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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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WESTECH CAPITAL CORP.
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(Exact Name of Registrant as Specified in its Charter)
NEW YORK 33-37534-NY 13-3577716
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1250 Capital of Texas Highway, Suite 500, Austin, Texas 78746
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (512) 306-8222
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
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Common Stock, $.001 par value American Stock Exchange
per share
Securities to be registered pursuant to Section 12(g) of the Act: None
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ITEM 1. BUSINESS.
GENERAL
Westech Capital Corp., a New York corporation (the "Company"), is a holding
company whose primary operating subsidiary is Tejas Securities Group, Inc., a
Texas corporation ("Tejas Securities"). Tejas Securities is engaged in the
business of providing brokerage and related financial services to institutional
and retail customers nationwide.
The Company was incorporated as a shell corporation in New York on July 18,
1990, and made an initial public offering in November, 1991. The Company was
acquired by Tejas Securities in a reverse merger effected on August 27, 1999.
See "-Change in Control."
Tejas Securities' business is conducted out of its primary office in Austin,
Texas and a branch office in Atlanta, Georgia. Tejas Securities anticipates
expanding its operations by March 2000 with branches in Dallas, Texas and
Houston, Texas. See "-Growth Strategy."
Tejas Securities is a registered broker-dealer and investment advisor offering:
(i) brokerage services to retail and institutional customers; (ii) high quality
investment research to institutional and retail customers; (iii) market-making
activities in stocks traded on the Nasdaq National Market System and other
national exchanges; and (iv) investment banking services.
For 1998, Tejas Securities' revenues were $10,241,914, which consisted primarily
of commissions and underwriting and investment banking income. See Item 2.
CHANGE IN CONTROL
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and among
the Company, Tejas Securities Group Holding Company, a Texas corporation ("Tejas
Holding"), Tejas Securities, and Westech Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), Tejas Securities acquired the Company through a
reverse merger (the "Merger") of Tejas Holding and Merger Sub. Tejas Holding and
Merger Sub were established for the sole purpose of effecting this transaction.
As a result of the Merger, Tejas Holding became a wholly owned subsidiary of
Westech. Upon the effectiveness of the Merger, the Company's board of directors
resigned and John J. Gorman, Jay W. Van Ert and Joseph F. Moran were appointed
as directors of the Company.
Under the terms of the Merger, the shareholders of Tejas Holding exchanged their
shares for shares of the Company at a ratio 2.4825 to one. The former
shareholders of Tejas Holding currently own 95.21% of the issued and outstanding
common stock of the Company, $.001 par value per share (the "Common Stock").
EARLY OPERATIONS
Tejas Securities' initial business focus was to provide institutional money
managers and mutual funds high quality investment research covering large
nationally based companies that were over leveraged, in default on their
liabilities or in bankruptcy. Historically, these types of companies were not
closely followed by a large number of brokerage companies. Tejas Securities
used this opportunity to establish itself as a source of high quality unique
research products and trading support. Tejas Securities took advantage of its
initial research success and expanded its research coverage to special
situation equities and began underwriting initial public offerings of equity
securities for a select group of companies. Tejas Securities has acted as the
lead manager on four initial public offerings of common stock and one offering
of preferred stock. These underwritings coupled with a demand for Tejas
Securities' research by individuals led Tejas Securities to expand its client
base to include retail accounts. Tejas Securities now concentrates its efforts
both on institutional and retail customers.
BROKERAGE SERVICES
Tejas Securities provides brokerage services to approximately 6,000 retail
customers and 500 institutional customers. Tejas Securities offers a menu of
services and products to customers, which includes the ability
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to buy and sell securities, security options, mutual funds, index funds, fixed
income products, annuities and other investment securities. Tejas Securities'
marketing strategy has been to emphasize its high level of service and its
unique knowledge of the companies covered by its research department.
In recent years, the general public has become more comfortable dealing with
financial matters through electronic means, more specifically over the
Internet. Several brokerage firms have positioned themselves to take advantage
of this opportunity by offering online trading and account information. Tejas
Securities intends to capitalize on this trend by expanding into online
trading, while continuing to provide the level of service and research products
that its customers have come to expect.
Currently, Tejas Securities provides its customers with the ability to receive
stock quotes and access research on the Internet through its website
(www.Tejassec.com). Tejas Securities anticipates that its clients will have the
ability to make trades over the Internet prior to the end of the first quarter
of 2000. Tejas Securities believes Internet trading is in high demand by its
customers and will continue to devote a substantial portion of its resources to
its Internet strategy.
RESEARCH
The cornerstone of Tejas Securities' business model is to create proprietary
products for its clients that focus on its research and trading capabilities.
Tejas Securities distributes these products through traditional as well as new
channels of distribution, including the Internet. Tejas Securities believes that
brokerage companies that are able to utilize technological changes to improve
methods of delivering information to their clients will accomplish significant
gains in market share and profitability.
Tejas Securities anticipates that it will continue to devote a substantial
portion of its assets to support its research department. Currently, the
research department consists of five experienced analysts with proven expertise
in special situation equity research and in distressed securities. The analyst
group has the background to analyze many industries, but has a primary focus on
telecommunications and the Internet. Tejas Securities believes that the rapid
changes in each of these industries provide excellent investment opportunities.
Tejas Securities believes there will be increased demand in these areas and
anticipates adding three analysts to the research department in the near
future. The additional analysts will allow Tejas Securities to expand its
research coverage of Austin-based telecommunications and Internet companies
that have traditionally lacked research coverage by the New York-based
brokerage community.
Tejas Securities believes that the number of high quality technology companies
being formed in the Austin area is significant and will continue to grow. Tejas
Securities believes that its research department is well suited to cover these
companies and will focus a large percentage of its research resources to
providing research coverage of these companies. The research department will
cover both public companies as well as private companies that are candidates
for becoming publicly traded companies.
MARKET MAKING
In August 1999, the NASD approved Tejas Securities to make markets in Nasdaq
securities. Making markets in securities facilitates the execution of security
transactions for Tejas Securities' customers. Tejas Securities acts as a market
maker for approximately 25 public corporations whose stocks are traded on the
Nasdaq National Market System. Tejas Securities anticipates increasing the
number of securities for which it makes a market to approximately 50 by the end
of 1999.
Generally, Tejas Securities does not maintain inventories of securities for
sale to its customers. However, Tejas Securities does engage in certain
principal transactions where, in response to a customer order, Tejas Securities
will go at risk to the marketplace to attempt to capture the spread between the
bid and offer. Most of Tejas Securities' larger competitors are engaged in
similar market making activities through subsidiaries or receive order flow
payments from companies engaged in such market making activities. Tejas
Securities believes it can maintain better control and be assured of proper
executions of customer trades by providing these market making services
directly to its customers.
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INVESTMENT BANKING
Tejas Securities raises capital through public offerings of securities for
corporations that are engaged in a variety of businesses. Tejas Securities
participates in underwritings of corporate securities as managing underwriter
and as a syndicate member. Management of an underwriting account is generally
more profitable than participation as a member of an underwriting syndicate.
Tejas Securities underwrites public offerings of securities in the range of $5
to $10 million on a "best efforts" basis. As an underwriter, Tejas Securities
is also subject to potential liability under federal and state securities laws
and other laws if the registration statement or prospectus contains a material
misstatement or omission. Tejas Securities' potential liability as an
underwriter is uninsured.
Tejas Securities' participation in or initiation of underwritings may be
limited by the financial requirements of the SEC and NASD. See "- Net Capital
Requirements."
Between September 30, 1997, and December 31,1998, Tejas Securities acted as the
managing underwriter or co-managing underwriter for initial public offerings of
four common stock offerings and one preferred stock offering, raising
approximately $40 million for corporate finance clients. Tejas Securities
typically receives 2 to 3 percent of the aggregate amount of money raised in an
offering to cover nonaccountable expenses and between 7 and 9 percent as
compensation to underwriters, selling group members and registered
representatives, although these percentages may be lower for larger
transactions.
In 1999, Tejas Securities de-emphasized its underwriting activities as it
sought to strengthen its other service offerings. Tejas Securities anticipates
refocusing on its investment banking services during the second half of 2000.
CUSTOMERS
Historically, Tejas Securities' customer base has been comprised of
predominately large nationally known institutional customers. These customers
demand high quality research and sophisticated trading capabilities. Tejas
Securities believes that it has served the needs of this segment of its
customer base well, resulting in increased trading volume. Tejas Securities
believes that the increase in the scope of its research services should further
customer satisfaction and increase its revenues from institutional customers.
Currently, the fastest growing segment of Tejas Securities' business is its
retail division. Tejas Securities believes its strategy of providing
institutional quality research and customer service to retail customers has
been well received. The retail division has grown from 3,000 customers in 1997
into 6,000 customers as of September 30, 1999. Tejas Securities will continue
to expand this division by adding additional sales personnel focused
exclusively on this market and continuing the rollout of products such as
market making and managed money that appeal to this market.
EMPLOYEES
On September 30, 1999, Tejas Securities had approximately 65 employees. Of
these employees, 30 work in sales, 7 in trading, 5 in research positions and
the remaining employees perform management and administrative functions.
Employees will continue to be added in several areas of the firm. However, it
is Tejas Securities' goal to use the sales support functions that are currently
in place to support additional sales staff. Tejas Securities believes that
taking advantage of the infrastructure currently in place will allow an
increase in productivity in the sales area with minimal additional support
cost.
COMPETITION
All aspects of Tejas Securities' business are highly competitive. In its
general brokerage activities, Tejas Securities competes directly with numerous
other broker-dealers, many of which are large well-known
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firms with substantially greater financial and personnel resources. Many of
Tejas Securities' competitors employ extensive advertising and actively solicit
potential clients in order to increase business. In addition, brokerage firms
compete by furnishing investment research publications to existing clients, the
quality and breadth of which are considered important in the development of new
business and the retention of existing clients. Tejas Securities also competes
with a number of smaller regional brokerage firms in Texas and the Southwest.
Some commercial banks and thrift institutions offer securities brokerage
services. Many commercial banks offer a variety of investment banking services.
Competition among financial services firms also exists for investment
representatives and other personnel.
The securities industry has become considerably more concentrated and more
competitive since Tejas Securities was founded, as numerous securities firms
have either ceased operations or have been acquired by or merged into other
firms. In addition, companies not engaged primarily in the securities business,
but with substantial financial resources, have acquired leading securities
firms. These developments have increased competition from firms with greater
capital resources than those of Tejas Securities. Various legislative and
regulatory developments have tended to increase competition within the industry
or reduced profits for the industry. In particular, various recent developments
have tended to increase competition from commercial banks.
The securities industry has experienced substantial commission discounting by
broker-dealers competing for brokerage business. In addition, an increasing
number of specialized firms now offer "discount" services to individual
customers. These firms generally effect transactions for their customers on an
"execution only" basis without offering other services such as portfolio
valuation, investment recommendations and research. A growing number of
discount brokerage firms offer their services over the Internet, further
decreasing offered commission rates and increasing ease of use for customers.
The continuation of such discounting and an increase in the number of new and
existing firms offering discounts could adversely affect Tejas Securities. In
addition, rapid growth in the mutual fund industry is presenting potential
customers of Tejas Securities with an increasing number of alternatives to
traditional stock brokerage accounts.
In its investment banking activities, Tejas Securities competes with other
brokerage firms, venture capital firms, banks and all other sources of capital
for small, growing companies. Because Tejas Securities generally manages
offerings smaller than $20 million, it does not typically compete with the
investment banking departments of large, well-known national brokerage firms.
In addition, large national and regional investment banking firms occasionally
manage offerings of a size that is competitive with Tejas Securities, typically
for fees and compensation less than that charged by Tejas Securities. When the
market for initial public offerings is active, many small regional firms that
do not typically engage in investment banking activities also begin to compete
with Tejas Securities.
GROWTH STRATEGY
Tejas Securities anticipates increasing its market penetration in Texas and the
Southwest United States. Tejas Securities believes this growth strategy will be
accomplished through (i) acquisitions of other brokerage companies, investment
banking companies, groups of brokers, or individual brokers using cash, stock
or a combination of cash and stock as consideration and (ii) by opening offices
in new markets and subsequently recruiting brokers. Tejas Securities believes
that increased penetration in these markets will enhance revenue balance and
provide greater leverage of its fixed costs. Tejas Securities anticipates it
will achieve a market presence in both Houston and Dallas by March 2000. Tejas
Securities anticipates taking advantage of other strategic market opportunities
as they arise.
INTEREST INCOME
Tejas Securities derives a portion of its income from interest generated on the
margin accounts of its customers. A margin account allows the customer to
deposit less than the full cost of the securities purchased while Tejas
Securities lends the balance of the purchase price to the customer, secured by
the
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purchased securities. Customers are charged interest on the amount borrowed to
finance their margin transactions ranging from 0.25% below to 2.75% above the
broker call rate, which is the rate at which brokers can generally obtain
financing using margined and firm owned securities as collateral. As of December
31, 1998, the total of all customer securities pledges on debit balances and
held in active margin accounts was approximately $10,879,000. Tejas Securities
finances its margin lending business through the arrangement with its clearing
firm.
SECURITIES INDUSTRY PRACTICES
Tejas Securities is registered as a broker-dealer with the SEC and the NASD.
Tejas Securities is registered as a securities broker-dealer in 39 states and
the District of Columbia. Tejas Securities is also a member of the Securities
Investors Protection Corporation, which provides Tejas Securities' customers
with insurance protection for amounts of up to $500,000 each, with a limitation
of $100,000 on claims for cash balances. Tejas Securities has also acquired an
additional $10,000,000 in insurance coverage through Seabury & Smith, as added
protection for individual customers' securities, covering all clients of Tejas
Securities' institutional and retail customers.
Tejas Securities is subject to extensive regulation by federal and state laws.
The SEC is the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the NASD and the
national securities exchanges. These self-regulatory organizations adopt rules,
subject to approval by the SEC, which govern the industry and conduct periodic
reviews of member broker-dealers. Securities firms are also subject to
regulation by state securities commissions in the states in which they do
business. The SEC, self-regulatory organizations, and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, suspension, or expulsion of a broker-dealer, its officers or employees.
The principal purpose of regulation and discipline of broker-dealers is the
protection of customers and the securities markets, rather than protection of
creditors and shareholders of broker-dealers. See "Forward-Looking Statements
and Risk Factors" below.
NET CAPITAL REQUIREMENTS
Tejas Securities is subject to SEC Rule 15c3-1, Net Capital Requirements For
Brokers or Dealers (the "Rule"), which establishes minimum net capital
requirements for broker-dealers. The Rule is designed to measure financial
integrity and liquidity in order to assure the broker-dealer's financial
stability within the securities market. The net capital required under the Rule
depends in part upon the activities engaged in by the broker-dealer.
In computing net capital under the Rule, various adjustments are made to
exclude assets not readily convertible into cash and to reduce the value of
other assets, such as a broker-dealer's position in securities. A deduction is
made against the market value of the securities to reflect the possibility of a
market decline prior to sale. Compliance with the Rule could require intensive
use of capital and could limit Tejas Securities' ability to pay dividends to
the Company, which in turn could limit the Company's ability to pay dividends
to its shareholders. Failure to comply with the Rule could require the Company
to infuse additional capital into Tejas Securities, could limit the ability of
Tejas Securities to pay its debts and/or interest obligations, and may subject
Tejas Securities to certain restrictions which may be imposed by the SEC, the
NASD, and other regulatory bodies. Moreover, in the event that the Company
could not or elected not to infuse the additional capital or otherwise bring
Tejas Securities into compliance, Tejas Securities would ultimately be forced
to cease operations. See "Forward-Looking Statements and Risk Factors" below.
At December 31, 1998, and 1997 Tejas Securities elected to use the alternative
method permitted by the Rule, which requires it to maintain minimum net
capital, as defined, equal to the greater of $100,000 or 2% of aggregate debit
balances arising from customer transactions, as defined. At December 31, 1998,
Tejas Securities had net capital of $842,544, which was $742,544 in excess of
the minimum amount required. At December 31, 1997, Tejas Securities had net
capital of $703,302, which was $603,302 in excess of the minimum amount
required.
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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
We are including the following cautionary statement to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
for any forward-looking statement made by us. The factors identified in this
cautionary statement are important factors (but not necessarily all of the
important factors) that could cause actual results to differ materially from
those expressed in any forward-looking statement made by us. Where any
forward-looking statement includes a statement of the assumptions underlying the
forward-looking statement, we caution you that while we believe the assumptions
to be reasonable and make them in good faith, assumed facts almost always vary
from actual results, and the differences between assumed facts or bases and
actual results can be material, depending on the circumstances. Where, in any
forward-looking statement, we express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there is no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Taking into
account the foregoing, the following are identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by us, or on our behalf. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. In that case, the trading price of our
stock could decline, and you may lose all or part of your investment.
The dates on which we believe our Year 2000 efforts will be completed are based
on our best estimates, which were derived using numerous assumptions of future
events, including the continued availability of certain resources, third-party
modification plans and other factors. However, there is no guarantee that these
estimates will be achieved or that there will not be a delay in, or increased
costs associated with, the implementation of the Year 2000 efforts described
above. Specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all
relevant computer codes, timely responses to and corrections by third parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, we cannot ensure our
ability to timely and cost-effectively resolve problems associated with the
Year 2000 issue that may affect our operations and business, or expose us to
third-party liability.
FAILURE TO EFFECTIVELY MANAGE A CHANGING BUSINESS COULD RESULT IN OUTDATED
SERVICES.
Our business and operations have changed substantially since we began offering
brokerage services, and we expect the pace of change in the brokerage business
to continue. This rapid change places significant demands on our administrative,
operational, financial and other resources. Failure to properly manage these
changes could result in our services becoming outdated, which would have a
material adverse effect on our business, financial condition and operating
results.
FAILURE OF THIRD-PARTY VENDORS TO PROVIDE CRITICAL SERVICES COULD HARM OUR
BUSINESS.
We rely on a number of third parties to assist in the processing of our
transactions, including online and Internet service providers, back office
processing organizations, service providers and market makers. While we have
selected these third-party vendors carefully, we do not control their actions.
Any problems caused by these third parties could have a material adverse effect
on our business, financial condition and operating results.
OUR BUSINESS STRATEGY INCORPORATES THE INTERNET WHICH IS STILL IN THE EARLY
STAGE OF DEVELOPMENT.
The market for electronic brokerage services, particularly over the Internet,
is at an early stage of development and is rapidly evolving. Consequently,
demand and market acceptance for recently introduced services and products are
subject to a high level of uncertainty. Much of our growth will depend on
consumers adopting the Internet as a method of doing business. The Internet
could lose its viability due to slow development or adoption of standards and
protocols to handle increased activity, or
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due to increased governmental regulation. Moreover, several key issues
including security, reliability, cost, ease of use, accessibility and quality
of service continue to be concerns and may negatively affect the growth of
Internet use or commerce on the Internet. While we are not dependent upon
Internet based trading, we anticipate investing substantial resources in the
development of Internet based activities.
WE ARE SUBJECT TO MARKET FORCES BEYOND OUR CONTROL WHICH COULD IMPACT US MORE
SEVERELY THAN OUR COMPETITORS.
We, like other securities firms, are directly affected by economic and
political conditions, broad trends in business and finance and changes in
volume and price levels of securities transactions. In recent years, the U.S.
securities markets have fluctuated considerably and a downturn in these markets
could adversely affect our operating results. In October 1987 and October 1998,
the stock market suffered major declines, as a result of which many firms in
the industry suffered financial losses. Additionally, the level of individual
investor trading activity decreased after these events. Reduced trading volume
and prices have historically resulted in reduced transaction revenues. When
trading volume is low, our profitability may be adversely affected because our
overhead remains relatively fixed. Severe market fluctuations in the future
could have a material adverse effect on our business, financial condition and
operating results. Some of our competitors with more diverse product and
service offerings might withstand such a downturn in the securities industry
better than we would.
OUR CUSTOMERS MAY DEFAULT ON THEIR MARGIN ACCOUNTS, EFFECTIVELY PASSING THEIR
LOSSES ON TO US.
We sometimes allow customers to purchase securities on margin, therefore we are
subject to risks inherent in extending credit. This risk is especially great
when the market is rapidly declining. In such a decline, the value of the
collateral we hold could fall below the amount of a customer's indebtedness.
Specific regulatory guidelines mandate the amount that can be loaned against
various security types. We rigorously adhere to these guidelines and a number
of instances exceed those requirements. Also, independent of our review, our
corresponding clearing company independently maintains a credit review of our
customer's accounts. If customers fail to honor their commitments, we would
sell the securities held as collateral. If the value of the collateral is not
sufficient to repay the loan, a loss would occur. Any such losses could have a
material adverse effect on our business, financial condition and operating
results.
IF WE DO NOT CONTINUE TO INTRODUCE NEW SERVICES AND PRODUCTS WE MAY LOSE OUR
CUSTOMERS.
Our future success depends in part on our ability to develop and enhance our
services and products. There are significant risks in the development of new
services and products or enhanced versions of existing services and products,
particularly in our electronic brokerage business. We may also experience
difficulties that could delay or prevent the development, introduction or
marketing of these services and products. Additionally, these new services and
products may not adequately meet the requirements of the marketplace or achieve
market acceptance. If we are unable to develop and introduce enhanced or new
services and products quickly enough to respond to market or customer
requirements, or if they do not achieve market acceptance, our business,
financial condition and operating results will be materially adversely
affected.
MANY OF OUR COMPETITORS ARE LARGER AND BETTER KNOWN THAN WE ARE.
The market for brokerage services is rapidly evolving and intensely
competitive. We face direct competition from firms offering discount and
electronic brokerage services such as Charles Schwab & Co., Inc., Fidelity
Brokerage Services, Inc., Waterhouse Securities, Inc., Ameritrade, Inc. (a
subsidiary of Ameritrade Holding Corporation), and E*TRADE Group, Inc. We also
encounter competition from established full commission brokerage firms such as
PaineWebber Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Solomon Smith Barney, Inc., among others. In addition, we compete with
financial institutions, mutual fund sponsors and other organizations. Further,
Tejas Securities has seen a substantial increase in the number of companies
providing electronic brokerage services in recent years, and this trend is
expected to continue.
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Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. In
addition, many of our competitors have greater name recognition and larger
customer bases that could be leveraged, thereby gaining market share from us.
Our competitors may conduct more extensive promotional activities and offer
better terms and lower prices to customers than we do. There can be no
assurance that we will be able to compete effectively with current or future
competitors or that such competition will not have a material adverse effect on
our business, financial condition and operating results.
WE RECEIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM A SMALL PORTION OF OUR
CUSTOMERS AND THE LOSS OF ANY OF THEM COULD BE MATERIAL TO OUR RESULTS.
Tejas Securities had revenues from 2 accounts which exceeded 10 percent of
total revenue as of June 30, 1999. No individual account exceeded 10 percent of
total revenue in 1998. The loss of either of these accounts could have a
material adverse impact on our business.
WE MAY NOT SUCCESSFULLY ASSIMILATE ACQUIRED COMPANIES.
We may acquire other companies in the future, and we regularly evaluate such
opportunities. Acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations and products, diversion of management's
attention from other business concerns, amortization of acquired intangible
assets and potential loss of key employees of acquired companies. We have
limited experience in assimilating acquired organizations into our operations.
We may not successfully integrate any operations, personnel, services or
products that might be acquired in the future. Failure to successfully
assimilate acquired organizations could have a material adverse effect on our
business, financial condition and operating results.
WE ARE SUBJECT TO STRICT GOVERNMENT REGULATION AND THE FAILURE TO COMPLY COULD
RESULT IN DISCIPLINARY ACTIONS.
The securities industry in the U.S. is subject to extensive regulation under
both federal and state laws. See "- Securities Industry Practices" above.
Broker-dealers are subject to regulations covering all aspects of the securities
business.
The SEC, the NASD or other self-regulatory organizations and state securities
commissions can censure, fine, issue cease-and-desist orders or suspend or
expel a broker-dealer or any of its officers or employees. Our ability to
comply with all applicable laws and rules is largely dependent on our
establishment and maintenance of a compliance system to ensure such compliance,
as well as our ability to attract and retain qualified compliance personnel. We
could be subject to disciplinary or other actions due to claimed noncompliance
in the future, which could have a material adverse effect on our business,
financial condition and operating results.
Our mode of operation and profitability may be directly affected by additional
legislation, changes in rules promulgated by the SEC, the NASD, the Board of
Governors of the Federal Reserve System, the various stock exchanges and other
self-regulatory organizations, or changes in the interpretation or enforcement
of existing laws and rules.
We have initiated a marketing campaign designed to bring brand name recognition
to Tejas Securities. The NASD regulates all marketing activities by Tejas
Securities. The NASD can impose certain penalties for violations of its
advertising regulations, including censures or fines, suspension of all
advertising, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer or any of its officers or employees. Tejas
Securities' compliance officers review all marketing materials prior to release
to ensure compliance with NASD regulations.
There can be no assurance that other federal, state or foreign agencies will
not attempt to regulate our business. If such regulations are enacted, our
business or operations would be rendered more costly or
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burdensome, less efficient or even impossible or otherwise have a material
adverse effect on our business, financial condition and operating results.
WE MUST MAINTAIN CERTAIN NET CAPITAL REQUIREMENTS WHICH COULD SLOW OUR
EXPANSION PLANS OR PREVENT PAYMENTS OF DIVIDENDS.
The SEC, the NASD and various other regulatory agencies have stringent rules
with respect to the maintenance of specific levels of net capital by securities
broker-dealers. Net capital is the net worth of a broker or dealer (assets
minus liabilities), less deductions for certain types of assets. If a firm
fails to maintain the required net capital it may be subject to suspension or
revocation of registration by the SEC and suspension or expulsion by the NASD,
and could ultimately lead to the firm's liquidation. If such net capital rules
are changed or expanded, or if there is an unusually large charge against net
capital, operations that require the intensive use of capital would be limited.
Such operations may include trading activities and the financing of customer
account balances. Also, our ability to withdraw capital from Tejas Securities
could be restricted, which in turn could limit our ability to pay dividends,
repay debt and redeem or purchase shares of our outstanding stock. A large
operating loss or charge against net capital could adversely affect our ability
to expand or even maintain our present levels of business, which could have a
material adverse effect on our business, financial condition and operating
results.
OUR TRADING SYSTEMS MAY FAIL, RESULTING IN SERVICE INTERRUPTIONS.
We receive and process trade orders through internal trading software, the
Internet, and touch-tone telephone. Thus, we depend heavily on the integrity of
the electronic systems supporting this type of trading. Heavy stress placed on
our systems during peak trading times could cause our systems to operate too
slowly or fail. If our systems or any other systems in the trading process slow
down significantly or fail even for a short time, our customers would suffer
delays in trading, potentially causing substantial losses and possibly
subjecting us to claims for such losses or to litigation claiming fraud or
negligence. During a systems failure, we may be able to take orders by
telephone; however, only associates with securities broker's licenses can
accept telephone orders, and an adequate number of associates may not be
available to take customer calls in the event of a systems failure. In
addition, a hardware or software failure, power or telecommunications
interruption or natural disaster could cause a systems failure. Any systems
failure that interrupts our operations could have a material adverse effect on
our business, financial condition and operating results.
ADVANCES IN ENCRYPTION TECHNOLOGY MAY NOT OCCUR QUICKLY ENOUGH AND OUR
CUSTOMERS MAY STOP TRADING WITH US.
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. We will rely on encryption and
authentication technology to provide secure transmission of confidential
information. Despite our best efforts, advances in computer and cryptography
capabilities or other developments may result in a compromise of the algorithms
we use to protect customer transaction data. If a compromise of our security
were to occur, it is likely that our customers would stop trading with us.
THE YEAR 2000 PROBLEM MAY CAUSE COMPUTER FAILURES IN OUR CRITICAL SYSTEMS.
Because many computer systems were not designed to handle dates beyond the year
1999, computer hardware and software may need to be modified prior to the Year
2000 in order to remain functional. We do not expect our financial results to
be materially affected by the need to address Year 2000 issues, but if the
costs associated with addressing these issues are greater than planned, our
earnings and results of operations could be affected. We must rely on outside
vendors to address Year 2000 issues for their hardware and software.
Contingency plans are being developed in the event that our key vendors or
internal systems will not be Year 2000 capable, but any such noncompliance may
have a negative effect on our financial results. Our business depends heavily
on the integrity of electronic systems outside of our control, such as
third-party hardware and software. Due to our dependence on computer technology
to conduct our business, the nature and impact of Year 2000 processing failures
on our business, financial
9
<PAGE> 11
condition and operating results could be materially adverse. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
NO PUBLIC MARKET FOR OUR COMMON STOCK CURRENTLY EXISTS AND NONE MAY DEVELOP.
A public market for our common stock does not currently exist. We cannot
predict the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might become. The
trading price of our common stock could be subject to wide fluctuations in
response to factors unrelated to our operating results such as:
o announcements of technological innovations, significant acquisitions,
strategic alliance relationships, joint ventures or capital
commitments by us or our competitors;
o new products or services offered by us or our competitors;
o changes in financial estimates by securities analysts;
o additions or departures of key personnel; and
o sales of our common stock.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of listed companies. Some of these fluctuations may be
due to speculative trading by individual investors, including investors
commonly referred to as "day traders." The trading prices of many companies'
stocks are at or near historical highs and these trading prices and multiples
are substantially above historical levels. These trading prices and multiples
may not be sustained. These broad market factors may materially adversely
affect the market price of our common stock, regardless of our actual operating
performance.
OUR EFFORTS TO DEVELOP WIDESPREAD BRAND RECOGNITION ARE LIKELY TO BE EXPENSIVE
AND MAY FAIL.
The development of the Tejas Securities brand is important to our future
success. If we fail to develop sufficient brand recognition, our ability to
attract customers may be impaired, and our revenue will suffer. In order to
build our brand awareness we must succeed in our brand marketing efforts and
deliver products and services that are in demand by our customers. These
efforts have required, and will continue to require, significant expenses. If
we expend additional resources to build the Tejas Securities brand and do not
generate a corresponding increase in revenue as a result of our branding
efforts, or if we otherwise fail to promote our brand successfully our business
could be harmed. We cannot assure that we will be successful in developing our
brand.
OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND
FEATURES IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY.
Our market is characterized by rapidly changing technologies, frequent new
service introductions and evolving industry standards. The recent growth of the
Internet and intense competition in our industry exacerbate these market
characteristics. Our future success will depend on our ability to adapt to
rapidly changing technologies by continually improving the performance,
features and reliability of our online trading and research distribution. We
may experience difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, our new enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. We could
also incur substantial costs if we need to modify our service or
infrastructures to adapt to these changes.
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS
NECESSARY, WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
We recently hired and anticipate continuing to hire additional sales, research,
and investment banking personnel. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives, and we may
experience constraints that will adversely affect our ability to expand our
customer base. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. Recruiting qualified personnel is
an intensely competitive and time-consuming process.
10
<PAGE> 12
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.
Sales of a large number of shares of our common stock in the public market or
the perception that such sales could occur could cause the market price of our
common stock to drop. As of August 27, 1999, we had 12,536,737 shares of common
stock outstanding, of which 600,000 shares will be freely transferable without
restriction or registration under the Securities Act of 1933, unless such shares
are held by our affiliates, as that term is defined in Rule 144 under the
Securities Act. Sales of common stock by existing shareholders in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we intend
to file a registration statement on Form S-8 with the SEC covering the 3,000,000
shares of common stock reserved for issuance under our stock option plan and for
options issued outside such plan. On the date 180 days after the effective date
of this filing, approximately 758,561 shares will be subject to immediately
exercisable options (based on options outstanding on October 18, 1999). Sales of
a large number of shares could have an adverse effect on the market price for
our common stock.
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following summary statement of operations data and the summary statement of
financial condition data as of and for each of the years in the five year period
ended December 31, 1998 have been derived from the audited financial statements
of Tejas Securities. The selected statement of operations data and statement of
financial condition data should be read in conjunction with the audited
financial statements as of December 31, 1997 and 1998 and for the years ended
December 31, 1996, 1997 and 1998 as included elsewhere herein. The unaudited
statement of operations data and statement of financial condition data as of and
for the six months ended June 30, 1998 and 1999 have been prepared by Tejas
Securities and have been filed with the National Association of Securities
Dealers as required on a quarterly basis. This data includes all adjustments and
estimates that management considers necessary for the fair presentation of such
financial data for the periods then ended. The financial results for the
six-month periods ended June 30, 1998 and 1999 are not necessarily indicative of
results for a full year of operations. Historical financial results may not be
indicative of future performance of the Company or its affiliates.
11
<PAGE> 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AS OF AND FOR THE YEAR ENDED DECEMBER 31
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Commissions $ 0 3,674,261 3,648,255 4,810,520 7,932,780
Investment banking 0 0 0 752,554 2,584,770
Trading income 0 44,486 567,537 924,587 (299,166)
Other 0 62,500 41,720 9,248 23,530
Total revenue 0 3,781,247 4,257,512 6,496,909 10,241,914
Employee compensation 0 2,808,053 3,448,700 4,459,420 8,007,363
Other expenses 3,943 398,010 1,015,567 1,544,446 2,795,773
Total expenses 3,943 3,206,063 4,464,267 6,003,866 10,803,136
Income (loss) before income taxes (3,943) 575,184 (206,755) 493,043 (561,222)
Income tax expense (benefit) 0 25,057 0 19,008 (163,900)
Net income (loss) $(3,943) 550,127 (206,755) 474,035 (397,322)
STATEMENT OF FINANCIAL CONDITION DATA:
Cash and cash equivalents $ 9,331 133,569 275,165 170,474 201,312
Receivable from broker-dealers 0 335,181 451,357 825,707 1,468,424
Securities owned 0 0 952,092 634,419 1,539,424
Other assets 2,726 283,828 267,229 343,978 733,067
Total assets $12,057 752,578 1,945,843 1,974,578 3,942,227
Liabilities $ 0 44,863 38,480 141,330 577,736
Securities sold, not yet purchased 0 0 0 0 0
Payable to broker-dealers 0 0 1,007,514 608,848 1,459,678
Subordinated debt 0 0 0 0 500,000
Total liabilities 0 44,863 1,045,994 750,178 2,537,414
Preferred stock 0 0 0 0 0
Common stock 16,000 549,760 865,011 946,878 1,473,071
Subscriptions receivable 0 0 0 (100,000) (96,263)
Treasury stock 0 (133,240) 0 (47,805) 0
Retained earnings (3,943) 291,195 34,838 425,327 28,005
Total shareholders' equity 12,057 707,715 899,849 1,224,400 1,404,813
Total liabilities and
shareholders' equity $12,057 752,578 1,945,843 1,974,578 3,942,227
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30
1998 1999
- -----------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C>
Commissions $3,281,799 15,465,352
Investment banking 1,653,460 165,766
Trading income (410,853) 3,516,592
Other 104,359 87,065
Total revenue 4,628,765 19,234,775
Employee compensation 3,339,511 12,488,565
Other expenses 1,280,603 2,007,036
Total expenses 4,620,114 14,495,601
Income (loss) before income taxes 8,651 4,739,174
Income tax expense (benefit) 25,837 1,865,424
Net income (loss) $ (17,186) 2,873,750
STATEMENT OF FINANCIAL CONDITION DATA:
Cash and cash equivalents $ 277,655 334,047
Receivable from broker-dealers 3,851,721 11,439,542
Securities owned 2,309,953 11,545,748
Other assets 534,698 633,085
Total assets $6,974,027 23,952,422
Liabilities $1,173,465 3,981,420
Securities sold, not yet purchased 1,661,834 1,050,135
Payable to broker-dealers 2,355,308 13,099,946
Subordinated debt 0 1,000,000
Total liabilities 5,190,607 19,131,501
Preferred stock 0 0
Common stock 1,475,279 2,200,841
Subscriptions receivable (100,000) (281,675)
Treasury stock 0 0
Retained earnings 408,141 2,901,755
Total shareholders' equity 1,783,420 4,820,921
Total liabilities and
shareholders' equity $6,974,027 23,952,422
- -----------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Tejas Holding completed a reverse merger acquisition with the Company on August
27, 1999. The Company anticipates that the availability of public resources
through additional issuance of common stock or debt securities will provide
funding for future expansion in the securities industry throughout the
southwest United States. In the event the Company issues additional equity to
provide funding for expansion, current shareholders may experience dilution in
ownership percentage or book value. Additionally, such equity may contain
preferences and rights not available to the current equity holders. The Company
cannot give any assurance that it will not need to issue additional equity or
debt in the future in order to respond to industry trends, potential business
opportunities or unforeseen events.
As a broker-dealer, Tejas Securities is required to maintain a certain level of
liquidity or net capital in accordance with NASD regulations. Factors effecting
Tejas Securities' liquidity include the value of securities held in trading
accounts, the value of non-current assets, the amount of unsecured receivables,
and the amount of general business liabilities, excluding amounts payable to
its clearing broker and NASD approved subordinated debt.
