UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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RUSHMORE FINANCIAL GROUP, INC.
(Name of small business issuer in its charter)
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TEXAS 6411 75-2375969
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
13355 Noel Road, Suite 650 D. M. Moore, Jr., Chief Executive Officer
Dallas, Texas 75240 Rushmore Financial Group, Inc.
(972) 450-6000 13355 Noel Road, Suite 650
Dallas, Texas 75240
(Address and telephone number, (972) 450-6000
including area code, of registrant's (Name, address and telephone number,
principal executive officer _________________________ of agent for service)
Copies To:
Ronald L. Brown, Esq. Peter A. Lodwick, Esq.
Glast, Phillips & Murray, P.C. Thompson & Knight, P.C.
13355 Noel Road, Suite 2200 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75240 Dallas, Texas 75201
Telephone: (972) 419-8302 Telephone: (214) 969-1700
Facsimile: (972) 419-8329 _________________________ Facsimile: (214) 969-1751
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If this Form is filed to registered additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ................|_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
................|-|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
................|-|
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. ................|_|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum Amount of
Title of each class of securities Amount to be offering price per aggregate registration
to be registered registered share(1) offering price fee
Common Stock, par value $.01 per share . . . 1,250,000 $5.50 $6,875,000 $2,028
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(1) The offering price has been estimated and the registration fee has been
computed pursuant to Rule 457(a). -------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Regis
tration Statement shall thereafter become effective in accordance with Sec
tion 8(a)of the Securities Act of 1933 or until the Registration State
ment shall become effective on such date as the Commission, acting pur
suant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION DATED DECEMBER 15, 1997
PROSPECTUS _______________, 199___
UP TO 1,250,000 SHARES
RUSHMORE FINANCIAL GROUP, INC.
[LOGO]
COMMON STOCK
Rushmore Financial Group, Inc., a Texas corporation ("Rushmore" or the
"Company"), is offering for sale a minimum of 750,000 shares and a maximum of
1,250,000 shares of its common stock, par value $0.01 per share (the "Common
Stock"). The offering made hereby is referred to as the "Offering."
Prior to this Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial Price to Public will be
$5.50 per share. For a discussion of the factors considered in determining the
Price to Public for the Common Stock, see "Underwriting." Following the
Offering, it is expected that the Common Stock will trade in the
over-the-counter market and will be quoted on the Nasdaq SmallCap Market under
the symbol "RFGI" . See "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 6, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
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Per Share . . . . . . . .. . . .$ $ $
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Minimum Total . . . . . .. . . .$ $ $
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Maximum Total. . . . . ... . . $ $ $
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(1) The Company has agreed to issue to First Southwest Company as the
Representative of the Underwriters warrants (the "Warrants") exercisable
for five years from the date hereof, to purchase 50,000 shares of Common
Stock at 110% of the Price to Public per share. For information concerning
indemnification arrangements with the Underwriters and other compensation
payable to the Representative, see "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $300,000.
The shares of Common Stock are offered by the several Underwriters named
herein on a best efforts basis. In the event the Underwriters have not sold a
minimum of 750,000 shares within 45 days after the date of this Prospectus,
unless extended by agreement between the Underwriters and the Company for an
additional 15 days, this Offering will terminate and all subscription funds will
promptly be returned in full to subscribers, without interest.
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, and
subject to the approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to reject any
order in whole or in part. It is expected that delivery of the shares of Common
Stock will be made at the offices of First Southwest Company, Dallas, Texas, on
or about _______________, 1998.
FIRST SOUTHWEST COMPANY RUSHMORE SECURITIES CORPORATION
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[Map of United States showing headquarters, branch office locations and states
represented.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING ENTERING STABILIZING BIDS. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated all share and per share data have been adjusted to give
effect to a one for two reverse stock split in November 1997. All references to
the "Company" or "Rushmore" refer to Rushmore Financial Group, Inc. and its
subsidiaries.
THE COMPANY
Rushmore is a financial services holding company that provides a wide range
of investment and insurance services and products to its clients through a
national distribution network of more than 1,450 securities representatives and
insurance agents in 39 states. The Company believes that it is well positioned
to take advantage of demographic trends in the aging of America and the
increasing overlap of investment services with other financial security
products. The Company's activities in these two complementary sectors of the
financial services industry, investment services and insurance services, allow
Rushmore to provide a full range of financial services to its clients and
enhance the cross-selling opportunities of its select product lines.
The Company's investment services business consists of securities
brokerage services, mutual fund distribution, variable life insurance and
annuities sales and other financial services offered by Rushmore Securities
Corporation ("Rushmore Securities"), which has 125 registered representatives in
24 states. In addition, Rushmore Investment Advisors, Inc. ("Rushmore Advisors")
provides fee-based advisory services, using a proprietary asset allocation
program known as RushMap.
The Company's insurance services business selects and markets a wide
range of life, disability, accident and health insurance and annuity products
distributed through 16 exclusive and more than 1,300 independent agents of its
affiliated agency, Rushmore Insurance Services, Inc. ("Rushmore Agency"). In
addition, Rushmore Life Insurance Company ("Rushmore Life") acquires and
coinsures up to a 50% interest in the policies written through representatives
of Rushmore Agency that are issued by full-line life insurance companies that
have entered into modified coinsurance agreements with Rushmore Life.
Growth Strategy
The Company's growth strategy focuses on expanding its national
distribution network and continually identifying and evaluating new products and
acquisition opportunities that are consistent with the Company's objective to
provide a full range of financial products and services. Over the past ten
years, the amount invested in retirement and other financial security products
and services has grown over 185%. According to the Federal Reserve Board of
Governors, in 1986 the total amount invested in retirement and other financial
security products by households and non-profit organizations was approximately
$7.16 trillion, as compared to over $20.45 trillion at year end 1996, an 11%
compounded annual growth rate. The Company's objective is to capture an
increasing share of the commission revenues and assets related to the investment
and insurance services industry. The key components of Rushmore's growth
strategy include:
o expanding its distribution network by recruiting and retaining high
quality and productive agents and representatives, including both
exclusive "Career Partners" insurance agents and registered
securities representatives and independent insurance agents;
o providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;
o offering incentives to its agents and employees including favorable
commission structures, stock option plans and award programs to
attract and retain a loyal base of highly motivated personnel;
o maintaining a modern management information system to allow its
agents and representatives to maintain an efficient and orderly
flow of sales orders; and
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o acquiring other insurance, securities and investment advisory firms
and complementary financial services companies.
The Company's primary goal through these components is to enhance
shareholder value by building a base of fully integrated financial service
professionals and a loyal, well served clientele. See "Business."
The Company's principal executive offices are located at 650 One
Galleria Tower, 13355 Noel Road, Dallas, Texas 75240, and its telephone
number is (972) 450-6000. The Company's website is http://www.rushmark.com.
THE OFFERING
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Common Stock offered by the Company
Minimum..........................................................750,000 shares
Maximum..........................................................1,250,000 shares
Common Stock to be outstanding after the Offering (1)
Minimum..........................................................2,856,664 shares
Maximum..........................................................3,356,664 shares
Estimated net proceeds (2)
Minimum..........................................................$3,495,000
Maximum..........................................................$6,025,000
Use of proceeds...........................................................Invest $300,000 in Rushmore Life's capital
surplus, allocate $1,500,000 to $2,000,000
to Rushmore Agency to support the addition
of new agents, allocate $1,000,000 to
Rushmore Securities to support the addition
of new representatives, allocate $500,000 to
Rushmore Advisors to add new marketing
and investment advisory personnel, and
use the balance to provide additional operating
capital and fund possible acquisitions. See
"Use of Proceeds".
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Proposed Nasdaq SmallCap Market Symbol....................................RFGI
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(1) Excludes 163,573 shares of Common Stock subject to stock options with
an exercise price averaging $0.96 per share and Warrants to the
Representative to acquire 50,000 shares of Common Stock. See
"Capitalization," "Management--1997 Stock Option Plan," and " --- 1993
Option Plan" and "Underwriting."
(2) After subtracting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING INFORMATION OF THE COMPANY
The following table sets forth certain summary consolidated historical
and pro forma financial and operating information of the Company. See "Selected
and Pro Forma Consolidated Financial Information" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The following
information should be read in conjunction with the financial statements and the
notes thereto presented elsewhere in this Prospectus.
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Nine Months Ended
Year Ended December 31, September 30,
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1994 1995 1996 Pro forma 1996 1996 1997 Pro forma 1997
---- ---- ---- -------------- ---- ---- --------------
(dollars in thousands, except per share data)
Statement of Operations Data:
Revenues from investment services......... $828 $857 $1,523 $1,523 $999 $1,724 $1,693
Revenues from insurance services.......... 191 152 347 6,345 286 3,216 4,800
Total revenues....................... 1,031 1,020 1,885 7,884 1,297 4,981 6,535
Investment services expense............... 749 787 1,325 1,325 865 1,485 1,485
Insurance services expense................ (44) 33 13 6,207 32 2,867 4,430
General and administrative expenses....... 347 431 663 663 512 630 629
------ ------ ------ ------ ------ ------ ------
Total expenses....................... 1,051 1,251 2,001 8,195 1,409 4,982 6,544
Loss from continuing operations........... (20) (234) (120) (311) (112) (1) (10)
Net loss.................................. (31) (210) (171) (340) (149) (127) (109)
Net loss per share........................ (.08) (.18) (.12) (.18) (.11) (.07) (.06)
Other Data:
Insurance agents.......................... 839 1,127 1,271 1,271 1,249 1,341 1,341
States represented................... 32 36 38 38 38 39 39
Securities representatives................ 97 112 105 105 105 125 125
States represented................... 10 13 23 23 23 24 24
Insurance in force........................ -- -- -- $1,019,000 --$978,000 $978,000
Premium income............................ -- -- -- 4,154 -- 2,092 3,112
Funds under management
Discretionary........................ -- -- 4,600 4,600 2,900 13,400 13,400
Non-discretionary.................... 18,900 45,200 67,700 67,700 59,000 89,400 89,400
December 31, 1996 September 30, 1997
Actual Pro forma Actual As Adjusted
(dollars in thousands)
Balance Sheet Data:
Cash and equivalents...................... $118 $1,368 $1,426 $7,451
Amounts on deposit with Insurers.......... -- 28,095 28,894 28,894
Total assets.............................. 543 35,689 35,586 41,611
Policy reserves........................... -- 33,436 33,258 33,258
Total debt................................ 39 39 48 48
Shareholders' equity...................... 351 1,346 1,310 7,335
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FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this Prospectus, words such
as "anticipate," "believe," "estimate," "expect," "intend," "should" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the operations, results of operations,
liquidity and growth strategy of the Company, including competitive factors and
pricing pressures, changes in legal and regulatory requirements, interest rate
fluctuations, and general economic conditions, as well as other factors
described in this Prospectus. Should one or more of the risks materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein as anticipated, believed, estimated,
expected or intended.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing shares of Common Stock offered hereby. Each
of the following factors may have a material adverse effect on the Company's
operations, financial results, financial condition, liquidity, market valuation
or market liquidity in future periods.
Historical Loss From Operations
The Company began operations in 1991 and has experienced losses from
operations in five of the last six years. For the year ended December 31, 1996,
the Company incurred a net loss of $170,891, and as of such date, the Company's
accumulated deficit in retained earnings was $531,246. For the nine months ended
September 30, 1997, the Company incurred a net loss of $126,559, and the Company
anticipates that it will incur a net loss in the fourth quarter of 1997. The
Company will continue to incur substantial costs related to its continued
growth, and there can be no assurance that the Company will achieve targeted
levels of growth or profitability in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
Regulatory Exposure
The Company operates in two of the most highly regulated industries in
the United States, the insurance and securities businesses. Detailed
restrictions and guidelines promulgated and enforced by such regulatory agencies
govern virtually every aspect of the Company's operations, as well as the
operations of Rushmore Securities and Rushmore Advisors. Violations of these
rules and regulations can result in fines, suspension or revocation of licenses
and other disciplinary action and could have a material adverse effect on the
success and profitability of the Company. The regulatory agencies involved
include the Securities and Exchange Commission ("SEC"), the National Association
of Securities Dealers, Inc. ("NASD"), the Texas State Securities Board and other
state securities and insurance regulators. For example, the SEC and NASD require
Rushmore Securities, a broker/dealer, to supervise its sales representatives'
conduct and to maintain a minimum liquid net worth at all times and impose,
among others, "sales practices" rules which govern methods of selling and
conduct of sales representatives, investor suitability rules, escrow funds
handling, and stringent record keeping and retention requirements.
Rushmore Life is subject to laws and regulations of the Arizona
Department of Insurance applicable to life insurance companies, including laws
and regulations requiring approval of changes in the control of Rushmore Life,
approval of transactions between Rushmore Life and its affiliates and
limitations on the payment of dividends.
Rushmore Agency is subject to the laws and regulations of the Texas
Department of Insurance and other states in which it conducts business,
including laws and regulations regarding agent background qualifications,
licensing, sales practices and relations with insurance companies it represents.
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The Company's emphasis on growth coupled with the challenges of
managing its business could result in increased exposure to regulatory
violations. Although the Company has formal controls in effect to prevent
violation of applicable rules and regulations, there can be no assurance that
these controls will be sufficient to manage a larger and more complex business
in the future. See "Business--Regulation."
Competition
The securities and insurance industries are highly competitive, with
many large, diversified, well-capitalized brokerage firms, financial
institutions and other organizations. The Company, in many instances, competes
directly with such organizations for market share of commission dollars, and
qualified registered representatives and insurance agents. While the Company
believes that its relations with its independent agents and representatives are
generally good, there can be no assurance that the Company will continue to be
able to maintain these relationships, that a majority of its agents and
representatives will continue to be affiliated with the Company or that the
Company will continue to be able to attract and retain quality independent
agents and representatives. If a significant number of the Company's agents and
representatives cease to be affiliated with the Company, the Company's financial
condition and results of operations would be adversely affected. Many of the
Company's competitors are better capitalized, have more established reputations,
greater marketing experience or prowess, better relationships with investment
product suppliers or have other competitive advantages. Competitive pressures
may adversely affect the Company and its prospects. See "Business--Competition."
Integration of Unspecified Acquisitions
A material element of the Company's growth strategy is to expand its
existing business through strategic acquisitions. While the Company continuously
evaluates opportunities to make strategic acquisitions, it has no present
commitments or agreements with respect to any material acquisitions. There can
be no assurance that the Company will be able to identify and acquire such
companies or that it will be able to successfully integrate the operations of
any company it acquires. Further, any acquisition may initially have an adverse
effect upon the Company's results while the acquired business is adapting to the
Company's management and operating practices. There can be no assurance that the
Company's personnel, systems, procedures, and controls will be adequate to
support the Company's growth. In addition, there can be no assurance that the
Company will be able to establish, maintain or increase profitability of an
entity once it has been acquired. There can be no assurance that the Company
will be able to obtain adequate financing for any acquisition, or that, if
available, such financing will be on terms acceptable to the Company. See "The
Company."
Dependence on Key Personnel
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including particularly D.
M. Moore, Jr., the Company's Chief Executive Officer, and Jim W. Clark,
President of Rushmore Securities. The loss of the services of any key employee
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows. The Company has not obtained
key man life insurance on the lives of any individual other than Mr. Moore. The
Company has entered into three year employment contracts with Mr. Moore and Mr.
Clark, but the Company has not entered into employment agreements with any of
its other employees. The Company's future success and plans for growth also
depend on its ability to attract, train and retain skilled personnel in all
areas of its business. See "Management."
Shares Eligible for Future Sale
Sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. Upon completion of this Offering, the Company will have a maximum of
3,356,664 shares outstanding. Of these shares, the maximum of 1,250,000 shares
offered hereby will be freely tradeable without restriction or registration
under the Securities Act of 1933 (the "Securities Act") by persons other than
"affiliates" of the Company, as defined under the Securities Act. The remaining
2,106,664 shares of Common Stock will be "restricted securities" as that term is
defined by Rule 144 as promulgated under the Securities Act. Upon the closing of
the Offering, the Company will have options and warrants outstanding to purchase
an aggregate additional 213,573 shares of Common Stock. See "Shares Eligible for
Future Sale," "Description of Capital Stock" and "Principal Shareholders."
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Under Rule 144, the Company believes that the earliest date on which
any of the shares of its Common Stock currently outstanding will be eligible for
sale under Rule 144 is 90 days following the completion of this Offering. All
executive officers and directors and certain shareholders collectively owning
1,583,603 shares of Common Stock in the Company have executed lock-up agreements
restricting the transfer and sale of Common Stock. Pursuant to these
restrictions, the holders of such restricted shares, including all of the
Company's executive officers and directors, have agreed that they will not,
directly or indirectly , offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract to sell, pledge, grant of any options to
purchase or sale or disposition) of any shares of Common Stock or other capital
stock of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, on behalf of
the Underwriters, for a period of 180 days from the date of this Prospectus.
Prior to this Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
Absence of Prior Market
The public offering price of the Common Stock has been determined
solely by negotiations between the Company and the Representative based on
several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. Among the factors considered in determining the
price were the Company's current financial condition and prospects, market
prices of similar securities of comparable publicly traded companies, and the
general condition of the securities market. However, the public offering price
of the Common Stock does not necessarily bear any relationship to the Company's
assets, book value, earnings or any other established criterion of value.
There has been no public market for the Common Stock prior to the
Offering, and there can be no assurance that an active trading market will
develop or be sustained after completion of the Offering or that the market
price of the Common Stock will remain at or above the public offering price. In
the event that the Company's operating results are below the expectations of
public market analysts and investors in one or more future periods, it is likely
that the price of the Common Stock will be materially adversely affected. In
addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of equity securities of many
companies and that often have been unrelated to the operating performance of
such companies. General market fluctuations may also adversely affect the market
price of the Common Stock. See "Underwriting."
No Commitment to Purchase Common Stock; Deposits of Subscriptions
The Underwriters, in selling the Common Stock, are acting as agents of
the Company on a "best efforts" basis. The Underwriters are only obligated to
use their best efforts to sell the Common Stock, and the Company will not
receive any proceeds of the Offering unless the Underwriters sell shares equal
to the minimum Offering. If the minimum Offering is not sold, potential
investors will lose the use of their funds for the Offering period, and any
extension thereof, without receiving any consideration thereof, although the
funds invested by them will be returned.
Possible Delisting of Common Stock from Nasdaq SmallCap Market
Nasdaq has implemented changes to the standards for companies to remain
listed on the SmallCap Market, including, without limitation, new corporate
governance standards, a new requirement that a listed company have net tangible
assets of $2,000,000, market capitalization of $35,000,000 or net income of
$500,000 and other qualitative requirements. The Company has applied for listing
of its Common Stock on the Nasdaq SmallCap Market, subject to completion of this
Offering. There can be no assurance, however, that an active trading market will
develop or that if such a market is developed that it will be sustained. If the
Company is unable in the future to satisfy the requirements for continued
quotation
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on the Nasdaq SmallCap Market, trading in the Common Stock offered hereby would
be conducted in the over-the-counter market in what are commonly referred to as
the "pink sheets" or on the NASD Electronic Bulletin Board. As a result, an
investor may find it more difficult to dispose of or obtain accurate quotations
as to the price of the Common Stock offered hereby.
Exercise of Representative's Warrants
In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, warrants (the "Warrants") to purchase
an aggregate of 50,000 shares of Common Stock. The Warrants will be exercisable
for five years after the date of this Prospectus at an exercise price of 110% of
the initial price to public set forth on the cover page of this Prospectus. To
the extent that any of the Warrants are exercised, the ownership interest of the
Company's shareholders may be diluted. The Company also has granted registration
rights to the Underwriters with respect to the 50,000 shares of Common Stock
issuable upon exercise of the Warrants.
Over-the-Counter Market; Penny Stock Trading Rules
The Common Stock will be traded in the over-the-counter market and may
be subject to the "penny stock" trading rules. The over-the-counter market is
characterized as volatile in that securities traded in such market are subject
to substantial and sudden price increases and decreases and at times price (bid
and asked) information for such securities may not be available. In addition,
when there is a limited number of market makers (a dealer holding itself out as
ready to buy and sell the securities on a regular basis), there is a risk that
the dealer or group of dealers may control the market in the security and set
prices that are not based on competitive forces and the available offered price
may be substantially below the quoted bid price.
Generally, at any time the bid price of the Common Stock in the
over-the-counter market is less than $5.00, the Company's equity securities will
be subject to the "penny stock" trading rules, unless the Company meets certain
other exemptions under the "penny stock" trading rules. The "penny stock"
trading rules impose additional duties and responsibilities upon broker-dealers
and salespersons effecting purchase and sale transactions in such equity
securities of the Company, including determination of the purchaser's investment
suitability, delivery of certain information and disclosures to the purchaser,
and receipt of a specific purchase agreement from the purchaser prior to
effecting the purchase transaction. Compliance with the "penny stock" trading
rules affect or will affect the ability to resell the Common Stock by a holder
principally because of the additional duties and responsibilities imposed upon
the broker-dealers and salespersons recommending and effecting sale and purchase
transactions in such securities. In addition, many broker-dealers will not
effect transactions in penny stocks, except on an unsolicited basis, in order to
avoid compliance with the "penny stock" trading rules. Consequently, the "penny
stock" trading rules may materially limit or restrict the number of potential
purchasers of the Common Stock and the ability of a holder to resell the
Company's equity securities. See "Underwriting."
Lack of Dividends
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company intends to retain profits, if any,
to fund growth and expansion. See "Dividend Policy."
Dilution
The principal shareholders of the Company have acquired Common Stock at
a cost per share that is significantly less than that at which the Company
intends to sell the Common Stock in this Offering. Therefore, an investment in
the Common Stock offered hereby will result in the investors experiencing
immediate and substantial dilution in net tangible book value of $3.68 per share
of Common Stock, or 66.9%, as a result of the Offering. See "Dilution."
Anti-Takeover Provisions
The Company's Articles of Incorporation and Bylaws may make it difficult to
effect a change in control of the Company and replace incumbent management. See
"Description of Securities--Anti-Takeover Provisions." The Articles
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of Incorporation authorize the Board of Directors to issue Preferred Stock in
classes or series, and to determine voting, redemption and conversion rights and
other rights related to such class or series of Preferred Stock that, in some
circumstances, could have the effect of preventing a merger, tender offer or
other takeover attempt which the Company's Board of Directors opposes. The
Company's directors are elected for three-year terms, with approximately
one-third of the Board standing for election each year, which may make it
difficult to effect a change of incumbent management and control. Further,
Rushmore Life is regulated by the Arizona Department of Insurance, and no change
of control of the Company could occur without the approval of that department.
See "Description of Securities--Anti-Takeover Provisions", "--Preferred Stock",
"--Classified Board" and "Business--Regulation."
THE COMPANY
The Company was incorporated in September 1990 and began operations in
March 1991. The Company's growth strategy has emphasized acquisitions of
businesses and their personnel. Since 1991, the Company has acquired the stock
or assets of four companies totaling more than $35 million in assets and 206
employees and agents. The Company's securities business was acquired in 1991 in
two separate transactions by purchasing all of the common stock of Ken Davis
Securities, Inc. and the assets of Discount Securities of the Southwest, Inc. In
June 1994, Rushmore acquired a 20% interest in the holding company of Rushmore
Life Insurance Company (then known as First Financial Life Insurance Company)
("Rushmore Life") and completed the acquisition of the entire company by merger
in April 1997 in exchange for 508,144 shares of Common Stock and $137,900.
Rushmore acquired the Wesley Financial Group in June 1995, an insurance agency
marketing organization, in exchange for 50,280 shares of Common Stock. A diagram
of the organizational structure of the Company is as follows:
Rushmore Financial Group, Inc.
-------------------------------------------------
Investment Services Insurance Services
(1)
Rushmore Rushmore Rushmore Rushmore Life
Investment Securities Insurance Insurance
Advisors, Inc. Corporation Services, Inc. Company
- -------------------- -------------------- ------------------- ---------------
- ---------------
(1) All subsidiaries are wholly owned, except Rushmore Insurance Services,
Inc., which is owned by D. M. Moore, Jr., the Company's Chairman and
Chief Executive Officer, because the Texas Insurance Code prohibits life
insurance agencies to be owned by corporations. However, pursuant to an
Overhead Services Agreement, all revenues and expenses of Rushmore
Insurance Services, Inc. are passed through to the Company as permitted
by insurance
10
<PAGE>
regulations. In addition, Mr. Moore has granted the Company an irrevocable
option for the Company to appoint any other qualified person to acquire the
agency on its behalf.
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Common
Stock will be $3,495,000 if the minimum number of shares offered pursuant to the
Offering is sold and $6,025,000 if the maximum number of shares offered pursuant
to the Offering is sold. If the minimum number of shares offered pursuant to the
Offering is sold, the Company intends to use the net proceeds of this Offering
(i) to contribute $1,500,000 to $2,000,000 to Rushmore Agency to support the
addition of new agents; (ii) to contribute $300,000 to Rushmore Life's capital
surplus in order to support the growth in new insurance business; (iii) to
contribute $1,000,000 to Rushmore Securities to support the addition of new
representatives; and (iv) to contribute $500,000 to Rushmore Advisors to add new
marketing and advisory personnel. The balance of the proceeds, if any, will be
used for operating capital and general corporate purposes. Assuming that the
minimum number of shares offered pursuant to this Offering is sold, the Company
believes that the proceeds of this Offering together with funds generated from
operations will meet the Company's anticipated funding needs at least through
the end of 1998. If the maximum number of shares offered pursuant to the
Offering is sold, the Company intends to use the net proceeds of this Offering
in addition to the foregoing items for working capital and general corporate
purposes. In addition, the Company has evaluated and may continue to evaluate
the acquisition of additional insurance and securities companies and other
complementary financial services businesses, and may apply certain of the net
proceeds not required to meet operating needs to such acquisitions.
DIVIDEND POLICY
The Company paid one dividend on its Common Stock in March 1995 in the
amount of $0.08 per share, and pays dividends quarterly to the holders of its
Preferred Stock at a rate of 9% per year. The Company has no current plans to
pay any future cash dividends on the Common Stock. Instead, the Company intends
to retain all earnings, other than those required to be paid to the holders of
the Preferred Stock, to support the Company's operations and future growth. The
payment of any future dividends on the Common Stock will be determined by the
Board of Directors based upon the Company's earnings, financial condition and
cash requirements, possible restrictions in future financing agreements, if any,
restrictions in the Certificates of Designation for the Preferred Stock,
business conditions and such other factors deemed relevant.
DILUTION
As of September 30, 1997, the net tangible book value of the Company was
$772,827 or $0.31 per share of Common Stock. Net tangible book value per share
of the Company is the amount of its tangible assets less its total liabilities,
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale of 1,250,000 shares of Common Stock at the offering price per share
of $5.50, and the application of the net proceeds therefrom, the pro forma net
tangible book value per share would increase from $0.62 to $1.82. This
represents an immediate increase in net tangible book value of $1.51 per share
to current holders of Common Stock, and an immediate dilution of $3.68 per
share, to new investors, as illustrated in the following table.
Assumed Offering price per share $5.50
Net tangible book value per share before this Offering 0.31
Increase per share attributable to new investors 1.51
Adjusted net tangible book value per share after this Offering 1.82
-----
Dilution per share to new investors $3.68
=====
The following table summarizes, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by the existing
shareholders and the number of shares of Common Stock purchased from the Company
and the total consideration paid by the new investors purchasing shares of
Common Stock in this Offering before deduction of the underwriting discounts and
commissions and offering expenses payable by the Company:
11
<PAGE>
Average
Shares Purchased Total Consideration Per
Number Percent Amount Percent Share
Existing Shareholders 2,106,664 62.8 $1,909,631 24.1 .91
New Shareholders 1,250,000 37.2 6,025,000 75.9 5.50
--------- -------- ----------- --------
Total 3,356,664 100.00 $7,934,631 100.00
========= ====== ========== ======
CAPITALIZATION
The following table sets forth both the short-term and long-term debt
and capitalization of the Company as of September 30, 1997 on an actual basis
and as adjusted to reflect the receipt of the estimated net proceeds from the
sale by the Company of 750,000 shares of Common Stock pursuant to this Offering
at the minimum level and 1,250,000 shares of Common Stock at the maximum level
at an assumed initial public offering price of $5.50 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses, and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
<TABLE>
<S> <C> <C>
September 30, 1997
As Adjusted
Actual(1) Minimum Maximum
(in thousands, except share data)
Total debt:........................................................... 48 48 48
Stockholders' equity (deficit):
Preferred Stock, 9% cumulative, $10 par value, 4,300 shares issued
and outstanding..................................................... 43 43 43
Preferred Stock, Series A Cumulative, $10 par value, 13,792 shares
issued and outstanding....................................... 138 138 138
Common Stock, $0.01 par value; 10,000,000 shares authorized;
2,481,593 shares issued and outstanding, actual; 3,231,593 shares
issued and outstanding, as adjusted at the minimum level; 3,731,593
shares issued and outstanding, as adjusted at the
maximum level................................................ 25 32 37
Additional paid-in capital.......................................... 1,934 5,422 7,947
Accumulated deficit................................................. (658) (658) (658)
Shareholder loans and due from affiliate............................ (172) (172) (172)
------- ------- -------
Total shareholders' equity................................................ 1,310 4,805 7,335
------- ------- -------
Total capitalization...................................................... $1,310 $4,853 $7,383
======= ======= =======
- ---------------
(1) Derived from the Company's unaudited consolidated financial statements included elsewhere in this Prospectus. See
"Financial Statements."
