federal, state, county or municipal and whether they be by taxing
districts or authorities presently taxing the Leased Premises and/or the
Complex or by others subsequently created or otherwise, and any other
taxes and improvement assessments attributable to the Complex or its
operation, excluding, however, federal and state taxes on income, ad
valorem taxes paid by Tenant or other tenants, exclusive of the building
management office, in the Building for personal property and on the value
of the Leasehold improvements in the Leased Premises, or the premises of
other tenants, exclusive of the building management office, in the
Building, to the extent that same exceed the standard allowances for
"building standard" items as set forth in Exhibit "B". It is agreed that
Tenant will be responsible for ad valorem taxes on its personal property
and on the value of leasehold improvements in excess of "building
standard";
5.10.2. Cost (net of any insurance recoveries and/or monies
received by other tenants, entities or persons) of repairs and general
maintenance;
5.10.3. Cost of all utilities, including without limitation,
power, heating, lighting, air conditioning and ventilating the Complex
(excluding those costs billed to specific tenants and fuel adjustment
costs provided for in Section 5.11);
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5.10.4. Cost of all maintenance and service agreements including,
but not limited to, alarm and security related services, landscape
maintenance, window cleaning and elevator maintenance;
5.10.5. Cost of all insurance relating to the Complex,
including, but not limited to, premiums for casualty, liability and
rental value insurance applicable to the Complex and Landlord's
personal property used in connection with the operation and
maintenance of the Complex;
5.10.6. Wages and salaries of all employees (but not Landlord's
off-site executives) directly engaged in operating and maintenance,
or security, of the Complex, personnel who may provide traffic
control relating to ingress and egress to and from the Building
Parking Garage to the adjacent public streets, including such
expenses of Landlord's employees so engaged, charged directly to
the Complex. All social security taxes, unemployment taxes or
insurance, and any other taxes which may be levied on such wages
and salaries, the cost of worker's compensation, disability,
hospitalization and worker's compensation insurance and pension
retirement benefits, vacation and all other employee benefits and
payroll burden relating to employees providing these services shall
be included;
5.10.7. Management fees relating to the management of the
Complex, which shall be three percent (3%) of the total gross income of
the Complex;
5.10.8. Cost of all supplies, materials, tools and equipment
(excluding capital investment items set forth below) used in operation,
maintenance and normal repair of the Complex;
5.10.9. Amortization of the cost of capital investment items and
of the installation thereof which are primarily for the purpose of
saving energy or reducing operating costs or which may be required
by governmental authority. All such costs shall be amortized over
the reasonable life of the capital investment items, with the
reasonable life and amortization schedule being determined in
accordance with generally accepted accounting principles and in no
event to extend beyond the reasonable life of the Complex;
5.10.10. Costs incurred in compliance with new, revised or newly
interpreted federal, local or state laws or municipal ordinances or
codes or regulations promulgated under any of the same; and
5.10.11. All accounting costs, including without limitations,
Landlord's central accounting costs, and legal expenses (other than
lease/loan negotiations or matters against tenants) applicable to
the Complex.
5.11. FUEL ADJUSTMENT. If there is presently in effect or hereafter
adopted any nature of fuel adjustment, notwithstanding anything in this Lease
Agreement to the contrary, Tenant covenants and agrees to pay to Landlord,
upon delivery of written notice in the manner
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provided in Section 19.01 hereinbelow, as additional rent, on the first day
of each calendar month, for each and every month in the term of this Lease,
in lawful money of the United States of America, an amount equal to Tenant's
pro rata share of all fuel adjustment costs charged by any private, public or
municipal corporation furnishing utilities to the Building for the preceding
month. Tenant's pro rata share of such fuel adjustment costs shall be a
fraction of the total of such costs, the numerator of which shall be the Net
Rentable Area of the Leased Premises and the denominator of which shall be
the total Net Rentable Area of the Building.
5.12. RENT SALES TAX. If there is presently in effect or hereafter adopted any
nature of sales tax or use tax or other tax on rents received by Landlord
(herein referred to as "Rent Sales Tax"), then, in addition to all rent and
other payments to be made by Tenant as provided above, Tenant will, upon
delivery of written notice in the manner provided in Section 19.01 hereinbelow,
also pay Landlord, contemporaneously with its payment to Landlord of rent, a sum
equal to the amount of such Rent Sales Tax. In the event that the taxing
jurisdiction notifies Landlord that the Rent Sales Tax is due with respect to
any other sum paid by Tenant hereunder, then Tenant shall, be required to pay
Landlord a sum equal to the Rent Sales Tax or such other charges
contemporaneously with the payment thereof.
In the event that Tenant fails to pay Landlord the Rent Sales Tax at the time
required in accordance with the preceding provisions, such failure may be
treated by Landlord as an Event of Default, as defined in Article 17
hereinbelow, by Tenant in the payment of rent due and owing hereunder, and
Landlord shall be entitled to tile remedies to cure such Event of Default, as
set forth in Article 17 hereinbelow. The term "Rent Sales Tax" shall not include
any federal or state taxes on income applicable to Landlord.
5.13. GENERAL. Nothing contained in this Article 5, shall be
construed at any time so as to reduce the monthly installments of Base Rental
payable hereunder below the amount set forth in Article 4 of this Lease.
ARTICLE 6
OCCUPANCY AND USE
6.01. USE OF PREMISES. The Leased Premises shall be occupied and
used by Tenant solely for the purpose of general business offices, including
all support facilities legally permitted by the Building Code of the City of
Houston; and such facilities shall be consistent with the quality, character
and general utility of the Complex. Tenant will not use, occupy or permit the
use or occupancy of the Leased Premises for any purpose which is, directly or
indirectly, forbidden by law, ordinance or governmental or municipal
regulation or order or which may be dangerous to life, limb or property; or
permit the maintenance of any public or private nuisance; or do or permit any
other thing which may disturb the quiet enjoyment of any other tenant of the
building; or keep any substance or carry on or permit any operation which
might make undue noise or set up vibrations in the Building; or permit
anything to be done which would increase the fire and extended coverage
insurance rate on the Building or contents, and if there is any increase in
such rate by reason of acts of Tenant, then Tenant agrees to pay
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such increase promptly upon demand therefor by Landlord. Payment by Tenant of
any such rate increase shall not be a waiver of Tenant's duty to comply
herewith.
6.02. COMPLIANCE WITH LAW. Tenant shall comply with all laws,
ordinances, rules and regulations (federal, state, municipal and other
agencies or bodies having any jurisdiction thereof) relating to the use,
condition or occupancy of the Leased Premises. Such reasonable rules and
regulations applying to all tenants in the Building as may be adopted by
Landlord for the safety, care and cleanliness of, and preservation of good
order in, the Leased Premises and the Complex are hereby made a part hereof
as Exhibit "C", initialed for identification by both parties, and Tenant
agrees to comply with all such rules and regulations. Landlord shall have the
right at all times to change such rules and regulations or to amend them in
any reasonable and non-discriminatory manner. All changes and amendments will
be sent by Landlord to Tenant in writing and shall be thereafter carried out
and observed by Tenant.
6.03. SIGNS. Tenant shall not inscribe, paint, affix or display any
signs, advertisements or notices on or in the Building, except for such
tenant identification information as Landlord permits to be included or shown
on the directory board in the main lobby and adjacent to the access door or
doors to the Leased Premises, as described in Section 7.08.
6.04. ACCESS BY LANDLORD. Landlord or its authorized agents shall at
any and all reasonable times have the right to enter the Leased Premises to
inspect the same, to supply janitorial service or any other service to be
provided by Landlord to Tenant hereunder, to show the Leased Premises or any
other portion of the Building, all without being deemed guilty of an eviction
of Tenant and without abatement of Rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided the business of Tenant shall
be interfered with as little as is reasonably practicable. Tenant hereby
waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment
of the Leased Premises, and any other loss occasioned thereby. For each of
the aforesaid purposes, Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Leased Premises,
excluding Tenant's vaults and safes. Landlord shall have the right to use any
and all means which Landlord may deem proper to open any door(s) in an
emergency without liability therefor.
6.05. NUISANCE; WASTE. Tenant shall conduct its business and control
its agents, employees, invitees and guests in such a manner as not to create
any nuisance, or to interfere with, annoy or disturb any other tenant or
Landlord in its operation of the Building. Tenant shall not commit or allow
waste to be committed on the Leased Premises, or any portion thereof.
Landlord shall use reasonable efforts to obtain a similar covenant from the
other tenants in the Building.
6.06. QUIET POSSESSION. Upon Tenant's paying the Rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have the quiet possession of the Leased Premises for the entire term of
the Lease, subject to all of the provisions of the Lease, any underlying
leases or mortgages, all applicable laws and other governmental and legal
requirements.
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6.07. SURRENDER OF LEASED PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to
reenter tile Leased Premises without terminating this Lease, Tenant shall
immediately surrender the Leased Premises and all keys to the Leased Premises
to Landlord, together with all alterations, improvements and other property
as provided elsewhere herein, in good order, condition and repair, except for
ordinary wear and tear; provided that at Landlord's written request Tenant
shall remove at its expense improvements to the Leased Premises such as
special wall coverings and flooring which have become a part of and otherwise
would have remained with the Leased Premises. Tenant shall, at its expense,
promptly repair any damage caused by removal of any other improvements
requested by Landlord as aforesaid, and shall restore the Leased Premises to
SUBSTANTIALLY the condition existing prior to the installation of the items
removed. If Tenant fails to surrender the Leased Premises in the condition
aforesaid, then Landlord may restore the Leased Premises to such a condition
at Tenant's expense. Upon the expiration or earlier termination of the Lease,
Tenant will, at the option of Landlord, execute a "Release of Lease" and
"Waiver of Claim", in recordable form, containing Tenant's release of all its
interest in the Leased Premises.
6.08. HOLDING OVER. In the event of holding over by Tenant, or any
party claiming under Tenant, after expiration or termination of this Lease
without the written consent of Landlord, Tenant shall pay to Landlord one
hundred fifty percent (150(degree)/") of the then prevailing market rent
applicable to the Leased Premises for the entire holdover period. No holding
over by Tenant after the term of this Lease shall operate to extend the
Lease; in the event of any unauthorized holding over, Tenant shall indemnify
Landlord against all claims for damages by any other Tenant to whom Landlord
may have leased all or any part of the Leased Premises covered hereby
effective upon the termination of this Lease. Such possession shall be an
unlawful detainer, and no tenancy or interest shall result from such
possession, however, Tenant shall abide by all other terms and obligations of
this Lease during such holdover period.
ARTICLE 7
UTILITIES AND SERVICES
7.01. GENERAL. Subject to the rules and regulations herein referred
to, and provided Tenant is not in default hereunder, Landlord shall furnish
Tenant, at Landlord's expense, certain services during the term of the Lease,
as set forth in this Article 7.
7.02. PUBLIC UTILITIES. Landlord shall use its best efforts and all
reasonable diligence to cause public utilities to furnish the electricity,
gas and water utilized in operating any and all facilities serving the Leased
Premises and the Building as well as the Building Parking Garage.
7.03. SECURITY. Landlord shall contract with a reputable security
service to provide (as part of the Basic Cost of the Complex) security to the
Building and Building Parking Garage during weekends and after normal working
hours during the week. Landlord shall have no responsibility to prevent, and
shall not be liable to Tenant for and shall be indemnified by Tenant against
any liability or loss to Tenant, its agents, employees and visitors arising
out of, losses due
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to theft, burglary, or damage or injury to persons or property caused by
persons gaining access to the Building or the Leased Premises.
7.04. WATER, HEATING AND AIR CONDITIONING, JANITOR SERVICE AND
ELECTRICAL. Landlord shall furnish (as part of the Basic Cost of the
Building) Tenant while occupying the Leased Premises:
7.04.1. Hot and cold water at those points of supply provided
for general use of other tenants in the Building and at Tenant's
above "building standard" plumbing points as they exist at the date
of execution of this Lease, and cold water only at base building
chilled water risers which may be tapped into at Tenant's expense
or to the extent of Tenant's use of the Allowance; automatic
passenger elevator service for access to and egress from the Leased
Premises twenty-four (24) hours a day, seven (7) days a week;
freight elevator service in common with other tenants, during
reasonable business hours as prescribed by Landlord, and by prior
appointment on Saturdays, Sundays and holidays, central heat and
air conditioning in season from 7:00 a.m. to 6:00 p.m. Monday
through Friday, and 8:00 a.m. to 12:00 noon on Saturday, holidays
excepted, at such temperatures and in such amounts as are
reasonably required for the comfortable use and occupancy of the
Leased Premises by Tenant, but in no event less than standard for
similar first class office buildings in the immediate vicinity of
the Building, but such service at times during week clays other
than normal business hours for the Building, on Saturday
afternoons, Sundays and holidays to be furnished only upon the
advance request of Tenant, who shall bear the cost thereof in
accordance with the provisions of Section 7.04.2 below; and routine
maintenance and electric lighting service for all public areas and
special service areas of the Building in the manner and to the
extent standard in similar first class office buildings.
