<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file No. 333-65417
----------------------
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)
(713) 993-4610
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
---- ----
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of May 10, 2000, was 14,111,301.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................. 2
Condensed Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999 (unaudited)................................................... 2
Condensed Consolidated Statement of Operations for the Three Months Ended
March 31, 2000 and 1999 (unaudited) ............................................ 3
Condensed Consolidated Statement of Shareholders' Equity for the Three
Months Ended March 31, 2000 (unaudited)......................................... 4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (unaudited)............................................. 5
Notes to Condensed Consolidated Financial Statements (unaudited).................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks....................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders .............................. 17
Item 6. Exhibits and Reports on Form 8-K.................................................. 19
PART III. SIGNATURES................................................................................. 20
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------------- ----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 26,157 $ 10,495
Receivables from brokers-dealers and clearing organizations 87,403 162,422
Deposits with clearing brokers 8,517 8,463
Securities owned 61,289 85,002
Securities available for sale 4,294 4,050
Intangible assets 44,259 21,414
Furniture and equipment 2,241 1,090
Other assets 5,586 3,082
Net assets of discontinued operations 2,461 2,448
----------------- ----------------
Total assets $ 242,207 $ 298,466
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 10,856 $ 2,692
Payable to clearing brokers-dealers 49,455 117,922
Securities sold, not yet purchased 87,015 120,275
----------------- ----------------
Total liabilities 147,326 240,889
----------------- ----------------
Commitments and contingencies
Minority interests 456 -
Shareholders' equity:
Preferred stock, $0.10 par value; 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $0.01 par value; 100,000,000 shares authorized;
14,250,512 and 7,125,292 shares issued at March 31,
2000 and December 31, 1999, respectively 142 71
Additional paid-in capital 95,125 58,929
Receivables for shares issued (1,312) (1,312)
Retained earnings (deficit) 988 (88)
Accumulated other comprehensive income (loss) 35 (23)
Treasury stock at cost, 139,211 shares at March 31, 2000 (553) -
----------------- ----------------
Total shareholders' equity 94,425 57,577
----------------- ----------------
Total liabilities and shareholders' equity $ 242,207 $ 298,466
================= ================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
2000 1999
-------------- -------------
<S> <C> <C>
Revenues:
Commissions $ 4,151 $ 2,542
Principal transactions 1,382 688
Investment banking 3,062 595
Fiduciary, custodial and advisory fees 556 315
Interest and dividends 1,857 444
Other income 930 24
-------------- -------------
Total revenues 11,938 4,608
-------------- -------------
Expenses:
Employee compensation and benefits 5,823 2,170
Floor brokerage, exchange and clearance fees 619 84
Communications and data processing 662 231
Interest 935 44
Occupancy 561 164
Amortization of intangible assets 377 148
Other general and administrative 1,145 764
-------------- -------------
Total expenses 10,122 3,605
-------------- -------------
Income from continuing operations before income taxes
and minority interests 1,816 1,003
Provision for income taxes 853 437
Minority interests in loss of consolidated companies (113) -
-------------- -------------
Income from continuing operations 1,076 566
Income from discontinued operations, net of tax - -
-------------- -------------
Net income $ 1,076 $ 566
============== =============
Basic and diluted income per share:
From continuing operations $ 0.09 $ 0.10
From discontinued operations - -
-------------- -------------
Net income per share $ 0.09 $ 0.10
============== =============
Weighted average shares outstanding 11,787,916 5,937,753
============== =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL RECEIVABLES
------------------- ------------------- PAID-IN FOR SHARES
SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUED
--------- --------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 7,125 $ 71 - $ - $ 58,929 $ (1,312)
Issuance of common stock in acquisitions 7,125 71 - - 36,196 -
Acquisition of treasury stock - - (139) (553) - -
Comprehensive income:
Net income - - - - - -
Net change in unrealized appreciation
(depreciation) of securities available for sale - - - - - -
Total comprehensive income - - - - - -
--------- --------- -------- ---------- ------------ -------------
Balance, March 31, 2000 14,250 $ 142 (139) $ (553) $ 95,125 $ (1,312)
========= ========= ======== ========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS(DEFICIT) INCOME (LOSS) TOTAL
------------------ ---------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1999 $ (88) $ (23) $57,577
Issuance of common stock in acquisitions - - 36,267
Acquisition of treasury stock - - (553)
Comprehensive income:
Net income 1,076 - 1,076
Net change in unrealized appreciation
(depreciation) of securities available for sale - 58 58
-----------
Total comprehensive income - - 1,134
------------------ ---------------- -----------
Balance, March 31, 2000 $ 988 $ 35 $94,425
================== ================ ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,076 $ 566
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of securities available for sale (227) -
Depreciation 138 70
Amortization of intangible assets 377 148
Minority interests in consolidated companies (113) -
Changes in operating assets and liabilities,
including discontinued operations:
Receivables from brokers-dealers and clearing
organizations 75,166 (19,123)
Securities owned 31,314 (41,147)
Deposits with clearing brokers 197 (253)
Securities sold, not yet purchased (33,322) 17,874
Other assets 804 (737)
Payable to clearing brokers-dealers (68,618) 41,368
Accounts payable and accrued liabilities (1,312) (284)
Operating losses and payments charged to reserve
for discontinued operations (382) (78)
-------------- --------------
Net cash provided by (used in) operating activities 5,098 (1,596)
============== ==============
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (236) (424)
Acquisition costs (650) (1,288)
Proceeds from sale of assets 133 -
Purchase of securities available for sale (1,593) (6,346)
Proceeds from maturities of securities available for sale 1,662 5,538
-------------- --------------
Net cash used in investing activities (684) (2,520)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (553) -
-------------- --------------
CASH OF BUSINESSES ACQUIRED 11,801 4,343
-------------- --------------
Net increase in cash and cash equivalents 15,662 227
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,495 13,293
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,157 $ 13,520
============== ==============
Non cash investing and financing activities:
Common stock issued for acquisitions $ 36,267 $ 3,563
Retirement of treasury stock - 4,188
Notes received for shares issued - 1,312
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
Through its continuing operating subsidiaries the Company 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 investment management. The Company serves
a diverse group of institutional, corporate and individual clients.
In January 1999, the shareholders of TEI, Inc. ("TEI") exchanged all
common shares of TEI for 3,562,753 common shares of the Company. The Company
simultaneously completed the acquisition of 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 for all of the ownership interests of the three financial
services firms. TEI is now a wholly-owned subsidiary of the Company.
In January 2000, the Company merged HWG with Sanders Morris Mundy Inc.
("SMM") by exchanging 7,125,220 shares of its common stock for all of the
ownership interests of SMM. SMM is a twelve year old investment banking and
brokerage firm based in Houston, Texas, with branch offices in New York City,
Denver and Chicago. As a result of these acquisitions, results are not
comparable to the prior period.
CONSOLIDATION
The unaudited condensed 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.
In management's opinion, the unaudited condensed consolidated financial
statements include all adjustments necessary for a fair presentation of
financial position at March 31, 2000, and results of operations and cash flows
for the three months ended March 31, 2000 and 1999. All such adjustments are of
a normal recurring nature. Interim results are not necessarily indicative of
results for a full year.
Total comprehensive income for the three months ended March 31, 1999 was
$448, consisting of net income of $566 and net change in unrealized depreciation
of securities available for sale of $118.
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 $31,000 exceeded the fair
value of identifiable net assets acquired by approximately $22,000 which has
been recorded as goodwill and is being amortized on a straight-line basis
over 25 years.
6
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. ACQUISTIONS--(CONTINUED)
On January 31, 2000, HWG merged with SMM. SMM survived the merger, became
a wholly owned subsidiary of the Company and was renamed Sanders Morris
Harris Inc. ("SMH"). 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 Company's outstanding common stock. The
merger was accounted for as a purchase and, accordingly, the financial
information of SMM has been included in the Company's consolidated financial
statements from February 1, 2000. The purchase price of approximately $37,000
million exceeded the fair value of identifiable net assets acquired by
approximately $23,000, which has been recorded as goodwill and is being
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 above transactions occurred on January 1, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues $ 17,282 $ 15,703
Income from continuing operations 1,947 2,305
Basic and diluted earnings per share
from continuing operations 0.14 0.16
</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.
7
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
Securities owned and securities sold, not yet purchased were as follows:
<TABLE>
<CAPTION>
SOLD, NOT YET
OWNED PURCHASED
-------------- -----------------
<S> <C> <C>
MARCH 31, 2000:
Marketable:
Obligations of U.S. government $ 51,491 $ 86,822
Corporate stocks 1,349 193
Corporate bonds and commercial paper 1,985 -
-------------- -----------------
54,825 87,015
Not readily marketable:
Partnerships, equities, options and warrants 6,464 -
-------------- -----------------
$ 61,289 $ 87,015
============== =================
DECEMBER 31, 1999:
Marketable:
Obligations of U.S. government $ 80,964 $ 120,174
Corporate stocks 94 101
Corporate bonds and commercial paper 2,484 -
-------------- -----------------
83,542 120,275
Not readily marketable:
Corporate stocks and warrants 1,460 -
-------------- -----------------
$ 85,002 $ 120,275
============== =================
</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.
Securities not readily marketable also include investments in limited
partnerships, equities, options and warrants. The investments in limited
partnerships, which are accounted for using the equity method, consist of
Environmental Opportunities Fund, L.P., Environmental Opportunities Fund
(Cayman), L.P., Environmental Opportunities Fund II, L.P., Environmental
Opportunities Fund II (Institutional), L.P., Corporate Opportunities Fund, L.P.,
and Corporate Opportunities Fund (Institutional), L.P.
8
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. INCOME TAXES
The differences between the effective tax rate reflected in the income tax
provision for continuing operations and the statutory federal rate was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
-------------- ---------------
<S> <C> <C>
Tax computed using the statutory rate $ 617 $ 341
Nondeductible amortization of goodwill 128 56
State income taxes and other 108 40
---------- -----------
Total $ 853 $ 437
========== ===========
</TABLE>
5. DISCONTINUED OPERATIONS
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. 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. The Company believes the sale of ERRI will be consummated in 2000.
Engineered Systems, Inc.'s ("ESI") operations were discontinued as of
December 31, 1995 and assets of ESI were disposed of on December 23, 1997. The
purchaser has agreed to complete customer contracts 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. The Company currently
estimates that it will not incur any additional losses with respect to contracts
to be completed by the purchaser; however, the Company has experienced
significant changes in these estimates in the past and it is reasonably possible
that such changes could occur in future periods.
6. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to underwriting commitments that were open at
March 31, 2000, were subsequently settled, and had no material effect on the
consolidated financial statements as of that date.