</TABLE>
12
<PAGE>
SELECTED AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information should be read in
conjunction with the financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The information for the years
ended December 31, 1995 and 1996, are derived from the audited financial
statements included elsewhere in this Prospectus. The information for the year
ended December 31, 1994 and the nine months ended September 30, 1997 and the pro
forma information are derived from unaudited financial statements that are
included elsewhere in this Prospectus and that include, in the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of the information set forth therein. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of results for
the year ending December 31, 1997.
<TABLE>
<S> <C> <C> <C>
Nine Months Ended
Year Ended December 31, September 30,
-----------------------------------------------------------------------
1994 1995 1996 Pro forma 1996 1996 1997 Pro forma 1997
---- ---- ---- -------------- ---- ---- --------------
(in thousands except per share data)
Statement of Operations Data:
Revenues from investment services......... $828 $857 $1,523 $1,523 $999 $1,724 $1,693
Revenues from insurance services.......... 191 152 347 6,345 286 3,216 4,800
Total revenues............................ 1,031 1,020 1,885 7,884 1,297 4,981 6,535
Investment services expense............... 749 787 1,325 1,325 865 1,485 1,485
Insurance services expense................ (44) 33 13 6,207 32 2,867 4,430
General and administrative expenses....... 347 431 663 663 512 630 629
------ ------ ------ ------ ------ ------ ------
Total expenses............................ 1,051 1,251 2,001 8,195 1,409 4,982 6,544
Loss from continuing operations........... (20) (234) (120) (311) (112) (1) (10)
Net loss.................................. (31) (210) (171) (340) (149) (127) (109)
Net loss per share........................ (.08) (.18) (.12) (.18) (.11) (.07) (.06)
Other Data:
Insurance agents.......................... 839 1,127 1,271 1,271 1,249 1,341 1,341
States represented................... 32 36 38 38 38 39 39
Securities representatives................ 97 112 105 105 105 125 125
States represented................... 10 13 23 23 23 24 24
Insurance in force........................ -- -- -- $1,019,000 --$978,000 $978,000
Premium income............................ -- -- -- 4,154 -- 2,092 3,112
Funds under management
Discretionary........................ -- -- 4,600 4,600 2,900 13,400 13,400
Non-discretionary.................... 18,900 45,200 67,700 67,700 59,000 89,400 89,400
December 31, 1996 September 30, 1997
Actual Pro forma Actual As Adjusted
(dollars in thousands)
Balance Sheet Data:
Cash and equivalants...................... $118 $1,368 $1,426 $7,451
Amounts on deposit with Insurers.......... -- 28,095 28,894 28,894
Total assets.............................. 543 35,689 35,586 41,611
Policy reserves........................... -- 33,436 33,258 33,258
Total debt................................ 39 39 48 48
Shareholders' equity...................... 351 1,346 1,310 7,335
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information presented in this section should be read in conjunction
with the information contained in the financial statements, including the notes
thereto, and the other financial statements appearing elsewhere in this
Prospectus.
General
Rushmore is a financial services holding company that provides a wide range
of investment and insurance services and products to its clients through a
national distribution network of more than 1,450 securities representatives and
insurance agents in 39 states.
The Company has posted net losses from operations in all but one year of
its existence, when in 1993 it made a small net profit. As of September 30,
1997, it had a cumulative deficit in its retained earnings of $657,805. The
Company has emphasized the building of a national distribution network of
representatives and agents and has developed an infrastructure to effect sales
of investment and insurance products and services. The Company has achieved
growth in total revenues in each year of its existence. (Excluding discontinued
operations, revenues have grown each year execept from 1994 to 1995.) Management
believes it has established the necessary corporate infrastructure to increase
its revenues without adding significant additional overhead. The Company has
financed its growth through revenues from operations and sales of its equity
securities to its officers, employees and independent agents.
One of the principal indicators of the Company's ability to compete
effectively among the many providers of financial services and products is the
number of agents and representatives it is able to attract. The number of these
persons has grown steadily, and the proceeds of this Offering will provide the
operating capital needed to increase this base. Growth in the Company's sales
force has also been accomplished through acquisitions. See "The Company" and
"Use of Proceeds." The number of agents and representatives has increased as
shown by the following table:
<TABLE>
NUMBER OF AGENTS AND REPRESENTATIVES
<S> <C> <C>
<C> <C>
December 31, September 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Insurance agents 481 645 839 1,127 1,271 1,341
Securities representatives 48 71 97 112 105 125
Another priority for the Company has been to increase the productivity
of its representatives and agents. It has accomplished this by allowing
attrition of nonproducing sales personnel and by equipping its producing agents
and representatives with training, technology and a wide range of investment and
insurance products. The productivity of its agents and representatives, as
measured by the average amount of gross commisions per person, is indicated by
the following table. Gross commissions for purpose of this table includes the
dollar amount of all management fees, premiums or gross commissions produced
annually by the top 25 agents and representatives, who account for more than 70%
of all commissions each year:
AVERAGE COMMISSIONS PER TOP PRODUCER
Years Ended Nine Months Ended
December 31, September 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
$36,134 $37,138 $51,500 $48,382 $59,584 $57,528
</TABLE>
14
<PAGE>
Results of Operations
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenues. Total revenues increased 284% from $1,296,492 in the first nine
months of 1996 to $4,980,984 during the first nine months of 1997. The increase
included a $724,474 (72.5%) increase in investment services revenues, resulting
from additional representatives, revenues generated from the business of
Rushmore Advisors and favorable equity markets during 1997; a $212,345 (74.3%)
decrease in insurance services revenues from agency operations as a result of a
one-time gain from the settlement of litigation for back commissions from an
Insurer in 1996 of $156,000; and $3,142,054 from the consolidated operations of
Rushmore Life following its acquisition in full in April 1997. The revenues of
Rushmore Life included $2,092,002 net premium income, representing Rushmore
Life's quota share of policy premiums paid under coinsurance agreements, and
$1,050,052 net investment income of Rushmore Life. Excluding the effect of the
Rushmore Life acquisition, the comparable revenues increased 41.8% from
$1,296,565 to $1,838,930. Revenues from insurance services from the operations
of Rushmore Agency historically are not a large amount, because the bulk of
commissions from Insurers on sales of insurance proceeds are paid directly from
the Insurers to the agents and are not recognized by Rushmore Agency.
Expenses.
Investment services expenses increased 71.7% from $864,855 to $1,485,268
primarily due to commissions paid to representatives of $1,425,141 in the 1997
interim period. The increase corresponded to the growth in revenues. Commissions
paid as a percentage of commission revenues increased to 87.9% in the first nine
months of 1997 compared to 86.0% in the first nine months of 1996. Direct
overhead associated with investment services increased 252.9% from $17,039 to
$60,127, primarily due to the net premium on an errors and omissions insurance
policy implemented in 1997, offset by increased collections from representatives
for their share of such premiums.
Insurance services expense components changed substantially due to the
consolidation of Rushmore Life beginning in April 1997. In years prior to 1997,
insurance services expenses included only the loss (or income) of the Company's
minority ownership in Rushmore Life, accounted for on the equity method. The
first three months of the interim 1997 period included an equity in subsidiary
loss, whereas the next six months included the consolidated operations of
Rushmore Life, including expense categories of benefit, claims and losses,
representing claims against policies coinsured by Rushmore Life in the amount of
$1,128,230, amortization of deferred acquisition costs of $1,041,328 and other
insurance company expenses of $697,655. Deferred acquisition costs are recorded
for purposes of generally accepted accounting principles as an asset consisting
of the commissions and other costs of underwriting a new insurance policy and
are amortized over the life of the policy. Such payments are treated as an
expense under statutory accounting principles applicable to insurance companies,
resulting in greater income under generally accepted accounting principles.
General and administrative expenses increased 23% from $511,856 to
$629,514 due to staff increases and office relocation expenses in 1997.
Operating Loss.
The Company's operating loss for the nine months ended September 30, 1997
decreased 99.1% from $112,404 to $1,011. The Company's net loss for the nine
months ended September 30, 1997 decreased 15.3% from $149,362 or $0.11 per share
to $126,559 or $0.07 per share. The net loss in the 1997 period included an
allowance for $95,393 of federal income tax that resulted from the write off of
net operating loss carry forwards following the acquisition of Rushmore Life.
Pro forma revenues and expenses for the nine months ended September 30,
1997 were $6,534,609 and $6,544,383 respectively, compared to $4,980,984 and
$4,981,995 for the actual nine months, a net operating loss difference of $9,774
pro forma compared to $1,011 actual. The principal difference is due to the
inclusion of the full nine months of revenue and expense of Rushmore Life in the
pro forma figure as though Rushmore Life had been acquired on January 1, 1996.
Pro forma results are not necessarily indicative of actual results, but are
helpful to demonstrate the full effect of an acquisition accounted for as a
purchase transaction.
15
<PAGE>
1996 Compared to 1995
Revenues.
Revenues increased 84.9% from $1,019,662 in 1995 to $1,885,492 in 1996. The
primary component of revenues in both years was commissions and other income
from investment services (84.1% of revenues in 1995 and 80.8% of revenue in
1996). The increase during 1996 included a 77.7% increase in investment
services, and a 128.9% increase in insurance services. The growth in revenue was
due to an increase in producing representatives, favorable market conditions,
and the settlement proceeds described above.
Expenses.
Investment services expenses included commissions paid to representatives,
which increased 74.0% from $713,308 to $1,241,476, resulting from increased
sales of securities. Commission expense as a percentage of commission revenues
was 83.1% in 1996 and 83.2% in 1995. Direct overhead increased 13.2% from
$74,058 to $83,803 due primarily to licensing fees to expand operations to
additional states.
Insurance services expense in both years consisted solely of the equity in
subsidiary loss, which decreased 61.1% from $33,184 to $12,893.
General and administrative expenses increased 54.0% from $430,551 to
$663,172 due primarily to legal fees and expenses associated with the litigation
mentioned above
Operating Loss.
Operating loss decreased 49.9% from $231,439 to $115,852. The Company's net
loss decreased 18.7% from $210,221 or $0.18 per share in 1995 to $170,891 or
$0.12 per share in 1996. Net loss in 1996 of $170,891 included a loss from
discontinued operations of $50,504 compared to income from discontinued
operations of $24,207 in 1995.
1995 Compared to 1994
Revenues.
Revenues declined 1.1% from $1,031,421 in 1994 to $1,019,662 in 1995. The
primary component of revenues in both years was revenue from investment services
(80.3% of revenues in 1994 and 84.1% of revenues in 1995). The 3.5% increase in
revenues from investment services from 1994 to 1995 was offset by a decrease of
20.4% in revenues from insurance services, due to a disruption in revenues
following a change of Insurers.
Expenses.
Investment Services expenses consist of commissions paid to
representatives and direct overhead related to Rushmore Securities and Rushmore
Advisors. Commissions increased 6.1% from $672,284 to $713,308 corresponding
generally to the increase in sales of securities. Direct overhead decreased 2.9%
from $76,235 to $74,058.
Insurance Services expenses in 1994 and 1995 consisted of the equity in
subsidiary loss attributed to the Company's 25% interest in Rushmore Life during
1994 and 1995, which decreased from a $44,373 profit in 1994 to a $33,184 loss
in 1995, resulting from a chargeback of a litigation settlement in 1995 from an
Insurer.
General and administrative expenses increased 24.1% from $346,973 in 1994
to $430,551 in 1995 due to increased staffing and upgrading of computer hardware
and software.
16
<PAGE>
Operating Loss.
Operating loss increased 1,069% from $19,798 in 1994 to $231,439 in 1995.
The Company's net loss increased 585.3% from $30,676 or $0.08 per share in 1994
to $210,221 or $0.18 per share in 1995. Operating loss in 1994 was offset by a
$24,207 net profit from discontinued operations.
Discontinued Operations
The Company experienced net losses totaling $61,925 during the three years
and nine months ended September 30, 1997 from its mortgage lending operation,
which was closed in March 1997. The revenues and expenses of such operations are
combined and reflected as a loss from discontinued operations.
Liquidity
Cash Flows from Operating Activities. The Company's net loss of $170,891
for the year ended December 31, 1996 was offset by non-cash depreciation expense
and equity of loss in subsidiary resulting in a net cash flow used by operating
activities in the amount of $79,558. For the nine months ended September 30,
1997, the net loss of $126,559 was offset by numerous items from the
consolidation of Rushmore Life following its acquisition in a transaction
accounted for as a purchase in April 1997, and the net cash flows provided by
operating activities was $342,856.
Cash Flows From Investing Activities. The Company acquired $26,749 of fixed
assets during 1996 consisting primarily of office furniture and equipment. In
the nine months ended September 30, 1997, the Company purchased $50,373 of
capitalized equipment and recorded $119,353 for the purchases of the remaining
interest in Rushmore Life.
Cash Flows from Financing Activities. The Company raised $251,180 during
the year ended December 31, 1996, from the proceeds of sales of Common and
Preferred Stock, including $68,572 from its officers and directors. During the
nine months ended September 30, 1997, the Company added $1,182,790 to
shareholders' equity resulting primarily from the acquisition for Common Stock
of the remaining 75% ownership of Rushmore Life. The remaining changes in both
periods resulted from loan principal payments, additional borrowings and
dividends.
Credit Facilities and Resources. The Company's cash and short term
investments at September 30, 1997 was $1,426,363, of which $1,290,170 is held by
Rushmore Life and is not immediately available to the Company for operating
needs. The Company will be entitled to a dividend from Rushmore Life after
January 1, 1998 in an amount equal to Rushmore Life's net profit on a statutory
accounting basis. As of September 30, 1997, such profit was $192,273. The
Company is entitled to receive monthly management fee payments from Rushmore
Life equal to $14,000 plus expenses directly attributable to Rushmore Life. The
Company does not have any unused lines of credit available to it and must rely
on the proceeds of securities sales and operating revenue to fund its liquidity
requirements. The Company believes that the proceeds of the Offering and
revenues from operations during 1998 will be adequate to meet its cash needs
through the end of 1998.
The Company intends to use the net proceeds from this Offering to invest
$300,000 in Rushmore Life's capital surplus, allocate $1,500,000 to $2,000,000
to Rushmore Agency to support the addition of new agents, allocate $1,000,000 to
Rushmore Securities to support the addition of new representatives, allocate
$500,000 to Rushmore Advisors to add new marketing and advisory personnel, and
use the balance used to provide additional operating capital and fund possible
acquisitions. See "Use of Proceeds".
The Company has historically grown through acquisitions and will continue
to review companies for possible acquisition. Any such future acquisitions will
be financed through Company securities or new sources of funding, although
certain proceeds of this Offering may be applied to fund acquisitions if they
are not otherwise required to meet the Company's basic cash needs.
17
<PAGE>
BUSINESS
Rushmore is a financial services holding company that provides a wide range
of investment and insurance services and products to its clients through a
national distribution network of more than 1,450 securities representatives and
insurance agents in 39 states. The Company believes that it is well positioned
to take advantage of demographic trends in the aging of America and the
increasing overlap of investment services with other financial security
products. The Company's activities in these two complementary sectors of the
financial services industry, investment services and insurance services, allow
Rushmore to provide a full range of financial services to its clients and
enhance the cross-selling opportunities of its select product lines.
The Company's investment services business consists of securities brokerage
services, mutual fund distribution, variable life insurance and annuities sales
and other financial services offered by Rushmore Securities Corporation
("Rushmore Securities"), which has 125 registered representatives in 24 states.
In addition, Rushmore Investment Advisors, Inc. ("Rushmore Advisors") provides
fee-based advisory services, using a proprietary asset allocation program known
as RushMAP.
The Company's insurance services business selects and markets a wide range
of life, disability, accident and health insurance and annuity products
distributed through 16 exclusive and 1,400 independent agents of its affiliated
agency, Rushmore Insurance Services, Inc. ("Rushmore Agency"). In addition,
Rushmore Life Insurance Company ("Rushmore Life") acquires and coinsures up to a
50% interest in the policies written through representatives of Rushmore Agency
that are issued by full-line life insurance companies that have entered into
modified coinsurance agreements with Rushmore Life.
Growth Strategy
The Company's growth strategy focuses on expanding its national
distribution network and continually seeking out and evaluating new products and
acquisition opportunities that are consistent with the Company's objective to
provide a full range of financial products and services. Over the past ten
years, the amount invested in retirement and other financial security products
and services has grown over 185% per year. According to the Federal Reserve
Board of Governors, in 1986 the total amount invested in retirement and other
financial security products by households and non-profit organizations was
approximately $7.16 trillion, as compared to over $20.45 trillion at year end
1995, an 11% compounded annual growth rate. The Company's objective is to
capture an increasing share of the commission revenues and assets related to the
investment and insurance services industry. The key components of Rushmore's
growth strategy include:
o expanding its distribution network by recruiting and retaining high
quality and productive agents and representatives, including both
exclusive "Career Partners" insurance agents and registered
securities representatives and independent insurance agents;
o providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;
o offering incentives to its agents and employee, including favorable
commission structures, stock option plans and award programs to
attract and retain a loyal base of highly motivated personnel; and
o maintaining a modern management information system to allow its
agents and representatives to maintain an efficient and orderly flow
of sales orders;
o acquiring other insurance, securities and advisory firms and
complementary financial services companies.
Insurance Services. The Company intends to expand its coinsurance
activities with existing and new carriers, and actively seeks to acquire other
full-line life insurance companies licensed in multiple states to begin selling
the products of such companies through the Company's agency force. The Company
intends to contribute $300,000 of the proceeds of the Offering to Rushmore Life
in order to increase its capital surplus and increase the percentage of
coinsurance retained. The Company will also pursue acquisitions of blocks of
life insurance in force. There is no assurance the Company will be able to
acquire life insurance companies or blocks of business on terms acceptable to
the Company. The Company will also allocate $1,500,000 to $2,000,000 to Rushmore
Agency to support the addition of new agents.
18
<PAGE>
Securities Brokerage. Rushmore Securities's strategy is to continue its
growth by means of recruiting quality representatives, opening new branch
offices, acquiring other broker-dealers and increasing its volume of business
referred from other Rushmore subsidiaries and customers. The Company will devote
approximately $1,000,000 from the proceeds of this Offering to these expansion
plans.
Advisory Services. Rushmore Advisors' strategy is to increase its assets
under management by maximizing crossselling opportunities to clients of Rushmore
Securities and Rushmore Agency and acquiring other investment advisory firms.
Rushmore Advisors will emphasize three profit centers in these efforts: (i) the
Rushmore Managed Asset Program ("RushMAP"), (ii) estate and financial planning
for high net worth individuals, corporations and pension funds, and (iii) a
partnership investment that is structured as a "fund of funds", or a grouping of
experienced money managers selected to meet specific return objectives within a
defined risk tolerance level. The Company will devote approximately $500,000
from the proceeds of the Offering to these plans.
Investment Services
Securities Brokerage--Rushmore Securities Corporation. Rushmore Securities
provides investment services to its clients through a network of 125 registered
representatives in 24 states, as of September 30, 1997. Rushmore Securities
maintained eight branch offices. Rushmore Securities is a member of the NASD,
the Municipal Securities Rulemaking Board ("MSRB") and the Securities Investors
Protection Corporation ("SIPC").
Rushmore Securities functions as a full commission retail broker for
clients to whom it makes trading recommendations, on a discretionary or
non-discretionary basis, and as a discount broker as to unsolicited orders from
its customers and from trades initiated by other Rushmore subsidiaries. It also
sells mutual funds and variable annuity products.
Rushmore Securities acts as a broker/dealer for a full line of securities
products, including stocks, bonds, mutual funds, variable annuities and
certificates of deposit. It is known as a "fully disclosed" originating broker,
meaning that it does not hold clients' funds, does not clear clients' trades on
securities markets, and is not a member of any stock exchange. Instead, it
forwards all clients' trades to one of the clearing firms with which it
maintains a contractual relationship to execute such trades on the appropriate
market. This arrangement allows the Company to reduce some of the risk
associated with trading and the amount of net capital it is required to maintain
under applicable securities laws.
All but 15 of Rushmore Securities' registered representatives were also
licensed as insurance agents with Rushmore Agency. All such persons are
employees of Rushmore Securities and are compensated on the basis of commissions
on sales of investment securities. Each representative executes an agreement
with Rushmore Securities to sell securities to their clients exclusively through
Rushmore Securities and comply with Rushmore Securities' rules and procedures
and all applicable federal and state laws. Rushmore Securities supervises the
efforts of these representatives through 31 registered securities principals and
branch office managers, who earn commissions and overrides on sales by persons
under their supervision.
Rushmore Securities is continually seeking to add new representatives,
especially those with prior brokerage experience and an established client base.
Rushmore Securities believes it competes effectively for registered
representatives based on its favorable commission structure, its ability to
provide its representatives access to all securities markets and research
reports from leading analysts, and the opportunity for representatives to earn
stock options in the Company. Through its affiliate, Rushmore Advisors, Rushmore
Securities also provides its representatives the flexibility to generate
commission-based or fee-based income.
Investment Advisory Services--Rushmore Investment Advisors, Inc. The
Company formed Rushmore Advisors in January 1996, in order to provide fee-based
investment advisory and money management services to its clients. As of
September 30, 1997, Rushmore Advisors provided services to 59 clients in six
states, with more than $18 million under management.
19
<PAGE>
Rushmore Advisors enters into investment advisory agreements with its
clients that outline the services to be provided and the compensation to be
paid. Such agreements are required by regulatory authority to contain various
provisions, including the right of the client to terminate the agreement at
will. The agreements in force provide for annual compensation to Rushmore
Advisors of up to 2.5% of funds under management.
The investment philosophy of Rushmore Advisors is to provide superior
returns without materially increasing the associated investment risk. In
equities, Rushmore Advisors seeks to achieve long-term capital appreciation by
limiting its selections to listed stocks trading at more than $12 per share,
with consistent records of earnings growth and strong balance sheets. With fixed
income securities, Rushmore Advisors seeks income and preservation of capital
through a diversified portfolio for each client considering its income needs and
risk tolerance.
Rushmore Advisors does not execute trades of the clients' investment
transactions, nor does it hold its clients' funds or securities. As of September
30, 1997, it had discretionary authority to direct the investments of
approximately 55% of the funds under its management. The client may specify
which securities broker to use to effect its investment trades, but virtually
all trades effected by Rushmore Advisors are conducted through Rushmore
Securities, which executes such trades on a discounted basis.
Rushmore Advisors cooperates with Rushmore Securities in providing its
services to clients of both firms through the Rushmore Managed Asset Program
("RushMAP"). RushMAP is a proprietary system used to provide strategic and
tactical asset management allocation of mutual funds and equities for accounts
beginning at $100,000.
Rushmore Advisors directs its marketing efforts to high net worth
individuals, corporations and pension plans having substantial funds to invest
and who can benefit from the efforts of a professional money manager. Rushmore
Advisors seeks to obtain clients having portfolios of at least $100,000 and
believes it can fill a niche being neglected by larger money managers.
Rushmore Advisors' marketing efforts are performed by its portfolio
managers, and it does not currently employ a separate sales force. While this
limits the amount of time its personnel can spend on marketing to new clients,
it permits its managers to interact directly with potential customers for its
services. Rushmore Advisors also relies on Rushmore Agency's and Rushmore
Securities' network of brokers and agents to market the RushMAP investment
management products. The Company plans to hire a marketing officer during 1998.
Insurance Services
Rushmore Insurance Services, Incorporated. The Company markets life, health
and disability insurance and annuities to individuals and small businesses
through a network of exclusive and independent agents. The Rushmore Agency group
has primarily marketed policies under national marketing agreements with
Massachusetts General Life Insurance Company, a subsidiary of Conseco Companies
("Conseco"), Southwestern Life Insurance Company and Great Southern Life
Insurance Company, the companies with which it has entered into coinsurance
agreements (the "Insurers"). For the nine months ended September 30, 1997, the
gross premiums for insurance written with the Insurers accounted for 67% of
Rushmore Agency's total premium produced. Rushmore Agency's agents also market
policies issued by 35 other life insurance companies that have appointed
Rushmore Agency and its agents to sell on their behalf (the "Other Insurers").
Of the 38 Insurers and Other Insurers, all but three are rated "A" or better by
A.M. Best. The Company's agents are employed by or have contracts with Rushmore
Agency, which is owned by D. M. Moore, Jr., Chairman and Chief Executive Officer
of Rushmore, because the Texas Insurance Code does not permit life insurance
agencies to be owned by corporations. However, pursuant to an Overhead Services
Agreement all revenues and expenses of Rushmore Agency are passed through to the
Company as permitted by regulatory requirements. In addition, Mr. Moore has
granted the Company an irrevocable option for the Company to appoint any other
qualified person to acquire Rushmore Agency on its behalf.
Insurance Products. The Company's insurance agents sell a wide range of
insurance and annuity products issued by the Insurers and Other Insurers. These
include life insurance in the form of term life, universal life and variable
universal life; health insurance including cancer insurance, major medical,
group health; fixed and variable annuities; and group and
20
<PAGE>
individual long-term disability insurance. Agents who sell variable life and
annuity products are licensed as securities representatives with Rushmore
Securities.
Rushmore Agency has entered into an agreement with the American Financial
Freedom Association, a not-for-profit organization ("AFFA"), to be its exclusive
marketing organization for insurance services and investment services and other
benefits to AFFA members. AFFA offers its members, including Rushmore clients,
the opportunity to participate in lower cost group insurance and other benefits
of AFFA, including discounted optical and dental benefits, prescription drug
cards and consumer discounts. Rushmore Agency has also entered into a national
marketing agreement with Legion Insurance Company to market its individual and
group health insurance plans to AFFA members through the Career Partners Group.
Sales and Marketing. As of September 30, 1997, the Company either employed
or contracted with 1,341 insurance agents in 39 states. With the exception of 16
agents who are employed by the Company in its Career Partners Group, all others
are independent agents who have been appointed by Rushmore Agency, the Insurers
and Other Insurers to sell policies of the Insurers and Other Insurers as part
of Rushmore Agency's marketing organization.
In July 1997, the Company's Career Partners Group began developing
full-time, career-oriented agents to market the products and services of the
Insurers and Other Insurers on an exclusive basis. The Career Partners agents
market bundled and packaged products, primarily to individuals in the small
business and self-employed market in Texas. Rushmore Agency plans to expand the
Career Partners Group to other states.
Rushmore Agency continually seeks to recruit new agents to join its
marketing force. It recruits primarily existing licensed agents who are
dissatisfied with their current affiliations. It also recruits previously
unlicensed persons with proven sales backgrounds whom it trains to become
licensed. The Company utilizes both advertising and referrals to locate
qualified persons. Rushmore Agency is able to compete for new agents on the
basis of the quality of the insurance products it offers, the opportunity for
increased income through higher payouts and a more diversified product
portfolio, sales training, and the opportunity to participate in the Company's
Stock Option Plans. The Company has added 74 insurance agents during the past 9
months, and has terminated or lost 4 agents during such period.
Rushmore Life Insurance Company. A key feature of the Company's strategy
has been to acquire a life insurance subsidiary to capture, through coinsurance
agreements, a portion of the premiums from sales of insurance policies in
addition to commissions. The Company acquired a 20% interest in Rushmore Life in
1994, added to its ownership in 1995 and 1996, and in April 1997 completed a
merger transaction to acquire the balance of Rushmore Life in exchange for
508,144 shares of Rushmore Common Stock and $137,900. Rushmore Life is chartered
as a life reinsurance company in the State of Arizona and is not licensed in any
other state. Its business is therefore limited to coinsuring policies written by
Rushmore agents and issued by full-line life insurance companies that have
entered into modified coinsurance agreements with Rushmore Life.
Rushmore Life's coinsurance arrangements typically consist of a modified
coinsurance agreement, under which Rushmore Life receives between 33-1/3% and
50% of the premium income and associated insurance risk on policies written by
Rushmore Agency's agents. Because Rushmore Life's retention limit is $25,000 per
policy, the differential between such retention and the amount coinsured with
the Insurer is then reinsured back to the Insurer or another reinsurance
carrier. A portion of the net proceeds of the Offering will be contributed to
Rushmore Life to permit it to increase its retention limit and add new insurance
to its books. Rushmore Life earns a spread between the net coinsured premium
income and the lower reinsurance premium. In the case of the coinsurance
arrangement with the block of insurance written with Conseco, Rushmore Life is
also party to an administrative services agreement pursuant to which a
subsidiary of Conseco administers the block. Rushmore life will continue to
pursue national marketing and coinsurance agreements with other full-line life
insurance companies.
Competition
The brokerage and insurance industries are highly competitive with many
large, diversified, well-capitalized brokerage firms, financial institutions and
other organizations. The Company, in many instances, competes directly with such
organizations for market share of commission dollars, and qualified registered
representatives and insurance agents.
21
<PAGE>
Insurance Services. The Company's agency operations are intensely
competitive in all of its phases, and there are more than 2.5 million insurance
agents in the United States representing more than 1,100 life and health
insurance companies. The Company believes it is able to compete effectively on
the basis of the quality and prices of the insurance products offered by the
Insurers, its ability to incent it agents to sell the Company's products through
the Company's commission structure, administrative and marketing support,
achievement awards, management opportunities and ownership opportunities, and
the loyalty of its client base. See "Management - 1993 Option Plan."