7.04.2. In the event that Tenant desires air conditioning or
heating at any time or times other than as specified in Section 7.04.1
above, Tenant shall be charged for such air conditioning or heating
furnished by Landlord during such periods at Landlord's then standard
hourly rate applicable during the periods when such services are
furnished. Such rate may be changed by Landlord at any time and from
time to time during the term of the Lease. In no event, however, shall
the charge to Tenant for overtime HVAC operation exceed the prevailing
hourly rate charged from time to time to other tenants in the Building.
7.04.3. Janitor service on a five (5) day week basis at no
extra charge; provided, however, if Tenant's floor covering or
other improvements are other than "building standard", Tenant shall
pay the additional cleaning cost attributable thereto as additional
rent. Tenant shall pay said additional rent upon presentation of a
statement therefor by Landlord, and Tenant's failure to pay shall
constitute default hereunder.
7.04.4. Electrical facilities to furnish sufficient power for
"building standard" lighting, typewriters, personal computers,
voice writers, calculating machines, photocopying and
communications equipment and facilities, and other machines of
similar low electrical consumption (total consumption not to exceed
2.5 watts per square foot of
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Net Rentable Area, not including "building standard" lighting), but
not including electricity required for electronic data processing
equipment, special lighting in excess of "building standard", and
any other item of electrical equipment which (singly) consumes more
than 0.5 kilowatts at rated capacity or requires a voltage other
than 120 volts single phase, and provided that if the installation
of said electrical equipment requires additional air conditioning
capacity above that provided by the building standard system then
the additional air conditioning installation and operating costs
will be the obligation of Tenant. Tenant shall pay the costs of
installing and maintaining any separate electrical circuits which
may be required in connection with Tenant's use of the Leased
Premises and all costs of furnishing electricity in excess of the
usage described above, all upon the receipt of Landlord's invoice
therefor.
7.04.5. Notwithstanding any other term or provision hereof,
Tenant shall pay to Landlord monthly, as billed, such charges as
may be separately metered or as Landlord's engineer may compute for
any electric, chilled water, air conditioning or heating service
utilized by Tenant for computers, data processing equipment or
other electrical equipment (except typewriters, dictating
equipment, adding machines and desktop calculators) or extra
lighting or other electrical such service not standard for the
Building.
7.04.6. All "building standard" fluorescent bulb replacement
in all areas and all incandescent and/or fluorescent bulb
replacement in public areas, toilet and rest room areas and
stairwells.
7.05. SERVICE INTERRUPTION. Failure by Landlord to any extent to
furnish the services described herein, or any cessation thereof, resulting
from causes beyond the reasonable control of Landlord shall not constitute an
eviction or disturbance of Tenant's use and possession of the Leased Premises
or Building or a breach by Landlord of any of its obligations hereunder or
render Landlord liable for damages or entitle Tenant to be relieved from any
of its obligations hereunder (including the obligation to pay rent) or grant
Tenant any right of set off or recoupment. In the event of any equipment or
machinery breakdown, however, Landlord shall use its best reasonable efforts
and due diligence to cause such services to be restored. Landlord shall use
its best reasonable efforts and due diligence to restore any failure or
defect in the supply or character of services furnished or to be furnished by
Landlord under this Article 7, but landlord shall not otherwise be
responsible or liable to Tenant for any such failure or defect. If any such
failure or defect (except as to defects caused by events described in Section
3.5 or Article 11) renders all or any portion of the Leased Premises
unsuitable for the conduct of Tenant's business therefrom, and Tenant
temporarily discontinues its business operations therein for a period of at
least three (3) consecutive business days (exclusive of Saturdays, Sundays,
and holidays) after Landlord receives written notice thereof, then Base
Rental shall abate for the portion of the Leased Premises as is so rendered
unsuitable for the duration (after the expiration of said three (3) day
period) of such unsuitability, and if the Leased Premises is rendered
unsuitable and Tenant discontinues its business operations therein for a
period of more than thirty (30) consecutive business days, subject to
extension due to FORCE MAJEURE (but in no event longer than sixty (60) days),
during which Landlord has failed on a continual basis to provide any one or
more of these services, and has failed to commence to repair or reinstall
these services with due diligence, and such repair or reinstallation efforts
have not been maintained with
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continuity, then Tenant, at its option, within five (5) days subsequent to
the last day of such period, may cancel this Lease upon written notice to
Landlord. Subject to Tenant's foregoing rights of abatement of Base Rental
and of termination, Landlord shall not otherwise be liable to Tenant for any
such failure or default or defect in the supplying of, or the character of,
services to be furnished by Landlord under this Article 7, and such shall not
be construed as an eviction of Tenant nor shall such entitled Tenant to any
damages from Landlord, nor shall Landlord be in breach or default under this
Lease. Subject to Tenant's foregoing rights of abatement and termination,
Tenant hereby waives and disclaims, and agrees not to claim or assert all
present and future rights to apply any rent or additional rent against any
obligations of Landlord, howsoever incurred, or to assert that any such
obligation of Landlord entitles Tenant to any counterclaim or any reduction,
abatement, offset, or refund of rent or additional rent. Tenant agrees to
notify Landlord promptly of any interruption in Building Services.
7.06. ADDITIONAL SERVICES. Landlord may impose a reasonable charge
for any utilities and services, including, but without limitation, air
conditioning, electric current and water, provided by Landlord by reason of
any substantial use of the Leased Premises at any time other than the hours
set forth in this Article 7, or for any use beyond what Landlord agrees
herein to furnish or because of special electrical, cooling and ventilating
needs created by Tenant's telephone equipment, computers and/or other
equipment or uses.
7.07. KEYS AND LOCKS. Landlord shall furnish Tenant, free of charge,
twenty-seven (27) keys for the corridor door entering the Leased Premises;
additional keys, locksets, replacement locksets, and/or cylinders shall be
furnished at a charge by Landlord equal to its cost plus fifteen percent
(15%) on an order signed by Tenant or Tenant's authorized representative. All
keys shall remain the property of the Landlord. No additional locks shall be
allowed on any door of Leased Premises without Landlord's permission, and
Tenant shall not make or permit to be made any duplicate keys, except those
furnished by Landlord.
Upon termination of this Lease, Tenant shall surrender to Landlord all keys of
the Leased Premises and give to Landlord the explanation of the combination of
all locks for safes, safe cabinets and vault doors, if any, remaining in the
Leased Premises.
7.08. DIRECTORY BOARD/GRAPHICS. Landlord shall provide and install,
Tenant's expense, all letters or numerals on Tenant's primary entry door in
the Leased Premises; all such letters and numerals shall be in "building
standard" graphics, and no others shall be used or permitted on the Leased
Premises, without Landlord's prior written consent. Landlord also agrees to
provide and install, at Tenant's expense, a listing on the Building directory
board, if any. Tenant shall not place on or in the Leased Premises any signs
which are visible from outside the Building.
7.09. TENANT'S COMPLIANCE. Tenant agrees to cooperate fully at all
times with Landlord and to abide by all regulations and requirements which
Landlord may prescribe for the use of the above utilities and services. Any
failure to pay any excess costs as described above upon demand by Landlord
shall constitute a breach of obligation to pay Rent under this Lease and
shall entitle the Landlord to the rights herein- granted for such breach.
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7.10. MODIFICATIONS. Notwithstanding anything hereinabove to the
contrary, Landlord reserves the right from time to time to make reasonable
and nondiscriminatory modifications to the above standards for utilities and
service as may be required by law or may become common in Class A office
buildings in Houston, Texas.
ARTICLE 8
REPAIR AND MAINTENANCE
8.01. REPAIRS AND MAINTENANCE BY LANDLORD. Landlord shall, at its
own cost and expense, except as may be provided elsewhere herein, make
necessary repairs of damage to the Building corridors, lobby, structural
members of the Building, outside walls, common areas, roof, and equipment
used to provide the services referred to in Article 7 of this Lease unless
any such damage is caused by acts or omissions of Tenant, its agents,
customers, employees, invitees or guests, in which event Tenant will bear the
cost of such repairs, unless covered bI insurance. Tenant will promptly give
Landlord written notice of any damages to the Leased Premises requiring
repair by Landlord, as aforesaid.
8.02. LANDLORD'S OPTION TO REPAIR. Unless otherwise stipulated
herein, Landlord shall not be required to make any improvements or repairs of
any kind or character on the Leased Premises during the term of this Lease,
except such repairs as may be required for normal maintenance operations, or
resulting from matters which are Landlord's obligation. The obligation of
Landlord to maintain and repair the Leased Premises shall be limited to
"building standard" items. Non "building standard" leasehold improvements
will, at Tenant's written request, be maintained by Landlord at Landlord's
cost, plus an additional charge, to cover overhead (of fifteen percent (15%)
of Landlord's cost thereof), which total cost shall be billed to and paid by
Tenant.
8.03. REPAIRS AND MAINTENANCE BY TENANT. Unless covered by
insurance, Tenant shall, at its own cost and expense, repair or replace any
damage or injury done to the Building, or any part thereof, caused by Tenant
or Tenant's agents, employees, or visitors; provided however, if Tenant fails
to make such repairs or replacement promptly, Landlord may, at its option,
make such repairs or replacements, and Tenant shall repay the cost thereof,
plus an additional charge of fifteen percent (15%) to cover Landlord's
overhead, to the Landlord on demand. Tenant agrees not to commit or allow any
waste or damage to be committed on any portion of the Leased Premises, and at
the termination of this Lease, by lapse of time or otherwise, to deliver up
said Leased Premises to Landlord in as good condition as at date of
possession by Tenant, ordinary wear and tear excepted, and upon such
termination of this Lease, Landlord shall have the right to reenter and
resume possession of the Leased Premises.
ARTICLE 9
ADDITIONS AND FIXTURES
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9.01. CHANGES BY TENANT. Tenant will make no alteration, change,
improvement repair, replacement or addition to the Leased Premises which
involves electrical, heating, air conditioning, or plumbing work or which
alters the appearance or structural integrity of the building without the
prior written approval of Landlord. Approval by Landlord shall not be
unreasonably withheld, however, approval or rejection shall be based, in
Landlord's sole discretion, on the general quality and utility of the work
requested as compared with that quality and utility of the Building. All work
by Tenant shall be at Tenant's expense, but by workmen of Landlord or by
workmen and contractors reasonably approved in advance, in writing, by
Landlord and in a manner and upon terms and conditions and at times
satisfactory to and approved in advance in writing by Landlord. In the event
that Landlord reasonably withholds any such consent, such withholding shall
not constitute an Event of Default under the terms of this Lease.
9.02. CONTRACTORS. In any instance where Landlord grants such
consent, Landlord may grant such consent contingent and conditioned upon
Tenant's contractors, laborers, materialmen and others furnishing labor for
materials for Tenant's job working in harmony and not interfering with any
labor utilized by Landlord, Landlord's contractors or mechanics or by any
other tenant or such other tenant's contractors or mechanics; and, if at any
time such entry and work by one or more persons furnishing labor or materials
for Tenant's work shall result in disharmony or interference with Landlord's
work, the consent granted by Landlord to Tenant may be withdrawn upon
twenty-four (24) hours' written notice to Tenant.
9.03. REMOVAL. Tenant may remove its trade fixtures, office supplies
and movable office furniture and equipment not permanently attached to the
Building provided: (i) such removal is made prior to the expiration or
earlier termination of the term of this Lease; (ii) Tenant is not in default
of any obligation or covenant under this Lease at the time of such removal;
and (iii) Tenant promptly repairs all damage caused by such removal. All
other property at the Leased Premises and any alteration or addition to the
Leased Premises (including wall-to-wall carpeting, paneling or other wall
covering), and any other articles permanently attached or affixed to the
floor, wall or ceiling of the Leased Premises shall become the property of
Landlord and shall remain upon and be surrendered with the Leased Premises as
a part thereof at the termination of this Lease, Tenant hereby waiving all
rights to any payment or compensation therefor. If, however, Landlord so
requests in writing, Tenant will, prior to the expiration or earlier
termination of the Lease, remove any and all alterations, additions,
fixtures, Premises without the written approval of Landlord, and will repair
any damage caused by such removal.
9.04. CHANGES BY LANDLORD. Landlord shall have the right at any time
to reasonably change the arrangement, location and/or size of public
entrances or passageways, doors, doorways, and corridors, toilets or other
public parts of the Building, and, upon giving Tenant reasonable notice
thereof, to change the name or number (but in the case of the numerical
street address, only as shall be required by the United States Post Office)
by which the Building is commonly known.
ARTICLE 10
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PARKING
10.01. BASIC PROVISIONS. Tenant shall at all times during the terms
of this Lease, lease parking rights for at least twenty-seven (27) vehicles
in the Building Parking Garage, to include five (5) reserved parking spaces
(two (2) reserved spaces to be located on the first floor, and three (3) to
be located on the second floor of the Building Parking Garage). No specific
spaces in the Building Parking Garage are to be assigned to Tenant, except in
the case of reserved parking spaces, but Landlord will issue to Tenant the
aforesaid number of parking stickers or tags, each of which will authorize
parking in the Building Parking Garage of a vehicle on which the sticker or
tag is displayed, or Landlord will provide a reasonable alternative means of
identifying and controlling vehicles authorized to be parked in the Building
Parking Garage. Landlord may designate the area within which each such car
may be parked, and Landlord may change such designations from time to time.