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 ........................................ $ 2,326
2001......................................... 2,286
2002 ........................................ 1,715
2003 ........................................ 958
2004 ........................................ 218
-----
$ 7,503
=====
</TABLE>
9
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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. 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. 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, 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 SMH. Mr. Drury was a former
executive officer and director of Waste Management, and a shareholder and
director of SMH. Mr. Drury died in April 2000 and his share ownership in Waste
Management and, as a result of the Sanders merger, his 2.2% share ownership of
the Company, have passed to his estate pending probate of his will. 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. Management believes there is no
factual basis or legal basis for any Waste Management claim against SMH. 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 the Company, we 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 5 to the condensed consolidated financial statements,
the Company has contingent liabilities and potential loss exposures related to
discontinued operations.
10
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. EARNINGS PER COMMON SHARE
Basic and diluted per-share computations for the periods indicated were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
--------------- --------------
<S> <C> <C>
Computation of basic and diluted earnings per common
share for the three months ended March 31:
Net income applicable to common stock $ 1,076 $ 566
=============== ==============
Weighted average number of common shares outstanding 11,787,916 5,937,753
Common shares issuable under stock option plan - -
Less shares assumed repurchased with proceeds - -
--------------- --------------
Weighted average common shares outstanding 11,787,916 5,937,753
=============== ==============
Basic and diluted earnings per common share $ 0.09 $ 0.10
=============== ==============
</TABLE>
Stock options outstanding of 1,070,050 and 170,625 have not been included
in diluted earnings per common share because to do so would have been
antidilutive for the periods presented.
8. BUSINESS SEGMENT INFORMATION
The Company's continuing businesses operate in three reportable business
segments. SMH 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 three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
March 31, 2000 March 31, 1999
--------------------------------- ------------------------------------
SMH SPIRES PMT HWG SPIRES PMT
---------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7,799 $ 2,523 $ 818 $ 1,030 $ 2,674 $ 360
Income before income taxes 1,599 34 328 74 879 144
Total assets 28,439 153,559 5,484 4,432 80,472 4,178
</TABLE>
11
<PAGE>
PINNACLE GLOBAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. BUSINESS SEGMENT INFORMATION--(CONTINUED)
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 three months
ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Income before income taxes of reportable segments:
SMH/HWG $ 1,599 74
PMT 328 144
Spires 34 879
------------ ------------
1,961 1,097
Amortization of intangible assets (377) (148)
Corporate revenues and expenses, net 232 54
------------ ------------
Income from continuing operations before income taxes $ 1,816 $ 1,003
============ ============
</TABLE>
9. STOCK OPTIONS
On February 1, 2000, the Board granted 488,000 options to employees of SMH
who were employees of SMM prior to the merger with HWG. The options vest over
the next three years, with full vesting on February 1, 2003 and have an exercise
price equal to the closing price of the Company's common stock on the date of
the grant.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and their related notes thereto.
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 Harris Webb &
Garrison, Inc. ("HWG"), Pinnacle Management & Trust Company ("PMT") and
Spires Financial, L.P. ("Spires"). In the combination, just over 50% of our
then 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. The
following discussion of the results of operations includes the operations of
HWG, PMT and Spires from the date of combination, January 29, 1999.
On January 31, 2000, we completed the merger of HWG with Sanders Morris
Mundy Inc. ("SMM"). SMM survived the merger, was renamed Sanders Morris Harris
Inc. ("SMH") and became our wholly owned subsidiary. In the merger, we issued
7,125,220 of our common shares to the former shareholders of SMM. The
following discussion of the results of operations during the period ended
March 31, 2000 includes the operations of SMH from the date of the merger,
January 31, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
The financial results of the Company for the three months ended March 31,
2000 include the results of operations of SMM from the date of acquisition,
January 31, 2000 to March 31, 2000. During the comparable period in 1999, the
Company's financial statements reflected operating results from TEI, Inc. and
the results from HWG, PMT and Spires from January 29, 1999 to March 31, 1999.
Therefore, the results of operations for the period ended March 31, 2000 are
not comparable to the results for the same period in 1999.
Total revenues rose to $11.9 million in 2000 from $4.6 million in 1999 as a
result of an increase in the number of sales and marketing professionals at SMH
as a result of the merger. Total expenses for the period increased to $10.1
million from $3.6 million in the previous year primarily due to compensation and
benefits paid to employees who joined the Company as a result of the SMM merger.
Net income for the period ended March 31, 2000 increased to $1.1 million in 2000
from $566,000 in 1999. Basic and diluted income per share was $0.09 for the
three months ended March 31, 2000 compared to $0.10 for the same period in 1999.
Commissions revenue increased to $4.2 million in 2000 from $2.5 million in
1999 due primarily to additional retail and institutional brokerage operations
at SMH. Principal transactions revenue increased to $1.4 million in 2000
compared to $688,000 in the same period last year primarily due to an increase
in the value of not readily marketable investments. Investment banking revenue
from advisory services and private security offerings rose to $3.1 million in
2000 from $595,000 in 1999 primarily due to increased transaction
13
<PAGE>
fees earned at SMH. Fiduciary, custodial and advisory fees revenue increased
to $556,000 in 2000 compared to $315,000 in 1999 resulting mainly from an
increase in the number of fee based accounts and an increase in the market
value of assets under management at PMT. Interest and dividends revenue was
derived primarily from interest earned on investments at SMH and from
interest income earned on fixed income securities held in inventory at
Spires. Interest and dividend income rose to $1.9 million in 2000 from
$444,000 in the same period last year primarily due to an increase in Spires'
inventory of fixed income securities purchased with a $13 million capital
investment provided by the Company during 1999. Other income increased by
$906,000 as a result of management and advisory fees from SMH's investments
and partnerships.
In the three months ended March 31, 2000, employee compensation and
benefits, which includes commissions paid to retail and institutional brokers
and investment bankers at SMH and Spires, increased to $5.8 million from $2.2
million in the same period last year primarily due to the increased number of
employees following the merger with SMM. Interest expense increased to $935,000
in 2000 from $44,000 in 1999 principally due to financing costs associated with
higher levels of fixed-income securities inventories at Spires. Communication
and data processing costs, primarily related to costs at SMH and upgrades in
technology and services, including quotes and market data services, increased to
$662,000 in 2000 from $231,000 in the same period last year. Occupancy costs
increased to $561,000 in 2000 from $164,000 in 1999 primarily from the
additional rent expense for office leases at SMH.
The effective tax rate from continuing operations was 44% for the three
months ended March 31, 2000 and 1999 primarily resulting from nondeductible
goodwill amortization.
DISCONTINUED OPERATIONS
Although we previously recorded our best estimate of ultimate 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.
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 and payables 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 brokers-dealers
and clearing organizations, deposits with clearing brokers, securities owned,
and securities available for sale represented about 77% of our total assets
at March 31, 2000. At March 31, 2000, we had approximately $30.5 million in
cash and cash equivalents and securities available for sale.
Decreases in securities owned and securities sold, not yet purchased is
primarily attributable to Spires' fixed-income securities inventory positions
and related hedging activities. Decreases in receivables from and payable to
clearing brokers and dealers were related primarily to Spires' policy of
financing long and short inventory positions for leverage.
At March 31, 2000, SMH and Spires, our 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 requirements and had capital in excess of the required
minimum.
14
<PAGE>
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 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.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q 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, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's 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 the Company's services
or the cost of doing business; (4) general economic conditions, both domestic
and foreign, especially in the regions where the Company does 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 the Company's services. The Company does
not undertake any obligation to publicly update or revise any forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
MARKET RISKS
The following discussion relates to our market risk sensitive instruments
as of March 31, 2000, and thus, includes such instruments held by PMT, SMH and
Spires.
PMT
At March 31, 2000, PMT had equity securities under management with a fair
market value of $525 million. PMT's fee income for the period ended March 31,
2000 would have been reduced by approximately $28,000 assuming a hypothetical
10% decrease in the market value of its equity securities under management.
PMT's fee income could also be reduced from changes in interest rates to the
extent that such changes reduce the carrying value of securities under
management.
SMH
SMH's trading equity securities are marked to market on a daily basis. At
March 31, 2000, SMH's trading equity securities were recorded at a fair market
value of $1.3 million. These trading equity securities are subject to equity
price risk. This risk would amount to $130,000 based on a potential loss in fair
market value from a hypothetical 10% decrease in the market value of such equity
securities. The actual equity price risk related to the trading equity
securities may differ substantially.
15
<PAGE>
SPIRES
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
March 31, 2000 (in thousands):
<TABLE>
<CAPTION>
SECURITY TYPE LONG SHORT NET GAIN (LOSS)
- ----------------------------------------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ - $ (86,822) $ (86,822) $ (340)
Collateralized mortgage obligations (CMO) 50,495 - 50,495 355
-------------- --------------- -------------- ---------------
Total $ 50,495 $ (86,822) $ (36,327) $ 15
============== =============== ============== ===============
</TABLE>
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 March 31, 2000, assuming all other
factors remained constant except for a hypothetical 50 basis point change in
interest rates, would be $181,000 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 1.72 mortgage-backed securities/CMOs is used to fully hedge
long inventory. Unless management approval is given, long inventory must be
hedged.
For a further discussion of our risk management policy and control
structure, refer to the "Risk Management" section of our Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. 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, 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 was a former
executive officer and director of Waste Management, and a shareholder and
director of SMM. Mr. Drury died in April 2000 and his share ownership in Waste
Management and, as a result of the Sanders merger, his 2.2% share ownership of
the Company, have passed to his estate pending probate of his will. 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 our own investigation, 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.
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.
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 SMM as
part of a merger of the Sanders firm with HWG, our then investment
banking subsidiary.
- To transact other business related to the first proposal that may have
properly come before the special meeting.
17
<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 SMM 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 E.
Drury was both employed by Waste Management and associated with
SMM. Mr. Drury died in April 2000 and his share ownership in Waste
Management and, as a result of the Sanders merger, his 2.2% share
ownership of the Company, have passed to his estate pending probate
of his will. SMM provided information in response to the Waste
Management request. For further discussion regarding the Waste
Management matter, see "Item 1--Legal Proceedings."
On January 28, 2000 the meeting was reconvened at 10:00 a.m. Central
Standard Time. Holders, present in person or represented by proxy, of
5,319,010 of our common shares were present at the meeting, which shares
represented 74.6% of our total issued and outstanding shares entitled to vote
at the meeting. The proposal to issue 7,125,220 shares of our common stock to
the shareholders of SMM as part of the merger of the Sanders firm with HWG
was approved by shareholders with 4,605,149 shares, or 64.6% of our total
issued and outstanding shares voting in favor of the proposal.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<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 Pinnacle, Harris Webb & Garrison, Inc.
("HWG"), Sanders Morris Mundy Inc. ("SMM"), and the SMM shareholders
(incorporated by reference to Appendix A to the Definitive Proxy
Statement on Schedule 14A of the Company dated December 6, 1999).
10.2 Amended and Restated Plan of Merger dated November 12, 1999, among
Pinnacle, HWG and SMM (incorporated by reference to Appendix B to the
Definitive Proxy Statement on Schedule 14A of the Company dated
December 6, 1999).
*10.3 Office Lease Agreement and related Amendments dated September 25, 1996
between Texas Tower Limited and Sanders Morris Mundy Inc.
*27.1 Financial Data Schedule.
</TABLE>
* Filed herewith.