Tejas Securities' inventory balance fluctuates daily based on the current
market value and types of securities held. Tejas Securities typically invests
in securities in which it provides research coverage. The types of securities
may include publicly traded debt, equity, options and private security
issuances. As a market maker, Tejas Securities provides bid and ask quotes on
certain equity securities on the NASDAQ market. Tejas Securities' ability to
generate revenues from market making activities may depend upon the level and
value of securities held in inventory.
Market values for some of the securities may not be easily determinable
depending upon the volume of securities traded on open markets, the operating
status of the companies or the types of securities issued by companies. If the
underlying securities of a company become illiquid, Tejas Securities' liquidity
may be affected depending on the value of the securities involved. During times
of general market declines, Tejas Securities may experience market value
losses, which ultimately affects the liquidity of Tejas Securities through its
broker-dealer net capital requirements. In addition, Tejas Securities may
decide not to liquidate its security holdings to increase cash availability if
management believes a market turnaround is likely in the near term or if
management believes the securities are undervalued in the current market.
Since Tejas Securities' inception in March of 1994, management has raised
capital from two primary sources, the issuance of common stock and subordinated
debt. Tejas Securities generally has issued stock to either raise capital for
expansion or as an incentive to members of management. In April 1999, Tejas
Securities issued 1,006,975 shares of the common stock for $704,833 in cash. The
April 1999 stock issuance to Tejas Securities employees and management members
was a means of recognizing each individual's contribution to Tejas Securities
and to expand the shareholder base. Proceeds from the stock issuance were
partially used to finance the reverse merger and the expansion of Tejas
Securities' infrastructure.
In September 1998, Tejas Securities issued subordinated debt in exchange for
$500,000 from Clark Wilson, a current member of the Board of Directors. The
subordinated debt was a short-term loan agreement used to increase equity
capital required for Tejas Securities underwriting activities. In November
1998, Tejas Securities extended the repayment terms of the loan agreement so
that the loan became due and payable in November 2001. The loan accrues
interest at 11.5% per annum and is considered equity capital for NASD purposes.
As a condition of the loan agreement, Tejas Securities issued warrants to the
lender to purchase 112,500 shares of common stock of Tejas Securities,
exercisable at a price of $2.65 per share.
In June 1999, Tejas Securities completed the second issuance of subordinated
debt in exchange for $500,000 from Clark Wilson. The proceeds from the loan
agreement were used to finance the expansion activities of Tejas Securities, as
well as contribute to operating activities. The loan accrues interest at 11.5%
per annum and is also considered equity capital for NASD purposes. As a
condition of the loan agreement, Tejas Securities issued additional warrants to
the lender to purchase 112,500 shares of common
13
<PAGE> 15
stock of Tejas Securities, exercisable at a price of $2.65 per share of common
stock. The warrants expire in November 2003.
As of June 30, 1999, none of the 225,000 total warrants issued in conjunction
with the loan agreements had been exercised.
In addition to the sources of capital described above, Tejas Securities
utilizes the receivable balance from its clearing broker, Schroder & Co., to
fund operating and investing activities. The receivable balance represents the
residual equity due to Tejas Securities from Schroder & Co. if Tejas Securities
liquidated all of its investment security holdings. The receivable balance from
the clearing broker is also used to secure temporary financing from Schroder &
Co. for the purchase of investments in Tejas Securities' trading accounts. The
receivable balance held at Schroder & Co. may fluctuate depending on factors
such as the market valuation of securities held in Tejas Securities' trading
accounts, realized trading profits, commission revenue, cash withdrawals and
clearing costs charged to Tejas Securities for conducting its trading
activities.
In August 1999, Tejas Securities established a wholly-owned subsidiary, Tejas
Securities Group - East, L.L.C., a Georgia limited liability company ("Tejas -
East"), for the purpose of increasing the accountability of its primary branch
office and also for minimizing general business liability associated with
contracts and employment issues. Under an agreement between Tejas - East and
Tejas Securities, Tejas Securities provides a revolving line of credit in the
amount of $200,000, bearing interest at the prime rate plus 2%. Operating costs
for Tejas - East are funded through the excess of commission and trading
revenues over commission expense and clearing costs. As these amounts are not
completely known by management until the month end reporting process is
complete, Tejas Securities provides temporary funding through intercompany cash
transfers. Excess cash flows or deficiencies are carried forward on a monthly
basis, and are eliminated through Tejas Securities' monthly financial statement
consolidation process.
Liquidity At December 31, 1996, 1997 And 1998
Tejas Securities' cash position increased to $201,312 in 1998, from a balance
of $170,474 in 1997. These balances are comparable with the December 31, 1996
balance of $275,165. The fluctuations during these periods reflect changes in
the operating and financing activities of Tejas Securities from 1996 through
1998.
Cash Flows From Operating Activities
Net cash used by operating activities was $858,413, $18,542 and $174,816 in
1998, 1997 and 1996, respectively. The net cash used by operating activities is
impacted primarily by the brokerage operating activities and changes in the
brokerage-related assets and liabilities.
In 1998, the most significant use of cash was represented by the $642,717
increase in the receivable from the clearing broker. The increased receivable
was indirectly the result of Tejas Securities' use of proceeds from the
$500,000 subordinated debt agreement. Proceeds from the debt were used for
operations thereby allowing Tejas Securities to retain a larger receivable
balance with the clearing broker. In addition, Tejas Securities' overall
investment in securities increased by $905,005 from 1997 to 1998. This increase
corresponds to the $850,830 increase in payable to the clearing organization,
taking into account market value appreciation of the securities. The net cash
effect of these transactions is the use of $696,892, with the remaining
$161,521 being net operating income plus changes in other asset and liability
accounts.
In 1997, the most significant changes in cash were represented by changes in
the receivable from the clearing broker and changes in the investment balances.
Tejas Securities' positive earnings were captured through increased
commissions, and were retained in the receivable from clearing broker,
resulting in an increase of $374,350. Investments in securities decreased by
$317,673 in 1997, which corresponds to the decrease of $398,666 in the payable
to the clearing organization, taking into account market value depreciation of
the securities. The net cash effect of these transactions is the use of
$455,343, with the
14
<PAGE> 16
remaining cash provided of $436,801 being net operating income plus changes in
other asset and liability accounts.
In 1996, the most significant change in cash was for the purchase of $952,092
in investment securities. This use of cash was offset by the $1,007,514
increase in the payable to the clearing organization. The net cash effect of
these transactions is $55,422 of cash provided, with the remaining $230,238 of
cash used being net operating income and changes in other assets and
liabilities.
The Company anticipates that a portion of the cash provided from future
operating activities of Tejas Securities might be used to facilitate additional
investing activities, specifically the expansion of current office space in
Austin and Atlanta or the expansion of future offices. Future proceeds from
cash provided from operating activities may also be used to finance acquisition
activities.
Results of future operating activities of Tejas Securities will impact the
deferred tax asset or liabilities recorded by the Company. The value of the
deferred tax assets or liabilities may require the use of cash to satisfy
federal and state tax liabilities.
Cash Flows Used In Investing Activities
Net cash provided (used) by investing activities was $(188,484), $63,335 and
$(82,477) in 1998, 1997 and 1996, respectively. The cash uses in 1998 are
directly the result of capital expenditures for office expansion in Austin,
Atlanta, and New York. During 1998, Tejas Securities opened an additional
office in New York as part of its expansion into the investment banking and
retail brokerage segments of the industry.
In 1997, Tejas Securities entered into a sale-leaseback transaction with a
related party, as discussed in Item 7. Tejas Securities sold furniture and
fixtures for the book value of approximately $204,000, which generated cash of
$204,267.
Cash Flows From Financing Activities
Net cash provided (used) by financing activities was $1,077,735, $(149,484) and
$398,889 in 1998, 1997 and 1996, respectively. Financing activities provided
$1,000,000 in cash during 1998 through the issuance of subordinated debt as
noted in Item 7. Of the $1,000,000 of debt issued in 1998, $500,000 was repaid
to the lender. In addition, Tejas Securities received $475,405 in proceeds from
common stock issuance to management, as well as $98,593 on the sale of treasury
stock to members of management.
In 1997, Tejas Securities received $250,000 from Joseph F. Moran for the
temporary financing of operating activities. Mr. Moran elected to have the
outstanding balance of the note payable converted into equity of Tejas
Securities. In addition, Tejas Securities sold treasury stock and received
$117,228 in proceeds from the sale. This was the final year that shareholder
distributions were paid as Tejas Securities elected to be taxed as a C
Corporation under the provisions of the Internal Revenue Code effective January
1, 1998. Tejas Securities paid $83,546 in shareholder distributions during
1997.
During 1996, Tejas Securities obtained $171,424, $154,576 and $122,491 through
the issuance of common stock, the sale of treasury stock, and contributions
received from shareholders, respectively. Tejas Securities also paid $49,602 to
shareholders in year-end distributions.
The Company may issue additional equity or debt securities in the future to
assist in the acquisition of additional businesses or expansion of current
offices.
Results Of Operations
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
15
<PAGE> 17
Total revenue for the six months ended June 30, 1999 increased 317% to $19.2
million as compared to $4.6 million for same period of the previous year.
Expenses before taxes for the six months ended June 30, 1999 increased 215% to
$14.5 million as compared to $4.6 million for the same period of the previous
year. Net income for the six months ended June 30, 1999 increased to $2.9
million compared to a net loss of $17,186 for the same period of the previous
year.
The increase in revenues for the six months ended June 30, 1999 is the result
of Tejas Securities' involvement in the telecommunications industry as both an
analyst and securities broker-dealer. Tejas Securities identified companies
within the telecommunications industry that had developed a technology and
customer base which it felt was essential to the ever increasing combination of
cable, wireless, satellite, digital and analog modes of communication. As these
technologies and customer bases became more valuable to the global providers of
telecommunication services, so did the underlying equity and debt securities of
the companies. In four circumstances, Tejas Securities identified companies
that were later involved in buyouts by various global telecommunication
companies. While Tejas Securities was not the only broker-dealer estimating the
potential value of these technologies and customer bases, Tejas Securities was
able to purchase significant quantities of the underlying debt and equity
securities for its own proprietary trading accounts and those of its customers.
As the buyouts progressed, Tejas Securities generated approximately $15 million
in commission revenue and trading profits during a two-month period.
The increase in expenses before taxes for the six months ended June 30, 1999
corresponds to the increased revenues during that period of time. Tejas
Securities' commission expense and clearing expense represent variable costs
that correspond to increases or decreases in commission and trading activity.
Commission expense and clearing expense during the six months ended June 30,
1999 were $9.9 million and $232,000, respectively, and represented 51% and 1% of
commission, underwriting and trading profits for that six month period. In
comparison, commission expense and clearing expense during the six months ended
June 30, 1998 were $2.4 million and $189,000, respectively, and represented 53%
and 4% of commission, underwriting and trading loss for that six month period.
In addition, Tejas Securities accrued for bonuses based on monthly pre-tax
profits during the six months ended June 30, 1999. The total accrual amounted to
$1.2 million versus an accrual of $115,000 during the same period of the
previous year.
For The Years Ended December 31, 1996, 1997 And 1998
During 1998, Tejas Securities' total revenue increased 58% to $10.2 million
from $6.5 million for 1997. Of the total increase in revenues, underwriting and
investment banking activity provided the largest increase of 243% over the
prior year. Commission revenue for 1998 increased 65% over the previous year.
The growth in underwriting and investment banking revenue and commission
revenue is attributed to the expansion of Tejas Securities into the New York
City, and Atlanta markets. These new markets allowed Tejas Securities the
opportunity to complete three initial public offerings and one preferred stock
offering during 1998. A byproduct to the investment banking activity was the
increase in securities inventory owned at year-end, including positions in the
companies underwritten. As the overall stock market declined during the fourth
quarter, so did the value of the securities inventory owned, thus resulting in
a trading loss of $299,166 at year-end.
Revenues increased 54% to $6.5 million in 1997 from $4.2 million in 1996,
primarily from the commencement of investment banking activities by Tejas
Securities. During 1997, Tejas Securities generated approximately $750,000 in
management and underwriting fees associated with initial public offerings. In
addition, Tejas Securities commission revenue increased from $3.6 million in
1996 to $4.8 million in 1997, primarily from the additional trading activity
associated with the initial public offerings.
The cost of expansion into new markets and the new products offered during 1998
had a significant impact on expenses as well. Commission expense increased 87%
from 1997 to 1998, and 76% from 1996 to 1997, while clearing costs increased
nearly 300% from 1997 to 1998, and 288% from 1996 to 1997. The increase in
commissions and clearing costs are attributed to the increased trading activity
and investment banking activity during 1998 and 1997. As a percentage of
commission revenue, commission expense during 1998
16
<PAGE> 18
was 75% versus 66% in 1997 and 50% in 1996. Clearing costs remained consistent
as a percentage of commission revenues at 4% in 1998 and 3% in 1997, versus 1%
in 1996.
In addition to the increased cost of conducting broker-dealer activities, Tejas
Securities realized an increase in other general and administrative costs
during 1998. Employee compensation increased 54% from 1997 to 1998, and 5% from
1996 to 1997. The increase in employee compensation during 1998 resulted from
the addition of general administrative and management personnel needed to
oversee operations in the New York, Atlanta and Dallas offices. The number of
general administrative and management personnel employed by Tejas Securities
during 1998 consisted of approximately twenty-two full time employees versus
fourteen full time employees during 1997. The number of general administrative
and management personnel grew between 1996 and 1997 from ten to fourteen full
time employees. Communications and occupancy costs, which include rent,
telephone services and market quotes and data, increased by 185% from
approximately $440,000 in 1997 to $817,000 in 1998, and 31% from approximately
$337,000 in 1996 to the 1997 amount. These costs are variable expenses that
increase with the number of personnel employed and the number of offices in
existence.
Overall, expenses before taxes for 1998 and 1997 increased by 80% and 35%,
respectively, to approximately $10,803,000, $6,004,000 and $4,464,000 for 1998,
1997 and 1996. Net income (loss) for the years 1998, 1997 and 1996 was
$(397,322), $474,035 and $(206,755), respectively.
Effective January 1, 1998, Tejas Securities elected to be taxed as a C
Corporation under the provisions of the Internal Revenue Code. For the year
ended December 31, 1998, income taxes were accounted for under the asset and
liability method, with adjustments to the asset or liability impacting the
statement of operations as a benefit or expense. For the year ended December 31,
1998, Tejas Securities recorded an expected tax benefit of $163,900. The
Company, prior to the merger, had a net operating loss carryforward of $59,133
as of December 31, 1998. As of June 30, 1999, the Company's net operating loss
carryforward was $63,966. The Company will use the net operating loss
carryforward to offset a portion of the tax liability incurred by Tejas
Securities as allowed by federal tax provisions. Future tax benefits or expenses
will be recorded based upon the enacted federal and state income tax rates
applicable to the Company.
Effects Of Inflation
The effects of inflation have been minimal on the results of operations and the
financial condition of Tejas Securities in recent years. However, the rising
cost of labor and competitive market for brokers could effect general and
administrative costs in the near term.
Year 2000 Compliance
Tejas Securities has a long-standing and continuing commitment to meeting the
needs of its customers, including addressing Year 2000 compliance issues. Tejas
Securities initiated its Year 2000 compliance project in early 1998. The
project was initiated in response to requirements by the SEC under amended Rule
17a-5 of the Securities Exchange Act of 1934, whereby all broker-dealers file a
series of Year 2000 readiness reports with the SEC and its designated examining
authority.
Tejas Securities' project includes the assessment of both hardware and software
systems used internally or relied upon externally. In addition, the project
encompasses the Year 2000 readiness of service providers and vendors of Tejas
Securities. In order to assess Tejas Securities' preparedness for Year 2000,
management completed an inventory of all software and hardware systems utilized
by employees on a daily basis. The products inventoried encompass the primary
business units and support functions of Tejas Securities: sales/trading,
research, finance, compliance and information technology. From this inventory,
management identified those systems that are considered mission critical for
the continuing operations of the broker-dealer.
To determine Year 2000 compliance of mission critical systems, Tejas Securities
requested written documentation from all of the applicable vendors that provide
products or services. All of Tejas Securities' outside vendors have responded
favorably to our requests regarding compliance with Year 2000. For
17
<PAGE> 19
internal systems, Tejas Securities has conducted testing of software and
hardware to ensure identification of Year 2000 dates. Management believes that
the results of our inquiries and testing procedures will assure a successful
transition into the Year 2000. However, ultimate success is based upon a number
of factors, including the following:
o Tejas Securities' ability to identify and correct potential Year 2000
deficiencies;
o the accuracy of representations by outside vendors;
o the degree of readiness of outside vendors; and
o the degree of compliance by telephone and other utility companies.
In the event of a worst case system failure, customers of Tejas Securities may
not be able to execute securities transactions, thereby exposing their
investments to additional market risk. Tejas Securities may also experience
additional market risk associated with its investment holdings in the event
trades cannot be executed.
Tejas Securities completed the majority of its Year 2000 compliance project by
June 30, 1999, including an inventory of systems, assessment of compliance, and
an impact analysis of non-compliant systems. A key element of the project is
the development of a disaster recovery plan and contingency plan in the event
of system failures. Tejas Securities has developed a contingency plan that
anticipates internal or external system shortfalls that could effect short-term
and long-term operations. In the event of an internal or external system
failure, Tejas Securities has developed alternative processing methods believed
to ensure the continuation of operations.
The cost of assessing Year 2000 compliance has been absorbed by Tejas
Securities through internal payroll. No significant costs have been incurred
for the replacement of equipment or services as all of Tejas Securities'
mission critical systems are maintained by outside vendors that replaced
non-compliant systems or equipment at no cost. The Company estimates that no
significant costs will be incurred to address Year 2000 compliance issues
associated with Tejas Securities.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. The Company is required to implement this standard effective with
its 2000 fiscal year. SFAS 133 addresses the accounting for derivative
instruments, including certain instruments embedded in other contracts, and for
hedging activities. Under this Statement, the Company will be required to
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those at fair value. If certain
conditions are met a derivative may be specifically designated as a hedge, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-dominated forecasted transaction. The Company does not believe
that this Statement will have a material effect on its financial position or
results of operations.
ITEM 3. PROPERTIES.
Tejas Securities leases space for its offices in Austin, Texas, Atlanta,
Georgia and New York, New York. Future commitments associated with the leases
are included in the footnotes to the financial statements. These leases are for
terms of four years, five years, and five years, respectively, and contain
renewal options. Tejas Securities' headquarters are located at 1250 Capital of
Texas Highway South, Austin, Texas, and consists of approximately 7,800 square
feet. Tejas Securities' Atlanta office is located at 12725 Morris Road, Suite
100, Alpharetta, Georgia, and consists of approximately 2,500 square feet. The
New York office is located at 1 World Trade Center, New York, New York, and
consists of approximately 6,000 square feet. Tejas Securities has entered into
a lease for 24,700 square feet in Austin, Texas and will relocate its corporate
headquarters to that space in December 1999. Tejas Securities will attempt to
sublease its current Austin, Texas office space.
18
<PAGE> 20
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides information at September 30, 1999 with respect to
ownership of the Common Stock, by each beneficial owner of five percent or more
of the Common Stock, each director of the Company, each of the named executive
officers and all directors and officers as a group. Except as indicated on the
footnotes to this table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER PERCENT
- ------------------- ------ -------
<S> <C> <C>
John J. Gorman (1) 5,781,936 46.12%
Jay W. Van Ert (1) 1,145,495 9.14%
Joseph F. Moran (1) 2,482,621 19.80%
John R. Ohmstede (2) 789,435 6.30%
Gregory D. Woodby (1) 248,250 1.98%
A. Reed Durant (1) -- --
John F. Garber (1) -- --
Charles H. Mayer (1) -- --
Neil Ragin (3) 37,808 *
All officers and directors as a group 9,658,302 77.04%
(9 total)
</TABLE>
- ------------------------------
* Less than 1%.
(1) The address for Messrs. Gorman, Van Ert, Moran, Woodby, Durant, Garber
and Mayer is 1250 Capital of Texas Highway South, Suite 500, Austin,
Texas 78746.
(2) The address for Mr. Ohmstede is 5905 Overlook Drive, Austin, Texas
78731.
(3) The address for Mr. Ragin is 134 West 72nd Street, New York, New York,
10023. Mr. Ragin resigned as President, Treasurer and Director of the
Company effective August 26, 1999.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following information sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John J. Gorman 39 Director, Chairman and Chief Executive Officer
Jay W. Van Ert 38 Director and President
Joseph F. Moran 38 Director, Vice Chairman, Managing Director
Charles H. Mayer 52 Director and Chief Operating Officer
Gregory D. Woodby 38 Secretary and Treasurer
A. Reed Durant 44 Director of Compliance
John F. Garber 29 Director of Finance
Barry A. Williamson 42 Director
Clark N. Wilson 42 Director
</TABLE>
19
<PAGE> 21
JOHN J. GORMAN. Mr. Gorman became Chairman of the Board of Directors and Chief
Executive Officer of the Company in August 1999. He has been the Chairman and
Chief Executive Officer of Tejas Securities since July 1997. Mr. Gorman has over
16 years of experience in the brokerage industry. Mr. Gorman became a principal
of Tejas Securities on April 18, 1995. Prior to joining Tejas Securities, he was
Senior Vice President at APS Financial Inc. Mr. Gorman has held positions at
APS Financial Inc., Landmark Group, Shearson Lehman and Dean Witter. In
addition, Mr. Gorman serves on the Board of Directors of Lincoln Heritage
Corporation, a publicly traded company. Mr. Gorman is the nephew of Charles H.
Mayer through marriage. Mr. Gorman received his B.B.A. from Southern Methodist
University in 1983.
JAY W. VAN ERT. Mr. Van Ert became the President and a Director of the Company
in August 1999. Mr. Van Ert joined Tejas Securities in 1995 as Director of
Research, was elected to the Board of Directors in 1997, and was named
President in May 1998. Mr. Van Ert has spent in excess of fifteen years in the
investment industry. Prior to joining Tejas Securities, Mr. Van Ert was
employed from 1989 to 1995 as a Vice President with T. Rowe Price Associates
Inc. where he served as an Analyst, Portfolio Manager and Director of High
Yield Research. Mr. Van Ert earned a B.B.A. in Finance from the University of
Texas in 1983 and an M.B.A. from Southern Methodist University in 1984.
JOSEPH F. MORAN. Mr. Moran became the Vice Chairman of the Board of Directors
and Managing Director of the Company in August 1999. Mr. Moran joined Tejas
Securities in January 1996 as Senior Vice President of Fixed Income Sales. He
was elected to the Board of Directors of Tejas Securities in 1997 as Managing
Director and recently was named Vice Chairman of the Board. In the twelve years
prior to joining Tejas Securities, Mr. Moran served in many capacities with
other brokerage firms, most recently with APS Financial Inc. Mr. Moran received
his B.B.A. from Baylor University in 1984.
CHARLES H. MAYER. Mr. Mayer joined the Company in September 1999 as the Chief
Operating Officer and a Director. From 1995 until he joined Tejas Securities,
Mr. Mayer was an investor in a number of companies not related to the securities
industry. From 1990 to 1995, Mr. Mayer was the Managing Director and Chief
Information Officer with CS First Boston. Other experience includes 21 years in
senior positions with Morgan Stanley, Tech Partners, Salomon Brothers, Lehman
Brothers and the Federal Reserve Bank of New York. Mr. Mayer earned a BBA and
MBA from Seton Hall University.
GREGORY D. WOODBY. Mr. Woodby became the Secretary and Treasurer of the Company
in August 1999. Mr. Woodby joined Tejas Securities in January 1996 as Director
of Fixed Income Trading and was elected to the Board of Directors of Tejas
Securities in 1997 as Secretary. Prior to joining Tejas Securities, Mr. Woodby
spent twelve years in the brokerage industry, most recently with APS Financial
Inc. Mr. Woodby graduated from Baylor University earning a B.B.A. in Management
in 1983.
A. REED DURANT. Mr. Durant became the Director of Compliance for the Company in
August 1999. Mr. Durant joined Tejas Securities in November 1998 as the
Compliance Director. Prior to joining Tejas Securities, Mr. Durant worked as
Senior Compliance Examiner for the NASD in the Regulation and Enforcement area.
Mr. Durant brings over 20 years experience in the securities industry to the
Company, including 8 years as Compliance Director of a 400-broker, 30-branch
NYSE member firm. Mr. Durant graduated from Texas Tech University with a BA in
economics.
JOHN F. GARBER. Mr. Garber became the Director of Finance for the Company in
August 1999. Mr. Garber joined Tejas Securities in October 1998 as Director of
Finance. He has been involved in the brokerage industry since 1996, most
recently as the Controller of Loewenbaum & Co., Inc. Prior to joining Loewenbaum
& Co., Inc. in April 1998, he was employed by KPMG LLP from 1995 to 1998 as a
supervising auditor in the financial assurance department. In addition, Mr.
Garber serves as the Financial and Operations Principal of Tejas Securities for
regulatory reporting purposes. Mr. Garber graduated from the University of
Florida in 1992 with a B.S.B.A. in Finance. He is a Certified Public Accountant
and a member of the Texas Society of Certified Public Accountants.
20
<PAGE> 22
BARRY A. WILLIAMSON. Mr. Williamson became a Director of the Company in October
1999. Mr. Williamson was elected in 1992 as the 38th Texas Railroad Commissioner
and served from January 1993 to January 1999. He served as the Commission's
Chairman in 1995. During the late 1980's and early 1990's, Mr. Williamson served
under the Bush administration at the U.S. Department of Interior as the Director
of Minerals Management Service. Under President Bush, he managed mineral leases
on the nation's 1.4 billion-acre continental shelf and oversaw an annual budget
of almost $200 million. During the 1980's, Mr. Williamson served under the
Reagan administration as a principle advisor to the U.S. Secretary of Energy in
the creation and formation of a national energy policy. Mr. Williamson began his
career with the firm of Turpin, Smith, Dyer & Saxe, and in 1985 established the
Law Offices of Barry Williamson and founded an independent oil and gas company.
Mr. Williamson graduated from the University of Arkansas with a B.A. in
Political Science in 1979, and received his J.D. degree from the University of
Arkansas Law School in 1982.
CLARK N. WILSON. Mr. Wilson became a Director of the Company in October 1999.
Mr. Wilson is the President and Chief Executive Officer of Clark Wilson Homes,
Inc., a subsidiary of Capital Pacific Holdings. Previously, Mr. Wilson was the
President of Doyle Wilson Homebuilder, Inc., serving in that position in 1992.
Mr. Wilson served as Vice President of Doyle Wilson homebuilder, Inc. from 1986
to 1992. Mr. Wilson took Doyle Wilson Homebuilder, Inc. through a turbulent
market and formed Clark Wilson Acceptance Corporation in 1989 as a finance
corporation, personally financing over $35,000,000 of construction loans for
Doyle Wilson Homebuilder, Inc. Mr. Wilson has won numerous MAX awards between
1994 and 1998, including the MAX Award for Grand Builder of the Year and best
Quality Project in 1994. Mr. Wilson is a Life Member of the National
Association of Homebuilders Spike Club. Mr. Wilson attended Amarillo College
and the University of Texas at Austin, and has nearly twenty-five years of
experience in the homebuilding industry.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served as a member of the compensation or
similar committee or Board of Directors of any other entity, other than the
Company's subsidiaries, of which an executive officer served on the
Compensation Committee or Board of Directors of the Company.
21
<PAGE> 23
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICER COMPENSATION
The following executive officers of the Company received cash compensation in
the form of salary, bonus or commissions in excess of $100,000 during 1998,
1997 and 1996. None of the executive officers received any stock awards during
the years ended December 31, 1998, 1997 or 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name and Principal
Position Year Salary Bonus Forgiven Debt Commissions
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John J. Gorman 1998 $125,000 $ 0 $135,114 $ 709,309
Chairman and Chief 1997 0 261,000 0 643,688
Executive Officer 1996 0 0 0 790,272
- ------------------------------------------------------------------------------------------------------------------
Jay W. Van Ert 1998 183,333 0 0 47,255
Director and President 1997 120,000 75,000 0 44,010
1996 172,500 0 0 53,090
- ------------------------------------------------------------------------------------------------------------------
Gregory D. Woodby 1998 100,000 500 0 76,748
Secretary and Treasurer 1997 85,000 40,000 0 59,481
1996 75,000 35,000 0 42,395
- ------------------------------------------------------------------------------------------------------------------
Joseph F. Moran 1998 0 0 0 1,023,280
Managing Director 1997 0 0 0 977,890
and Vice Chairman 1996 330,000 0 0 659,303
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
DIRECTOR COMPENSATION
Prior to the Merger, the directors of the Company did not receive compensation
for their service on the Board of Directors. Following the Merger, the initial
directors of the Company requested that Mr. Wilson and Mr. Williamson serve as
directors. As part of their incentive to join the Board, Mr. Wilson and Mr.
Williamson were each provided with options to purchase 100,000 shares of Common
Stock. The options are exercisable at $2.00 per share and expire on August 27,
2004. The options vest over a three-year period, commencing on August 27, 1999.
Currently no other directors of the Company receive any form of cash or non-cash
compensation for fulfilling their roles on the Board of Directors of the
Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SALE LEASEBACK
In September 1997, Tejas Securities entered into a sale-leaseback transaction
with Sandy Hook Management, a company owned by Charles H. Mayer, a member of the
Board of Directors. Tejas Securities sold furniture and fixtures with a book
value of approximately $204,000. Under the terms of this transaction, Tejas
Securities agreed to lease the furniture and fixtures commencing in October 1998
through September 2000. Tejas Securities makes monthly lease payments of $6,372
to Sandy Hook Management and has an option to purchase the furniture and
fixtures at a discounted price in September 2000.
SUBORDINATED DEBT
Tejas Securities issued subordinated debt in September 1998 in exchange for
$500,000 from Clark Wilson, a current member of the Board of Directors. The
transaction is described in Item 2. Financial Information - "Liquidity and
Capital Resources."
Tejas Securities completed the second issuance of subordinated debt in June
1999 in exchange for $500,000 from Clark Wilson. The transaction is described
in Item 2. Financial Information - "Liquidity and Capital Resources."
22
<PAGE> 24
TSG INTERNET FUND I, LTD.
In April 1999, John J. Gorman, Jay W. Van Ert, Joseph F. Moran, Clark N. Wilson
and Gregory D. Woodby, along with three other owners of less than 5% of Tejas
Securities, established TSG Capital, LLC (the "General Partner"), a Texas
limited liability company, for the purpose of acting as general partner of TSG
Internet Fund I, LTD. (the "Fund"), a Texas limited partnership. In addition to
the investment in the General Partner, Messrs, Gorman, Van Ert, Moran and Wilson
invested as limited partners in the Fund. Their contributions were as follows:
Mr. Gorman $200,000; Mr. Van Ert $120,520; Mr. Moran $200,000; and Mr. Wilson
$100,000. John Ohmstede, a beneficial owner of more than 5% of Tejas Securities,
also invested $200,000 in the Fund as a limited partner through a Trust. The
total capital contribution by the General Partner was less than $50,000.
TSG Capital, LLC acts as the general partner of the Fund and has no other
operations. The managers and principal executive officers include Jay W. Van Ert
and A. Reed Durant who are also officers of the Company, Tejas Holding and Tejas
Securities. The General Partner receives a management fee equal to .375% of the
average monthly net asset value of the Fund after the end of a fiscal quarter.
In addition, the General Partner receives a performance fee equal to 20% of the
annual net profits of the Fund after the end of each fiscal year. Tejas
Securities receives a monthly management fee in exchange for providing services
to the General Partner for investment management, compliance and accounting and
reporting. In order to facilitate the closing of the Fund, Tejas Securities
advanced to the General Partner $357,099, of which $286,719 was repaid to Tejas
Securities, as investor funds became available. The remaining balance of $70,380
is included as a receivable from an affiliate on the statement of financial
condition of Tejas Securities.
The Fund engaged Tejas Securities to solicit subscriptions for the initial
$2,500,000 private placement of limited partnership interests in the Fund. In
exchange for acting as the placement agent, Tejas Securities received a
placement agent fee equal to 5% of the total initial capital contributions to
the Fund. The total placement agent fee equaled $136,025 and was paid in May
1999.
EMPLOYEE CASH ADVANCES
Tejas Securities makes cash advances to certain employees from time to time,
which are typically secured and repaid from commissions. During 1998, Tejas
Securities forgave approximately $135,000 in advances receivable from John J.
Gorman as described in Note 8 to the accompanying 1998 Financial Statements.
SALE OF STOCK TO EMPLOYEES
In April 1999, Tejas Securities issued an additional 1,006,975 shares of its
common stock with a value of $704,833 to employees and management of Tejas
Securities. Of the shares issued, 410,000 shares were issued to directors or
executive officers of Tejas Securities at a purchase price of $0.70 per share.
The transaction was recorded as a stock subscription receivable, and was
collected in full by August 1999. The following reflects the April 1999
issuance of common stock to directors or executive officers of Tejas
Securities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Director/Executive
Officer Shares Subscribed Subscription Price
- -------------------------------------------------------------------------------
<S> <C> <C>
John J. Gorman 100,000 $70,000
Jay W. Van Ert 100,000 $70,000
Joesph F. Moran 100,000 $70,000
Gregory D. Woodby 60,000 $42,000
A. Reed Durant 25,000 $17,500
John F. Garber 25,000 $17,500
- -------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 25
John J. Gorman was named to the Board of Directors of Lincoln Heritage
Corporation in August 1999. Currently, Mr. Gorman owns common stock and stock
purchase warrants with a combined value in excess of $60,000. Tejas Securities
acted as managing underwriter in Lincoln Heritage's IPO and currently owns less
than 5% of the common equity of Lincoln Heritage.
ITEM 8. LEGAL PROCEEDINGS.
In June 1999, Starlight Entertainment, Inc., has submitted a claim in an
arbitration proceeding for damages in the amount of $6,800,000 for the failed
underwriting of a public offering of Starlight's common stock. The amount of
Starlight's claim is based upon the gross receipts that were expected from the
proposed public offering less the underwriting commission plus attorney's fees.
Tejas Securities' counsel has reviewed the complaint and is preparing an answer
with respect to the arbitration. Tejas Securities believes the complaint to be
without merit.
There are no other liabilities arising from claims or legal actions that
management believes would have a significant adverse effect on the financial
condition or results of operations of Tejas Securities.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
THE RELATED SHAREHOLDER MATTERS.
The Company's stock has not traded on an exchange or bulletin board since its
inception. The Company is in the process of registering its securities and
receiving approval to trade on the American Stock Exchange. There are no high
and low bid quotations available on the Company for the most recent fiscal
year.
The Company has not paid cash or stock dividends and has no present plan to pay
any such dividends. Currently, the Company intends to reinvest its earnings in
order to facilitate expansion. The likelihood of future dividends will be
decided by the Board of Directors and will be based upon the Company's future
earnings, financial condition and capital requirements. Tejas Securities paid
$83,546 and $49,602 in shareholder distributions for the years ending December
31, 1997 and 1996, respectively, at which time it was an S corporation.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Certain securities sold by the registrant during the last three years have not
been registered under the Securities Act. The holders of the securities
referred to below agreed to take their securities for investment and not with a
view to the distribution thereof. The certificates representing the securities
contained legends identifying certain restrictions on the transferability
thereof. The following information gives effect to the 2.4825 for one stock
exchange effective as of August 27, 1999.
Common Stock
The following sets forth information pertaining to sales of Common Stock by the
registrant during the last three years. There were no underwriting discounts or
commissions on the sale of the Common Stock. Exemption from registration of the
shares of Common Stock listed below is claimed under Section 4(2) of the
Securities Act.
24
<PAGE> 26
<TABLE>
<CAPTION>
Purchaser Date Shares Consideration
--------- ---- ------ -------------
<S> <C> <C> <C>
John J. Gorman August 27, 1999 5,781,936 2,329,078 shares of Tejas
Holding common stock
Joseph F. Moran August 27, 1999 2,482,621 1,000,049 shares of Tejas
Holding common stock
Jay W. Van Ert August 27, 1999 1,145,495 461,428 shares of Tejas
Holding common stock
John R. Ohmstede August 27, 1999 789,435 318,000 shares of Tejas
Holding common stock
John J. Glade August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Michael Hidalgo August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Jon S. McDonald August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Britt Rodgers August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Bob Sternberg August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Mike Wolf August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
Gregory D. Woodby August 27, 1999 248,250 100,000 shares of Tejas
Holding common stock
</TABLE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The description of the Common Stock and the provisions of the Company's
Certificate of Incorporation and Bylaws is only a summary and is qualified by
reference to its Certificate of Incorporation and Bylaws filed as exhibits
hereto.
The Company's authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share held of record in
the election of members of the Company's Board of Directors and for all other
matters submitted to a vote of shareholders.
Shareholders are entitled to receive, when and if declared by the Board of
Directors, dividends and other distributions in cash, stock or property from
the Company's assets or funds legally available for those purposes. The Common
Stock does not have any sinking fund provisions, redemption provisions, or
preemptive rights. All outstanding shares of Common Stock are fully paid and
non-assessable. In the event of the Company's liquidation, dissolution or
winding up, holders of Common Stock are entitled to share ratably in the assets
available for distribution.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Corporate Stock
Transfer at 370 17th Street, Denver, Colorado.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The general corporate law of New York, the jurisdiction in which the
Company is incorporated, provides, under certain circumstances, for
indemnification of the directors or officers of a New York
25
<PAGE> 27
corporation for expenses incurred in connection with the defense of any action,
suit or proceeding, in relation to certain matters brought against them as such
directors and officers. Article 5 of the Company's Bylaws provide
indemnification of directors and officers under certain circumstances. In
addition, the Company maintains insurance policies which insure its officers and
directors against certain liabilities.