Landlord may make, modify and enforce rules and regulations relating to the
parking of vehicles in the Building Parking Garage, and Tenant will abide by
such rules and regulations. The rules and regulations in effect as of the
date of this Lease are attached hereto as a part of Exhibit "C" and initialed
for identification by both parties. Subject to the other terms hereof,
Landlord may operate or sublease operation of the garage.
10.02. PARKING CHARGES. As the charge for parking (hereinafter
called the "Basic Parking Charge"), Tenant covenants and agrees to pay
Landlord during the term of this Lease, as additional rental hereunder, the
sum of TWENTY-FIVE AND NO/100 DOLLARS ($25.00) per month for each of the
parking stickers to be issued by Landlord as herein provided, (except for
reserved parking for which Tenant shall pay SEVENTY-FIVE AND NO/100 DOLLARS
($75.00) per month), such sum to be payable monthly in advance on the first
day of each and every calendar month during the term of this Lease, and a pro
rata portion of such sum shall be payable for the first partial calendar
month in the event the term of this Lease commences on a date other than the
first calendar month. The Basic Parking Charge may be adjusted annually to
market value by the Landlord. Tenant's obligations to pay the Basic Parking
Charge shall be considered an obligation to pay rental due hereunder for all
purposes hereunder and shall be secured in like manner as in Tenant's
obligations to pay rental due hereunder. Default in payment of such Basic
Parking Charge shall be deemed a default in payment of rental due hereunder.
10.03. PARKING INFORMATION. Tenant shall provide to Landlord, within
five (5) days of written request by Landlord, license numbers and other
information requested for all Tenant's vehicles parking in the Building
Parking Garage, and shall notify Landlord immediately of any change in such
information. Landlord and Tenant hereby vehicles operated by Tenant or
Tenant's employees or guest shall be parked on the premises other than in the
Building Parking Garage.
ARTICLE 11
FIRE AND OTHER CASUALTY
11.01. In the event of a fire or other casualty in the Leased
Premises or the Building Tenant shall immediately give notice hereof to
Landlord, and, subject to the other terms an conditions hereof, Landlord
shall use its best reasonable efforts to cause the repairs to be made with
due diligence and reasonable dispatch, provided, however, that Landlord shall
not be
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required to repair or replace furnishings, furniture, or other personal
property which Tenant may be entitled to remove from the Leased Premises or
any property improvement constructed and installed by or for Tenant in excess
of "building standard" as shown on/ Exhibit "B" attached hereto. If the
Leased Premises, or any portion thereof, through no/ willful misconduct of
Tenant, its agents, employee or visitors, shall be partially destroyed r by
fire or other casualty so as to render the Leased Premises, or any portion
thereof untenantable, the rental herein shall proportionately abate
thereafter until such time as the Leased Premises, or any portion thereof,
are made tenantable. If Landlord has elected t repair and reconstruct the
Leased Premises, this Lease shall continue in full force and effect and such
repairs will be made within a reasonable time thereafter, subject to delays
arising from shortages of labor or material, strikes, acts of God, war or
other conditions beyond Landlord's reasonable control, provided, however,
that Landlord shall use its best efforts to not interfere with Tenant's use
and occupancy of the portion of the Leased Premises not destroyed or damaged.
No damages, compensation, or claims shall be payable by Landlord for any
inconvenience, loss of business, or annoyance arising from such repair and
reconstruction. Tenant and Landlord agree that the term of this Lease shall
be extended by a period of time equal to the period of such repair and
reconstruction.
11.02. In the event such destruction results in one half (1/2) or
more of the Leased Premises being untenantable for a period, reasonably
estimated by a responsible contractor selected by Landlord, to be one hundred
twenty (120) days or longer after the loss, Landlord shall so notify Tenant
promptly in writing and then either Landlord or Tenant may cancel this Lease
by delivering written notice thereof to the other party.
11.03. In the event the Leased Premises, the Building or Parking
Garage shall be so damaged that Landlord shall decide not to rebuild to the
same or substantially the same condition as immediately prior to such fire or
other casualty, then all rent owed up to the time of such destruction or
termination, as set forth in Section 11.02, shall be paid by Tenant and
thenceforth this Lease shall cease and come to an end. In the event that this
Lease is terminated as herein permitted, Landlord shall refund to Tenant the
prepaid rent (unaccrued as of the date of damage or destruction), if any,
less any sum then owing Landlord by Tenant. However, subject to the rights of
Landlord's mortgagee and insurance provisions, Landlord agrees that it will
rebuild or repair if the work can be completed within one hundred twenty
(120) days.
11.04. WAIVER. Whenever (a) any loss, cost, damage or expense
resulting from fire, explosion or any other casualty or occurrence is
incurred by either of the parties to this Lease in connection with the Leased
Premises, the Building or the Parking Garage, and (b) such party is then
covered (or is required under this Lease to be covered) in whole or in part
by insurance with respect to such loss, cost, damage or expense, then the
party so insured hereby releases the other party from any liability it may
have on account of such loss, cost, damage or expense to the extent of any
amount recovered by reason of such insurance, and waives any right of
subrogation which might otherwise exist in or accrue to any person on account
thereof, provided that such release of liability and waiver of the right of
subrogation shall not be operative in any case where the effect thereof is to
invalidate such insurance coverage or increase the cost thereof (provided,
that in the case of increased cost, the other party shall have the right,
within thirty (30) days following receipt of written notice, to pay such
increased cost, thereupon keeping such release and waiver in full force and
effect). Landlord and Tenant shall use their respective best efforts to
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obtain such a release and waiver of subrogation from their respective
insurance carriers and shall immediately notify the other of any failure to
obtain or maintain the same.
ARTICLE 12
INSURANCE
12.01. LANDLORD'S INSURANCE. Landlord shall, at its sole cost and
expense, maintain fire and extended coverage insurance on the Building,
excluding any improvements constructed by tenants, including "building
standard" leasehold improvements, in such amounts and with such deductibles
as desired by Landlord or as may be required by Landlord's mortgagee.
Landlord may, but shall not be obligated to, take out and carry any other
form or forms of insurance as it or Landlord's mortgagee may reasonably
determine desirable. Notwithstanding any contribution by Tenant to the cost
of insurance premiums, payments for losses thereunder shall be made solely to
Landlord, subject to the rights of the holder of any first lien mortgage or
deed of trust which may now or hereafter encumber the Building or Parking
Garage.
12.02. TENANT'S INSURANCE. Tenant shall maintain at its expense fire
and extended coverage insurance on all of its personal property, including
removable trade fixtures, located in the Leased Premises and on its non
"building standard" leasehold improvements and all additions and improvements
made by Tenant. Tenant shall also maintain, at its sole cost and expense,
comprehensive general liability insurance, including contractual liability
insurance, issued by and binding upon some solvent insurance company approved
in writing by Landlord, with limits of liability of at least $2,000,000 with
respect to death of or injuries to one or more persons and at least
$2,000,000 with respect to loss of or damage to property. Tenant shall cause
Landlord to be named as an additional insured under such policies and shall
furnish Landlord with certificates of insurance. Such policies of insurance
shall contain an endorsement that such policies cannot be amended or modified
as to Landlord without fifteen (15) days prior written notice.
12.03. LEGAL USE AND VIOLATION OF INSURANCE COVERAGE. Subject to the
provisions of Article 6, Tenant shall not occupy or use or permit any portion
of the Leased Premises to be occupied or used for any business or purpose
which is unlawful, disreputable or deemed to be extra-hazardous on account of
fire, or permit anything to be done which would in any way increase the rate
of fire insurance coverage on said Building, the Parking Garage and/or their
contents. In addition to Landlord's other rights and remedies, in the event
of a breach by Tenant under this Section 12.03, Tenant shall reimburse
Landlord upon demand for any increased insurance premiums resulting from such
breach. In determining whether increased premiums are a result of Tenant's
use of the Leased Premises, a schedule issued by the organization computing
the insurance rate on the Building or the leasehold improvements showing the
various components of such rate, shall be conclusive evidence of the several
items and charges which make up such rate. Tenant shall promptly comply with
all reasonable requirements of the insurance authority or any present or
future insurer relating to the Leased Premises. In addition, in the event of
a breach by Tenant under this Section 12.03, without notice or demand,
Landlord may enter upon the Leased Premises and attempt to remedy such
condition, in which event
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Landlord shall not be liable for any damage or injury caused to any property
of Tenant or of others located on the Leased Premises, resulting from such
entry.
ARTICLE 13
ASSIGNMENT AND SUBLETTING
13.01. LANDLORD'S OPTION. Except with respect to assignments or
subleases to affiliates (which will utilize the Leased Premises for the same
permitted purpose), which Tenant may do without approval, in the event Tenant
should desire to assign this Lease or sublet the Leased Premises or any part
thereof, or mortgage, pledge or hypothecate its leasehold interest or grant
any concession or license within the Leased Premises, Tenant shall give
Landlord written notice of such desire at least sixty (60) days in advance of
the date on which Tenant desires to make such assignment, sublease, mortgage,
pledge, hypothecation, concession or license. Landlord shall then have a
period of thirty (30) days following receipt of such notice within which to
notify Tenant in writing that Landlord elects either (1) to terminate this
Lease as to the space so affected as of the date so specified by Tenant for
the term of such assignment or sublease, in which event Tenant will be
relieved of all further obligation hereunder as to such space, or (2) to
permit Tenant to assign or sublet such space, subject, however, to prior
written approval of the proposed assignee or sublessee by Landlord; if
however, the rental rate agreed upon between Tenant and sublessee is greater
than the rental rate that Tenant must pay Landlord, then fifty percent (50%)
of such excess rental received, less any portion of the excess rental thereof
for any reasonable costs directly associated with securing the sublessee or
assignee, shall be deemed additional rent owed by Tenant to Landlord and
shall be paid by Tenant to Landlord in the same manner that Tenant pays the
Base Rental as outlined in Article 4, or (3) to refuse to consent to Tenant's
assignment or subleasing such space and to continue this Lease in full force
and effect as to the entire Leased Premises, if such action complies with
Section 13.02. If Landlord should fail to notify Tenant in writing of such
election within said thirty (30) day period, Landlord shall be deemed to have
elected option (2) above. If Landlord elects to exercise option (2) above,
Tenant agrees to provide, at Tenant's expense, direct access from such sublet
space to a public corridor of the Building.
13.02. CONDITIONS FOR APPROVAL TO SUBLEASE. Landlord shall not
unreasonably withhold or delay granting permission to an assignment of this
Lease or to a sublease proposed by Tenant; provided, however, it is agreed
that a withholding of said permission by Landlord to a proposed assignment or
sublease shall be based on certain conditions which, in Landlord's good faith
judgment, shall be deemed reasonable cause for withholding permission and
shall not be deemed unreasonable. Approval by Landlord shall not be
unreasonably withheld, provided:
(1) The usage permitted thereunder would not conflict with the
exclusive usage rights granted to any other Tenant in the Building;
(2) The proposed assignee or sublessee is a respectable party and has
sufficient financial net worth to perform its obligations under this Lease;
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(3) The occupancy by the proposed assignee or sublessee would not
create unreasonable elevator loads or otherwise interfere with standard building
operations;
(4) The proposed assignee or sublessee would not use the Leased
Premises for any use which would diminish the value or reputation or alter the
first class character of the Building;
(5) The rental rate to be charged to such assignee or sublessee is not
less than the then current market rate for similar space leased for a similar
term in the Building or like buildings in the same vicinity of the Building; and
(6) Landlord shall be paid an administrative sublease fee for review
and negotiation of proposed sublease documents, space plans, construction
documents, and inspection, in the amount of one percent (1%) of the gross rental
consideration for the term of the sublease.
If the proposed assignment or sublease is to Tenant's parent company
or a subsidiary of Tenant or its parent company, or any successor entity (as
described in Section 13.03) and such company or subsidiary has sufficient
financial net worth to perform its obligations under this Lease, the consent
of Landlord shall not be required. No assignment or subletting by Tenant
shall relieve Tenant of any obligation under this Lease, and Tenant and
Tenant's assignee or sublessee shall remain jointly and severally liable
hereunder. Expansion options, renewal options, and preferential right to
lease provisions, if applicable, shall not be assigned or subleased, other
than to a successor entity as described herein. Any attempted assignment or
sublease by Tenant in violation of the terms and covenants of this Article 13
shall be void.
13.03. CORPORATE CONDITIONS. If Tenant is a corporation, then any
transfer of this Lease from Tenant by merger, acquisition, consolidation or
dissolution or any change in ownership or power to vote a majority of the
voting stock in Tenant outstanding at the time of execution of this
instrument shall constitute an assignment to an affiliate for the purpose of
this Lease, if such corporation shall have substantially tile same financial
or greater net worth as Tenant If Tenant is a partnership, then any
withdrawal or change of any of the general partners shall constitute an
assignment for purposes of this Lease.
13.04. EFFECT OF CONSENT. Consent by Landlord to a particular
assignment or sublease or other transaction shall not be deemed a consent to
any other or subsequent transaction. If this Lease be assigned or if the
Leased Premises be subleased (whether in whole or in part), or in the event
of the mortgage, pledge or hypothecation of the leasehold interest, or grant
of any concession or license within the Leased Premises without the prior
written permission of Landlord, or if the Leased Premises be occupied in
whole or in part by anyone other than Tenant, without the prior written
permission of Landlord, Landlord may nevertheless collect rent from the
assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest
was hypothecated, concessionee or licensee or other occupant and apply the
net amount collected to the rent payable hereunder, but no such transaction
or collection of rent or application thereof by Landlord shall be deemed a
waiver of these provisions or a release of Tenant from the further
performance by Tenant of its covenants, duties and obligations hereunder.