Securities Brokerage. Rushmore Securities' sales market is characterized by
intense competition among more than 5,400 NASD member firms employing more than
500,000 registered representatives. Most of the Company's competitors are very
large, well capitalized global organizations that offer a full range of
investment products. Rushmore Securities believes it is able to compete
effectively due to Rushmore Securities' access to the same securities as larger
firms and the experience and qualification of its sales force. Rushmore
Securities believes it competes effectively for registered representatives based
on its favorable commission structure, its ability to provide its
representatives access to all securities markets and research and the
opportunity to earn stock options in the Company. In addition, Rushmore
Securities has benefited from the increase in securities trading volume during
recent years. Combined, listed companies on the New York Stock Exchange and
American Stock Exchange and NASDAQ have increased from 6,414 in 1987 to 9,272 in
1997 with market capitalization increasing from $2.67 trillion in 1987 to $10.68
trillion in 1997, according to reports published by such exchanges. Combined
average daily share volume for the New York Stock Exchange and American Stock
Exchange and NASDAQ have increased from 341 million shares in 1987 to 1.1
billion shares in 1997.
Investment Advisory. Rushmore Advisors attracts funds for management
utilizing the broad network of brokers and agents of Rushmore Insurance and
Rushmore Securities. Rushmore Advisors also utilizes a network of CPA's and
other professionals who actively market fee-based advisory services. Rushmore
Advisors markets its services emphasizing its flexible fee structure and its
investment track record, which it believes is competitive within the industry.
Rushmore Advisors has an information system that provides direct and timely
access to the world markets and information systems, as well as, a proprietary
investment management reporting system that is in compliance with the
performance reporting standards of the Association of Investment Management and
Research ("AIMR").
Employees
As of September 30, 1997, Rushmore had a total of 151 employees,
including 127 in its securities operations, 17 in its insurance services area, 2
in its advisory business, and 5 in its executive offices. A total of 22 are
located at the Company's offices in Dallas. All but seven employees are
compensated on the basis of commissions and other incentive- based compensation.
The Company is under contract with an additional 1,341 independent agents
to market life insurance in 39 states.
None of the Company's employees is represented by a union, and the Company
believes that its relationship with its employees and agents is satisfactory.
Properties
The Company leases 12,305 square feet in two offices at the Dallas Galleria
One Office Tower. The Company occupies 5,190 square feet in various branch
locations which are leased by its branch office managers. The Company believes
these facilities are adequate to meet its requirements for the foreseeable
future.
Regulation
The Company's business is subject to a high degree of regulation. The
insurance and securities businesses are two of the most highly regulated
industries in the United States, and regulatory pressures can have a direct
effect on the Company's operations.
22
<PAGE>
Insurance Regulation. Rushmore Life is subject to comprehensive state
insurance regulation by the Division of Insurance of the State of Arizona.
Additionally, Rushmore Life will be subject to regulation in any other states in
which it conducts business in the future. The powers of the Commissioner of
Insurance in Arizona and other states include the granting and revocation of
certificates of authority to transact insurance business, review of adequacy of
reserves and of guaranty funds and surplus required by statute, determination of
the form and content of required financial statements, approval of policy forms,
and review of Rushmore Life's business practices so as to ascertain that certain
standards are met. These supervisory agencies periodically examine the business
and accounts of insurers and require insurers to file detailed annual convention
statements.
Rushmore Life can also be required under the solvency or guaranty laws of
the State of Arizona to pay assessments (up to prescribed limits) to fund
liabilities of insurance companies that become impaired or insolvent. These
assessments may be abated or deferred if they would endanger the ability of
Rushmore Life to fulfill its contractual obligations. The amount of any future
assessments under these laws cannot reasonably be estimated.
Arizona and substantially all other states regulate members of insurance
holding company systems. Under the insurance holding company statute in Arizona,
the insurance authorities in such state must approve in advance the direct or
indirect acquisition of 10% or more of the voting securities of an insurance
company chartered in Arizona. Such statutes also regulate certain transactions
among affiliates, including the payment of dividends or service fees by an
insurance company to its holding company parent. In states such as Arizona,
without the consent of the state's insurance authority, an insurance company may
not pay during any year dividends to its holding company parent in excess of the
lesser of net gains from operations, which generally represent net income, or
10% of the insurance company's surplus, which generally represents paid in
capital and retain earnings.
The Company has entered into an Administrative Services Agreement with
Rushmore Life, approved by the Arizona Department of Insurance, that allows the
Company to charge a share of its overhead and all direct costs to Rushmore Life.
In the event Rushmore Life should fail to comply with applicable insurance
laws and regulations, the Commissioner of Insurance of Arizona is empowered,
depending upon the circumstances and the particular provisions in question, to
impose fines and/or penalties against Rushmore Life, suspend or revoke Rushmore
Life's certificate of authority, to direct supervision of or appoint a
conservator for Rushmore Life's property and conduct of its business or to seek
such other relief as the circumstances and interest of Rushmore Life policy
holders and creditors may require.
Rushmore Agency is subject to regulation as an insurance agency by the
Texas Department of Insurance. Such regulations includes the requirement for all
agents to pass tests and background checks. Rushmore Agency is subject to
periodic examination and can be fined, censured or even liquidated if it is
found to be in violation of applicable standards.
Securities Regulation. Rushmore Securities is subject to regulation by the
Securities and Exchange Commission, the NASD, the SIPC, the Texas State
Securities Board and the securities exchanges. The NASD and State Securities
Board regularly inspect Rushmore Securities' books and records to determine
compliance with laws applicable to securities dealers.
Investment Adviser Regulation. Depending on their size, investment advisers
are subject to regulation by the Securities and Exchange Commission or state
securities regulators. Until Rushmore Advisors has $25 million under management,
it will be regulated by the Texas State Securities Board. Such regulation covers
testing and background checks on officers and employees of the advisor; review
and approval of business methods, compensation structures and advisory
agreements; and advertising.
Legal Proceedings
The Company is engaged from time to time in routine litigation incidental
to its business. There is no pending litigation likely to have any adverse
effect on the Company's business prospects.
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MANAGEMENT
The executive officers, directors and key employees of the Company upon
completion of the Offering and their respective ages and positions are as
follows:
<TABLE>
<S> <C> <C>
Term as
Name Age Position(s) Director Expires
- ---- --- ----------- ----------------
D. M. (Rusty) Moore, Jr. 48 Chairman, President, Chief Executive Officer and Director 1999
Jim W. Clark 45 President of Rushmore Securities, Director and Secretary 2000
F. E. (Fritz) Mowery 42 President of Rushmore Advisors and Director 1998
Timothy J. Gardiner 42 Director 1999
H. Gary Curry 57 Director 1998
Mark S. Adler 43 Director 2000
James Fehleison (a) 39 Director 1999
Harlan T. Cardwell, III 41 Director 1998
Gayle C. Tinsley (a) 67 Director 2000
</TABLE>
Key Employees
- -------------
Christine E. Miller 59 Vice President of Administration
Howard M. Stein 49 Controller and Chief Financial Officer
G. A. Brunott, Jr. 47 President of Rushmore Agency
Thomas G. Coleman, Jr. 46 Vice President of Rushmore Securities
Benjamin H. Dean 34 Director of RushMAP
Richard C. Lee 32 Director of Career Partners Division
- ------------------------------
(a) Will become a director and member of Audit Committee and Compensation
Committee following the closing of the Offering.
D. M. (Rusty) Moore, Jr., is the founder and has been President of the
Company since its formation in 1990. Prior to that he was a senior vice
president and national sales director of a large insurance and securities
marketing organization.
Jim W. Clark has been President of Rushmore Securities since 1991 and
Secretary of the Company since 1993. He is a general securities registered
principal and financial operations principal and supervises all registered
representatives and branch office operations.
F. E. (Fritz) Mowery has been President of Rushmore Advisors since
January 1996. From November 1990 to September 1995, he was a senior portfolio
manager with Comerica Bank-Texas, and from September 1995 to January 1996, he
was President of Guardian Financial Management. He is a certified financial
planner.
Timothy J. Gardiner has been a director of the Company since April
1997. He has been a regional director of Managed Economics for Doctors, Inc.
since 1991, a company engaged in financial planning to members of the medical
profession.
H. Gary Curry has been a director of the Company since April 1997 and
an officer and director of Rushmore Life since 1989. He has been President of
ORBA Financial Management, Inc. since 1982, which is a financial services
marketing organization providing product and support services to financial
services professionals.
Mark S. Adler has been a director of the Company since April, 1997 and
a director of Rushmore Life since 1996. He has served as President and a
co-founder of A&R Associates, Inc., since 1984, a company that markets insurance
and investment services to Public Safety Unions throughout California.
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<PAGE>
Harlan T. (Tra) Cardwell, III has served as a director of the Company since
April 1997. He formerly served as a loan officer for Herring Bank. He is also
director of the Company's annuity division and is a certified financial planner.
James Fehleison will become a director following the Offering. He is
currently the Chief Financial Officer of First Southwest Holdings, Inc., the
parent of the Representative of the Underwriters. From 1995 to 1997, he was
Chief Financial Officer of the corporate services division of Fidelity
Investments. From 1985 to 1995, he was Senior Vice President and Controller of
Rauscher Pierce Refsnes, Inc. He is a certified public accountant.
Gayle C. Tinsley will become a director following the Offering. He has
served as a consultant to small businesses since 1988 in the areas of business
and marketing plan development and capital funding. Prior to 1988, he was Vice
President of Sales, Marketing and Technical Services of VMX Corporation, and is
a former President and Chief Executive Officer of Docutel/Olivetti Corporation.
Mr. Tinsley has held management positions with Xerox Corporation, Recognition
Equipment, Inc. and IBM Corporation.
Christine E. Miller has served as Vice President of Administration of the
Company since February 1992 and has been employed by the Company since its
inception.
Howard M. Stein has served as Controller and Chief Financial Officer of the
Company since February 1995. Prior to joining the Company, he was a Controller
for First Gibraltar Bank and FTS Life Insurance Agency, Inc. He is a certified
public accountant in the State of Texas.
G.A. (Chip) Brunott, Jr. has served as President of Rushmore Agency since
January, 1996 and as director of marketing from 1993 to 1996. He has a
background in retail sales, small business management and church and ministry
organization.
Thomas G. Coleman, Jr. has served as Vice President of Rushmore Securities
in charge of its discount brokerage division since February, 1994. Prior to that
he was a registered representative with Ellsworth Investments, Inc. Mr. Coleman
is a certified public accountant.
Benjamin H. Dean has served as director of RushMAP since July 1996. Prior
to that he was manager of advisory services for 1st Global Capital Corp. Mr.
Dean is a certified financial planner.
Richard C. Lee has served as director of Rushmore Agency's Career Partners
Division since April 1997. Prior to that, he served as President of ASA
Promotions from 1989 to 1996, a specialty advertising and promotions firm for
the telecommunications industry.
Committees of Directors
Following the completion of the Offering, the Board of Directors will
have the following committees:
Committee Members
--------- -------
Executive D. M. Moore, Jr. - Chairman
Jim W. Clark
F. E. Mowery
Audit James Fehleison - Chairman
Gayle C. Tinsley
Compensation Gayle C. Tinsley- Chairman
James Fehleison
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<PAGE>
The Executive Committee conducts the normal business operations of the
Company except for certain matters reserved to the Board of Directors. The Audit
Committee recommends an independent auditor for the Company, consults with such
independent auditor and reviews the Company's financial statements. The
Compensation Committee recommends to the Board of Directors the compensation of
officers and key employees for the Company and the granting of stock options.
Compensation of Directors
The Company pays each non-employee director a fee of $2,500 per year, plus
a meeting fee of $250 for each Board meeting attended, and automatically grants
to each director non-qualified stock options for 2,500 shares of Common Stock
per year.
Executive Compensation
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each other executive officer of the Company whose total
cash compensation for the fiscal year ended December 31, 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation
Securities
Name and Salary Bonus Other Long Term Underlying
Principal Position ($) ($) ($) Compensation Awards Options (#)
- ------------------ --------- --------- ------- ------------------- -----------
D. M. Moore, Jr. $60,000 $114,124 $ 23,823
--- ---
1997 Stock Option Plan
The Rushmore Financial Group, Inc. 1997 Stock Option Plan (the "1997 Option
Plan") provides for the grant to eligible employees and directors of options for
the purchase of Common Stock. The 1997 Option Plan covers, in the aggregate, a
maximum of 500,000 shares of Common Stock and provides for the granting of both
incentive stock options (as defined in Section 422 of the Internal Revenue Code
of 1986) and non qualified stock options (options which do not meet the
requirements of Section 422). Under the 1997 Option Plan, the exercise price may
not be less than the fair market value of the Common Stock on the date of the
grant of the option. As of September 30, 1997, options for 37,000 shares had
been granted under the 1997 Option Plan at an exercise price of $1.92 per share,
including options for 1,250 shares granted to D. M. Moore, Jr.
The Board of Directors administers and interprets the 1997 Option Plan and
is authorized to grant options thereunder to all eligible employees of the
Company, including officers. The Board of Directors designates the optionees,
the number of shares subject to the options and the terms and conditions of each
option. Options under the 1997 Option Plan generally vest over a five year
period. Certain changes in control of the Company will cause the options to vest
immediately. Each option granted under the 1997 Option Plan must be exercised,
if at all, during a period established in the grant which may not exceed 10
years from the later of the date of grant or the date first exercisable. An
optionee may not transfer or assign any option granted and may not exercise any
options after a specified period subsequent to the termination of the optionee's
employment with the Company.
1993 Option Plan
The Rushmore Incentive Stock Option Plan (the "1993 Option Plan") provided
for the grant of options to eligible employees, agents and directors to purchase
Common Stock. The 1993 Option Plan provided for the grant of both incentive
stock options and non-qualified stock options at exercise prices equal to the
fair market value of the Common Stock on the date of grant as determined by the
Board of Directors.
26
<PAGE>
A total of 250,000 shares of Common Stock were reserved for issuance under
the 1993 Option Plan, and Options for 250,000 shares were granted between 1993
and 1997 at prices ranging from $0.20 to $1.50 per share. Of the options
granted, 123,426 shares have been exercised, and 126,574 shares remain
outstanding and expire between March 1998 and April 2002.
Of the options granted under the 1993 Option Plan, options for 130,833
shares were granted to D. M. Moore, Jr. at exercise prices ranging form $0.20 to
$1.50 per share. Mr. Moore holds unexercised options under both plans for a
total of 23,823 shares at an aggregate exercise price of $14,498, and the value
of his in-the-money options is $116,556, based on an Offering price of $5.50.
Stock Purchase Plan
The Company has offered shares of Common Stock in private placements each
year since 1992 to its employees, agents and representatives at a price based on
the net asset value of the shares. The amount offered to each has varied based
upon the productivity of the offeree as determined by the Company. A total of
1,602,093 shares have been issued to 545 purchasers under such arrangement. The
Company has discontinued this plan and will use stock options to incent its
employees and agents.
Limitation on Liability and Indemnification Matters
The Company's Articles of Incorporation limit the liability of directors of
the Company to the Company or its shareholders to the fullest extent permitted
by Texas Business Corporation Act (the "TBCA").
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers to the maximum extent allowed by the TBCA. The TBCA
permits such indemnification, so long as such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company. Such indemnification may be made only upon a
determination by the Board of Directors that such indemnification is proper in
the circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is also
permitted to advance to such persons payment for their expenses incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts if
it is ultimately determined that he is not entitled to be indemnified.
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Employment Agreements
The Company has entered into employment agreements with D. M. Moore, Jr.
and Jim W. Clark for three year periods that are renewed each month. Such
agreements are terminable only upon death, disability or for good cause,
including resignation. Upon termination for any other reason, the executive is
entitled to receive three year's severance pay.
CERTAIN TRANSACTIONS
The Company believes that all of the transactions set forth below were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and affiliates,
will be approved by a majority of the Board
27
<PAGE>
of Directors, including a majority of the independent and disinterested outside
directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
D. M. Moore, Jr., the Company's President and Chief Executive Officer, owns
100% of Rushmore Agency, due to provisions of the Texas Insurance Code that
prohibit ownership of life insurance agencies by corporations. Pursuant to an
agreement between Mr. Moore and the Company, all activities of the agency are
administered by Rushmore, and all revenues and expenses of the agency are passed
through to the Company. Mr. Moore has also granted the Company an irrevocable
option for the Company to appoint any other qualified person to acquire Rushmore
Agency on its behalf.
Mr. Moore is also the 100% owner of a company known as Rushmore Realty
Advisors, Inc., which is a licensed real estate agent in Texas ("Rushmore
Realty"). Rushmore Realty acted as the real estate agent for Rushmore in
negotiating two new office leases during 1997, and received commissions of
$27,693 that were paid by the landlord and sublessor.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997 (including
exercisable options) and as adjusted to reflect the sale of Common Stock being
offered by the Company hereby, for (1) each person known by the Company to own
beneficially 5% or more of the Common Stock, (2) each director and executive
officer of the Company and (3) all directors and executive officers of the
Company as a group. Except pursuant to applicable community property laws and
except as otherwise indicated, each shareholder identified in the table
possesses sole voting and investment power with respect to its or his shares.
The addresses of all such persons are in care of the Company.
<TABLE>
<S> <C> <C>
Beneficial Ownership
of Common Stock
Percentage Prior Percentage After Percentage After
Name Shares to Offering Minimum Offering Maximum Offering
- ---- ------ -------------------- ---------------- ----------------
D. M. Moore, Jr. (1) 535,295 25.1 18.6 15.8
Mark S. Adler (2) 188,941 8.9 6.6 5.6
H. Gary Curry (2) 108,557 5.1 3.8 3.1
Jim W. Clark (4) 58,116 2.7 2.0 1.7
F. E. Mowery (3) 32,057 1.5 1.1 1.0
Timothy J. Gardner 26,041 1.2 * *
Harlan T. Cardwell, III 11,250 * * *
James Fehleison 5,000 * * *
Gayle C. Tinsley 12,000 * * *
All executive officers and 977,257 44.9 33.4 28.6
directors and prospective directors
as a group (9 persons)
- -----------------------------------
* Less than 1%
</TABLE>
(1)Includes options to purchase 23,823 shares of Common Stock and 7,629 shares
held of record by Mr. Moore's spouse.
(2)Includes options to purchase 1,500 shares of Common Stock.
(3)Includes options to purchase 2,334 shares of Common Stock.
(4)Includes options to purchase 35,833 shares of Common Stock.
All of the foregoing and 24 other shareholders holding a total of 1,583,603
shares have agreed with the Representative that they will not offer their shares
for sale without the Representative's consent for a period of 180 days following
the completion of the Offering.
28
<PAGE>
DESCRIPTION OF SECURITIES
The following summary of the Company's capital stock is qualified in its
entirety by reference to the Company's Articles of Incorporation and its Bylaws,
each of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Common Stock
Rushmore has authorized 10,000,000 shares of Common Stock, par value $0.01
per share, of which a maximum of 3,356,664 shares will be outstanding
immediately following this Offering. Holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. All shares of Common Stock have equal voting
rights on the basis of one vote per share on all matters to be voted upon by
shareholders. Cumulative voting for the election of directors is not permitted,
so that the holders of a majority of shares outstanding have the power to elect
the entire Board of Directors. Shares of Rushmore Common Stock have no
preemptive, conversion, sinking fund or redemption provisions and are not liable
for assessment. Each share of Rushmore Common Stock is entitled to share
proportionately in any assets available for distribution upon liquidation of
Rushmore.
Preferred Stock
Rushmore has authorized 100,000 shares of preferred stock, par value $10.00
per share, 18,092 shares of which will be outstanding immediately following this
Offering. The Preferred Stock maybe issued in series or classes as determined by
the Board of Directors from time to time, although the Directors do not
anticipate any additional issuances of preferred stock. There are two classes of
preferred stock now outstanding totaling 6,274 shares having a liquidation
preference of $10.00 per share, totaling $62,740. The Board of Directors has
designated an authorized class of 25,000 preferred shares, called 9% Cumulative
Preferred Stock, which was sold at a price of $10.00 per share and an authorized
class of 10,000 preferred shares, called Series A Cumulative Preferred Stock,
which was sold at a price of $10.00 per share. Both classes of Preferred Stock
have the following rights and preferences:
Dividends. The Company pays a 9% quarterly dividend on its par value
($0.225 per share per quarter) each January 15, April 15, July 15, and October
15 of each year. Dividends will be paid if funds are lawfully available, and, if
not, will be cumulated and paid on the next dividend date when funds are
available, plus interest at the 9% dividend rate. No dividends will be payable
on Common Stock if any payment of a preferred stock dividend has been missed.
Voting. Shares of Preferred Stock carry no voting rights.
Liquidation Preference. Holders of Preferred stock are entitled to receive
a payment in the amount of $10.00 per share plus any cumulated but unpaid
dividends in the event Rushmore is liquidated, before any payment is made by
Rushmore to the holders of Rushmore Common Stock with respect to their shares.
Redemption. Rushmore may call the Preferred Stock for redemption any time
after April 1, 1992 at a redemption price according to the following schedule:
After April 1, 1992, but before April 1, 1993 $12.00
After April 1, 1993, but before April 1, 1994 11.50
After April 1, 1994, but before April 1, 1995 11.00
After April 1, 1995, but before April 1, 1996 10.50
After April 1, 1996 10.00
Conversion. Shares of 9% Cumulative Preferred Stock are not convertible
into any other security of the Company.
Transfer Agent. The Transfer Agent and Registrar for the Company's Common
Stock is UMB Bank, N.A.
29
<PAGE>
Possible Anti-Takeover Provisions
Special Meetings of Shareholders; Director Nominees. The Company's bylaws
and Articles provide that special meetings of shareholders may be called by
shareholders only if the holders of at least 66-2/3% of the Common Stock join in
such action. The bylaws and Articles also provide that shareholders desiring to
nominate a person for election to the Board of Directors must submit their
nominations to the Company at least 60 days in advance of the date on which the
last annual shareholders' meeting was held, and provide that the number of
directors to be elected (within the minimum- maximum range of 3 to 21 set forth
in the Articles and bylaws) shall be determined by the Board of Directors or by
the holders of at least 66-2/3% of the Common Stock. While these provisions of
the Articles and bylaws have been established to provide a more cost-efficient
method of calling special meetings of shareholders and a more orderly and
complete presentation and consideration of shareholder nominations, they could
have the effect of discouraging certain shareholder actions or opposition to
candidates selected by the Board of Directors and provide incumbent management a
greater opportunity to oppose shareholder nominees or hostile actions by
shareholders. The affirmative vote of holders of at least 66-2/3% of the Common
Stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal any of these provisions.
Removal of Directors. The Articles of the Company provide that directors
may be removed from office only for "cause" by the affirmative vote of holders
of at least 66-2/3% of the Common Stock. "Cause" means proof beyond the
existence of a reasonable doubt that a director has been convicted of a felony,
committed gross negligence or willful misconduct resulting in a material
detriment to the Company, or committed a material breach of such director's
fiduciary duty to the Company resulting in a material detriment to the Company.
The inability to remove directors except for "cause" could provide incumbent
management with a greater opportunity to oppose hostile actions by shareholders.
The affirmative vote of holders of at least 66-2/3% of the Common Stock is
necessary to amend, alter or adopt any provision inconsistent with or repeal
this provision.
Classification of Directors. The Articles and bylaws divide the Board of
directors into three classes, equal or approximately equal in number, serving
staggered three year terms. The Board of Directors is presently comprised of
seven members (until subsequently changed by the Board of Directors or
shareholders in accordance with the procedures described above), with classes
having three members each. Two additional directors will take office following
the Offering. At each annual meeting of shareholders, directors in the class
whose terms are expiring shall be elected for three-year terms to succeed those
whose terms expired. The affirmative vote of holders of at least 66-2/3% of the
Common Stock is necessary to amend, alter or adopt any provision inconsistent
with or repeal this provision.
The provisions regarding classification of directors were established to
provide orderly transition and continuity in the membership of the Board of
Directors. Such procedures could, however, have the effect of providing
incumbent management a greater opportunity to oppose hostile actions by
shareholders. Moreover, it requires two annual meetings of shareholders to
consider and vote upon reelection or removal of a majority of the members of the
Board, rather than at each annual meeting of shareholders. Also, the Company's
bylaws provide that directors chosen to fill any vacancy (whether by increase in
the number of directors or as a result of resignation, removal or other events)
will serve until the next annual meeting at which their Class is up for
reelection, rather than the next annual meeting at which any Class is elected.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding a
maximum of 3,356,664 shares of Common Stock. In addition, the Company has
reserved 163,573 shares for issuance upon exercise of options granted under the
Company's Stock Option Plans, of which 156,073 are immediately exercisable. Of
the 3,356,664 shares to be outstanding after the Offering, the 1,250,000 shares
sold to the public hereby will be freely tradeable without restrictions or
registration under the Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 ("Rule 144") under the Act
("Affiliates"), may generally be sold only within the limitations of Rule 144
described below. The remaining 2,106,664 shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Act and are, therefore deemed "restricted securities" under Rule 144,
which may not be sold publicly unless the shares are registered under the Act or
are sold pursuant to an exemption from registration under Rule 144. Under Rule
144, such restricted securities issued pursuant to Rule 701 under the Act will
become eligible for resale 90 days after
30
<PAGE>
the date the Company becomes subject to the reporting requirements of the
Exchange Act, although 1,583,603 of such shares are subject to the contractual
resale restrictions described below. Sales of the restricted securities in the
open market, or the availability of such shares for sale, could adversely affect
the trading price of the Common Stock.
The Company, the Company's executive officers and directors, and certain
shareholders of the Company that own in the aggregate 75.2% of the Common Stock
outstanding prior to the Offering have agreed not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
exercisable for or convertible into Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representative.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year following the later of the date of the acquisition of such shares
from the issuer or an affiliate of the issuer would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the number of shares of Common Stock then outstanding (approximately
34,387 shares immediately after this Offering) or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and the
availability of current public information about the Company. Rule 144 generally
becomes available 90 days after the issuer has been subject to the information
reporting requirements of the Exchange Act. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years following the later of the date of the acquisition
of such shares from the issuer or an affiliate of the issuer, is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
The Company intends to file registration statements on Form S-8 under the
Securities Act covering the offering and sale of the 750,000 shares of Common
Stock reserved for issuance under the Stock Option Plans. Accordingly, shares of
Common Stock issued upon exercise of options granted under the Stock Option Plan
will be available for sale in the open market, unless such shares are subject to
certain lock-up agreements. See "Underwriting."
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Company has retained the services of First Southwest Company and Rushmore
Securities Corporation (the "Underwriters"), to offer and sell the Common Stock
offered hereby on a "best efforts" basis at the public offering price of $5.50
per share which is contingent upon the sale of 750,000 shares of the Company's
Common Stock.
The offering period will extend for a period of 45 days from the date of
this Prospectus, unless the Underwriters and the Company agree to extend the
offering period for an additional period of 15 days (such periods are
collectively referred to as, "the Selling Period"). All proceeds from the sale
of the shares of Common Stock will be transmitted promptly to an escrow account
at Bank One Investment Management & Trust Group. In the event that 750,000
shares of Common Stock are not sold within the time provided herein, all funds
will be promptly returned to subscribers without interest and without any
deduction for commissions or expenses. The purchasers will not receive stock
certificates until the termination of the Offering. During the Selling Period,
subscribers will have no right to demand the return of their subscriptions. On
behalf of the Company, the Underwriters propose to offer the Common Stock, in
part, directly to retail purchasers at the initial public offering price set
forth of the cover page of this Prospectus and in part to certain dealers who
are members of the National Association of Securities Dealers, Inc. at such
price, less a concession not in excess of $_____ per share. The Underwriters may
allow, and such dealers may reallow, a concession not exceeding $____ per share
to other dealers. The Representative of the Underwriters has advised the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Contingent upon the sale of 750,000 shares of the Company's Common Stock,
the Company will pay the Underwriters a discounted commission of eight percent
of the public offering price.
Upon completion of this Offering, the Company will issue to the
Representative, for nominal consideration, warrants to purchase 50,000 shares of
Common Stock (the "Warrants"). The Warrants will become exercisable immediately
31
<PAGE>
upon the completion of this Offering, at an exercise price per share of 110% of
the initial price to public set forth on the cover page of this Prospectus and
will expire five years from the effective date of this Prospectus. The Warrants
contain provisions providing for adjustment of the exercise price and the number
and type of securities issuable upon exercise upon the occurrence of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The Warrants grant to the holder thereof
certain registration rights for the securities issuable upon exercise thereof.
The Company will pay the Representative a non-accountable expense allowance
of $75,000. The Representative's expenses in excess of the non-accountable
expense allowance, including its legal expenses, will be borne by the
Representative.