(b) Reports on Form 8-K.
The Company filed the following Reports on Form 8-K during the period
covered by this Quarterly Report:
- Form 8-K dated January 12, 2000 reporting the resignation of Sean
Dobson as an officer and director, and
- Form 8-K dated February 7, 2000 reporting the shareholder
approval and completion of the merger between Harris Webb &
Garrison, Inc. and Sanders Morris Mundy Inc.
19
<PAGE>
PART III
SIGNATURES
Pursuant to the requirements 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.
PINNACLE GLOBAL GROUP, INC.
By /s/ ROBERT E. GARRISON II
--------------------------------
ROBERT E. GARRISON II
PRESIDENT & CHIEF EXECUTIVE OFFICER
By /s/ DONALD R. CAMPBELL
--------------------------------
DONALD R. CAMPBELL
VICE CHAIRMAN AND
PRINCIPAL FINANCIAL OFFICER
DATE: MAY 15, 2000
20
<PAGE>
SIXTH AMENDMENT TO LEASE AGREEMENT
THIS SIXTH AMENDMENT TO LEASE AGREEMENT (this "SIXTH
AMENDMENT") is made and entered into effective as of the 25th day of
September, 1996, by and between TEXAS TOWER LIMITED, a Texas limited
partnership (the "LANDLORD") and SANDERS MORRIS MUNDY INC., a Texas
corporation (being one and the same as Sanders, Morris & Mundy, Inc. and
Sanders, Morris & Mundy as party to one or more of the lease amendments
described below) (the "TENANT").
WITNESSETH
WHEREAS, by that certain Lease Agreement dated September 22,
1987 (the "ORIGINAL LEASE") Landlord leased to Tenant approximately 8,064
square feet of net rentable area of office space located on Floor 31 (the
"EXISTING PREMISES") of the building known as Texas Commerce Tower located at
600 Travis Street in Houston, Harris County, Texas (the "BUILDING"), all as is
more fully described in the Lease; and
WHEREAS, by that certain Guaranty dated September 22, 1987
(the "ORIGINAL GUARANTY") Donald A. Sanders, Ben T. Morris and John I. Mundy
(collectively, the "ORIGINAL GUARANTORS") guaranteed the performance of
Tenant's obligations under the Original Lease; and
WHEREAS, by that certain Guaranty of Lease Obligations dated
April 20, 1992 (the "FOURTH AMENDMENT GUARANTY") the Original Guarantors and
George L. Ball (collectively, the "EXISTING GUARANTORS") guaranteed the
performance of Tenant's obligations under the Original Lease from and after
the date of the Fourth Amendment (as defined below); and
WHEREAS, Landlord and Tenant have amended the Original Lease
pursuant to the following instruments: (i) First Amendment to Lease Agreement
dated October 26, 1990 (the "FIRST AMENDMENT"); (ii) Second Amendment to Lease
Agreement dated December 1, 1990 (the "SECOND AMENDMENT"); (iii) Third
Amendment to Lease Agreement dated May 21, 1991 (the "THIRD AMENDMENT"); (iv)
Fourth Amendment to Lease Agreement dated April 20, 1992 (the "FOURTH
AMENDMENT"); and (v) Fifth Amendment to Lease Agreement dated July 25, 1994
(the "FIFTH AMENDMENT") (the Original Lease, as amended by the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment and
the Fifth Amendment is herein referred to as the "LEASE"); and
WHEREAS, the current area of the Existing Premises is 17,691
square feet of net rentable area and the existing Lease term is scheduled to
expire on November 30, 1997; and
WHEREAS, Landlord and Tenant desire to further amend the
Lease, to provide, among other things, for an additional expansion of the
Existing Premises and extension of the Lease term by Tenant and Landlord is
willing to agree to such an amendment upon the terms and conditions as set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree to amend, and do hereby amend, the Lease as follows:
1. EXPANSION OF LEASED PREMISES. Subject to and upon the
terms, provisions and conditions hereinafter set forth and each in
consideration of the duties, covenants and obligations of the other hereunder,
Landlord does hereby lease to Tenant and Tenant does hereby lease from
Landlord an additional 4,382 square feet of net rentable area on Floor 31 of
the Building (the "FLOOR 31 EXPANSION PREMISES") and 9,450 square feet of net
rentable area on Floor 28 of the Building (the "FLOOR 28 EXPANSION PREMISES")
as reflected on the floor plans of the Floor 31 Expansion Premises and the
Floor 28 Expansion Premises attached hereto and made a part hereof for all
purposes as EXHIBIT A (the Floor 31 Expansion Premises and the Floor 28
Expansion Premises are sometimes collectively referred to herein as the
"EXPANSION PREMISES").
1
<PAGE>
2. EXPANSION PREMISES COMMENCEMENT DATE. Subject to and
upon the terms and conditions set forth in this Sixth Amendment, the term of
the Lease with respect to the Expansion Premises shall commence on the
expiration of the sixtieth (60th) day following Landlord's delivery of
possession of the Expansion Premises to Tenant for construction of leasehold
improvements desired by Tenant (the "EXPANSION PREMISES COMMENCEMENT DATE")
and shall terminate on the termination date of the Lease. Upon request of
Landlord at any time after the Expansion Premises Commencement Date, Tenant
shall execute and deliver to Landlord a declaration (in a form provided by
Landlord) specifying the Expansion Premises Commencement Date.
3. NET RENTABLE AREA. Article I, Paragraph 1 of the Lease
is hereby amended to provide that from and after the Expansion Premises
Commencement Date, the "leased premises" and the "net rentable area" of the
leased premises shall be stipulated to be 31,523 square feet, comprised of
9,450 square feet of net rentable area on Floor 28 and 22,073 square feet of
net rentable area on Floor 31 of the Building. The Existing Premises and the
Expansion Premises are sometimes collectively referred to as the "LEASED
PREMISES".
4. EXTENSION OF LEASE TERM. Subject to and upon the
terms, provisions and conditions set forth herein and each in consideration of
the duties, covenants and obligations of the other hereunder the term of the
Lease is hereby extended for an additional period of sixty (60) months
commencing December 1, 1997 and terminating November 30, 2002 (the "RENEWAL
TERM").
5. RENT.
(a) From the date hereof and continuing through November
30, 1997 Base Rental payable by Tenant with respect to the Existing Premises
shall continue to be paid by Tenant at the rate provided for in Article II,
Paragraph 4 of the Lease. Tenant shall also continue to pay Lessee's
Additional Rental, Lessee's Forecast Additional Rental and all other sums
payable by Tenant with respect to the Existing Premises during such period on
the terms and conditions set forth in the Lease.
(b) Effective as of the Expansion Premises Commencement
Date and continuing through November 30, 1997 Base Rental payable by Tenant
with respect to the Expansion Premises only shall be equal to $9.00 net per
square foot of net rentable area within the Expansion Premises per year
payable monthly as provided in Article II of the Lease. Tenant shall also pay
Lessee's Additional Rental, Lessee's Forecast Additional Rental and all other
sums payable by Tenant with respect to the Expansion Premises during such
period on the terms and conditions set forth in the Lease.
(c) Base Rental payable by Tenant pursuant to Article II,
Paragraph 4 of the Lease with respect to the entire Leased Premises during the
Renewal Term shall be determined according to the following schedule:
<TABLE>
<CAPTION>
RENTAL PERIOD ANNUAL BASE RENTAL RATE
------------- -----------------------
<S> <C>
December 1, 1997 - November 30, 1998 $9.00 net
December 1, 1998 - November 30, 2000 $10.00 net
December 1, 2000 - November 30, 2002 $11.00 net
</TABLE>
The Base Rental rates are quoted per square foot of net rentable area within
the Leased Premises per annum. Tenant shall also pay Lessee's Additional
Rental, Lessee's Forecast Additional Rental and all other sums payable by
Tenant with respect to the Leased Premises during the Renewal Term on the
terms and conditions set forth in the Lease.
6. CONDITION OF THE EXPANSION PREMISES. Landlord agrees
to deliver the Expansion Premises to Tenant in its current condition, i.e.,
"AS IS" and "WITH ALL FAULTS". Tenant will have the right to construct and
install the leasehold improvements and tenant finish desired by Tenant in the
Expansion Premises in accordance with, and subject to the limitations and
conditions set forth in Section 7 of this Sixth Amendment and in the Lease.
Landlord and Tenant each agree that this document constitutes the entire
agreement of the parties and there were no verbal representations, warranties
or understandings pertaining to this Sixth Amendment. TENANT FURTHER
ACKNOWLEDGES AND AGREES THAT LANDLORD DOES HEREBY DISCLAIM ANY AND ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE OF FITNESS
2
<PAGE>
FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE EXISTING PREMISES, THE EXPANSION
PREMISES AND/OR THE IMPROVEMENTS LOCATED THEREIN.
7. LEASEHOLD IMPROVEMENTS. Tenant will have the right to
construct and install the leasehold improvements and tenant finish desired by
Tenant in the Leased Premises (collectively, the "LEASEHOLD IMPROVEMENTS") in
accordance with, and subject to the limitations and conditions set forth in
the Lease and in this Section 7.
(a) All plans and specifications, construction drawings,
and proposed contractors and subcontractors must be approved by Landlord in
writing prior to the commencement of construction of the Leasehold
Improvements (such approval not to be unreasonably withheld). Evidence of
property, liability and worker's compensation insurance acceptable to Landlord
as to insurer, policy terms and coverage (which, as to property and liability
insurance policies, may include, without limitation, naming Landlord as
additional insured) must be submitted to Landlord as a condition to Landlord's
granting its approval of any proposed contractors.
(b) Tenant shall not be deemed to be the agent or
representative of Landlord in making the Leasehold Improvements, and shall
have no right, power or authority to encumber the fee interest in the Building
or the land on which it is located. Accordingly, any claims against Tenant
with respect to the Leasehold Improvements shall be limited to Tenant's
leasehold estate under this Lease. Should any mechanic's or other liens be
filed against the Leased Premises, the Building or any other property of
Landlord or any interest therein by reason of Tenant's acts or omissions or
because of a claim against Tenant or Tenant's general contractor or
subcontractors, Tenant shall cause same to be canceled or discharged of record
by bond or otherwise within ten (10) days after notice by Landlord. If Tenant
shall fail to cancel or discharge said lien or liens, within said ten (10) day
period (which failure shall be deemed to be a default hereunder), Landlord
may, in addition to any other remedy of Landlord hereunder or at law, cancel
or discharge same and Tenant shall promptly reimburse Landlord upon demand,
for all costs incurred in canceling or discharging such lien or liens
(including, without limitation, reasonable legal fees).
(c) All Tenant's Work shall be performed in a good and
workmanlike manner in accordance with good industry practice, and shall comply
in all respects with applicable Federal, State, City and County statutes,
ordinances, regulations, laws and codes. All required building and other
permits in connection with the construction and completion of the Leasehold
Improvements shall be obtained and paid for by Tenant.