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13.05. FEES. In any case where Landlord consents to any such
assignment, sublease or other transaction, Landlord may require that Tenant
pay Landlord a reasonable sum as attorneys' fees arising out of or incident
to such transaction and that the sublessee or assignee pay Landlord a
reasonable sum for Landlord's assistance in moving the sublessee or assignee
in and out of Leased Premises and the Building, but Landlord shall not be
obligated to provide such assistance.
ARTICLE 14
SUBORDINATION
14.01. SUBORDINATION. This Lease is and shall be subject and
subordinate at all times to all ground or underlying leases which may now
exist or hereafter be executed affecting the Building and Parking Garage
and/or the land upon which the Building and Parking Garage are situated and
to the lien of any mortgages or deeds of trust in any amount or amounts
whatsoever now or hereafter placed on or against the Building and Parking
Garage and/or land upon which the Building and Parking Garage are situated or
on or against the Landlord's interest or estate therein, or on or against any
ground or underlying lease, and to all renewals, modifications,
consolidations, replacements and extensions of any such leases, mortgages or
deeds of trust, without the necessity of having further instruments on the
part of Tenant to effectuate such subordination; provided, however, that at
tile option of any such lessor or mortgagee, this Lease shall be superior to
the lease or mortgage of such lessor or mortgagee. This Lease is further
subordinate to (a) all applicable ordinances of the city in which the
Building is located, relating to easements, franchises, and other interest or
rights upon, across, or appurtenant to the Building or Parking Garage or the
land upon which the same are situated, and (b) all utility easements and
agreements. Any person or entity, whether one or more, that owns such leases,
mortgages or deeds of trust, net profit, partnership venture or equity
interest in the Complex shall hereinafter be referred to as "Landlord's
Mortgagee". Notwithstanding the foregoing, Tenant covenants and agrees to
execute and deliver, upon demand, such consent or further instruments
evidencing such subordination of this Lease to such ground or underlying
leases and to the lien of any such mortgages or deeds of trust as may be
required by Landlord. Tenant hereby irrevocably appoints Landlord the
attorney-in-fact of Tenant to execute and deliver any such instrument or
instruments for or in the name of Tenant. In the event of termination of any
ground or underlying lease, or in the event of foreclosure or exercise of any
power of sale under any mortgage or deed of trust superior to this Lease or
to which this Lease is subject or subordinate, Tenant shall, upon demand,
attorn to the lessor under said ground and underlying lease or to the
purchaser at any foreclosure sale or sale pursuant to the exercise of any
power of sale under any mortgage or deed of trust, provided the beneficiary
under any ground or underlying lease or any mortgage or deed of trust shall
execute a noel-disturbance agreement in favor of Tenant, in which event this
Lease shall not terminate and Tenant shall automatically be and become the
tenant of said lessor under said ground or underlying lease or to said
purchaser, whichever shall make demand thereof. In such event, such purchaser
at a foreclosure sale or beneficiary under any ground or underlying lease
shall not be bound by (i) any payment of rent or additional rent for more
than one (1) month in advance, or (ii) any amendment or modification of the
Lease without written consent of such trustee or such beneficiary or such
successor in interest. The provisions of this Article 14 shall be
selfoperative and shall require no further consent or agreement by Tenant.
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ARTICLE 15
EMINENT DOMAIN
15.01. SUBSTANTIAL AND/OR PARTIAL TAKING. If all or any part of the
Leased Premises shall be taken by virtue of eminent domain or for any public
or quasi-public use on purpose, this Lease and the estate hereby granted
shall terminate on the date the condemning authority takes possession. If
only a part of the Parking Garage or the Building (but not the Leased
Premises) is taken, this Lease and the estate hereby granted shall, at the
election of Landlord, either (1) terminate on the date the condemning
authority takes possession by giving notice thereof to Tenant within thirty
(30) days after the date of such taking possession, or (2) continue in full
force and effect as to the Leased Premises and the Base Rental shall be
reduced (from and after the date of such taking of possession in the
proportion that the number of square feet of Net Rentable Area contained in
the Leased Premises so taken, if any, bears to the total number of square
feet of Net Rentable Area contained in the Leased Premises immediately prior
to such taking. If, as a result of such partial taking, the Leased Premises,
a portion of the Building not including the Leased Premises, or the Parking
Garage or access thereto, is affected in a manner that renders the Leased
Premises untenantable or that substantially impairs Tenant's use of the
Leased Premises or the Parking Garage, then Tenant shall have the right to
terminate this Lease by giving Landlord written notice thereof within thirty
(30) days after the date condemning authority takes possession. Sale in lieu
of condemnation to an authority having and asserting the power of eminent
domain shall be a taking for purpose of this Lease.
15.02. AWARDS. Landlord shall be entitled to the whole of any and
all awards which may be paid or made in connection with any taking as
described in Section 15.01 above, and Tenant shall not be entitled to any of
such awards, Tenant hereby expressly assigning to Landlord any and all right,
title, and interest of Tenant now or hereafter arising in and to any such
awards, except to the extent that such awards specifically allocate a portion
of unamortized non "building standard" leasehold improvements or to Tenant's
fixtures or equipment.
15.03. TEMPORARY TALKING. Any temporary taking for a period of six
(6) months or longer shall be treated in the same manner as provided for in
Sections 15.01 and 15.02 above. In the event of any temporary taking of less
than six (6) months, all Base Rental shall be reduced or abated in proportion
to the interference with Tenant's enjoyment of the Leased Premises, Landlord
shall be entitled to all awards (except for use of or damage to Tenant's
tangible property and/or to the extent that the award is stipulated to be for
Tenant's unamortized, non "building standard" leasehold improvements), Tenant
shall have no liability with respect to the acts or omissions or the taking
authority or for the performance of any of Tenant's obligations hereunder
that Tenant is unable to perform, and otherwise this Lease shall continue in
full force and effect.
ARTICLE 16
LIEN FOR RENT
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16.01. INTENTIONALLY OMITTED.
ARTICLE 17
DEFAULT
17.01. DEFAULT BY TENANT. Each of the following acts or omissions of
Tenant, or occurrences shall constitute an "Event of Default":
(1) Failure or refusal by Tenant to timely pay rent or other payments
hereunder, if such failure or refusal continues for more than five (5) days
after written notice thereof is provided by Landlord; provided, however,
Landlord shall not be required to provide notice of late payment of rent (Base
Rent and/or Additional Rent) to Tenant more than two (2) times during any Lease
Year. In addition, Landlord shall have no duty to invoice Tenant for rent
payments due hereunder;
(2) Failure to perform or observe any other covenant or condition of
this Lease by Tenant, upon the expiration of a period of thirty (30) days
following written notice to Tenant of such failure;
(3) Tenant shall vacate or abandon the Leased Premises, or any
significant portion thereof, without payment of rent, or Tenant shall fail to
take possession of the Leased Premises when Landlord notifies Tenant that the
same are ready for occupancy;
(4) The filing or execution or occurrence of: a petition in bankruptcy
or other insolvency proceeding by or against Tenant; or petition or answer
seeking relief under any provision of the Bankruptcy Act; or an assignment for
the beneft of creditors or composition; or a petition or other proceeding by or
against the Tenant for the appointment of a trustee, receiver or liquidator of
Tenant or any of Tenant's property or a proceeding by any governmental authority
for the dissolution or liquidation of Tenant;
(5) Failure to peacefully surrender the Leased Premises on expiration
or termination of this Lease;
(6) The occurrence of any other event herein provided to be an Event
of Default.
17.02. REMEDIES. Upon the occurrence of any Event of Default, as
enumerated above, Landlord may, at Landlord's option, in addition to any
other remedy or right given hereunder or by law or equity do any one or more
of the following:
(1) Terminate this Lease, in which event, Tenant shall immediately
surrender possession of the Leased Premises to Landlord; '
(2) Enter upon and take possession of the Leased Premises and expel or
remove Tenant and any other occupant therefrom, with or without having
terminated the Lease;
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(3) Alter locks and other security devices at the Leased Premises.
17.03. Exercise by Landlord of any one or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Leased Premises by Tenant, whether by agreement or by
operation of law, it being understood that such surrender can be effected
only by the written agreement of Landlord and Tenant. No such alteration of
security devices and no removal or other exercise of dominion by Landlord
over the property of Tenant or others at the Leased Premises shall be deemed
unauthorized or constitute a conversion, Tenant hereby consenting, after any
Event of Default, to the aforesaid exercise of dominion over Tenant's
property within the Building. All claims for damages by reason of such
reentry and/or repossession and/or alteration of locks or other security
devises are hereby waived, as are all claims for damages by reason of any
distress warrant, forcible detainer proceedings, sequestration proceedings or
other legal process. Tenant agrees that any reentry by Landlord may be
pursuant to judgment obtained in forcible detainer proceedings or other legal
proceedings or without the necessity for any additional notice or legal
proceedings, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
17.04. In the event Landlord elects to terminate this Lease by
reason of an Event of Default, then notwithstanding such termination, Tenant
shall be liable for and shall pay to Landlord, at the Building Office,
located at 5151 San Felipe, Houston, Texas, the sum of all rent and other
indebtedness accrued to the date of such termination, plus, as damages, an
amount equal to the then present value of the rent reserved hereunder for the
remaining portion of the term of the Lease (had such term not been terminated
by Landlord prior to the date of expiration stated in Section 2.01), less the
then present value of the then fair rental value of the Leased Premises for
such period; the undersigned parties here stipulating that such fair rental
value shall in no event be deemed to exceed sixty percent (60%) of the then
present value of the rent reserved for such period. For purposes of
determining present value under this Section 17.04, a discount rate of six
percent (6%) shall be used.
17.05. In the event that Landlord elects to repossess the Leased
Premises without terminating the Lease, then Tenant shall be liable for and
shall pay to Landlord at the Building office, located at 5151 San Felipe,
Houston, Texas, the sum of all rent and other indebtedness accrued to the
date of such repossession, plus rent required to be paid by Tenant to
Landlord during the remainder of the term of this Lease until the date of
expiration of the term as stated in Section 2.01, diminished by any net sums
thereafter received by Landlord through reletting the Leased Premises during
said period (after deducting expenses incurred by Landlord as provided in
Section 17.06). In no event shall Tenant be entitled to any excess of any
rent obtained by reletting over and above the rent herein reserved. Actions
to collect amounts due Landlord by Tenant as provided in this Section 17.05
may be brought from time to time, on one or more occasions, without the
necessity of Landlord's waiting until expiration of the term of this Lease.
If Landlord elects to terminate Tenant's right to possession without
terminating this Lease, Landlord shall have the right at any time thereafter
to terminate this Lease, whereupon the foregoing provisions with respect to
termination of this Lease will thereafter apply.
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17.06. In case of an Event of Default, Tenant shall also be liable
for and shall pay to Landlord, at the Building office, located at 5151 San
Felipe, Houston, Texas, in addition to any sum provided to be paid above:
customary broker's fees incurred by Landlord in connection with reletting the
whole or any part of the Leased Premises; the costs of removing and storing
Tenant's or other property of any other occupant of the Leased Premises; the
costs of repairing, altering, remodeling or otherwise putting the Leased
Premises into condition acceptable to a new tenant or tenants, and all
reasonable expenses incurred by Landlord in enforcing Landlord's remedies,
including reasonable attorneys' fees. Past due rent and other past due
payments shall bear interest from maturity at the maximum lawful rate per
annum until paid.
17.07. In the event of termination of repossession of the Leased
Premises for an Event of Default, Landlord shall not have any obligation to
relet or attempt to relet the Leased Premises, or any portion thereof, or to
collect rental after reletting, except as provided by law; and, in the event
of reletting, Landlord may relet the whole or any portion of the Leased
Premises for any period, to any tenant, and for any use and purpose.
17.08. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the Leased Premises for such purpose), and thereupon Tenant shall be
obligated and hereby agrees to pay Landlord, upon demand, all costs, expenses
and disbursements (including reasonable attorney's fees) incurred by Landlord
in taking such remedial action. Landlord shall not be liable for any damages
suffered by Tenant from such action whether caused by negligence of Landlord
or otherwise.
17.09. DEFAULT BY LANDLORD. In the event of any default by Landlord,
Tenant's exclusive remedy (except in the case of emergency, Tenant may take
reasonable actions to prevent further damage to its property) shall be an
action for damages (Tenant hereby waiving the benefit of any laws granting it
a lien upon the property of Landlord and/or upon rent due Landlord), but
prior to any such action, Tenant will give Landlord written notice specifying
such default with particularity, and Landlord shall thereupon have thirty
(30) days (plus such additional reasonable period as may be required in the
exercise by Landlord of due diligence) in which to cure any such default.