Rushmore Securities Corporation is a wholly-owned subsidiary of the
Company, and D. M. Moore, Jr. is a member of the Board of Directors of both
Rushmore Securities Corporation and the Company. Rushmore Securities Corporation
will not participate in determining the initial public offering price for the
Common Stock. Accordingly, this Offering is being made in compliance with the
requirements of Rule 2720(c) of the Conduct Rules of the NASD. This rule
provides generally that if more than 10% of the net proceeds from the sale of
stock, not including underwriting compensation, is paid to the underwriters of
such stock or their affiliates, the initial public offering price of the stock
may not be higher than that recommended by a "qualified independent underwriter"
meeting certain standards. First Southwest Company is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
this Offering and conducting due diligence. The initial public offering price of
the shares offered hereby is no higher than the price recommended by First
Southwest Company. Mr. James Fehleison, Chief Financial Officer of First
Southwest Holdings, Inc., the parent corporation of the Representative, will
join the Board of Directors of the Company upon completion of the offering.
Until the distribution of Common Stock in this Offering is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representative is permitted to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. If the Underwriters create
a short position in the Common Stock in connection with this Offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Representative may reduce the short position by purchasing
Common Stock in the open market. The Representative may also impose a penalty
bid on certain Underwriters and selling group members. This means that if the
Representative purchases shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, it
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of this offering. In
general, purchases of a security for the purposes of stabilization or to reduce
a short position could cause the price of the security to be higher than it
might be in the absence of such purchases. The imposition of a penalty bid might
also have an effect on the price of a security to the extent that it discouraged
resales of any security. Neither the Company nor the Representative makes any
representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common Stock.
In addition, neither the Company nor the Underwriters make any representation
that the Representative will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiation between the Company and the
Representative. Among the factors considered in such negotiations were
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representative believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant. There can be no
assurance, however, that the prices at which the Common Stock will trade in the
public market following this offering will not be lower than the initial
offering price.
The Company and all of its current officers and directors and certain of
its shareholders have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of First Southwest Company.
32
<PAGE>
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain civil liabilities and claims of
civil liabilities, including liabilities and claims of civil liabilities under
the Securities Act.
LEGAL MATTERS
Legal matters in connection with the Common Stock being offered hereby will
be passed upon for the Company by Glast, Phillips & Murray, a professional
corporation, Dallas, Texas. Certain legal matters will be passed upon for the
Underwriters by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The financial statements of the Company as of December 31, 1996, and for
each of the two years in the period ended December 31, 1996, included in this
Prospectus have been audited by Cheshier & Fuller, L.L.P., independent
accountants, as set forth in their report therein included, and have been so
included in reliance upon such report being given upon their authority as
experts in accounting and auditing.
The financial statements of First Financial Life Companies, Inc. as of
December 31, 1996 and for each of the two years in the period ended December 31,
1996, included in the Prospectus have been audited by Coopers & Lybrand, L.L.P.,
independent accountants, as set forth in their report therein included, and have
been so included in reliance upon such report being given upon the authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, together with all
amendments, schedules and exhibits thereto, pursuant to the Securities Act with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
Exhibits thereto. The statements contained in this Prospectus as to the contents
of any contract or other document identified as exhibits in this Prospectus are
not necessarily complete, and in each instance, reference is made to a copy of
such contract or document filed as an exhibit to the Registration Statement,
each statement being qualified in any and all respects by such reference. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and exhibits which may
be inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549 and at its New
York Regional Office, Room 1300, 7 World Trade Center, New York, NY 10048 and at
its Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission at prescribed
rates. The Company's Registration Statement on Form SB-2 as well as any reports
to be filed under the Exchange Act can also be obtained electronically after the
Company has filed such documents with the Commission through a variety of
databases, including among others, the Commission's Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") program, Knight-Ridder Information, Inc.,
Federal Filings/Dow Jones and Lexis/Nexis. Additionally, the Commission
maintains a Website (at http://www.sec.gov) that contains such information
regarding the Company.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
Requests for information may be directed to Jim W. Clark, Secretary, c/o
Rushmore Financial Group, Inc., 13355 Noel Road, Suite 650, Dallas, Texas 75240,
telephone number (972) 450-6000.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Independent Auditor's Report..........................................................................F-1
Balance Sheets as of December 31, 1996 and September 30,1997 (unaudited)..............................F-2
Statements of Income for the two years ended December 31, 1996 and the
nine months ended September 30, 1997 (unaudited)..................................................F-4
Statements of Change in Shareholders' Equity for the two years ended
December 31, 1996 and the nine months ended September 30, 1997 (unaudited)........................F-6
Statements of Cash Flows for the two years ended December 31, 1996
and nine months ended September 30, 1997 (unaudited)..............................................F-8
Notes to Financial Statements.........................................................................F-10
FIRST FINANCIAL LIFE COMPANIES, INC.
Independent Auditor's Report..........................................................................F-22
Consolidated Balance Sheet as of December 31, 1996 ..................................................F-23
Consolidated Statements of Operations for the two years ended December 31, 1996 ......................F-24
Consolidated Statements of Shareholders' Equity for the two years ended
December 31, 1996 ...............................................................................F-25
Consolidated Statements of Cash Flows for the two years ended December 31, 1996 .......... ...........F-26
Notes to Consolidated Financial Statements............................................................F-27
Statement of Financial Condition as of September 30, 1997 ( unaudited)................................F-35
Statement of Operations for the nine months ended September 30, 1997 (unaudited)......................F-36
Statement of Shareholders' Equity for the nine months ended September 30, 1997 (unaudited)............F-37
Statement of Cash Flows for the nine months ended September 30, 1997 (unaudited)......................F-38
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES PRO FORMA FINANCIAL DATA
Pro Forma Consolidated Balance Sheet..................................................................F-39
Pro Forma Consolidated Statements of Income...........................................................F-42
Notes to Pro Forma Consolidated Financial Statements..................................................F-45
</TABLE>
34
<PAGE>
Independent Auditor's Report
To the Board of Directors and Shareholders
of Rushmore Financial Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Rushmore
Financial Group, Inc. and Subsidiaries (formerly Rushmore Capital Corporation)
as of December 31, 1996, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for the years ended December 31,
1996 and 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rushmore Financial
Group, Inc. and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995.
/s/Chesheir $ Fuller, L.L.P.
-------------------------
CHESHIER & FULLER, L.L.P.
Dallas, Texas
October 10, 1997
(November 12, 1997
as to Note 12)
<PAGE>
To the Board of Directors and Shareholders
of Rushmore Financial Group, Inc. and Subsidiaries
We have reviewed the accompanying balance sheet of Rushmore Financial Group,
Inc. as of September 30, 1997 and the related statements of income and changes
in shareholder's equity and cash flows for the nine months ended September 30,
1996 and 1997, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Rushmore Financial Group, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/Chesier & Fuller L.L.P.
CHESHIER & FULLER, L.L.P.
Dallas, Texas
November 25, 1997
<PAGE>
RUSHMORE FINANCIAL GROUP INC. AND SUBSIDIARIES
Balance Sheets
ASSETS
<TABLE>
<S> <C> <C>
December 31, 1996 September 30, 1997
---------------- ------------------
(Unaudited)
Investments
Cash and short-term investments $ 117,738 $ 1,426,363
Amounts on deposit with reinsurer 28,894,316
----------- -----------
Total investments 117,738 30,320,679
Deferred policy acquisition costs 4,281,359
Notes, accounts receivable and
uncollected premiums 27,459 219,554
Receivable from brokers and dealers 27,255
Prepaid expenses and advances 17,019 119,126
Equity investment in subsidiary 275,346
Equipment, net of accumulated depreciation 67,894 108,463
Goodwill 487,387
Other assets and intangibles 10,375 49,272
----------- -----------
Total assets $ 543,086 $35,585,840
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
RUSHMORE FINANCIAL GROUP INC. AND SUBSIDIARIES
Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
December 31, 1996 September 30, 1997
----------------- ------------------
(Unaudited)
Liabilities
Future policy benefits $ $ 88,016
Universal life contract liabilities 33,258,288
Claims payable 217,537
Notes payable 24,024 48,021
Due to affiliated companies 15,220
Current federal income taxes 36,260
Other liabilities 152,905 628,232
----------- -----------
Total liabilities 192,149 34,276,354
----------- -----------
Shareholders' Equity
Preferred stock - 9% cumulative preferred
stock, $10 par value, 4,300 shares
issued and outstanding in 1996 and 1997 43,000 43,000
Preferred stock - Series A cumulative preferred
stock, $10 par value, 13,792 shares issued
and outstanding in 1996 and 1997 137,920 137,920
Common stock - $0.01 par value, 10,000,000
shares authorized, 1,419,293 shares
issued and outstanding at December 31, 1996;
10,000,000 shares authorized and 2,481,593
issued and outstanding at September 30, 1997 14,193 24,816
Common stock subscribed, 17,593 shares at $01.50
per share at December 31, 1996; 22,657 shares
at $1.92 per share at September 30, 1997 176 227
Additional paid in capital 826,547 1,933,673
Retained earnings (deficit) (531,246) (657,805)
Shareholder/affiliate loans
Common stock subscriptions receivable (26,389)
Shareholder loans (98,506) (134,575)
Receivable from affiliates (14,758) (37,770)
----------- -----------
Total shareholders' equity 350,937 1,309,486
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 543,086 $35,585,840
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statements of Income
<TABLE>
<S> <C> <C> <C>
For the Years Ended For the Nine Months Ended
------------------------ --------------------------
December 31, September 30,
1995 1996 1996 1997
---------- ---------- ------------- ---------
Revenue (Unaudited) (Unaudited)
Revenue from Insurance Services
Premium income from traditional products $ $ $ $ (836,807)
Universal life and investment product charges 2,928,809
Net investment income 1,050,052
Agent management fee 151,565 346,968 285,897 73,552
Revenue from Investment Services
Commissions and fees 856,996 1,493,908 985,985 1,620,543
Asset management 28,705 13,376 103,292
Other 11,101 15,911 11,307 41,543
---------- ---------- ------------ ---------- ----------
Total revenues 1,019,662 1,885,492 1,296,565 4,980,984
---------- ---------- ------------ ----------
Expenses
Insurance Services Expenses
Other insurance services expenses 697,655
Policyholder benefits 1,128,230
Amortization of deferred policy acquisition costs 1,041,328
Equity in subsidiary loss 33,184 12,893 32,258
Investment services expenses
Commission expense 713,308 1,241,476 847,816 1,425,141
Other investment services expenses 74,058 83,803 17,039 60,127
General and administrative 430,551 663,172 511,856 629,514
---------- ---------- ------------ ----------
Total expenses 1,251,101 2,001,344 1,408,969 4,981,995
---------- ---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statements of Income
<TABLE>
<S> <C> <C> <C>
For the Years Ended For the Nine Months Ended
December 31, September 30,
1995 1996 1996 1997
---------- ---------- ------------- ---------
(Unaudited) (Unaudited)
Operating income (loss) (231,439) (115,852) (112,404) (1,011)
Interest expense 2,989 4,535 3,521 4,163
---------- ---------- ------------- ----------
Income (loss) from continuing
operations (234,428) (120,387) (115,925) (5,174)
Discontinued operations (net) 24,207 (50,504) (33,437) (25,992)
---------- ---------- ------------- ----------
Income before income taxes (210,221) (170,891) (149,362) (31,166)
Provision for income taxes 95,393
Net income (loss) $ (210,221) $ (170,891) $ (149,362) $ (126,559)
========== ========== =========== ==========
Net income (loss) per common share (.18) (.12) (.11) (.07)
========== ========== ============ ==========
Weighted average common shares
outstanding 1,198,256 1,376,777 1,365,938 1,737,588
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<S> <C> <C> <C> <C>
Common Additional Retained Shareholder/
Preferred Common Stock Paid-In Earnings Affiliate
Stock Stock Subscribed Capital (Deficit) Loans Total
--------- -------- ---------- ----------- ----------- ---------- --------
Balance, December 31, 1994 $ 62,740 $ 10,372 $ -0- $ 468,631 $ (150,134) $ (9,671) $ 381,938
Preferred stock issued, 318 shares 3,180 3,180
Common stock issued, 287,300 shares 2,873 253,159 256,032
Preferred stock dividends paid (5,844) (5,844)
Common stock dividends paid (40,958) (40,958)
Loan and advances to
officers/shareholders (36,531) (36,531)
Net loss (210,221) (210,221)
---------- --------- ------------- ----------- ---------- ------------- ----------
Balance, December 31, 1995 65,920 13,245 674,988 (360,355) (46,202) 347,596
Preferred stock issued, 11,500 shares 115,000 115,000
Common stock issued, 94,776 shares 948 135,232 136,180
Common stock subscribed, 17,593 shares 176 26,214 26,390
Preferred stock dividends paid (9,887) (9,887)
Stock subscriptions receivable (26,389) (26,389)
Loans and advances to officers/shareholders (52,304) (52,304)
Receivable from affiliates (14,758) (14,758)
Net (loss) (170,891) (170,891)
---------- --------- ------------- ----------- ---------- -------------- ----------
Balance, December 31, 1996 $180,920 $ 14,193 $ 176 $ 826,547 $(531,246) $(139,653) $ 350,937
======== ========= =========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 1996 and 1997
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Common Additional Retained Shareholder/
Preferred Common Stock Paid-In Earnings Affiliate
Stock Stock Subscribed Capital (Deficit) Loans Total
--------- -------- ---------- ----------- ----------- ---------- --------
Balance, December 31, 1995 $ 65,920 $ 13,245 $ $ 674,988 $ (360,355) $ (46,202) $ 347,596
Preferred stock issued, 11,500 shares 115,000 115,000
Common stock issued, 79,266 shares 793 99,571 100,364
Common stock subscribed, 500 shares 5 745 750
Preferred dividends paid (5,816) (5,816)
Loans and advances (14,785) (14,785)
Receivable from affiliate (138,804) (138,804)
Net income (loss) (149,362) (149,362)
------------ ------------------------- ----------- ---------- ------------ ----------
Balance, September 30, 1996 $ 180,920 $ 14,038 $ 5 $ 769,488 $ (509,717) $ (199,791) $ 254,943
========== =========== ========== ========== ========== =========== ==========
Balance, December 31, 1996 $ 180,920 $ 14,193 $ 176 $ 826,547 $ (531,246) $ (139,653) $ 350,937
Common stock issued, 1,062,300 shares 10,623 1,102,277 1,112,900
Common stock subscribed, 22,657 shares 226 43,275 43,502
Reclass subscribed shares (176) (26,214) (26,390)
Preferred dividends paid (12,212) (12,212)
Subscriptions receivable 26,389 26,389
Loans and advances (36,069) (36,069)
Receivable from affiliate (23,012) (23,012)
Net income (loss) (126,559) (126,559)
------------ ------------- ----------- ----------- ---------- ------------ ----------
Balance, September 30, 1997 $ 180,920 $ 24,816 $ 226 $1,933,673 $ (657,805) $ (172,345) $1,309,486
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 7
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statement of Cash Flows
<TABLE>
<S> <C> <C> <C>
For the Years Ended For the Nine Months Ended
------------------------ --------------------------
December 31, September 30,
1995 1996 1996 1997
----------- ----------- ------------ --------
Cash flows from operating activities (Unaudited) (Unaudited)
Net (loss) $ (210,221) $ (170,891) $ (149,362) $ (126,559)
Adjustments to reconcile net
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 10,491 13,859 10,455 19,552
Loss from equity investment 33,184 12,893 32,258
Purchase of goodwill (495,647)
Dividends from equity investment 29,982
Change in assets and
liabilities:
(Increase) decrease in assets:
Deposits (311) (10,332) (9,695) (21,815)
Commissions and fees receivable (1,738) (28,262)
Prepaid expenses (18,655) 9,730 6,776 (2,381)
Other assets 818 (2,890) (40,657) 373,384
Deferred policy acquisition costs (4,281,359)
Deposits with reinsurer (28,894,316)
Uncollected premiums (303,430)
Increase (decrease) in liabilities:
Accounts payable (22,680) 23,481 109,062 461,392
Accrued liabilities 23,502 72,854 27,568 880
Future policy benefits 88,016
Universal Life liabilities 33,258,288
Claims payable 217,537
Income tax liability 36,260
Deferred revenues (4,600) 13,054
------------ ------------- -------------- -----------
Net cash flows provided (used) by
operating activities (160,228) (79,558) (13,595) 342,856
------------ ----------- ----------- -----------
Cash flows from investing activities
Loans to officers and affiliate (12,396) (55,754) (153,589) (59,081)
Purchase of equipment (20,302) (26,749) (25,438) (50,373)
Purchase of remaining interest in
equity investment (119,353)
Increase in equity investment (44,050)
------------
Net cash flows provided (used) by
investing activities (76,748) (82,503) (179,027) (228,807)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from sale of Common Stock 249,002 136,180 101,114 1,182,790
Proceeds from sale of Preferred Stock 3,180 115,000 115,000
Proceeds from sale of Treasury Stock 7,031
Preferred Stock dividends paid (5,844) (9,887) (5,816) (12,212)
Common Stock dividends paid (40,958)
Borrowings under term loans 18,119 20,000 20,000 25,000
Payments on term loans (29,008) (27,966) (1,002)
------------- ----------- ----------- -----------
Net cash flows provided (used) by
financing activities 230,530 232,285 202,332 1,194,576
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 8
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statement of Cash Flows
<TABLE>
<S> <C> <C> <C>
For the Years Ended For the Nine Months Ended
------------------------ --------------------------
December 31, September 30,
1995 1996 1996 1997
----------- ----------- ------------ --------
(Unaudited) (Unaudited)
Change in cash balances (6,446) 70,224 9,710 1,308,625
Cash at beginning of year 53,960 47,514 47,514 117,738
------- ----------- ------- ----------
Cash at end of year $ 47,514 $ 117,738 $ 57,224 $ 1,426,363
======== ========== ========= ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 2,989 $ 4,503 $ 3,521 $ 4,163
======= =========== ======= =======
Cash paid for income taxes $ -- $ -- $ -- $ --
========= ========== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 9
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 1 - The Companies
-------------
Rushmore Financial Group, Inc. and Subsidiaries (the "Company"),
was incorporated in September 1990, and in 1991 it began doing
business as an independent marketing company. The Company has
since evolved as a holding company of the financial services
companies described below, which offer insurance and investment
products to clients through a network of agents and
representatives.
Rushmore Securities Corporation ("Rushmore Securities"), a wholly
owned subsidiary of the Company, was incorporated in July 1980 as
Ken Davis Securities, Inc. Rushmore Securities is registered
under federal and state securities laws as a broker-dealer and is
a member of the National Association of Securities Dealers
("NASD"). Licensed registered representatives offer clients a
variety of investments, including stocks, bonds, mutual funds,
variable annuities and public and private limited partnerships.
Rushmore Securities is a "fully disclosed introducing
broker-dealer", which means that it does not hold any customer
funds or securities or have a seat on any stock exchange. It
"clears" its securities trades through Southwest Securities, Inc.
and First Southwest Company, which hold customer funds and
securities and execute trades for such transactions. The clearing
broker-dealers receive a portion of the gross commissions as
compensation for handling such transactions.
Rushmore Financial Corporation ("RFC") was organized in 1993 as a
wholly owned subsidiary. The primary business of RFC was offering
consumer lending services, including first mortgage loans, real
estate loans, private mortgage acquisitions and other services
through its national marketing agreements with a number of
national lenders. The business of this subsidiary was
discontinued in March 1997 and its net results of operations are
set forth in "loss from discontinued operations".
Rushmore Investment Advisors, Inc. ("Rushmore Advisors"), was
organized in 1996 as a wholly owned subsidiary. The business of
Rushmore Advisors is to provide fee-based investment advice and
funds management to customers of the Company. Rushmore Advisors
is registered as an investment adviser with the Securities and
Exchange Commission and the Texas Securities Board. Rushmore
Advisors offers both discretionary and nondiscretionary
management of customer accounts, but does not hold custody of
customer funds.
Rushmore Insurance Services, Incorporated ("Rushmore Agency") is
an insurance agency and an affiliate of the Company by means of
service agreements. The agency offers life, health, and
disability insurance and annuities through a network of agents.
Rushmore Agency is 100% owned by D.M. "Rusty" Moore, Jr. The
Company and Mr. Moore have entered into an administrative
services agreement whereby net revenues and expenses are charged
via a management fee to Rushmore Agency by the Company as allowed
by regulatory requirements.
Note 2 - Summary of Significant Accounting Policies
------------------------------------------
Consolidation Policy
The accompanying consolidated financial statements include the
accounts of Rushmore Financial Group, Inc. and its subsidiaries,
Rushmore Securities, RFC, Rushmore Advisors and Rushmore Life in
1997. All significant intercompany transactions have been
eliminated in consolidation.
F - 10
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 2 - Summary of Significant Accounting Policies
------------------------------------------
Accounting Method
The Company uses the accrual method of accounting. All income
is recorded when earned, and all expenses are recorded when
incurred. Securities transactions and related commission
revenue and expense are recorded on a trade date basis.
Equity Investment
As of December 31, 1996, the Company owned approximately 25%
of the outstanding common stock of First Financial Life
Companies, Inc. ("FFLC"). FFLC owned 100% of the common stock
of First Financial Life Insurance Company, an Arizona based
domestic life and disability reinsurance company. The
investment in Rushmore Life prior to 1997 is accounted for
using the equity method and the Company's proportional share
of any intercompany profits or losses are eliminated.
Subsequent to December 31, 1996, the Company acquired the
remainder of FFLC by merger and as of September 30, 1997, the
Company was the owner of 100% of FFLIC. Also subsequent to
December 31, 1996, the name of FFLIC was changed to Rushmore
Life.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
provided on the accelerated method over the estimated useful
lives of the assets ranging from 5 to 40 years. Expenditures
for maintenance and repairs are charged against income in the
year in which they are incurred, and betterments are
capitalized. When depreciable assets are sold or disposed of,
the cost and accumulated depreciation accounts are reduced by
the applicable amounts, and any profit or loss is credited or
charged to income.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to
differences between the basis of accounting for equity
investments for financial and income tax reporting. Deferred
tax assets and liabilities represent the future tax return
consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled.
Use of Accounting 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 certain assets and liabilities and disclosures.
Accordingly, the actual amounts could differ from those
estimates. Any adjustments applied to estimated amounts are
recognized in the year in which such adjustments are
determined.
Summary of Noncash Investing and Financing Activities
As of December 31, 1996, the Company had $26,389 of stock
subscription receivable representing 17,593 shares of common
stock.
F - 11
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 3 - Net Capital Requirements
------------------------
Pursuant to the net capital provisions of Rule 15c3-1 under
the Securities Exchange Act of 1934, Rushmore Securities is
required to maintain a minimum net capital, as defined under
such provisions. Net capital and the related net capital ratio
may fluctuate on a daily basis.
At December 31, 1996, Rushmore Securities had net capital of
approximately $42,494 and net capital requirements of $5,585.
Rushmore Securities' ratio of aggregate indebtedness to net
capital was 1.97 to 1. The Securities and Exchange Commission
permits a ratio of no greater than 15 to 1.
Note 4 - Concentration Risk
------------------
At December 31, 1996, and at various other times throughout
1996, the Company had cash balances in excess of federally
insured limits. Cash accounts in banks are insured by the FDIC
for up to $100,000. The amount exceeding the insured limit was
approximately $8,000 at December 31, 1996 and $96,436 at
September 30, 1997.
Note 5 - Related Party Transactions
--------------------------
Management fees of $274,234 and $101,565 during the years
ended December 31, 1996 and 1995, respectively, were charged
to Rushmore Agency by the Company for certain general and
administrative services. At December 31, 1996, the Company had
$14,758 receivable from Rushmore Agency and $15,220 payable to
a corporation owned by Mr. Moore.
Notes receivable due from officers/shareholders total
approximately $39,403 and bear interest of 9%. The notes are
payable in 12 monthly principal and interest installments
starting August 1997.
Note 6 - Equipment
---------
The principal categories of equipment are summarized as
follows:
Computer equipment and software $ 49,425
Office furniture and fixtures 47,682
Leasehold improvements 5,229
------------
Total costs 102,336
Less accumulated depreciation 34,442
------------
$ 67,894
============
Depreciation included in the determination of net income amounted to $12,586 and
$8,545 in 1996 and 1995, respectively.
F - 12
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 7 - Notes Payable
-------------
Long term debt consists of the following:
Term notes payable to financial institutions in monthly
principal and interest installments ranging from $500 to
$777 bearing interest between 9% to 10.25% and maturing at
various dates through April 1998. The notes are secured by
certain furniture and equipment and a personal guarantee
of D.M. Moore, Jr. $ 24,024
========
Note 8 - Preferred Stock
---------------
The Company has authorized 100,000 shares of preferred stock,
par value $10 per share, which may be issued in series or
classes as determined by the Board of Directors from time to
time. There are two classes of Preferred Stock now outstanding
totaling 18,092 shares or $180,920. The Board of Directors has
designated an authorized class of 25,000 preferred shares,
called 9% Cumulative Preferred Stock, which was sold at a
price of $10 per share and an authorized class of 13,792
preferred shares, called Series A Cumulative Preferred Stock
which was offered at a price of $10 per share. Preferred Stock
has the following rights and preferences:
Dividends. The Company will declare and pay a 9% quarterly
dividend on its par value each year. Dividends will be paid if
funds are lawfully available, and, if not, will be accumulated
and paid on the next dividend date if funds are available,
plus interest at the 9% dividend rate. No dividends will be
payable on Common Stock if any payment of a Preferred Stock
dividend has been missed.
Voting. Shares of Preferred Stock carry no voting rights
except as are provided by law, including the right to vote as
a class to approve certain corporate transactions, such as
charter amendments and mergers.
Liquidation Preference. Holders of Preferred Stock are
entitled to receive a payment in the amount of $10 per share
plus any accumulated but unpaid dividends in the event the
Company is liquidated, before any payment is made by the
Company to the holders of Common Stock with respect to their
shares.
Conversion. Shares of Preferred Stock are not convertible
into any other security of the Company.
Sinking Fund. The 9% Cumulative Preferred Stock calls for the
creation of a sinking fund for the purpose of redeeming these
outstanding shares. Shareholders of 9% Cumulative Preferred
have entered into an oral agreement with the Company to waive
this requirement.
F - 13
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 9 - Commitments and Contingencies
-----------------------------
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan available to
certain key employees and agents. The Company has authorized a
maximum of 250,000 shares to be purchased under this plan.
Options for a total of 232,500 shares were granted under the
plan as of December 31, 1996 and 250,000 shares as of
September 30, 1997. At December 31, 1996 there were 109,073
shares remaining under option which were exercisable at prices
ranging from $.20 to $1.50 per share through March 1, 2001.
During 1996, no options were exercised.
The Company also has a 1997 Stock Option Plan (the "1997
Option Plan") which provides for the grant to eligible
employees and directors of options for the purchase of Common
Stock. The 1997 Option Plan covers, in the aggregate, a
maximum of 500,000 shares of Common Stock and provides for the
granting of both incentive stock options (as defined in
Section 422 of the Internal Revenue Code of 1986) and non
qualified stock options (options which do not meet the
requirements of Section 422). Under the 1997 Option Plan, the
exercise price may not be less than the fair market value of
the Common Stock on the date of the grant of the option. As of
September 30, 1997, options for 37,000 shares had been granted
under the 1997 Option Plan at an exercise price of $1.92 per
share, including options for 1,250 shares granted to D.M.
Moore, Jr.
Shareholders' Agreement
All holders of common stock have entered into an agreement
that restricts the transfer of stock and grants the Company
the option to repurchase the stock subject to certain events
as specified in the agreement.
Leases
The Company leases its offices, furniture and equipment under
operating leases which expire at various dates through 1999.
Future minimum lease payments are as follows:
Year Ending
December 31,
1997 $ 131,471
1998 278,938
1999 278,938
2000 266,962
Thereafter 190,648
----------
$1,146,957
==========
Rent expense for the year totaled approximately $63,215 and $46,704 in 1996 and
1995, respectively, and is included in general and administrative expense.
F - 14
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 10 - Income Taxes
The provision for income taxes for the year ended December
31, 1996 consists of the following:
Current $ --
Deferred expense (benefit) (52,948)
Change in valuation allowance 52,948
---------
$ --
========
The Company has net operating losses of $491,811 that may be
used to offset future taxable income. These loss carryforwards
expire at various dates through 2011. No tax benefit has been
reported in the financial statements. The Company has recorded
a valuation allowance to offset any deferred tax benefits
arising from net operating losses or temporary differences.
Note 11 - Equity Investment
The following is summarized, audited financial information of
FFLC.
First Financial Life Companies, Inc.
Balance Sheet
December 31, 1996
Assets
Cash $ 1,395,904
Amounts on deposit with reinsurer 28,095,288
Deferred policy acquisition costs 5,445,861
Other assets 330,598
-----------
Total Assets $35,267,651
===========
Liabilities and Shareholders' Equity
Universal life liabilities $33,436,198
Future policy benefits and claims payable 319,227
Federal taxes payable 41,439
Other liabilities 367,637
-----------
Total Liabilities 34,164,501
-----------
Common stock 9,150
Additional paid-in capital 1,510,817
Treasury stock (471,827)
Retained earnings (deficit) 55,010
-----------
Total Shareholders' Equity 1,103,150
-----------
Total Liabilities and Shareholders' Equity $35,267,651
===========
F - 15
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 11 - Equity Investment, continued
First Financial Life Companies, Inc.