(d) Upon completion of the Leasehold Improvements, Tenant
shall deliver to Landlord one set of the "as-built" plans and specifications
for the Leased Premises on a diskette in AUTOCAD or compatible format.
(e) Landlord agrees to provide Tenant the following
allowances (the "ALLOWANCES") in connection with the construction of the
Leasehold Improvements:
(i) an allowance (the "CONSTRUCTION ALLOWANCE") of up to
$77,255.50, which may only be applied to the payment of the costs and
expenses of the design, construction and installation of the Leasehold
Improvements;
(ii) upon Tenant's request, an additional allowance (the
"ADDITIONAL CONSTRUCTION ALLOWANCE") in an amount up to $110,365.00,
should the cost to construct the Leasehold Improvements exceed the
Construction Allowance. Tenant shall not be entitled to any unused
portion of the Additional Construction Allowance.
The Allowances shall be funded within thirty (30) days after Landlord's
receipt of Tenant's written request therefor, accompanied by a final lien
waiver from Tenant's general contractor and each of the subcontractors
designated by Landlord, the AUTO-CAD diskette of the "as-built" plans and
specifications for the Leased Premises and reasonable supporting detail for
the costs incurred by Tenant; provided, however, that if Tenant shall be in
default under the Lease at the time Landlord receives such request, Landlord
shall not be obligated to fund the Allowances unless and until such default is
cured by Tenant. If the total costs of the Leasehold Improvements exceed the
sum of the Construction Allowance and the Additional Construction Allowance,
the excess shall be at Tenant's sole cost and expense.
3
<PAGE>
Should Tenant utilize all or any portion of the Additional
Construction Allowance, the Base Rental rate shall be increased by the amount
necessary to fully amortize the amount of such Additional Construction
Allowance utilized by Tenant at the rate of ten percent (10%) per annum
accruing from the period commencing upon funding by Landlord of that portion
of the Additional Construction Allowance utilized by Tenant and expiring upon
termination of the Renewal Term.
(f) In the event Tenant requests Landlord to contract for
the construction and installation of any portion of the Leasehold Improvements
on behalf of Tenant, Landlord shall supervise the construction of that portion
of Leasehold Improvements and Tenant agrees to pay Landlord a reasonable
construction management fee in an amount not to exceed ten percent (10%) of
the total construction costs of that portion of the Leasehold Improvements
performed by Landlord's contractor. In the event Tenant elects to engage
Landlord to install any portion of the Leasehold Improvements, Landlord shall
obtain no less than four (4) bids from general contractors mutually selected
by Landlord and Tenant, following which Landlord and Tenant shall mutually
select one general contractor to perform the Leasehold Improvements.
(g) Landlord shall provide freight elevator service for
Tenant's contractors on an "as-needed" basis at no charge; provided such usage
is scheduled with Landlord in advance upon at least one day's prior written
notice.
(h) Tenant shall do structural work, coring, drilling and
chipping, after normal business hours but shall have the right to construct
all other Leasehold Improvements at any hour. If at any time the entry by or
presence of one or more persons furnishing labor or materials for the
Leasehold Improvements shall cause disharmony or interference with the other
tenants in the Building or the operation of the Building, any consent granted
by Landlord with respect to the disruptive contractor or subcontractor may be
withdrawn following twenty-four (24) hours' written notice to Tenant if such
disharmony or interference is not cured within such twenty-four (24) hour
period; provided however, Landlord shall have the right at all times to
immediately terminate any particular activity or activities of Tenant or its
employees, agents, or contractors which, in Landlord's reasonable judgment,
(i) causes unreasonable interference with other Building tenants' usage of the
Building, or (ii) poses an immediate threat of damage or injury to persons or
property in or around the Building. Landlord shall have the right at all times
to inspect the Leasehold Improvements. The Leasehold Improvements shall be
performed so as not to alter the exterior appearance of the Building and so as
not to adversely affect the structure or safety or systems or services of the
Building or those of the other tenants therein, and shall comply in all
material respects with all governmental codes (including, without limitation,
building, health, safety and fire codes) and with all other governmental and
insurance requirements.
8. SPRINKLERING OF FLOOR 31 EXPANSION PREMISES.
Notwithstanding anything to the contrary contained herein, Landlord, at
Landlord's sole expense shall provide full sprinklering of the Floor 31 in
accordance with the Building standard sprinklering configuration and utilizing
Building standard equipment in accordance with applicable building codes to be
completed at some time during calendar year 1997. Landlord agrees that all
sprinklering work shall be performed outside normal Building business hours.
9. PREFERENTIAL LEASE RIGHTS.
(a) EXPANSION OPTION.
(i) Subject to and upon the terms, provisions and
conditions set forth in this Section 9(a), Tenant shall have, and is
hereby granted, a one-time option (the "EXPANSION OPTION") to lease
those certain premises designated by Landlord (hereinafter sometimes
called the "ADDITIONAL EXPANSION PREMISES") located on any single
floor selected by Landlord located between Floors 24 through 35 of
the Building and consisting of approximately 3,000 square feet of net
rentable area (+/-10%), by written notice to Landlord exercised by
Tenant within ten (10) days following the expiration of the thirtieth
(30th) month following the Expansion Premises Commencement Date. If
Tenant does not exercise the Expansion Option on or prior to such
date, the Expansion Option shall be waived.
(ii) The Expansion Option may be exercised only if, at the
time of such exercise no event of default under the Lease exists
(unless Landlord, in its sole discretion, elects to waive such
condition). If such condition is not satisfied or waived by Landlord,
any purported exercise thereof shall be null and void.
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(iii) If Tenant elects to exercise the Expansion Option, the
Additional Expansion Premises shall be subject to all of the terms,
covenants and conditions of this Lease except that the Base Rental
with respect to the Additional Expansion Premises shall be the Market
Base Rental Rate as determined by Landlord in accordance with the
Lease. Tenant's obligation to pay rental for the Additional Expansion
Premises shall commence on the date (the "ADDITIONAL EXPANSION RENTAL
COMMENCEMENT DATE") that is the thirtieth (30th) day following
Landlord's delivery of possession of the Additional Expansion
Premises to Tenant for construction of Leasehold Improvements desired
by Tenant.
(iv) If Tenant elects to lease the Additional Expansion
Premises, Landlord will furnish the Additional Expansion Premises to
Tenant, and Tenant will accept the Additional Expansion Premises, in
its then current condition (I.E. "AS IS" and "WITH ALL FAULTS").
(v) Upon request of Landlord at any time after the
Additional Expansion Rental Commencement Date, Tenant shall execute
and deliver to Landlord a declaration (in a form provided by
Landlord) specifying (i) the Additional Expansion Rental Commencement
Date, (ii) the Base Rental schedule for the Additional Expansion
Premises and (iii) the net rentable area of the Additional Expansion
Premises.
(b) PREFERENTIAL LEASE RIGHT.
(i) Subject to and upon the terms, provisions and
conditions set forth in this Section 9(b), Tenant shall have, and is
hereby granted from and after the date hereof throughout the Renewal
Term, a preferential right to lease (the "PREFERENTIAL RIGHT") those
certain premises consisting of approximately 11,787 square feet of
net rentable area located on Floor 28 of the Building that is then or
may become available for lease (the "PREFERENTIAL PREMISES"). A floor
plan of the Preferential Premises is attached to this Sixth Amendment
as EXHIBIT B.
(ii) Tenant may exercise a Preferential Right only if, at
the time of such exercise, no event of default under the Lease exists
(unless Landlord, in its sole discretion, elects to waive such
condition). If such condition is not satisfied or waived by Landlord,
any purported exercise thereof shall be null and void.
(iii) Should the Preferential Premises becomes available for
Lease, Landlord shall promptly deliver to Tenant written notice of
such availability and proposed terms for lease of the Preferential
Premises (a "LEASE PROPOSAL"). Tenant shall have a period of ten (10)
days after receipt of a Lease Proposal to irrevocably and
unconditionally exercise its Preferential Right to lease the
Preferential Premises upon the terms of the Lease Proposal by written
notice to Landlord. Any purported conditional or qualified exercise
of a Preferential Right shall be null and void. Upon Tenant's
exercise of a Preferential Right, Landlord and Tenant shall negotiate
at Landlord's election either (x) a new lease of the Preferential
Premises in substantially the same form as this Lease, modified as
necessary to reflect the terms of the Lease Proposal or (y) an
amendment to the Lease incorporating the terms of the Lease Proposal.
(iv) If Landlord does not receive written notice from Tenant
of its exercise of the Preferential Right within said ten (10) day
period, Landlord shall have a period of one hundred eighty (180) days
thereafter to lease the Preferential Premises for an effective rental
rate not less than 90% of the effective rental rate reflected by the
Lease Proposal, and without material change to the other terms and
conditions set forth therein. If Landlord does not lease the
Preferential Premises within said one hundred eighty (180) day period,
Tenant shall have a Preferential Right on any subsequent leasing
thereof the terms set forth above.
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(c) RIGHT OF FIRST REFUSAL.
(i) Subject to and upon the terms, provisions and
conditions set forth in this Section 9(c), Tenant shall have, and is
hereby granted, a one-time right of first refusal (the "RIGHT OF
FIRST REFUSAL") from and after the date hereof throughout the Renewal
Term to lease those certain premises (hereinafter sometimes called
the "ROFR PREMISES") located on Floor 28 of the Building and
consisting of approximately 1,045 square feet of net rentable area,
as reflected on the floor plan attached hereto and made a part hereof
for all purposes as EXHIBIT B.
(ii) Tenant may exercise the Right of First Refusal only if,
at the time of such exercise, no event of default under the Lease
exists (unless Landlord, in its sole discretion, elects to waive such
condition). If such condition is not satisfied or waived by Landlord,
any purported exercise thereof shall be null and void.
(iii) If Landlord submits a proposal to lease the ROFR
Premises to any third party, which proposal is accepted by any such
third party, Landlord will submit the signed proposal to Tenant(a
"LEASE PROPOSAL"). Tenant shall have a period of ten (10) days after
receipt of a Lease Proposal to irrevocably and unconditionally
exercise the Right of First Refusal to lease the ROFR Premises upon
the terms of the Lease Proposal by written notice to Landlord. Any
purported conditional or qualified exercise of the Right of First
Refusal shall be null and void. Upon Tenant*s exercise of the Right
of First Refusal, Landlord and Tenant shall negotiate at Landlord's
election either (x) a new lease of the applicable ROFR Premises in
substantially the same form as the Lease, modified as necessary to
reflect the terms of the Lease Proposal or (y) an amendment to the
Lease incorporating the terms of the Lease Proposal. Failure of
Tenant to timely exercise the Right of First Refusal within such ten
(10) day period shall render the Right of First Refusal null and void.
(d) Tenant acknowledges and agrees that the Expansion
Option, the Preferential Right and the Right of First Refusal is subject and
subordinate to any and all preferential rights, renewal options, expansion
options, and refusal rights of existing tenants in the Building and future
tenants of space included within the Preferential Premises or ROFR Premises
for which Tenant did not exercise a Preferential Right or Right of First
Refusal, as applicable. To Landlord's actual knowledge after reasonable
investigation, Landlord warrants that as of the date of this Sixth Amendment
existing tenants of the Building with lease rights superior to those of Tenant
include Texas Commerce Bank National Association and Liddell, Sapp, Zivley,
Hill and LaBoon L.L.P.