Those provisions may be sufficiently broad to indemnify officers and
directors for liabilities under the securities laws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company are itemized under Item 15. Financial
Statements and Exhibits.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
See Exhibit 16.1.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
26
<PAGE> 28
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
TEJAS SECURITIES GROUP, INC.
FINANCIAL STATEMENTS:
Independent Auditors' Report....................................................... F-1
Statements of Financial Condition.................................................. F-2
Statements of Operations........................................................... F-3
Statements of Stockholders' Equity................................................. F-4
Statements of Cash Flows........................................................... F-5
Notes to Financial Statements...................................................... F-6
INTERIM FINANCIAL STATEMENTS:
Statements of Financial Condition as of December 31, 1998
and June 30, 1999 (Unaudited).................................................. F-14
Statements of Operations for the Six Months Ended June 30, 1999
and 1998 (unaudited)........................................................... F-15
Statements of Stockholders' Equity for the Six Months Ended
June 30, 1999 and 1998 (unaudited)............................................. F-16
Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 (unaudited)........................................................... F-17
Notes to Unaudited Financial Statements............................................ F-18
PRO FORMA FINANCIAL STATEMENTS:
Unaudited Pro Forma Combined Financial Information................................. F-20
Pro Forma Combined Statement of Financial Condition as of December
31, 1998 (unaudited)........................................................... F-21
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1998
(unaudited).................................................................... F-22
Pro Forma Combined Statement of Financial Condition as of June 30, 1999
(unaudited).................................................................... F-23
Pro Forma Combined Statement of Operations for the Six Months Ended
June 30, 1999 (unaudited)...................................................... F-24
Notes to Unaudited Pro Forma Combined Financial Information........................ F-25
</TABLE>
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tejas Securities Group, Inc:
We have audited the accompanying statements of financial condition of Tejas
Securities Group, Inc. (the "Corporation") as of December 31, 1998 and 1997, and
the related statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tejas Securities Group, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Austin, Texas
February 12, 1999
F-1
<PAGE> 30
TEJAS SECURITIES GROUP, INC.
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 201,312 170,474
Receivable from clearing brokers, partially restricted 1,468,424 825,707
Securities owned 1,539,424 634,419
Furniture and equipment, net 209,431 59,057
Deferred tax assets 178,500 --
Other assets 345,136 284,921
------------ ------------
Total assets $ 3,942,227 1,974,578
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 577,736 141,330
Subordinated debt 500,000 --
Payable to clearing organization 1,459,678 608,848
------------ ------------
Total liabilities 2,537,414 750,178
------------ ------------
Stockholders' equity:
Preferred stock, no par value, convertible
1,000,000 shares authorized in 1998; none issued
and outstanding -- --
Common stock, no par value
10,000,000 shares authorized; 4,679,152 and
3,858,887 shares issued and outstanding in 1998
and 1997, respectively 1,473,071 946,878
Subscriptions receivable (96,263) (100,000)
Treasury stock, at cost, 141,113 shares in 1997 -- (47,805)
Retained earnings 28,005 425,327
------------ ------------
Total stockholders' equity 1,404,813 1,224,400
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 3,942,227 1,974,578
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 31
TEJAS SECURITIES GROUP, INC.
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Commissions $ 7,932,780 4,810,520 3,648,255
Underwriting and investment banking income 2,584,770 752,554 --
Net dealer inventory and investment income (299,166) 924,587 567,537
Other income 23,530 9,248 41,720
------------ ------------ ------------
Total revenue 10,241,914 6,496,909 4,257,512
------------ ------------ ------------
Expenses:
Commissions 5,921,426 3,165,701 1,797,637
Other employee compensation and benefits 2,085,937 1,293,719 1,651,063
General and administrative 2,795,773 1,544,446 1,015,567
------------ ------------ ------------
Total expenses 10,803,136 6,003,866 4,464,267
------------ ------------ ------------
Income (loss) before income tax expense (benefit) (561,222) 493,043 (206,755)
Income tax expense (benefit):
Federal:
Current -- -- --
Deferred (178,500) -- --
State 14,600 19,008 --
------------ ------------ ------------
(163,900) 19,008 --
------------ ------------ ------------
Net income (loss) $ (397,322) 474,035 (206,755)
============ ============ ============
Pro forma earnings (loss) per share (note 11):
Basic earnings (loss) per share:
Net income (loss) $ (0.04) 0.04 (0.03)
============ ============ ============
Weighted average shares outstanding 9,435,429 8,416,728 5,189,072
============ ============ ============
Diluted earnings (loss) per share:
Net income (loss) $ (0.04) 0.04 (0.03)
============ ============ ============
Weighted average shares outstanding 9,435,429 8,416,728 5,189,072
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 32
TEJAS SECURITIES GROUP, INC.
Statements of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
COMMON SUBSCRIPTIONS TREASURY RETAINED
SHARES STOCK RECEIVABLE STOCK EARNINGS TOTAL
---------- ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,987,096 $ 549,760 -- (133,240) 291,195 707,715
Stock issuances 1,103,467 171,424 -- -- -- 171,424
Treasury stock sales 909,437 21,336 -- 133,240 -- 154,576
Stockholder contributions -- 122,491 -- -- -- 122,491
Stockholder distributions -- -- -- -- (49,602) (49,602)
Net loss -- -- -- -- (206,755) (206,755)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 4,000,000 865,011 -- -- 34,838 899,849
Treasury stock purchases (540,686) -- -- (183,166) -- (183,166)
Treasury stock sales 399,573 81,867 (100,000) 135,361 -- 117,228
Stockholder distributions -- -- -- -- (83,546) (83,546)
Net income -- -- -- -- 474,035 474,035
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 3,858,887 946,878 (100,000) (47,805) 425,327 1,224,400
Stock issuances 679,152 475,405 -- -- -- 475,405
Treasury stock sales 141,113 50,788 -- 47,805 -- 98,593
Subscription collected -- -- 3,737 -- -- 3,737
Net loss -- -- -- -- (397,322) (397,322)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 4,679,152 $1,473,071 (96,263) -- 28,005 1,404,813
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 33
TEJAS SECURITIES GROUP, INC.
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (397,322) 474,035 (206,755)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Deferred tax benefit (178,500) -- --
Depreciation expense 38,110 39,834 30,783
Increase in receivable from clearing brokers (642,717) (374,350) (116,176)
Decrease (increase) in other assets (126,324) (2,980) 3,803
Decrease (increase) in receivables from employees
and shareholders 135,949 (262,448) 150,000
Decrease (increase) in other receivables (69,840) 85,510 (85,510)
Decrease (increase) in trading account securities (905,005) 317,673 (952,092)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 436,406 102,850 (6,383)
Increase (decrease) in payable to clearing organization 850,830 (398,666) 1,007,514
------------ ------------ ------------
Net cash used by operating activities (858,413) (18,542) (174,816)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of furniture and equipment -- 204,268 --
Purchase of furniture and equipment (188,484) (140,933) (82,477)
------------ ------------ ------------
Net cash provided (used) by investing activities (188,484) 63,335 (82,477)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and subordinated debt 1,000,000 250,000 --
Principal payments on notes payable (500,000) (433,166) --
Sale of treasury stock 98,593 117,228 154,576
Stockholder distributions paid -- (83,546) (49,602)
Stockholder contributions -- -- 122,491
Subscription collected 3,737 -- --
Proceeds from stock issuances 475,405 -- 171,424
------------ ------------ ------------
Net cash provided (used) by financing activities 1,077,735 (149,484) 398,889
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 30,838 (104,691) 141,596
Cash and cash equivalents at beginning of year 170,474 275,165 133,569
------------ ------------ ------------
Cash and cash equivalents at end of year $ 201,312 170,474 275,165
============ ============ ============
Supplemental disclosures:
Interest paid $ 65,427 97,219 12,946
Taxes paid $ 23,738 22,829 1,518
</TABLE>
In 1997, the Corporation assumed $183,166 of stockholder obligations in return
for 540,686 shares of its common stock.
In 1997, the Corporation issued 100,000 shares of common stock in exchange for a
$100,000 note receivable.
See accompanying notes to financial statements.
F-5
<PAGE> 34
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND BASIS OF PRESENTATION
Tejas Securities Group, Inc. (the Corporation) was incorporated on March
2, 1994 under the laws of the State of Texas. The Corporation is
registered as a broker and dealer in securities with the National
Association of Securities Dealers, Inc. and clears its transactions on a
fully disclosed basis through Schroder & Co., Inc. The Corporation
maintains offices in Austin, Texas; New York, New York and Atlanta,
Georgia.
Effective May 1, 1998 the Corporation increased authorized shares of
common stock to 10,000,000 shares and authorized 1,000,000 shares of
convertible preferred stock. Also, effective May 1, 1998, the Corporation
declared a stock split. Owners of the 21,543 shares issued and
outstanding as of May 1, 1998 received new shares equal to their current
ownership percentages, resulting in 4,000,000 shares of common stock
issued as a result of the stock split. The effects of the stock split
have been given retroactive effect in the accompanying financial
statements.
The 1,000,000 convertible preferred shares may be issued from time to
time and will have the designations, preferences, voting powers,
relative, participating, optional or other special rights and privileges
and the qualifications, limitations, and restrictions as determined by
the Board.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES TRANSACTIONS
Securities transactions and the related commission revenue and expense
are recorded on a trade date basis.
The Corporation does not carry or clear customer accounts, and all
customer transactions are executed and cleared with other brokers on a
fully disclosed basis. These brokers have agreed to maintain such records
of the transaction effected and cleared in the customers' accounts as are
customarily made and kept by a clearing broker pursuant to the
requirements of Rules 17a-3 and 17a-4 of the Securities and Exchange
Commission, and to perform all services customarily incident thereto.
INVESTMENT BANKING
Investment banking revenues include gains, losses, and fees, net of
syndicate expenses, arising from securities offerings in which the
Corporation acts as an underwriter or agent. Investment banking revenues
also include fees earned from providing merger-and-acquisition and
advisory services. Investment banking management fees are recorded on
offering date, sales concessions on settlement date, and underwriting
fees at the time the underwriting is completed and the income is
reasonably determinable.
SECURITIES OWNED
Long and short positions in securities are reported at market value. The
difference between cost and market has been included in net dealer
inventory and investment income. These investments are subject to the
risk of failure of the issuer and the risk of changes in market value
based on the ability to trade such securities on the open market.
F-6
<PAGE> 35
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are treated as financing transactions
and are carried at the amounts at which the securities will be
subsequently reacquired or resold as specified in the respective
agreements. There were no repurchase or resale agreements outstanding at
December 31, 1998, 1997 and 1996.
FEDERAL INCOME TAXES
Effective January 1, 1998, the Corporation elected to be taxed as a C
Corporation under the provisions of the Internal Revenue Code.
For the year ended December 31, 1998, income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. There were no significant deferred tax asset
or deferred tax liabilities as of January 1, 1998.
Prior to January 1, 1998, the Corporation elected to be taxed as an S
corporation under the provisions of Subchapter S of the Internal Revenue
Code. As a result, all Federal income tax expense and liability was paid
by the shareholders of the Corporation for the years ended December 31,
1997 and 1996, respectively. The amounts included as income tax expense
in the accompanying statement of operations for the year ended December
31, 1997 is a result of the income component of the Texas franchise tax
which is computed at approximately 4.5% of income before income taxes.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION
The Corporation measures compensation expense for options granted using
the intrinsic value method. The Corporation provides pro forma
disclosures of net income (loss) and earnings (loss) per share as if the
fair value method had been applied.
F-7
<PAGE> 36
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(3) NET CAPITAL REQUIREMENTS
The Corporation, as a registered fully licensed broker and dealer in
securities, is subject to the Securities and Exchange Commission Uniform
Net Capital Rule (Rule 15c3-1). Under this rule, the Corporation is
required to maintain a minimum "net capital" to satisfy rule 15c3-1. The
minimum "net capital" requirement for the Corporation was $100,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. "Net
capital" at December 31, 1998 aggregated $842,544. "Net capital" at
December 31, 1997 aggregated $703,302. "Net capital" at December 31, 1996
aggregated $385,677.
(4) LEASE COMMITMENTS
The Corporation leases its office facilities and certain office equipment
under operating leases. The future minimum payments due under these
operating leases as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 743,970
2000 581,851
2001 398,763
2002 366,354
2003 256,347
Thereafter 132,523
-----------
$ 2,479,808
===========
</TABLE>
Rent expense amounted to approximately $515,000, $265,000 and $92,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
On September 30, 1997, the Corporation entered into a sale-leaseback
transaction with a related party, whereby the Corporation sold furniture
and fixtures for their book value of approximately $204,000. As part of
this transaction, the Corporation agreed to lease the furniture and
fixtures commencing on October 1, 1998 through September 30, 2000.
Payments of $6,373 per month are due under the lease agreement and are
included in the above schedule.
(5) PROFIT SHARING AND STOCK OPTION PLANS
PROFIT SHARING PLAN
In January 1997, the Corporation instituted a profit sharing plan under
section 401(k) of the Internal Revenue Code. The plan allows all
employees who are over 21 years old to defer a predetermined portion of
their compensation for federal income tax purposes. Contributions by the
Corporation are discretionary. For the years ended December 31, 1998 and
1997, the Corporation made approximately $84,000 and $7,000,
respectively, of contributions to the plan.
STOCK OPTIONS
The Corporation grants options to employees for its common stock. As
provided by Financial Accounting Standards Board Statement No. 123, the
Corporation elected to continue to apply APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
F-8
<PAGE> 37
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
During 1995, options for up to 2 percent of total shares issued and
outstanding were granted for employees who met certain requirements for
two years. In addition, employees who met certain other requirements for
two years could purchase up to 5 percent of the total shares issued and
outstanding. One employee exercised the options in 1997, and purchased 3
percent of the total shares issued and outstanding. No compensation cost
was recognized for the options granted.
During 1996, two employees were granted options, vesting in 1997, to
purchase up to 2 percent and 1 percent of total shares issued and
outstanding. The option for 1 percent was exercised in 1997 and resulted
in the purchase of 40,000 shares. The other option was revoked by the
employee upon delivery of stock by a shareholder. No compensation cost
was recognized for the options granted.
During 1997, three employees were granted options, vesting in 1997, to
purchase up to 5 percent, 2.5 percent and 1 percent, respectively, of the
total shares issued and outstanding on the grant date. Two of the options
were fully exercised during 1997, resulting in the purchase of 140,000
shares. For the remaining option, one-half of the 5 percent option (or
2.5 percent) was exercised resulting in the purchase of 100,000 shares.
The remaining options total 100,000 shares at a price of $0.50 per share
and expires in September 1999. No compensation cost was recognized for
the options granted. During 1998, no options were exercised, and no new
options were granted.
Had the Corporation recorded compensation expense related to these
options under the fair value method, compensation expense would have
increased by approximately $8,000 and $4,000 for the years ended December
31, 1997 and 1996, respectively. Compensation expense was estimated in
accordance with the provisions of Financial Accounting Standards Board
Statement No. 123, using a 7.25 percent risk-free rate and an expected
dividend of 8 percent per year. The compensation expense for each option
grant was individually calculated.
A summary of the Corporation's stock option and warrant activity, and
related information for the years ended December 31, follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 100,000 $0.50 120,000 $0.10 120,000 $0.10
Granted 0 $0.00 459,946 $0.56 0 $0.00
Exercised 0 $0.00 (360,000) $0.49 0 $0.00
Forfeited 0 $0.00 (119,946) $0.36 0 $0.00
Outstanding - end of year 100,000 $0.50 100,000 $0.50 120,000 $0.10
Exercisable - end of year 100,000 $0.50 100,000 $0.50 120,000 $0.10
</TABLE>
F-9
<PAGE> 38
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 0 $0.00 0 $0.00 0 $0.00
Granted 112,500 $2.65 0 $0.00 0 $0.00
Outstanding - end of year 112,500 $2.65 0 $0.00 0 $0.00
Exercisable - end of year 112,500 $2.65 0 $0.00 0 $0.00
</TABLE>
F-10
<PAGE> 39
(6) OFF STATEMENT of FINANCIAL CONDITION RISK
The Corporation is responsible to its clearing broker for payment of all
transactions executed both on its behalf and on behalf of its customers.
Therefore, the Corporation is exposed to off statement of financial
condition risk in the event a customer cannot fulfill its commitment and
the clearing broker must purchase or sell a financial instrument at
prevailing market prices. The Corporation and its clearing broker seek to
control risk associated with customer transactions through daily
monitoring to assure margin collateral is maintained under regulatory and
internal guidelines.
The Corporation's due from clearing brokers represents amounts on deposit
with Schroder & Co., Inc. The Corporation is exposed should Schroder &
Co., Inc. be unable to fulfill its obligations for securities
transactions. Schroder & Co., Inc. requires the Corporation to maintain
$100,000 in its account at all times.
The Corporation deposits its cash with financial institutions.
Periodically such balances exceed applicable FDIC insurance limits.
The Corporation had revenues from two accounts which exceeded 10% of
total revenue during 1996. The Corporation had revenues from three
accounts which exceeded 10% percent of total revenue during 1997. No
individual account exceeded 10% percent of total revenue in 1998.
F-11
<PAGE> 40
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) SUBORDINATED DEBT
The Corporation has $500,000 in debt subordinated to claims of general
creditors as of December 31, 1998. The subordinated debt is due November
1, 2001 and bears interest at 11.5 percent. Interest is paid monthly. As
a condition of the loan agreement, the Corporation issued to the lender
warrants to purchase 112,500 shares of common capital stock of the
Corporation, exercisable at a price of $2.65 per share of common stock.
The warrants expire on November 12, 2003. As of December 31, 1998, none
of the warrants had been exercised.
The subordinated borrowings are available in computing net capital under
the SEC's uniform net capital rule. To the extent that such borrowings
are required for the Corporation's continued compliance with minimum net
capital requirements, they may not be repaid. It is the Corporation's
intention not to renew the secured demand note collateralizing agreements
due on November 1, 2001.
(8) RECEIVABLE FROM EMPLOYEE AND STOCKHOLDER
A $300,000 advance was made during 1995 as an incentive for an employee
accepting a position with the Corporation. Under the terms of the
agreement, the advance was forgiven if the employee was still employed
with the Corporation on certain trigger dates. During 1995, $150,000 of
the note receivable was forgiven and included in other employee
compensation and benefits in the accompanying statements of operations.
The remainder of the receivable was forgiven and expensed during 1996.
The Corporation makes advances to certain employees in months when their
commission payout does not meet a predetermined amount. As of December
31, 1998, approximately $126,500 had been advanced to employees under
this agreement. As of December 31, 1997 approximately $44,000 had been
advanced to employees and $219,000 to the Corporation's Chairman of the
Board under this agreement. These receivables are to be repaid through
reductions of future commissions.
During 1998, the Corporation forgave approximately $135,000 in advances
receivable from its Chairman of the Board and approximately $163,000 in
advances receivable from employees. The amounts forgiven are included in
commission expense in the accompanying financial statements.
The Corporation received a $100,000 note from an employee in
consideration for the issuance of common stock. The note bears no
interest and is due and payable on December 31, 1999. This amount has
been recorded as stock subscriptions receivable in the accompanying
financial statements. During 1998, the Corporation collected $3,737 of
the subscriptions receivable, resulting in a balance of $96,263 in
subscriptions receivable as of December 31, 1998.
(9) INCOME TAX
Income tax benefit for the year ended December 31, 1998 differs from the
amount computed by applying the U.S. Federal income tax rate of 34
percent to pretax loss as a result of the following:
<TABLE>
<S> <C>
Computed "expected" benefit $ 190,815
Meals and entertainment (34,325)
State Franchise tax (14,600)
Other 22,010
---------
$ 163,900
=========
</TABLE>
F-12
<PAGE> 41
TEJAS SECURITIES GROUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 145,700
Other 32,800
---------
Gross deferred tax assets 178,500
Valuation allowance --
---------
Net deferred tax asset $ 178,500
=========
</TABLE>
There were no significant deferred tax liabilities at December 31, 1998.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Corporation will realize the benefits of these
deductible differences net of the existing valuation allowances at
December 31, 1998.
At December 31, 1998, the Corporation has net operating loss
carryforwards for Federal income tax purposes of approximately $381,000
which are available to offset future Federal taxable income, if any,
through 2018. Additionally, the Corporation has state net operating loss
carryforwards available.
(10) CONTINGENCIES AND COMMITMENTS
The Corporation is involved in various claims and legal actions that have
arisen in the ordinary course of business. It is management's opinion
that liabilities, if any, arising from these actions would not have a
significant adverse effect on the financial condition and results of
operations of the Corporation.
(11) EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and
among the Corporation, Tejas Securities Group Holding Company, a Texas
Corporation ("Tejas Holding"), Westech Capital Corp., a New York
corporation ("Westech"), and Westech Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), the Corporation acquired Westech through a
reverse merger ( the "Merger") of Tejas Holding and Merger Sub. Tejas
Holding and Merger Sub were established for the sole purpose of affecting
this transaction. As a result of the Merger, Tejas Holding became a
wholly owned subsidiary of Westech. Tejas Holding is the holder of
approximately 83% of the outstanding common stock issued by the
Corporation.
After the completion of the Merger, Westech had 12,536,737 shares of
common stock issued and outstanding. Earnings (loss) per share
information is based on pro forma calculations as if the Corporation had
completed the transaction in 1996, reflecting the additional shares
issued as part of the Merger. The historical share amounts prior to the
merger date have been adjusted on a pro forma basis to reflect the
merger transaction utilizing the same exchange ratio (2.4825 to one)
effected by the merger.
Effective January 1, 1998 the Corporation elected to be taxed as a C
corporation under the provisions of the Internal Revenue Code. In prior
years the Corporation had elected S corporation status for Federal
Income Tax purposes. Accordingly, net income (loss) and earnings (loss)
per share information for 1997 and 1996 are based on pro forma
calculations as if the Corporation had been a C corporation for those
years.
Pro forma basic earnings (loss) per share of common stock are computed
by dividing net earnings by the pro forma weighted average number of
common shares outstanding.
Pro forma diluted earnings (loss) per share reflects dilution from
contingently issuable shares, which include options and warrants.
Contingently issuable shares are not included in the pro forma weighted
average number of shares when the inclusion would increase net income
per share or decrease the loss per share.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" is effective for financial statements with fiscal years and
interim periods ending after December 15, 1997 with retroactive statement
for prior periods. SFAS 128 provides for the calculation of Basic and
Dilutive earnings per share. Basic earnings per share includes no
dilution and is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflect
potential dilutions of securities that could share in the earnings (loss)
of the Corporation, such as stock options, warrants or convertible
debentures.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
1998 1997 1996
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER
SHARE
Net income (loss) $ (397,322) $ 316,035 $ (140,755)
Shares 9,435,429 8,416,728 5,189,072
Basic earnings (loss) per share $ (0.04) $ 0.04 $ (0.03)
DILUTED EARNINGS (LOSS) PER
SHARE
Net income (loss) $ (397,322) $ 316,035 $ (140,755)
Effect of dilutive securities:
Warrants 0 0 0
Options 0 0 0
Diluted earnings (loss) per share $ (0.04) $ 0.04 $ (0.03)
</TABLE>
Options to purchase 100,000, 100,000 and 120,000 shares of common stock
at December 31, 1998, 1997 and 1996 were not included in the computation
of diluted earnings (loss) per share because the options' exercise price
was greater than the estimated market value per share during the period.
Warrants to purchase 112,500 shares of common stock as of December 31,
1998 were not included in the computation of diluted earnings (loss) per
share because the warrants' exercise price was greater than the estimated
market value per share of common stock for the period. In addition,
Management does not consider these to be "nominal value" contingently
issuable shares and therefore has not considered the amounts in
disclosing pro forma earnings (loss) per share amounts.
F-13
<PAGE> 42
TEJAS SECURITIES GROUP, INC.
Statements of Financial Condition
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 334,047 201,312
Receivable from clearing brokers, partially restricted 11,439,542 1,468,424
Securities owned 11,545,748 1,539,424
Furniture and equipment, net 226,933 209,431
Deferred tax assets -- 178,500
Other assets 406,152 345,136
------------ ------------
Total assets $ 23,952,422 3,942,227
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 3,981,420 577,736
Subordinated debt 1,000,000 500,000
Securities sold, not yet purchased 1,050,135 --
Payable to clearing organization 13,099,946 1,459,678
------------ ------------
Total liabilities 19,131,501 2,537,414
------------ ------------
Stockholders' equity:
Preferred stock, no par value, convertible
1,000,000 shares authorized; none issued
and outstanding -- --
Common stock, no par value
10,000,000 shares authorized; 5,725,555 and
4,679,152 shares issued and outstanding 2,200,841 1,473,071
Subscriptions receivable (281,675) (96,263)
Retained earnings 2,901,755 28,005
------------ ------------
Total stockholders' equity 4,820,921 1,404,813
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 23,952,422 3,942,227
============ ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 43
TEJAS SECURITIES GROUP, INC.
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Commissions $ 15,465,352 3,281,799
Underwriting and investment banking income 165,766 1,653,460
Net dealer inventory and investment income 3,516,592 (306,494)
Other income 87,065 --
------------ ------------
Total revenue 19,234,775 4,628,765
------------ ------------
Expenses:
Commissions 9,948,064 2,409,050
Other employee compensation and benefits 2,540,501 930,462
General and administrative 2,007,036 1,280,603
------------ ------------
Total expenses 14,495,601 4,620,115
------------ ------------
Income before income tax expense 4,739,174 8,650
Income tax expense:
Federal: 1,660,424 18,960
State 205,000 6,876
------------ ------------
1,865,424 25,836
------------ ------------
Net income (loss) $ 2,873,750 (17,186)
============ ============
Pro forma earnings (loss) per share (note 3):
Basic earnings (loss) per share:
Net income (loss) $ 0.27 --
============ ============
Weighted average shares outstanding 10,761,429 8,647,008
============ ============
Diluted earnings (loss) per share:
Net income (loss) $ 0.27 --
============ ============
Weighted average shares outstanding 10,761,429 8,647,008
============ ============
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 44
TEJAS SECURITIES GROUP, INC.
Statements of Stockholders' Equity
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON SUBSCRIPTIONS TREASURY RETAINED
SHARES STOCK RECEIVABLE STOCK EARNINGS TOTAL
--------- ---------- ------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,858,887 $ 946,878 (100,000) (47,805) 425,327 1,224,400
Stock issuances 679,152 477,612 -- -- -- 477,612
Treasury stock sales 141,113 50,789 -- 47,805 -- 98,594
Net loss -- -- -- -- (17,186) (17,186)
--------- ---------- -------- -------- --------- ---------
Balance at June 30, 1998 4,679,152 $1,475,279 (100,000) -- 408,141 1,783,420
========= ========== ========= ======== ========= =========
Balance at December 31, 1998 4,679,152 $1,473,071 (96,263) -- 28,005 1,404,813
Stock issuances 1,046,403 727,770 (704,883) -- -- 22,887
Treasury stock purchases (282,000) -- -- (172,114) -- (172,114)
Treasury Stock Sales 282,000 -- -- 172,114 -- 172,114
Subscription collected -- -- 519,471 -- -- 519,471
Net loss -- -- -- -- 2,873,750 2,873,750
--------- ---------- -------- -------- --------- ---------
Balance at June 30, 1999 5,725,555 $2,200,841 (281,675) -- 2,901,755 4,820,921
========= ========== ========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 45
TEJAS SECURITIES GROUP, INC.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,873,750 (17,186)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Deferred tax benefit 178,500 --
Depreciation expense 29,144 14,943
Increase in receivable from clearing brokers (9,971,118) (3,139,157)
Decrease (increase) in other assets and receivables (61,016) 13,341
Increase in trading account securities (8,956,189) (13,700)
Increase in accounts payable, accrued
expenses and other liabilities 3,403,684 1,032,138
Increase in payable to clearing organization 11,640,268 1,746,459
------------ ------------
Net cash used by operating activities (862,977) (363,162)
------------ ------------
Cash flows from investing activities:
Purchase of furniture and equipment (46,646) (105,863)
------------ ------------
Net cash used by investing activities (46,646) (105,863)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and subordinated debt 500,000 --
Purchase of treasury stock (172,114) --
Sale of treasury stock 172,114 98,594
Subscription collected 519,471 --
Proceeds from stock issuances 22,887 477,612
------------ ------------
Net cash provided by financing activities 1,042,358 576,206
------------ ------------
Net increase in cash and cash equivalents 132,735 107,181
Cash and cash equivalents at beginning of period 201,312 170,474
------------ ------------
Cash and cash equivalents at end of period $ 334,047 277,655
============ ============
Supplemental disclosures:
Interest paid $ 239,983 23,764
Taxes paid $ 502,987 25,015
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 46
TEJAS SECURITIES GROUP, INC.
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
(1) GENERAL
The accompanying unaudited financial statements of Tejas Securities
Group, Inc. (the "Corporation") have been prepared in accordance with the
instructions for interim financial statements in Article 10 of Regulation
S-X and, therefore do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, the interim financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary to state fairly the information shown therein. The
nature of the Corporation's business is such that the results of any
interim period are not necessarily indicative of results of a full fiscal
year.
(2) ACQUISITION
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and
among the Corporation, Westech Capital Corp. ("Westech"), Tejas
Securities Group Holding Company, a Texas corporation ("Tejas Holding)
and Westech Merger Sub, Inc., a Delaware corporation ("Merger Sub"), the
Corporation acquired Westech through a reverse merger (the "Merger") of
Tejas Holding and Merger Sub. Upon the effectiveness of the Merger,
Westech's board of directors resigned and John J. Gorman, Jay W. Van Ert
and Joseph F. Moran were appointed as directors of Westech.
Under the terms of the Agreement and Plan of Merger, the shareholders of
Tejas Holding exchanged their shares for shares of Westech at a ratio of
2.4825 to one. The former shareholders of Tejas Holding currently own
95.21% of the issued and outstanding common stock of Westech, $.001 par
value per share.
(3) Pro Forma Earnings (Loss) Per Share
After the completion of the Merger, Westech had 12,536,737 shares of
common stock issued and outstanding. Earnings (loss) per share
information is based on pro forma calculations as if the Corporation had
completed the transaction in January 1998.
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
PRO FORMA EARNINGS (LOSS) PER SHARE
Net income (loss) $ 2,873,750 $ (17,186)
Shares 10,761,429 8,647,008
Basic earnings (loss) per share $ 0.27 $ 0.00
DILUTED EARNINGS (loss) PER SHARE
Net income (loss) $ 2,873,750 $ (17,186)
Effect of dilutive securities:
Warrants 0 0
Options 0 0
Diluted earnings per share $ 0.27 $ 0.00
</TABLE>
Options to purchase 100,000 shares of common stock at June 30, 1998 were
not included in the computation of diluted earnings (loss) per share
because the options' exercise price was greater than the estimated market
value per share during the period. Warrants to purchase 112,500 and
225,000 shares of common stock as of June 30, 1998 and 1999, respectively
were not included in the computation of diluted earnings (loss) per share
because the warrants' exercise price was greater than the estimated
market value per share of common stock for the respective periods. In
addition, Management does not consider these to be "nominal value"
contingently issuable shares and therefore has not considered the amounts
in disclosing pro forma earnings (loss) per share amounts.
F-18
<PAGE> 47
TEJAS SECURITIES GROUP, INC.
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
(5) LEASE COMMITMENTS
In September 1999, Westech entered into a lease agreement for new office
space for the Corporation's Austin, Texas office. The Corporation is the
operating subsidiary of Westech and Tejas Holding, and depending on cash
availability at Westech and Tejas Holding, may be required to provide
funds for future lease payments. The future annual lease payments due
under this operating lease as of December 31, 1999 are as follows,
commencing on February 15, 2000:
<TABLE>
<S> <C>
2000 $ 364,040
2001 436,848
2002 436,848
2003 436,848
2004 436,848
Thereafter 654,296
-----------
$ 2,765,728
===========
</TABLE>
(6) SUBORDINATED DEBT
The Corporation issued an additional $500,000 in debt subordinated to
claims of general creditors as of June 17, 1999. The subordinated debt is
due November 1, 2001 and bears interest at 11.5 percent. Interest is paid
monthly. As a condition of the loan agreement, the Corporation issued to
the lender warrants to purchase 112,500 shares of common capital stock of
the Corporation, exercisable at a price of $2.65 per share of common
stock. The warrants expire on November 12, 2003. As of June 30, 1999,
none of the warrants had been exercised.
The subordinated borrowings are available in computing net capital under
the SEC's uniform net capital rule. To the extent that such borrowings
are required for the Corporation's continued compliance with minimum net
capital requirements, they may not be repaid. It is the Corporation's
intention not to renew the secured demand note collateralizing agreements
due on November 1, 2001.
(7) CONTINGENCIES AND COMMITMENTS
In June 1999, Starlight Entertainment, Inc., submitted a claim in an
arbitration proceeding for damages in the amount of $6,800,000 for the
failed underwriting of a public offering of Starlight's common stock. The
amount of Starlight's claim is based upon the gross receipts that were
expected from the proposed public offering less the underwriting
commission plus attorney's fees.
The Corporation's counsel has reviewed the complaint and is preparing an
answer with respect to the arbitration. The Corporation believes the
complaint to be without merit.
There are no other liabilities arising from claims or legal actions that
management believes would have a significant adverse effect on the
financial condition or results of operations of the Corporation.
F-19
<PAGE> 48
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On August 27, 1999, pursuant to an Agreement and Plan of Merger, by and among
Westech Capital Corp. ("Westech"), Tejas Securities Group Holding Company
("Tejas Holding"), Tejas Securities Group, Inc. ("Tejas Securities") and Westech
Merger Sub, Inc. ("Merger Sub"), Tejas Securities acquired Westech through a
reverse merger of Tejas Holding and Merger Sub. Tejas Holding and Merger Sub
were established solely for the purpose of affecting this transaction, and
neither company had results of operations prior to August 27, 1999. As a result
of this transaction, Tejas Holding became a wholly owned subsidiary of Westech.
Tejas Holding is the holder of approximately 83% of the outstanding common stock
issued by Tejas Securities. Tejas Holding has no other assets, liabilities or
results of operations.
The accompanying unaudited Pro Forma Combined Statements of Financial Condition
as of December 31, 1998 and June 30, 1999, and the Pro Forma Combined Statements
of Operations for the year ended December 31, 1998 and the six months ended June
30, 1999 are based on the historical financial statements of Tejas Securities
adjusted as if the reverse acquisition of Westech had occurred on January 1,
1998. The Pro Forma Combined Financial Statements do not reflect the activities
of Tejas Holding as the company was established solely for this transaction, and
has no other assets or operations.
As Tejas Securities is the operating entity, the reported assets, liabilities,
revenues and expenses on the Pro Forma Combined Statements of Financial
Condition and the Pro Forma Combined Statements of Operations are presented in a
manner consistent with presentation for the brokerage industry. This Unaudited
Pro Forma Combined Financial Information is not necessarily indicative of the
operating results that would have been achieved had such transaction occurred at
the beginning of the period. This information is based on the assumptions set
forth in the notes to such statements and should be read in conjunction with the
related financial statements and notes thereto of Tejas Securities included
elsewhere in this document.