Statement of Income
For the Years Ended December 31,
1995 1996
----------- ----------
Premium income $(1,982,942) $(1,739,444)
Universal life and investment
product charges 6,137,304 5,152,770
Net investment income 1,776,869 1,883,151
Other income 67,372 43,175
------------ -----------
Total revenues 5,998,603 5,339,652
------------ -----------
Policyholder benefits on
traditional products (93,908) 67,762
Universal life and investment
products benefits 2,437,758 2,433,794
Amortization of deferred
policy acquisition costs 2,367,101 1,689,914
Other operating expenses 1,482,975 1,352,905
----------- -----------
Total expenses 6,193,926 5,544,375
----------- -----------
Operating loss before income taxes (195,323) (204,723)
Income tax expense (benefit) (144,463) (73,819)
----------- -----------
Net (loss) $ (50,860) $ (130,904)
========== ===========
The Company purchased stock in FFLC at various dates through
April 1995 at a cost of $329,219. The remaining balance of the
Company's investment $275,346 is composed of the Company's pro
rata share of income and losses and any dividends received.
Note 12 - Subsequent Events
Name Change
On November 12, 1997 FFLIC's name was changed to Rushmore Life
Insurance Company.
Disposal of Subsidiary
On March 3, 1997 the Company sold RFC for $10. Management does
not expect this event to have a material adverse effect on the
financial position or results of operations of the Company.
F - 16
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 12 - Subsequent Events
Authorized Shares
On April 5, 1997 the shareholders of the Company voted to
amend the Articles of Incorporation to increase the authorized
shares of common stock from 4,000,000 to 20,000,000. On
October 17, 1997 the Articles of Incorporation were amended to
decrease the number of authorized shares to 10,000,000 shares
and the outstanding shares were split 1 for 2. All shares
presented in these financial statements and earnings per share
calculations are retroactively stated to reflect the capital
structure changes through October 17, 1997.
Acquisition
On April 8, 1997 the Company acquired the remaining 74.6% of
Rushmore Life (formerly FFLC) in exchange for the Company's
stock at a ratio of 3.04 shares of Company stock for every 1
share of Rushmore Life stock. This acquisition has been
accounted for as a purchase. The following additional notes
serve to describe the operation of Rushmore Life that is
reflected in the financial statements at September 30, 1997
and the nine months ended September 30, 1997.
a. Summary of Significant Accounting Policies:
o Basis of Presentation: Rushmore Life maintains its
accounts in conformity with accounting practices prescribed
or permitted by state insurance regulatory authorities. In
the accompanying financial statements, such accounts have
been adjusted to conform with generally accepted accounting
principles.
o Investments: Short-term investments, which consist of U.S.
Treasury bills, purchased with maturities of less than three
months, are reflected at amortized cost, which approximates
estimated fair value. All short-term investments are
considered to be cash equivalents.
The Company has adopted Statement of Financial Accounting
Standards No. 115, which prescribes accounting for certain
debt and equity securities.
o Deferred Policy Acquisition Costs: Costs which vary with
and which are directly related to the acquisition of new
business have been deferred to the extent that such costs
are deemed recoverable through future revenues. These costs
primarily include commissions and allowances. For universal
life, such costs are amortized generally in proportion to
the present value (principally using the assumed credit
rate) of expected gross profits. This amortization is
adjusted retrospectively when the insurance subsidiary
revises its estimates of current or future gross profits to
be realized from a group of policies. For traditional
products, such costs are amortized with interest over the
premium-paying period in proportion to the ratio of
anticipated annual premium revenue to the anticipated total
premium revenue. Anticipated investment income is considered
in the determination of recoverability of deferred policy
acquisition costs.
F - 17
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 12 - Subsequent Events, continued
a. Summary of Significant Accounting Policies:
o Future Policy Benefits: The liability for future policy
benefits of long-term duration contracts has been computed
by the net level premium method based on estimated future
investment yield, mortality, morbidity, and withdrawal
experience. Reserve interest assumptions are based on
amounts guaranteed in the Modified Coinsurance Treaty.
Mortality, morbidity, and withdrawal assumptions reflect the
experience of the life insurance subsidiary modified as
necessary to reflect anticipated trends and to include
provisions for possible unfavorable deviations. The
assumptions vary by plan, year of issue, and duration.
o Universal Life Contract Liabilities: With respect to
universal life contracts, the insurance subsidiary utilizes
the retrospective deposit accounting method. Contract
liabilities include the accumulated fund balances of such
policies and represent the premiums received plus
accumulated interest, less mortality and administration
charges.
Contract liabilities also include the unearned revenue
reserve which reflects the unamortized balance of the excess
of first year administration charges over renewal period
administration charges on universal life products. These
excess charges have been deferred and are being recognized
in income over the period benefited using the same
assumptions and factors used to amortize deferred policy
acquisition costs.
o Recognition of Premium Revenue and Related Expenses:
Traditional life insurance premiums are recognized as
revenue over the premium-paying period. Future policy
benefits and policy acquisition costs are associated with
the premiums as earned by means of the provision of future
policy benefits and amortization of deferred policy
acquisition costs.
Revenues for universal life products consist of policy
charges for the cost of insurance, policy administration
charges, amortization of policy initiation fees and
surrender charges assessed against policyholder account
balances during the period. Expenses related to these
products include interest credited to policyholder account
balances and benefit claims incurred in excess of
policyholder account balances.
o Policy and Contract Claims: Policy and contract claims
include provisions for reported claims in process of
settlement, valued in accordance with the terms of the
related policies and contracts.
o Reinsurance: In the normal course of business, the Company
seeks to limit its exposure to loss on any single insured
and to recover a portion of the benefits paid over such
limits. This is done by ceding reinsurance to other
insurance enterprises or reinsurers under excess coverage
and coinsurance contracts.
The Company reports assets and liabilities related to
insurance contracts before the effects of reinsurance.
Reinsurance receivables and prepaid reinsurance premiums
(including amounts related to insurance liabilities) are
reported as assets. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities
related to the underlying reinsured contracts.
F - 18
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 12 - Subsequent Events, continued
a. Summary of Significant Accounting Policies:
o Income Taxes: Income tax expense (benefit) includes
deferred income taxes arising from temporary differences
between the tax and financial reporting basis of assets and
liabilities. This liability method of accounting for income
taxes also requires the Company to reflect in income the
effect of a tax-rate change on accumulated deferred income
taxes in the period in which the change is enacted.
In assessing the realization of deferred income tax assets,
the Company considers whether it is more likely than not
that the deferred income tax assets will be realized. The
Company has recorded a valuation allowance to offset any
deferred tax benefits arising from net operating losses or
temporary differences.
o Goodwill: Goodwill was recorded on the purchase of
Rushmore Life and is being amortized over 30 years.
b. Significant Reinsurance Treaty:
Substantially all of the Company's consolidated business
activity is the result of modified coinsurance treaties
entered into with Massachusetts General Life Insurance
Company (MGL), a subsidiary of Life Partners Group, Inc.
(LPG) and Southwestern Life Insurance Company (SWL), a
subsidiary of Southwestern Life Corporation (SLC). Under the
terms of the agreements, Rushmore Life assumes a quota share
risk on all policies which are issued by MGL and SWL as a
result of applications submitted by agents affiliated with
First Financial Marketing Group. The quota share percentage
falls between 33-1/3% and 50% of on all business submitted.
Because the treaties are on the basis of modified
coinsurance, MGL and SWL establish 100% of the reserves
required to be held by the various state insurance
regulatory authorities. Rushmore Life, in turn, deposits
with MGL and SWL an amount equal to its quota share of the
reserves. MGL and SWL pay Rushmore Life interest on the
deposits at the investment rate assumed in the pricing of
each product. These deposits are included in the amounts on
deposit with reinsurer account balance in the financial
statements. Although Rushmore Life is credited with interest
based on the reserve deposits, the legal owners of the
assets are MGL and SWL, not Rushmore Life.
For the nine months ended September 30, 1997 the Company
assumed premiums of approximately $5,321,000 and paid
approximately $1,362,000 in retroceded premiums.
The Company paid approximately $1,038,000 in death benefits
for the nine months ended September 30, 1997 net of ceded
benefits of approximately $516,000.
MGL, Wabash Life Insurance Company (MGL's parent), SWL and
Facilities Management Installation (FMI) provide all
necessary functions to fully process, administer, and
account for the insurance business of Rushmore Life. For the
nine months ended Rushmore Life paid these companies for
such services and policy maintenance as follows:
Wabash fees $ 154,802
FMI fees $ 15,531
MGL & SWL policy maintenance fees $ 228,699
F - 19
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 12 - Subsequent Events, continued
c. Stockholders' Equity and Restrictions:
At September 30, 1997 substantially all the net assets of
Rushmore Life are restricted and cannot be transferred to the
Company in the form of dividends, loans or advances. Generally,
the net assets of Rushmore Life available for transfer to the
Company are limited to the lesser of the Rushmore Life's net gain
from operations during the preceding year or 10% of the Rushmore
Life's net surplus as of the end of the preceding year as
determined in accordance with accounting practices prescribed or
permitted by regulatory authorities. Payment of dividends in
excess of such amounts would generally require approval by
regulatory authorities.
Rushmore Life is domiciled in the state of Arizona, which is also
the only state in which it is licensed to conduct business. On
the basis of reporting as prescribed or permitted by the Arizona
Department of Insurance, Rushmore Life had statutory capital and
surplus of approximately $1,259,806 as of September 30, 1997 and
net earnings of $192,273 for the nine months ended September 30,
1997. Rushmore Life maintains at least $250,000 of statutory
capital and surplus in order to retain $25,000 of risk on any one
insured. Arizona law prohibits an Arizona reinsurer from
retaining insurance risk on any one insured in excess of 10% of
its capital and surplus
d. Commitments, Litigation and Contingent Liabilities:
The Internal Revenue Service (IRS) has not examined any of the
federal income tax returns of Rushmore Life.
Rushmore Life has set its retention limit for acceptance of risk
on life insurance policies at $25,000. Risk in excess of the
$25,000 limit is reinsured back to MGL and SWL pursuant to
certain reinsurance agreements. Rushmore Life pays MGL and SWL to
reinsure the excess risk according to mortality schedules which
are contained in the reinsurance agreements. Rushmore Life paid
MGL and SWL approximately $1,278,298 reinsurance costs for the
nine months ended September 30, 1997. MGL has ceded to Rushmore
Life Company approximately $931,785,917 of insurance in force as
of September 30, 1997. Pursuant to the reinsurance agreements
with MGL Rushmore Life has in turn retroceded approximately
$527,319,443 of insurance in force to MGL, retaining risk equal
to the difference.
SWL has ceded to Rushmore Life approximately $46,693,000 of
insurance in force as of September 30, 1997. Pursuant to the
reinsurance agreement with SWL, Rushmore Life has in turn
retroceded approximately $31,028,752 of insurance in force to
SWL, retaining risk equal to the difference.
The Company is not aware of any lawsuits or claims which are
pending against it. However, during 1995, MGL settled a class
action lawsuit filed on behalf of policyholders of certain
policies held on or after April 1, 1992 and on or before June 30,
1994. The settlement consisted of the return of excess mortality
charges incurred due to MGL's decision to pass on a portion of
the DAC tax and the repayment of certain surrender charges
collected as a result of the termination of the above policies
because of the increased mortality charges.
F - 20
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
Note 12 - Subsequent Events, continued
e. Other Operating Statement Data:
Changes in deferred acquisition costs were as follows:
1997
-----------
Balance, April 1, 1997 $5,057,695
Additions 264,992
Amortization related to operations (1,041,328)
-----------
Balance, end of year $4,281,359
===========
F - 21
<PAGE>
Report of Independent Accountants
To the Board of Directors and StockholdersRushmore Financial Group, Inc.
We have audited the accompanying consolidated balance sheet of First Financial
Life Companies, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 consolidated financial position of First Financial
Life Companies, Inc. and Subsidiary as of December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
------------------------
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
November 20, 1997
F-22
<PAGE>
<TABLE>
<CAPTION>
First Financial Life Companies, Inc. and Subsidiary
Consolidated Balance Sheet
as of December 31,1996
<S> <C>
ASSETS
Investments:
Cash and short-term investments $ 1,395,904
Amounts on deposit with reinsurer 28,095,288
Total investments 29,491,192
Deferred policy acquisition costs 5,445,861
Notes, accounts receivable and uncollected premiums 154,068
Equipment, net of accumulated depreciation 6,825
Accrued investment income 495
Net deferred federal income taxes 169,210
------------
Total assets $ 35,267,651
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits $ 93,908
Universal life contract liabilities 33,436,198
Claims payable 225,319
Current federal income taxes payable 41,439
Other liabilities 367,637
------------
Total liabilities 34,164,501
------------
Stockholders' equity:
Common stock, $0.01 par value; 2,000,000 shares authorized; 915,000 shares issued 9,150
Additional paid-in capital 1,510,817
Treasury stock (at cost, 363,802 shares) (471,827)
Retained earnings 55,010
------------
Total stockholders' equity 1,103,150
------------
Total liabilities and stockholders' equity $ 35,267,651
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
First Financial Life Companies, Inc. and Subsidiary
Consolidated Statement of Operations
for the years ended December 31, 1996 and 1995
<S> <C>
1996 1995
Revenues:
Insurance policy income $ 4,154,362 $ 3,413,326
Net investment income 1,776,869 1,883,151
Other income 67,372 43,175
----------- -----------
Total revenues 5,998,603 5,339,652
----------- -----------
Benefits and expenses:
Insurance policy benefits 2,343,850 2,501,556
Amortization of deferred policy acquisition costs 2,367,101 1,689,914
Other operating expenses 1,482,975 1,352,905
----------- -----------
Total benefits and expenses 6,193,926 5,544,375
----------- -----------
Loss before income taxes (195,323) (204,723)
(144,463) (73,819)
Income tax benefit
----------- -----------
Net loss $ (50,860) $ (130,904)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE>
First Financial Life Companies, Inc. and Subsidiary
Consolidated Statement Stockholders' Equity
for the years ended December 31, 1996 and 1995
1996 1995
Common stock:
Balance at beginning of year $ 8,181 $ 6,496
Issuance of shares 969 1,685
----------- -----------
Balance at end of year 9,150 8,181
----------- -----------
Additional paid-in capital:
Balance at beginning of year 1,465,100 1,344,297
Issuance of shares, excess over par 45,717 120,803
----------- -----------
Balance at end of year 1,510,817 1,465,100
----------- -----------
Treasury stock:
Balance at beginning of year (91,276) (90,003)
Purchase of treasury stock (380,551) (1,273)
----------- -----------
Balance at end of year (471,827) (91,276)
----------- -----------
Retained earnings (deficit):
Balance at beginning of year 105,870 236,774
Net earnings (loss) (50,860) (130,904)
----------- -----------
Balance at end of year 55,010 105,870
----------- -----------
Total stockholders' equity $ 1,103,150 $ 1,487,875
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE>
<TABLE>
<CAPTION>
First Financial Life Companies, Inc. and Subsidiary
Consolidated Statement of cash Flows
for the years ended December 31, 1996 and 1995
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net loss $ (50,860) $ (130,904)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments related to universal life and investment products:
Interest credited to account balances 1,588,291 1,521,353
Charges for mortality and administration (5,787,636) (4,864,420)
Increase (decrease) in future policy benefits 85,246 (6,981)
Decrease (increase) in deferred policy acquisition costs 1,216,293 (360,163)
(Decrease) increase in claims payable (57,127) 169,534
(Increase) decrease in deferred federal income taxes (237,564) 6,623
Increase (decrease) in other liabilities 79,212 (218,317)
Increase in amounts on deposit with reinsurer (1,500,119) (2,819,090)
(Increase) decrease in accrued investment income, notes, accounts
receivable and uncollected premiums (9,002) 563,984
Increase in current federal income taxes 86,284 0
Depreciation expense 2,730 1,365
----------- -----------
Net cash used in operating activities (4,584,252) (6,137,016)
----------- -----------
Cash flows from financing activities:
Receipts from universal life products 7,223,145 8,086,113
Withdrawals from universal life products (2,151,093) (1,436,829)
Sale of common stock 46,686 122,488
Purchase of treasury stock (380,551) (1,273)
Principal payment on note payable 0 (60,000)
----------- -----------
Net cash provided by financing activities 4,738,187 6,710,499
----------- -----------
Net increase in cash and short-term investments 153,935 573,483
1,241,969 668,486
Cash and short-term investments at beginning of year
----------- -----------
$ 1,395,904 $ 1,241,969
Cash and short-term investments at end of year
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE>
First Financial Life Companies, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
a. Principles of Consolidation: First Financial Life Companies, Inc.
(FFLC) was incorporated in the state of Texas in February 1989.
First Financial Life Insurance Company, the wholly owned subsidiary of
FFLC, is a domestic life and disability reinsurer incorporated in the
state of Arizona in January 1989.
The consolidated financial statements include the accounts of First
Financial Life Companies, Inc. and First Financial Life Insurance
Company (collectively referred to as the "Company"). Material
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
b. Basis of Presentation: FFLC's life insurance subsidiary maintains
its accounts in conformity with accounting practices prescribed or
permitted by state insurance regulatory authorities. In the
accompanying financial statements, such accounts have been adjusted to
conform with generally accepted accounting principles.
c. Investments: Short-term investments, which consist of U.S. Treasury
bills, purchased with maturities of less than three months, are
reflected at amortized cost, which approximates estimated fair value.
All short-term investments are considered to be cash equivalents.
The Company has adopted Statement of Financial Accounting Standards
No. 115, which prescribes accounting for certain debt and equity
securities. During 1996 or 1995, the Company held no such securities.
d. Deferred Policy Acquisition Costs: Costs which vary with and which
are directly related to the acquisition of new business have been
deferred to the extent that such costs are deemed recoverable through
future revenues. These costs primarily include commissions and
allowances. For universal life, such costs are amortized generally in
proportion to the present value (principally using the assumed credit
rate) of expected gross profits. This amortization is adjusted
retrospectively when the insurance subsidiary revises its estimates of
current or future gross profits to be realized from a group of
policies. For traditional products, such costs are amortized with
interest over the premium-paying period in proportion to the ratio of
anticipated annual premium revenue to the anticipated total premium
revenue. Anticipated investment income is considered in the
determination of recoverability of deferred policy acquisition costs.
F-27
<PAGE>
1. Summary of Significant Accounting Policies, continued:
e. Future Policy Benefits: The liability for future policy benefits of
long-term duration contracts has been computed by the net level
premium method based on estimated future investment yield, mortality,
morbidity, and withdrawal experience. Reserve interest assumptions are
based on amounts guaranteed in the Modified Coinsurance Treaty (see
Note 2). Mortality, morbidity, and withdrawal assumptions reflect the
experience of the life insurance subsidiary modified as necessary to
reflect anticipated trends and to include provisions for possible
unfavorable deviations. The assumptions vary by plan, year of issue,
and duration. The composition of future policy benefits as of December
31, 1996 and 1995 and the significant assumptions used in the
calculation are as follows:
<TABLE>
<S> <C> <C>
12/31/96 12/31/95
Liability Liability Mortality
For Future For Future or
Issue Policy Policy Morbidity
Years Benefits Benefits Interest Rates Tables Withdrawals
------------------------- --------------------------------------------------------------------------------
1987-90 $ 93,908 $ 100,229 Guaranteed Rate 4.5% 1980 CSO Company Experience
</TABLE>
f. Universal Life Contract Liabilities: With respect to universal life
contracts, the insurance subsidiary utilizes the retrospective deposit
accounting method. Contract liabilities include the accumulated fund
balances of such policies and represent the premiums received plus
accumulated interest, less mortality and administration charges.
Contract liabilities also include the unearned revenue reserve which
reflects the unamortized balance of the excess of first-year
administration charges over renewal period administration charges on
universal life products. These excess charges have been deferred and
are being recognized in income over the period benefited using the
same assumptions and factors used to amortize deferred policy
acquisition costs.
g. Recognition of Premium Revenue and Related Expenses: Traditional
life insurance premiums are recognized as revenue over the
premium-paying period. Future policy benefits and policy acquisition
costs are associated with the premiums as earned by means of the
provision of future policy benefits and amortization of deferred
policy acquisition costs.
Revenues for universal life products consist of policy charges for the
cost of insurance, policy administration charges, amortization of
policy initiation fees and surrender charges assessed against
policyholder account balances during the period. Expenses related to
these products include interest credited to policyholder account
balances and benefit claims incurred in excess of policyholder account
balances.
h. Policy and Contract Claims: Policy and contract claims include
provisions for reported claims in process of settlement, valued in
accordance with the terms of the related policies and contracts.
F-28
<PAGE>
1. Summary of Significant Accounting Policies, continued:
i. Reinsurance: In the normal course of business, the Company seeks to
limit its exposure to loss on any single insured and to recover a
portion of the benefits paid over such limits. This is done by ceding
reinsurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts.
The Company reports assets and liabilities related to insurance
contracts before the effects of reinsurance. Reinsurance receivables
and prepaid reinsurance premiums (including amounts related to
insurance liabilities) are reported as assets. Estimated reinsurance
receivables are recognized in a manner consistent with the liabilities
related to the underlying reinsured contracts.
j. Income Taxes: Income tax expense (benefit) includes deferred income
taxes arising from temporary differences between the tax and financial
reporting basis of assets and liabilities. This liability method of
accounting for income taxes also requires the Company to reflect in
income the effect of a tax-rate change on accumulated deferred income
taxes in the period in which the change is enacted.
In assessing the realization of deferred income tax assets, the
Company considers whether it is more likely than not that the deferred
income tax assets will be realized. The ultimate realization of
deferred income tax assets depends upon generating sufficient future
taxable income during the periods in which temporary differences
become deductible.
k. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions affecting the reported
amounts. The Company uses estimates and assumptions in calculating
deferred acquisition costs, future policy benefits, universal life
contact liabilities, deferred incomes taxes, and certain other
accruals. Actual amounts could differ from those estimated amounts.
F-29
<PAGE>
2. Significant Reinsurance Treaty:
Substantially all of the Company's consolidated business activity is
the result of modified coinsurance treaties entered into with
Massachusetts General Life Insurance Company (MGL), a subsidiary of
Life Partners Group, Inc. (LPG) and Southwestern Life Insurance
Company (SWL), a subsidiary of Southwestern Life Corporation (SLC).
Under the terms of the agreements, First Financial Life Insurance
Company assumes a quota share risk on all policies which are issued by
MGL and SWL as a result of applications submitted by agents affiliated
with First Financial Marketing Group. The quota share percentage falls
between 33-1/3% and 50% on all business submitted. Because the
treaties are on the basis of modified coinsurance, MGL and SWL
establish 100% of the reserves required to be held by the various
state insurance regulatory authorities. First Financial Life Insurance
Company, in turn, deposits with MGL and SWL an amount equal to its
quota share of the reserves. MGL and SWL pay First Financial Life
Insurance Company interest on the deposits at the investment rate
assumed in the pricing of each product. These deposits are included in
the amounts on deposit with reinsurer account balance in the financial
statements. Although First Financial Life Insurance Company is
credited with interest based on the reserve deposits, the legal owners
of the assets are MGL and SWL, not First Financial Life Insurance
Company.
For the years ended December 31, 1996 and 1995, the Company assumed
premiums of approximately $7,324,000 and $8,187,000, respectively, and
paid approximately $2,086,646 and $1,841,000, respectively, in
retroceded premiums for the years then ended.
The Company paid approximately $1,167,000 and $1,124,000,
respectively, in death benefits net of ceded benefits of approximately
$981,000 and $1,335,000, respectively, for the years ended December
31, 1996 and 1995.
MGL, Wabash Life Insurance Company (MGL's parent), SWL and Facilities
Management Installation (FMI) provide all necessary functions to fully
process, administer, and account for the insurance business of First
Financial Life Insurance Company. For the years ended December 31,
1996 and 1995, First Financial Life Insurance Company paid these
companies for such services and policy maintenance fees as follows:
1996 1995
Wabash fees $ 213,426 $ 209,714
FMI fees 21,369 22,928
MGL and SWL policy maintenance fees 318,547 293,094
F-30
<PAGE>
<TABLE>
<CAPTION>
3. Investments and Investment Income:
For the years ended December 31, 1996 and 1995, net investment income
consisted of the following:
<S> <C>
1996 1995
Cash and short-term investments $ 58,195 $ 49,999
Amounts on deposit with reinsurer 1,718,822 1,833,152
--------------- --------------
Gross investment income 1,777,017 1,883,151
Investment expenses 148 0
--------------- --------------
Net investment income $ 1,776,869 $ 1,883,151
=============== ==============
</TABLE>
Other than amounts on deposit with reinsurer at December 31, 1996, the
Company has no investments exceeding 10% of stockholders' equity.
4. Stockholders' Equity and Restrictions:
At December 31, 1996, substantially all consolidated stockholders'
equity represents net assets of FFLC's insurance subsidiary that
cannot be transferred to FFLC in the form of dividends, loans or
advances. Generally, the net assets of FFLC's insurance subsidiary
available for transfer to FFLC are limited to the lesser of the
subsidiary's net gain from operations during the preceding year or 10%
of the subsidiary's net surplus as of the end of the preceding year as
determined in accordance with accounting practices prescribed or
permitted by regulatory authorities. Payment of dividends in excess of
such amounts would generally require approval by regulatory
authorities.
First Financial Life Insurance Company is domiciled in the state of
Arizona, which is also the only state in which it is licensed to
conduct business. On the basis of reporting as prescribed or permitted
by the Arizona Department of Insurance, the life insurance subsidiary
had statutory capital and surplus of approximately $1,323,000 and
$1,110,000 as of December 31, 1996 and 1995, respectively, and it had
net earnings (loss) of $416,690 and $(52,703) for the years ended
December 31, 1996 and 1995, respectively. First Financial Life
Insurance Company maintains at least $250,000 of statutory capital and
surplus in order to retain $25,000 of risk on any one insured. Arizona
law prohibits an Arizona reinsurer from retaining insurance risk on
any one insured in excess of 10% of its capital and surplus.
F-31
<PAGE>
5. Capital Stock:
As of December 31, 1996, FFLC has one class of stock consisting of
2,000,000 shares authorized; 915,000 shares issued and 551,198 shares
outstanding, with a stated value of $.01 per share. FFLC had paid no
dividends to capital stockholders for the years ended December 31,
1996 or 1995.
6. Commitments, Litigation and Contingent Liabilities:
The Internal Revenue Service (IRS) has not examined any of the federal
income tax returns of FFLC or its life insurance subsidiary.
The life insurance subsidiary has set its retention limit for
acceptance of risk on life insurance policies at $25,000. Risk in
excess of the $25,000 limit is reinsured back to MGL and SWL pursuant
to certain reinsurance agreements. First Financial Life Insurance
Company pays MGL and SWL to reinsure the excess risk according to
mortality schedules which are contained in the reinsurance agreements.
First Financial Life Insurance Company paid MGL and SWL approximately
$1,962,000 and $1,713,000 for reinsurance costs for the years ended
December 31, 1996 and 1995, respectively. MGL has ceded to First
Financial Life Insurance Company approximately $970,727,018 of
insurance in force as of December 31, 1996. Pursuant to the
reinsurance agreements with MGL, First Financial Life Insurance
Company has in turn retroceded approximately $551,708,334 of insurance
in force to MGL, retaining risk equal to the difference. At December
31, 1995, these amounts were $1,008,922,000 and $573,969,000,
respectively.
SWL has ceded to First Financial Life Insurance Company approximately
$47,995,993 of insurance in force as of December 31, 1996. Pursuant to
the reinsurance agreement with SWL, First Financial Life Insurance
Company has in turn retroceded approximately $31,573,093 of insurance
in force to SWL, retaining risk equal to the difference. At December
31,1995, these amounts were $55,378,000 and $36,239,000, respectively.
The Company is not aware of any lawsuits or claims which are pending
against it. However, during 1995, MGL settled a class action lawsuit
filed on behalf of policyholders of certain policies held on or after
April 1, 1992 and on or before June 30, 1994. The settlement consisted
of the return of excess mortality charges incurred due to MGL's
decision to pass on a portion of the DAC tax and the repayment of
certain surrender charges collected as a result of the termination of
the above policies because of the increased mortality charges. The
recording of the Company's share of this settlement resulted in a
pretax expense of approximately $306,000 for the year ended December
31, 1995.
F-32
<PAGE>
7. Federal Income Taxes:
First Financial Life Companies, Inc. and First Financial Life
Insurance Company file separate federal income tax returns.
<TABLE>
<CAPTION>
Deferred federal income taxes were comprised of the following at December 31,
1996:
<S> <C> <C>
Deferred federal income tax assets:
Life reserves $ 12,156,416
Accrued expenses 98,787
Alternative minimum tax credit carryforward 59,482
-------------
Total deferred income tax assets 12,314,685
-------------
Deferred income tax liabilities:
Funds on deposit (9,552,398)
Deferred acquisition costs (2,591,320)
Other (1,757)
--------------
Total deferred income tax liabilities (12,145,475)
--------------
Net deferred federal income tax asset $ 169,210
=============
For the years ended December 31, 1996 and 1995, respectively, the
provision (benefit) for income taxes consists of the following
components:
1996 1995
Current tax expense (benefit) $ 94,801 $ (5,051)
Deferred tax expense (benefit) (239,264) (68,768)
------------ ------------
Income tax benefit $ (144,463) $ (73,819)
============ ============
</TABLE>
The difference between the federal income tax (benefit) computed by
applying statutory rates to income (loss) before income taxes and income
tax expense (benefit) as reported is primarily due to the small life
insurance company deduction, deferred acquisition costs, life policy
benefit reserves, and alternative minimum tax.