10. BROKERAGE COMMISSION. Landlord has agreed to pay to
Trione & Gordon, Inc. a real estate brokerage commission as set forth in a
separate commission agreement between Landlord and such broker. Each party
hereby represents and warrants to the other that it has not employed any other
agents, brokers, or other parties in connection with this Sixth Amendment, and
each party agrees to hold the other party harmless form and against any and
all claims of all other agents, brokers and/or other such parties claiming by
or through it.
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11. GARAGE AND BUILDING PARKING RIGHTS.
(a) Landlord hereby agrees to make available to Tenant,
and Tenant hereby agrees to take and pay for, from and after the Expansion
Premises Commencement Date and throughout the Renewal Term, permits to park,
at Tenant's expense, nine (9) automobiles (hereinafter called the "BUILDING
PARKING PERMITS") in assigned spaces on the basement parking levels of the
Building (the "TCT GARAGE") upon the terms and conditions of this Section 11.
Landlord also agrees to make available to Tenant, and Tenant hereby agrees to
take and pay for, from and after the Expansion Premises Commencement Date and
throughout the Renewal Term permits to park up to twenty-six (26) automobiles
(the "GARAGE PARKING PERMITS") in the parking garage (the "TCC GARAGE") in
Texas Commerce Center located on Block 68, South Side Buffalo Bayou, City of
Houston, Harris County, Texas, upon the terms and conditions of this Section
11. Six (6) of the Garage Parking Permits shall be for reserved parking spaces
and twenty (20) of the Garage Parking Permits shall be unreserved parking
spaces. In addition to the Building Parking Permits and the Garage Parking
Permits, Landlord hereby agrees to make available to Tenant from and after the
Expansion Premises Commencement Date and throughout the Renewal Term permits
to park, at Tenant's expense up to thirty (30) additional automobiles in
unassigned parking areas in the TCC Garage (the "ADDITIONAL PARKING PERMITS").
The Garage Parking Permits, the Additional Garage Parking Permits and Building
Parking Permits are collectively referred to herein as the "PARKING PERMITS".
The TCT Garage and the TCC Garage are collectively referred to herein as the
"GARAGE").
(b) During the term of this Lease, Tenant may surrender
any Additional Garage Parking Permits and when surrendered, (i) Tenant shall
have no further obligation to pay for such surrendered Additional Garage
Parking Permits, and (ii) Landlord shall have no further obligation to make
the number of surrendered Additional Garage Parking Permits available to
Tenant for lease (except on an "as available" basis).
(c) Tenant will pay the monthly rental for each of the
Parking Permits (i) as to the Garage Parking Permits and the Additional Garage
Parking Permits, the posted rates established by the operator of the TCC
Garage from time to time for reserved parking and unassigned parking, as
applicable, in the TCC Garage, and (ii) as to the Building Parking Permits,
the posted rate established by Landlord from time to time for assigned parking
in the TCT Garage. The rentals for the Parking Permits shall constitute rent
and shall be due and payable in advance on the first day of each calendar
month. If the Expansion Premises Commencement Date occurs on other than the
first day of a calendar month or terminates on other than the last day of a
calendar month, then rentals for the Parking Permits shall be prorated on a
daily basis.
(d) If the parking spaces covered by any of the Parking
Permits are not available or become unavailable to Tenant (due to causes
beyond the reasonable control of Landlord) during any portion of the term of
this Lease, Landlord shall use good faith efforts to make available to Tenant
alternate parking spaces located reasonably near the Building until the
parking spaces covered by the Parking Permits are made available to Tenant. In
such event Tenant's obligation to pay for Parking Permits shall be limited to
those actually provided to Tenant by Landlord. Tenant's use of the Parking
Permits shall be subject to such rules and regulations as may be promulgated
by the operator of the applicable Garage from time to time.
(e) Upon the occurrence of an event of default under the
Lease, Landlord shall have the right (in addition to all other rights,
remedies and recourse hereunder and at law) to suspend any or all of the
Parking Permits without prior notice or warning to Tenant.
12. RENEWAL OPTIONS.
(a) Tenant shall have options (a "RENEWAL OPTION") to
renew and extend the term of the Lease for two (2) additional periods of five
(5) years each (the "ADDITIONAL RENEWAL TERMS"). A Renewal Option may only be
exercised by Tenant giving written notice thereof no more than twelve (12)
months nor less than nine (9) months prior to the expiration of the Renewal
Term, or the first Additional Renewal Term, as applicable. If Tenant fails to
give notice of exercise of the applicable Renewal Option within such specified
time period, such Renewal Option shall be deemed waived and of no further
force and effect. The exercise of the second Renewal Option is conditioned
upon Tenant's extension of the Lease term pursuant to the first Renewal Option.
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(b) Tenant's right to extend the Lease as provided for
herein can be exercised only if, at the time of such exercise and upon the
commencement of the applicable Additional Renewal Term, (a) no event of
default then exists under the Lease, and (b) Tenant is in possession of at
least eighty percent (80%) of the entire Leased Premises (unless Landlord, in
its sole discretion, elects to waive either such condition). If either of such
conditions are not satisfied or waived by Landlord, the applicable Renewal
Option shall be terminated and of no further force and effect, any purported
exercise thereof shall be null and void, and the Lease shall terminate upon
the expiration of the then current term.
(c) If Tenant shall exercise a Renewal Option (in
accordance with and subject to the provisions of this Section 12), all of the
terms, covenants and conditions provided in the Lease shall continue to apply
during the applicable Additional Renewal Term, except that (i) the Base Rental
during the applicable Additional Renewal Term shall be the then Market Base
Rental Rate as determined for the Leased Premises in accordance with the
definition of "Market Base Rental Rate" contained in the Lease, (ii) Tenant
shall have no option to renew the Lease beyond the expiration of the second
Additional Renewal Term, (iii) Tenant shall have no right to assign its
renewal rights to any sublessee of the Leased Premises or assignee of the
Lease, (iv) the Leased Premises will be provided to Tenant in its existing
condition (on an "as is" basis) at the time each Additional Renewal Term
commences and (v) any terms, covenants and conditions that are expressly or by
their nature inapplicable to any such Additional Renewal Term (including,
without limitation, this Section 12) shall be deemed void and of no further
force and effect.
13. GUARANTY. As an inducement to Landlord to execute this
Sixth Amendment and as a condition to such execution by Landlord, the Existing
Guarantors shall execute and deliver a new guarantee (the "SIXTH AMENDMENT
GUARANTY") of the payment and performance of all liabilities, obligations and
duties imposed upon Tenant by the terms of the Lease from and after the date
hereof and throughout the Renewal Term (and Additional Renewal Terms, if
applicable) in the form of EXHIBIT C attached hereto. From and after the date
of execution of the Sixth Amendment Guaranty by all Guarantors, the Original
Guaranty shall terminate and be of no further force and effect. The Fourth
Amendment Guaranty shall continue to be effective to the extent provided in
the Sixth Amendment Guaranty.
14. MISCELLANEOUS.
(a) AMENDMENT TO LEASE. Tenant and Landlord acknowledge
and agree that the Lease has not been amended or modified in any respect,
other than by this Sixth Amendment and there are no other agreements of any
kind currently in force and effect between Landlord and Tenant with respect to
the Leased Premises or the Building. The term "Lease" shall mean the Lease as
amended by this Sixth Amendment unless the context requires otherwise.
(b) COUNTERPARTS. This Sixth Amendment may be executed in
multiple counterparts, and each counterpart when fully executed and delivered
shall constitute an original instrument, and all such multiple counterparts
shall constitute but one and the same instrument.
(c) ENTIRE AGREEMENT. This Sixth Amendment sets forth all
covenants, agreements and understandings between Landlord and Tenant with
respect to the subject matter hereof and there are no other covenants,
conditions or understandings, either written or oral, between the parties
hereto except as set forth in this Sixth Amendment.
(d) FULL FORCE AND EFFECT. Except as expressly amended
hereby, all other items and provisions of the Lease, as amended, remain
unchanged and continue to be in full force and effect.
(e) CONFLICTS. The terms of this Sixth Amendment shall
control over any conflicts between the terms of the Lease and the terms of
this Sixth Amendment.
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(f) AUTHORITY OF TENANT. Tenant warrants and represents
unto Landlord that (i) Tenant is a duly organized and existing legal entity,
in good standing in the State of Texas, (ii) Tenant has full right and
authority to execute, deliver and perform this Sixth Amendment; (iii) the
persons executing this Sixth Amendment were authorized to do so and (iv) upon
request of Landlord, such persons will deliver to Landlord satisfactory
evidence of their authority to execute this Sixth Amendment on behalf of
Tenant.
(g) CAPITALIZED TERMS. Capitalized terms not defined
herein shall have the same meanings attached to such terms under the Lease.
(h) SUCCESSORS AND ASSIGNS. This Sixth Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
Executed as of the date first written above.
LANDLORD
TEXAS TOWER LIMITED
By: PRIME ASSET MANAGEMENT, INC.,
its general partner
By: /s/ J. Mark Russell
-------------------------------------
Title: Asset Manager
TENANT
SANDERS MORRIS MUNDY INC.
By: /s/ John I. Mundy
-------------------------------------
Title: Executive Vice President
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EXHIBIT A
FLOOR PLAN OF EXPANSION PREMISES
EXHIBIT B
FLOOR PLAN OF PREFERENTIAL PREMISES AND ROFR PREMISES
EXHIBIT C
LEASE GUARANTY AGREEMENT
Section 1. GUARANTY. THIS LEASE GUARANTY AGREEMENT (this
"Guaranty"), dated as of September 25, 1996, is executed by the undersigned
(herein together with the undersigned's successors and assigns collectively
called the "Guarantors") in favor of Texas Tower Limited, a Texas limited
partnership (the "Lessor"), as follows:
RECITALS:
WHEREAS, Lessor and Sanders Morris Mundy Inc., a Texas
corporation (herein together with any permitted assignee of or successor to
Lessee's interest under the Lease (hereinafter defined) called the "Lessee")
entered into that certain Lease Agreement (the "Original Lease") dated as of
September 22, 1987, wherein Lessee leased approximately 8,064 square feet of
Net Rentable Area (as defined in the Lease) on Floor 31 in the building known
as Texas Commerce Tower in United Energy Plaza (the "Building") and situated
on Block 67, S.S.B.B., in Houston, Harris County, Texas (the "Leased
Premises"); and
WHEREAS, as an inducement for Lessor to enter into the
Original Lease, Donald A. Sanders, Ben T. Morris and John I. Mundy
(collectively, the "Original Guarantors") executed that certain Guaranty dated
as of September 22, 1987 (the "Original Guaranty") in favor of Lessor,
guaranteeing the full and faithful payment and performance of each and every
of Lessee's obligations under the Original Lease, as the same was amended from
time to time; and
WHEREAS, Lessor and Lessee have amended the Original Lease
pursuant to the following instruments: (i) First Amendment to Lease Agreement
dated October 26, 1990 (the "First Amendment"); (ii) Second Amendment to Lease
Agreement dated December 1, 1990 (the "Second Amendment"); (iii) Third
Amendment to Lease Agreement dated May 21, 1991 (the "Third Amendment"); (iv)
Fourth Amendment to Lease Agreement dated April 20, 1992 (the "Fourth
Amendment") and (v) Fifth Amendment to Lease Agreement dated July 25, 1994
(the "Fifth Amendment"); and
WHEREAS, by that certain Guaranty of Lease Obligations dated
April 20, 1992 (the "Fourth Amendment Guaranty") the Original Guarantors and
George L. Ball (collectively, the "Existing Guarantors") guaranteed the
performance of Lessee's obligations under the Original Lease from and after
the date of the Fourth Amendment; and
WHEREAS, Lessor and Lessee are, this day, entering into that
certain Sixth Amendment to Lease Agreement (the "Sixth Amendment") whereby
Lessor and Lessee are further modifying the terms of the Original Lease (the
Original Lease, as amended by the terms of the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and
the Sixth Amendment and as the same may be further amended or supplemented
from time to time, being hereinafter referred to as the "Lease"); and
WHEREAS, Guarantors are executing and delivering this
Guaranty in order to induce the Lessor to execute the Sixth Amendment.