F-20
<PAGE> 49
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
ASSETS Securities(1) Westech (2) Adjustments(3) Combined
------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 201,312 9,529 -- $ 210,841
Receivable from clearing brokers, partially restricted 1,468,424 -- -- 1,468,424
Securities owned 1,539,424 -- -- 1,539,424
Furniture and equipment, net 209,431 -- -- 209,431
Deferred tax assets 178,500 -- 3,820 (5) 182,320
Other assets 345,136 -- -- 345,136
----------- ----------- ----------- -----------
$ 3,942,227 9,529 3,820 $ 3,955,576
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 577,736 1,580 -- $ 579,316
Subordinated debt 500,000 -- -- 500,000
Payable to clearing organization 1,459,678 -- -- 1,459,678
----------- ----------- ----------- -----------
Total liabilities 2,537,414 1,580 -- 2,538,994
----------- ----------- ----------- -----------
Minority interests in consolidated subsidiaries -- -- 240,917 (4) 240,917
Stockholders' equity:
Preferred stock -- -- -- (6) --
Common stock 1,473,071 599 (1,461,134)(6) 12,536
Capital in excess of par value -- 7,350 1,128,757 (6) 1,136,107
Subscriptions receivable (96,263) -- 96,263 (6) --
Retained earnings 28,005 -- (983)(6) 27,022
----------- ----------- ----------- -----------
Total stockholders' equity 1,404,813 7,949 (237,097) 1,175,665
----------- ----------- ----------- -----------
$ 3,942,227 9,529 3,820 $ 3,955,576
=========== =========== =========== ===========
</TABLE>
F-21
<PAGE> 50
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
Securities Westech(2) Adjustments(3) Combined
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Commissions $ 7,932,780 -- -- $ 7,932,780
Underwriting and investment banking income 2,584,770 -- -- 2,584,770
Net dealer inventory and investment income (299,166) -- -- (299,166)
Other income 23,530 -- -- 23,530
------------ ------------ ------------ ------------
Total revenue 10,241,914 -- -- 10,241,914
------------ ------------ ------------ ------------
Expenses:
Commissions, employee compensation and benefits 5,921,426 -- -- 5,921,426
Other employee compensation and benefits 2,085,937 -- -- 2,085,937
General and administrative 2,692,236 10,753 -- 2,702,989
------------ ------------ ------------ ------------
Total expenses 10,699,599 10,753 -- 10,710,352
Depreciation and amortization 38,110 -- -- 38,110
------------ ------------ ------------ ------------
Operating income (495,795) (10,753) -- (506,548)
Interest expense 65,427 -- -- 65,427
------------ ------------ ------------ ------------
Loss before income taxes and minority interest (561,222) (10,753) -- (571,975)
Income taxes (163,900) 680 (3,820)(5) (167,040)
Minority interest in loss -- -- (68,141)(4) (68,141)
------------ ------------ ------------ ------------
Net loss $ (397,322) (11,433) 71,961 $ (336,794)
============ ============ ============ ============
Basic earnings per share:
Net loss $ (0.03)
============
Weighted average shares outstanding 12,536,737
============
Diluted earnings per share:
Net loss $ (0.03)
============
Weighted average shares outstanding 12,536,737
============
</TABLE>
F-22
<PAGE> 51
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
ASSETS Securities Westech(2) Adjustments(3) Combined
------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 334,047 6,498 -- $ 340,545
Receivable from clearing brokers, partially restricted 11,439,542 -- -- 11,439,542
Securities owned 11,545,748 -- -- 11,545,748
Furniture and equipment, net 226,933 -- -- 226,933
Other assets 406,152 -- -- 406,152
------------ ------------ ------------ ------------
$ 23,952,422 6,498 -- $ 23,958,920
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 2,782,845 3,382 -- $ 2,786,227
Securities sold, not yet purchased 1,050,135 -- -- 1,050,135
Payable to clearing organization 13,099,946 -- -- 13,099,946
Subordinated debt 1,000,000 -- -- 1,000,000
Deferred tax liability 1,198,575 -- (1,896)(5) 1,196,679
------------ ------------ ------------ ------------
Total liabilities 19,131,501 3,382 (1,896) 19,132,987
------------ ------------ ------------ ------------
Minority interests in consolidated subsidiaries -- -- 826,760 (4) 826,760
Stockholders' equity:
Preferred stock, no par value, convertible -- -- -- (6) --
Common stock 2,200,841 599 (2,188,904)(6) 12,536
Capital in excess of par value -- 2,517 1,581,103 (6) 1,583,620
Subscriptions receivable (281,675) -- 281,675 (6) --
Retained earnings 2,901,755 -- (498,738)(6) 2,403,017
------------ ------------ ------------ ------------
Total stockholders' equity 4,820,921 3,116 (824,864) 3,999,173
------------ ------------ ------------ ------------
$ 23,952,422 6,498 -- $ 23,958,920
============ ============ ============ ============
</TABLE>
F-23
<PAGE> 52
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Tejas Acquisition Pro Forma
Securities Westech(2) Adjustments(3) Combined
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Commissions $15,465,352 -- -- $15,465,352
Underwriting and investment banking income 165,766 -- -- 165,766
Net dealer inventory and investment income 3,516,592 -- -- 3,516,592
Other income 87,065 -- -- 87,065
----------- ----------- ----------- -----------
Total revenue 19,234,775 -- -- 19,234,775
----------- ----------- ----------- -----------
Expenses:
Commissions 9,948,064 -- -- 9,948,064
Other employee compensation and benefits 2,540,501 -- -- 2,540,501
General and administrative 1,737,909 4,833 -- 1,742,742
----------- ----------- ----------- -----------
Total expenses 14,226,474 4,833 -- 14,231,307
Depreciation and amortization 29,144 -- -- 29,144
----------- ----------- ----------- -----------
Operating income 4,979,157 (4,833) -- 4,974,324
Interest expense 239,983 -- -- 239,983
----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest 4,739,174 (4,833) -- 4,734,341
Income taxes 1,865,424 -- (1,896)(5) 1,863,528
Minority interest in income -- -- 492,851 (4) 492,851
----------- ----------- ----------- -----------
Net income (loss) $ 2,873,750 (4,833) (490,955) $ 2,377,962
=========== =========== =========== ===========
Basic earnings per share:
Net income $ 0.19
===========
Weighted average shares outstanding 12,536,737
===========
Diluted earnings per share:
Net income $ 0.19
===========
Weighted average shares outstanding 12,536,737
===========
</TABLE>
F-24
<PAGE> 53
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Balances were obtained from the 1998 audited financial statements of
Tejas Securities.
(2) Includes the account balances and results of Westech's operations
beginning January 1, 1998 prior to the Company's acquisition.
(3) Includes pro forma adjustments relating to the acquisition of Westech,
including provisions for income taxes on the consolidated entity,
restatement of Westech's equity and adjustments to record the minority
interest in Tejas Securities.
(4) To reflect the minority interest in Tejas Securities resulting from the
merger transaction, which approximates 17% of the outstanding common
stock of Tejas Securities. Of the 5,803,888 shares of common stock issued
and outstanding for Tejas Securities, 995,333 non accredited
stockholders' shares were not exchanged for shares of Tejas Holding.
These remaining 995,333 shares represent the minority interest in Tejas
Securities. See note 6 below.
(5) To record the adjustment for the provision for income taxes on the
combined entity. The pro forma adjustment is based on the income
(loss) before income taxes and minority interest, and the effective tax
rate in effect for the period.
(6) The pro forma acquisition adjustments reflect the exchange of 4,808,555
shares representing 83% of Tejas Securities common stock for Tejas
Holding common stock on a one-for-one basis. Concurrently, shareholders
of Tejas Holding exchanged their 4,808,555 shares of common stock for
11,937,237 shares of Westech common stock with a par value of $.001 per
share. As a result of this transaction, Westech's shareholders' pro forma
equity would be comprised of the following:
<TABLE>
<S> <C>
December 31, 1998:
Common stock $ 12,536
Capital in excess of par value 1,136,107
Retained earnings 27,022
June 30, 1999:
Common stock $ 12,536
Capital in excess of par value 1,583,620
Retained earnings 2,403,017
</TABLE>
F-25
<PAGE> 54
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit Page
Number Number Description of Exhibits
------ ------ -----------------------
<S> <C> <C>
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 NASD Subordinated Loan Agreement, Form SL-1, dated
October 13, 1998, between Clark N. Wilson and the Company
4.2 NASD Subordinated Loan Agreement, Form SL-1, dated
June 4, 1999, between Clark N. Wilson and the Company
10.1 Agreement, dated June 5, 1997, with Schroder Wertheim & Co.
Incorporated
10.2 Westech Capital Corp. 1999 Stock Option Plan
10.3 Form of Incentive Stock Option Agreement
10.4 Form of Nonqualified Stock Option Agreement
16.1 Letter regarding change in certifying accountant, dated September 7,
1999 (incorporated by reference to Exhibit 4.1 to the form 8-K filed
with the Commission on September 8, 1999).
21.1 Registrant's Subsidiaries
27.1 Financial Data Schedule
99.1 Articles of Incorporation of Tejas Securities Group, Inc.
99.2 Bylaws of Tejas Securities Group, Inc.
99.3 Articles of Incorporation of Tejas Securities Group Holding Company
99.4 Bylaws of Tejas Securities Group Holding Company
</TABLE>
<PAGE> 55
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: October 29, 1999 WESTECH CAPITAL CORPORATION
-----------------------
By: /s/ JAY W. VAN ERT
--------------------------------
Jay W. Van Ert, President
<PAGE> 56
<TABLE>
<CAPTION>
Exhibit Page
Number Number Description of Exhibits
------ ------ -----------------------
<S> <C> <C>
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 NASD Subordinated Loan Agreement, Form SL-1, dated
October 13, 1998, between Clark N. Wilson and the Company
4.2 NASD Subordinated Loan Agreement, Form SL-1, dated
June 4, 1999, between Clark N. Wilson and the Company
10.1 Agreement, dated June 5, 1997, with Schroder Wertheim & Co.
Incorporated
10.2 Westech Capital Corp. 1999 Stock Option Plan
10.3 Form of Incentive Stock Option Agreement
10.4 Form of Nonqualified Stock Option Agreement
16.1 Letter regarding change in certifying accountant, dated September 7,
1999 (incorporated by reference to Exhibit 4.1 to the form 8-K filed
with the Commission on September 8, 1999).
21.1 Registrant's Subsidiaries
27.1 Financial Data Schedule
99.1 Articles of Incorporation of Tejas Securities Group, Inc.
99.2 Bylaws of Tejas Securities Group, Inc.
99.3 Articles of Incorporation of Tejas Securities Group Holding Company
99.4 Bylaws of Tejas Securities Group Holding Company
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
WESTECH CAPITAL CORP.
Under Section 402 of the Business Corporation
Law of the State of New York
The undersigned, for the purpose of forming a corporation under Section
402 of the Business Corporation Law of the State of New York, does hereby
certify as follows:
ARTICLE I
NAME
The name of the Corporation is: Westech Capital Corp.
ARTICLE II
Purposes
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Business
Corporation Law of the State of New York. This Corporation is not formed for
the purpose of engaging in any act or activity requiring the consent or
approval of any state official, department, board, agency or other body
without such approval or consent first being obtained.
ARTICLE III
Office of Corporation
The office of the Corporation is in the State of New York shall be
located in the County of New York County.
1
<PAGE> 2
ARTICLE IV
Capital Stock
The aggregate number of shares which the Corporation shall have
authority to issue is 50,000,000 which shall have a par value of $.001 per
share. All shares shall be designated as Common Stock. Shareholders shall
not have pre-emptive rights or be entitled to cumulative voting in
connection with the shares of the Corporation's Common Stock.
ARTICLE V
Designation of Agent
The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom process against the Corporation may be
served. The address to which the Secretary of State shall mail a copy of any
process against the Corporation served upon him is A. 0. Headman, Jr.,
Attorney at Law, 257 East 200 South, Suite 850, Salt Lake City, UT 84111.
ARTICLE VI
Certain Contracts
No contract or transaction between the Corporation and one or more of
its directors or officers or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board of committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose, if:
1. The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
Committee, and the Board or committee, in good faith, authorizes the
contract or transaction by a vote sufficient for such purpose without
counting the vote of the interested director or directors; or
2. The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or
2
<PAGE> 3
transaction is specifically approved in good faith by vote of the
shareholders; or
3. The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved, or ratified, by the Board of Directors, a
committee thereof, or the shareholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE VII
Bylaws
The Board of Directors or the Shareholders shall have the power to
make, adopt, amend, or repeal the Bylaws of the Corporation.
ARTICLE VIII
Indemnification
Section 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fee), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
2. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened pending or completed
action or suit by or in the right of the
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Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to
the Corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which shall deem proper.
3. To the extent that any person referred to in paragraphs 1 and 2
of this Article VIII has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to therein or in defense
of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
4. Any indemnification under paragraphs 1 and 2 of this Article VIII
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
paragraphs 1 and 2 of this Article VIII. Such determination shall be made
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b)
if such quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the shareholders.
5. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as provided in this Article VIII.
6. The indemnification provided by this Article VIII shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any statute, bylaw, agreement, vote of shareholders
or disinterested directors or
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otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
7. The Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article VIII.
8. For the purposes of this section, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger
as well as the resulting or surviving corporation so that any person who is
or was a director, officer, employee or agent of such a constituent
corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this section with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
ARTICLE IX
Amendment
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
The undersigned, for the purpose of forming a corporation under the
laws of the State of New York, does make, file, and record this Certificate,
and does affirm that the facts stated herein are true under penalty of
perjury; and has executed this Certificate of Incorporation this 29 day of
MAY, 1990.
/s/ NEIL RAGIN 134 West 72nd St.
------------------------------ New York, NY 10023
Neil Ragin
5
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
WESTECH CAPITAL CORP.
a New York Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - Shareholders ......................................... 1
1.1 Place of Meetings ...................................... 1
1.2 Annual Meetings ........................................ 1
1.3 Special Meetings ....................................... 1
1.4 Notice of Meetings ..................................... 1
1.5 Voting List ............................................ 2
1.6 Quorum ................................................. 2
1.7 Adjournments ........................................... 2
1.8 Voting and Proxies ..................................... 2
1.9 Action at Meeting ...................................... 2
1.10 Action Without Meeting ................................. 3
ARTICLE 2 - Directors ............................................ 3
2.1 General Powers ......................................... 3
2.2 Number; Election and Qualification ..................... 3
2.3. Enlargement of the Board ............................... 3
2.4 Tenure ................................................. 3
2.5 Vacancies .............................................. 4
2.6 Resignation ............................................ 4
2.7 Regular Meetings ....................................... 4
2.8 Special Meetings ....................................... 4
2.9 Notice of Special Meetings ............................. 4
2.10 Meetings by Telephone Conference Calls ................. 4
2.11 Quorum ................................................. 5
2.12 Action at Meeting ...................................... 5
2.13 Action by Consent ...................................... 5
2.14 Removal ................................................ 5
2.15 Committees ............................................. 5
2.16 Compensation of Directors .............................. 6
ARTICLE 3 - Officers ............................................. 6
3.1 General ................................................ 6
3.2 Election ............................................... 6
3.3 Qualification .......................................... 6
3.4 Tenure ................................................. 7
3.5 Resignation and Removal ................................ 7
3.6 Vacancies .............................................. 7
3.7 Chairman of the Board and Vice Chairman of the
Board .................................................. 7
3.8 President .............................................. 8
3.9 Vice Presidents ........................................ 8
3.10 Secretary and Assistant Secretaries .................... 8
3.11 Treasurer and Assistant Treasurers ..................... 9
3.12 Salaries ............................................... 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4 - Capital Stock ........................................ 9
4.1 Issuance of Stock ...................................... 9
4.2 Certificates of Stock .................................. 9
4.3 Transfers .............................................. 10
4.4 Lost, Stolen or Destroyed Certificates ................. 10
4.5 Record Date ............................................ 10
ARTICLE 5 - Indemnification ...................................... 11
ARTICLE 6 - General Provisions ................................... 11
6.1 Fiscal Year ............................................ 11
6.2 Corporate Seal ......................................... 11
6.3 Written Notice of Meetings ............................. 12
6.4 Waiver of Notice ....................................... 12
6.5 Voting of Securities ................................... 12
6.6 Evidence of Authority .................................. 12
6.7 Certificate of Incorporation ........................... 12
6.8 Transactions with Interested Parties ................... 12
6.9 Severability ........................................... 12
6.10 Pronouns ............................................... 12
ARTICLE 7 - Amendments ........................................... 13
7.1 By the Board of Directors .............................. 13
7.2 By the Shareholders .................................... 14
</TABLE>
<PAGE> 4
BYLAWS
OF
WESTECH CAPITAL CORP.
ARTICLE 1 - Shareholders
1. 1 Place of Meetings. All meetings of shareholders shall be held at
such place within or without the State of New York as may be designated from
time to time by the board of directors or the president or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meetings. The annual meeting of shareholders for the
election of directors and for the transaction of such other business on such
date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the board of directors may call a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these Bylaws to the
annual meeting of the shareholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of shareholders may be called
at any time by the chairman of the board of directors, by the board of
directors. A Special Meeting of Shareholders shall be called by the Chairman of
the Board of Directors at the request in writing of the holders of not less
than one-fourth (1/4) of all the shares entitled to vote at the meeting. Such
request of shareholders for a Special Meeting shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
shareholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of shareholders, whether annual or special, shall be
given not less than 10 nor more than 50 days before the date of the meeting to
each shareholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called.
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1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least 10 days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of one-third (1/3) of the shares of
the capital stock of the Corporation issued and outstanding are entitled to
vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business.
1.7 Adjournments. Any meeting of shareholders may be adjourned to any
other time and to any other place at which a meeting of shareholders may be
held under these Bylaws by the shareholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
shareholder is present, by any officer entitled to preside at or to act as
secretary of such meeting. If the adjournment is for more than 30 days, or if
after the adjournment, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each shareholder shall have one vote for each
share of stock entitled to vote held of record by such shareholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each shareholder of record entitled to
vote at a meeting of shareholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or express such consent
or dissent in person or may authorize another person or persons to vote or act
for him or her by written proxy executed by the shareholder or his or her
authorized agent and delivered to the secretary of the Corporation. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if
it is held by any person or the nominee of any person who is enumerated in
Section 609(f) of the Business Corporation Law of the State of New York. No
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on a
matter) shall
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decide any matter to be voted upon by the shareholders at such meeting, except
when a different vote is required by express provision of law, the Certificate
of Incorporation or these Bylaws. Any election by shareholders shall be
determined by a plurality of the votes cast by the shareholders entitled to vote
at the election.
1. 10 Action Without Meeting. Any action required or permitted to be
taken at any annual or special meeting of shareholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by all of the holders
of outstanding stock.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the Corporation shall
be managed by or under the direction of a board of directors, who may exercise
all of the powers of the Corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy on the
board of directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full board of directors until the vacancy is
filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole board of directors shall be determined by resolution
of the shareholders or the board of directors, but in no event shall be less
than three. The number of directors may be decreased at any time and from time
to time either by the shareholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of shareholders by such
shareholders as have the right to vote in such election. Directors need not be
shareholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the shareholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until such time as his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
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2.5 Vacancies. Unless and until filled by the shareholders, any
vacancy in the board of directors, however occurring, including a vacancy
resulting from an increase in the number of directors, may be filled by vote of
a majority of the directors then in office, although less than a quorum, or by
a sole remaining director. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office, and a director
chosen to fill a position resulting from an increase in the number of directors
shall hold office until the next annual meeting of shareholders and until his
successor is elected and qualified, or until his earlier death, resignation or
removal.
2.6 Resignation. Any director may resign by delivering his or her
written resignation to the Corporation at its principal office or to the
secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.7 Regular Meetings. Regular meetings of the board of directors may
be held without notice at such time and place, either within or without the
State of New York, as shall be determined from time to time by the board of
directors, provided that any director who is absent when such a determination
is made shall be given notice of the determination. A regular meeting of the
board of directors may be held without notice immediately after and at the same
place as the annual meeting of shareholders.
2.8 Special Meetings. Special meetings of the board of directors may
be held at any time and place, within or without the State of New York,
designated in a call by the chairman of the Board, president or two or more
directors, or by one director in the event that there is only a single director
in office.
2.9 Notice of Special meetings. Notice of any special meeting of
directors shall be given to each director by the secretary or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours
in advance of the meeting, (ii) by sending a telegram or telex, or delivering
written notice by hand to his last known business or home address at least 48
hours in advance of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the board of directors need not
specify the purpose of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of
the board of directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
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the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 Quorum. A majority of the whole board of directors shall
constitute a quorum at all meetings of the board of directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the whole
board of directors constitute a quorum. In the absence of a quorum at any such
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice other than announcement at the meeting, until a
quorum shall be present.
2.12 Action at Meeting. At any meeting of the board of directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.13 Action by Consent. Any action required or permitted to be taken
at any meeting of the board of directors or of any committee of the board of
directors may be taken without a meeting, if all members of the board of
directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the board
of directors or committee.
2.14 Removal. Any one or more or all of the directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that (i) the directors elected by
the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series and (ii) in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors.
2.15 Committees. The board of directors may, by resolution passed by a
majority of the whole board of directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member of any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in
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the resolution of the board of directors and subject to the provisions of the
Business Corporation Law of the State of New York, shall have and may exercise
all the powers and authority of the board of directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
shareholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless the resolution, Bylaws
or Certificate of Incorporation expressly so provides, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger. Each such committee
shall keep minutes and make such reports as the board of directors may from
time to time request. Except as the board of directors may otherwise determine,
any committee may make rules for the conduct of its business, but unless
otherwise provided by the directors or in such rules, its business shall be
conducted as nearly as possible in the same manner as is provided in these
Bylaws for the board of directors.
2.16 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the board of directors may from time to time
determine. No such payment shall preclude any director from serving the
Corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - Officers
3.1 General. The officers of the Corporation shall consist of a
chairman of the board, a president, a secretary, a treasurer and such other
officers with such other titles as the board of directors may determine,
including a vice chairman of the board, and one or more vice presidents,
assistant treasurers, and assistant secretaries. The board of directors may
appoint such other officers with such other powers and duties as it may deem
appropriate.
3.2 Election. The chairman of the board, president, treasurer and
secretary shall be elected annually by the board of directors at its first
meeting following the annual meeting of shareholders. Other officers may be
appointed by the board of directors at such meeting or at any other meeting.
3.3 Qualification. No officer need by a shareholder. Any two or more
offices may be held by the same person.
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3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the Corporation at its principal office or to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of
some other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the board of directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The board of directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of president,
treasurer and secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The chairman
of the board of directors shall be the chief executive officer of the
Corporation. Subject to the direction of the board of directors, the chairman
of the board of directors shall have general charge and supervision of the
business of the Corporation, and shall have full authority to take all lawful
actions necessary to implement corporate and business policy established by the
board of directors. In addition, the chairman of the board of directors shall
perform such duties and possess such other powers as are assigned to him by the
board of directors. Unless otherwise provided by the board of directors, the
chairman of the board of directors shall preside at all meetings of the
shareholders and the board of directors. The board of directors may appoint a
vice chairman of the board of directors who may, in the absence or disability
of the chairman, perform the duties and exercise and powers of the chairman and
perform such other duties and possess such other powers as from time to time
are authorized by the board of directors.
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3.8 President. The president shall be the chief operating officer of
the Corporation and shall have charge and supervision of the day to day business
operations of the Corporation, subject to the authority of the chairman of the
board of directors and of the board of directors. Unless the board of directors
or chairman of the board of directors shall otherwise direct, all executive
officers of the Corporation shall report, directly or through their immediate
superior officers, to the president. The president shall perform such other
duties and shall have such other powers as the board of directors may from time
to time prescribe.
3.9 Vice Presidents. The vice president shall perform such duties and
shall have such powers as the board of directors, chairman of the board of
directors or the president may from time to time prescribe. The vice president
shall discharge the duties of the president when the president, for any reason,
cannot discharge the duties of his office. He shall have such other powers and
perform such other duties as shall be prescribed by the directors.
Any assistant vice presidents shall perform such duties and possess
such powers as the board of directors, the chairman of the board of directors,
the president or the vice president may from time to time prescribe.
3.10 Secretary and Assistant Secretaries. The secretary shall perform
such duties and shall have such powers as the board of directors, chairman of
the board of directors or the president may from time to time prescribe. In
addition, the secretary shall perform such duties and have such powers as are
incident to the office of the secretary, including without limitation, the duty
and power to give notices of all meetings of shareholders and special meetings
of the board of directors, to attend all meetings of shareholders and the board
of directors and keep a record of the proceedings, to maintain a stock ledger
and prepare lists of shareholders and their addresses as required, to be
custodian of corporate records and the corporate seal, if any, and to affix and
attest to the same on documents.
Any assistant secretary shall perform such duties and possess such
powers as the board of directors, the chairman of the board of directors, the
president or the secretary may from time to time prescribe. In the event of the
absence, inability or refusal to act of the secretary, the assistant secretary
(or if there be more than one, the assistant secretaries in the order determined
by the board of directors) shall perform the duties and exercise the powers of
the secretary.
In the absence of the secretary or any assistant secretary at any
meeting of shareholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
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3.11 Treasurer and Assistant Treasurers. The treasurer shall perform
such duties and shall have such powers as from time to time be assigned to him
by the board of directors, the chairman of the board of directors or the
president. In addition, the treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the Corporation, to deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, to disburse such funds as ordered by the board of
directors, the chairman of the board of directors, the president or any vice
president of the Corporation so authorized to act by specific authorization of
the board of directors or chairman of the Directors, to make proper accounts of
such funds, and to render, as required by the board of directors, chairman of
the board of directors or president, statements of all such transactions and of
the financial condition of the Corporation.
The assistant treasurers shall perform such duties and possess such
powers as the board of directors, the chairman of the board of directors, the
president or the treasurer may from time to time prescribe. In the event of the
absence, inability or refusal to act of the treasurer, the assistant treasurer
(or if there shall be more than one, the assistant treasurers in the order
determined by the board of directors) shall perform the duties and exercise the
powers of the treasurer.
3.12 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the board of directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the shareholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the board of directors in such manner, for such
consideration and on such terms as the board of directors may determine.
4.2 Certificates of Stock. Every holder of stock of the Corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the board of directors, certifying the number and class of shares
owned by him in the Corporation. Each such certificate shall be signed by, or in
the name of the Corporation by the chairman or vice chairman, if any,
9
<PAGE> 13
of the board of directors, or the president or a vice president, and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the Corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the Corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the board of directors, and subject to applicable laws,
shares of stock may be transferred on the books of the Corporation by the
surrender to the Corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the Corporation or its transfer
agent may reasonable require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these Bylaws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the
right to vote with respect to such stock, regardless of any transfer, pledge or
other disposition of such stock until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue
a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen or destroyed, upon such terms and conditions
as the board of directors may prescribe, including the presentation of
reasonable evidence of such loss, theft or destruction and the giving such
indemnity as the board of directors may require for the protection of the
Corporation or any transfer agent or registrar.
4.5 Record Date. The board of directors may fix in advance a date as a
record date for the determination of the shareholders entitled to notice of or
to vote at any meeting of shareholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 days prior to any
other action to which such record date relates.
10
<PAGE> 14
If no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining shareholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining shareholders for any other purpose shall be at the close of
business on the date on which the board of directors adopts the resolution
relating to such purpose.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - Indemnification
The Corporation shall, to the fullest extent permitted by the Business
Corporation Law of the State of New York and the Company's Certificate of
Incorporation, as may be amended and supplemented from time to time, indemnify
any director, officer or trustee which it shall have power to indemnify against
any expenses, liabilities or other matters referred to in or covered by that
Section. The indemnification provided for in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement or vote of shareholders or disinterested directors
or otherwise, both as to action in their official capacities and as to action
in another capacity while holding such office, (ii) shall continue as to a
person who has ceased to be a director, officer or trustee, and (iii) shall
inure to the benefit of the heirs, executors and administrators of such a
person. The Corporation's obligation to provide indemnification under this
Article shall be offset to the extent of any other source of indemnification or
any otherwise applicable insurance coverage under a policy maintained by the
Corporation or any other person.
ARTICLE 6 - General Provisions
6.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by the board of directors.
6.2 Corporate Seal. The corporate seal, if any, shall be in such form
as shall be approved by the board of directors.
11
<PAGE> 15
6.3 Written Notice of Meetings. Whenever written notice is required to
be given to any person pursuant to law, the Certificate of Incorporation or
these Bylaws, it may be given to such person, either personally or by sending a
copy thereof by first class mail, or by telegram, charges prepaid, to his
address appearing on the books of the Corporation, or to his business or other
address supplied by him to the Corporation for the purpose of notice. If the
notice is sent by first class mail or by telegraph, it shall be deemed to have
been given to the person entitled thereto when deposited in the United States
mail or with a telegraph office for transmission to such person. Such notice
shall specify the place, day and hour of the meeting and, in case of a special
meeting of the shareholders, the general nature of the business to be
transacted.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise
designate, the president or treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
Corporation (with or without power of substitution) at any meeting of
shareholders of any other Corporation or organization, the securities of which
may be held by this Corporation.
6.6 Evidence of Authority. A certificate by the secretary, or an
assistant secretary, or a temporary secretary, as to any action taken by the
shareholders, directors, a committee or any officer of representative of the
Corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.7 Certificate of Incorporation. All references in these Bylaws to
the Certificate of Incorporation shall be deemed to refer to the certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
6.8 Transactions with Interested Parties. No contract or transaction
between the Corporation and one or more of the directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board of
12
<PAGE> 16
directors or a committee of the board of directors which authorizes the
contract or transaction or solely because his or their votes are counted for
such purpose, if:
(1) The material facts as to his relationship or interest as
to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board of directors or committee
in good faith authorized the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the board of
directors, a committee of the board of directors, or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
6.9 Severability. Any determination that any provision of these Bylaws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
6.10 Pronouns. All pronouns used in these Bylaws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
13
<PAGE> 17
7.2 By the Shareholders. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote at any regular meeting of shareholders, or at
any special meeting of shareholders, provided notice of such alternation,
amendment, repeal or adoption of new Bylaws shall have been stated in the
notice of such special meeting.
ADOPTED THIS 20th day of July, 1990.
/s/ ILLEGIBLE
-----------------------------------
President
ATTEST:
/s/ ILLEGIBLE
- ---------------------------------
Secretary
14
<PAGE> 1
EXHIBIT 4.1
Subordinated Loan Agreement
---------
FORM SL-1
---------
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
1735 K STREET, N.W., WASHINGTON, D.C. 20006
<PAGE> 2
NASD
SUBORDINATED LOAN AGREEMENT
SL-1
AGREEMENT BETWEEN:
Lender Clark N. Wilson
------------------------------------------------------------------------
(Name)
5312 Park Hollow Lane
- --------------------------------------------------------------------------------
(Street Address)
Austin Texas 78746
- ------------------------------------------- ------------------- --------------
(City) (State) (Zip)
AND
Broker-Dealer Tejas Securities Group, Inc.
------------------------------------------------------------------
(Name)
1250 Capital of Texas Highway South Bldg. 2 Suite 500
- --------------------------------------------------------------------------------
(Street Address)
Austin Texas 78746
- ------------------------------------------- ------------------- --------------
(City) (State) (Zip)
NASD ID NO.: 036705
-------------------------------------------------------------------
DATE FILED: October 13, 1998
--------------------------------------------------------------------
<PAGE> 3
NASD
SUBORDINATED LOAN AGREEMENT
upon
NASD
Approval
AGREEMENT dated 10-13-98 to be effective ____________ between Clark N.
Wilson, (the "Lender") and Tejas Securities Group, Inc. (the "Broker-Dealer")
In consideration of the sum of $500,000.00 and subject to the terms and
conditions hereinafter set forth, the Broker-Dealer promises to pay to the
Lender or assigns on November 1, 2001, at the principal office of the Broker-
Dealer the aforedescribed sum and interest thereon payable at the rate of 11.5%
percent per annum from the effective date of this Agreement, which date shall be
the date so agreed upon by the Lender and the Broker-Dealer unless otherwise
determined by the National Association of Securities Dealers, Inc. ("NASD").
This Agreement shall not be considered a satisfactory subordination agreement
pursuant to the provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become effective in the
form found acceptable.
The cash proceeds covered by this Agreement shall be used and dealt
with by the Broker-Dealer as part of its capital and shall be subject to the
risks of the business. The Broker-Dealer shall have the right to deposit any
cash proceeds of this Subordinated Loan Agreement in an account or accounts in
its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations of the Broker-Dealer
under this Agreement with respect to the payment of principal and interest shall
be and are subordinate in right of payment and subject to the prior payment or
provision for payment in full of all claims of all other present and future
creditors of the Broker-Dealer arising out of any matter occurring prior to the
date on which the related Payment Obligation (as defined herein) matures
consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except for
claims which are the subject of subordination agreements which rank on the same
priority as, or are junior to the claim of the Lender under such subordination
agreements.
I. PERMISSIVE PREPAYMENTS (OPTIONAL)
At the option of the Broker-Dealer, but not at the option of the
Lender, payment of all or any part of the "Payment Obligation" amount hereof
prior to the Scheduled Maturity Date may be made by the Broker-Dealer only upon
receipt of the prior written approval of the NASD, but in no event may any
prepayment be made before the expiration of one year from the date this
Agreement became effective. No prepayment shall be made if, after giving effect
thereto (and all payments of Payment Obligations under any other subordination
agreements then outstanding, the maturity or accelerated maturity of which are
scheduled to fall due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment Obligation hereof is
scheduled to mature, whichever date is earlier), without reference to any
projected profit or loss of the Broker-Dealer, either aggregate indebtedness of
the Broker-Dealer would exceed 1000 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from time to time by the
NASD, or a governmental agency or self-regulatory body having appropriate
authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii)
of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate
debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as
a futures commission merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations thereunder, (less the
market value of commodity options purchased by option customers on or subject to
the rules of a contract market, provided, however, the deduction for each option
customer shall be limited to the amount of customer funds in such option
customers account,) if greater, or its net capital would be less than 120
percent of the minimum dollar amount required by 17 CFR 240.15c3-1 or such
greater dollar amount as may be made applicable to the Broker-
NASD FORM SL-1
1
<PAGE> 4
Dealer by the NASD, or a governmental agency or "self-regulatory" body having
appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer shall be suspended and
shall not mature if, after giving effect to such payment (together with the
payment of any Payment Obligation of the Broker-Dealer under any other
subordination agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200
percent of its net capital or such lesser percent as may be made applicable to
the Broker-Dealer from time to time by the NASD, or a governmental agency or
self-regulatory body having appropriate authority, or if the Broker-Dealer is
operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net
capital would be less than 5 percent of aggregate debit items computed in
accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission
merchant, 6 percent of the funds required to be segregated pursuant to the
Commodity Exchange Act and the regulations thereunder, (less the market value
of commodity options purchased by option customers on or subject to the rules
of a contract market, provided, however, the deduction for each option customer
shall be limited to the amount of customer funds in such option customers
account,) if greater, or its net capital would be less than 120 percent of the
minimum dollar amount required by 17 CFR 240.15c3-1, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate authority.
IV. ACCELERATED MATURITY OF THE SUBORDINATION AGREEMENT UPON THE
OCCURRENCE OF AN EVENT OF ACCELERATION (OPTIONAL)
By prior written notice delivered to the Broker-Dealer at its
principal office and to the NASD upon the occurrence of any Event of
Acceleration (as defined herein), given no sooner than six months from the
effective date of this Agreement, the Lender may accelerate such Payment
Obligation to the last business day of a calendar month not less than six
months after the receipt of such notice by both the Broker-Dealer and the NASD.
If, upon such accelerated maturity, the Payment Obligation of the
Broker-Dealer is suspended pursuant to paragraph II of this Agreement, and
liquidation of the Broker-Dealer has not commenced on or prior to such
accelerated maturity date, such Agreement shall mature on the day immediately
following such accelerated maturity date and, in any event, the Payment
Obligations of the Broker-Dealer with respect to all other subordination
agreements then outstanding shall also mature at the same time. Events of
Acceleration which may be included shall be limited to:
(a) Failure to pay interest or any installment of principal on this
Agreement as scheduled;
NASD FORM SL-1 2
<PAGE> 5
(b) Failure to pay when due other money obligations of a specified
material amount;
(c) Discovery that any material, specified representation or warranty
of the broker-dealer which is included in this Agreement and on which this
Agreement was based or continued was inaccurate in a material respect at the
time made; or
(d) The following specified and clearly measurable event(s), which the
Lender and Broker-Dealer agree (i) is a significant indication that the
financial position of the Broker-Dealer has changed materially and adversely
from agreed upon specified norms; or (ii) could materially and adversely affect
the ability of the Broker-Dealer to conduct its business as conducted on the
effective date of the subordination agreements; or (iii) is a significant
change in the senior management or in the general business conducted by the
Broker-Dealer from the date this Agreement became effective; or (iv) constitute
continued failure to perform agreed-upon covenants included in this Agreement
relating to the maintenance and reporting by the Broker-Dealer of its financial
position or relating to the conduct of its business.
The events of Acceleration as discussed in paragraphs (a) through (d)
with respect to this Agreement are enumerated below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
V. ACCELERATED MATURITY OF THE SUBORDINATION AGREEMENT UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT (OPTIONAL)
(a) If the liquidation of the business of the Broker-Dealer has not
already commenced, the Payment Obligation shall mature, together with accrued
interest or compensation, upon the occurrence of an Event of Default, as
hereinafter defined.
(b) Further, if liquidation of the business of the Broker-Dealer has
not already commenced, the rapid and orderly liquidation of the business of the
Broker-Dealer shall then commence upon the happening of an Event of Default,
and the date of said Event of Default shall be the date on which the Payment
Obligations of the Broker-Dealer with respect to all other subordination
agreements then outstanding shall mature.