F-33
<PAGE>
8. Other Operating Statement Data:
Changes in deferred acquisition costs were as follows:
1996 1995
---- ----
Balance, beginning of year $ 6,662,154 $ 6,301,991
Additions 1,150,808 2,050,077
Amortization related to operations (2,367,101) (1,689,914)
----------- -----------
Balance, end of year $ 5,445,8$ 6662154
=========== ===========
9. Subsequent Event:
On April 8, 1997, FFLC was purchased by Rushmore Capital Corporation
(Rushmore) for stock and cash. FFLC was merged into Rushmore and then
dissolved, leaving FFLC owned directly by Rushmore. On November 12, 1997,
the name of First Financial Life Insurance Company was changed to
Rushmore Life Insurance Company.
F-34
<PAGE>
First Financial Life Insurance Company
Statement of Financial Condition
September 30, 1997
(unaudited)
ASSETS
Investments:
Cash and Short Term Investments $ 1,190,780
Equity Securities 775
Collateral Loans 75,000
Amounts on deposit with reinsurer 28,894,316
-------------
Total Investments 30,160,871
Notes, accounts receivable and 695,416
uncollected premiums
Equipment, net of accumulated depreciation 4,478
Accrued Investment Income 18,755
Federal Income Taxes :
Current -0-
Deferred 95,226
Deferred Policy Acquisition Costs 4,281,359
TOTAL ASSETS $ 35,256,405
LIABILITIES AND SHAREHOLDERS EQUITY
Future Policy Benefits $ 88,016
Universal Life Liabilities 33,258,288
Claims Payable 217,537
Federal Income Taxes
Current 36,260
Deferred -0-
Other Liabilities 378,839
Total Liabilities 33,978,940
----------
Shareholders Equity
Common Stock 100,000
Additional Paid-In-Capital 886,944
Unrealized loss on equity securities (22)
Retained Earnings 290,543
----------
Total Stockholders Equity 1,277,465
Total Liabilities and Shareholders Equity $35,256,405
F-35
<PAGE>
First Financial Life Insurance Company
Statement of Operations
For the Nine Months Ended September 30, 1997
(unaudited)
Income:
Premium income from traditional products $1,280,845)
Universal Life and investment product charges 4,393,214
Net investment income 1,567,071
Other income 42,440
----------
Total Income 4,721,880
Benefits, expenses, and costs:
Policyholder benfits on traditional products (48,397)
Universal life and investment product benefits 1,854,346
Amortization of deferred policy acquisition costs 1,561,992
Other operating expenses 1,259,277
Total Benefits, expenses, and costs 4,711,218
Operating income before income taxes 10,662
Income tax benefit (2,304)
---------
Net income $ 12,966
---------
F-36
<PAGE>
First Financial Life Insurance Company
Statement of Shareholders Equity
For the Nine Months Ended September 30, 1997
(unaudited)
Common Stock
Balance at beginning of period $ 100,000
Issuance of shares -0-
-------
Balance at end of period 100,000
-------
Additional paid-in capital
Balance at beginning of period 886,944
Issuance of shares, excess over par -0-
-------
Balance at end of period 886,944
-------
Unrealized loss on equity securities
Balance at beginning of period -0-
Change in unrealized appreciation (22
-------
Balance at end of period (22)
-------
Retained earnings
Balance at beginning of period 409,874
Dividends paid (132,297)
Net income 12,966
-------
Balance at end of period 290,543
-------
Total Shareholders Equity $1,277,465
---------
F-37
<PAGE>
First Financial Life Insurance Company
Statement of Cash Flows
For the Nine Months Ended September 30, 1997
(unaudited)
Cash flows from operating activities
Net income $ 12,966
Items not requiring (providing) funds:
Adjustments relating to universal life
and investment products:
terest credited to account balances 1,184,050
Charges for mortality and administration (3,651,315)
Increase in future policy benefits 16,146
Decrease in deferred policy acqusition costs 1,164,502
Increase in claims payable (7,782)
Decrease in URR liability (578,223)
Increase in accounts payable and accrued expenses 160,938
Decrease in amounts on deposit with reinsurer (799,028)
Increase in accrued investment income and
accounts receivable (337,436)
Decrease in current federal income taxes (5,179)
Depreciation expense 2,047
---------
Net cash used by operating activities (2,838,314)
---------
Cash flows from investing activities:
Purchase of equity securities (797)
Issuance of collateral loan (75,000)
---------
Net cash used by investing activities 75,797
------
Cash flows from financing activities:
Receipts from universal life products 5,231,481
Withdrawals from universal life products (2,385,940)
Dividends paid (132,297)
---------
Net cash provided by financing activities 2,713,244
---------
Net decrease in cash and short-term investments (200,867)
Cash and short-term investments at beginning of period 1,391,647
---------
Cash and short-term investments at end of period $ 1,190,780
---------
F-38
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Financial Data
(Unaudited)
Pro Forma Consolidated Balance Sheet
The following unaudited pro forma balance sheet has been derived from the
balance sheet of the Company at December 31, 1996 and adjusts such information
to give effect to the acquisition of the remaining 74.6% of Rushmore Life
Insurance Company (formerly First Financial Life Insurance Company, Inc.) on
April 8, 1997 and the sale of Rushmore Financial Corporation which was effective
March 3, 1997 as if both of these transactions had occurred at January 1, 1996.
The pro forma balance sheet is presented for informational purposes only and
does not purport to be indicative of the financial condition that actually would
have resulted if the transactions had occurred on January 1, 1996. The pro forma
balance sheet should be read in conjunction with the notes thereto and the
Company's consolidated financial statements and related notes thereto contained
elsewhere in this prospectus.
F-39
<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Balance Sheet
<S> <C> <C> <C>
December 31, 1996
----------------------------------------------------------------------
Actual Adjustments Proforma
Dr Cr
-------- ------------ ----------
Investment
Cash and short-term investments $ 117,738 4$ 7,638
2$ 1,395,904 1137,900 $ 1,368,104
Amounts on deposit with reinsurer 2 28,095,288 28,095,288
----------- -----------
Total investments 117,738 29,463,392
Deferred policy acquisition costs 2 5,445,861 5,445,861
Notes, account receivable and uncollected premiums 27,459 2 154,068 4 10,515 171,012
Receivable from brokers and dealers 27,255 27,255
Prepaid expenses and advances 17,019 4 15,951 1,068
Equity investment in subsidiary 275,346 1 1,196,599 2 1,471,945 -0-
Equipment, net of accumulated depreciation 67,894 2 6,825 74,719
Deferred federal income taxes 2 50,398 3 50,398
Goodwill 2 495,647 495,647
Other assets and intangibles 10,375 2 495 4 576 10,294
----------- -------------- ------------- -------------
Total assets $ 543,086 36,841,085 1,694,923 $35,689,248
=========== =============
35,146,162
----------- -----------
$36,841,085 $36,841,085
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Balance Sheet
<S> <C> <C> <C> <C>
December 31, 1996
Actual Adjustments Proforma
Liabilities Dr Cr
Future policy benefits 2$ 93,908 $ 93,908
Universal life contract liabilities 2 33,436,198 33,436,198
Claims payable 2 225,319 225,319
Notes payable $ 24,024 24,024
Due to affiliated companies 15,220 15,220
Current federal income taxes 2 41,439 41,439
Other liabilities 152,905 152,905
4 21,377 2 375,677 354,300
----------- -----------
Total liabilities 192,149 34,343,313
----------- -----------
Shareholders' equity
Preferred stock - 9% cumulative preferred stock, $10
par value, 4,300 shares issued and outstanding 43,000 43,000
Preferred stock - Series A cumulative preferred stock,
$10 par value, 13,792 shares issued and outstanding 137,920 137,920
Common stock - $0.01 par value, 10,000,000 shares authorized, 2 9,149 2 9,149
1,419,293 shares issued and outstanding 14,193 1 5,353 19,546
Common stock subscribed, 17,593 shares at $1.50 per share 176 176
Additional paid in capital 826,547 2 1,510,817
2 1,510,817 1 1,053,346 1,879,893
Treasury stock 2 471,827 2 471,827
Retained earnings (deficit) (531,246) 2 63,802 2 63,802 (594,947)
3 50,398
4 13,303
Shareholder/affiliate loans
Common stock subscriptions receivable (26,389) (26,389)
Shareholder loans (98,506) (98,506)
Receivable from affiliates (14,758) (14,758)
----------- ----------- ---------------- ------------
Total shareholders' equity 350,937 2,140,673 37,286,835 1,345,935
----------- ------------
35,146,162
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 543,086 ----------- ----------- $35,689,248
=========== ===========
$37,286,835 $37,286,835
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Financial Data
(Unaudited)
Pro Forma Consolidated Statements of Income
The following unaudited pro forma statements of income have been derived from
the statements of income of the Company for the fiscal year ended December 31,
1996 and the nine months ended September 30, 1997 and adjust such information to
give effect to the acquisition of the remaining 74.6% of Rushmore Life Insurance
Company (formerly First Financial Life Insurance Company, Inc.) on April 8, 1997
and the sale of Rushmore Financial Corporation which was effective March 3, 1997
as if both of these transactions had occurred January 1, 1996. The pro forma
statements of income are presented for information purposes only and do not
purport to be indicative of the results of operations that actually would have
resulted had the acquisition and sale been consummated on January 1, 1996 nor
which may result form future operations. The Pro Forma Consolidated Statement of
Income should be read in conjunction with the notes thereto and the Company's
consolidated financial statements and related notes thereto contained elsewhere
in this prospectus.
F-42
<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Statements of Income
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1996 For the Nine Months Ended September 30, 1997
--------------------------------------- --------------------------------------------
Actual Adjustments Proforma Actual Adjustment Proforma
--------------------------------------------- --------------- --------------- ----------
Dr Cr Dr Cr
Revenue
Revenue from
Insurance Services
Premium income
from traditional
products 2$ 1,982,942 $(1,982,942) $ (836,807) 5$444,038 $(1,280,845)
Universal life and
investment
product charges 2$6,137,304 6,137,304 2,928,809 5$ 1,464,405 4,393,214
Net investment
income 2 1,776,869 1,776,869 1,050,052 5 517,019 1,567,071
Aging management
fee $ 346,968 346,968 104,167 5 16,239 120,406
Other income 2 67,372 67,372
Revenue from Investment
Services
Commissions and fees 1,493,908 1,493,908 1,589,928 1,589,928
Asset management 28,705 28,705 103,292 103,292
Other 15,911 15,911 41,543 41,543
----------- ---------- --------- ----------- ----------- ----------- ----------- ---------
Total revenues 1,885,492 1,982,942 7,981,545 7,884,095 4,980,984 444,038 1,997,663 6,534,609
---------- ----------- --------- ----------- ----------- ----------- ----------- ---------
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
F-43
<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Pro Forma Statements of Income
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1996 For the Nine Months Ended September 30, 1997
----------------------------------------------- ---------------------------------------------
Actual Adjustments Proforma Actual Adjustment Proforma
-------- ---------------- ----------------- --------------- ----------- -----------
Dr Cr Dr Cr
Expenses
Insurance Services
Expenses
Other insurance
services expenses 2 1,482,975 1,495,868 697,655 5 364,005 1,061,660
2 12,893
Policy holder benefits
on traditional products 2 93,908 (93,908) 1,128,230 5 26,881 1,101,349
Universal life and
investment
products benefit 2 2,437,758 2,437,758 5 704,600 704,600
Amortization of deferred
policy
acquisition costs 2 2,367,101 2,367,101 1,041,328 5 520,664 1,561,992
Equity in subsidiary loss 12,893 2 12,893
Investment Services Expenses
Commission expense 1,241,476 1,241,476 1,425,141 1,425,141
Other investment services
expense 83,803 83,803 60,127 60,127
General and administrative 663,172 663,172 629,514 629,514
----------- --------- --------- ----------
Total Expenses 2,001,344 8,195,270 4,981,995 6,544,383
----------- ----------- ----------- ----------- ----------
Operating income (loss) (115,852) (311,175) (1,011) (9,774)
Interest expense 4,535 4,535 4,163 4,163
----------- ---------- --------- ------------ ----------
Income from continuing
operations (120,387) (315,710) (5,174) (13,937)
Discontinued operations
(net) (50,504) 4 50,504 (25,992) 4 25,992
----------- --------- ----------- ----------
Income from federal income
tax (170,891) (315,710) (31,166) (13,937)
Provision for federal
income tax 3 50,398 2 25,651 (24,747) (95,393) (95,393)
------------ ----------- -------- ----------- ----------- ---------- ----------
Net income (loss) $ (170,891) $ (340,457) $ (126,559) $ (109,330)
=========== =========== ===========
Net income (loss) per
common share $ (.12) $ (.18) $ (.07) $ (.06)
=========== =========== =========== ===========
Weighted average common
shares outstanding 1,376,777 $ 1,912,015 1,737,588 $ 1,975,472
=========== =========== =========== ===========
6,351,125 182,956 1,589,269 52,873
----------- --------- ---------- ------------
8,334,067 8,164,501 2,033,307 2,050,536
169,566 17,229
---------- ----------- ---------- ----------
$8,334,067 $8,334,067 $ 2,050,536 $ 2,050,536
=========== =========== =========== ===========
See Notes to Pro Forma Consolidated Financial Statements.
</TABLE>
F-44
<PAGE>
RUSHMORE FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Notes to Pro Forma Consolidated Financial Statements
December 31, 1996 and 1995
(1) Adjustment to effect the acquisition of Rushmore Life, 535,250 shares
of common stock and $137,900 cash were paid for the remaining 74.6%
shares of Rushmore Life.
(2) Entry to effect consolidation and elimination of the accounts of
Rushmore Life as if it occurred at the beginning of 1996. The
acquisition has been accounted for as a purchase. The assets and
liabilities were entered at their December 31, 1996 balances. The
income and expenses from Rushmore Life were recorded for the entire
twelve months ended December 31, 1996.
(3) Adjustment to write off balance of deferred federal income tax asset
which is limited under Internal Revenue Code Section 382 when there is
more than a 50% change in ownership.
(4) Entry to effect sale of RFC as if it had occurred at the beginning of
1996. All assets and liabilities were adjusted off of the books at
December 31, 1996 and losses from discontinued operations were adjusted
off for the year ended December 31, 1996 and the nine months ended
September 30, 1997.
(5) An entry is necessary to include the full nine months of income and
expense on a pro forma basis on Rushmore Life. As it was acquired April
8, 1997 only six months of its income and expense are included in the
consolidated results for nine months ended September 30, 1997.
F-45
<PAGE>
<TABLE>
<S> <C> <C>
No dealer, salesman or other person has been authorized to give any UP TO 1,250,000 SHARES
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or by any of the Underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer COMMON STOCK
to buy, by any person in any jurisdiction in which such offer is not authorized,
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such an offer or OFFERING PRICE
solicitation. Neither the delivery of this Prospectus nor any sale made $5.50
hereunder shall, under any circumstance, create any implication that there has PER SHARE
been no change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Heading Page [lOGO]
- ------- ----
Prospectus Summary......................................... 3
Forward-Looking Information................................ 6
Risk Factors............................................... 6 Prospectus
The Company................................................ 10
Use of Proceeds............................................ 11 ----------,19---
Dividend Policy............................................ 11
Dilution .................................................. 11
Capitalization............................................. 12
Selected and Pro Forma Consolidated FIRST SOUTHWEST COMPANY
Financial Information................................... 13
Management's Discussion and
Analysis of Financial Condition RUSHMORE SECURITIES CORPORATION
and Results of Operations............................... 14
Business................................................... 18
Management................................................. 24
Certain Transactions....................................... 27
Principal Stockholders..................................... 28
Description of Securities.................................. 29
Shares Eligible for Future Sale............................ 30
Underwriting............................................... 31
Legal Matters.............................................. 33
Experts.................................................... 33
Available Information...................................... 33
Index to Financial Statements.............................. 34
</TABLE>
Until ____________, 1998 (90 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 2.02-1 of the Texas Business Corporation Act permits (and the
Registrant's Certificate of Incorporation and Bylaws, which are incorporated by
reference herein, authorize) indemnification of directors and officers of the
Registrant and officers and directors of another corporation, partnership, joint
venture, trust, or other enterprise who serve at the request of the Registrant,
against expenses, including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonable incurred by such person in connection with
any action, suit or proceeding in which such person is a party by reason of such
person being or having been a director or officer of the Registrant or at the
request of the Registrant, if he conducted himself in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Registrant may not
indemnify an officer or a director with respect to any claim, issue or matter as
to which such officer or director shall have been adjudged to be liable to the
Registrant, 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 the court
shall deem proper. To the extent that an officer or director is successful on
the merits or otherwise in defense on the merits or otherwise in defense of any
action, suit or proceeding with respect to which such person is entitled to
indemnification, or in defense of any claim, issue or matter therein, such
person is entitled to be indemnified against expenses, including attorney's
fees, actually and reasonably incurred by him in connection therewith.
The circumstances under which indemnification is granted in an action
brought on behalf of the Registrant are generally the same as those set forth
above; however, expenses incurred by an officer or a director in defending a
civil or criminal action, suit or proceeding may be paid by the Registrant in
advance of final disposition upon receipt of an undertaking by or on behalf of
such officer or director to repay such amount if it is ultimately determined
that such officer or director is not entitled to indemnification by the
Registrant.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the issuance and distribution
of the securities being registered, other than underwriting discounts and
commissions are set forth in the following table:
S.E.C. registration fees......................................... $2,028
N.A.S.D. filing fees.............................................. 1,200
NASDAQ SmallCap application and listing fees...................... 5,000
*State securities laws (Blue Sky) legal fees and expenses.........
*Printing and engraving expenses..................................
*Legal fees and expenses..........................................
*Accounting fees and expenses.....................................
*Transfer agent's and registrar's fees and expenses...............
*Miscellaneous....................................................
Total.............................................................
- ----------------------
* To be filed by amendment
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Registrant has sold and issued the shares of Common Stock described
below within the past three years that were not registered under the Act. No
underwriting discounts or commissions were paid with respect to such sales.
Number of Offering Exemption
Date Shares Price Claimed
- ---- ---------- -------- ----------
November 1997 (2) 155,680 $1.92 (1)
May 1997 508,144 (3) (1)
April 1996 5,759 1.50 (1)
July 1996 46,026 1.50 (1)
December 1996 34,151 1.50 (1)
April 1995 61,966 1.04 (1)
June 1995 147,742 1.04 (1)
- --------------------
(1) The Company relied on Sections 3 and 4(2) of the Securities Act of 1933
for exemption from the registration requirements of such Act. Each
investor was furnished with information concerning the formation and
operations of the Registrant, and each had the opportunity to verify
the information supplied. Additionally, Registrant obtained a signed
representation from each of the foregoing persons in connection with
the purchase of the Common Stock of his or her intent to acquire such
Common Stock for the purpose of investment only, and not with a view
toward the subsequent distribution thereof; each of the certificates
representing the Common Stock of the Registrant has been stamped with a
legend restricting transfer of the securities represented thereby and
the Registrant has issued stop transfer instructions to the Transfer
Agent for the Common Stock of the Company, concerning all certificates
representing the Common Stock issued in the above-described
transactions.
(2) Represents a Rule 504 offering to employees and agents commenced on
May 1997 and closed in November 1997.
(3) 3.04 shares of the Company's Common Stock were issued in exchange for
each share of First Financial Life Companies, Inc. in connection with
the acquisition of Rushmore Life.
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No.
1.1 Form of Underwriting Agreement between Registrant and First
Southwest Company
1.2 Form of Representative's Warrant Agreement
1.3 Form of Selected Dealer Agreement
1.4 Form of Letter Agreement regarding restrictions on sales
* 1.5 Escrow Agreement with Bank One Investment Management Group
* 2.1 Plan and Agreement of Merger with First Financial Life
Companies, Inc.
* 3.1 Articles of Incorporation, as amended
* 3.2 Bylaws
4.1 Specimen certificate for shares of Common Stock of the Company
4.2 Specimen certificate for shares of Preferred Stock of the
Company
* 5.1 Opinion of Glast, Phillips & Murray, P.C.
* 10.1.1 Employment Agreement with D. M. Moore, Jr.
10.1.2 Employment Agreement with Jim W. Clark
* 10.2.1 Modified Coinsurance Agreement with Massachusetts General Life
Insurance Company
* 10.2.2 Administrative Service Agreement with Massachusetts General Life
Insurance Company
* 10.2.3 Reinsurance Agreement with Massachusetts General Life Insurance
Company
II-2
<PAGE>
10.2.4 National Marketing Agreement with Massachusetts General Life
Insurance Company
10.3.1 Modified Coinsurance Agreement with Southwestern Life Insurance
Company
10.3.2 Reinsurance Agreement with Southwestern Life Insurance Company
10.3.3 Administrative Service Agreement with Southwestern Life
Insurance Company
10.4.1 National Marketing Contract with Legion Insurance Company
10.5 Administrative Services Agreement between Registrant and
Rushmore Life
10.6.1 Option Agreement regarding Rushmore Insurance Services, Inc.
10.6.2 Overhead Services Agreement
10.7 Form of Registered Representative Agreement
10.8 Form of Investment Advisory Agreement
10.9 Form of Affiliation Agreement with Agents
10.10.1 Fully Disclosed Clearing Agreement with Southwest Securities,
Inc.
10.10.2 Fully Disclosed Clearing Agreement with First Southwest Company
10.11 Form of Indemnification Agreement signed with all officers and
directors
* 11.1 Statement regarding computation of earnings per share
* 15.1 Letter on unaudited interim financial information
21.1 Subsidiaries of the Registrant
* 23.1 Consent of Glast, Phillips & Murray, P.C., included in Exhibit
5.1
* 23.2 Consent of Cheshier & Fuller, L.L.P.
* 23.3 Consent of Coopers & Lybrand, L.L.P.
* 23.4 Consent of James Fehleison regarding appointment as
director
* 23.5 Consent of Gayle Tinsley regarding appointment as director
* 24.1 Power of Attorney, set forth on signature page
* 27.1 Financial data schedule
- -------------------------------
* Filed herewith
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.
Item 28. Undertakings
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933; (ii) To reflect in the prospectus
any facts or events which, individually or together, represent a
fundamental change in the information in the registration
statement; and (iii) To include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Will supplement the prospectus, after the end of the
subscription period, to include the results of the subscription offer,
the transactions by underwriters during the subscription period, the
amount of unsubscribed securities that the underwriters will purchase
and the terms of any later reoffering.
II-3
<PAGE>
(5) If the underwriters make any public offering of the
securities on items different from those on the cover page of the
prospectus, file a post-effective amendment to state the terms of such
offering.
(b) Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) Rule 430A.
The Registrant hereby undertakes that it will (i) for
determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as a part of this Registration
Statement as of the time the Commission declared it effective, and (ii)
for determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
(d) Certificates.
The Registrant will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on December 5, 1997.
Rushmore Financial Group, Inc.
By: /s/ D.M. Moore, Jr.
D. M. Moore, Jr., Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of
Rushmore Financial Group, Inc., a Texas corporation, which is filing a
Registration Statement on Form SB-2 with the Securities and Exchange Commission,
Washington, D.C. 20549 under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), hereby constitute and appoint D. M. Moore, Jr.
and Jim W. Clark, and each of them, the individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the person and in his or her name, place and stead, in any
and all capacities, to sign such Registration Statement and any or all
amendments, including post-effective amendments, to the Registration Statement,
including a Prospectus or an amended Prospectus therein and any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and all other documents in connection
therewith to be filed with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact as agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ D. M. Moore, Jr. Chairman, President, Chief December 5, 1997
- ----------------------------
D. M. Moore, Jr. Executive Officer and Director
(Principal Executive Officer)
/s/ Howard M. Stein Controller and Chief Financial December 5, 1997
- ----------------------------
Howard M. Stein Officer (Principal Financial
and Accounting Officer)
/s/ Jim W. Clark Director and Secretary December 5, 1997
- ----------------------------
Jim W. Clark
II-5
<PAGE>
/s/ F. E. Mowery Director December 5, 1997
- --------------------------------
F. E. Mowery
/s/ Timothy J. Gardiner Director December 5, 1997
- --------------------------------
Timothy J. Gardiner
/s/ H. Gary Curry Director December 5, 1997
- --------------------------------
H. Gary Curry
/s/ Mark S. Adler Director December 5, 1997
- --------------------------------
Mark S. Adler
/s/ Harlan T. Cardwell, III Director December 5, 1997
- --------------------------------
Harlan T. Cardwell, III
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
1.1 Form of Underwriting Agreement between Registrant and First
Southwest Company
1.2 Form of Representative's Warrant Agreement
1.3 Form of Selected Dealer Agreement
1.4 Escrow Agreement with Banc One Investment Management and Trust
Group
* 1.5 Form of Letter Agreements regarding restrictions on sales
* 2.1 Plan and Agreement of Merger with First Financial Life
Companies, Inc.
* 3.1 Articles of Incorporation, as amended
* 3.2 Bylaws
4.1 Specimen certificate for shares of Common Stock of the Company
4.2 Specimen certificate for shares of Preferred Stock of the
Company
* 5.1 Opinion of Glast, Phillips & Murray, P.C.
* 10.1.1 Employment Agreement with D. M. Moore, Jr.
10.1.2 Employment Agreement with Jim W. Clark
* 10.2.1 Modified Coinsurance Agreement with Massachusetts General Life
Insurance Company
* 10.2.2 Administrative Service Agreement with Massachusetts General
Life Insurance Company
* 10.2.3 Reinsurance Agreement with Massachusetts General Life Insurance
Company
10.2.4 National Marketing Agreement with Massachusetts General Life
Insurance Company
10.3.1 Modified Coinsurance Agreement with Southwestern Life Insurance
Company
10.3.2 Reinsurance Agreement with Southwestern Life Insurance Company
10.3.3 Administrative Service Agreement with Southwestern Life
Insurance Company
10.4.1 National Marketing Agreement with Legion Insurance Company
10.5 Administrative Services Agreement between Registrant and
Rushmore Life
10.6.1 Option Agreement regarding Rushmore Insurance Services, Inc.
10.6.2 Overhead Services Agreement
10.7 Form of Registered Representative Agreement
10.8 Form of Investment Advisory Agreement
10.9 Form of Affiliation Agreement with Agents
10.10.1 Fully Disclosed Clearing Agreement with Southwest Securities,
Inc.
10.10.2 Fully Disclosed Clearing Agreement with First Southwest Company
10.11 Form of Indemnification Agreement signed with all officers and
directors
* 11.1 Statement regarding computation of earnings per share
* 15.1 Letter on unaudited interim financial information
21.1 Subsidiaries of the Registrant
* 23.1 Consent of Glast, Phillips & Murray, P.C., included in Exhibit
5.1
* 23.2 Consent of Cheshier & Fuller, L.L.P.
* 23.3 Consent of Coopers & Lybrand L.L.P.
* 23.4 Consent of James Fehleison regarding appointment as
director
* 23.5 Consent of Gayle Tinsley regarding appointment as
director
* 24.1 Power of Attorney, set forth on signature page
* 27.1 Financial data schedule
- -------------------------------
* Filed herewith
<PAGE>
Exhibit 1.5
November 3, 1997
Rushmore Financial Group, Inc.
One Galleria Tower
13355 Noel Road, Suite 650
Dallas, Texas 75240
First Southwest Company
Rushmore Securities Corporation
c/o First Southwest Company
1700 Pacific Avenue, Suite 500
Dallas, Texas 75201
Dear Sirs:
The undersigned understands that First Southwest Company and Rushmore
Securities Corporation (the "Underwriters") propose to enter into an
Underwriting Agreement with Rushmore Financial Group, Inc., a Texas
corporation (the "Company"), providing for the public offering by the
Underwriters of shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), of the Company (the "Public Offering").
In consideration of the Underwriters' agreement to underwrite the Public
Offering and for other good and valuable consideration, receipt of which is
hereby acknowledged, the undersigned agrees not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any Common Stock (including, without limitation, shares of common
Stock which are deemed to be beneficially owned by the undersigned in
accordance with Rule 13d-3(a)(2) of the Securities and Exchange Commission and
shares of Common Stock which may be issued upon exercise of a stock option or
warrant) or any securities convertible into or exercisable or exchangeable for
such Common Stock or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock, without the
prior written consent of First Southwest Company, for a period of 180 days
after the date of the final prospectus relating to the Public Offering.
In addition, the undersigned agrees that the Company may cause the transfer
agent for the Company to note stop transfer instructions with respect to such
shares of Common Stock On the transfer books and records of the Company.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or in capacity of
the undersigned and any obligations of the undersigned shall be binding upon
the heirs, personal representatives, successors, and assigns of the
undersigned.
Date: ll/17/97 Very truly yours,
/s/ Carl s. Mauthe
-------------------
Carl S. Mauthe
Carl S Mauthe
5100 SW Military Hwy
San Antonio, TX 78242
SS Number or Taxpayer ID: ###-##-####
<PAGE>
Exhibit 1.5
November 4, 1997
Rushmore Financial Group, Inc.