Unless and until Landlord fails to so cure any default after such notice,
Tenant shall not have any remedy or cause of action by reason thereof. All
obligations of Landlord hereunder shall be construed as covenants, not
conditions; and all such obligations shall be binding upon Landlord only
during the period of its possession of the Building and not thereafter. Under
no circumstances whatsoever shall Landlord ever be liable hereunder for
consequential damages or special damages.
17.10. The term "Landlord" shall mean only the owner or owner's
authorized agent, from time to time, of the Complex. Landlord and/or such
owner shall have the right to transfer, assign or convey, in whole or in
part, all its rights and obligations hereunder and in the Complex and
property referred to herein, and in the event of the transfer by Landlord and
owner of its interest in the Complex, Landlord and owner shall thereupon be
released and discharged from all covenants and obligations of the Landlord
and such owner thereafter accruing, but such covenants and obligations shall
be binding during the term of the Lease upon each new owner for
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the duration of such owner's ownership. All provisions of the Lease which
limit or release liabilities or obligations of Landlord with respect to the
Lease or the Complex, shall inure to the benefit of the owner from time to
time of the Complex.
17.11. INDEPENDENT OBLIGATIONS. The obligation of Tenant to pay all
rent and other sums hereunder provided to be paid by Tenant and the
obligation of Tenant to perform Tenant's other covenants and duties hereunder
constitute independent unconditional obligations to be performed at all times
provided for hereunder, save and except only when an abatement thereof or
reduction therein is hereinabove expressly provided for and not otherwise.
Tenant waives and relinquishes all rights which Tenant might have to claim
any nature of lien against or withhold, or deduct from or offset against any
rent and other sums provided hereunder to be paid Landlord by Tenant.
17.12. REMEDIES CUMULATIVE. Landlord may restrain or enjoin any
breach or threatened breach of any covenant, duty or obligation of Tenant
herein contained without the necessity of proving the inadequacy of any legal
remedy or irreparable harm. The remedies of Landlord hereunder shall be
deemed cumulative and no remedy of Landlord, whether exercised by Landlord or
not, shall be deemed to be in exclusion of any other.
17.13. NON-WAIVER. No provision of this Lease shall be deemed to
have been waived by Landlord unless such waiver is in writing and signed by
Landlord. Neither acceptance of rent by Landlord nor failure by Landlord to
complain of any action, non action or default of Tenant shall constitute a
waiver of any of Landlord's rights hereunder. Nor shall any custom or
practice which may grow up between the parties in the administration of the
terms of this Lease be construed to waive or burden Landlord's right to
insist upon strict performance of the terms of this Lease. Waiver by Landlord
of any right for any default of Tenant shall not constitute a waiver of any
right for either a subsequent default of the same obligation or any other
default. Receipt by Landlord of Tenant's keys to the Leased Premises shall
not constitute acceptance of surrender of the Leased Premises.
ARTICLE 18
LIABILITY AND INDEMNITY
18.01. Tenant and Landlord agree to indemnify and/or hold each other
harmless and each others respective agents, directors, officers, employees,
invitees and contractors harmless from all claims, losses, costs, damages or
expenses (including but not limited to attorney's fees) asserted by any
person, including, without limitation, the indemnifying party's agents,
directors, officers, employees, invitees and contractors, resulting or
arising or alleged to arise from any and all injuries or death of any person
or damage to any property caused by any act, omission, or neglect of the
indemnifying party's directors, officers, employees, agents, invitees,
contractors, customers or guests, which occurs during the term of this Lease
in or about the Complex. Tenant agrees to use and occupy the Leased Premises
and other facilities of the Complex at its own risk and hereby releases
Landlord and/or Landlord's agents, directors, officers, employees, invitees
and contractors from all claims for any damage or injury to the full extent
permitted by law, except to the extent that same arises out of the gross
negligence or willful acts or omissions of
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Landlord. Landlord shall not be liable to Tenant, and Tenant hereby waives
all claims against Landlord and/or Landlord's agents, directors, officers,
employees, invitees and contractors for: any damage or loss of any kind; for
direct damages, consequential damages, loss of profits, business interruption
and for any damage to and/or theft of property, death or injury to persons
from any cause including, but not limited to, acts of other tenants,
vandalism, loss of trade secrets or other confidential information; any
damage, loss or injury caused by defect in the Leased Premises, Building or
the Complex, pipes, air conditioning, heating, plumbing or by water leakage
of any kind from the roof, walls, windows, basement or other portion of the
Leased Premises, Building, or the Complex; or caused by acts of God,
electricity, wind, storm, gas, oil, fire or any cause whatsoever in, on or
about the Leased Premises, Complex, or any part thereof. The term "injury",
as used in this Lease, shall include, without limitation, mental pain,
suffering and anguish.
18.02. No party shall have any right or claim against Landlord, its
directors, officers, employees, agents, contractors, customers, invitees
and/or guests, for bodily injury (fatal or non-fatal) or property damage
(whether caused by negligence or the condition of the Leased Premises,
Building, or Complex) by way of subrogation or assignment, Tenant hereby
waiving or relinquishing any such right, including without limitation any
bodily injury or property damage caused by the gross negligence or willful
acts or omissions of Landlord, its directors, officers, employees, agents,
representatives, customers, invitees and/or guests.
18.03. Tenant agrees that Landlord shall not be responsible or
liable to Tenant, its directors, officers, employees, agents,
representatives, customers, invitees, and/or guests, for bodily injury (fatal
or non fatal) or property damage occasioned by the acts of omissions of any
other tenant or such tenant's directors, officers, employees, agents,
customers, invitees, and/or guests within the Building and/or the Complex.
18.04. The provisions of this Article 18 shall apply to all
activities of Tenant with respect to the Leased Premises or Complex, whether
occurring before or after the Commencement Date and before or after the
expiration or termination of this Lease. Tenant's obligations under this
Article 18 shall not be limited to the limits or coverage of insurance
maintained or required to be maintained by Tenant under Article 12 of this
Lease.
ARTICLE 19
NOTICE
19.01. Any notice which may or shall be given under the terms of
this Lease shall be in writing and shall be either delivered by hand or sent
by United States Registered or Certified Mail, Return Receipt Requested and
postage prepaid; if for Landlord, to the Building office, located at 5151 San
Felipe, Houston, Texas 77056; or, if for Tenant, to the Leased Premises. Such
addresses may be changed from time to time by either party giving notice as
provided above. Notice shall be deemed given when delivered (if delivered by
hand or when postmarked (if sent by mail).
Prior to the commencement of this Lease, notice to Tenant shall be
sent to:
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Name: Mr. Peter Badger
Company: Spires Financial, L.P.
Address: 5847 San Felipe, Suite 4540
City & State: Houston, Texas 77057
ARTICLE 20
LANDLORD'S MORTGAGEE
20.01. NOTICE. If the Building and/or Leased Premises are at any
time subject to a mortgage and/or mortgage and deed of trust or a net profit,
partnership venture or other equity interest independent of, or in lieu of, a
mortgage or deed of trust, then, in any instance in which Tenant gives notice
to Landlord alleging default by Landlord hereunder, Tenant will also
simultaneously give a copy of such notice to each Landlord's Mortgagee as
defined in Section 14.01 and each Landlord's Mortgagee shall have the right
(but no obligation) to cure or remedy such default during the period that is
permitted to Landlord hereunder, plus an additional period of thirty (30)
days, and Tenant will accept such curative or remedial action (if any) taken
by Landlord's Mortgagee, with the same effect as if such action had been
taken by Landlord.
20.02. CERTIFICATE. Tenant will, at such time or times as Landlord
or Landlord's Mortgagee may reasonably request, sign a certificate stating:
whether this Lease is in full force and effect; whether any amendments or
modifications exist; whether there are any defaults hereunder; and such other
information and agreements as may be reasonably requested. Tenant hereby
stipulates that it shall be reasonable for Landlord to request that the
following agreements be made if requested by Landlord's Mortgagee: (a) that
this Lease will not be modified, altered or amended in any way, without the
prior written consent of Landlord's Mortgagee; (b) that Landlord and Tenant
will not, without the prior written consent of Landlord's Mortgagee, agree to
a cancellation of this Lease, nor will Tenant surrender its rights hereunder
to Landlord (except in instances wherein the right to so do is expressly
granted to Tenant under the other terms and provisions of this Lease); (c)
that Landlord will not convey (or take any other action with respect to)
Landlord's interest in the Leased Premises in a manner which would result in
a merger of Landlord's estate in the Leased Premises with Tenant's leasehold
under this Lease unless at the time of such conveyance Tenant assumes, in
writing, any unpaid balance owing and to become owing to Landlord's Mortgagee
which is secured by a collateral assignment of this Lease or security
agreement; however, this does not prohibit an assignment of Landlord's
interest in the Leased Premises to Tenant by assignment specifically made
subject to this Lease and not having such merger effect; and (d) that Tenant
will not prepay and Landlord will not accept prepayment of any installment or
payment of rent more than thirty (30) days in advance of the due date
thereof. In the event that Tenant should fail or refuse to sign a certificate
in accordance with the provisions of this Article 20, within ten (10) days
following the second written request by Landlord submitting one or more
counterparts thereof to Tenant, then Landlord shall have the authority as
Tenant's attorney-in-fact for such limited purpose to execute such
certificate, it being stipulated by Landlord and Tenant that such power of
attorney is coupled with an interest in Landlord and is, accordingly,
irrevocable.
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ARTICLE 21
SUBSTITUTION OF SPACE
21.01. INTENTIONALLY OMITTED.
ARTICLE 22
MISCELLANEOUS PROVISIONS
22.01. BROKER. Tenant and Landlord both warrant and represent that
each has had no dealings with any third party real estate broker or agent in
connection with the negotiation of this Lease, excepting only Marathon
Holdings Corp., and that it knows of no other third party real estate
broker(s) or agent(s) who is (are) or might be entitled to a commission in
connection with this Lease. Tenant and Landlord each agree to indemnify and
hold harmless the other from and against any liability or claim (including
the costs of defending against and investigating such claims) arising in
respect to any broker(s) not named herein who is (are) claiming by, through
or under the indemnifying party. At such time as Tenant occupies the Leased
Premises and commences rental payments, Landlord will pay to Marathon Holding
Company a real estate brokerage commission equal to three percent (3%) of the
Base Rental to become due during the primary term. In the event that Tenant
exercises its expansion right pursuant to Section 24.01 hereof, or the right
to extend the Lease, a commission, calculated as above provided for
expansions, and calculated at two percent (2(degree)/a) of Base Rental due
during an extension, will be due and payable from Landlord to Marathon
I-folding Company. In the event Tenant fails to occupy the Leased Premises or
fails to commence payment of Rent or fails to pay any Rent or additional Rent
under the terms of the Lease or otherwise defaults under the Lease, Tenant
shall reimburse Landlord an amount equal to a pro rata share of all brokerage
commissions paid by Landlord by virtue of execution of this Lease and the
Registration and Commission Agreement executed by and between broker and
Landlord, or pursuant hereto. All sums which become payable by Tenant to
Landlord hereunder shall be deemed additional rent for purposes of this Lease.
22.02. NAME. Tenant shall not, without the written consent of
Landlord, use the name of the Building for any purpose other than as the
address of the business to be conducted by Tenant in the Leased Premises, and
in no event shall Tenant acquire any rights in or to such names. This
prohibition shall include, without limitation, the use of photographs,
renderings or other similar reproductions of the Building, except on its
brochures.
22.03. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery by and between both Landlord and Tenant.
22.04. TIME. Time is of the essence in this Lease and in each and
all of the provisions hereof.
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22.05. CORPORATE AUTHORITY. If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant
does hereby personally covenant and warrant that Tenant is a duly authorized
and existing corporation, that Tenant has and is qualified to do business in
Texas, that the corporation has full right and authority to enter into this
Lease, and that each person signing on behalf of the corporation was
authorized to do so.
22.06. LIENS. Tenant shall keep the Leased Premises free from any
liens arising out of the work performed, materials furnished, or obligations
incurred by or for Tenant. In the event that Tenant shall not, within ten
(10) days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a proper bond, Landlord shall
have, in addition to all other remedies provided herein and by law, the right
but not the obligation, to cause the same to be released by such means as it
shall deem proper, including payment of or defense against the claim giving
rise to such lien. All sums paid and all expenses incurred by Landlord in
connection therewith shall create automatically an obligation of Tenant to
pay to Landlord, as Rent, and on demand, an equivalent amount together with
interest at the maximum lawful rate per annum from the date due until paid.
No work which Landlord permits Tenant or its contractor to perform in the
Leased Premises shall be deemed to be for the immediate use and benefit of
Landlord so that no mechanics or other lien shall be allowed against the
estate of Landlord by reason or its consent to such work.
22.07. INABILITY TO PERFORM. If, by reason of inability to obtain
and utilize labor, materials, equipment, or supplies, or by reason of
circumstances directly or indirectly the result of any state of war or
national or local emergency, or by reason of any laws, rules, orders,
regulations, action, non-action, or requirements of any governmental
authority now or hereafter in force, or by reason of strikes or riots, or by
reason of accidents in, damage to, or the making of repairs, replacements, or
improvements to the Building, the Parking Garages or the Leased Premises, or
any of the equipment of either, or by the reason of any other cause beyond
the reasonable control of Landlord, Landlord shall be unable to perform or
shall be delayed in the performance of any obligation hereunder, then this
Lease and the obligation of Tenant to pay the Rent or additional rent and to
perform and comply with all of the other covenants and agreements hereunder
shall in no way be affected or impaired, and such nonperformance or delay in
performance by Landlord shall not constitute a breach or default by Landlord
under this Lease nor give rise to any claim against Landlord for damages or
constitute a total or partial eviction, constructive or otherwise. Landlord
shall exercise due diligence in undertaking to remedy such inability to
perform or delay in performance with all reasonable dispatch, but shall not
be required to adjust a labor dispute against its will.