Events of Default which may be included shall be limited to:
(i) The filing of an application by the Securities Investor Protection
Corporation for a decree adjudicating that customers of the Broker-Dealer are
in need of protection under the Securities Investor Protection Act of 1970 and
the failure of the Broker-Dealer to obtain the dismissal of such application
within 30 days;
(ii) The aggregate indebtedness of the Broker-Dealer exceeding 1500 percent of
its net capital or, in the case of a Broker-Dealer which has elected to operate
under paragraph (a)(1)(ii) of 17 CFR 240.15c-1, its net capital computed in
NASD FORM SL-1 3
<PAGE> 6
accordance therewith is less than 2 percent of its aggregate debit items
computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures
commission merchant, 4 percent of the funds required to be segregated pursuant
to the Commodity Exchange Act and the regulations thereunder, (less the market
value of commodity options purchased by option customers on or subject to the
rules of a contract market, provided, however, the deduction for each option
customer shall be limited to the amount of customer funds in such option
customer's account') if greater, throughout a period of 15 consecutive business
days, commencing on the day the Broker-Dealer first determines and notifies the
Lender and the NASD, or the NASD or the Commission first determines and notifies
the Broker-Dealer of such fact;
(iii) Revocation by the Commission of the registration of the Broker-Dealer;
(iv) Suspension by the NASD (without reinstatement within 10 days) or revocation
of the Broker-Dealer's status as a member thereof; and,
(v) Receivership, insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment for the benefit of
creditors, reorganization whether or not pursuant to bankruptcy laws, or any
other marshaling of the assets and liabilities of the Broker-Dealer.
NASD FORM SL-1 4
<PAGE> 7
VI. NOTICE OF MATURITY OR ACCELERATED MATURITY
The Broker-Dealer shall immediately notify the NASD if, after giving
effect to all payments of Payment Obligations under subordination agreements
then outstanding which are then due or mature within six months without
reference to any projected profit or loss of the Broker-Dealer, either the
aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net
capital, or in the case of a Broker-Dealer operating pursuant to paragraph
(a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 6 percent of the funds required to
be segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market, provided, however,
the deduction for each option customer shall be limited to the amount of
customer funds in such option customer's account), if greater, and in either
case, if its net capital would be less than 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1, or such greater dollar amount as may be
made applicable to the Broker-Dealer by the NASD, or a governmental agency or
self-regulatory body having appropriate authority.
VII. BROKER-DEALERS CARRYING THE ACCOUNTS OF SPECIALISTS AND MARKET MAKERS
IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries or clears specialist
or market-maker transactions in options listed an a national securities
exchange or facility of a national securities association shall not permit a
reduction, prepayment or repayment of the unpaid principal amount if the effect
would cause the equity required in such specialist or market-maker accounts to
exceed 1000 percent of the Broker-Dealer's net capital or such percent as may
be made applicable to the Broker-Dealer from time to time by the NASD or a
governmental agency or self-regulatory body having appropriate authority.
VIII. BROKER-DEALERS REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission merchant or introductory
broker as that term is defined in the Commodity Exchange Act, the Organization
agrees, consistent with the requirements of 1.17(h) of the regulations of the
CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer to the NASD is required
pursuant to the provisions of this Agreement, the same prior written notice
shall be given by the Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Accountant of Division of Trading and Markets,
and/or (ii) the commodity exchange of which the Organization is a member and
which is then designated by the CFTC as the Organization's designated
self-regulatory organization the "DSRO");
(b) Whenever prior written consent, permission or approval of the NASD is
required pursuant to the provisions of this Agreement, the Broker-Dealer shall
also obtain the prior written consent, permission or approval of the CFTC
(and/or of the DSRO); and,
NASD FORM SL-1 5
<PAGE> 8
(c) Whenever the Broker-Dealer receives written notice of acceleration of
maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall
promptly give written notice thereof to the CFTC at the address above stated
and/or to the DSRO.
X. GENERAL
This Agreement shall not be subject to cancellation by either the
Lender or the Broker-Dealer, and no payment shall be made, nor the Agreement
terminated, rescinded, or modified my mutual consent or otherwise if the effect
thereof would be inconsistent with the requirements of 17 CFR 240.15c3-1 and
240.15c3-1d.
The Agreement may not be transferred, sold, assigned, pledged, or
otherwise encumbered or otherwise disposed of, and no lien, charge or other
encumbrance may be created or permitted to be created thereon without the prior
written consent of the NASD.
In the event of the appointment of a receiver or trustee of the
Broker-Dealer or in the event of its insolvency, liquidation pursuant to the
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganization whether or not pursuant to
bankruptcy laws, or any other marshaling at the assets and liabilities of the
Broker-Dealer, the Payment Obligation of the Broker-Dealer shall mature, and the
holder hereof shall not be entitled to participate or share, ratably or
otherwise, in the distribution of the assets of the Broker-Dealer until all
claims of all other present and future creditors at the Broker-Dealer, whose
claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the loan evidenced hereby is not
being made in reliance upon the standing of the Broker-Dealer as a member
organization of the NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules and practices of
the NASD. The Lender has made such investigation of the Broker-Dealer and its
partners, officers, directors and stockholders as the Lender deems necessary and
appropriate under the circumstances. The Lender is not relying upon the NASD to
provide any information concerning or relating to the Broker-Dealer and agrees
that the NASD has no responsibility to disclose to the Lander any information
concerning or relating to the Broker-Dealer which it may now, or at any future
time, have.
NASD FORM SL-1 6
<PAGE> 9
The term "Broker-Dealer" as used in this Agreement shall include the
broker-dealer, its heirs, executors, administrators, successors, and assigns.
The term "Payment Obligation" shall mean the obligation of the
Broker-Dealer to repay cash loaned to it pursuant to this Subordinated Loan
Agreement.
The provisions of this Agreement shall be binding upon the
Broker-Dealer and the Lender and their respective heirs, executors,
administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement may be
submitted to and settled by arbitration pursuant to the By-Laws and rules of
the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement between the
Broker-Dealer and Lender and no other evidence of such agreement has been or
will be executed without the prior written consent of the NASD.
This Agreement shall be deemed to have been made under, and shall be
governed by, the laws of the State of Texas in all respects.
NASD FORM SL-1 7
<PAGE> 10
IN WITNESS WHEREOF the parties have set their hands and seal this 13th day of
October 1998.
Tejas Securities Group, Inc
---------------------------------
(Name of Broker-Dealer)
By /s/ JOHN J. GORMAN, IV L.S.
-----------------------
(Authorized Person)
JOHN J. GORMAN, IV
/s/ CLARK N. WILSON L.S.
--------------------
(Lender)
Clark N. Wilson
FOR NASD USE ONLY
ACCEPTED BY /s/ [ILLEGIBLE]
---------------------
(Name)
Associate Director
----------------------
(Title)
*EFFECTIVE DATE: 11/12/98
LOAN NUMBER: 06-D-SLA-10095
NASD FORM SL-1
8
<PAGE> 11
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this investment with
an attorney, accountant or some other person who has knowledge and experience
in financial and business matters prior to executing this Agreement.
1. I have received and reviewed a reprint of Appendix D
of 17 CFR 240.15c3-1, and am familiar with its
provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities
Investor Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my
account. (State Yes or No) Yes.
5. Lender's business relationship to the broker-dealer
is: client
6. If not a partner or stockholder actively engaged in
the business of the broker-dealer, acknowledge receipt
of the following:
a. Certified audit and accountant's certificate dated
12-31-97
b. Disclosure of financial and/or operational problems
since the last certified audit which required
reporting pursuant to SEC Rule 17a-11. (If no such
reporting was required, state "none") none
c. Balance sheet and statement of ownership equity
dated September 30, 1998
d. Most recent computation of net capital and aggregate
indebtedness or aggregate debit items dated 9-30-97,
reflecting a net capital of $1,042,323 and a ratio
of 1:1.
a. Debt/equity ratio as of 24% of 9-30-98.
f. Other disclosures: Possible business combination
with EMED
DATED: October 13, 1998 /s/ CLARK N. WILSON L.S.
--------------------------------------
(Lender)
Clark N. Wilson
<PAGE> 12
ADDENDUM AGREEMENT
Reference is hereby made to that certain Subordinated Loan Agreement
dated effective October 13, 1998, between MR. CLARK N. WILSON (the "Lender")
and TEJAS SECURITIES GROUP, INC. (the "Broker-Dealer"), as the same may be
amended or modified from time to time (the "Loan Agreement"). Capitalized terms
used in this Addendum Agreement (the "Addendum"), to the extent not otherwise
defined herein, shall have the same meanings as in the Loan Agreement. The
terms and conditions of the Loan Agreement are incorporated herein by
reference. This Addendum shall constitute additional terms and conditions to
which the Payment Obligation is subject.
NOW, THEREFORE, IN CONSIDERATION of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Lender and the Broker-Dealer hereby agree as follows:
1. Notwithstanding anything to the contrary set forth in the Loan Agreement,
Broker-Dealer may incur, issue, and permit to exist obligations of the
Broker-Dealer for borrowed money in a principal amount outstanding which shall
not at any time exceed $2,500,000.00, which obligations shall be senior to the
repayment of the Payment Obligation which is the subject of the Loan Agreement.
2. Notwithstanding anything to the contrary set forth in the Loan Agreement,
Broker-Dealer may incur, issue, and permit to exist obligations of
Broker-Dealer for borrowed money in a principal amount outstanding at any time
not to exceed $2,000,000.00, which obligations shall rank pari passu with the
Payment Obligation which is the subject of the Loan Agreement and shall bear
terms substantially similar to the Payment Obligation which is the subject of
the Loan Agreement.
3. Broker-Dealer agrees that, so long as the Payment Obligation or any part
thereof is outstanding, the Broker-Dealer shall not pay salary to its
President, Mr. John Gorman IV, in an amount in excess of $360,000.00 per year.
Broker-Dealer shall however be permitted to provide to Mr. John Gorman IV,
President of Broker-Dealer, in addition to such salary, such additional
standard benefits as Broker-Dealer deems necessary or desirable, including
without limitation stock options, the use of a company automobile, insurance,
and other standard benefits.
4. Broker-Dealer agrees that so long as the Payment Obligation or any part
thereof remains outstanding, Broker-Dealer shall not, without the prior written
consent of the Lender, pay any dividends or make any other payment or
distribution in cash on account of its capital stock.
5. Broker-Dealer agrees that, for so long as the Payment Obligation or any part
thereof remains outstanding, the Broker-Dealer shall authorize a representative
of the Lender to maintain a seat on the Board of Directors of Broker-Dealer.
6. As a condition of the Loan Agreement, Broker-Dealer shall issue to the
Lender, on the date of approval of the transaction which is the subject of the
Loan Agreement by the NASD, warrants to purchase 112,500 shares of common
capital stock of the Broker-Dealer, which warrants shall be exercisable at a
price of $2.65 per share of common stock and shall be exercisable for a period
of five (5) years from the date of issuance of such warrants. The terms
<PAGE> 13
of such warrants, whether or not exercised, shall entitle the Lender to
participate in underwriter warrant distributions on the same basis as
shareholders of the Broker-Dealer at any time while the Payment Obligation or
any part thereof remains outstanding, such distributions to be determined on
the basis that each such warrant for the purchase of a share of common stock
equals a single share of common stock.
7. If Broker-Dealer shall fail to perform, observe, or comply with any
covenant, agreement or term contained in this Addendum, and such failure shall
continue for thirty (30) days after the Lender sends to the Broker-Dealer
notice thereof, such failure shall constitute an Event of Acceleration and
shall entitle the Lender to exercise the rights and remedies available to it
under the Loan Agreement.
8. This Addendum shall be governed by and construed in accordance with the laws
of the State of Texas. THIS ADDENDUM, THE LOAN AGREEMENT, AND THE OTHER
DOCUMENTS REFERRED TO IN THE LOAN AGREEMENT EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Addendum and the Loan Agreement to which
the Broker-Dealer is a party may be amended or waived only by an instrument in
writing signed by the parties hereto.
9. The unenforceability of any provision of this Addendum shall not affect the
enforceability or validity of any other provision hereof.
10. This Addendum may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute but one and the same instrument.
11. All notices and other communications provided for in this Addendum shall be
given to the parties hereto at the "Address for Notices" specified below its
name on the signature pages hereof; or as to any party at such other address
as shall be designated by such party in a notice to the other party given in
accordance with this section. All such communications shall be given or made by
telecopy or in writing, mailed by certified mail, return receipt requested, or
delivered to the intended recipient, and shall be deemed to have been duly
given when transmitted by telecopy subject to telephone confirmation of receipt
or when personally delivered, or in the case of a mailed notice, when duly
deposited in the mail, in each case given or addressed as aforesaid.
-2-
<PAGE> 14
Broker-Dealer:
TEJAS SECURITIES GROUP, INC.
By: /s/ JOHN J. GORMAN, IV
--------------------------------
Name: John J. Gorman, IV
-----------------------------
Title: President
----------------------------
Address for Notices:
1250 Capital of Texas Highway South
------------------------------------
Building II, Suite 500
------------------------------------
Austin, Texas 78746
------------------------------------
Lender:
Mr. Clark N. Wilson
------------------------------------
By: /s/ CLARK N. WILSON
--------------------------------
Name: Mr. Clark N. Wilson
--------------------------------
Address for Notices:
5312 Park Hollow Lane
------------------------------------
Austin, Texas 78746
------------------------------------
<PAGE> 1
EXHIBIT 4.2
SUBORDINATED LOAN AGREEMENT
-------------
FORM SL-1
-------------
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
1735 K STREET, N.W., WASHINGTON, D.C. 20006
<PAGE> 2
NASD
SUBORDINATED LOAN AGREEMENT
SL-1
AGREEMENT BETWEEN:
Lender Clark N. Wilson
---------------------------------------------------------
(Name)
5312 Park Hollow Lane
- ---------------------------------------------------------------------
(Street Address)
Austin Texas 78746
- -------------------------- --------- -------
(City) (State) (Zip)
AND
Broker-Dealer Tejas Securities Group, Inc.
--------------------------------------------------
(Name)
1250 Capital of Texas Highway South Bldg. 2 Suite 500
- ---------------------------------------------------------------
(Street Address)
Austin Texas 78746
- -------------------------- --------- -------
(City) (State) (Zip)
NASD ID NO.: 036705
-------------------------------------
DATE FILED: June 4, 1999
-------------------------------------
<PAGE> 3
NASD
SUBORDINATED LOAN
AGREEMENT
upon
NASD
Approval
AGREEMENT dated 6/4/99 to be effective ________ between Clark N. Wilson
(the "Lender") and Tejas Securities Group, Inc. (the "Broker-Dealer")
In consideration of the sum of $500,000.00 and subject to the terms and
conditions hereinafter set forth, the Broker-Dealer promises to pay to the
Lender or assigns on November 1, 2001 at the principal office of the
Broker-Dealer the aforedescribed sum and interest thereon payable at the rate of
11.5% percent per annum from the effective date of this Agreement, which date
shall be the date so agreed upon by the Lender and the Broker-Dealer unless
otherwise determined by the National Association of Securities Dealers, Inc.
("NASD"). This Agreement shall not be considered a satisfactory subordination
agreement pursuant to the provisions of 17 CFR 240.15c3-1d unless and until the
NASD has found the Agreement acceptable and such Agreement has become effective
in the form found acceptable.
The cash proceeds covered by this Agreement shall be used and dealt
with by the Broker-Dealer as part of its capital and shall be subject to the
risks of the business. The Broker-Dealer shall have the right to deposit any
cash proceeds of this Subordinated Loan Agreement in an account or accounts in
its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations of the Broker-Dealer
under this Agreement with respect to the payment of principal and interest shall
be and are subordinate in right of payment and subject to the prior payment or
provision for payment in full of all claims of all other present and future
creditors of the Broker-Dealer arising out of any matter occurring prior to the
date on which the related Payment Obligation (as defined herein) matures
consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except for
claims which are the subject of subordination agreements which rank on the same
priority as or are junior to the claim of the Lender under such subordination
agreements.
I. PERMISSIVE PREPAYMENTS (OPTIONAL)
At the option of the Broker-Dealer, but not at the option of the
Lender, payment of all or any part of the "Payment Obligation" amount hereof
prior to the Scheduled Maturity Date may be made by the Broker-Dealer only upon
receipt of the prior written approval of the NASD, but in no event may any
prepayment be made before the expiration of one year from the date this
Agreement became effective. No prepayment shall be made if, after giving effect
thereto (and all payments of Payment Obligations under any other subordination
agreements then outstanding, the maturity or accelerated maturity of which are
scheduled to fall due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment Obligation hereof is
scheduled to mature, whichever date is earlier), without reference to any
projected profit or loss of the Broker-Dealer, either aggregate indebtedness of
the Broker-Dealer would exceed 1000 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from time to time by the
NASD, or a governmental agency or self-regulatory body having appropriate
authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii)
of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate
debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as
a futures commission merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations thereunder, (less the
market value of commodity options purchased by option customers on or subject to
the rules of a contract market, provided, however, the deduction for each option
customer shall be limited to the amount of customer funds in such option
customers account,) if greater, or its net capital would be less than 120
percent of the minimum dollar amount required by 17 CFR 240.15c3-1 or such
greater dollar amount as may be made applicable to the Broker-
NASD FORM SL-1 1
<PAGE> 4
Dealer by the NASD, or a governmental agency or "self-regulatory" body having
appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer shall be suspended and
shall not mature if, after giving effect to such payment (together with the
payment of any Payment Obligation of the Broker-Dealer under any other
subordination agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200
percent of its net capital or such lesser percent as may be made applicable to
the Broker-Dealer from time to time by the NASD, or a governmental agency or
self-regulatory body having appropriate authority, or if the Broker-Dealer is
operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital
would be less than 5 percent of aggregate debit items computed in accordance
with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 6
percent of the funds required to be segregated pursuant to the Commodity
Exchange Act and the regulations thereunder, (less the market value of commodity
options purchased by option customers on or subject to the rules of a contract
market, provided, however, the deduction for each option customer shall be
limited to the amount of customer funds in such option customers account,) if
greater, or its net capital would be less than 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1, or such greater dollar amount as may be
made applicable to the Broker-Dealer by NASD, or a governmental agency or
self-regulatory body having appropriate authority.
IV. ACCELERATED MATURITY OF THE SUBORDINATION AGREEMENT UPON THE
OCCURRENCE OF AN EVENT OF ACCELERATION (OPTIONAL)
By prior written notice delivered to the Broker-Dealer at its
principal office and to the NASD upon the occurrence of any Event of
Acceleration (as defined herein), given no sooner than six months from the
effective date of this Agreement, the Lender may accelerate such Payment
Obligation to the last business day of a calendar month not less than six
months after the receipt of such notice by both the Broker-Dealer and the NASD.
If, upon such accelerated maturity, the Payment Obligation of the Broker-Dealer
is suspended pursuant to paragraph II of this Agreement, and liquidation of the
Broker-Dealer has not commenced on or prior to such accelerated maturity date,
such Agreement shall mature on the day immediately following such accelerated
maturity date and, in any event, the Payment Obligations of the Broker-Dealer
with respect to all other subordination agreements then outstanding shall also
mature at the same time. Events of Acceleration which may be included shall be
limited to:
(a) Failure to pay interest or any installment of principal on this
Agreement as scheduled;
2
<PAGE> 5
(b) Failure to pay when due other money obligations of a specified
material amount;
(c) Discovery that any material, specified representation or warranty
of the broker-dealer which is included in this Agreement and on which this
Agreement was based or continued was inaccurate in a material respect at the
time made; or,
(d) The following specified and clearly measurable event(s), which the
Lender and Broker-Dealer agree (i) is a significant indication that the
financial position of the Broker-Dealer has changed materially and adversely
from agreed upon specified norms; or (ii) could materially and adversely affect
the ability of the Broken-Dealer to conduct its business as conducted on the
effective date of the subordination agreements; or (iii) is a significant
change in the senior management or in the general business conducted by the
Broker-Dealer from the date this Agreement became effective; or (iv) constitute
continued failure to perform agreed-upon covenants included in this Agreement
relating to the maintenance and reporting by the Broker-Dealer of its financial
position or relating to the conduct of its business.
The events of Acceleration as discussed in paragraphs (a) through (d)
with respect to this Agreement are enumerated below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V. ACCELERATED MATURITY OF THE SUBORDINATION AGREEMENT UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT (OPTIONAL)
(a) If the liquidation of the business of the Broker-Dealer has not
already commenced, the Payment Obligation shall mature, together with accrued
interest or compensation, upon the occurrence of an Event of Default, as
hereinafter defined.
(b) Further, if liquidation of the business of the Broker-Dealer has
not already commenced, the rapid and orderly liquidation of the business of the
Broker-Dealer shall then commence upon the happening of on Event of Default,
and the date of said Event of Default shall be the date on which the Payment
Obligations of the Broker-Dealer with respect to all other subordination
agreements then outstanding shall mature.
Events of Default which may be included shall be limited to:
(i) The filing of an application by the Securities Investor Protection
Corporation for a decree adjudicating that customers of the Broker-Dealer are
in need of protection under the Securities Investor Protection Act of 1970 and
the failure of the Broker-Dealer to obtain the dismissal of such application
within 30 days;
(ii) The aggregate indebtedness of the Broker-Dealer exceeding 1500 percent of
its net capital or, in the case of a Broker-Dealer which has elected to operate
under paragraph (a)(1)(ii) of 17 CFR 240.15c-1, its net capital computed in
NASD FORM SL-1 3
<PAGE> 6
accordance therewith is less than 2 percent of its aggregate debit items
computed in accordance with 17 CFR 240.15c33a, or, if registered as a futures
commission merchant. 4 percent of the funds required to be segregated pursuant
to the Commodity Exchange Act and the regulations thereunder, (less the market
value of commodity options purchased by option customers on or subject to the
rules of a contract market, provided, however, the deduction for each option
customer shall be limited to the amount of customer funds in such option
customer's account') if greater, throughout a period of 15 consecutive business
days, commencing on the day the Broker-Dealer first determines and notifies the
Lender and the NASD, or the NASD or the Commission first determines and
notifies the Broker-Dealer of such fact;
(iii) Revocation by the Commission of the registration of the Broker-Dealer;
(iv) Suspension by the NASD (without reinstatement within 10 days) or
revocation of the Broker-Dealer's status as a member thereof; and,
(v) Receivership, insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment for the benefit of
creditors, reorganization whether or not pursuant to bankruptcy laws, or any
other marshaling of the assets and liabilities of the Broker-Dealer.
4
<PAGE> 7
VI. NOTICE OF MATURITY OR ACCELERATED MATURITY
The Broker-Dealer shall immediately notify the NASD it, after giving
effect to all payments of Payment Obligations under subordination agreements
then outstanding which are then due or mature within six months without
reference to any projected profit or loss of the Broker-Dealer, either the
aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its
net capital, or in the case of a Broker-Dealer operating pursuant to paragraph
(a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent
of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or,
if registered as a futures commission merchant, 6 percent of the funds required
to be segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market, provided, however,
the deduction for each option customer shall be limited to the amount of
customer funds in such option customer's account,) if greater, and in either
case, if its net capital would be less than 120-percent of the minimum dollar
amount required by 17 CFR 240.15c3-1, or such greater dollar amount as may be
made applicable to the Broker-Dealer by the NASD, or a governmental agency or
self-regulatory body having appropriate authority.
VII. BROKER-DEALERS CARRYING THE ACCOUNTS OF SPECIALISTS AND MARKET MAKERS
IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries or clears specialist
or market-maker transactions in options listed an a national securities
exchange or facility of a national securities association shall not permit a
reduction, prepayment or repayment of the unpaid principal amount if the effect
would cause the equity required in such specialist or market-maker accounts to
exceed 1000 percent of the Broker-Dealer's net capital or such percent as may
be made applicable to the Broker-Dealer from time to time by the NASD or a
governmental agency or self-regulatory body having appropriate authority.
VIII. BROKER-DEALERS REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission merchant or introductory
broker as that term is defined in the Commodity Exchange Act, the Organization
agrees, consistent with the requirements of 1.17(h) of the regulations of the
CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer to the NASD is required
pursuant to the provisions of this Agreement, the same prior written notice
shall be given by the Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Accountant of Division of Trading and
Markets, and/or (iii) the commodity exchange of which the Organization is a
member and which is then designated by the CFTC as the Organization's
designated self-regulatory organization the "DSRO");
(b) Whenever prior written consent, permission or approval of the NASD is
required pursuant to the provisions at this Agreement, the Broker-Dealer shall
also obtain the prior written consent, permission or approval at the CFTC
(and/or of the DSRO); and,
NASD FORM SL-1
5
<PAGE> 8
(c) Whenever the Broker-Dealer receives written notice of acceleration of
maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall
promptly give written notice thereof to the CFTC at the address above stated
and/or to the OSRO.
X. GENERAL
This Agreement shall not be subject to cancellation by either the
Lender or the Broker-Dealer, and no payment shall be made, nor the Agreement
terminated, rescinded, or modified my mutual consent or otherwise if the effect
thereof would be inconsistent with the requirements of 17 CFR 240.15c3-1 and
240.15c3-1d.
The Agreement may not be transferred, sold, assigned, pledged, or
otherwise encumbered or otherwise disposed of, and no lien, charge or other
encumbrance may be created or permitted to be created thereon without the prior
written consent of the NASD.
In the event of the appointment of a receiver or trustee of the
Broker-Dealer or in the event of its insolvency, liquidation pursuant to the
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganization whether or not pursuant to
bankruptcy laws, or any other marshaling of the assets and liabilities of the
Broker-Dealer, the Payment Obligation of the Broker-Dealer shall mature, and
the holder hereof shall not be entitled to participate or share, ratably or
otherwise, in the distribution of the assets of the Broker-Dealer until all
claims of all other present and future creditors of the Broker-Dealer, whose
claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the loan evidenced hereby is not
being made in reliance upon the standing of the Broker-Dealer as a member
organization of the NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules and practices of
the NASD. The Lender has made such investigation of the Broker-Dealer and its
partners, officers, directors and stockholders as the Lender deems necessary
and appropriate under the circumstances. The Lender is not relying upon the
NASD to provide any information concerning or relating to the Broker-Dealer and
agrees that the NASD has no responsibility to disclose to the Lender any
information concerning or relating to the Broker-Dealer which it may now, or at
any future time, have.
NASD FORM SL-1 6
<PAGE> 9
The term "Broker-Dealer" as used in this Agreement shall include the
broker-dealer, its heirs, executors, administrators, successors, and assigns.
The term "Payment Obligation" shall mean the obligation of the
Broker-Dealer to repay cash loaned to it pursuant to this Subordinated Loan
Agreement.
The provisions of this Agreement shall be binding upon the
Broker-Dealer and the Lender and their respective heirs, executors,
administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement may be
submitted to and settled by arbitration pursuant to the By-Laws and rules of
the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement between the
Broker-Dealer and Lender and no other evidence of such agreement has been or
will be executed without the prior written consent of the NASD.
This Agreement shall be deemed to have been made under, and shall be
governed by, the laws of the State of Texas in all respects.
NASD FORM SL-1 7
<PAGE> 10
IN WITNESS WHEREOF the parties have set their hands and seal this 4th day of
June 1999.
Tejas Securities Group, Inc.
-----------------------------------
(Name of Broker-Dealer)
By: /s/ JOHN J. GORMAN IV L.S.
----------------------------
(Authorized Person)
John J. Gorman IV
/s/ CLARK N. WILSON L.S.
-------------------------------
(Lender)
Clark N. Wilson
FOR NASD USE ONLY
ACCEPTED BY /s/ BRAD YOUNG
--------------------
(Name)
Associate Director
--------------------
(Title)
*EFFECTIVE DATE: 6/17/99
-------------------
LOAN NUMBER: 06-D-SLA-10110
-----------------------
NASD FORM SL-1 8
<PAGE> 11
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this investment with
an attorney, accountant or some other person who has knowledge and experience
in financial and business matters prior to executing this Agreement.
1. I have received and reviewed a reprint of Appendix D
of 17 CFR 240.15c3-1, and am familiar with its
provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities
Investor Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my
account. (State Yes or No) Yes.
---
5. Lender's business relationship to the broker-dealer
is: client
6. If not a partner or stockholder actively engaged in
the business of the broker-dealer, acknowledge
receipt of the following:
a. Certified audit and accountant's
certificate dated 12/31/98
b. Disclosure of financial and/or operational
problems since the last certified audit
which required reporting pursuant to SEC
Rule 17a-11. (If no such reporting was
required, state "none") none
c. Balance sheet and statement of ownership
equity dated 4/30/99
d. Most recent computation of net capital and
aggregate indebtedness or aggregate debit
items dated 4/30/99 reflecting a net
capital of $946,655 and a ratio of 10.95:1.
e. Debt/equity ratio as of 4/30/99 of 1.8:1.
f. Other disclosures:
-------------------------
Dated: 6-4-99 /s/ CLARK N. WILSON L.S.
----------------------------------
(Lender)
Clark N. Wilson
<PAGE> 12
NOTE THAT NASDR DOES
NOT HAVE AN OPINION
ON THIS ADDENDUM AND HAS
NOT APPROVED OR DISAPPROVED
OF THIS ADDENDUM.
<PAGE> 13
ADDENDUM AGREEMENT
Reference is hereby made to that certain Subordinated Loan Agreement
dated effective June 4, 1999, between MR. CLARK N. WILSON (the "Lender") and
TEJAS SECURITIES GROUP, INC. (the "Broker-Dealer"), as the same may be amended
or modified from time to time (the "Loan Agreement"). Capitalized terms used in
this Addendum Agreement (the "Addendum"), to the extent not otherwise defined
herein, shall have the same meanings as in the Loan Agreement. The terms and
conditions of the Loan Agreement are incorporated herein by reference. This
Addendum shall constitute additional terms and conditions to which the Payment
Obligation is subject.
NOW, THEREFORE, IN CONSIDERATION of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Lender and the Broker-Dealer hereby agree as follows:
1. Notwithstanding anything to the contrary set forth in the Loan Agreement,
Broker-Dealer may incur, issue, and permit to exist obligations of the
Broker-Dealer for borrowed money in a principal amount outstanding which shall
not at any time exceed $2,500,000.00, which obligations shall be senior to the
repayment of the Payment Obligation which is the subject of the Loan Agreement.
2. Notwithstanding anything to the contrary set forth in the Loan Agreement,
Broker-Dealer may incur, issue, and permit to exist obligations of
Broker-Dealer for borrowed money in a principal amount outstanding at any time
not to exceed $2,000,000.00, which obligations shall rank pari passu with the
Payment Obligation which is the subject of the Loan Agreement and shall bear
terms substantially similar to the Payment Obligation which is the subject of
the Loan Agreement.
3. Broker-Dealer agrees that, so long as the Payment Obligation or any part
thereof is outstanding, the Broker-Dealer shall not pay salary to its
President, Mr. John Gorman IV, in an amount in excess of $360,000.00 per year.
Broker-Dealer shall however be permitted to provide to Mr. John Gorman IV,
President of Broker-Dealer, in addition to such salary, such additional
standard benefits as Broker-Dealer deems necessary or desirable, including
without limitation stock options, the use of a company automobile, insurance,
and other standard benefits.
4. Broker-Dealer agrees that so long as the Payment Obligation or any part
thereof remains outstanding, Broker-Dealer shall not, without the prior written
consent of the Lender, pay any dividends or make any other payment or
distribution in cash on account of its capital stock.
5. Broker-Dealer agrees that, for so long as the Payment Obligation or any part
thereof remains outstanding, the Broker-Dealer shall authorize a representative
of the Lender to maintain a seat on the Board of Directors of Broker-Dealer.
6. As a condition of the Loan Agreement, Broker-Dealer shall issue to the
Lender, on the date of approval of the transaction which is the subject of the
Loan Agreement by the NASD, warrants to purchase 112,500 shares of common
capital stock of the Broker-Dealer, which warrants shall be exercisable at a
price of $2.65 per share of common stock and shall be exercisable through
November 12, 2003. The terms of such warrants, whether or not exercised,
<PAGE> 14
shall entitle the Lender to participate in underwriter warrant distributions to
shareholders of the Broker-Dealer at any time while the Payment Obligation or
any part thereof remains outstanding, such distributions to be determined on
the basis that each such warrant for the purchase of a share of common stock
equals a single share of common stock.
7. If Broker-Dealer shall fail to perform, observe, or comply with any
covenant, agreement or term contained in this Addendum, and such failure shall
continue for thirty (30) days after the Lender sends to the Broker-Dealer
notice thereof, such failure shall constitute an Event of Acceleration and
shall entitle the Lender to exercise the rights and remedies available to it
under the Loan Agreement.
8. This Addendum shall be governed by and construed in accordance with the laws
of the State of Texas. THIS ADDENDUM, THE LOAN AGREEMENT, AND THE OTHER
DOCUMENTS REFERRED TO IN THE LOAN AGREEMENT EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Addendum and the Loan Agreement to which
the Broker-Dealer is a party may be amended or waived only by an instrument in
writing signed by the parties hereto.
9. The unenforceability of any provision of this Addendum shall not affect the
enforceability or validity of any other provision hereof.
10. This Addendum may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute but one and the same instrument.
11. All notices and other communications provided for in this Addendum shall be
given to the parties hereto at the "Address for Notices" specified below its
name on the signature pages hereof; or as to any party at such other address as
shall be designated by such party in a notice to the other party given in
accordance with this section. All such communications shall be given or made by
telecopy or in writing, mailed by certified mail, return receipt requested, or
delivered to the intended recipient, and shall be deemed to have been duly
given when transmitted by telecopy subject to telephone confirmation of receipt
or when personally delivered, or in the case of a mailed notice, when duly
deposited in the mail, in each case given or addressed as aforesaid.
-2-
<PAGE> 15
EXECUTED as of the date first above written.
Broker-Dealer:
TEJAS SECURITIES GROUP, INC.
By: /s/ JOHN J. GORMAN, IV
-------------------------------
Name: John J. Gorman, IV
Title: President
Address for Notices:
1250 Capital of Texas Highway South
Building II, Suite 500
Austin, Texas 78746
Lender:
Mr. Clark N. Wilson
By: /s/ CLARK N. WILSON
-------------------------------
Name: Mr. Clark N. Wilson
Address for Notices:
5312 Park Hollow Lane
Austin, Texas 78746
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
This agreement, made this 5th day of June, 1997 (the "Agreement")
between SCHRODER WERTHEIM & CO. INCORPORATED, a Delaware corporation
("Schroder" or the "Clearing Firm"), and Tejas Securities Group, Inc. (the
"Introducing Firm").
WITNESSETH THAT:
WHEREAS, the Introducing Firm desires to avail itself of the clearing
services of Schroder as more fully set forth herein, and
WHEREAS, Schroder desires to extend such clearing services to the
Introducing Firm;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and other good and valuable considerations the receipt of which is
hereby acknowledged, the parties hereby covenant and agree as follows:
I. SERVICES TO BE PERFORMED BY SCHRODER.
A. Schroder will carry individually on its books on a fully disclosed basis the
securities accounts on behalf of the Introducing Firm's customers whose
accounts have been introduced by the Introducing Firm and are accepted by
Schroder and will similarly carry all of the Introducing Firm's firm accounts
(collectively the "Introduced Accounts") commencing with the trade date of
_________.
<PAGE> 2
B. Schroder will prepare and mail to the Introduced Accounts confirmations of
purchases and sales of securities imprinted "Upon Instructions of" the
Introducing Firm and monthly statements of account (or quarterly statements
where appropriate due to inactivity) imprinted "In account with" the Introducing
Firm and bearing the name of Schroder and reflecting all transactions reported
to Schroder as having been executed by the Introducing Firm for the Introduced
Accounts pursuant to paragraph I.A. above.
C. Schroder shall be responsible for establishing and implementing procedures
for the transmission or execution of orders for the Introduced Accounts.
D. Schroder will settle all transactions reported to it pursuant to paragraph
I.B. above and all related contracts.
E. Schroder will perform all cashiering functions in connection with
transactions reported to it by the Introducing Firm for the Introduced Accounts
including, but not limited to, the receipt, transfer and delivery of securities
purchased, sold, borrowed and loaned, making and receiving payment therefore,
and if requested by the Introducing Firm, holding in custody and safekeeping
all securities and cash so received.
F. Schroder will process warrants, exchange offers, rights offerings, tender
offers and redemptions for securities which are held by Schroder in the same
manner such offers and redemptions are processed for Schroder's own accounts,
or as mutually agreed between Schroder and the Introducing Firm.
2
<PAGE> 3
G. Schroder will forward all annual reports, proxy materials, proxies and other
reports with respect to securities which are held by Schroder in accordance
with applicable rules and regulations, to the extent such material is provided
on a timely basis to Lewco Securities Corp. by the applicable company.
H. Schroder will accept and remit dividends and interest for securities which
are held by Schroder (or in its name of any subsidiary or nominee) for
Introduced Accounts.
I. In accordance with the requirements of the Securities and Exchange Commission
("SEC") and all the national securities exchanges and associations having
jurisdiction over such activities, Schroder will prepare, maintain and preserve
for the required periods books, records and documentation of all transactions
with respect to which it has performed clearance or cashiering services for the
Introduced Accounts. Provided, however, that Schroder shall not be responsible
for the filing of any regulatory reports required of the Introducing Firm by the
SEC, the National Association of Securities Dealers, Inc. ("NASD"), or any
national securities, commodities or other exchange, which shall be the sole
responsibility of the Introducing Firm.
J. Schroder will maintain appropriate stock inventory records for securities
which are deposited with Schroder in connection with transactions cleared by
Schroder for the Introduced Accounts.