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NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged and confessed, and in consideration of the premises
and intending to be legally bound by this Guaranty, Guarantors hereby agree
with the Lessor as follows:
Section 1. GUARANTY. Guarantors hereby jointly, severally
and unconditionally guarantee to Lessor and its successors or assigns (subject
to the provisions of Section 4 below) the full and punctual payment when due
of all sums due and owing or to become due and owing by Lessee under the Lease
from and after the date hereof (the "Guaranteed Obligations").
Section 2. TERM. The obligations of Guarantors as to the
Guaranteed Obligations shall continue in full force and effect against
Guarantors until the earlier to occur of (i) the date that all Guaranteed
Obligations have been paid in full or (ii) the date of payment by Guarantors
of the amount of Guarantors' maximum liability under Section 4 hereof,
provided that no default under the Lease has occurred or is then continuing at
such time. This Guaranty covers any and all of the Guaranteed Obligations,
whether presently outstanding or arising subsequent to the date hereof. This
Guaranty is binding upon and enforceable against Guarantors and their
respective successors and assigns.
Section 3. BENEFIT TO GUARANTOR. Guarantors hereby represent
and warrant to Lessor that Guarantors are the sole shareholders of Lessee, and
accordingly will receive direct benefit from the making of this Guaranty.
Section 4. LIMITATION OF LIABILITY OF GUARANTORS. The
aggregate liability of Guarantors for the payment of the Guaranteed
Obligations shall be limited to an amount equal to the sum of (a) $200,000 and
(b) the amount of all costs and expenses incurred by Lessor for which the
Guarantors are liable pursuant to Section 8 below ("Section 8 Costs"). With
respect to the personal liability of each individual Guarantor, (i) the
personal liability of Donald A. Sanders under this Guaranty shall not exceed
$200,000.00 plus his proportionate share, if any, of any Section 8 Costs; and
(ii) the personal liability of each Guarantor other than Donald A. Sanders
(whose liability shall be governed by (i) above) shall not exceed one and
one-half (1 1/2) times the sum or amount then owed to Lessor under the Lease
multiplied by the percentage ownership interest in Lessee that the applicable
Guarantor owns as of the date of this Guaranty (which percentage ownership
interest is set forth next to such Guarantor's signature below); provided,
however, the joint and several aggregate liability of all Guarantors' personal
liability hereunder, including Donald A. Sanders, shall not exceed $200,000.00
plus any Section 8 Costs. Notwithstanding the foregoing, Guarantors' liability
for the payment of the Guaranteed Obligations shall be reduced (dollar for
dollar) by the amount of each timely rental payment Lessee makes pursuant to
the Lease.
Section 5. WAIVER OF RIGHTS. Guarantors hereby waive (a)
notice of acceptance hereof (which acceptance is conclusively presumed by
delivery to Lessor); (b) grace, demand, presentment and protest with respect
to the Guaranteed Obligations or to any instrument, agreement or document
evidencing or creating same; (c) notice of grace, demand, presentment protest,
non-payment or other defaults; (d) notice of and/or any right to consent or
object to the assignment of any interest in the Lease or the Guaranteed
Obligations; (e) the renewal, extension, amendment and/or modification of any
of the terms and provisions of the Lease; (f) filing of suit and diligence by
Lessor in collection or enforcement of the Guaranteed Obligations; and (g) any
other notice regarding the Guaranteed Obligations. Guarantors specifically
waive any requirements imposed by Chapter 34 of the Texas Business and
Commerce Code.
Section 6. PRIMARY LIABILITY OF GUARANTORS. Guarantors agree
that Lessor is not required, as a condition to establishing Guarantors'
liability hereunder, to proceed against any person (including, without
limitation, Lessee or any other guarantor). Guarantors hereby expressly waive
any right or claim to force Lessor to proceed first against Lessee or any
other guarantor as to any of the Guaranteed Obligations or other obligations
of Lessee, and agrees that no delay or refusal of Lessor to exercise any right
or privilege which Lessor has or may have against Lessee, whether arising from
any documents executed by Lessee, any common law, applicable statute or
otherwise, shall operate to impair the liability of Guarantors hereunder. The
obligations of the Guarantors hereunder shall not be reduced, impaired or in
any way affected by: (a) receivership, insolvency, bankruptcy or other
proceedings affecting the Lessee or any of the Lessee's assets; (b)
receivership, insolvency, bankruptcy or other proceedings affecting any
Guarantor or any Guarantor's assets; (c) any allegation of fraud, usury,
failure of consideration, forgery or other defense, whether or not known to
Lessor (even though rendering all or any part of the Guaranteed Obligations
void or unenforceable or uncollectible as against Lessee or any other
guarantor); or (d) the release or discharge of Lessee from the Lease or any of
the Guaranteed Obligations or any other indebtedness of the
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Lessee to Lessor or from the performance of any obligation contained in the
Lease or other instrument issued in connection with, evidencing or securing
any indebtedness guaranteed by this instrument, whether occurring by reason of
law or any other cause, whether similar or dissimilar to the foregoing. This
Guaranty shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by Lessor upon the insolvency, bankruptcy or
reorganization of Lessee or otherwise.
Section 7. SUBORDINATION AND WAIVER OF SUBROGATION. Each
Guarantor hereby fully subordinates the payment of all indebtedness owing to
such Guarantor by Lessee (including principal and interest) to the prior
payment of all indebtedness of Lessee to Lessor (including, without
limitation, interest accruing on any such indebtedness after any insolvency or
reorganization proceeding as to Lessee) and agrees not to accept any payment
on the same until payment in full of the Guaranteed Obligations, and not to
attempt to set off or reduce any obligations hereunder because of such
indebtedness. Until all of the Guaranteed Obligations shall have been paid or
performed in full, Guarantors shall have no right of subrogation or any other
right to enforce any remedy which Lessor now has or may hereafter have against
Lessee.
Section 8. ATTORNEYS' FEES. If it becomes necessary for
Lessor to enforce this Guaranty by legal action, Guarantors hereby waive the
right to be sued in the county or state of any such Guarantor's residence and
agrees to submit to the jurisdiction and venue of the appropriate federal,
state or other governmental court in such county and state of Lessor's office.
Guarantors unconditionally agree to pay Lessor collection expenses including
court costs and reasonable attorneys' fees if enforcement hereof is placed in
the hands of an attorney, including, but expressly not limited to, enforcement
by suit or through probate, bankruptcy or any judicial proceedings.
Section 9. CUMULATIVE RIGHTS. All rights of Lessor hereunder
or otherwise arising under any documents executed in connection with the
Guaranteed Obligations are separate and cumulative and may be pursued
separately, successively or concurrently, or not pursued, without affecting or
limiting any other right of Lessor and without affecting or impairing the
liability of Guarantors.
Section 10. APPLICABLE LAW. This Guaranty shall be governed
by and construed in accordance with the laws of the United States of America
and the State of Texas, and is intended to be performed in accordance with and
as permitted by such laws.
Section 11. JOINT AND SEVERAL LIABILITY. The obligations of
the Guarantors under this Guaranty are joint and several.
Section 12. LESSOR'S ASSIGNS. This Guaranty is intended for
and shall inure to the benefit of Lessor and each and every person who shall
from time to time be or become the owner or holder of all or any part of the
Lease and/or the Guaranteed Obligations, and each and every reference herein
to "Lessor" shall include and refer to each and every successor or assignee of
Lessor at any time holding or owning any part of or interest in any part of
the Lease and/or the Guaranteed Obligations.
Section 13. EFFECT OF PREVIOUS GUARANTY AGREEMENTS. This
Guaranty shall apply prospectively from the date hereof with respect to the
Lease, any extension or renewal thereof and to any holdover following the
expiration of the initial term of the Lease or any extension or renewal
thereof. The Fourth Amendment Guaranty shall apply against the Existing
Guarantors to any default or state of events which, with the passage of time,
the giving of notice, or both, would constitute a default existing as of the
date hereof and for any and all obligations of Lessee accruing prior to the
date hereof. The Original Guaranty is hereby terminated effective as of the
date hereof.
Section 14. ENTIRE AGREEMENT. This Guaranty constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
all prior correspondence, memoranda, agreements or understandings (written or
oral) with respect hereto are merged into and superseded by this Guaranty.
Section 15. MULTIPLE ORIGINALS. This Guaranty may be
executed in multiple counterparts each of which shall constitute an original
agreement as to the party signing same, but all of which shall constitute a
single agreement.
12
<PAGE>
EXECUTED as of September 25, 1996.
"GUARANTORS"
PERCENTAGE OWNERSHIP
OF LESSEE
percent ( %) DONALD A. SANDERS
- ----------------- ------------
percent ( %) BEN T. MORRIS
- ----------------- ------------
percent ( %) JOHN I. MUNDY
- ----------------- ------------
percent ( %) GEORGE L. BALL
- ----------------- ------------
STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
THIS INSTRUMENT was acknowledged before me on the 25 day of
September, 1996, by DONALD A. SANDERS.
Notary Public in and for
the State of Texas
Printed Name of Notary
My Commission Expires:
-------------
13
<PAGE>
SEVENTH AMENDMENT TO LEASE AGREEMENT
THIS SEVENTH AMENDMENT TO LEASE AGREEMENT (this "SEVENTH
AMENDMENT") is made and entered into effective as of the 1st day of January,
1998, by and between TEXAS TOWER LIMITED, a Texas limited partnership (the
"LANDLORD") and SANDERS MORRIS MUNDY INC., a Texas corporation (being one and
the same as Sanders, Morris & Mundy, Inc. and Sanders, Morris & Mundy as party
to one or more of the lease amendments described below) (the "TENANT").