22.08. PUBLICITY. The parties hereto expressly agree that there
shall be no press releases, publicity or public discussions of any kind
whatsoever originated by the parties hereto, or any representatives thereof,
concerning subject Lease transaction or the Building without the prior
written consent of both Landlord and Tenant.
22.09. CONSENT. In all cases where consent shall be required of
either Tenant or Landlord pursuant to this Lease, the giving of such consent
shall not be unreasonably withheld or delayed by the party from whom such
consent is requested or required.
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22.10. MEMORANDUM OF LEASE. Upon the request of Landlord, Landlord
and Tenant shall join in executing a recordable instrument setting forth the
appropriate terms and conditions of the Lease, including with respect to any
additional space leased by Tenant during the primary term of this Lease, plus
any renewals thereof. However, without the prior written consent of Landlord,
Tenant shall not record such memorandum or other instrument with respect to
this Lease.
22.11. LANDLORD'S LIABILITY. Tenant specifically agrees to look
solely to the then current Landlord's interest in the Complex for the
recovery of any judgment against Landlord relating to this Lease, it being
agreed that Landlord shall never be personally liable for any such judgment
beyond such matters; provided, however, that such shall not limit Tenant's
right to injunctive or other relief that does not involve Landlord's payment
of money to Tenant out of assets other than the then current Landlord's
interest in the building.
22.12. SEVERABILITY. If any provision of this Lease or the
application thereof to any person or circumstances shall be held invalid,
void, illegal or unenforceable to any extent, the remainder of this Lease and
application of the remaining provisions to other persons or circumstances
shall not be affected thereby and shall be enforced to the greatest extent
permitted by law.
22.13. GOVERNING LAW. This Lease shall be governed by and construed
pursuant to the laws of the State of Texas. All monetary and other
obligations of Landlord and Tenant hereunder are performable in Houston,
Harris County, Texas.
22.14. NUMBER; GENDER; CAPTIONS, REFERENCES; HEADINGS. Pronouns,
where used herein, of whatever gender, shall include natural persons,
corporations, and associations of every kind and character, and the singular
shall include the plural and vice versa where and as often as may be
appropriate. Article and section headings under this Lease are for
convenience of reference and shall not affect the construction or
interpretation of this Lease. Whenever the terms "hereof', "hereby",
"herein", or words of similar import are used in this Lease, they shall be
construed as referring to this Lease in its entirety rather than to a
particular section or provision, unless the context specifically indicates to
the contrary. Any reference to a particular "Article" or "Section" shall be
construed as referring to the indicated article or section of this Lease.
22.15. SECURITY DEPOSIT. Concurrently with the execution hereof,
Tenant has paid to Landlord the amount of Twelve Thousand Three Hundred
Seventy-Eight and 33/100 Dollars ($12,378.33) to be held as a deposit to
secure performance of Tenant's obligations hereunder. Upon the occurrence of
any Event of Default, or upon the failure by Tenant to timely pay any sum it
is obligated to pay hereunder, Landlord may, from time to time, without
prejudice to any other remedy, and without prior notice to Tenant, apply all
or part of the amount deposited to the curing of such Event of Default or the
payment of such sum. Should Landlord so apply such deposit, Tenant shall
immediately upon receipt of notice thereof deposit with Landlord a sufficient
amount to bring Tenant's total deposit to the level stated in the first
sentence of this Section 22.15. Upon termination or expiration of this Lease,
the security deposit shall be
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returned to Tenant, to the extent that same is not then applied to curing of
any Event of Default or to the payment of any sum owed by Tenant hereunder.
Landlord may keep such security deposit in its bank account and commingle
same with its other funds, and shall not be responsible for paying any
interest thereon. The amount so deposited shall not be considered as an
advance payment of rental hereunder, or as a measure of Landlord's damages in
the event of any failure to perform on the part of Tenant.
22.16. INSOLVENCY OR BANKRUPTCY. In no event shall this Lease be
assigned or assignable by operation of law and in no event shall this Lease
be an asset of Tenant in any receivership, bankruptcy, or insolvency, or
reorganization proceeding.
ARTICLE 23
ENTIRE AGREEMENT
23.01. This instrument and any attached addenda or exhibits signed
by the parties hereto constitutes the entire agreement between Landlord and
Tenant; no prior written or prior or contemporaneous verbal promises or
representations by Landlord or Tenant or any other party shall be binding.
This Lease shall not be amended, changed or extended except by written
instrument signed by both parties hereto. The provisions of this instrument
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the parties hereto, but this
provision shall in no way alter the restrictions herein in connection with
assignment and subletting by Tenant.
ARTICLE 24
RIGHT OF REFUSAL
24.01. RIGHT OF REFUSAL. Subject to the options previously granted
to other tenants, Tenant shall, at any time during the Lease term, have a
subordinated right of refusal on the 2,805 SF NRA of space adjacent to
Tenant's space on Level 13 as shown on Exhibit "A" attached hereto, such
lease to expire in September 1999. At such time Landlord has a bonafide third
party prospect to lease the 2,805 SF NRA on Level 13, Landlord shall give
written notice to Tenant setting out the terms and conditions Landlord has
offered to the third party prospect to lease the space, and Tenant shall have
ten (10) days after receipt thereof within which to notify Landlord, also in
writing, whether Tenant wishes to lease that portion of space on Level 13 at
the same rate, terms and conditions as set out in Landlord's notice. In the
event Tenant elects to lease such space, an amendment to the Lease shall be
executed by Landlord and Tenant not later than fifteen (15) days after
Landlord submits to Tenant copies of such amendment for execution purposes.
If Tenant elects to lease such space pursuant to this right of refusal
option, Tenant may not thereafter revoke such election. If there is no offer
by a third party, Tenant shall have the right to add such space to its Leased
Premises at the then market value.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement, consisting of the foregoing provisions and Article I through 24,
inclusive, together with
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Exhibits A through E incorporated herein by this reference, as of the day and
year set forth on the first page of this Lease Agreement.
BARNHART INTEREST, INC.,
AS AGENT FOR SAGE PLAZA ONE LTD.
("Landlord")
By: /s/ L. Irvin Barnhart
Name: L. Irvin Barnhart
Title: Chairman of the Board
Date: 4 August 98
SPIRES FINANCIAL, L.P.
("Tenant")
By: /s/ Peter W. Badger
Name: Peter W. Badger
Title: President
Date: August 3, 1998
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NOTARY PAGE
I. TENANT
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned, a Notary Public in and for said County
and State, on this day personally appeared , known to me to be
the person and officer whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated, and as the
act and deed of such corporation.
SUBSCRIBED AND SWORN TO BEFORE ME on this the 3 day of August, 1998.
C. A. SMITH
Notary Public - State of Texas
My Commission Expires July 29, 2001
II. LANDLORD
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned, a Notary Public in and for said County
and State, on this day personally appeared L. IRVIN BARNHART, known to me to
be the person and officer whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity therein stated, and as
the act and deed of such corporation.
SUBSCRIBED AND SWORN TO BEFORE me on this the 4th day of August, 1998.
DOROTHY KELM
Notary Public - State of Texas
Commission Expires 12-19-2000
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EXHIBIT "A"
TO LEASE AGREEMENT BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES FINANCIAL, L.P. ("TENANT")
DATED AUGUST 4, 1998
Floor plan to leased area
Level 13
Approximately 7,427 Square Feet of Net Rentable Area
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EXHIBIT "B"
TO LEASE AGREEMENT BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES FINANCIAL, L.P. ("TENANT")
DATED AUGUST 4, 1998
I.
LANDLORD AND TENANT CONSTRUCTION OBLIGATIONS
(Subject to the provisions of the Lease)
A. On or before July 1, 1998, Tenant agrees to deliver to Landlord a
detailed space plan ("Space Plan"), approved in writing by Tenant,
containing all information listed in Section II of this Exhibit "B" for
all tenant improvements ("Tenant Improvements") required by Tenant in
the Leased Premises. If the Space Plan is not delivered by the date
listed above, then each calendar day of delay in delivery shall
constitute one (1) day of "Tenant Delay" hereunder.
B. At Tenant's request, Landlord's designated space planner will prepare
the Space Plan for the Leased Premises showing the location of all
"building standard" items. Tenant will cooperate with Landlord's space
planner, furnishing all reasonable information and material concerning
Tenant's organization, staffing, growth expectations, physical facility
needs, equipment inventory, etc., necessary for the space planner to
efficiently and expeditiously arrive at an acceptable lay-out of the
Leased Premises.
C. Upon receipt of the Space Plan, Landlord and/or Landlord's architect
will review the same to confirm that it conforms to the requirements
listed in Section II below. Additionally, Landlord and/or Landlord's
architect shall meet with Tenant and advise Tenant informally of
preliminary costs which may be associated with the proposed work. Upon
approval by Landlord of the Space Plan, Landlord will notify Tenant
that preparation of working drawings ("Working Drawings") has begun.
If, at any time after approval of the Space Plan, any changes to, or
redrawing of, either the Space Plan or the Working Drawings is
necessitated by Tenant's requested changes, the expense of any such
changes or redrawing will be charged to Tenant and any delay associated
with such action shall constitute one (1) day of "Tenant Delay."
D. If the Space Plan does not conform to the requirements of Section II
below, or Tenant determines that the approximate construction costs
associated with the are not within the scope of its budget, Landlord
will return the Space Plan to Tenant for corrections and/or revisions.
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Tenant will deliver a corrected Space Plan to Landlord no later than
five (5) calendar days after the initial Space Plan has been returned
to Tenant. If the corrected Space Plan is not delivered to Landlord
within such five (5) day period, then each calendar day of delay in
delivery shall constitute one (1) day of "Tenant Delay."
E. Upon final mutual approval of the Space Plan, Landlord shall authorize
the preparation of working Drawings based on the approved Space Plan.
Landlord's space planner and engineer will prepare Working Drawings for
all improvements. Tenant shall deliver the Working drawings,
accompanied by Tenant's written approval thereof, to Landlord no later
than five (5) days after Landlord authorizes preparation thereof. If
the approved Working Drawings are not delivered to Landlord within the
aforementioned period, then each day of delay in delivery shall
constitute one (1) day of "Tenant Delay."
F. If Tenant requests Landlord and/or Landlord's architect to coordinate
preparation of any additional tenant improvements or changes to the
Space Plan or the Working Drawings ("Additional Work"), Tenant shall
pay to Landlord and/or Landlord's architect the costs of modifications,
revisions and special architectural and/or engineering coordination and
detail work associated with Additional Work as additional rent, within
seven (7) days of receipt of invoice for such costs. Tenant shall cause
such plans to be completed within the same time frame as set out in
Paragraph "E" above.
G. If Tenant shall arrange for interior design services, whether with
Landlord's space planner or any other planner or designer, it shall be
Tenant's responsibility to cause necessary coordination of its agents'
efforts with Landlord's agents to ensure that no delays are caused to
either the planning or construction of the required "building standard"
or Additional Work.
H. Landlord and Tenant must approve the Working Drawings in writing prior
to the commencement of pricing and construction.
I. Upon receipt of approved Working Drawings, Landlord shall price the
cost of constructing the Tenant Improvements in accordance with the
Working Drawings, and furnish Tenant a pricing agreement letter within
fourteen (14) calendar days from the receipt of approved Working
Drawings. If the pricing agreement letter is not delivered to Tenant on
or before such date, then each day of delay in delivery shall
constitute one (1) day of "Landlord Delay" hereunder; provided,
however, that if a pricing agreement letter cannot be delivered with
fourteen (14) calendar days due to the complexity or amount of
Additional Work, any delay associated therewith shall not constitute a
"Landlord Delay."
39
<PAGE>
J. Tenant shall promptly review the pricing agreement letter and shall
approve, execute, and return same to Landlord within ten (10) calendar
days after receipt thereof. In the event the pricing agreement is not
delivered to Landlord within such time, Tenant agrees that each day of
delay shall constitute one (1) day of "Tenant Delay." In the event
Tenant, for whatever reason, does not execute the pricing agreement by
said date, Tenant agrees that the time and cost which is incurred for
completing any revisions and the associated approval of a revised
pricing agreement shall be "Tenant Delay" and at Tenant's expense.
Tenant further agrees to provide Landlord written authorization for any
revisions to the Tenant Working Drawings which may be necessitated due
to Tenant's requested revisions in the pricing agreement prior to
Landlord's proceeding with said revisions. It is understood Landlord
agrees to promptly complete any authorized revisions and submit a
revised pricing agreement to Tenant in a timely manner. Upon receipt of
said revised pricing agreement, Tenant shall comply with the provisions
and time period set forth above for review and subsequent approval of
the initial pricing agreement.