K. Schroder will prepare and deliver to the Introducing Firm duplicate
confirmations and statements with respect to transactions cleared for the
Introduced Accounts and daily and monthly computer summaries of all
transactions cleared by Schroder for the Introduced Accounts on the same
schedule as comparable reports are prepared for Schroder's own accounts, or as
mutually agreed.
3
<PAGE> 4
L. Schroder will comply with all applicable rules and regulations governing the
handling of accounts for employees or officers of member organizations and
self-regulatory organizations including, but not limited to, sending duplicate
confirmations to the proper employer for all transactions executed by or
cleared through Schroder for all Introduced Accounts so identified to Schroder.
M. Schroder expressly disclaims any obligation to furnish investment advice to
any Introduced Account. The furnishing of investment advice is to be the
responsibility of the Introducing Firm or any third party investment adviser
who may be employed by the customer.
N. For purposes of the Securities Investor Protection Act and the Securities
and Exchange Commission's financial responsibility rules, Introduced Accounts
are accounts of the Clearing Firm, and not the Introducing Firm.
II. CHARGES.
A. For the services to be performed by Schroder hereunder, the Introducing Firm
agrees to pay the charges listed on Exhibit I attached hereto and made a part
hereof.
B. In the event that the Introducing Firm or any customer of the Introducing
Firm shall direct any securities transactions (other than those referred to
above) to Schroder during the term of this Agreement, Schroder may either, as
mutually agreed, (i) give appropriate recognition thereto by the reduction of
one or more amounts payable by the Introducing Firm to Schroder hereunder or
(ii) provide additional compensation to the Introducing Firm.
4
<PAGE> 5
III. OPENING OF ACCOUNTS.
A. At the opening of each Introduced Account, the Introducing Firm shall
furnish Schroder with all customary information concerning its customer which
Schroder requests. At the time of the opening of an Introduced Account,
Schroder shall cause to be delivered to and solicit the return from the
customer, Customers' Agreements on Schroder's forms (or assignments, in form
satisfactory to Schroder, of existing agreements between the customer and the
Introducing Firm) and such other documents as Schroder shall deem necessary
with respect to the account. Schroder's failure to receive any of the above
documents required to be executed and returned shall not be deemed a waiver of
the above requirements. Schroder shall also inform the customer of the
existence of this Agreement pursuant to Rule 382(c) of the New York Stock
Exchange. In addition, on Schroder's request, the Introducing Firm shall
furnish Schroder with any other documents, letters and/or agreements which may
be reasonably requested by Schroder in connection with the opening, operating
or maintaining of any Introduced Account.
B. The Introducing Firm and Schroder shall each have the right to reject any
account. Schroder shall have the right, in its sole discretion, to reject any
account accepted by the Introducing Firm which is then referred to Schroder,
and the right to terminate any account previously accepted by it. Any such
action will be discussed in advance with the Introducing Firm. Any account
previously accepted by Schroder may not be terminated by the Introducing Firm
except by written notice to Lewco Securities Corp., 2 Broadway, New York, NY
10004, on a form provided by Lewco Securities Corp. in order to permit the
closing of all open transactions.
5
<PAGE> 6
IV. INTEREST.
Schroder will charge interest on debit balances of Introduced
Accounts, whether cash or margin, in accordance with Schroder's cash or margin
account agreement then in use, with Schroder's letter to customers regarding
Credit Charges and Margin Requirements and with Regulation T of the Board of
Governors of the Federal Reserve System and other applicable laws, rules and
regulations. Consistent with the foregoing, the Introduced Accounts shall be
charged interest at such rates as shall be mutually agreed by the parties
hereto. Schroder shall be responsible for compliance with Regulation T of the
Federal Reserve Board and New York Stock Exchange regulation, with respect to
any margin accounts accepted by it.
V. TRANSACTIONS AND MARGIN.
A. Schroder will advise the Introducing Firm promptly of initial and maintenance
margin deposits by Introduced Accounts required by law, rule or regulation or in
accordance with Schroder's Margin Account Agreement. The Introducing Firm shall
be responsible for assuring that any initial margin so required is deposited on
or before the settlement date for each margin transaction and that full payment
is made on the settlement date for each cash transaction. In addition, the
Introducing Firm will use its best efforts to assist Schroder in obtaining the
deposit of any maintenance margin so required. The maintenance margin required
by Schroder for the Introduced Accounts shall be the same that Schroder requires
of its own customers. This requirement, which may be changed at any time in
Schroder's sole discretion, shall initially be 35%.
6
<PAGE> 7
B. In the event any such deposit is not timely made, Schroder will inform the
Introducing Firm of such situation and discuss with the Introducing Firm
appropriate action; provided, however, that whenever Schroder deems action
appropriate pursuant to the applicable margin agreement, it may, after notice
to the Introducing Firm, exercise any and all rights granted to it under said
margin agreement.
C. The Introducing Firm shall be responsible, and hereby agrees to indemnify
Schroder, for any loss or expense, including interest expense, suffered by
Schroder because of the failure of any Introduced Account, without fault on the
part of Schroder, after prior notice to such Introduced Account and the
Introducing Firm, (i) to pay for securities purchased for its account by
settlement date; (ii) to promptly deliver securities sold or otherwise disposed
of for such account in proper negotiable form; (iii) to deposit by settlement
date sufficient and adequate initial margin in connection with any margin
transactions; or (iv) to promptly deposit sufficient and adequate maintenance
margin upon Schroder's request to the Introducing Firm. The Introducing Firm
agrees to pay promptly any loss or expense as determined by Schroder under this
paragraph V.C., such determination shall be in a manner consistent with that
charged both internal Schroder departments and all other clearing firms.
D. In the event any designated officer of the Introducing Firm requests in
writing that Schroder withhold contemplated actions to "sell out" or "buy in"
on Introduced Accounts for a specified period of time and Schroder complies in
full or in part with such request, the Introducing Firm agrees to reimburse
Schroder promptly for any loss or expenses (including but not limited to
interest on any such loss or expense) sustained by any total or partial
compliance with such request.
7
<PAGE> 8
E. Where the Introducing Firm designates the contra broker in any transaction
executed by Schroder on the Introducing Firm's instruction, the Introducing
Firm shall assume the risk of default by the contra broker and shall indemnify
Schroder for any loss or expense including loss or expense resulting from
failure or liquidation of the contra broker which latter loss or expense shall
be shared in the same ratio as commissions are shared hereunder. Schroder shall
similarly indemnify the Introducing Firm if Schroder designates the contra
broker on any transaction it executes.
VI. SUPERVISION.
A. The Introducing Firm shall maintain an organized program of supervision and
compliance, consistent with the rules and regulations of the SEC, the National
Association of Securities Dealers, Inc., if applicable, and any applicable
national securities exchanges. Such program shall include, but not be
necessarily limited to, the following types of procedures:
(i) Inquiry review, verification and approval of all new accounts for
the purpose of establishing the identity, capacity to contract, reputability,
financial condition, credit worthiness, investment objectives and needs of each
prospective client for whom it is proposed to open an Introduced Account (and,
if applicable, essential information concerning his agent).
(ii) Review and approval of the basis for any suitability of all stock,
bond or option recommendations.
8
<PAGE> 9
(iii) Establish and implement procedures for the transmission and
execution of orders received by the Introducing Firm and from its customers or
initiated by the Introducing Firm pursuant to discretionary authority or power
of attorney.
(iv) Screen all orders transmitted and all transactions reported by
the Introducing Firm to Schroder prior to execution and all transactions prior
to settlement.
(v) Review of all daily transactions and monthly account statements on
a timely basis.
(vi) Review and approval of all restricted or insider securities
transactions, with prior notification of such transactions to and clearance by
the Compliance Department of Schroder and such other persons as shall, from
time to time, be designated by Schroder.
(vii) Review and approval of all discretionary account trading
authorizations and all discretionary transactions.
(viii) Review and approval of all customer purchases of new and
secondary issues.
(ix) Registration of the Introducing Firm as a broker/dealer and of
its sales personnel in all states in which the Introducing Firm conducts
business and such registration is required.
9
<PAGE> 10
B. The Introducing Firm represents that one or more of its officers has been
designated as having supervisory responsibility for all of the Introduced
Accounts and that the Introducing Firm has established, and will implement on a
continuous basis, written supervisory procedures to assure that all
transactions cleared by Schroder for Introduced Accounts are in compliance with
applicable Federal and state securities laws and the rules and regulations of
the NASD and applicable exchanges.
C The Introducing Firm further represents that it is in compliance with the
applicable net capital requirements of the SEC, the NASD, if applicable, and
any applicable securities exchanges and that it will provide to persons
designated by Schroder copies of each Statement of Financial Condition
contained in a Financial and Operational Uniform Single ("FOCUS") Report filed
by the Introducing Firm with the SEC, and any other applicable regulatory
authority simultaneous with the filing thereof.
D. The Introducing Firm shall be responsible, and hereby agrees to indemnify
Schroder, for any loss, liability, damage and expense, including reasonable
fees and expenses of legal counsel, which Schroder may incur or sustain because
of the failure of the Introducing Firm or any of its officers to perform the
supervision provided in this paragraph VI.
10
<PAGE> 11
VII. PAYMENT
A. Payment for services hereunder, and reimbursement to the Introducing Firm
for commissions received on its behalf by Schroder shall be made in the
following manner:
(i) On the 15th day of each month (or the next business day if the
15th day is not a business day) the Introducing Firm shall be paid 90% of the
net amount due it hereunder for transactions settled through the end of the
last complete calendar week ending prior to such 15th day:
(ii) On the last business day of each month the Introducing Firm shall
be paid 90% of the net amount due it hereunder for transactions settled through
the end of the last complete calendar week ending prior to such last business
day (less any amounts paid pursuant to paragraph (i) immediately above); and
(iii) On the 15th day of each month (or the next business day if such
15th day is not a business day) the Introducing Firm shall be paid the net
balance due it for all transactions settled through the last business day of
the preceding calendar month and not previously paid to it pursuant to
paragraphs (i) and (ii) immediately above.
B. Schroder shall deliver to the Introducing Firm a monthly reconciliation
summarizing the calculation of such amounts on the 15th of each month during
the term hereof.
C. All payments to be made by Schroder to the Introducing Firm hereunder shall
be by funds wired to the bank designated by the Introducing Firm or by a
transfer of funds to one or more accounts of the Introducing Firm at Schroder.
11
<PAGE> 12
VIII. ERRORS, CONTROVERSIES AND INDEMNITIES.
A. Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, with Introduced Accounts which shall arise
out of the acts or omissions of the Introducing Firm or its employees when not
at the direction of Schroder, without fault on the part of Schroder, shall be
the responsibility and liability of the Introducing Firm. In the event, however,
that by reason of such error, misunderstanding or controversy, the Introducing
Firm in its discretion deems it advisable to commence an action or proceeding
against an Introduced Account, the Introducing Firm shall provide prior notice
to Schroder of such commencement and shall indemnify and hold the Clearing Firm
harmless from any loss, liability, damage, cost or expense (including but not
limited to fees and expenses of legal counsel) which the Clearing Firm may incur
or sustain in connection therewith or under any settlement thereof.
B. Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, with Introduced Accounts which shall arise
out of the acts or omissions of Schroder or its employees when not at the
direction of the Introducing Firm, without fault on the part of the Introducing
Firm, shall be the responsibility and liability of Schroder. In the event,
however, that by reason of such error, misunderstanding or controversy,
Schroder in its discretion deems it advisable to commence an action or
proceeding against an Introduced Account, Schroder shall provide prior notice
to the Introducing Firm of such commencement and shall indemnify and hold the
Introducing Firm harmless from any loss, liability, damage, cost or expense
(including, but not limited, to fees and expenses of legal counsel), which the
Introducing Firm may incur or sustain in connection therewith or under any
settlement thereof.
12
<PAGE> 13
Schroder recognizes that it would be desirable to resolve any such errors,
misunderstandings or controversies without litigation, and, if possible, by
negotiation between Schroder and the Introducing Firm. To this end, Schroder
will give the Introducing Firm as much prior notice before commencing an action
or proceeding against an Introduced Account as Schroder deems consistent with
adequate protection of its interests.
C. (i) Schroder shall have the right to take whatever action it deems
necessary to promptly effect a mitigation of damages or mitigation of losses
arising out of a controversy or misunderstanding between Schroder and an
Introduced Account without obtaining the consent of the Introducing Firm,
provided such action shall be without prejudice to the rights of either party
hereunder. Schroder recognizes the Introducing Firm's desire to preclude
Schroder's direct contact with the client with respect to any such action
referred to above, without initially contacting the Introducing Firm whenever
such contact is possible, consistent with Schroder's protection of its
interests.
(ii) If any error, controversy or misunderstanding shall result in the
bringing of an action or proceeding against the Introducing Firm or Schroder by
an Introduced Account, the party against whom such action or proceeding is
brought shall give written notice to the other party to this Agreement if a
claim is intended to be asserted against such other party with respect to any
loss, liability, damage or expense arising out of such action or proceeding,
and such other party shall be entitled to participate in the defense thereof at
its own expense.
13
<PAGE> 14
D. Schroder and the Introducing Firm each agrees to indemnify the other and
hold the other harmless from and against any loss, liability, damage, cost or
expense (including but not limited to reasonable fees and expenses of legal
counsel) arising out of or resulting from any failure by the indemnifying party
or any of its employees to carry out fully the duties and responsibilities
assigned to the indemnifying party herein or any breach of any representation
or warranty made herein by the indemnifying party.
E. The indemnification provisions of this Agreement, including but not limited
to those in paragraphs V., VI., VIII.A., VIII.B., VIII.C. and VIII.D. above
shall remain operative and in full force and effect, regardless of the
termination of this Agreement, and shall survive any such termination.
IX. CUSTOMER COMPLAINTS.
Each of the Introducing Firm and Schroder shall notify the other of
any complaints and regulatory inquiries received. In the event, however, that
by reason of any such complaint or inquiry, either the Introducing Firm or
Schroder deems it advisable to settle the complaint, the settling party shall
(provided the non-settling party is without fault with respect thereto)
indemnify and hold the other harmless from any loss, liability, damage, cost or
expense (including but not limited to reasonable fees and expenses of legal
counsel) which it may incur or sustain in connection therewith or any
settlement thereof.
14
<PAGE> 15
X. REPRESENTATIONS AND WARRANTIES.
A. The Introducing Firm represents and warrants as follows:
(i) The Introducing Firm is in compliance, and during the term of this
Agreement will remain in compliance with (a) the capital requirements of the
SEC, the NASD, if applicable, and all applicable Exchanges and (b) the capital
requirements of every state in which the Introducing Firm is licensed as a
broker/dealer.
(ii) The Introducing Firm will immediately notify Schroder should it
be in violation of the net capital rules and regulations of any regulatory or
self-regulatory organization to whose jurisdiction the Introducing Firm is
subject.
(iii) The Introducing Firm is a member in good standing of the NASD.
The Introducing Firm will promptly notify Schroder of any changes in its
exchange or association memberships or affiliations.
(iv) The Introducing Firm is and during the term of this Agreement
will remain duly registered or licensed and in good standing as a broker/dealer
under all applicable Federal and state laws, rules and regulations as well as
under the constitutions, rules and regulations of all applicable
self-regulatory organizations.
(v) The Introducing Firm shall keep confidential any information it
may acquire as a result of this Agreement regarding the business and affairs of
the Clearing Firm, which requirement shall survive the termination of this
Agreement.
15
<PAGE> 16
B. Schroder represents and warrants as follows:
(i) Schroder is in compliance, and during the term of this Agreement
will remain in compliance with (a) the capital and financial reporting
requirements of every national securities exchange and national securities
brokers or dealers association of which it is a member, (b) the capital
requirements of the SEC, and (c) the capital requirements of every state in
which it is licensed as a broker/dealer.
(ii) Schroder will immediately notify the Introducing Firm should it
be in violation of the net capital rules and regulations of any regulatory or
self-regulatory organization to whose jurisdiction Schroder is subject.
(iii) Schroder is a member in good standing of the NYSE, the Chicago
Board Options Exchange and the Boston, Midwest and Philadelphia Stock
Exchanges, AMEX, and the NASD. Schroder will promptly notify the Introducing
Firm of any changes in its exchange memberships or affiliations.
(iv) Schroder is and during the term of this Agreement will remain
duly registered or licensed and in good standing as a broker/dealer under all
applicable laws, rules and regulations as well as under the constitutions,
rules and regulations of all applicable self-regulatory organizations.
16
<PAGE> 17
(v) The names and addresses of the Introducing Firm's customers which
have or which may come to Schroder's attention in connection with the clearing
and related functions it has assumed under this Agreement are confidential and
shall not be utilized by Schroder except in connection with the functions
performed by Schroder pursuant to this Agreement.
(vi) Schroder shall keep confidential any information it may acquire
as a result of this Agreement regarding the business, affairs and Introduced
Accounts (unless required by legal process) of the Introducing Firm which
requirement shall survive termination of this Agreement, and shall provide to
the Introducing Firm reasonable access to Schroder's records pertaining to the
Introduced Accounts.
XI. TERMINATION - EVENTS OF DEFAULT.
Notwithstanding any provision in the Agreement, the occurrence of any
of the following events shall constitute an Event of Default under this
Agreement:
(1) Either Schroder or the Introducing Firm shall fail to perform or
observe any term, covenant or condition to be performed or observed by it
hereunder and such failure shall continue to be unremedied for a period of
thirty (30) days after written notice from the non-defaulting party to the
defaulting party specifying the failure and demand that the same be remedied;
or
(2) any representation or warranty made by either Schroder or the
Introducing Firm herein shall prove to be incorrect at any time in any material
respect; or
17
<PAGE> 18
(3) a receiver, liquidator or trustee of Schroder or the Introducing
Firm or any of the property of either, is appointed by court order and such
order remains in effect for more than 30 days; or Schroder or the Introducing
Firm is adjudicated bankrupt or insolvent; or any of the property of either is
sequestered by court order and such order remains in effect for more than 30
days; or a petition is filed against Schroder or the Introducing Firm under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect, and is not dismissed within 30 days after such filing; or
(4) Schroder or the Introducing Firm files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law; or
(5) Schroder or the Introducing Firm makes an assignment for the
benefit of its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a receiver,
trustee or liquidator of Schroder or the Introducing Firm or of all or any part
of its property.
Upon the occurrence of any such Event of Default, the nondefaulting
party may, at its option, by written notice to the defaulting party declare
that this Agreement shall be thereby terminated and such termination shall be
effective as of the date such notice has been received by the defaulting party.
Upon the termination of this Agreement, whether pursuant to this paragraph XI.,
paragraph XIII. hereof or otherwise, Schroder shall cause the Introduced
Accounts to be transferred to the Introducing Firm or its designee.
18
<PAGE> 19
XII. REMEDIES CUMULATIVE.
The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained, or now or
hereafter existing under any applicable statute or law, shall not be construed
to be a waiver of such right, power, remedy or privilege or to limit the
exercise of such right, power, remedy or privilege. No single, partial or other
exercise of any such right, power, remedy or privilege shall preclude the
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
XIII. MISCELLANEOUS.
A. This Agreement may be cancelled by either party upon sixty (60) days written
notice. Notice shall be effective only upon receipt. Notice shall be given at
the addresses listed below or such other address as shall be specified in a
written notice delivered in accordance herewith. Notices to Schroder shall be
delivered to Michael F. Dura and Patrick J. Borruso, at the office of Schroder
Wertheim & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New York, NY
10019. Notice to the Introducing Firm shall be delivered to:
John J. Gorman IV
Tejas Securities Group, Inc.
1250 Capital of Texas Highway, South
Building Two, Suite 500
Austin, Texas 78746
19
<PAGE> 20
B. This Agreement shall be submitted to and effective only upon approval by any
national securities exchange or regulatory or self-regulatory body having
authority to approve this Agreement.
C. Any dispute or controversy between parties to this Agreement relating to or
arising out of this Agreement, including but not limited to matters reserved
for mutual agreement, shall be settled by arbitration in accordance with the
rules then obtaining of (i) the NYSE if NYSE arbitration is available and (ii)
the American Arbitration Association in all other cases. The award of the
arbitrators hereunder shall be final, and judgment upon the award rendered may
be entered in any court having jurisdiction and the parties hereto submit
themselves and their personal representatives to the jurisdiction of any such
court for the purpose of such arbitration and the entering of such judgment.
D. Any assignment of this Agreement shall be subject to the requisite review
and/or approval of any regulatory or self-regulatory agency or body whose review
and/or approval must be obtained prior to the effectiveness and validity of such
assignment. No assignment of this Agreement shall be valid unless the
non-assigning parties consent to such an assignment in writing. Anything herein
to the contrary notwithstanding, Schroder shall have the right unilaterally to
assign this agreement as part of the sale of all or substantially all of the
assets or a majority interest in Schroder.
E. Neither this Agreement nor any operation hereunder is intended to be, shall
not be deemed to be, and shall not be treated as a general or limited
partnership, association or joint venture or agency relationship between the
Introducing Firm and Schroder.
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<PAGE> 21
F. Whenever hereinabove reference is made to services to be rendered by or
rights or indemnification of Schroder, such references shall be deemed to
include Schroder's subsidiary Lewco Securities Corp. which may perform services
contemplated hereby at the direction of Schroder, but the performance of
services by Lewco Securities Corp. shall in no way affect Schroder's
obligations to the Introducing Firm hereunder and, for the purposes of this
Agreement, any services performed by Lewco Securities Corp. shall be deemed to
have been performed by Schroder.
G. The construction and effect of every provision of this Agreement, the rights
of the parties hereunder and any questions arising out of the Agreement shall
be subject to the statutory and common law of the State of New York.
H. The headings preceding the text and paragraphs hereof have been inserted for
convenience and reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
I. If any provision or condition of this Agreement shall be held to be invalid
or unenforceable by any court, or regulatory or self-regulatory agency or body,
such invalidity or unenforceability shall attach only to such provision or
condition. The validity of the remaining provisions and conditions shall not be
affected thereby and this Agreement shall be carried out as if any such invalid
or unenforceable provision or condition were not contained herein.
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<PAGE> 22
J. Schroder will make available money market funds or other investment vehicles
as mutually agreed, for investment of credit balances of the Introduced
Accounts, and, with regard to money market funds, will provide automatic
features for the investment of cash and the liquidation of shares of such funds
to pay for purchases of other securities. These features will be made available
for other investment vehicles to the extent legally permissible.
K. Schroder will reserve the right to pass along to the Introducing Firm
applicable costs associated with a deconversion.
22
<PAGE> 23
Made and executed at New York, New York on the date first hereinabove set forth.
SCHRODER WERTHEIM & CO. INCORPORATED
BY: /s/ MICHAEL F. DURA
---------------------------------
Michael F. Dura
Managing Director
AGREED & ACCEPTED:
TEJAS SECURITIES GROUP, INC.
BY: /s/ JOHN J. GORMAN IV
------------------------------------
John J. Gorman IV
President
23
<PAGE> 1
EXHIBIT 10.2
WESTECH CAPITAL CORP.
1999 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT. Westech Capital Corp., a New York
corporation (and any successor thereto, the "Company"), hereby establishes the
Westech Capital Corp. 1999 Stock Option Plan (as amended from time to time, the
"Plan") for employees, directors, and consultants of the Company and its
Subsidiaries. Options granted to an optionee under the Plan shall be either
Incentive Stock Options or Nonqualified Stock Options.
SECTION 2. PURPOSE. The purpose of the Plan is to strengthen the
ability of the Company and its Subsidiaries to attract, motivate, compensate,
and retain employees, directors, and consultants of the Company and its
Subsidiaries by providing a means for such persons to acquire a proprietary
interest in the Company and to participate in the growth of the Company through
ownership of common stock of the Company. The Plan furnishes additional
incentives to those persons responsible for the success of the Company and its
Subsidiaries, and thereby serves as an incentive for long and short-term
performance intended to enhance stockholders' investment in the Company.
SECTION 3. DEFINITIONS.
(a) "Award" means the grant of an Option pursuant to the
Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" shall have the meaning set forth in
Section 11(b).
(d) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Committee" means the Committee established by the Board
to administer the Plan, as such Committee may be constituted from time
to time; provided, however, membership on the Committee shall be
limited to "Non-Employee Directors" (as that term is defined in Rule
16b-3 (or any successor to such rule) promulgated under the Exchange
Act) who are also "outside directors," as required pursuant to Section
162(m) of the Code and such Treasury regulations as may be promulgated
thereunder; and provided further, the Committee will consist of not
less than two (2) directors. All members of the Committee will serve
at the pleasure of the Board.
(f) "Company" means Westech Capital Corp., a New York
corporation, and any successor thereto.
(g) "Date of Grant" means the date on which an Award is
granted as determined in accordance with the rules set forth in
Treasury Regulation Section 1.421-7(c).
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(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value" means the fair market value of the
Stock, determined as follows:
(i) if the Stock is actively traded on any national
securities exchange or is included on the National Market
System of the National Association of Securities Dealers
Automated Quotation System, Fair Market Value shall be the
average of the high and low prices of the Stock as reported
for the date the Award is granted or, if no sale of the Stock
shall have been made on that day, the next preceding day on
which there was a sale of Stock; or
(ii) if the price for the Stock is not reported in the
manner described in subsection (i) above, Fair Market Value
shall be determined by the Committee; provided, however, that
with respect to Incentive Stock Options, Fair Market Value
must be determined in accordance with Section 422 of the
Code.
(j) "Incentive Stock Option" means an Option granted under
the Plan which is designated by the Committee as an incentive stock
option and which complies with the requirements of Section 422 of the
Code, as amended from time to time.
(k) "Nonqualified Stock Option" means an Option granted under
the Plan which is not an Incentive Stock Option.
(l) "Option" means an award granted under the Plan in the
form of a right to purchase Stock, evidenced by a Stock Option
Agreement containing such provisions as the Committee may establish.
(m) "Plan" means this Westech Capital Corp. 1999 Stock Option
Plan, as amended from time to time.
(n) "Stock" means the Common Stock, par value $.001 per
share, of the Company and any shares of capital stock or other
securities hereafter issued or issuable upon, in respect of, or in
substitution or exchange for, shares of such Common Stock.
(o) "Stock Option Agreement" means the agreement, entered
into between the Company and an optionee, evidencing an Option.
(p) "Subsidiary" shall mean a "subsidiary" of the Company as
such term is defined in Section 424(f) of the Code.
(q) "Ten Percent Owner" means a person who, on the Date of
Grant of an Incentive Stock Option, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company, its parent corporation (as defined in
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Section 424(e) of the Code), or a Subsidiary, applying the ownership
attribution rules of Section 424(d) of the Code.
SECTION 4. ADMINISTRATION. The Plan shall be administered by the
Committee, which shall have the following powers:
(a) As to each Award, the Committee shall have the full and
final authority and discretion to determine: (i) the persons to whom
Awards are to be granted; (ii) whether an Option shall be an Incentive
Stock Option or a Nonqualified Stock Option or both; (iii) the number
of shares of Stock subject to each Award; (iv) the time or times at
which Awards shall be granted; (v) the exercise or purchase price of
the shares of Stock subject to each Award; and (v) the time or times
when each Option shall become exercisable and the duration of the
exercise period, which shall not exceed the maximum period specified
in Section 7.
(b) As to the Plan, the Committee shall have the authority
(i) to exercise all of the powers granted to it under the Plan; (ii)
to construe, interpret and implement the Plan and any Stock Option
Agreements; (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan; (iv) to make all determinations
necessary or advisable in administering the Plan; and (v) to correct
any defect, supply any omission and reconcile any inconsistency in the
Plan.
(c) Without limiting the Board's right to amend the Plan
pursuant to Section 12, the Board may take all actions authorized by
this Section 4, including, without limitation, granting such Awards
pursuant to the Plan as the Board deems desirable.
(d) The determination of the Committee (or the Board) on all
matters relating to the Plan or any Stock Option Agreement shall be
conclusive. Proceedings by the Board with respect to this Plan will be
conducted in accordance with the Articles of Incorporation and Bylaws
of the Company. A majority of the Committee members shall constitute a
quorum for action by the Committee. All determinations of the
Committee shall be made by not less than a majority of its members. In
the event of a conflict between any decision of the Committee and of
the Board, the decision of the Board shall be controlling.
SECTION 5. ELIGIBILITY. Eligibility for participation in the Plan
shall be confined to employees, directors, and consultants of the Company and
its Subsidiaries who are designated by the Committee (or the Board). In making
any determination as to the persons to whom Awards are granted, the type of
Award, and/or the number of shares of Stock to be issued pursuant to the Award,
the Committee (or the Board) shall consider the position and responsibilities
of the person; the importance of the person to the Company; the duties of the
person; the past, present, and potential contributions of the person to the
growth and success of the Company and its Subsidiaries; and such other factors
as the Committee (or the Board) may deem relevant in accomplishing the purposes
of the Plan.
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SECTION 6. STOCK AVAILABLE UNDER THE PLAN.
(a) The aggregate number of shares of Stock for which Awards
may be granted under the Plan shall not exceed 3,000,000 shares,
unless increased or decreased by reason of changes in the
capitalization of the Company as provided in Section 10 or by
amendment of the Plan. The shares of Stock issued pursuant to the Plan
may be, at the discretion of the Committee, authorized but unissued
shares or previously issued and reacquired shares of Stock held by the
Company as treasury shares.
(b) If an Option granted under this Plan shall expire or
terminate unexercised as to any shares of Stock covered thereby, such
shares shall thereafter be available for the granting of other Awards
under this Plan.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under
the Plan shall be evidenced by a Stock Option Agreement in such form as is
consistent with the Plan and as the Committee shall determine; provided that
each Stock Option Agreement shall clearly and separately identify Incentive
Stock Options and Nonqualified Stock Options and that the substance of the
following terms and conditions shall be included therein:
(a) Exercise Price. The price at which each share of Stock
covered by such Option may be purchased shall be determined by the
Committee (or the Board). With respect to Incentive Stock Options, the
exercise price shall not be less than one hundred percent (100%) of
the Fair Market Value of the Stock on the Date of Grant. With respect
to Incentive Stock Options awarded to Ten Percent Owners, the exercise
price shall not be less than one hundred ten percent (110%) of the
Fair Market Value of the Stock on the Date of Grant.
(b) Term of Options. Notwithstanding anything herein to the
contrary, no Option shall be exercisable after the expiration of ten
(10) years from its Date of Grant or from such earlier time as is
provided in the Stock Option Agreement. Notwithstanding anything
herein to the contrary, with respect to an Incentive Stock Option
granted to a Ten Percent Owner, such Option shall not be exercisable
after the expiration of five (5) years from its Date of Grant or from
such earlier time as is provided in the Stock Option Agreement.
(c) Exercise of Option by an Employee. Subject to Subsections
(d) and (e) below, an Option awarded to an employee of the Company or
a Subsidiary and any right related thereto, if exercisable by the
optionee, may be exercised (subject however, to the provisions of
Subsection (g) below) only if the optionee has been an employee of the
Company or a Subsidiary at all times during the period beginning with
the Date of Grant of the Option and ending on the date that is three
months before the date of such exercise; provided however, that in the
case of an optionee who terminates employment with the Company due to
total and permanent disability, the three-month period shall be
extended to six (6) months. An optionee's employment relationship with
the Company or a Subsidiary will be considered to continue during a
leave of absence to the extent so provided in the personnel policies
of the Company or Subsidiary; provided that with respect to an
Incentive Stock Option, such
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<PAGE> 5
employment relationship shall not be considered continued for a period
exceeding that set forth in Treasury Regulation Section 1.421-7(h)(2).
(d) Death of Optionee who is an Employee. In the event of the
death of an optionee while the optionee is in the employ of the
Company or a Subsidiary (or within three months after the optionee's
termination of employment with the Company or a Subsidiary), any
Option then held by the optionee shall, subject to the provisions of
Subsection (g) below, be exercisable during the six-month period
immediately following such death. In such case, the Option may only be
exercised by the executor or administrator of the optionee's estate or
by the person or persons to whom the optionee's rights under the
Option pass by the optionee's will or the laws of descent and
distribution; provided that in no event shall an Option be exercisable
more than ten (10) years after its Date of Grant.
(e) Termination of Employment for Cause. In the event that
any optionee who is an employee of the Company or a Subsidiary shall
be dismissed from the employ of the Company or a Subsidiary for any
reason which, in the opinion of the Board (or the Committee if so
authorized by the Board), shall constitute good cause for dismissal,
any Option held by such person at such time shall automatically
terminate and shall not be exercisable as of such dismissal. The
decision of the Board (or the Committee if so acting) as to what shall
constitute good cause for dismissal shall be final and binding upon
all concerned.
(f) Exercise of Option by Consultant or Non-Employee
Director.
(i) Subject to Subsections (f)(ii) and (f)(iii)
below, an Option awarded to a consultant or non-employee
director of the Company or a Subsidiary and any right related
thereto, if exercisable by the optionee, may be exercised
(subject, however, to the provisions of Subsection (g) below)
only if the optionee has had a director or consultant
relationship with the Company or a Subsidiary at all times
during the period beginning with the Date of Grant of the
Option and ending on the date that is three months before the
date of such exercise; provided, however, that in the case of
an optionee who terminates such relationship with the Company
due to total and permanent disability, the three-month period
shall be extended to six (6) months.
(ii) In the event of the death of an optionee while
the optionee is a consultant or non-employee director of the
Company or a Subsidiary (or within three months after the
optionee's termination of such a relationship with the
Company or a Subsidiary), any Option then held by the
optionee shall, subject to the provisions of Subsection (g)
below, be exercisable during the six-month period immediately
following such death. In such case, the Option may only be
exercised by the executor or administrator of the optionee's
estate or by the person or persons to whom the optionee's
rights under the Option passed by the optionee's will or the
laws of descent and distribution; provided that in no event
shall an Option be exercisable more than ten (10) years after
its Date of Grant.
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(iii) In the event that any optionee who is a
consultant or non-employee director of the Company or a
Subsidiary shall be dismissed from such relationship with the
Company or a Subsidiary for any reason which, in the opinion
of the Board (or the Committee if so authorized by the
Board), shall constitute good cause for dismissal, any Option
held by such person at such time shall automatically
terminate and shall not be exercisable as of such dismissal.
The decision of the Board (or the Committee if so acting) as
to what shall constitute good cause for dismissal shall be
final and binding upon all concerned.
(g) Execution of Stock Option Agreement. After the effective
date of the Plan, the Committee (or the Board) may grant Options
pursuant to the Plan at any time. Within thirty (30) days after the
Date of Grant, the Company shall notify the optionee of the grant of
the Option, and submit to the optionee a Stock Option Agreement duly
executed by and on behalf of the Company, with the request that the
optionee execute and return the Stock Option Agreement within thirty
(30) days thereafter. If the optionee shall fail to return the
executed Stock Option Agreement within such thirty (30) day period,
such person's Option shall automatically terminate and no longer be
exercisable.
(h) Periods of Exercise. An Option shall be exercisable in
whole or in part at such times as may be determined by the Committee
(or the Board) and stated in the Stock Option Agreement. The Committee
shall have the authority to prescribe upon the granting of an Option
the schedule (if any) under which Options will become exercisable by
each optionee and the conditions of any such exercise. Except as
provided otherwise in this Section 7, to the extent that any
installment of an Option has become exercisable it may be exercised
thereafter, until termination of the Option, in whole or in part at
any time or from time to time.
(i) Notice of Exercise. An Option shall be exercised by
written notice of exercise, in the form prescribed by the Committee,
delivered to the Company in such manner as the Committee may
designate. The notice shall specify the number of shares of Stock for
which the Option is being exercised and whether the Option being
exercised is an Incentive Stock Option or a Nonqualified Stock Option.
Each such notice of exercise shall be irrevocable when given.
(j) Payment. An Option shall be exercisable for the purchase
of shares of Stock only upon payment to the Company of the full
exercise price of the Stock with respect to which the Option is
exercised. Payment for shares of Stock acquired upon exercise of an
Option shall be in either cash or other consideration deemed
acceptable by the Committee in its sole discretion, including, without
limitation, shares of Stock (including shares retained out of the
shares of Stock being acquired through the exercise of the Option),
promissory notes, or the proceeds of loans made or guaranteed by the
Company or a Subsidiary. If shares of Stock are used to pay the
exercise price of an Option, such shares shall have an aggregate fair
market value equal to the number of shares with respect to which such
Option is exercised multiplied by the exercise price per share;
provided, that the Committee may,
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in the Stock Option Agreement, impose whatever restrictions it deems
necessary or desirable with respect to the payment for shares by the
delivery of Stock already owned by the optionee. The fair market value
of Stock delivered in payment of the Option price shall be determined
in the same manner as set forth in Section 3(i), except that such
determination shall be made on the date of exercise of the Option. An
Option shall be deemed exercised on the date such payment and the
written notice of exercise are received by the Committee.
(k) Fractional Shares. The Company shall not be required to
issue any fractional shares upon exercise of any Option, but in lieu
thereof, the Company shall pay cash equal to the same fraction of the
Fair Market Value of one share of Stock (determined as provided in
Section 3(i) on the date such Option is exercised).