WITNESSETH
WHEREAS, by that certain Lease Agreement dated September 22,
1987 (the "ORIGINAL LEASE") Landlord leased to Tenant approximately 8,064
square feet of net rentable area of office space located on Floor 31 (the
"EXISTING PREMISES") of the building known as Texas Commerce Tower located at
600 Travis Street in Houston, Harris County, Texas (the "BUILDING"), all as is
more fully described in the Lease; and
WHEREAS, Landlord and Tenant have amended the Original Lease
pursuant to the following instruments: (i) First Amendment to Lease Agreement
dated October 26, 1990 (the "FIRST AMENDMENT"); (ii) Second Amendment to Lease
Agreement dated December 1, 1990 (the "SECOND AMENDMENT"); (iii) Third
Amendment to Lease Agreement dated May 21, 1991 (the "THIRD AMENDMENT"); (iv)
Fourth Amendment to Lease Agreement dated April 20, 1992 (the "FOURTH
AMENDMENT"); (v) Fifth Amendment to Lease Agreement dated July 25, 1994 (the
"FIFTH AMENDMENT"); and Sixth Amendment to Lease Agreement dated September 25,
1996 (the "SIXTH AMENDMENT") (the Original Lease, as amended by the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment,
the Fifth Amendment and the Sixth Amendment is herein referred to as the
"LEASE"); and
WHEREAS, the current area of the Existing Premises is 31,523
square feet of net rentable area (consisting of 9,450 square feet of net
rentable area on Floor 28 of the Building and 22,073 square feet of net
rentable area on Floor 31 of the Building), and the existing Lease term is
scheduled to expire on November 30, 2002; and
WHEREAS, Landlord and Tenant desire to further amend the
Lease, to provide, among other things, for an expansion of the Existing
Premises by Tenant, and Landlord is willing to agree to such an amendment upon
the terms and conditions as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree to amend, and do hereby amend, the Lease as follows:
1. EXPANSION OF LEASED PREMISES. Subject to and upon the
terms, provisions and conditions hereinafter set forth and each in
consideration of the duties, covenants and obligations of the other hereunder,
Landlord does hereby lease to Tenant and Tenant does hereby lease from
Landlord an additional 1,100 square feet of net rentable area on Floor 28 of
the Building (the "EXPANSION PREMISES") as reflected on the floor plan of the
Expansion Premises attached hereto and made a part hereof for all purposes as
EXHIBIT A.
2. EXPANSION PREMISES COMMENCEMENT DATE. Subject to and
upon the terms and conditions set forth in this Seventh Amendment, the term of
the Lease with respect to the Expansion Premises shall commence on May 1,
1998, and shall terminate on the termination date of the Lease.
3. NET RENTABLE AREA. Article I, Paragraph 1 of the Lease
is hereby amended to provide that from and after the Expansion Premises
Commencement Date, the "leased premises" and the "net rentable area" of the
leased premises shall be stipulated to be 32,623 square feet, consisting of
10,550 square feet of net rentable area on Floor 28 of the Building, and
22,073 square feet of net rentable area on Floor 31 of the Building. The
Existing Premises and the Expansion Premises are sometimes collectively
referred to as the "LEASED PREMISES".
14
<PAGE>
4. RENT.
(a) Base Rental payable by Tenant pursuant to Article II,
Paragraph 4 of the Lease with respect to the Expansion Premises during the
Lease term shall be determined according to the following schedule:
<TABLE>
<CAPTION>
RENTAL PERIOD ANNUAL BASE RENTAL RATE
------------- -----------------------
<S> <C>
May 1, 1998 - January 31, 1999 $14.00 net
February 1, 1999 - November 30, 2002 $16.00 net
</TABLE>
The Base Rental rates are quoted per square foot of net rentable area within
the Expansion Premises per annum. Tenant shall also pay Lessee's Additional
Rental, Lessee's Forecast Additional Rental and all other sums payable by
Tenant with respect to the Expansion Premises during the Lease term on the
terms and conditions set forth in the Lease.
5. CONDITION OF THE EXPANSION PREMISES. Landlord agrees
to deliver the Expansion Premises to Tenant in its current condition, i.e.,
"AS IS" and "WITH ALL FAULTS". Tenant will have the right to construct and
install the leasehold improvements and tenant finish desired by Tenant in the
Expansion Premises in accordance with, and subject to the limitations and
conditions set forth in Section 7 of the Sixth Amendment and in the Lease
except that the leasehold improvements allowance to be provided to Tenant with
respect to the Expansion Premises shall be governed by Section 7 of this
Seventh Amendment. Landlord and Tenant each agree that this document
constitutes the entire agreement of the parties and there were no verbal
representations, warranties or understandings pertaining to this Seventh
Amendment. TENANT FURTHER ACKNOWLEDGES AND AGREES THAT LANDLORD DOES HEREBY
DISCLAIM ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO THOSE OF FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE EXISTING
PREMISES, THE EXPANSION PREMISES AND/OR THE IMPROVEMENTS LOCATED THEREIN.
6. IMPROVEMENTS ALLOWANCE. Landlord hereby agrees to
provide Tenant an allowance in the amount of $3,300 (the "IMPROVEMENTS
ALLOWANCE") for the design and construction of improvements within the
Expansion Premises only. The Improvements Allowance may be applied to any
costs directly related to the improvement of the Expansion Premises including,
without limitation, architectural and engineering fees, costs of construction
and installation of improvements in the Expansion Premises, installation of
telephone and computer cabling and equipment, etc. The Improvements Allowance
shall be paid to Tenant by Landlord within thirty (30) days of Tenant's
written request therefor, accompanied by a final lien waiver from Tenant's
general contractor and each of the other Tenant's contractors designated by
Landlord, an AUTOCAD diskette of the "as-built" plans and specifications for
the Expansion Premises and reasonable supporting detail for the costs incurred
by Tenant with respect to the Expansion Premises. Should the cost of Tenant's
leasehold improvements to the Expansion Premises exceed the amount of the
Improvements Allowance, Tenant shall pay all such excess costs. In addition,
in the event Tenant requests Landlord to contract for the construction and
installation of any portion of the Expansion Premises improvements on behalf
of Tenant, Landlord shall supervise the construction of that portion of the
Expansion Premises improvements and Tenant agrees to pay Landlord a
construction management fee in an amount equal to five percent (5%) of the
total construction costs of that portion of the Expansion Premises
improvements performed by Landlord's contractor. If Landlord's contractor does
not perform the Expansion Premises improvements, Tenant shall not have to pay
a construction management fee but will have to pay a construction plan review
fee of two percent (2%) of the total construction costs.
7. BROKERAGE COMMISSION. Landlord has agreed to pay to
Trione & Gordon a real estate brokerage commission as set forth in a separate
commission agreement between Landlord and such broker. Tenant hereby
represents and warrants to Landlord that Tenant has not employed any agents,
brokers, or other parties in connection with this Seventh Amendment, and
Tenant agrees to hold Landlord harmless from and against any and all claims of
all agents, brokers and/or other such parties claiming by or through Tenant.
15
<PAGE>
8. MISCELLANEOUS.
(a) AMENDMENT TO LEASE. Tenant and Landlord acknowledge
and agree that the Lease has not been amended or modified in any respect,
other than by this Seventh Amendment, and there are no other agreements of any
kind currently in force and effect between Landlord and Tenant with respect to
the Leased Premises or the Building. The term "Lease" shall mean the Lease as
amended by this Seventh Amendment unless the context requires otherwise.
(b) COUNTERPARTS. This Seventh Amendment may be executed
in multiple counterparts, and each counterpart when fully executed and
delivered shall constitute an original instrument, and all such multiple
counterparts shall constitute but one and the same instrument.
(c) ENTIRE AGREEMENT. This Seventh Amendment sets forth
all covenants, agreements and understandings between Landlord and Tenant with
respect to the subject matter hereof and there are no other covenants,
conditions or understandings, either written or oral, between the parties
hereto except as set forth in this Seventh Amendment.
(d) FULL FORCE AND EFFECT. Except as expressly amended
hereby, all other items and provisions of the Lease, as amended, remain
unchanged and continue to be in full force and effect.
(e) CONFLICTS. The terms of this Seventh Amendment shall
control over any conflicts between the terms of the Lease and the terms of
this Seventh Amendment.
(f) AUTHORITY OF TENANT. Tenant warrants and represents
unto Landlord that (i) Tenant is a duly organized and existing legal entity,
in good standing in the State of Texas, (ii) Tenant has full right and
authority to execute, deliver and perform this Seventh Amendment; (iii) the
persons executing this Seventh Amendment were authorized to do so and (iv)
upon request of Landlord, such persons will deliver to Landlord satisfactory
evidence of their authority to execute this Seventh Amendment on behalf of
Tenant.
(g) CAPITALIZED TERMS. Capitalized terms not defined
herein shall have the same meanings attached to such terms under the Lease.
(h) SUCCESSORS AND ASSIGNS. This Seventh Amendment shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
(i) JOINDER OF GUARANTORS. The undersigned "Guarantors"
under that certain Lease Guaranty Agreement dated September 25, 1996, hereby
join as signatories to this Seventh Amendment for the purpose of granting its
consent to same.
16
<PAGE>
Executed as of the date first written above.
LANDLORD:
TEXAS TOWER LIMITED
By: Prime Asset Management, Inc.,
its general partner
By: /s/ J. Mark Russell
------------------------------
Asset Manager/Vice President
TENANT:
SANDERS MORRIS MUNDY INC.
By: /s/ Ben T. Morris
------------------------------
Title: President
GUARANTORS:
DONALD A. SANDERS
BEN T. MORRIS
GEORGE L. BALL
17
<PAGE>
EXHIBIT A
FLOOR PLAN OF EXPANSION PREMISES
18
<PAGE>
EIGHTH AMENDMENT TO LEASE AGREEMENT
THIS EIGHTH AMENDMENT TO LEASE AGREEMENT (this "EIGHTH
AMENDMENT") is made and entered into as of the 27th day of April, 2000, by and
between TEXAS TOWER LIMITED, a Texas limited partnership (the "LANDLORD") and
SANDERS MORRIS HARRIS INC., a Texas corporation (successor in interest to
Sanders Morris Mundy Inc.) (the "TENANT").