Tenant shall pay twenty-five percent (25%) of costs over the Allowance
provided in section 3.01 of the Lease presented in the pricing
agreement letter upon execution of he pricing agreement letter.
Landlord reserves the right to bill Tenant up to ninety percent (90%)
of such costs during the construction period in proportion to the
amount of work completed or materials purchased, with the final ten
percent (10%) due upon acceptance of the completed Leased Premises or
occupancy by Tenant.
K. Upon approval and execution of the pricing agreement letter by Tenant,
Landlord shall install Tenant Improvements in the Leased Premises in
accordance with the executed pricing agreement letter. While the time
required to complete any Additional Work shall betaken into account by
Landlord in estimating the completion date for the Leased Premises, the
excess of time required to complete the Additional Work over the time
which would have been required to complete the Leased Premises for
occupancy had no Additional Work or changes occurred, shall constitute
"Tenant Delay." Within twenty (20) days after receipt of Landlord's
invoice, Tenant shall pay, as additional rent, all costs incurred in
connection with all Additional Work, including the costs of materials
and labor, together with ten percent (10%) of said costs for Landlord's
overhead, and associated architectural and engineering fees, if any, at
Landlord's cost. Such architectural and/or engineering fees shall, at
Landlord's option, be payable by Tenant directly to such architect
and/or engineer performing such work.
L. Tenant, at its own expense, may authorize changes in the Tenant
Improvements during construction; provided, however, that such
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<PAGE>
authorization is directed solely in accordance with the procedures
outlined herein by Landlord. Tenant shall bear the full costs for any
and all such changes, including without limitation, architectural and
engineering costs, in the Tenant Improvements, and any delays
associated with such changes shall constitute "Tenant Delay."
M. As used herein, "Tenant Delay" shall mean and include, without
limitation, Tenant's delay or failure to prepare, revise, or correct
the Space Plans within the times specified; Tenant's delay or failure
to approve or properly disapprove the Working Drawings within the time
specified; Tenant's delay or failure to approve the pricing agreement
for any reason whatsoever; all delays arising in connection Additional
Work or changes requested by Tenant; or other delay from any other
cause reasonably attributable to the acts or omissions of Tenant. The
Commencement Date, expiration date, and commencement of installments of
Base Rent shall not be postponed or delayed as the result of "Tenant
Delay."
N. "Net Tenant Delay" shall mean the total number of days of "Tenant
Delay" minus the total number of days of "Landlord Delay." If the
Leased Premises are not ready for occupancy on or before the date
specified in Section 1.02 of this Lease, and there exists "Net Tenant
Delay," Tenant shall pay Landlord, as additional rent, a sum equal to
one (1) day's rent (including Base Rent and all other charges provided
for in this Lease) multiplied by the total "Net Tenant Delay." Such
additional rent, as well as any charges associated with Additional
Work, shall be paid by Tenant within seven (7) days of receipt of
invoice.
O. All sums due Landlord for Additional Work shall be considered Rent
under the terms of the Lease; non-payment shall constitute default and
entitle Landlord to any and all remedies specified in the Lease.
II.
MINIMUM INFORMATION REQUIRED OF
TENANT SPACE PLAN
FLOOR PLANS INDICATING:
1. Location and type of all partitions.
2. Location and types of all doors-indicate hardware and provide keying
schedule.
3. Location and type of glass partitions, windows and doors- indicate
framing if not "building standard."
4. Location of telephone equipment room accompanied by an approval of the
telephone company.
5. Indicate critical dimensions necessary for construction.
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<PAGE>
6. Location of all "building standard" electrical items-outlets, switches,
telephone outlets. ("Building standard" lighting will be determined by
Building architect).
7. Location and type of all non "building standard" electrical items,
including lighting.
8. Location and type of equipment that will require special electrical
requirements. Provide manufacturers' specifications for use and
operation.
9. Location, weight per square foot and description of any exceptionally
heavy equipment or filing system exceeding 50 psf live load.
10. Requirements for special air conditioning or ventilation.
11. Type and color of floor covering.
12. Location, type and color of wall covering.
13. Location, type and color of "building standard" and non "building
standard" paint or finishes.
14. Location and type of plumbing.
15. Location and type of kitchen equipment.
16. Any and all other improvements specified by Tenant.
DETAILS SHOWING:
1. All millwork with verified dimensions and dimensions of all equipment
to be built in.
2. Corridor entrance.
3. Bracing or support of special walls, glass partitions, etc., if
desired. If not included with the space plan, the Building architect
will design, at Tenant's expense, all support or bracing required.
4. Any and all other details specified by Tenant.
42
<PAGE>
EXHIBIT "B-2"
TO LEASE AGREEMENT BETWEEN
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES FINANCIAL , L.P. ('TENANT')
DATED AUGUST 4, 1998
DEMOLITION
Floor plan of demolition
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<PAGE>
EXHIBIT "C"
TO LEASE AGREEMENT BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES FINANCIAL, L.P. ("TENANT")
DATED 4 AUGUST, 1998
BUILDING RULES AND REGULATIONS
AND
PARKING RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS:
The following standards shall be observed by Tenant for the mutual
safety, cleanliness and convenience of all occupants of the Building. These
rules are subject to change from time to time, as specified in the Lease.
"Leased Premises" and "Premises" are interchangeable terms.
1. Tenant shall not use the Premises or the Building to sell any items or
services at retail price or cost without written approval of Landlord.
Stenography, typewriting, blueprinting, duplicating services of any
kind, and similar businesses, shall not be conducted from or within the
Premises or Building for the service or accommodation of occupants of
the Building, other than Tenant, without prior written consent of
Landlord.
2. Sidewalks, halls, passageways and stairwells shall not be obstructed or
used by Tenant for a purpose other than ingress and egress to and from
the Premises and Building.
3. Flammable, explosive or other hazardous liquids and materials shall not
be brought on the Premises or into the Building without the prior
written consent of Landlord. All Christmas decorations shall be made of
flame retardant materials.
4. All contractors and technicians performing work for Tenant within the
Building shall be referred to Landlord for approval before performing
such work. All work,
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<PAGE>
including, but not limited to, installation of telephone and telegraph
equipment, electrical and electronic devices and attachments, and all
installations affecting floors, walls, windows, doors, ceilings or any
other physical feature of tile Building, shall not commence prior to
written approval by Landlord.
5. Tenant shall not conduct any auction on the Premises nor store goods,
wares or merchandise on the Premises, except for Tenant's own personal
use.
6. Movement into or out of the Building of freight, furniture, office
equipment or other material for dispatch or receipt by Tenant which
requires movement through public corridors or lobbies or entrances to
the building shall be limited to the use of service elevators only and
shall be done at hours and in a manner approved by Landlord for such
purpose from time to time. Only licensed commercial movers shall be
used for the purpose of moving height, furniture or office equipment
to and from the Premises and Building. All hand trucks shall be
equipped with rubber tires and rubber side guards.
7. Requests by Tenant for building services, maintenance or repair shall
be made in writing to the office of the Building Manager.
8. Tenant shall not change locks or install additional locks on doors
without prior written consent of Landlord. Tenant shall not make or
cause to be made duplicates of keys procured from Landlord without
prior approval of Landlord. All keys to the Premises shall be
surrendered to Landlord upon termination of tenancy.
9. Tenant shall give prompt notice to the office of the Building Manager
of any damage to or defects in plumbing, electrical fixtures or heating
and cooling equipment. Liquids, or other materials or substances which
will cause injury to the plumbing, shall not be put into the
lavatories, water closets or other plumbing fixtures, by Tenant, its
agents, employees or invitees.
10. Tenant shall not place, install or operate on the Premises, or in any
part of the Building, any stoves or cooking equipment, other than a
microwave oven, without prior written approval by Landlord.
11. Large files, safes, electronic data processing equipment and other heavy
equipment shall not be moved into the Building or installed in the
Premises without written approval of Landlord.
12. Tenant shall not lay floor covering within the Premises without written
approval of Landlord. The use of cement or other similar
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<PAGE>
adhesive materials not easily removed with water is expressly
prohibited.
13. Tenant shall place solid pads over building standard carpet, under all
rolling chairs.
14. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building.
15. Animals or birds shall not be kept in or about the Premises or the
Building.
16. No sign, advertisement, notice or handbill shall be exhibited,
distributed, painted or affixed by Tenant on, or about or from, any
part of the Premises or the Building without prior written consent of
the Landlord.
17. Landlord reserves the right to exclude from the Building, between the
hours of 6:00 p.m. and 7:00 a.m. on weekdays and at all hours on
Saturday, Sunday and legal holidays, all persons who are not known to
the Building watchman and who do not present a pass to the building
signed by the Tenant. Each Tenant shall be responsible for all persons
for whom he supplies a pass.
18. For the purposes hereof, "holidays" shall be limited to the following:
(1) New Year's Day
(2) Memorial Day
(3) Independence Day
(4) Labor Day
(5) Thanksgiving Day
(6) Christmas Day
If, in the case of any "holiday," a different day shall be observed
other than the actual day described above, then the day observed shall
constitute the "holiday" under this Lease.
19. No parking of vehicles and no deliveries shall occur in the plaza area
of the Building.
20. Tenant will not make any alterations or physical additions in or to the
Leased Premises without prior written consent of Landlord.
21. All routine deliveries to a tenant's Leased Premises during 8:00 a.m.
to 5:00 p.m. weekdays shall be made through the underground truck dock
and freight elevator. Passenger elevators are to be used only for the
movement of persons, unless an exception is approved by the Building
Management office.
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<PAGE>
22. Corridor doors, when not in use, shall be kept closed.
23. Tenant space that is visible from public areas must be kept neat and
clean.
24. All freight elevator lobbies are to be kept neat and clean. The
disposal of trash or storage of materials in these areas is prohibited.
25. Tenant shall not tamper with or attempt to adjust temperature control
thermostats in Leased Premises. Landlord shall adjust thermostats as
required to maintain the building standard temperature. We request that
all window blinds remain down and tilted at a 45 degree angle toward
the street to help maintain comfortable room temperatures and conserve
energy.
26. Tenants are requested to lock all office doors leading to corridors and
to turn out all lights at the close of their working day.
27. The work of the janitor or cleaning personnel shall not be hindered by
Tenant after 5:30 p.m. and/or such work may be done at any time when
the offices are vacant. The windows, doors and fixtures may be cleaned
at any time. Tenant shall provide adequate waste and rubbish
receptacles, cabinets, bookcases, map cases, etc. necessary to prevent
unreasonable hardship to Landlord in discharging its obligation
regarding cleaning services.
28. Landlord will not be responsible for any lost or stolen personal
property, equipment, money, or jewelry from the Premises or public
rooms regardless of whether such loss occurs when such areas are locked
against entry or not, except for gross negligence
29. No draperies, shutters, or other window covering shall be installed on
exterior windows or walls or windows or doors facing public corridors
without Landlord's prior written consent. Landlord shall have the right
to require installation and continued use of uniform window coverings
for such windows.
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<PAGE>
30. No portion of the Premises or any other part of the Building shall at
any time be used or occupied as sleeping or lodging quarters.
31. All tenant modifications resulting from initial buildout and/or
remodeling in or to the Leased Premises must conform to the City of
Houston Building and Fire codes.
32. Landlord desires to maintain high standards of environment, comfort and
convenience for its tenants. It will be appreciated if any undesirable
conditions or lack of courtesy or attention by Landlord's employees is
reported directly to Landlord.
33. Without written consent of Landlord, Tenant shall not use the name of
the Building in connection with promotion or advertising the business
of Tenant except as Tenant's address.
34. Landlord has designated the Building a "non smoking" Building and
Tenant and Tenant's employees shall abide by this rule. An area outside
the Building has been made available to Tenant for the purpose of
smoking and Tenant shall make every effort to maintain this designated
area in a clean and orderly manner.
35. Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further rules and regulations as
in its reasonable judgment shall, from time to time, be required for
the safety, protection, care and cleanliness of the Building, the
operation thereof, the preservation of good order therein and the
protection and comfort of the tenants and their agents, employees and
invitees. Such rules and regulations, when made and written notice
thereof is given to a tenant, shall be binding upon it in like manner
as if originally herein prescribed, so long as applied in a
non-discriminatory manner and not inconsistent with the Lease.
PARKING RULES AND REGULATIONS
A condition of any parking shall be compliance by the Parker with
garage rules and regulations, including any sticker or other identification
48
<PAGE>
system established by Landlord. The following rules and regulations are in
effect until notice is given to Tenant of any change. Landlord reserves the
right to modify and/or adopt such other reasonable and nondiscriminatory rules
and regulations for the garage as it deems necessary for the operation of the
garage. Landlord may refuse to permit any person who violates the rules to park
in the garage, and any violation of the rules shall subject the car to removal.
1. Cars must be parked entirely within the stall lines painted on
the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be 5 miles per hours.
4. Parking is prohibited:
(a) in areas not striped for parking
(b) in aisles
(c) where "no parking" signs are posted
(d) on ramps
(e) in cross hatched areas
(f) in such other areas as may be designated by Landlord
or Landlord's agent(s).
5. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of Landlord and
shall not be transferable. There will be a replacement charge
payable by Tenant equal to the amount posted from time to time
by Landlord for loss of any magnetic parking card or parking
sticker.