One Galleria Tower
13355 No~ Road Suite 650
Dallas, Texas 75240
Gentelmen:
I acknowledge that I have been informed that Rushmore Financial Group,
Inc. ("Rushmore") is pursuing an initial public offering of its common stock and
that it is constrained from creating any publicity directed toward its possible
offering.
I agree to maintain the confidence of and not disclose any information
it receives from Rushmore regarding Rushmore's plans for public equity
financing. Any such information may be disclosed only to the undersigned's
representatives, but only after advising them of the obligations for
confidentiality contained herein.
Sincerely,
/s/ Frederich E. Mowery
-----------------------
Signature
Frederich E. Mowery
-----------------------
Printed Name
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of March 14, 1997
between Rushmore Capital Corporation, a Texas corporation ("Rushmore") and First
Financial Life Companies, Inc., a Texas corporation ("FFLC").
WHEREAS, the respective Boards of Directors of Rushmore and FFLC have duly
approved the acquisition of the Company by means of a Merger of FFLC with and
into Rushmore pursuant to the terms of this Agreement, it is therefore agreed as
follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Texas Business
Corporation Act (the "Act"), FFLC shall be merged with and into Rushmore (the
"Merger") as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VI hereof. Following the
Merger, Rushmore shall continue as the surviving corporation (the "Surviving
Corporation") and continue its existence under the laws of the State of Texas,
and the separate corporate existence of FFLC shall cease.
SECTION 1.2 Effective Time. The Merger shall be consummated by filing with
the Texas Secretary of State the Articles of Merger in the form attached hereto
as Exhibit "A" (the "Articles of Merger") (the time of such filing being the
"Effective Time").
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Sections 5.01 through 5.06 of the Act. As of the Effective Time, FFLC
shall merge with and into Rushmore, and the wholly owned subsidiary of FFLC,
First Financial Life Insurance Company, an Arizona life insurance company
("Lifeco"), shall become a direct wholly-owned Subsidiary of Rushmore.
SECTION 1.4 Articles of Incorporation and By-Laws. The Articles of
Incorporation of Rushmore, and the Bylaws of the Rushmore, both as in effect at
the Effective Time, shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation.
SECTION 1.5 Directors. As of the Effective Time, the directors of Rushmore
will remain the directors of the Surviving Corporation.
SECTION 1.6 Officers. As of the Effective Time the officers of Rushmore
will remain as the officers of the Surviving Corporation.
SECTION 1.7 Conversion of Shares.
(a) On the Effective Date, except as provided in subsection (b) and
(c) each share of FFLC Common Stock (the "FFLC Shares") outstanding shall,
by virtue of the Merger and without further action by any party, be
converted into the right to receive 3.04 shares of the Common Stock, par
value $0.01 per share, of Rushmore (the "Rushmore Shares" or the "Merger
Consideration").
1
<PAGE>
(b) Rushmore is currently the holder of 139,929 of Common Stock of
FFLC. Such shares shall be canceled in the Merger, and no Rushmore Shares
shall be issued in respect thereof.
SECTION 1.8 Company Options. FFLC's stock options outstanding at the
Effective Time, if any, shall be converted into comparable options to purchase
Rushmore Common Stock. Any Incentive Stock Option (as defined in Section 422 of
the Internal Revenue Code of 1986, as amended) of FFLC shall be exchanged for
Rushmore Incentive Stock Options. The number of shares issuable upon exercise
are included in the Merger Consideration described in Section 1.7.
SECTION 1.9 Shareholder Agreement. On the Effective Date, the Shareholders'
Agreement of FFLC shall be terminated.
SECTION 1.10 Closing. Upon the terms and subject to the conditions hereof,
as soon as practicable after the mutual agreement of Rushmore and FFLC that all
conditions described in Article VI have been satisfied or waived by the
applicable party, Rushmore and FFLC shall execute in the manner required by the
Act and deliver to the Texas Secretary of State duly executed Articles of
Merger, and the parties shall take such other and further actions as may be
required by law to make the Merger effective. Contemporaneous with the filings
referred to in this Section, a closing (the "Closing") will be held at such
place as the parties may agree for the purpose of implementing all transactions
described in this Agreement.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. The Shareholders of FFLC and Rushmore are
entitled to exercise a statutory right to dissent from the Merger and have their
shares valued pursuant to the Act. It is a waivable condition to Rushmore's
obligation to complete the Merger that no shareholder of FFLC shall exercise any
dissenter's rights.
SECTION 2.2 Exchange of Shares. (a) At the Closing, Rushmore shall issue to
the Shareholders of FFLC in exchange for their FFLC Shares a certificate or
certificates representing the Rushmore Shares, and such surrendered certificates
representing the FFLC Shares shall then be canceled. If issuance of the Rushmore
Shares is to be made to a person other than the person in whose name the
certificate surrendered is registered, it shall be a condition of issuance that
the certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such issuance shall pay
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the certificate or certificates surrendered or
established to the satisfaction of Rushmore that such tax has been paid or is
not applicable. Until surrendered in accordance with the provisions of this
Section 2.2, and, at the Effective Time, each certificate representing the FFLC
Shares shall represent for all purposes the right to receive the Merger
Consideration.
(b) At and after the Effective Time there shall be no transfers of
FFLC Shares which were outstanding immediately prior to the Effective Time
on the stock transfer books of FFLC. If, after the Effective Time,
certificates are presented to Rushmore, they shall be canceled and
exchanged for the Merger Consideration provided in this Article II. At the
close of business on the day prior to the Effective Time the stock ledger
of FFLC shall be closed.
(c) From and after the Effective Time, holders of certificates
formerly evidencing FFLC Shares shall cease to have any rights as
shareholders of FFLC, except as provided herein or by law.
2
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF FFLC
FFLC represents and warrants to Rushmore as follows:
SECTION 3.1 Organization and Qualification. FFLC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. FFLC has one subsidiary, Lifeco, and it is a legal entity that is duly
organized, validly existing and in good standing under the laws of Arizona. Each
of FFLC and Lifeco has all requisite power and authority to own or operate its
properties and conduct its business as it is now being conducted. FFLC and
Lifeco are duly qualified and in good standing as a foreign corporation or
entity authorized to do business in each of the jurisdictions in which the
character of the properties owned or held under lease by their or the nature of
the business transacted by their makes such qualification necessary.
SECTION 3.2 Capitalization; Subsidiaries. (a) The authorized capital stock
of FFLC consists of 1,000,000 shares of Preferred Stock, par value $0.01, and
2,000,000 shares of Common Stock, par value $0.01. As of March 1, 1997, 551,933
FFLC Common Shares were issued and outstanding, and no shares of Preferred Stock
were issued or outstanding. Since March 1, 1997, FFLC has not issued any shares
or other capital stock, and has not repurchased or redeemed any FFLC Shares.
Neither FFLC nor Lifeco have any shares of their capital stock reserved for
issuance, including any shares underlying options. All issued and outstanding
FFLC Common Stock is validly issued, fully paid, non-assessable and free of
preemptive rights.
(b) The authorized capital stock of Lifeco consists of 100,000
shares of Common Stock, as of March 1, 1997, 100,000 shares of Lifeco
were issued and outstanding, and no shares were reserved for future
issuance. All of the outstanding shares of capital stock or other
indicati of ownership of Lifeco are owned by FFLC, beneficially and of
record. All of such shares of capital stock or other indication of
ownership of Lifeco are owned free and clear of all liens, charges,
encumbrances, rights of others, mortgages, pledges or security
interests, and are not subject to any agreements or understandings
among any persons with respect to the voting or transfer of such
shares or other indication of ownership. There are no outstanding
subscriptions, options, convertible securities, warrants or claims of
any kind issued or granted by or binding on FFLC or Lifeco to purchase
or otherwise acquire any security of or equity interest in FFLC or
Lifeco. All of the outstanding shares of capital stock of Lifeco have
been duly authorized and validly issued and are fully paid and
non-assessable, and none has been issued in violation of the
pre-emotive rights of any shareholder.
SECTION 3.3 Authority Relative to this Agreement. FFLC has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
shall, as of the Closing, have been duly and validly authorized by the Board of
Directors and shareholders of FFLC, and no other corporate proceedings on the
part of FFLC are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by FFLC and, assuming this Agreement constitutes a valid and
binding obligation of Rushmore, this Agreement constitutes a valid and binding
agreement of FFLC, enforceable against FFLC in accordance with and subject to
its terms and conditions.
SECTION 3.4 Financial Statements. FFLC has delivered to Rushmore copies of
its consolidated financial statements as of and for the years ended December 31,
1995 and 1996 (the "FFLC Financial Statements." Each of the FFLC Financial
Statements fairly presents the financial position of the entity or entities to
which it relates as of its date, and each of the related consolidated statements
of operations and retained earnings and cash flows or equivalent statements in
the FFLC Financial Statements (including any related notes and schedules) fairly
presents the results of operations, retained earnings and cash flows, as the
case may be, of the entity or entities to which it relates for the period set
forth therein (subject in the case of unaudited interim statements, to normal
year-end audit adjustments) in each case in accordance with generally accepted
accounting principles applicable to the particular entity consistently applied
throughout the periods
3
<PAGE>
involved, except as may be noted therein. The accounts receivable, notes
receivable and any other contingent asset reflected on the latest balance sheet
of FFLC arose from bona fide transactions in the ordinary course of business,
and, to the best of FFLC's knowledge, are not subject to any offset or
counterclaim.
SECTION 3.5 Consents and Approvals; No Violation. Except as described in
the Disclosure Schedule, neither the execution and delivery of this Agreement by
FFLC nor the consummation of the transactions contemplated hereby nor compliance
by FFLC with any of the provisions hereof will (a) conflict with or result in
any breach of any provision of the Articles of Incorporation, By-laws or other
organization documents of FFLC or Lifeco, (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority (as defined herein), except the filing of the Articles of Merger
pursuant to the Act, (c) result in a material default (with or without due
notice or lapse of time or both) (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, contract, license, agreement or other
instrument or obligation to which FFLC or Lifeco is a party or by which they or
any of their respective assets may be bound, except for such defaults (or rights
of termination, cancellation or acceleration) as to which requisite waivers or
consents have been requested, (d) result in the creation or imposition of any
lien, charge or other encumbrance on the assets of FFLC or Lifeco, or (e)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to FFLC or Lifeco or any of their respective assets.
SECTION 3.6 Litigation, etc. Except as described in the Disclosure
Schedule, (a) there is no action, claim, or proceeding pending or, to the
knowledge of FFLC or Lifeco, threatened, to which FFLC or Lifeco is or would be
a party before any court or Governmental Authority acting in an adjudicative
capacity, or any arbitrator or arbitration tribunal; (b) neither FFLC nor Lifeco
is subject to any outstanding order, writ, injunction or decree; and (c) since
December 31, 1996, there have been no claims made or actions or proceedings
brought against any officer or director of FFLC or Lifeco arising out of or
pertaining to any action or omission within the scope of his employment or
position with FFLC or Lifeco. All litigation and other administrative, judicial
or quasi-judicial proceedings to which FFLC or Lifeco is a party or to which it
has been threatened to FFLC's knowledge to be made a party, are described in the
Disclosure Schedule.
SECTION 3.7 Changes. Except as expressly contemplated by this Agreement or
as reflected in the Disclosure Schedule or in the FFLC Financial Statements,
since December 31, 1996, FFLC and Lifeco have conducted their business only in
the ordinary and usual course, and, except as set forth in the Disclosure
Schedule or in the FFLC Financial Statements, none of the following has
occurred, except as shall have occurred in the ordinary course of its business:
(a) any material adverse change in the condition (financial or other),
results of operations, business, assets, customer, supplier and employee
relations of FFLC or Lifeco taken as a whole;
(b) any change in accounting methods, principles or practices by FFLC
materially affecting its assets, liabilities or business, except insofar as
may have been required by a change in generally accepted accounting
principles;
(c) any damage, destruction or loss, whether or not covered by
insurance;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the FFLC Shares, or any redemption, purchase or
other acquisition of any of the securities FFLC or Lifeco;
(e) any issuance by FFLC of, or commitment of FFLC to issue, any FFLC
Shares or other capital stock or securities convertible into or
exchangeable or exercisable for FFLC Shares or other capital stock;
(f) any entry by FFLC or Lifeco into any commitment or transaction
material to the condition (financial or other), business or operations of
FFLC or Lifeco, taken as a whole, which is not in the ordinary course of
business and consistent with past practice;
4
<PAGE>
(g) any revaluation by FFLC or Lifeco of any of their respective
assets, including without limitation, writing down the value of assets or
writing off notes or accounts receivable other than in the ordinary course
of business and consistent with past practice;
(h) any agreement by FFLC or Lifeco to do any of the things described
in the preceding clauses (a) through (g) other than as expressly
contemplated or provided for herein; or
(i) any waiver by FFLC or Lifeco of any rights that, singularly or in
the aggregate, are material to the business, assets, financial condition,
or results of operation of FFLC or Lifeco, taken as a whole.
SECTION 3.8 ERISA Matters. FFLC and Lifeco and all "Employee Benefit Plans"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), that cover any of its or their employees (which
Employee Benefit Plans are listed on the Disclosure Schedule), comply in all
material respects with all applicable laws, requirements and orders under ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"), the breach or
violation of which would have a material adverse effect on FFLC or Lifeco, taken
as a whole; the present value of all the assets of each of its Employee Benefit
Plans that it is subject to Title IV of ERISA equals or exceeds to the knowledge
of the Company the present value of all of the benefits accrued under each such
Employee Benefit Plan as of the end of most recent plan year with respect to
such plan year ending prior to the date hereof, calculated on the basis of the
actuarial assumptions used in the last actuarial evaluation for each such plan;
none of the employees of FFLC or Lifeco is covered by a collective bargaining
agreement; neither FFLC nor Lifeco has ever contributed to a "multiemployer
plan" as defined in Section 3(37) of ERISA; neither the Employee Benefit Plans
nor any fiduciary or administrator thereof has engaged in a "prohibited
transaction" as defined in Section 406 of ERISA or, where applicable, Section
4975 of the Code for which no exemption is applicable, that may have any
material adverse effect on FFLC or Lifeco, taken as a whole, nor to the
knowledge of FFLC have there been any "reportable events" as defined in Section
4043 of ERISA for which the thirty-day notice has not been waived.
SECTION 3.9 Taxes, Tax Returns.
(a) Each of FFLC and Lifeco has duly and timely filed in correct form
all federal, state and local information returns and tax returns required
to be filed by them on or prior to the date hereof (all such returns to the
knowledge of FFLC being accurate and complete in all material respects)
and, to the knowledge of FFLC, has duly paid or made provision for the
payment of all taxes and other governmental charges which have been
incurred or are due or claimed to be due from them by any Governmental
Authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales
and payrolls) other than taxes or other charges (i) which are not yet
delinquent or are being contested in good faith or (ii) have not been
finally determined. The liabilities and reserves for taxes in the FFLC
Financial Statements are sufficient to the best of FFLC' s knowledge in the
aggregate for the payment of all unpaid federal, state and local taxes
(including any interest or penalties thereon), whether or not disputed or
accrued, for the period ended December 31, 1996 or for any year or period
prior thereto, and for which FFLC or Lifeco may be liable in its own right
or as transferee of the assets of, or successor to, any corporation,
person, association, partnership, joint venture or other entity.
(b) To the knowledge of FFLC, (i) proper and accurate amounts have
been withheld by FFLC and Lifeco from their employees and others for all
prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection
with back-up withholding, (ii) federal, state and local returns which are
accurate and complete in all material respects have been filed by FFLC or
Lifeco for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full,
or adequate provision therefore has been included by FFLC in the most
recent FFLC Financial Statements.
5
<PAGE>
SECTION 3.10 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local tax return of FFLC or
Lifeco is currently in progress, nor has FFLC or Lifeco been notified that such
an audit is contemplated by any taxing authority, (ii) neither FFLC nor Lifeco
has extended any statute of limitations with respect to the period for
assessment of any federal, state or local tax, (iii) neither FFLC or Lifeco
contemplates the filing of an amendment to any return, which amendment would
have a material adverse effect on FFLC, and (iv) neither FFLC nor Lifeco has any
actual or potential material liability for any tax obligation of any taxpayer
other than FFLC or Lifeco. Except as disclosed in the Disclosure Schedule, there
are no material tax claims pending against FFLC or Lifeco and there are no
material tax claims to the knowledge of FFLC threatened to be asserted against
FFLC or Lifeco. For purposes of this Section 3.10, "tax" and "taxes" shall
include all income, gross receipt, franchise, excise, real and personal
property, sales, ad valorem, employment, withholding and other taxes imposed by
any foreign, federal, state, municipal, local, or other Governmental Authority
including assessments in the nature of taxes.
SECTION 3.11 Undisclosed Liabilities. FFLC is not liable for or subject to
any material Liabilities (as hereinafter defined), except (a) Liabilities
adequately disclosed or reserved for in the most recent FFLC Financial
Statements and not heretofore paid or discharged, (b) Liabilities under any
contract, commitment or agreement specifically disclosed on the Disclosure
Schedule, or (c) Liabilities incurred, consistent with past practice, in or as a
result of the ordinary course of business of FFLC since the date of the most
recent FFLC Financial Statements. As used in this Agreement, the term
"Liability" or "Liabilities" includes any material direct or indirect liability,
indebtedness, obligation, guarantee or endorsement (other than endorsements of
notes, bills, and checks presented to banks for collection or deposit in the
ordinary course of business), whether known or unknown, accrued, absolute,
contingent or otherwise.
SECTION 3.12 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, to the knowledge
of FFLC, neither FFLC nor Lifeco is in material default under, and no
condition exists that with notice or lapse of time or both would constitute
a material default under, (i) any mortgage, loan agreement, indenture,
evidence of indebtedness or other instrument evidencing borrowed money to
which either FFLC or Lifeco is a party or by which either FFLC or Lifeco or
its properties is bound, (ii) any judgment, order or injunction of any
court, arbitrator or governmental agency or (iii) any other agreement,
contract, lease, license or other instrument, which default or potential
default might reasonably be expected to have a material adverse effect.
(b) Except as set forth in the Disclosure Schedule, FFLC and Lifeco
complied in all material respects with all laws, regulations, orders,
judgments or decrees of any federal or state court or Governmental
Authority applicable to their respective businesses and operations.
SECTION 3.13 Representations and Warranties Continuing. The representations
and warranties set forth herein shall be true and correct on the date hereof and
subject to an update of the Disclosure Schedule from time to time, at all times
prior to the Effective Time as if made from time to time, including, without
limitation, at the Effective Time and the Closing.
SECTION 3.14 Contracts and Commitments. Each contract, understanding or
commitment to which FFLC is a party is valid and enforceable in accordance with
its terms; to the best of the FFLC's knowledge, FFLC and the other parties
thereto are in substantial compliance with the provisions thereof; neither FFLC
nor any other party is (or by reason of the consummation of the transactions
contemplated by this Agreement, will be) in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained
therein; and no event has occurred or is anticipated to occur (including the
consummation of the transactions contemplated by this Agreement) which with or
without the giving of notice or lapse of time, or both, would constitute a
default or give the right of termination thereunder.
SECTION 3.15 Compliance with Law and Permits. To their knowledge, FFLC and
Lifeco have owned and operated their properties and assets in substantial
compliance with the provisions and requirements of all laws (including
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environmental laws), orders, regulations, rules and ordinances issued or
promulgated by all Governmental Authorities having jurisdiction with respect
thereto. All material governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation by FFLC or Lifeco
of their respective properties and assets have been obtained, and to the
knowledge of FFLC and Lifeco no violation exists in respect of such licenses,
permits or authorizations. To the knowledge of FFLC and Lifeco, none of the
documents and materials filed with or furnished to any Governmental Authority
with respect to the properties, assets or businesses of FFLC or Lifeco contains
any untrue statement of a material fact or fails to state a material fact
necessary to make the statements therein not misleading.
SECTION 3.16 Title to Property. Except as disclosed on the Disclosure
Schedule, FFLC and Lifeco have good and marketable title, insured with respect
to properties and assets which currently are of a type for which insurance is
generally available, free and clear (except as indicated in the Disclosure
Statement or in the most recent FFLC Financial Statements and liens for current
taxes not yet due and payable), of all security interests, liens, encumbrances
and encroachments of a material nature, to its real property and other property
and assets that are material to FFLC's business on a consolidated basis.
SECTION 3.17 Investment Representations.
(a) The Shareholders of FFLC must represent to Rushmore that they are
acquiring the Rushmore Shares for their own accounts, not as nominee or
agent, for investment and not with a view to, or for resale in connection
with, any distribution in violation of the Securities Act of 1933 (the
"Securities Act"), or any state securities laws, and they have no present
intention of, or agreement relating to, selling, granting participation in
or otherwise distributing the Rushmore Shares in violation of such laws.
(b) The Shareholders of FFLC must also represent to Rushmore that they
understand that (i) the Rushmore Shares have not been registered under the
Securities Act or any state securities laws by reason of specific
exemptions therefrom, that the Rushmore Shares may be sold, transferred or
otherwise disposed of only if such disposition is registered under the
Securities Act and applicable state securities laws or is exempt from such
registration, and that they must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or
is exempt from such registration; and (ii) each certificate representing
the Rushmore Shares will be endorsed with a legend substantially in the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED UNLESS AND UNTIL EITHER (A) SUCH
SHARES ARE REGISTERED UNDER THE APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR (B) AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) Each Shareholder of FFLC must represent to Rushmore that they are
a knowledgeable and experienced investor and has had an opportunity to ask
questions and review information about the business and financial condition
of Rushmore.
(d) The foregoing representations must be made by each Shareholder of
FFLC when executing a Letter of Transmittal to them in the certificates
representing the FFLC Shares.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF RUSHMORE
Rushmore represents and warrants to FFLC as follows:
SECTION 4.1 Organization and Qualification. Rushmore is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. All Subsidiaries of Rushmore are legal entities that are duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation. Each of Rushmore and its Subsidiaries has all
requisite power and authority to own or operate its properties and conduct its
business as it is now being conducted. Rushmore and each of its Subsidiaries is
duly qualified and in good standing as a foreign corporation or entity
authorized to do business in each of the jurisdictions in which the character of
the properties owned or held under lease by it or the nature of the business
transacted by it makes such qualification necessary.
SECTION 4.2 Capitalization; Subsidiaries. The authorized capital stock of
Rushmore consists of 4,000,000 shares of Rushmore Common Stock, par value $0.01
per share, and 100,000 shares of Preferred Stock, par value $10.00 per share. As
of March 10, 1997, 2,876,886 shares of Rushmore's Common Stock, and 18,092
shares of Preferred Stock, were issued and outstanding. The Preferred Shares are
not convertible and bear no voting rights. Except as described in the Disclosure
Schedule, since March 10, 1997, Rushmore has not issued any shares of capital
stock, and has not repurchased or redeemed any shares of its capital stock.
Neither Rushmore nor any Subsidiary has any shares of its capital stock reserved
for issuance, except for 310,000 shares of Common Stock issuable pursuant to
stock options. No other options, warrants or other securities convertible into
Common Stock are outstanding. All issued and outstanding shares of capital stock
of Rushmore are validly issued, fully paid, non-assessable and free of
preemptive rights.
SECTION 4.3 Authority Relative to this Agreement. Rushmore has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall, as of the Closing, have been duly and validly authorized by the
shareholders and the Boards of Directors of Rushmore, and no other corporate
proceedings on the part of Rushmore are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Rushmore and, assuming this Agreement
constitutes a valid and binding obligation of FFLC, this Agreement constitutes a
valid and binding agreement of Rushmore, enforceable against Rushmore in
accordance with and subject to its terms and conditions.
SECTION 4.4 Financial Statements. Rushmore has delivered to FFLC copies of
its consolidated financial statements as of and for the years ended December 31,
1995 and 1996, of which 1996 is certified by Cheshire & Fuller, (the "Rushmore
Financial Statements." Each of the Rushmore Financial Statements fairly presents
the financial position of the entity or entities to which it relates as of its
date, and each of the related consolidated statements of operations and retained
earnings and cash flows or equivalent statements in the Rushmore Financial
Statements (including any related notes and schedules) fairly presents the
results of operations, retained earnings and cash flows, as the case may be, of
the entity or entities to which it relates for the period set forth therein
(subject in the case of unaudited interim statements, to normal year-end audit
adjustments) in each case in accordance with generally accepted accounting
principles applicable to the particular entity consistently applied throughout
the periods involved, except as may be noted therein. The accounts receivable,
notes receivable and any other contingent asset reflected on the latest balance
sheet of Rushmore arose from bona fide transactions in the ordinary course of
business, and, to the best of Rushmore's knowledge, are not subject to any
offset or counterclaim.
SECTION 4.5 Consents and Approvals; No Violation. Except as described in
the Disclosure Schedule, neither the execution and delivery of this Agreement by
Rushmore nor the consummation of the transactions contemplated hereby nor
compliance by Rushmore with any of the provisions hereof will (i) conflict with
or result in any breach of any provision
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of the Articles of Incorporation or By-laws of Rushmore, (ii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, except the filing of Articles of Merger pursuant
to the Acts, (iii) result in a material default (with or without due notice or
lapse of time or both) (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, Contract, license, agreement or other instrument or
obligation to which Rushmore is a party or by which Rushmore or any of it assets
may be bound, (iv) result in the creation or imposition of any lien, charge or
other encumbrance on the assets of Rushmore or (v) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Rushmore or any of
its assets.
SECTION 4.6 Litigation, etc. Except as described in the Disclosure Schedule
there is no action, claim, or proceeding pending or, to the knowledge of
Rushmore, threatened, to which Rushmore is or would be a party before any court
or Governmental Authority acting in an adjudicative capacity or any arbitrator
or arbitration tribunal with respect to which there is a reasonable likelihood
of a determination having, or which, insofar as reasonably can be foreseen, in
the future would have a material adverse effect on Rushmore and since December
31, 1996, there have been no claims made or actions or proceedings brought
against any officer or director of Rushmore arising out of or pertaining to any
action or omission within the scope of his employment or position with Rushmore.
All litigation and other administrative, judicial or quasi-judicial proceedings
to which Rushmore is a party or to which it has been threatened to Rushmore's
knowledge to be made a party, are described in the Disclosure Schedule.
SECTION 4.7 Compliance with Law and Permits. To its knowledge, Rushmore has
owned and operated their properties and assets in substantial compliance with
the provisions and requirements of all laws, orders, regulations, rules and
ordinances issued or promulgated by all Governmental Authorities having
jurisdiction with respect thereto. All material governmental certificates,
consents, permits, licenses or other authorizations with regard to the ownership
or operation by Rushmore of its respective properties and assets have been
obtained and to its knowledge no violation exists in respect of such licenses,
permits or authorizations. To its knowledge, none of the documents and materials
filed with or furnished to any Governmental Authority with respect to the
properties, assets or businesses of Rushmore contains any untrue statement of a
material fact or fails to state a material fact necessary to make the statements
therein not misleading.
SECTION 4.8 Changes. Except as expressly contemplated by this Agreement or
as reflected in the Disclosure Schedule or in the Rushmore Financial Statements,
since December 31, 1996, Rushmore has conducted its business only in the
ordinary and usual course, and, except as set forth in the Disclosure Schedule
or in the Rushmore Financial Statements, none of the following has occurred,
except as shall have occurred in the ordinary course of its business:
(a) any material adverse change in the condition (financial or other),
results of operations, business, assets, customer, supplier and employee
relations of Rushmore and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles or practices by
Rushmore materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in generally accepted
accounting principles;
(c) any damage, destruction or loss, whether or not covered by
insurance;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Rushmore Shares, or any redemption,
purchase or other acquisition of any of Rushmore.
(e) any issuance by Rushmore of, or commitment of Rushmore to issue,
any Shares or other capital stock or securities convertible into or
exchangeable or exercisable for Rushmore Shares or other capital stock;
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(f) any entry by Rushmore or any of its Subsidiaries into any
commitment or transaction material to the condition (financial or other),
business or operations of Rushmore and its Subsidiaries, taken as a whole,
which is not in the ordinary course of business and consistent with past
practice;
(g) any revaluation by Rushmore or any of its Subsidiaries of any of
their respective assets, including without limitation, writing down the
value of assets or writing off notes or accounts receivable other than in
the ordinary course of business and consistent with past practice;
(h) any agreement by Rushmore to do any of the things described in the
preceding clauses (a) through (g) other than as expressly contemplated or
provided for herein; or
(i) any waiver by Rushmore or any of its Subsidiaries of any rights
that, singularly or in the aggregate, are material to the business, assets,
financial condition, or results of operation of Rushmore and its
Subsidiaries, taken as a whole.