WITNESSETH
WHEREAS, by that certain Lease Agreement dated September 22,
1987 (the "ORIGINAL LEASE") Landlord leased to Tenant approximately 8,064
square feet of net rentable area of office space located on Floor 31 (the
"EXISTING PREMISES") of the building known as Texas Commerce Tower located at
600 Travis Street in Houston, Harris County, Texas (the "BUILDING"), all as is
more fully described in the Lease; and
WHEREAS, Landlord and Tenant have amended the Original Lease
pursuant to the following instruments: (i) First Amendment to Lease Agreement
dated October 26, 1990 (the "FIRST AMENDMENT"); (ii) Second Amendment to Lease
Agreement dated December 1, 1990 (the "SECOND AMENDMENT"); (iii) Third
Amendment to Lease Agreement dated May 21, 1991 (the "THIRD AMENDMENT"); (iv)
Fourth Amendment to Lease Agreement dated April 20, 1992 (the "FOURTH
AMENDMENT"); (v) Fifth Amendment to Lease Agreement dated July 25, 1994 (the
"FIFTH AMENDMENT"); (vi) Sixth Amendment to Lease Agreement dated September
25, 1996 (the "SIXTH AMENDMENT") and (vii) Seventh Amendment to Lease
Agreement dated January, 1998 (the "SEVENTH AMENDMENT"), (the Original Lease,
as amended by the First Amendment, the Second Amendment, the Third Amendment,
the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh
Amendment is herein referred to as the "LEASE"); and
WHEREAS, the current area of the Existing Premises is 32,623
square feet of net rentable area (consisting of 10,550 square feet of net
rentable area on Floor 28 of the Building and 22,073 square feet of net
rentable area on Floor 31 of the Building), and the existing Lease term is
scheduled to expire on November 30, 2002; and
WHEREAS, Landlord and Tenant desire to further amend the
Lease, to provide, among other things, for an expansion of the Existing
Premises by Tenant, and Landlord is willing to agree to such an amendment upon
the terms and conditions as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree to amend, and do hereby amend, the Lease as follows:
19
<PAGE>
1. EXPANSION OF LEASED PREMISES. Subject to and upon the
terms, provisions and conditions hereinafter set forth and each in
consideration of the duties, covenants and obligations of the other hereunder,
Landlord does hereby lease to Tenant and Tenant does hereby lease from
Landlord an additional 6,882 square feet of net rentable area on Floor 29 of
the Building (the "EXPANSION PREMISES") as reflected on the floor plan of the
Expansion Premises attached hereto and made a part hereof for all purposes as
EXHIBIT A.
2. EXPANSION PREMISES COMMENCEMENT DATE. Subject to and
upon the terms and conditions set forth in this Eighth Amendment, the term of
the Lease with respect to the Expansion Premises shall commence on May 1,
2000, and shall terminate on the termination date of the Lease (November 30,
2002 unless sooner terminated as provided in the Lease).
3. NET RENTABLE AREA. Article I, Paragraph 1 of the Lease
is hereby amended to provide that from and after the Expansion Premises
Commencement Date, the "leased premises" and the "net rentable area" of the
leased premises shall be stipulated to be 39,505 square feet, consisting of
10,550 square feet of net rentable area on Floor 28 of the Building, 6,882
square feet of net rentable area on Floor 29 of the Building, and 22,073
square feet of net rentable area on Floor 31 of the Building. The Existing
Premises and the Expansion Premises are sometimes collectively referred to as
the "LEASED PREMISES".
4. RENT.
(a) Base Rental payable by Tenant pursuant to Article II,
Paragraph 4 of the Lease with respect to the Expansion Premises during the
Lease term shall be determined according to the following schedule:
<TABLE>
<CAPTION>
Annual Monthly
Rental Period Rate Base Rental Installment
------------- ---- ----------- -----------
<S> <C> <C> <C>
5/1/00 - 11/30/02 $17.50 net $120,435.00 $10,036.25
</TABLE>
The Base Rental rate is quoted per square foot of net rentable area within the
Expansion Premises per annum. Tenant shall also pay Lessee's Additional
Rental, Lessee's Forecast Additional Rental and all other sums payable by
Tenant with respect to the Expansion Premises during the Lease term on the
terms and conditions set forth in the Lease.
5. CONDITION OF THE EXPANSION PREMISES. Landlord agrees
to deliver the Expansion Premises to Tenant in its current condition, i.e.,
"AS IS" and "WITH ALL FAULTS" except that Landlord, at its expense, shall
construct an additional exitway (and door) for the Leased Premises in
compliance with applicable code requirements and Building standard
specifications on or prior to the Expansion Premises commencement date or as
soon as reasonably practicable thereafter. Tenant will have the right to
construct and install the leasehold improvements and tenant finish desired by
Tenant in the Expansion Premises in accordance with, and subject to the
limitations and conditions set forth in Section 7 of the Sixth Amendment and
in the Lease, except that the only leasehold improvements allowance to be
provided to Tenant with respect to the Expansion Premises shall be governed by
Section 6 of this Eighth Amendment. Landlord and Tenant each agree that this
document constitutes the entire agreement of the parties and there were no
verbal representations, warranties or understandings pertaining to this Eighth
Amendment. TENANT FURTHER ACKNOWLEDGES AND AGREES THAT LANDLORD DOES HEREBY
DISCLAIM ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO THOSE OF FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE EXISTING
PREMISES, THE EXPANSION PREMISES AND/OR THE IMPROVEMENTS LOCATED THEREIN.
6. IMPROVEMENTS ALLOWANCE. Landlord hereby agrees to
provide Tenant an allowance in the amount of $34,410 (the "IMPROVEMENTS
ALLOWANCE") for the design and construction of improvements within the
Expansion Premises. The Improvements Allowance may be applied to any costs
directly related to the improvement of the Expansion Premises including,
without limitation, architectural and engineering fees, costs of construction
and installation of improvements in the Expansion Premises, installation of
telephone and computer cabling and equipment, moving expenses, etc. The
Improvements Allowance shall be paid to Tenant by Landlord within thirty (30)
days of Tenant's written request therefor, accompanied by a final lien waiver
from Tenant's general contractor and each of the other Tenant's contractors
designated by Landlord, an AUTOCAD diskette of the "as-built" plans and
specifications for the Expansion Premises and reasonable supporting detail for
the costs incurred by Tenant with
20
<PAGE>
respect to the Expansion Premises. Should the cost of Tenant's leasehold
improvements to the Expansion Premises exceed the amount of the Improvements
Allowance, Tenant shall pay all such excess costs. Tenant shall not have to
pay a construction management fee to Landlord in connection with the
improvements to the Expansion Premises. Tenant shall have access to the
Expansion Premises at any time after the date hereof in connection with its
improvement of the Expansion Premises, subject to all terms and conditions of
the Lease (other than the payment of rent).
7. BROKERAGE COMMISSION. Landlord has agreed to pay to
Trione & Gordon, LLP a real estate brokerage commission as set forth in a
separate commission agreement between Landlord and such broker. Tenant hereby
represents and warrants to Landlord that Tenant has not employed any agents,
brokers, or other parties in connection with this Eighth Amendment, and Tenant
agrees to hold Landlord harmless from and against any and all claims of all
agents, brokers and/or other such parties claiming by or through Tenant.
8. RENEWAL OPTION. The first of two (2) renewal options
granted to Tenant pursuant to Section 12 of the Sixth Amendment shall also
apply to the Expansion Premises, except that the renewal term applicable to
the Expansion Premises shall expire on December 31, 2005 and Tenant must
exercise such renewal option with respect to the Expansion Premises on or
prior to June 30, 2002 (but no sooner than March 31, 2002).
9. ADA/TABA COMPLIANCE. Tenant acknowledges that no
representations as to the condition and repair of the leased premises or the
Building (including, without limitation compliance by the leased premises
and/or the Building with the Americans with Disabilities Act of 1990 (as
amended, the "ADA") or the Texas Architectural Barriers Act (as amended, the
"TABA"), nor promises to alter, remodel or improve the leased premises or the
Building, have been made by Landlord, except as are expressly set forth in
this Lease. Tenant agrees that Tenant shall, at its expense, be responsible
for compliance with the ADA and TABA with respect to the leased premises.
Landlord agrees, at its expense (as part of Operating Expenses) to be
responsible for compliance with the ADA and TABA with respect to Building
common areas and other public portions of the Building (excluding the leased
premises as described above).
10. GUARANTIES TERMINATED. The Fourth Amendment Guaranty
and the Sixth Amendment Guaranty (as such terms are defined in the Sixth
Amendment) are hereby terminated in all respects.
11. MISCELLANEOUS.
(a) AMENDMENT TO LEASE. Tenant and Landlord acknowledge
and agree that the Lease has not been amended or modified in any respect,
other than by this Eighth Amendment, and there are no other agreements of any
kind currently in force and effect between Landlord and Tenant with respect to
the Leased Premises or the Building. The term "Lease" shall mean the Lease as
amended by this Eighth Amendment unless the context requires otherwise.
(b) COUNTERPARTS. This Eighth Amendment may be executed in
multiple counterparts, and each counterpart when fully executed and delivered
shall constitute an original instrument, and all such multiple counterparts
shall constitute but one and the same instrument.
(c) ENTIRE AGREEMENT. This Eighth Amendment sets forth all
covenants, agreements and understandings between Landlord and Tenant with
respect to the subject matter hereof and there are no other covenants,
conditions or understandings, either written or oral, between the parties
hereto except as set forth in this Eighth Amendment.
(d) FULL FORCE AND EFFECT. Except as expressly amended
hereby, all other items and provisions of the Lease, as amended, remain
unchanged and continue to be in full force and effect.
(e) CONFLICTS. The terms of this Eighth Amendment shall
control over any conflicts between the terms of the Lease and the terms of
this Eighth Amendment.
21
<PAGE>
(f) AUTHORITY OF TENANT. Tenant warrants and represents
unto Landlord that (i) Tenant is a duly organized and existing legal entity,
in good standing in the State of Texas; (ii) Tenant has full right and
authority to execute, deliver and perform this Eighth Amendment; (iii) the
persons executing this Eighth Amendment were authorized to do so; and (iv)
upon request of Landlord, such persons will deliver to Landlord satisfactory
evidence of their authority to execute this Eighth Amendment on behalf of
Tenant.
(g) CAPITALIZED TERMS. Capitalized terms not defined
herein shall have the same meanings attached to such terms under the Lease.
(h) SUCCESSORS AND ASSIGNS. This Eighth Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
Executed as of the date first written above.
LANDLORD:
TEXAS TOWER LIMITED
By: Prime Asset Management, Inc.,
its general partner
By: /s/ Rafic A. Bizri
-----------------------------
President
TENANT:
SANDERS MORRIS HARRIS INC.
By: /s/ Sandy Williams
-----------------------------
Title: Corporate Secretary
22
<PAGE>
EXHIBIT A
FLOOR PLAN OF EXPANSION PREMISES
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 26,157
<RECEIVABLES> 87,403
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 65,583
<PP&E> 2,241
<TOTAL-ASSETS> 242,207
<SHORT-TERM> 0
<PAYABLES> 10,856
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 87,015
<LONG-TERM> 0
0
0
<COMMON> 142
<OTHER-SE> 94,283
<TOTAL-LIABILITY-AND-EQUITY> 242,207
<TRADING-REVENUE> 1,382
<INTEREST-DIVIDENDS> 1,857
<COMMISSIONS> 4,151
<INVESTMENT-BANKING-REVENUES> 3,062
<FEE-REVENUE> 556
<INTEREST-EXPENSE> 935
<COMPENSATION> 5,823
<INCOME-PRETAX> 1,816
<INCOME-PRE-EXTRAORDINARY> 1,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,076
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