6. Garage managers or attendants are not authorized to make or
allow any exceptions to these Rules and Regulations.
7. Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons is assumed by the
parker.
8. No intermediate or full size cars shall be parked in parking
spaces limited to compact cars.
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<PAGE>
Failure to promptly pay the rent required hereunder or persistent
failure on the part of Tenant or Tenant's designated parkers to observe the
rules and regulations above shall give Landlord the right to terminate Tenant's
right to use the parking structure. No such termination shall create any
liability on Landlord or be deemed to interfere with Tenant's right to quiet
possession of its Premises.
50
<PAGE>
EXHIBIT "D"
TO LEASE AGREEMENT BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES, FINANCIAL, L.P. ("TENANT")
DATED 4 AUGUST, 1998
CLEANING SPECIFICATIONS
A. OFFICE AREAS
1. Empty, clean and damp dust all waste receptacles and remove
waste paper and rubbish from the demised premises nightly;
wash receptacles as necessary.
2. Empty and clean all ash trays, screen all sand urns nightly,
and supply and replace sand as necessary.
3. Vacuum all carpeted traffic areas in offices, lobbies and
corridors nightly.
4. Hand dust and wipe clean with dry cloth all office furniture,
files, fixtures, paneling, window sills and other horizontal
surfaces nightly; wash window sills when necessary. Desks and
other furniture must be reasonably cleared of all items by
Tenant to be eligible hereunder.
5. Damp wipe and polish all glass furniture tops nightly.
Furniture must be reasonably cleared of all items by Tenant to
be eligible hereunder.
6. Remove all finger marks and smudges from all vertical
surfaces, including doors, door frames around light switches,
private entrance glass and partitions nightly.
7. Wash clean all water coolers nightly.
8. Sweep all private stairways nightly, vacuum if carpeted.
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<PAGE>
9. Police all stairwells throughout the entire Building daily and
keep in clean condition.
10. Damp mop spillage in office and public areas as necessary.
11. Damp dust all telephones as necessary.
B. WASHROOMS
1. Mop, rinse and dry floors nightly.
2. Scrub floors as necessary
3. Clean all mirrors, bright work and enameled surfaces nightly.
4. Wash and disinfect all basins, urinals and bowls nightly,
remove stains, and clean undersides of rim of urinals and
bowls.
5. Wash both sides of all toilet seats with disinfectant nightly.
6. Damp wipe nightly, wash with disinfectant when necessary, all
partitions, tile walls and outside surface of all dispensers
and receptacles.
7. Empty and sanitize all receptacles and sanitary disposals
nightly; thoroughly clean and wash at least once per week.
8. Fill toilet tissue, soap, towel, and sanitary napkin
dispensers nightly.
9. Clean flushometers, piping, toilet seat hinges and other metal
work nightly.
10. Wash and polish all walls, partitions, tile walls and enamel
surfaces from trim to floor monthly.
11. Vacuum all louvers, ventilating grilles and dust light
fixtures monthly.
NOTE: It is the intention to keep the washrooms thoroughly cleaned and not to
use a disinfectant or deodorant to kill odors. If a disinfectant is necessary,
an odorless product to be used.
C. FLOORS
1. Ceramic tile, marble and terrazzo floors to be swept and
buffed nightly, and
52
<PAGE>
washed or scrubbed as necessary.
2. Vinyl asbestos, asphalt, vinyl, rubber or other composition
floors and bases to be swept nightly using dust down
preparation; such floors in public areas on multiple-tenant
floors to be waxed and buffed monthly.
3. Tile floors in office areas to be waxed and buffed monthly.
4. All floors to be stripped and rewaxed as necessary.
5. All carpeted areas and rugs to be vacuum cleaned nightly.
6. Carpet cleaning will be performed at Tenant's request and
billed to Tenant.
D. GLASS
1. Clean glass entrance doors and adjacent glass panels nightly.
2. Clean outside surface of exterior windows at least once per
year; provided, however, in the event Landlord cleans more
frequently than once per year the exterior windows of floors
of Building located above the demised premises in such a
manner so as to dirty the windows of the demised premises,
then Landlord shall clean the windows of the demised premises
as frequently as those located above same.
E. HIGH DUSTING (QUARTERLY)
1. When requested by Tenant, dust and wipe clean all closet
shelving when empty and carpet sweep or dry mop all floors in
closets if such are empty.
2. Dust all picture frames, charts, graphs and similar wall
hangings.
3. Dust clean all vertical surfaces such as walls, partitions,
doors, door bucks and other surfaces above shoulder height.
4. Damp dust all ceiling air conditioning diffusers, wall
grilles, registers and other ventilating louvers.
5. Dust the exterior surface of lighting fixtures, including
glass and plastic enclosures.
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<PAGE>
F. DAY SERVICE
1. At least once, but not more than twice during the day, check
the men's washrooms for soap, towel and toilet tissue
replacement.
2. At least once, but not more than twice during the day, check
the ladies' washrooms for soap, towel, toilet tissue and
sanitary napkin replacement.
3. Vacuum elevator cabs as necessary.
4. There will be a constant surveillance of public areas to
ensure cleanliness.
G. GENERAL
1. Wipe all interior metal window frames, mullions and other
unpainted interior metal surfaces of the perimeter walls of
the Building each time the interior side of the windows is
washed.
2. Keep janitorial closets in a clean, neat and orderly condition
at all times.
3. Wipe clean and polish all metal hardware, fixtures and other
bright work nightly.
4. Dust and/or wash all directory boards as required, remove
fingerprints and smudges nightly.
5. Maintain Building lobby, corridors and other public areas in a
clean condition.
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<PAGE>
CLEANING SPECIFICATIONS - FREQUENCY SUMMARY
<TABLE>
<CAPTION>
PRIMARY ITEM Achievement Frequency
<S> <C> <C>
A. ENTRANCE
Front and back Police and sweep 5 x week
Door glass Rc frames Clean 5 x week
B. PUBLIC AREAS
Floors - carpet Vacuum and spot clean 5 x week
Floors - composition Dust sweep and spot mop 5 x week
Furnishings Dust S x week
Ashtrays Empty and damp wipe 5 x week
Drinking fountains Clean and disinfect 5 x week
Walls, doors & frames Spot clean S x week
Telephones Damp wipe 5 x week
Stairs Police 5 x week
Janitor closets Keep clean S x week
Stairs Sweep S x week
Metal plats & knobs Polish 1 x week
Ledges, sills & rails Dust 1 x week
Stairs (all) Dust mop and spot clean 1 x week
Light fixtures Dust or vacuum 1 x month
Walls Lambs wool dust 1 x quarter
Window coverings Dust or vacuum 1 x quarter
C. WORK AREAS (General and private offices, conference and sales rooms)
Floors - Carpet
Traffic lanes Vacuum 5 x week
All areas Vacuum 1 x week
Floors - composition Dust sweep & spot mop 5 x week
Trash receptacles Empty and clean 5 x week
Trash Collect 5 x week
Ashtrays Empty and damp wipe 5 x week
Telephones Damp wipe 5 x week
Furnishings (horiz.) Dust 5 x week
Glass desk tops Wash and dry polish 5 x week
Glass partitions Spot clean 1 x week
Doors and frames Dust and spot wash 1 x week
Walls & switchplates Spot clean 1 x week
Furnishings (vert.) Dust 1 x week
Low ledges & sills Dust 1 x month
High ledges & sills Dust 1 x 2 months
Glass partitions Wash 1 x 2 months
Light fixtures Dust or vacuum 1 x quarter
exterior surfaces
55
<PAGE>
D. REST ROOMS
Floors Mop and disinfect 5 x week
Receptacles Empty and disinfect 5 x week
Fixtures Scour and disinfect 5 x week
Dispensers Refill and clean 5 x week
Mirrors Wash and dry polish 5 x week
Bright metal Clean and polish 5 x week
Walls/dividers/doors Spot clean or wash S x week
Furnishings Dust or vacuum 5 x week
Vents and lights Dust or vacuum 1 x week
Floors Machine scrub As needed
E. FLOOR MAINTENANCE PROFILE - Top quality, anti-slip floor materials and
finishes will be used. Programmed floor care is:
Main Lobby Polish 5 x week
Other lobbies/halls Polish As needed
Lunchrooms & Lounges Buff 1 x week
Offices Buff 1 x week
</TABLE>
56
<PAGE>
EXHIBIT "E"
TO LEASE AGREEMENT BETWEEN
BARNHART INTERESTS, INC., AS AGENT FOR
SAGE PLAZA ONE LTD. ("LANDLORD")
AND
SPIRES FINANCIAL, L.P. (" TENANT")
DATED 4 AUGUST, 1998
RENEWAL OPTION
Tenant shall have one (1) option to renew and extend the term of this Lease for
sixty (60) months as follows:
1. Provided that no Event of Default under this Lease has occurred and
is continuing, Tenant shall have the option ("Renewal Option") to extend the
term of this Lease for a period of sixty (60) months ("Renewal Period")
commencing on the day following the expiration of the original Term and ending
on the last day of the sixtieth (60th) calendar month thereafter; provided that,
in order to exercise such option, Tenant shall give Landlord written notice no
later than one hundred twenty (120) days prior to the expiration of such
original Term. Within fifteen (1 S) days thereafter, Landlord shall advise
Tenant, in writing, of the Base Rental applicable during the renewal term.
2. If this Lease is extended for the Renewal Period as hereinabove
provided, then all terms and provisions of this Lease shall continue to apply
during such Renewal Period, except that (a) the Base Rental shall be calculated
at the then prevailing rental rate for similar space in the Building as of the
date of commencement of the Renewal Period (in no event shall the rental rate
during said renewal term be less than the Base Rental in effect during the
calendar year immediately preceding the year in which said renewal term
commences, plus accrued escalation), (b) for purposes of calculating Base Rental
Adjustment under Article 5 of this Lease, the Basic Cost shall be deemed to be
the estimated Basic Cost for the calendar year in which the Renewal Period
commences and Tenant will pay its pro rata share thereof, and (c) the Leased
Premises shall be taken in its then existing condition, on an "as is" basis.
3. Within thirty (30) days after Tenant has received such Base Rental
information from Landlord, Tenant shall give Landlord written notice of exercise
of its option. Failure to give such notice by Tenant to Landlord within such
thirty (30) day period shall result in such option to be void and of no further
force and effect. If Tenant duly exercises its Renewal Option, the renewal term
shall apply to the entire premises then leased to Tenant.
4. Time is of the essence with respect to exercise of Tenant's Renewal
Option. If the option is not exercised within the time stipulated herein, then
such option shall lapse and be of no further force or effect.
5. The leasing of space under the provisions of this Addendum shall be
on the same terms and conditions as set forth in this Lease with respect to the
original Leased Premises, except as set forth to the contrary in this Addendum.
Landlord shall not be liable to Tenant for any
57
<PAGE>
holding over by any other tenant beyond its permitted term. If Tenant does
not exercise its rights granted under this Addendum when offered by Landlord,
then Tenant's rights with respect thereto and with respect to all other
portions of this Addendum shall thereupon terminate.
All other terms and conditions of the Lease shall continue unaltered and
unabated in full force and effect throughout the remainder of the term of the
Lease.
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
SUBSIDIARIES OF PINNACLE GLOBAL GROUP, INC.
STATE OF
SUBSIDIARY ORGANIZATION TRADE NAME
- ---------- ------------ ----------
<S> <C> <C>
TEI, Inc............................................. Texas
Tanknology Environmental Services, Inc. ............. Delaware TES, Inc.
Tanknology/Engineered Systems, Inc................... Delaware Engineered Systems, Inc.
Tanknology Worldwide, Inc............................ Delaware TW, Inc.
Tanknology of Illinois, Inc.......................... Delaware Tanknology of Illinois, Inc.
Energy Recovery Resources, Inc. ..................... Delaware James Waste Oil Service
Sanders Morris Harris Inc............................ Texas Sanders Morris Harris
PGG Capital, Inc. ................................... Texas
Pinnacle Management & Trust Company ................. Texas
Spires G.P. Combination Corp......................... Texas
Spires Financial G.P., Inc. ......................... Texas
Spires L.P. Combination Corp......................... 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 the Registration
Statement on Form S-8 (No. 333-72325) of Pinnacle Global Group, Inc. of our
report dated March 17, 2000 relating to the financial statements and financial
statement schedule which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,494,979
<RECEIVABLES> 162,423,140
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 89,051,079
<PP&E> 1,090,313
<TOTAL-ASSETS> 298,466,181
<SHORT-TERM> 0
<PAYABLES> 117,921,940
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 120,275,441
<LONG-TERM> 0
0
0
<COMMON> 71,253
<OTHER-SE> 57,506,116
<TOTAL-LIABILITY-AND-EQUITY> 298,466,181
<TRADING-REVENUE> 3,649,195
<INTEREST-DIVIDENDS> 2,810,370
<COMMISSIONS> 8,268,088
<INVESTMENT-BANKING-REVENUES> 1,608,993
<FEE-REVENUE> 2,026,938
<INTEREST-EXPENSE> 1,369,061
<COMPENSATION> 10,878,451
<INCOME-PRETAX> 372,841
<INCOME-PRE-EXTRAORDINARY> (4,694,938)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,694,938)
<EPS-BASIC> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