SECTION 8. LIMITATION ON INCENTIVE STOCK OPTIONS.
(a) Limitation on Eligibility. Incentive Stock Options may
only be granted to persons who are employees of the Company or a
Subsidiary on the Date of Grant. Incentive Stock Options shall not be
granted to consultants or non-employee directors of the Company and/or
its Subsidiaries.
(b) Limitation on Grant. The aggregate Fair Market Value
(determined as of the Date of Grant) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company
and its parent and Subsidiary corporations) shall not exceed One
Hundred Thousand Dollars ($100,000). In the event the limits of this
Subsection (b) would otherwise be exceeded, such Option to the extent
of such excess, shall be deemed to be a Nonqualified Stock Option.
(c) Limitation on Disposition. To maintain special tax
treatment for Incentive Stock Options, to the extent required by
Section 421 of the Code, an optionee may not dispose of the Stock
acquired pursuant to the exercise of an Incentive Stock Option within
two years after the Date of Grant nor within one year after the
optionee receives the Stock following exercise of the Incentive Stock
Option. This limitation on disposal does not apply to Stock acquired
pursuant to the exercise of an Incentive Stock Option after an
optionee's death by his or her estate or heirs, as applicable.
(d) Recharacterization of Incentive Stock Options. To the
extent that any Option designated as an Incentive Stock Option does
not qualify as such (whether because of its provisions, the failure of
the stockholders of the Company to authorize the issuance of Incentive
Stock Options, the timely manner of its exercise, or otherwise), such
Option, or the portion thereof which does not qualify, shall be deemed
to constitute a Nonqualified Stock Option.
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SECTION 9. OTHER CONDITIONS APPLICABLE TO AWARDS.
(a) No Employment or Similar Rights. Nothing contained in
this Plan or any Stock Option Agreement shall confer upon any person
any right to continue an employment, director, or consultant
relationship with the Company or any Subsidiary, nor interfere in any
way with the right of the Company and its Subsidiaries to terminate a
person's employment at will or change the person's compensation at any
time.
(b) Nontransferable. Awards shall not be transferable,
otherwise than by will or the laws of descent and distribution,
without the written consent of the Committee or the Board (which
consent may be granted or withheld at the sole discretion of the
Committee or the Board). Notwithstanding the foregoing, Incentive
Stock Options shall not be transferable otherwise than by will or the
laws of descent and distribution. Awards may be exercised, during the
lifetime of the recipient, only by the recipient or by the recipient's
duly appointed guardian or personal representative. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of
an Award contrary to the provisions hereof, or the levy of any
execution, attachment, or similar process upon an Award shall be null
and void and without effect.
(c) Stockholder Rights. No holder of an Option shall, by
virtue of holding such Option, be entitled to any rights of a
stockholder in the Company. An optionee shall not be considered a
record holder of any shares of Stock purchased pursuant to the
exercise of an Option for any purpose until the date on which such
Stock is registered in such optionee's name upon the stock records of
the Company.
(d) Issuance of Certificates and Withholding. The Company
shall not be required to issue or deliver any certificates for shares
of Stock purchased upon the exercise of an Option prior to: (i) the
obtaining of any approval from any governmental agency which the
Company shall, in its sole discretion, determine to be necessary or
advisable; (ii) the completion of any registration or other
qualification of such shares under any state or federal law or ruling
or regulation of any governmental body which the Company shall, in its
sole discretion, determine to be necessary or advisable; and (iii) the
determination by the Committee that the optionee has tendered to the
Company (in cash, shares of Stock, or such other consideration as is
acceptable to the Committee) any federal, state or local tax owed by
the optionee as a result of the Award, if the Company has or may have
a legal liability to satisfy such tax. In addition, if Stock reserved
for issuance upon the granting of an Award shall not then be
registered under the Securities Act of 1933, the Company may, upon
exercise of an Option, require the holder thereof to represent in
writing that the shares being acquired are for investment and not with
a view to distribution thereof, and may mark the certificate(s) for
the shares with a legend restricting transfer and may issue stop
transfer orders relating to such certificate(s) to the transfer agent.
The Company shall not be liable for damages due to delay in the
issuance or delivery of any Stock certificate for any reason
whatsoever. Furthermore, the Company shall not be liable to any
optionee for refusing to deliver shares of Stock if such refusal is
based upon the provisions of this Subsection (d).
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SECTION 10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) In the event that the outstanding shares of Stock are
hereafter increased or decreased or changed into or exchanged for a
different number of shares or kind of shares or other securities of
the Company or of another corporation, by reason of reorganization,
merger, consolidation, recapitalization, reclassification, Stock
split, combination of shares, or a dividend payable in Stock, the
number and kind of shares reserved for issuance under the Plan, but
not yet covered by an Award, shall be automatically adjusted to
reflect such change. In addition, there shall be an appropriate
adjustment in the number and kind of shares then subject to any Award,
to the end that the Award recipient's proportionate interest shall be
maintained as before the occurrence of such event, and such adjustment
of outstanding Awards shall be made with a corresponding adjustment in
the exercise price or purchase price per share; provided, however,
that each such adjustment in the number and kind of shares subject to
outstanding Awards, including any adjustment in the exercise price,
shall be made in such manner as not to constitute a modification as
defined in Section 424 of the Code. The determination of any
adjustment by the Committee shall be conclusive.
(b) The grant of an Award shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to
merge or to consolidate or to dissolve, liquidate, sell, or transfer
all or any part of its business or assets.
SECTION 11. CHANGES OF CONTROL; ACCELERATION OF RIGHT TO EXERCISE.
(a) Notwithstanding anything in the Plan or any Stock Option
Agreement to the contrary, in the event a Change of Control occurs,
each Option shall become exercisable, during the period beginning on
the date of the occurrence of such Change of Control and ending on the
sixtieth (60th) day following such date, with respect to the full
number of shares of Stock subject to such Option.
(b) "Change of Control" shall mean the occurrence of any of
the following events:
(i) any "person" or "group" of persons, as such
terms are used in Sections 13 and 14 of the Exchange Act,
other than (A) any employee benefit plan sponsored by the
Company or (B) John J. Gorman and any of his "affiliates" as
such term is used in Rule 405 adopted pursuant to the
Securities Act of 1933, becomes the "beneficial owner," as
such term is used in Section 13 of the Exchange Act, of fifty
percent (50%)" or more of the outstanding shares of the
Company's stock entitled to vote for the election of
directors; or
(ii) any shares of any class of the Company's stock
are purchased pursuant to a tender or exchange offer other
than an offer by the Company; or
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(iii) the dissolution or liquidation of the Company
or the consummation of any merger or consolidation of the
Company or any sale or other disposition of all or
substantially all of its assets, if the stockholders of the
Company immediately before such transaction own, immediately
after consummation of such transaction, equity securities
(other than options and other rights to acquire equity
securities) possessing less than fifty percent (50%) of the
voting power of the surviving or acquiring corporation.
SECTION 12. PLAN AMENDMENTS AND TERMINATION.
(a) Plan Amendment and Termination. The Board may terminate
the Plan or make such amendments thereto at any time as it shall deem
advisable and in the best interests of the Company, without further
action on the part of the stockholders of the Company, provided,
however, that no such termination or amendment shall, without the
consent of the individual to whom any Award shall theretofore have
been granted, affect or impair the rights of such individual under
such Award, and provided, further, any amendment shall be approved by
the stockholders of the Company if the amendment would:
(1) increase the number of shares for which
Incentive Stock Options may be issued under the Plan; or
(2) modify the requirements as to eligibility to
receive Incentive Stock Options under the Plan.
(b) Expiration of Plan. No Awards shall be granted under the
Plan after ten (10) years from the earlier of the date the Plan is
adopted or the date the Plan is approved by the stockholders of the
Company.
(c) Amendment of Awards. The Committee may amend, modify, or
terminate any outstanding Award with the Participant's consent at any
time prior to payment or exercise in any manner that is consistent
with the terms of the Plan, including, without limitation, (i) to
change the date or dates as of which and/or the terms and conditions
pursuant to which an Option becomes exercisable; (ii) to amend the
terms of any outstanding Option to provide an exercise price per share
which is higher or lower than the then current exercise price per
share of such outstanding Option; or (iii) to cancel an Award and
grant a new Award in substitution therefor under such different terms
and conditions as the Committee determines in its sole discretion to
be appropriate, including, but not limited to, having an exercise
price or purchase price per share which may be higher or lower than
the exercise price per share of the canceled Award. The Committee may
also make adjustments in the terms and conditions of, and the criteria
included in, agreements evidencing Awards in recognition of unusual or
nonrecurring events affecting the Company, or the financial statements
of the Company, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such
adjustments are appropriate to prevent reduction or enlargement of the
benefits or potential benefits intended to be made
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available pursuant to this Plan. Notwithstanding any provision of this
Plan or any agreement regarding an Award to the contrary, the
Committee may cause any Award granted to be canceled in consideration
of a cash payment or alternative Award made to the holder of such
canceled Award equal in value to the Fair Market Value of such
canceled Award. The determinations of value pursuant to this Section
shall be made by the Committee in its sole discretion.
SECTION 13. EFFECTIVE DATE. This Plan shall become effective as of
October 15, 1999, pursuant to its adoption by the Board; provided, however, no
Option shall constitute an Incentive Stock Option unless the Plan is approved
by the affirmative vote of a majority of the outstanding shares of the Company
present and entitled to vote at a meeting of the stockholders at which a quorum
is present within one year before or after the Plan's approval by the Board. If
the required stockholder approval is not received within such time period, any
Incentive Stock Options awarded in the intervening period shall be deemed to be
Nonqualified Stock Options.
SECTION 14. NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the
members of the Board nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to the
Plan or any Option.
SECTION 15. NO OBLIGATION TO EXERCISE OPTION. The granting of an
Option shall impose no obligation on the optionee to exercise such Option.
SECTION 16. GOVERNING LAW. The validity, construction, and effect of
this Plan and any rules and regulations relating to this Plan shall be
determined in accordance with the laws of the state of New York, without giving
effect to the conflict of laws principles thereof.
SECTION 17. CONSTRUCTION.
(a) Severability. If any provision of this Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in
any jurisdiction or as to any individual or Award, or would disqualify
this Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to
conform to applicable law, or if it cannot be construed or deemed
amended without, in the sole determination of the Committee,
materially altering the intent of this Plan or the Award, such
provision shall be stricken as to such jurisdiction, individual, or
Award, and the remainder of this Plan and any such Award shall be
remain in full force and effect.
(b) Headings. Headings are given to the Sections and
Subsections of this Plan solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of this Plan or any
provisions thereof.
-11-
<PAGE> 12
SECTION 18. RESTRICTIONS APPLICABLE TO NAMED EXECUTIVE OFFICERS.
The provisions of this Section 18 shall apply only to those executive
officers (i) whose compensation is required to be reported in the Company's
proxy statement pursuant to Item 402(a)(3)(i) and (ii) (or any successor
thereto) of Regulation S-K (or any successor thereto) under the general rules
and regulations under the Exchange Act and (ii) whose total compensation is
determined by the Board to possibly be subject to the limitations on deductions
imposed by Section 162(m) of the Code ("Named Executive Officers"). In the
event of any inconsistencies between this Section 18 and the other Plan
provisions as they pertain to Named Executive Officers, the provisions of this
Section 18 shall control.
(a) No amendment of this Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum
amount that can be paid to any one Participant pursuant to this Plan
or (ii) modify the requirements as to eligibility for participation in
this Plan, unless the Company's stockholders have first approved such
amendment in a manner which would permit the deduction under Section
162(m) (or any successor thereto) of the Code of such payment in the
fiscal year it is paid. The Board shall amend this Section 18 and such
other provisions as it deems appropriate, to cause amounts payable to
Named Executive Officers to satisfy the requirements of Section 162(m)
(or any successor thereto) and the Treasury regulations promulgated
thereunder.
(b) Notwithstanding any provision of this Plan (including the
provisions of this Section 18) to the contrary, the amount of
compensation which a Named Executive Officer may receive with respect
to Options which are granted hereunder is based solely on an increase
in the value of the applicable shares of Stock after the date of grant
of such Award. Thus, no Option may be granted hereunder to a Named
Executive Officer with an exercise price less than the Fair Market
Value of the shares of Stock on the date of grant. Furthermore, the
maximum number of shares of Stock with respect to which Options may be
granted hereunder to any Named Executive Officer during any calendar
year may not exceed three million (3,000,000) shares, subject to
adjustment as provided in Section 10 hereunder.
-12-
<PAGE> 1
EXHIBIT 10.3
INCENTIVE STOCK OPTION AGREEMENT
WESTECH CAPITAL CORP.
1999 STOCK OPTION PLAN
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made this
_____ day of _____________, _____, between WESTECH CAPITAL CORP., a New York
corporation (the "Company") and_______________________, an employee of the
Company or one or more of its Subsidiaries (the "Employee"). All capitalized
terms not otherwise defined herein shall have the meaning set forth in the
Westech Capital Corp. 1999 Stock Option Plan, as amended (the "Plan").
W I T N E S S E T H:
WHEREAS, the Company desires to carry out the purposes of the Plan by
affording Employee the opportunity to purchase shares of Stock;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Option. The Company hereby grants to Employee the right
and option (the "Option") to purchase an aggregate of _____________ shares (the
"Shares") of Stock, such Shares being subject to adjustment as provided in
Paragraph 7 hereof, on the terms and conditions herein set forth. The Option is
intended to constitute an Incentive Stock Option, and subject to the terms of
the Plan and applicable law, this Agreement shall be construed so that the
Option shall qualify as an Incentive Stock Option.
2. Purchase Price. The purchase price of the Shares shall be $______
per Share which is the Fair Market Value of a Share on the date first set forth
above (the "Date of Grant").
3. Exercise of Option. Unless expired as provided in Paragraph 5
below, this Option may be exercised from time to time after the date first set
forth above (the "Date of Grant") to the extent of Shares that have vested in
accordance with the vesting schedule set forth below. The Employee's right to
exercise the Option accrues only in accordance with the following vesting
schedule and, except as otherwise provided herein, only to the extent that the
Employee remains in the continuous employ or service of the Company or a
Subsidiary.
<TABLE>
<CAPTION>
Percentage of Shares that Are Vested On and After
Vesting Date the Vesting Date and Before the Next Vesting Date
------------ -------------------------------------------------
<S> <C>
%
--------------- -----
%
--------------- -----
%
--------------- -----
</TABLE>
-1-
<PAGE> 2
4. Manner of Exercise, Payment of Purchase Price.
(a) Subject to the terms and conditions of this Agreement,
the Option shall be exercised by written notice to the Company at its
principal office. Such notice shall state the election to exercise the
Option and specify the number of Shares to be purchased. Such notice
of exercise shall be signed by Employee and shall be irrevocable when
given.
(b) The notice of exercise shall be accompanied by full
payment of the purchase price for the Shares to be purchased. The
purchase price may be paid in cash or certified funds, by cashless
exercise (deducting from the number of Shares to be delivered upon
exercise of the Option the number of Shares having a Fair Market Value
equal to the purchase price of the Shares purchased upon exercise of
the Option), by the surrender (or deemed surrender) of stock
certificates representing Stock or of other securities of the Company
or a Subsidiary already owned by Employee having an aggregate Fair
Market Value on the date of exercise equal to the purchase price of
the Shares, or by a combination of any of the methods described above;
provided, however, that the Committee may limit the availability of
the above methods of payment (other than the cash or certified funds
method) in its sole discretion. In the event Employee wishes to pay
all or any portion of the purchase price by any of the above methods,
Employee shall, not less than fourteen (14) days prior to the date of
exercise, give written notice to the Secretary of the Company
requesting approval of such payment method, setting forth the
particulars of the proposed payment method. The Committee shall
approve, disapprove or modify (to the extent consistent with the above
options) the proposed payment method within fourteen (14) days of its
receipt of the request.
(c) Upon receipt of the purchase price, and subject to the
terms of Paragraph 10, the certificate or certificates representing
the Shares purchased shall be registered in the name of the person or
persons so exercising the Option. If the Option shall be exercised by
Employee and, if Employee shall so request in the notice exercising
the Option, the Shares shall be registered in the name of Employee and
another person as joint tenants with right of survivorship, and shall
be delivered as provided above to or upon the written order of the
person or persons exercising the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be
fully paid and nonassessable.
5. Expiration of Option. The Option shall expire and become null and
void upon the first to occur of the following: (a) the expiration of three (3)
months after Employee ceases to be employed by the Company or any of its
Subsidiaries for any reason other than termination for cause or due to death or
total and permanent disability; (b) a period of six (6) months shall have
elapsed since Employee's death or total and permanent disability; (c) a period
of five (5) years shall have elapsed since the Date of Grant; or (d) Employee's
employment shall have been terminated for cause as determined by the Committee
or the Board of Directors of the Company.
-2-
<PAGE> 3
6. Acceleration of Exercise Dates. Notwithstanding the provisions of
Paragraph 3 hereof:
(a) Upon Employee's death or total disability, this Option
shall be immediately exercisable, until the expiration date provided
in Paragraph 5 above, for the entire number of Shares covered hereby;
(b) Upon Employee's retirement from service with the Company
and its Subsidiaries on or after the attainment of age 65, this Option
shall be immediately exercisable, until the expiration date provided
in Paragraph 5 above, for the entire number of shares covered hereby;
and
(c) Upon a Change of Control, this Option may be immediately
exercised pursuant to Section 11 of the Plan for the entire number of
Shares covered hereby.
7. Adjustments of Shares Subject to Option. The Shares subject to the
Option shall be adjusted from time to time as set forth in Section 10 of the
Plan. The determination of any such adjustment by the Committee shall be final,
binding and conclusive.
8. No Contract. This Agreement does not constitute a contract for
employment and shall not affect the right of the Company to terminate
Employee's employment for any reason or no reason whatsoever.
9. Rights as Stockholder. This Option shall not entitle Employee to
any rights of a stockholder of the Company or to any notice of proceedings of
the Company with respect to any Shares issuable upon exercise of this Option
unless and until the Option has been exercised for such Shares and such Shares
have been registered in the Employee's name upon the stock records of the
Company.
10. Restriction on Issuance of Shares. The Company shall not be
required to issue or deliver any certificates for Shares purchased upon the
exercise of an Option prior to: (a) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (b) the completion of any registration or other
qualification of such Shares under any state or federal law or ruling or
regulation of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable; and (c) the determination
by the Committee that Employee has tendered to the Company any federal, state
or local tax owed by Employee as a result of exercising the Option when the
Company has a legal liability to satisfy such tax. In addition, if the Stock
reserved for issuance upon the exercise of Options shall not then be registered
under the Securities Act of 1933, the Company may upon Employee's exercise of
an Option, require Employee or his permitted transferee to represent in writing
that the Shares being acquired are for investment and not with a view to
distribution, and may mark the certificate for the Shares with a legend
restricting transfer and may issue stop transfer orders relating to such
certificate to the Company's transfer agent (if applicable).
-3-
<PAGE> 4
11. Lapse of Option. This Agreement shall be null and void in the
event Employee shall fail to sign and return a counterpart hereof to the
Company within thirty (30) days of its delivery to Employee.
12. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators, and successors of the parties hereto.
13. Governing Instrument and Entire Agreement. This Option and any
Shares issued hereunder shall in all respects be governed by the terms and
provisions of the Plan. In the event of a conflict between the terms of this
Agreement and the terms of the Plan (a copy of which is attached), the terms of
the Plan shall control. There are no oral agreements between the parties
relating to the subject matter hereof, and this Agreement and the terms of the
Plan constitute the entire agreement of the parties with respect to the subject
matter hereof. This Agreement may not be amended except by written agreement
executed by the Company and Employee.
COMPANY
WESTECH CAPITAL CORP.
By:
--------------------------
Name:
--------------------
Title:
-------------------
Accepted and Agreed:
EMPLOYEE:
Date:
- -------------------------- --------------------
Name:
---------------------
-4-
<PAGE> 1
NONQUALIFIED STOCK OPTION AGREEMENT
WESTECH CAPITAL CORP.
1999 STOCK OPTION PLAN
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is
effective this ____ day of ______________, _____, between WESTECH CAPITAL
CORP., a New York corporation (the "Company") and ______________________, an
employee, consultant, or non-employee director of the Company or one or more of
its Subsidiaries (the "Optionee"). All capitalized terms not otherwise defined
herein shall have the meaning set forth in the Westech Capital Corp. 1999 Stock
Option Plan, as amended (the "Plan").
W I T N E S S E T H:
WHEREAS, the Company desires to carry out the purposes of the Plan by
affording the Optionee the opportunity to purchase shares of Stock;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right
and option (the "Option") to purchase an aggregate of _______________ shares
(the "Shares") of Stock, such Shares being subject to adjustment as provided in
Paragraph 7 hereof, on the terms and conditions herein set forth. The Option is
a Nonqualified Stock Option and is not intended to be an Incentive Stock
Option.
2. Purchase Price. The purchase price of the Shares shall be
$_________ per Share.
3. Exercise of Option. Unless expired as provided in Paragraph 5
below, this Option may be exercised from time to time after the date first set
forth above (the "Date of Grant") to the extent of Shares that have vested in
accordance with the vesting schedule set forth below. The Optionee's right to
exercise the Option accrues only in accordance with the following vesting
schedule and, except as otherwise provided herein, only to the extent that the
Optionee remains in the continuous employ or service of the Company or a
Subsidiary.
<TABLE>
<CAPTION>
Percentage of Shares that Are Vested On and After
Vesting Date the Vesting Date and Before the Next Vesting Date
------------ -------------------------------------------------
<S> <C>
%
--------------- -----
%
--------------- -----
%
--------------- -----
</TABLE>
<PAGE> 2
4. Manner of Exercise, Payment of Purchase Price.
(a) Subject to the terms and conditions of this Agreement,
the Option shall be exercised by written notice to the Company at its
principal office. Such notice shall state the election to exercise the
Option and specify the number of Shares to be purchased. Such notice
of exercise shall be signed by Optionee and shall be irrevocable when
given.
(b) The notice of exercise shall be accompanied by full
payment of the purchase price for the Shares to be purchased. The
purchase price may be paid in any form permitted by the Plan. In the
event Optionee wishes to pay all or any portion of the purchase price
in any form other than cash or certified funds, Optionee shall, not
less than fourteen (14) days prior to the date of exercise, give
written notice to the Secretary of the Company requesting approval of
such payment method, setting forth the particulars of the proposed
payment method. The Committee shall approve, disapprove or modify the
proposed payment method within fourteen (14) days of its receipt of
the request.
(c) Upon receipt of the purchase price, and subject to the
terms of Paragraph 10, the certificate or certificates representing
the Shares purchased shall be registered in the name of the person or
persons so exercising the Option. If the Option shall be exercised by
Optionee and, if Optionee shall so request in the notice exercising
the Option, the Shares shall be registered in the name of Optionee and
another person as joint tenants with right of survivorship, and shall
be delivered as provided above to or upon the written order of the
person or persons exercising the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be
fully paid and nonassessable.
5. Expiration of Option. The Option shall expire and become null and
void upon the first to occur of the following: (a) the expiration of three (3)
months after Optionee ceases to be employed by or retained in the service of
the Company or any of its Subsidiaries for any reason other than termination
for cause or due to death or total and permanent disability; (b) a period of
six (6) months shall have elapsed since Optionee's death or total and permanent
disability; (c) a period of five (5) years shall have elapsed since the Date of
Grant; or (d) Optionee's employment or service shall have been terminated for
cause as determined by the Committee or the Board of Directors of the Company.
6. Acceleration of Exercise Dates. Notwithstanding the provisions of
Paragraph 3 hereof:
(a) Upon Optionee's death or total disability, this Option
shall be immediately exercisable, until the expiration date provided
in Paragraph 5 above, for the entire number of Shares covered hereby;
(b) Upon Optionee's retirement from service with the Company
and its Subsidiaries on or after the attainment of age 65, this Option
shall be immediately exercisable, until the expiration date provided
in Paragraph 5 above, for the entire number of shares covered hereby;
and
-2-
<PAGE> 3
(c) Upon a Change of Control, this Option may be immediately
exercised pursuant to Section 11 of the Plan for the entire number of
Shares covered hereby.
7. Adjustments of Shares Subject to Option. The Shares subject to the
Option shall be adjusted from time to time as set forth in Section 10 of the
Plan. The determination of any such adjustment by the Committee shall be final,
binding and conclusive.
8. No Contract. This Agreement does not constitute a contract for
employment or service and shall not affect the right of the Company to
terminate Optionee's employment or service for any reason or no reason
whatsoever.
9. Rights as Stockholder. This Option shall not entitle Optionee to
any rights of a stockholder of the Company or to any notice of proceedings of
the Company with respect to any Shares issuable upon exercise of this Option
unless and until the Option has been exercised for such Shares and such Shares
have been registered in the Optionee's name upon the stock records of the
Company.
10. Restriction on Issuance of Shares. The Company shall not be
required to issue or deliver any certificates for Shares purchased upon the
exercise of an Option prior to: (a) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (b) the completion of any registration or other
qualification of such Shares under any state or federal law or ruling or
regulation of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable; and (c) the determination
by the Committee that Optionee has tendered to the Company any federal, state
or local tax owed by Optionee as a result of exercising the Option when the
Company has a legal liability to satisfy such tax. In addition, if the Stock
reserved for issuance upon the exercise of Options shall not then be registered
under the Securities Act of 1933, the Company may upon Optionee's exercise of
an Option, require Optionee or his permitted transferee to represent in writing
that the Shares being acquired are for investment and not with a view to
distribution, and may mark the certificate for the Shares with a legend
restricting transfer and may issue stop transfer orders relating to such
certificate to the Company's transfer agent (if applicable).
11. Lapse of Option. This Agreement shall be null and void in the
event Optionee shall fail to sign and return a counterpart hereof to the
Company within thirty (30) days of its delivery to Optionee.
12. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators, and successors of the parties hereto.
13. Governing Instrument and Entire Agreement. This Option and any
Shares issued hereunder shall in all respects be governed by the terms and
provisions of the Plan. In the event of a conflict between the terms of this
Agreement and the terms of the Plan (a copy of which is attached), the terms of
the Plan shall control. There are no oral agreements between the parties
relating to the subject matter hereof, and this Agreement and the terms of the
Plan constitute the
-3-
<PAGE> 4
entire agreement of the parties with respect to the subject matter hereof. This
Agreement may not be amended except by written agreement executed by the
Company and Optionee.
COMPANY
WESTECH CAPITAL CORP.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
Accepted and Agreed:
OPTIONEE:
Date:
- ----------------------------- ------------------
Name:
------------------------
<PAGE> 1
EXHIBIT 21.1
List of Registrant's Subsidiaries
Tejas Securities Group Holding Company, a Texas corporation
Tejas Securities Group, Inc., a Texas corporation
Tejas Securities Group - East, L.L.C., a Georgia limited liability company
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 201,312 334,047
<RECEIVABLES> 1,468,424 11,439,542
<SECURITIES-RESALE> 1,539,424 11,545,748
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 209,431 226,933
<TOTAL-ASSETS> 3,942,227 23,952,422
<SHORT-TERM> 0 0
<PAYABLES> 1,459,678 14,150,081
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 500,000 1,000,000
0 0
0 0
<COMMON> 1,473,071 2,200,841
<OTHER-SE> (68,258) 2,620,080
<TOTAL-LIABILITY-AND-EQUITY> (3,942,227) 23,952,422
<TRADING-REVENUE> (299,166) 3,516,592
<INTEREST-DIVIDENDS> 0 0
<COMMISSIONS> 7,932,780 15,465,352
<INVESTMENT-BANKING-REVENUES> 2,584,770 165,766
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 8,007,363 12,488,565
<INCOME-PRETAX> (561,222) 4,739,174
<INCOME-PRE-EXTRAORDINARY> (561,222) 4,739,174
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (397,322) 2,873,750
<EPS-BASIC> (0.03) 0.23
<EPS-DILUTED> (0.03) 0.23
</TABLE>
<PAGE> 1
EXHIBIT 99.1
ARTICLES OF INCORPORATION
OF
TEJAS SECURITIES GROUP, INC.
I, the undersigned natural person of the age of eighteen years or more,
acting as incorporator of a corporation under the Texas Business Corporation
Act, do hereby adopt the following Articles of Incorporation for such
corporation:
ARTICLE I
The name of the corporation is Tejas Securities Group, Inc.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any
or all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE IV
The aggregate number of shares which the corporation shall have
authority to issue is One Million (1,000,000) shares of common stock, no par
value. Cumulative voting of the shares is expressly prohibited. No shareholder
or other person shall have any preemptive right whatsoever.
ARTICLE V
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done or property actually received.
<PAGE> 2
ARTICLE VI
The street address of the corporation's initial registered office is
1717 West Sixth Street, Austin, Texas 78703.
The name of its initial registered agent at such address is Mr. Robert
L. Riviere.
ARTICLE VII
The number of Directors constituting the initial Board of Directors is
four (4).
The names and addresses of the persons who are to serve as Directors
until the first annual meeting of shareholders or until their successors be
elected and qualify are as follows:
Mr. Walter A. Collins Mr. Terry G. Hartnett
1407 Wilson Heights 7006 Firewheel
Austin, Texas 78746 Austin, Texas 78750
Mr. John R. Slais Mr. Robert L. Riviere
407 Duck Lake 2304 Island Wood Road
Austin, Texas 78734 Austin, Texas 78733
ARTICLE VIII
The name and address of the incorporator is as follows:
Mr. John R. Slais
407 Duck Lake
Austin, Texas 78734
ARTICLE IX
No director of the corporation shall be liable to the corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except for liability of a director for (i) a breach of a
director's duty of loyalty to the corporation or its shareholders, (ii) an act
or omission not in good faith that constitutes a breach of duty of the directors
to the corporation or an act or omission that involves intentional misconduct or
a
2
<PAGE> 3
knowing violation of the law, (iii) a transaction from which a director received
an improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, or (iv) an act or omission for which
the liability of a director is expressly provided for by an applicable statute.
If the Texas Business Corporation Act, the Texas Miscellaneous Corporation Laws
Act, or other applicable law is amended to authorize corporate action further
eliminating or limiting the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Laws Act, or other applicable law, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders shall not adversely affect any right or protection of a director
existing at the time of such repeal or modification.
ARTICLE X
Any action required by the Texas Business Corporation Act to be taken
at any annual or special meeting of shareholders or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the holder
or holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE XI
With respect to any matter for which the affirmative vote of the
holders of a specified portion of the shares entitled to vote is required by the
Texas Business Corporation Act, the act
3
<PAGE> 4
of the shareholders on that matter shall be the affirmative vote of the holders
of a majority of the shares entitled to vote on that matter, rather than the
affirmative vote otherwise required by the Texas Business Corporation Act. In
addition, with respect to any matter for which the affirmative vote of the
holders of a specified portion of the shares of any class is required by the
Texas Business Corporation Act, the act of the holders of shares of that class,
rather than the affirmative vote of the holders of shares of that class
otherwise required by the Texas Business Corporation Act.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of 1994.
/s/ JOHN R. SLAIS
------------------------------
John R. Slais
4
<PAGE> 1
EXHIBIT 99.2
BYLAWS
OF
TEJAS SECURITIES GROUP, INC.
ARTICLE I
Offices
1.1 Principal Office The principal office of the Corporation shall be
located in the City of Austin, County of Travis, State of Texas, at such
location as the Board of Directors shall determine.
1.2 Registered Office: The registered office of the Corporation shall
be the same as specified in the Articles of Incorporation, Articles of
Amendment, or Statement of Change per Article 2.10(A) of the Texas Business
Corporation Act.
1.3 Other Offices: The Corporation may also have offices or such other
places both within and without the State of Texas as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
Shareholders and Shareholders' Meetings
2.1 Place of Meetings: All meetings of the shareholders shall be held
at the principal office of the Corporation or at such other place within or
without the State of Texas as may be determined by the Board of Directors and
set forth in the respective notice or waivers of notice of such meeting.
2.2 Annual Meetings of Shareholders: The annual meeting of the
shareholders of the Corporation, for the election of Directors and the
transaction of such other business as may properly come before the meeting,
shall be held at such time and date as shall be designated by the President or
the Board of Directors from time to time and stated in the notice of the
meeting. Such annual meeting shall be called in the same manner as provided in
these Bylaws for special meetings of the shareholders, except that the purposes
of such meeting need be enumerated in the notice and proxies of such meeting
only to the extent required by law in the case of annual meetings.
2. 3 Failure to Hold Annual Meeting: Failure to hold any annual
meeting shall not work a dissolution of the Corporation. If the annual meeting
is not held within any 13-month period, any shareholder may make a demand
thereof in writing by certified mail to the Secretary of the Corporation. The
annual meeting shall be called within sixty (60) days after receipt thereof.
<PAGE> 2
2.4 Special Meetings of Shareholders: Special meetings of the
shareholders may be called by the President or by the Board of Directors or by
the holders of not less than ten (10%) PERCENT of all THE SHARES ENTITLED to
vote at the meeting. Business transacted at all special meetings shall be
confined to the purposes stated in the call.
2.5 Notice of Meetings of Shareholders: Written or printed notice
stating the place, day and hour of the meeting and, in case of special meetings,
the purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or person calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his or her address as it appears on the share transfer records of
the Corporation, with postage prepaid.
2.6 Waiver of Notice of Meetings of Shareholders: Notice may be waived
in writing signed by the shareholders entitled to such notice at any time before
or after such meeting. Attendance at a meeting shall constitute a waiver of
notice, except where the shareholders attend for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully convened.
2.7 Quorum: The holders of a majority of the shares entitled to vote at
a meeting of shareholders shall constitute a quorum at all meetings of the
shareholders, but in no event shall a quorum consist of the holders of less than
one-third (1/3) of the shares entitled to vote and thus represented at such
meeting, except as otherwise provided by law or the Articles of Incorporation.
Once a quorum is present at the meeting of shareholders, the subsequent
withdrawal from the meeting of any shareholder prior to adjournment or refusal
of any shareholder represented in person or by proxy to vote shall not affect
the presence of a quorum at the meeting. If, however, such quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote at such meeting present in person, or by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the holders of the requisite amount of voting
shares shall be present or represented. At such adjourned meeting at which the
requisite amount of voting shares shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
noticed. The vote of the holders of a majority of the shares represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law, the Articles of
Incorporation or these Bylaws.
2.8 Voting and Proxies: At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing subscribed by such shareholder. Each
proxy shall be revocable unless expressly provided therein to be irrevocable,
and in no event shall it remain irrevocable for a period of more than eleven
(11) months. Each shareholder shall have one vote for each share of stock having
voting power registered in his or her name on the books of the Corporation.
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2.9 Voting on Matters Other Than the Election of Directors: For
purposes of voting on matters other than the election of Directors or a matter
for which the affirmative vote of the holders of a specified portion of the
shares entitled to vote is required by the Texas Business Corporation Act, the
act of the shareholders shall be affirmative vote of the holders of a majority
of THE SHARE ENTITLED TO VOTE ON THAT MATTER AND represented in person or by
proxy at a meeting of shareholders at which a quorum is present.
2.10 Voting in the Election of Directors: For purposes of voting on the
election of Directors, Directors shall be elected by a plurality of the votes
cast by the holders of shares entitled to vote in the election of Directors at a
meeting of shareholders at which a quorum is present.
2.11 List of Shareholders Entitled to Vote: The Secretary shall make,
at least ten (10) days before each meeting of shareholders, a complete list of
the shareholders entitled to vote at such meeting, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the registered office of the Corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to inspection of any shareholder during the whole time of the meeting. Provided,
however, that failure to comply with the requirements of this Section shall not
affect the validity of any action taken at such meeting.
2.12 Closing of Transfer Books and Record Dates: For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment of such meeting or to execute a consent in
writing in lieu of a meeting of shareholders, or entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other purpose, the
Board of Directors may provide that the share transfer records shall be closed
for a stated period but not to exceed, in any case, sixty (60) days. If the
share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders or to
execute a consent in writing in lieu of a meeting of shareholders, such books
shall be closed for at least ten (10) days immediately preceding such meeting.
In lieu of closing the share transfer records, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty (60) days and, -in the case of a
meeting of shareholders, not less than ten (10) days prior to the date on which
the particular action, requiring such determination of shareholders, is to be
taken. If the share transfer records are not closed, and no record date is fixed
for the determination of shareholders, or shareholder entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made through the closing of share
transfer records, and the stated period of closing has expired. If the share
transfer books
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are not closed, and no record date is fixed for determination of shareholders
entitled to execute a consent in writing in lieu of a meeting of shareholders,
and the prior action of the Board of Directors is not required by law, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation, and, if no record date shall have been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining shareholders entitled to consent to action
in writing without a meeting shall be at the close of business on the date on
which the Board of Directors adopts a resolution taking such prior action.
2.13 Registered Shareholders: The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
of such share or shares for all purposes, and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice of
such claim or interest, except as expressly provided by the laws of Texas.
ARTICLE III
Board of Directors
3.1 Number and Qualifications: The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of a
Corporation shall be managed under the direction of a board of not less than (1)
nor more than fifteen (15) directors, as may be determined by the shareholders
or the Board of Directors from time to time, but no decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
director. Directors need not be shareholders nor be residents of the State of
Texas. The Board in its discretion may elect a chairman of the board who shall
preside at board meetings and generally manage the affairs of the Board.
3.2 Election: At each annual meeting of the shareholders, the
shareholders shall elect Directors to hold office until the next succeeding
annual meeting. Each director shall hold office for the term for which he is
elected and until his or her successor shall be elected and qualified unless
sooner removed by action of the shareholders.
3.3 Vacancies: Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum of the Board of Directors. Any Directorship to be filled by
reason of any increase in the number of Directors may be filled by (a) the
shareholders of the Corporation at an annual or special meeting; or (b) the
Board of Directors (subject, however, to the limitations set forth in Article
2.34 of the Texas Business Corporation Act).
3.4 Place of Meetings: All meetings of the may be held either within or
without the State of Texas.
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<PAGE> 5
3.5 Annual Meeting of the Board: The annual meeting of each newly
elected Board shall be held, without further notice, immediately following the
annual meeting of the shareholders, and at the same place, or at such other time
and place as shall be fixed with the consent in writing of all the Directors.
3.6 Regular Meetings: Regular meetings of the Board may be held without
notice at such time and place either within or without the State of Texas as
shall from time to time be determined by the board.
3.7. Special Meetings: Special meetings of the board may be called by
the Chairman of the Board of Directors or the President and shall be called by
the Chairman or President at the request in writing by any Director on five (5)
days notice to each director, either personally or by mail, telephone or by
telegram, special meetings shall be called by the President or Secretary in like
manner and on like notice on the written request of a majority of the Directors.
Such notice shall specify the place, date, time and subject of such meeting.
3.8 Quorum: At all meetings of the Board the presence of a majority of
Directors fixed by Section 2 of this Article II shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the act
of a majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise provided
by law or the Corporation or these Bylaws. If a quorum shall not be present at
any meeting of Directors, the Directors present at the meeting may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
3.9 Powers of Board of Directors: In addition to the powers and
authorities expressly conferred by these Bylaws upon them, the board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not directed or required to be exercised or done by the
shareholders by statute or the Corporation or these Bylaws.
3.10 Compensation of Directors: Directors shall receive such
compensation for their services as may be from time to time be fixed by
resolution of the Board of Directors. In addition, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the board by resolution of the board, provided that nothing contained
in these Bylaws shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation for such service.
3.11 Attendance and Waiver of Notice: Notice of any meeting may be
waived in writing signed by the Directors entitled to such notice at anytime
before or after such meeting. Attendance of a Director at any meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the sole purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
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3.12 Removal of Directors: Any Director may be removed (with or without
cause) by the affirmative vote of the holders of a majority of the shares then
entitled to vote in the election of Directors at any duly called shareholders'
meeting.
3.13 Executive and Other Committees: The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board, designate one
or more committees, each committee to consist of one or more of the Directors of
the Corporation, and may designate one or more of its members as alternate
members of the committee who may, subject to any limitations imposed by the
Board of Directors, replace absent or disqualified members at any meeting of
that committee. Any such committee, to the extent provided in said resolution or
resolutions, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except where
action of the full Board of Directors is specifically required by statute. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors and shall keep
regular minutes of their proceedings and report the same to the board when
required.
ARTICLE IV
Officers
4.1 Number: The principal officers of the Corporation shall consist of
the* President, Executive Vice President, Vice President, Secretary and
Treasurer, and such other officers and assistant officers and agents as may be
deemed necessary and elected or appointed by the Board of Directors, or chosen
in such other manner as may be prescribed by these Bylaws, at such time and in
such manner and for such terms as the Board of Directors may prescribe. Any two
or more offices may be held by the same person. The officers need not be
Directors, shareholders, or residents of Texas.
4.2 General Duties: All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority, perform such
duties and manage the Corporation as may be provided in these Bylaws or as may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
4.3. Election, Term of Office and Qualifications: The officers shall be
chosen annually by the Board of Directors at its annual meeting, or as soon
after such annual meeting as may conveniently be possible. Each officer shall
hold office until his or her successor is chosen and qualified; or until his or
her death, or until he shall have resigned, or shall have been removed in the
manner provided in Section 4.
4.4 Removal: Any officer or agent elected or appointed by the Board of
Directors may be removed (with or without cause) by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served by
such removal, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
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4.5 Resignation: Any officer may resign at any time by giving written
notice to the Board of Directors or to the President, Vice President or
Secretary. Such resignation shall take effect at the time specified in the
notice, and, unless otherwise specified in the notice, the acceptance of such
resignation shall not be necessary to make it effective. Such resignation shall
be without prejudice to the contract rights, if any, of the Corporation.
4.6 Vacancies: Any vacancy in any office because of death, resignation,
removal or any other cause shall be filled for the unexpired term in the manner
prescribed in these Bylaws for election or appointment to such office.
4.7 The President: The President, who need not be chosen from among the
Directors, shall have active, executive management of the operation of the
Corporation, subject, however, to the control of the Board of Directors. He
shall, in general, perform all duties incident to the office of President and
such other duties as from time to time may be assigned to him or her by the
Board of Directors.
4.8 The Vice President: Each Vice President shall have such powers and
perform such duties as the Board of Directors may from time to time prescribe or
as the President may from time to time delegate to him or her. At the request of
the President, any Vice President may temporarily act in his or her place. In
the case of the death of the President, or in the case of his or her absence or
inability to act without having designated a Vice President to act temporarily
in his or her place, the Vice President or Vice Presidents to perform the duties
of the President shall be designated by the Board of Directors.
4.9 The Secretary: The Secretary shall keep or cause to be kept in
books provided for the purpose, minutes of the meetings of the shareholders and
of the Board of Directors; shall see that all notices are duly given in
accordance with the provisions of these Bylaws and as required by law; shall be
custodian of the records and of the seal of the Corporation and see that the
seal is affixed to all the documents, the execution of which on behalf of the
Corporation under its seal is required; and, in general, shall perform all
duties incident to the office of the secretary and such other duties as may from
time to time be assigned to him or her by the Board of Directors or by the
President.
4.10 The Treasurer: The Treasurer shall be the principal financial
officer of the Corporation; shall have charge and custody of and be responsible
for all funds of the Corporation and deposit all such funds in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected by the Board of Directors; shall receive and give receipts for moneys
due and payable to the Corporation from any source; and, in general, shall
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Board of Directors or
by the President. The Treasurer shall render to the President and the Board of
Directors, whenever the same shall be required, an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation. He
or she shall, if required to do so by the Board of Directors, give the
Corporation a bond in such amount and with such surety or sureties as may be
ordered by the Board of Directors, for the
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faithful performance of the duties of his or her office and for the restoration
to the Corporation, in the case of his or her death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his or her control belonging to
the Corporation.
4.11 Salaries: The salaries of the officers shall be fixed by, or in
accordance with the directions of, the Board of Directors, and it shall be no
objection that the officer in question is a member of the Board of Directors or
that he or she votes on the resolution fixing his or her salary; provided,
however, that all salaries voted must be no more than reasonable compensation
for services rendered or to be rendered to the Corporation.
4.12 Disallowed Payments: Any payments made to an officer of the
Corporation such as a salary, commission, bonus, interest, or rent, or
entertainment expenses incurred by him or her, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the Corporation to the full extent of such
disallowance. It shall be the duty of the Directors, as a board, to, enforce
payment of each such amount disallowed.
ARTICLE V
Indemnification
5.1 Indemnification of Officers and Directors: The Corporation shall
indemnify and advance expenses to all Directors, officers, employees and agents
of the Corporation, and to all persons who are or were serving at the request of
the Corporation as a director, officer, partner. venturer, proprietor, trustee,
employee, agent or similar functionary of another Corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, to the maximum extent allowed by the Texas Business Corporation Act
and other applicable law. If the Texas Business Corporation Act, the Texas
Miscellaneous Corporation Laws Act, or other applicable law is amended after
adoption of this provision of the Bylaws by the shareholders or the Board of
Directors to authorize corporate action further expanding the Corporation's
power to indemnify, then the Corporation shall be and hereby is authorized to
indemnify the persons named above to the fullest extent permitted by the Texas
Business Corporation Act, the Texas Miscellaneous Corporation Laws Act, or other
applicable law, as so amended.
ARTICLE VI
Capital Stock
6.1 Certificates for Shares: The certificates for shares of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by any one or more officers of the Corporation and
may be sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officer or officers upon a certificate may be facsimiles. In
case any officer
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<PAGE> 9
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issuance.
6.2 Payment and Issuance: Shares may be issued for such consideration
as may be fixed from time to time by the Board of Directors. The consideration
for the payment of shares shall consist of money paid, labor done or property
actually received. Shares may not be issued until the full amount of the
consideration fixed therefor has been paid.
6.3 Transfer of Certificates of Shares: Transfers of shares shall be
made on the books of the Corporation only by the person named in the certificate
or by attorney, lawfully constituted in writing, and upon surrender of the
certificate for the shares. The Board of Directors shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue and registration of certificates of shares, and may appoint
transfer agents and/or registrars for the certificates of shares.
6.4 Lost or Destroyed Certificates: The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates to be issued in place of any certificate or certificates previously
issued by the Corporation alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
shares to be lost, and the Board of Directors, when authorizing such issue of a
new certificate or certificates, may require the owner of such lost or destroyed
certificate or certificates, or his or her legal representatives, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation.
ARTICLE VII
General Provisions
7.1 Seal: The seal of the Corporation shall be circular in form with
the name of the Corporation around the margin, with a five pointed star in the
center with letters Texas appearing between the points of the star, or in such
other form as shall be approved by the Board of Directors.
7.2 Fiscal Year: The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors, or in the absence of such a resolution by
the President.
7.3 Distributions and Share Dividends: Distributions and share
dividends, subject to the provisions of the Corporation and applicable law, may
be authorized and made by the Board of Directors at any regular or special
meeting distributions may be paid in cash or property. The Board of Directors
may be paid in cash or property. The Board of Directors may by resolution create
a reserve or reserves out of its surplus or allocate any part or all of surplus
in any manner for any proper purpose or purposes, and may increase, decrease or
abolish any such reserve, designation or allocation in the same manner.
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7.4 Notices: Whenever under the provisions of these Bylaws notice is
required to be given to any director or shareholder, it shall not be construed
to mean only personal notice, but such notice may also be given in writing, by
mail, by depositing the same in the post office or letter box, in a post-paid
sealed wrapper, addressed to such Director or shareholder at such address as
appears on the books of the Corporation, and such notice shall be deemed to be
given at the time when it shall be thus mailed. Any notice required to be given
under these Bylaws may be waived in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated in the notice.
7.5 Actions Without a Meeting and Telephone Meetings: Notwithstanding
any provision contained in these Bylaws, all action of the Directors or any
committee of the board provided for herein may be taken by unanimous consent
without a meeting, or any meeting thereof may be held by means of a conference
telephone or the like, to the full extent permitted by Article 9.10 of the Texas
Business Corporation Act. Any action which may be taken by the shareholders may
be taken without a meeting, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holder or holders of shares having
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were present and voted, to the full extent permitted by Article 9.10 of
the Texas Business Corporation Act and by the Corporation.
ARTICLE VIII
Amendments
8.1 Amendments by Board of Directors: The Board of Directors may amend
or repeal these Bylaws, or adopt new Bylaws, unless:
(i) the Corporation or the Texas Business Corporation Act reserves such
power exclusively to the shareholders in whole or, in part; or
(ii) the shareholders in amending, repealing, or adopting a particular
bylaw expressly provide that the Board of Directors may not amend or repeal that
bylaw.
8.2 Amendments by Shareholders: Unless the Corporation or a bylaw
adopted by the shareholders provides otherwise as to all or some portion of
these Bylaws, the Corporation's shareholders may amend, repeal, or adopt the
Corporation's Bylaws even though the Bylaws may also be amended, repealed, or
adopted by the Board of Directors.
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EXHIBIT 99.3
ARTICLES OF INCORPORATION
OF
TEJAS SECURITIES GROUP HOLDING COMPANY
The undersigned natural person of the age of eighteen (18) years or
more, acting as an incorporator of a corporation under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation for such
corporation:
ARTICLE I
NAME
The name of the corporation is Tejas Securities Group Holding Company.
ARTICLE II
DURATION
The period of its duration is perpetual.
ARTICLE III
PURPOSE
The purpose or purposes for which the corporation is organized are to
transact any and all lawful business for which corporations may be incorporated
under the Texas Business Corporation Act.
<PAGE> 2
ARTICLE IV
SHARES
The aggregate number of shares which the corporation has authority to
issue is Six Million (6,000,000) shares of no par value per share. Such shares
are designated as common stock and shall have identical rights and privileges in
every respect.
ARTICLE V
DENIAL OF PREEMPTIVE RIGHTS
The right of a shareholder referred to in Article 2.22-1 of the Texas
Business Corporation Act, to exercise a preemptive right to acquire additional,
unissued or treasury shares of the corporation or securities of the corporation
convertible into or carrying a right to subscribe to or acquire shares of the
corporation is hereby denied.
ARTICLE VI
NONCUMULATIVE VOTING
Directors shall be elected by majority vote. No shareholder of the
corporation shall have the right to cumulate his votes in the election of
directors.
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<PAGE> 3
ARTICLE VII
POWER TO AMEND BYLAWS
Without limiting the power of the shareholders of the corporation to
amend or repeal the corporation's bylaws or to adopt new bylaws, the Board of
Directors shall have the power to amend or repeal the corporation's bylaws and
to adopt new bylaws.
ARTICLE VIII
COMMENCEMENT OF BUSINESS
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00).
ARTICLE IX
REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the corporation
is CT Corporation System and the name of its initial registered agent at such
address is 350 N. St. Paul, Dallas, Texas 75201.
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<PAGE> 4
ARTICLE X
INITIAL DIRECTORS
The number of directors constituting the initial Board of Directors is
six (6) and the names and addresses of the persons who are to serve as directors
until the first annual meeting of the shareholders, or until their successor or
successors are elected and qualified are:
John Gorman John Glade
1250 Capital of Texas Highway, South 1250 Capital of Texas Highway, South
Building Two, Suite 500 Building Two, Suite 500
Austin, Texas 78746 Austin, Texas 78746
Jay Van Ert Jon McDonald
1250 Capital of Texas Highway, South 1250 Capital of Texas Highway, South
Building Two, Suite 500 Building Two, Suite 500
Austin, Texas 78746 Austin, Texas 78746
Greg Woodby Joe Moran
1250 Capital of Texas Highway, South 1250 Capital of Texas Highway, South
Building Two, Suite 500 Building Two, Suite 500
Austin, Texas 78746 Austin, Texas 78746
The number of directors may hereafter be increased or decreased as
provided in the bylaws of the corporation.
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<PAGE> 5
ARTICLE XI
LIABILITY OF DIRECTORS
No director of the corporation shall be liable to the corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director to the extent the director is found liable for: (1) a
breach of the director's duty of loyalty to the corporation or its shareholders;
(2) an act or omission not in good faith that constitutes a breach of duty of
the director to the corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (3) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or (4) an act or
omission for which the liability of a director is expressly provided for by an
applicable statute.
ARTICLE XII
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken
at any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
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ARTICLE XIII
INCORPORATOR
The name and address of the incorporator is:
Scott Christiansen
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-1999
IN WITNESS WHEREOF, I have hereunto set my hand this the 18th day of
August, 1999.
/s/ SCOTT CHRISTIANSEN
----------------------------------------
Scott Christiansen
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<PAGE> 1
EXHIBIT 99.4
BYLAWS
OF
TEJAS SECURITIES GROUP HOLDING COMPANY
<PAGE> 2
BYLAWS
OF
TEJAS SECURITIES GROUP HOLDING COMPANY
* * * * * * * * * * * * * * * * * * * *
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE I. - OFFICES..............................................................................................1
Section 1. Principal Office.......................................................................1
Section 2. Other Offices..........................................................................1
ARTICLE II. - MEETINGS OF SHAREHOLDERS............................................................................1
Section 1. Place of Meetings......................................................................1
Section 2. Annual Meeting.........................................................................1
Section 3. List of Shareholders...................................................................1
Section 4. Special Meetings.......................................................................2
Section 5. Notice.................................................................................2
Section 6. Quorum.................................................................................2
Section 7. Voting by Shareholders.................................................................2
Section 8. Voting Procedure.......................................................................3
Section 9. Record Date............................................................................3
Section 10. Action Without Meeting; Telephone Meetings.............................................4
ARTICLE III. - DIRECTORS..........................................................................................5
Section 1. Management.............................................................................5
Section 2. Number; Election.......................................................................5
Section 3. Change in Number.......................................................................5
Section 4. Removal and Vacancies..................................................................5
Section 5. Election of Directors..................................................................6
Section 6. Place of Meetings......................................................................6
Section 7. First Meetings.........................................................................6
Section 8. Regular Meetings.......................................................................6
Section 9. Special Meetings.......................................................................6
Section 10. Quorum.................................................................................6
Section 11. Action Without Meeting; Telephone Meetings.............................................6
Section 12. Chairman of the Board..................................................................7
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 13. Vice Chairman of the Board.............................................................7
Section 14. Compensation...........................................................................7
Section 15. Executive Committee....................................................................7
Section 16. Other Committees.......................................................................7
ARTICLE IV. - NOTICES.............................................................................................8
Section 1. Method.................................................................................8
Section 2. Waiver.................................................................................8
ARTICLE V. - OFFICERS.............................................................................................8
Section 1. Officers...............................................................................8
Section 2. Election...............................................................................8
Section 3. Compensation...........................................................................9
Section 4. Removal and Vacancies..................................................................9
Section 5. Chief Executive Officer................................................................9
Section 6. President..............................................................................9
Section 7. Vice Presidents........................................................................9
Section 8. Secretary..............................................................................9
Section 9. Assistant Secretaries.................................................................10
Section 10. Treasurer.............................................................................10
Section 11. Assistant Treasurers..................................................................10
Section 12. Other Officers........................................................................10
ARTICLE VI. - CERTIFICATES REPRESENTING SHARES...................................................................10
Section 1. Certificates..........................................................................10
Section 2. Lost Certificates.....................................................................11
Section 3. Transfer of Shares....................................................................11
Section 4. Registered Shareholders...............................................................11
ARTICLE VII. - GENERAL PROVISIONS................................................................................12
Section 1. Distributions and Share Dividends.....................................................12
Section 2. Reserves..............................................................................12
Section 3. Checks................................................................................12
Section 4. Fiscal Year...........................................................................12
Section 5. Seal..................................................................................12
Section 6. Indemnification.......................................................................12
Section 7. Amendments............................................................................13
Section 8. Table of Contents; Headings...........................................................13
</TABLE>
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<PAGE> 4
BYLAWS
OF
TEJAS SECURITIES GROUP HOLDING COMPANY
(the "Corporation")
ARTICLE I.
OFFICES
Section 1. Principal Office. The principal business office of the
Corporation shall be at 1250 Capital of Texas Highway, South, Building Two,
Suite 500, Austin, Texas 78746.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Texas, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of shareholders for all purposes
may be held at such time and place, within or without the State of Texas, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. An annual meeting of the shareholders,
commencing with the year 2000, shall be held each year on such date and at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting or in a duly executed waiver of notice of
such meeting. At such meetings, the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 3. List of Shareholders. At least ten (10) days before each
meeting of the shareholders, a complete list of the shareholders entitled to
vote at said meeting or any adjournment thereof, arranged in alphabetical order
with the address of and the number of voting shares held by each, shall be
prepared by the officer or agent having charge of the stock transfer books. Such
list, for a period of ten (10) days prior to such meeting, shall be kept on file
at the registered office or principal place of business of the Corporation and
shall be subject to inspection by any shareholder at any time during usual
business
<PAGE> 5
hours. Such list shall be produced and kept open at the time and place of the
meeting during the whole time thereof, and shall be subject to the inspection of
any shareholder who may be present.
Section 4. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, the Articles of
Incorporation, or these Bylaws, may be called by (a) the Chief Executive Officer
or President or the Board of Directors, or (b) the holders of at least ten
percent (10%) of all shares entitled to vote at such meetings, unless the
Articles of Incorporation provide for a number of shares greater than or less
than ten percent (10%), in which event special meetings may be called by the
holders of at least the percentage of shares specified in the Articles of
Incorporation, provided, however, that in no event may the Articles of
Incorporation require a percentage greater than fifty percent (50%). Business
transacted at a special meeting shall be confined to the purposes stated in the
notice of the meeting.
Section 5. Notice. Written or printed notice stating the place, day and
hour of a meeting of shareholders, and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) or, in the event of a merger or consolidation, not less than
twenty (20), nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Chief Executive
Officer, the President, the Secretary, or the officer or person calling the
meeting, to each shareholder of record entitled to vote at the meeting. Notice
need not be given to a shareholder if (1) notice of two consecutive annual
meetings and all notices of any meetings held during the period between those
annual meetings or (2) all (but in no event less than two) payments (if sent by
first class mail) of distributions or interest on securities during a 12-month
period have been mailed to the shareholder, addressed at his address as shown on
the records of the Corporation, and have been returned undeliverable. If such a
shareholder delivers to the Corporation a written notice setting forth his
current address, the notice requirement of this Section shall be reinstated.
Section 6. Quorum. At each meeting the holders of a majority of the
shares issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum of the
shareholders for the transaction of business except as otherwise provided by
statute, the Articles of Incorporation or these Bylaws, but in no event shall a
quorum consist of the holders of less than one-third of the shares entitled to
vote at such a meeting. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 7. Voting by Shareholders. (a) With respect to any matter other
than the election of directors or a matter for which the affirmative vote of the
holders of a specified portion of the shares entitled to vote is required by the
Texas Business Corporation Act, the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter and represented in person
or by proxy at a meeting
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<PAGE> 6
of shareholders at which a quorum is present shall be the act of the
shareholders, unless otherwise provided in the Articles of Incorporation or the
Bylaws.
(b) Unless otherwise provided in the Articles of Incorporation or the
Bylaws, directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present.
Section 8. Voting Procedure. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied or special voting rights
are provided by the Articles of Incorporation. At any meeting of the
shareholders, every shareholder having the right to vote shall be entitled to
vote in person, by proxy appointed by an instrument in writing subscribed by
such shareholder, or by his duly authorized attorney-in-fact. No form of proxy
or power of attorney bearing a date more than eleven (11) months prior to said
meeting shall be valid, unless said instrument provides for a longer period.
Each proxy shall be revocable unless the proxy form conspicuously states that
the proxy is irrevocable and the proxy is coupled with an interest. Such proxy
shall be filed with the Secretary of the Corporation prior to or at the time of
the meeting.
Section 9. Record Date. (a) For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive a distribution by the Corporation
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the Board of Directors of the
Corporation may provide that the share transfer records shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the share
transfer records shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such records
shall be closed for at least ten (10) days immediately preceding such meeting.
In lieu of closing the share transfer records, the Bylaws or, in the absence of
an applicable Bylaw, the Board of Directors, may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than sixty (60) days and, in the case of a meeting of shareholders,
not less than ten (10) days, prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If the share
transfer records are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of its
own shares) or a share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this subsection, such determination shall apply to any adjournment
thereof, except where the determination has been made through the closing of the
share transfer records and the stated period of closing has expired.
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<PAGE> 7
(b) For the purpose of determining shareholders entitled to call a
special meeting of shareholders pursuant to Section 4 of this Article II, the
record date shall be the date the first shareholder signs the notice of the
meeting.
(c) Unless a record date shall have previously been fixed or determined
pursuant to this section, whenever action by shareholders is proposed to be
taken by consent in writing without a meeting of shareholders, the Board of
Directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten (10) days after, the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board of
Directors is not required by the Texas Business Corporation Act, the record date
for determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation in the
manner provided by Section 10(b) of this Article II. If no record date shall
have been fixed by the Board of Directors and prior action of the Board of
Directors is required by the Texas Business Corporation Act, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts a resolution taking such prior action.
Section 10. Action Without Meeting; Telephone Meetings. (a) Any action
required or permitted to be taken at a meeting of the shareholders of the
Corporation may be taken without a meeting without prior notice, and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take such action at a meeting
at which the holders of all shares entitled to vote on the action were present
and voted.
(b) Every written consent signed by the holders of less than all the
shares entitled to vote with respect to the action that is the subject of the
consent shall bear the date of signature of each shareholder who signs the
consent. No written consent signed by the holders of less than all the shares
entitled to vote with respect to the action that is the subject of the consent
shall be effective to take the action that is the subject of the consent unless,
within sixty (60) days after the date of the earliest dated consent delivered to
the Corporation in the manner required by this subsection, a consent or consents
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take the action that is the subject
of the consent are delivered to the Corporation by delivery to its registered
office, registered agent, principal place of business, transfer agent,
registrar, exchange agent or an officer or agent of the Corporation having
custody of the books in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or certified or registered mail, return
receipt requested. Delivery to the Corporation's principal place of business
shall be addressed to the president or principal executive officer of the
Corporation.
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<PAGE> 8
(c) A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing signed by a shareholder, shall be regarded as signed by the
shareholder for purposes of this section.
(d) Prompt notice of the taking of any action by shareholders without a
meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.
(e) Subject to applicable notice provisions and unless otherwise
restricted by the Articles of Incorporation, shareholders may participate in and
hold a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall constitute presence in
person at such meeting, except where a person's participation is for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE III.
DIRECTORS
Section 1. Management. The business and affairs of the Corporation
shall be managed by its Board of Directors who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The Board of Directors shall keep regular
minutes of its proceedings.
Section 2. Number; Election. The Board of Directors shall consist of no
less than one (1) nor more than fifteen (15) directors, who need not be
shareholders or residents of the State of Texas. Directors shall be elected at
the annual meeting of the shareholders, except as hereinafter provided, and each
Director elected shall hold office until his successor shall be elected and
shall qualify.
Section 3. Change in Number. The number of Directors may be increased
or decreased from time to time by resolution adopted by the affirmative vote of
a majority of the Directors, but no decrease shall have the effect of shortening
the term of any incumbent Director.
Section 4. Removal and Vacancies. Any Director may be removed either
for or without cause at any annual or special meeting of shareholders by the
affirmative vote of a majority in number of shares of the shareholders present
in person or by proxy at such meeting and entitled to vote for the election of
such Director, if notice of the intention to act upon such matters shall have
been given in the notice calling such meeting. Any vacancy occurring in the
Board of Directors may be filled by the vote of a majority of the remaining
Directors, even if such remaining Directors comprise less than a quorum of the
Board of Directors. A Director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor
-5-
<PAGE> 9
in office. Any position on the Board of Directors to be filled by reason of an
increase in a number of Directors shall be filled by the vote of a majority of
Directors, election at an annual meeting of the shareholders or at a special
meeting of shareholders duly called for such purpose, provided that the Board of
Directors may fill no more than two such vacancies during the period between any
two successive annual meetings of shareholders.
Section 5. Election of Directors. At every election of Directors, each
shareholder entitled to vote with respect to such matter shall have the right to
vote in person or by proxy the number of voting shares owned by him for as many
persons as there are Directors to be elected and for whose election he has a
right to vote. Cumulative voting shall be prohibited.
Section 6. Place of Meetings. The Directors of the Corporation may hold
their meetings, both regular and special, either within or without the State of
Texas.
Section 7. First Meetings. The first meeting of each newly elected
Board of Directors shall be held without further notice immediately following
the annual meeting of shareholders, and at the same place, unless by unanimous
consent of the Directors then elected and serving, such time or place shall be
changed.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or the President on one (1) days'
notice to each Director, either personally or by mail or telegram. Special
meetings may be called in like manner and on like notice on the written request
of any two Directors. Except as may be otherwise expressly provided by statute,
the Articles of Incorporation or these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
Section 10. Quorum. At all meetings of the Board of Directors, the
presence of a majority of the Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, the Articles of Incorporation or these Bylaws. If a quorum shall not
be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 11. Action Without Meeting; Telephone Meetings. Any action
required or permitted to be taken at a meeting of the Board of Directors or
members of any committee designated by the Board of Directors may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the Board of Directors or committee, as the case
may be. Such consent shall
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<PAGE> 10
have the same force and effect as a unanimous vote at a meeting. Subject to
applicable notice provisions and unless otherwise restricted by the Articles of
Incorporation, members of the Board of Directors, or members of any committee
designated by the Board of Directors, may participate in and hold a meeting by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such meeting shall constitute presence in person at such
meeting, except where a person's participation is for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 12. Chairman of the Board. The Board of Directors may elect a
Chairman of the Board to preside at their meetings and to perform such other
duties as the Board of Directors may from time to time assign to him.
Section 13. Vice Chairman of the Board. Each Vice Chairman shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the Chairman may from time to time delegate to the
Vice Chairman.
Section 14. Compensation. Directors, as such, shall not receive any
stated salary for their services, but by resolution of the Board of Directors a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided that nothing
herein contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of any committee designated by the Board of Directors may, by resolution of the
Board of Directors, be allowed compensation for attending committee meetings.
Section 15. Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the whole Board of Directors, designate an
Executive Committee, to consist of one or more of the Directors of the
Corporation. The Executive Committee, to the extent provided in said resolution,
shall have and may exercise all of the authority of the Board of Directors in
the management of the business and affairs of the Corporation, except where
action of the full Board of Directors is required by statute or by the Articles
of Incorporation, and shall have power to authorize the seal of the Corporation
to be affixed to all papers which may require it. Any member of the Executive
Committee may be removed by the Board of Directors by the affirmative vote of a
majority of the Board of Directors, whenever in its judgment the best interests
of the Corporation will be served thereby. The Executive Committee shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when required.
Section 16. Other Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board of Directors, designate from among its
members one or more committees, other than an Executive Committee, to the extent
provided in such resolution.
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<PAGE> 11
ARTICLE IV.
NOTICES
Section 1. Method. Whenever by statute, the Articles of Incorporation,
or these Bylaws, notice is required to be given to any Director or shareholder,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
by mail, postage prepaid, addressed to such Director or shareholder at such
address as appears on the books of the Corporation or in any other method
permitted by law. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same shall be thus deposited in the
United States mail as aforesaid.
Section 2. Waiver. Whenever any notice is required to be given to any
shareholder or Director of the Corporation by statute, the Articles of
Incorporation, or these Bylaws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated in
such notice, shall be deemed equivalent to the giving of such notice. Attendance
of a shareholder or Director at a meeting shall constitute a waiver of notice of
such meeting, except where a shareholder or Director attends for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened. Consent in writing by a shareholder
or Director to any action taken or resolution adopted by the shareholders or
Directors of the Corporation shall constitute a waiver of any and all notices
required to be given in connection with such action or resolution.
ARTICLE V.
OFFICERS
Section 1. Officers. The officers of the Corporation shall be elected
by the Directors and shall be a President and a Secretary. The Board of
Directors may also choose a Chairman of the Board, one or more Vice Chairman of
the Board, a Chief Executive Officer, one or more Vice Presidents, a Treasurer
and one or more Assistant Secretaries and Assistant Treasurers and such other
officers with such titles and responsibilities as the Board of Directors deems
necessary. Any two or more offices may be held by the same person.
Section 2. Election. The Board of Directors at its first meeting after
each annual meeting of shareholders shall choose a President and a Secretary,
neither of whom need be a member of the Board of Directors, a shareholder or a
resident of the State of Texas. The Board of Directors may appoint such other
officers and agents as it shall deem necessary, who shall be appointed for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
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<PAGE> 12
Section 3. Compensation. The compensation of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 4. Removal and Vacancies. Each officer of the Corporation shall
hold office until his successor is chosen and qualified in his stead or until
his death or until his resignation or removal from office. Any officer or agent
or member of a committee elected or appointed by the Board of Directors may be
removed either for or without cause by a majority of the Board of Directors
present at a meeting of the Board of Directors at which a quorum is represented,
whenever in the judgment of the Board of Directors the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer shall
be the senior officer of the Corporation, shall preside at all meetings of the
shareholders and the Board of Directors, be the ex-officio, a member of the
executive committee, and will share the general and active management of the
business of the Corporation with the President, and shall see, along with the
President, that all orders and resolutions of the Board of Directors are carried
into effect. Under the seal of the Corporation, he shall execute bonds,
mortgages, and other contracts requiring a seal, except where required or
permitted by law to be otherwise signed and executed, except where the signing
and execution shall be especially delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 6. President. The President shall have general and active
management of the business of the Corporation and shall see, along with the
Chief Executive Officer, that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the authority to execute bonds,
mortgages, and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law or by these Amended and
Restated Bylaws to be otherwise signed and executed, except where the signing
and execution thereof shall be especially delegated by the Board of Directors to
some other officer or agent of the Corporation.
Section 7. Vice Presidents. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice President (or in
the event there is more than one Vice President, the Vice Presidents in the
order designated by the Board, or in the absence of any designation, then in the
order of their election or appointment) shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Each Vice President shall have only such
powers and perform only such duties as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer or President may from time to
time delegate.
Section 8. Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the shareholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for any committee when required. Except as otherwise
provided herein, the Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and
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<PAGE> 13
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or Chief Executive Officer or
President, under whose supervision the Secretary shall be. The Secretary shall
keep in safe custody the seal of the Corporation and, when authorized by the
Board of Directors, affix the same to any instrument requiring it, and, when so
affixed, it shall be attested by the signature of the Secretary or by the
signature of the Treasurer or an Assistant Secretary.
Section 9. Assistant Secretaries. Each Assistant Secretary shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the President may from time to time delegate.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all monies and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer, the President and directors, at the regular
meetings of the Board of Directors, or whenever they may require it, an account
of all the Treasurer's transactions as Treasurer and of the financial condition
of the Corporation, and shall perform such other duties as the Board of
Directors may prescribe. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond in such form, in such sum, and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of the office of Treasurer and for the
restoration to the Corporation, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Corporation.
Section 11. Assistant Treasurers. Each Assistant Treasurer shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe.
Section 12. Other Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary, including without
limitation a Chief Operating Officer, who shall be appointed for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
ARTICLE VI.
CERTIFICATES REPRESENTING SHARES
Section 1. Certificates. Certificates in such form as may be determined
by the Board of Directors shall be delivered representing all shares to which
shareholders are entitled. Such certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued. Each
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<PAGE> 14
certificate shall state on the face thereof the holder's name, the number and
class of shares, and the par value of such shares or a statement that such
shares are without par value. They shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary and may be sealed with the
seal of the Corporation or a facsimile thereof. The signature of any such
officer may be facsimile.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as it shall require and/or give the Corporation a bond in
such form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be transferable
only on the books of the Corporation by the holder thereof in person or by the
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Shareholders. Unless otherwise provided in the
Texas Business Corporation Act, and subject to the provisions of Chapter 8 of
the Texas Business & Commerce Code: (a) the Corporation may regard the person in
whose name any shares issued by the Corporation are registered in the share
transfer records of the Corporation at any particular time (including, without
limitation, as of a record date fixed pursuant to these Bylaws) as the owner of
those shares at that time for purposes of voting those shares, receiving
distributions thereon or notices in respect thereof, transferring those shares,
exercising rights of dissent with respect to those shares, exercising or waiving
any preemptive right with respect to those shares, entering into agreements with
respect to those shares in accordance with Article 2.22 or 2.30 of the Texas
Business Corporation Act, or giving proxies with respect to those shares; and
(b) neither the Corporation nor any of its officers, directors, employees, or
agents shall be liable for regarding that person as the owner of those shares
at that time for those purposes, regardless of whether that person does not
possess a certificate for those shares.
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ARTICLE VII.
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions and share
dividends, subject to the provisions of the Articles of Incorporation, if any,
may be authorized by the Board of Directors at any regular or special meeting.
Distributions may be paid in cash, in property, or in the issuance of
indebtedness, and may be in the form of a dividend on the outstanding shares of
the Corporation, a purchase or redemption by the Corporation of any of its own
shares, or a payment in liquidation of all or a portion of the assets of the
Corporation. Share dividends shall be paid in authorized but unissued shares of
the Corporation or in treasury shares subject to the provisions of the Texas
Business Corporation Act and the Articles of Incorporation. The Board of
Directors may fix a record date in the manner provided in Article II of these
Bylaws for the purpose of determining shareholders entitled to receive a
distribution (other than a distribution involving a purchase or redemption by
the Corporation of any of its own shares) or share dividend.
Section 2. Reserves. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
Directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize distributions, or to repair or maintain any
property of the Corporation, or for such other purposes as the Directors shall
think beneficial to the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. Indemnification. The Corporation shall indemnify every
Director and officer of the Corporation against, and reimburse and advance to
every Director and officer for, all liabilities, costs and expenses incurred in
connection with such directorship or office and any actions taken or omitted in
such capacity to the greatest extent permitted under the Texas Business
Corporation Act and other applicable laws at the time of such indemnification,
reimbursement or advance payment.
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Section 7. Amendments. These Bylaws may be amended or repealed or new
Bylaws may be adopted by the shareholders of the Corporation or by the Board of
Directors.
Section 8. Table of Contents; Headings. The Table of Contents and
headings used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
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