SECTION 4.9 ERISA Matters. Rushmore, each of its Subsidiaries and all
"Employee Benefit Plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
their employees (which Employee Benefit Plans are listed on the Disclosure
Schedule), comply in all material respects with all laws, requirements and
orders under ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), the breach or violation of which would have a material adverse effect
on Rushmore; the present value of all the assets of each of its Employee Benefit
Plans that it is subject to Title IV of ERISA equals or exceeds to the knowledge
of Rushmore the present value of all of the benefits accrued under each such
Employee Benefit Plan as of the end of most recent plan year with respect to
such plan ending prior to the date hereof, calculated on the basis of the
actuarial assumptions used in the last actuarial evaluation for each such plan;
none of the employees of Rushmore or any of its Subsidiaries is covered by a
collective bargaining agreement; neither Rushmore nor any of its Subsidiaries
has ever contributed to a "multiemployer plan" as defined in Section 3(37) of
ERISA; neither the Employee Benefit Plans nor any fiduciary or administrator
thereof has engaged in a "prohibited transaction" as defined in Section 406 of
ERISA or, where applicable, Section 4975 of the Code for which no exemption is
applicable, that may have any material adverse effect on Rushmore and its
Subsidiaries, taken as a whole, nor to the knowledge of Rushmore have there been
any "reportable events" as defined in Section 4043 of ERISA for which the
thirty-day notice has not been waived.
SECTION 4.10 Taxes, Tax Returns.
(a) Except as set forth on the Disclosure Schedule, each of Rushmore
and its Subsidiaries for which it files returns has duly and timely filed
in correct form all federal, state and local information returns and tax
returns required to be filed by it and such Subsidiaries on or prior to the
date hereof (all such returns to the knowledge of Rushmore being accurate
and complete in all material respects) and, to the knowledge of Rushmore,
has duly paid or made provision for the payment of all taxes and other
governmental charges which have been incurred or are due or claimed to be
due from it by any Governmental Authority (including, without limitation,
those due in respect of their properties, income, business, capital stock,
franchises, licenses, sales and payrolls) other than taxes or other charges
(i) which are not yet delinquent or are being contested in good faith and
set forth in the Disclosure Schedule, or (ii) have not been finally
determined. The liabilities and reserves for taxes in the Rushmore
Financial Statements are sufficient in the aggregate for the payment of all
unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, for the period ended December
31, 1996 or for any year or period prior thereto, and for which Rushmore or
any of its Subsidiaries may be liable in its own right or as transferee of
the assets of, or successor to, any corporation, person, association,
partnership, joint venture or other entity.
(b) To the knowledge of Rushmore, (i) proper and accurate amounts have
been withheld by Rushmore and its Subsidiaries from their employees and
others for all prior periods in compliance in all material respects
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with the tax withholding provisions of applicable federal, state and local laws
and regulations, and proper due diligence steps have been taken in connection
with back-up withholding, (ii) federal, state and local returns which are
accurate and complete in all material respects have been filed by Rushmore and
each of its Subsidiaries for all periods for which returns were due with respect
to income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full, or
adequate provision therefore has been included by Rushmore in the most recent
Rushmore Financial Statements.
SECTION 4.11 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local U.S. return of Rushmore or
any Subsidiary is currently in progress, nor has Rushmore or any Subsidiary been
notified that such an audit is contemplated by any taxing authority, (ii)
neither Rushmore nor any Subsidiary has extended any statute of limitations with
respect to the period for assessment of any federal, state or local U.S. tax,
(iii) neither Rushmore nor any Subsidiary contemplates the filing of an
amendment to any return, which amendment would have a material adverse effect on
Rushmore, and (iv) neither Rushmore nor any Subsidiary has any actual or
potential material liability for any tax obligation of any taxpayer (including,
without limitation, any affiliated group of corporations or other entities which
included Rushmore or any Subsidiary during a prior period) other than Rushmore
or its Subsidiaries. Except as disclosed in the Disclosure Schedule, there are
no material tax claims pending against Rushmore or any Subsidiary and there are
no material tax claims to the knowledge of Rushmore threatened to be asserted
against Rushmore or any Subsidiary. For purposes of this Section 4.11, "tax" and
"taxes" shall include all income, gross receipt, franchise, excise, real and
personal property, sales, ad valorem, employment, withholding and other taxes
imposed by any foreign, federal, state, municipal, local, or other Governmental
Authority including assessments in the nature of taxes.
SECTION 4.12 Undisclosed Liabilities. Rushmore is not liable for or subject
to any material Liabilities, except (a) Liabilities adequately disclosed or
reserved for in the most recent Rushmore Financial Statements and not heretofore
paid or discharged, (b) Liabilities under any contract, commitment or agreement
specifically disclosed on the Disclosure Schedule, or (c) Liabilities incurred,
consistent with past practice, in or as a result of the ordinary course of
business of Rushmore since the date of the most recent Rushmore Financial
Statements.
SECTION 4.13 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, to its knowledge
neither Rushmore nor any of its Subsidiaries is in material default under,
and no condition exists that with notice or lapse of time or both would
constitute a material default under, (i) any mortgage, loan agreement,
indenture, evidence of indebtedness or other instrument evidencing borrowed
money to which either Rushmore or any of its Subsidiaries is a party or by
which either Rushmore or any of its Subsidiaries or its properties is
bound, (ii) any judgment, order or injunction of any court, arbitrator or
governmental agency or (iii) any other agreement, contract, lease, license
or other instrument, which default or potential default might reasonably be
expected to have a material adverse effect.
(b) Except as set forth in the Disclosure Schedule, Rushmore and each
of its Subsidiaries have complied in all material respects with all laws,
regulations, orders, judgments or decrees of any federal or state court or
Governmental Authority applicable to their respective businesses and
operations.
SECTION 4.14 Representations and Warranties Continuing. The representations
and warranties set forth herein shall be true and correct on the date hereof and
subject to an update to the Disclosure Schedule from time to time, at all times
prior to the Effective Time as if made from time to time, including, without
limitation, at the Effective Time and the Closing.
SECTION 4.15 Contracts and Commitments. Each contract, understanding or
commitment to which Rushmore is a party is valid and enforceable in accordance
with its terms; Rushmore and, to the best of Rushmore's knowledge, Rushmore and
the other parties thereto are in substantial compliance with the provisions
thereof; except as may be disclosed on the Disclosure Schedule, neither Rushmore
nor any other party is (or by reason of the consummation of the transactions
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contemplated by this Agreement, will be) in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained
therein and no event has occurred or is anticipated to occur (including the
consummation of the transactions contemplated by this Agreement) which with or
without the giving of notice or lapse of time, or both, would constitute a
default or give the right of termination thereunder.
SECTION 4.16 Title to Property. Except as disclosed on the Disclosure
Schedule, Rushmore and each of its Subsidiaries has good and marketable title,
insured with respect to properties and assets which currently are of a type for
which insurance is generally available, free and clear (except as indicated in
the Disclosure Schedule or in the most recent Rushmore Financial Statements and
liens for current taxes not yet due and payable), of all security interests,
liens, encumbrances and encroachments of a material nature, to its real property
and other property and assets that are material to Rushmore's business on a
consolidated basis.
SECTION 4.17 Rushmore Common Stock. The Rushmore Shares comprising the
Merger Consideration will have been duly authorized and, when issued in
accordance with the terms of the Articles of Merger and this Agreement, will be
validly authorized and issued and fully paid and nonassessable, and no
shareholder of Rushmore will have any preemptive rights or dissenter's right
with respect thereto.
ARTICLE V.
COVENANTS
SECTION 5.1 Conduct of Business of FFLC. Except as contemplated by this
Agreement or disclosed in the Disclosure Schedule, during the period from the
date of this Agreement to the Effective Time, FFLC and Lifeco will each conduct
their operations according to their ordinary and usual course of business and
consistent with past practice. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in this Agreement or disclosed in the
Disclosure Schedule, neither FFLC nor Lifeco will, prior to the Effective Time,
without the prior written consent of Rushmore (a) issue, sell or pledge, or
authorize or propose the issuance, sale or pledge of (i) additional shares of
capital stock of any class, or securities convertible into any such shares, or
any rights, warrants or options to acquire any such shares or other convertible
securities, or (ii) any other securities in respect of, in lieu of or in
substitution for, capital stock outstanding on the date hereof; (b) purchase or
otherwise acquire, or propose to purchase or otherwise acquire, any outstanding
securities; (c) declare or pay any dividend or distribution on any shares of its
capital stock; (d) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle or an
agreement with respect to, any merger, consolidation or business combination
(other than the Merger), any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or securities or any
material change in its capitalization, or any entry into a material contract or
any release or relinquishment of any material contract rights, not in the
ordinary course of business; (e) propose or adopt any amendments to its charter
or by-laws; (f) enter into, assign or terminate, or amend in any material
respect, any Contract other than in the ordinary course of business; (g)
acquire, dispose of, encumber or relinquish any material asset (other than sale
of real properties at prices equal to or greater than their carrying values);
(h) waive, compromise or settle any right or claim that would adversely affect
the ownership, operation or value of any asset; (i) make any capital
expenditures other than pursuant to existing capital expenditure programs that
are disclosed in the Disclosure Schedule; (j) allow or permit the expiration,
termination or cancellation at any time prior to the Effective Time of any of
the insurance policies or coverages or surety bonds currently maintained by or
on behalf of FFLC and Lifeco unless replaced with a policy, coverage or bond
having substantially the same coverage and similar terms and conditions; (k)
increase, directly or indirectly, the salary or other compensation of any
officer or member of management, enter into any employment agreement with any
person or pay or enter into any agreement to pay any bonuses or other
extraordinary compensation to any officer of FFLC or Lifeco or to any member of
management or other employees, or institute any general increase in rates of
compensation for its employees, or increase, directly or indirectly, any
provisions or other benefits of any of such persons; or (l) waive, settle or
compromise any material litigation or other claim on a basis materially adverse
to FFLC.
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SECTION 5.2 No Solicitations. Neither FFLC nor Lifeco shall, and they shall
use their best efforts to ensure that none of their respective affiliates,
officers, directors, representatives or agents shall, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) any
corporation, partnership, person, entity or group concerning any merger, sale of
substantial assets (except as permitted by Section 5.1(g)) outside the ordinary
course of business, sale of shares of capital stock or similar transaction
involving FFLC or Lifeco (other than the transactions contemplated by this
Agreement). FFLC will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The parties will promptly communicate to
the other the terms of any proposal or inquiry, oral or written, which may be
received in respect of any such transaction, and will inform the other prior to
the time that it furnishes any information to, or engages in negotiations or
discussions with, any third party with respect to the acquisition of either
party.
SECTION 5.3 Access to Information.
(a) Between the date of this Agreement and the Effective Time, the
parties will afford to one another and their authorized representatives
reasonable access to the offices and other real property and to the books
and records of such party and its Subsidiaries, will permit the parties and
their representatives to make such reasonable inspections as they may
require and will cause their officers and those of their Subsidiaries to
furnish the parties and their representatives with such financial and
operating data, environmental assessments and other information with
respect to the business and real property of the parties and their
Subsidiaries as they and their representatives may from time to time
reasonably request. No inspection or examination by either party will
constitute a waiver of any claim against the other party for
misrepresentation or breach of this Agreement.
(b) The parties will hold and will cause their representatives to hold
in strict confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of counsel, by other
requirements of law, all documents and information concerning the parties
furnished to them and their representatives in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) in the public domain through no
fault of the parties or their representatives, or (ii) later lawfully
acquired by the parties or their representatives from other sources unless
they or their representatives know that such other sources are not entitled
to disclose such information) and will not release or disclose such
information to any other person, except their auditors, attorneys,
financial advisors and other consultants and advisors in connection with
this Agreement, provided that such person shall have first been advised of
the confidentiality provision of this Section 5.3. If the transactions
contemplated by this Agreement are not consummated, such confidence shall
be maintained except to the extent such information can be shown to have
been (i) in the public domain through no fault of the parties, or (ii)
later lawfully acquired by the parties or representatives from other
sources, and, if requested by the other party will, and will cause its
agents, auditors, consultants, representatives and advisors to, return to
the other or destroy all copies of written information furnished.
SECTION 5.4 Best Efforts. Subject to the terms and conditions herein
provided, and to the fiduciary duties of the Boards of Directors of the parties
under applicable law, each of the parties hereto agrees to use its best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
SECTION 5.5 Consents. FFLC and Rushmore each will use its best efforts to
obtain such consents of third parties to agreements which would otherwise be
violated by any provisions hereof, to take all actions necessary to effect the
transactions contemplated hereby, and to make such filings with Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement including, without limitation, (a) the vigorous defense of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transaction contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or Governmental
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Authority vacated or reviewed, and (b) the execution and delivery of any
additional instruments (including any required supplemental indentures)
necessary to consummate the transactions contemplated by this Agreement.
SECTION 5.6 Public Announcements. FFLC and Rushmore will consult with each
other before issuing any press release or otherwise making any public statements
with respect to the existence of this Agreement or the Merger and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to the Closing. Promptly following execution of this
Agreement, the parties will undertake the following actions as conditions to
FFLC's and Rushmore's obligations to proceed with the Closing of the Merger:
(a) This Agreement and the transactions contemplated hereby shall have
been adopted by the affirmative vote of the shareholders of Rushmore and
FFLC by the requisite vote, and no shareholder of FFLC or Rushmore shall
have exercised any dissenter's right.
(b) The Boards of Directors of Rushmore and FFLC shall have approved
this Agreement.
(c) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction in the United States or domestic
Governmental Authority which prohibits or restricts the consummation of the
Merger.
(d) There shall have been no material adverse change in the business,
properties, or financial condition of any party to this Agreement.
(e) All parties shall have delivered all documents and taken all other
actions required by this Agreement.
(f) All representations and warranties of any party shall be true and
effective as of the Effective Date.
(g) The Articles of Merger in the form of Exhibit A shall have been
executed, delivered and filed and become effective with the Secretary of
State.
(h) The Shareholders of Rushmore shall have approved and adopted
Articles of Amendment to the Articles of Incorporation of Rushmore to
increase the number of authorized shares of Rushmore Common Stock from
4,000,000 to 20,000,000.
(i) The parties shall have obtained all regulatory approval required,
including that of the Arizona Department of Insurance if necessary.
SECTION 6.2 Deliveries at the Closing. Immediately prior to the Effective
Time, FFLC and Rushmore shall cause to be delivered to each other or to have
received the following:
(a) A certificate, dated the date of the Effective Time, of the chief
executive certifying that all representations and warranties made herein
are true and correct as of the date made and as of the Effective Time and
14
<PAGE>
that all agreements or other actions required to be performed prior to the
Effective Time as a condition to consummating the Merger have been performed or
taken and such conditions satisfied in accordance with the terms of this
Agreement.
(b) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction in the United States or domestic
Governmental Authority which prohibits or restricts the consummation of the
Merger.
ARTICLE VII.
TERMINATION, AMENDMENTS; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by Rushmore, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of FFLC and Rushmore;
(b) by FFLC or Rushmore if the Effective Time shall not have occurred
on or before June 30, 1997, unless such failure is caused by the party
seeking termination;
(c) by FFLC or Rushmore if any court of competent jurisdiction or
other Governmental Authority shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting
the Merger or if litigation or proceedings shall be pending that are
reasonably likely to result in any of the foregoing;
(d) by FFLC or Rushmore if any condition set forth in Article VI shall
not have been satisfied, unless the party seeking termination shall have
failed to abide by any obligation in this Agreement or shall have caused
the failure of such condition; or
(e) by FFLC or Rushmore, if there shall have been a breach of any of
the covenants contained herein, or if any representation or warranty made,
by any other party is untrue in any material respect;
SECTION 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers, or shareholders, other than the provisions
of Sections 5.3(b) and 9.9.
SECTION 7.3 Amendment. This Agreement may be amended only by means of an
instrument in writing signed on behalf of all the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the respective Boards of
Directors of FFLC or Rushmore, may (a) extend the time for the performance of
any of the obligations or other acts of any other applicable party hereto, (b)
waive any inaccuracies in the representations and warranties contained herein by
any other applicable party or in any document, certificate or writing delivered
pursuant hereto by an other applicable party, or (c) waive compliance with any
of the agreements of any other applicable party or with any conditions to its
own obligations. Any agreement on the part of any other applicable party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
15
<PAGE>
ARTICLE VIII.
SURVIVAL
The representations and warranties set forth in Article III and IV shall
not survive the Closing or the Effective Time.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.2 Brokerage Fees and Commissions. Neither party has incurred any
obligation for brokerage fees or commissions.
SECTION 9.3 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.
SECTION 9.4 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
SECTION 9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by facsimile telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to the FFLC:
First Financial Life Companies, Inc.
425 University Avenue, Suite 150
Sacramento, California 95825
Attention: H. Gary Curry
with a copy (which shall not affect
the validity of notice hereunder) to:
Butler & Binion LLP
750 N. St. Paul, Suite 1800
Dallas, Texas 75201
Attention: James A. Stockard
16
<PAGE>
If to Rushmore:
Rushmore Capital Corporation
15851 Dallas Parkway, Suite 1155
Dallas, Texas 75248
Attention: D.M. Moore, Jr.
with a copy (which shall not affect
the validity of notice hereunder) to:
Glast, Phillips & Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Attention: Ronald L. Brown
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
SECTION 9.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
SECTION 9.9 Expenses. Except as otherwise provided herein, each party shall
bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial or other consultants, investment bankers,
accountants and counsel.
SECTION 9.10 Disclosure Schedule. Within ten business days after the
execution hereof, Rushmore and FFLC shall deliver the Disclosure Schedule to
each other. The Disclosure Schedule shall be updated from time to time and prior
to the Closing to report any changes in the information contained therein. The
Disclosure Schedule shall contain all information required to disclose fully any
exception or qualification to this Agreement and shall cross reference the
section of this Agreement so qualified.
17
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year set forth above.
RUSHMORE CAPITAL CORPORATION
By: /s/ D.M. Moore, Jr.
---------------------------
D.M. Moore, Jr., President
FIRST FINANCIAL LIFE COMPANIES, INC.
By: /s/ H. Gary Curry
---------------------------
H. Gary Curry, President
18
<PAGE>
EXHIBIT A
ARTICLES OF MERGER OF
FIRST FINANCIAL LIFE COMPANIES, INC.
WITH AND INTO
RUSHMORE CAPITAL CORPORATION
The following Articles of Merger are executed on behalf of First Financial
Life Companies, Inc. and Rushmore
Capital Corporation, both Texas corporations.
1. The Agreement and Plan of Merger of the merger of First Financial Life
Companies, Inc. with and into Rushmore Capital Corporation is attached hereto
and incorporated herein by reference.
2. The name of each of the undersigned corporations and other entity or
entities, the type of such corporation or other entity and the laws under which
such corporation or other entity was organized are:
Name of Corporation or
Other Entity Type of Entity State
- ---------------------- -------------- -----
First Financial Life Companies, Inc. Business Corporation Texas
Rushmore Capital Corporation Business Corporation Texas
3. Shareholder approval of the parties to the plan of merger is required
pursuant to article 5.03 of the Texas Business Corporation Act.
4. As to each of the undersigned domestic corporations, the approval of
whose shareholders is required, the number of outstanding shares of each class
or series of stock of such corporation entitled to vote, with other shares or as
a class, on the Plan of Merger are as follows:
<TABLE>
<S> <C>
Number of Shares
Number of Shares Class or Entitled to Vote as
Name of Corporation Outstanding Series a Class or Series
- ------------------- ---------------- ------ ----------------------------
First Financial Life Companies, Inc. 551,933 Common 551,993
Rushmore Capital Corporation 2,876,886 Common 2,876,886
</TABLE>
5. As to each of the undersigned domestic corporations, the approval of
whose shareholders is required, the number of shares, not entitled to vote only
as a class, voted for and against the plan of merger, respectively, and, if the
shares of any class or series are entitled to vote as a class, the number of
shares of each such class or series voted for and against the plan of merger,
are as follows:
<TABLE>
<S> <C>
Name of Corporation Total Voted For Total Voted Against Class or Series
- ------------------- --------------- ------------------- ---------------
First Financial Life Companies, Inc. ---------- ---------- Common
Rushmore Capital Corporation ---------- ---------- Common
</TABLE>
19
<PAGE>
6. The plan of merger and the performance of its terms were duly authorized
by all action required by the laws under which each corporation that is a party
to the plan of merger was incorporated or organized and by its constituent
documents.
Dated_____________, 1997.
FIRST FINANCIAL LIFE COMPANIES, INC. RUSHMORE CAPITAL CORPORATION
By: By:
------------------------------ ---------------------------
Its: Its:
------------------------------ ---------------------------
20
<PAGE>
Exhibit 3.1
[STATE SEAL]
The State of Texas
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
RUSHMORE FINANCIAL GROUP, INC.
FORMERLY:
RUSHMORE CAPITAL CORP.
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Amendment for the above named entity have been received in
this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Amendment.
Dated: October 23, 1997
Effective: October 23, 1997
[stamped seal
The State of Texas]
/s/ Antonio O. Garza Jr.
-----------------------------
Antonio 0. Garza, Jr.
Secretary of Stale
<PAGE>
Exhibit 3.1
[file stamped]
Filed
In the Office of the
Secretary of State of Texas
October 23 1997
Corporations section
ARTICLES OF AMENDMENT
OF
RUSHMORE CAPITAL CORPORATION
Pursuant to the provisions of Article 4.04A of the Texas Business
Corporation Act (the "Act"), the undersigned Corporation duly adopts the
following Articles of Amendment to its Articles of Incorporation:
Article One
The name of the Corporation is Rushmore Capital Corp.
Article Two
The following amendments to the Articles of Incorporation were adopted by
the shareholders of the Corporation on October 17, 1997.
A. The name of the Corporation is amended to "Rushmore Financial Group,
Inc."
B. The Amendment changes Article Four of the current Articles of
Incorporation to reduce the number of shares of authorized Common Stock from
20,000,000 to 10,000,000. All other provisions of Article Four are unchanged.
C. Article Six of the Articles of Incorporation as amended is further
amended to change the registered office to 13355 Noel Road, Suite 650, Dallas,
Texas 75240.
D. Article Seven is amended to delete the sentence that reads"The number of
directors is five; thereafter the number of directors of the Corporation shall
be fixed in accordance with the Bylaws."
E. A new Article 13 is added to the Articles of Incorporation as
follows:
13. Corporate Governance
(a) Number, Election, and Terms of Directors. The business and affairs
of the Corporation shall be managed by a Board of Directors, which, subject
to the rights of holders of shares of any class of series of Preferred
Stock of the Corporation then outstanding to elect additional directors
under specified circumstances, shall consist of not less than three nor
more than twenty-one persons The exact number of directors within the
minimum and maximum
1
<PAGE>
limitations specified in the preceding sentence shall be fixed from time to time
by either (i) the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors, or (ii) the affirmative vote of the
holders of 66-2/3% or more of the voting power of all of the shares of the
Corporation entitled to vote generally in the election of directors voting
together as a single class. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. The
directors shall be divided into three classes as nearly equal in number as
possible, with the term of office of the first class to expire at the 1998
annual meeting of stockholders, the term of office of the second class to expire
at the 1999 annual meeting of stockholders, and the term of office of the third
class to expire at the 2000 annual meeting of stockholders, and with the of each
class to hold office until their successors shall have been elected and
qualified. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succceling annual meeting of stockholders after their election.
(b) Stockholder Nomination of Direcror Candidates. Advance notice of
stockholder norminations for the election of directors shall be submitted
to the Board of Directors at least 60 days in advance of the scheduled date
for the next annual meeting of stockholders.
(c) Newly Created Directorships and Vacancies. Subject to the rights
of the holders of any series of any Preferred Stock then outstanding,
newly-created directorships resulting from any increase in the authorized
number of directors and any vacancies in the Board of Directors resulting
from the death, resignation, retirement, disqualification, removal from
office or other cause may be filled by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining
director.
(d) Removal. Subject to the rights of the holders of any series of any
Preferred Stock then outstanding, any director or the entire Board of
Directors, may be removed from office at any annual or special meeting
called for such purpose, and then only for cause and only by the
affirmative vote of the holders of 66-2/3% or more of the voting power of
all of the shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. As used herein.
cause shall mean only the following: proof, beyond the existence of a
reasonable doubt that a director has been convicted of a felony, committed
grossly negligent or wilful misconduct resulting in a material detriment to
the Corporation, or committed a material breach of his fiduciary duty to
the Corporation resulting in a material detriment to the Corporation.
2
<PAGE>
(e) Amendment, Repeal, etc. Notwithstanding anything Contained in
these Articles of Incorporation to the contrary, the affirmative vote of
the holders of 66-2/3% or more of the voting power of all of the shares of
the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, amend or
adopt any provision inconsistent with or repeal this Article 13, or to
alter, amend, adopt any provision inconsistent with or repeal comparable
sections of the Bylaws of the Corporation.
(f) Call of Special Meeting. Notwithstanding anything contained in
these Articles of Incorporation to the contrary, the affirmative vote of
the holders of 66-2/3% or more of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors? voting
together as a single class, shall be required to call a special meeting of
shareholders or to alter, amend, adopt any provision inconsistent with or
repeal this Article 13, or to alter, amend, adopt any provision
inconsistent with comparable sections of the Bylaws
F. A new Article 14 is added to the Articles of Incorporation as follows:
14. The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities, rights (the "Rights") entitling the holders thereof to
purchase from the Corporation shares of capital stock or other securities. The
times at which and the terms upon which the Rights are to be issued will be
determined by the Board of Directors and set forth in the contracts or
instruments that evidence the Rights. The authority of the Board of Directors
will respect to the Rights shall include, but not be limited to, determination
of the following:
(a) The initial purchase price per share of the capital stock or other
securities of the Corporation to be purchased upon exercise of the Rights.
(b) Provisions relating to the times at which and the circumstances
under which the Rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other Securities of the
Corporation.
(c) Provisions that adjust the number or exercise price of the Rights
or amount or nature of the securities or other property receivable upon
exercise of the Rights in the event of a combination, split or
recapitalization of any capital stock of the Corporation, a change in
ownership of the Corporation's Securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the
Corporation or any capital stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such
transaction absent an assumption
3
<PAGE>
by the other party or parties thereto of the obligations of the Corporation
under such Rights.
(d) Provisions that deny the holder of a specified perventage of the
outstanding Securities of the Corporation the right to exercise the Rights
and/or cause the Rights held by such holder to become void.
(e) Provisions that permit the Corporation to redeem the Rights.
(f) The appointment of a Rights Agent with respect to the Rights.
Article Three
The number of shares of the Corporation outstanding at the time of such
adoption entitled to vote thereon was 4,161,268.
Article Four
The holders of 3,705,159 shares outstanding and entitled to vote on said
amendment have voted in favor of said amendment.
Article Five
Upon reduction of the authorized shares of Common Stock pursuant to the
amendment to Article Four, the outstanding shares of the Corporation's Common
Stock shall be reclassified, and one new share of Common Stock shall be issued
for each two shares outstanding on November 1,1997. No fractional shares shall
be issued, and in lieu thereof, the Corporation shall pay cash the amount of
$0.96 per full pre-reclassification share to the holders of any fractional
shares resulting from the reclassification. Until the Corporation shall caLl for
old shares of Common Stock to be returned in exchange for certificates
representing new shares of Common Stock, the certificates outstanding
representing old shares of Common Stock shall continue to be effective as the
share certificate of the Corporation, subject to the reclassification of the
number of shares represented by each as provided for herein.
4
<PAGE>
EXECUTED as of the day and year first above written.
RUSHMORE CAPITAL CORP.
By: /s/ D.M. Moore, Jr.
-----------------------------
D.M. Moore, Jr. President
By: /s/ Jim W. Clark, Secretary
-----------------------------
Jim W. clark, Secretary
5
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
RUSHMORE CAPITAL CORP.
CHARTER NO.1167469-0
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Amendment for the above named entity have been received in
this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Amendment.
Dated: April 8, 1997
Effective: April 8, 1997
[stamped Seal of the State of Texas
/s/ Antonio O. Garza, Jr.
---------------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE>
EXHIBIT 3.1
FILED
in the Office of the
Secretary of State of Texas
APR 08 1997
Corporations Section
ARTICLES OF AMENDMENT
OF
RUSHMORE CAPITAL CORPORATION
Pursuant to the provisions of Article 4.04A of the Texas Business
Corporation Act (the"Act"), the undersigned Corporation duly adopts the
following Articles of Amendment to its Articles of Incorporation:
Article One
The name of the Corporation is Rushmore Capital Corp.
Article Two
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the Corporation on April 5, 1997:
The Amendment changes the Article Four of the current Articles of
Incorporation and the full text is altered as follows:
"ARTICLE FOUR
SHARES. The Corporation shall have authority to issue two classes of stock,
and the total number authorized shal1 be twenty mi11ion (20,000,000) shares of
Common Stock of the par value of one cent ($0.01) each, and five million
(5,000,000) shares of Preferred Stock of the par value of ten dollars ($10.00)
each. A description of the different classes of stock of the Corporation and a
statement of the designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class of
such stock are as follows:
The Common or Preferred Stock may be issued from time to time in one or
more series, or either or both of the Common or Preferred Stock may be divided
into additional classes and such classes into one or more series. The terms of a
class or series, including all rights and preferences, shall be as specified in
the resolution or resolutions adopted by the Board of Directors designating such
class or series, which resolution or resolutions the Board of Directors is
hereby expressly authorized to adopt. Such resolution or resolutions with
respect to a class or series shall specify all or such of the rights or
preferences of such class or series as the Board of Directors shall determine,
including the following, if applicable. (a) the number of shares to constitute
such class or series and the distinctive designation thereof; (b) the dividend
or manner for determining the dividend payable with respect to the shares of
such class or series and the date or dates from which dividends shall accrue,
whether such dividends shall be cumulative, and, if cumulative, the date or
dates from which
<PAGE>
dividends shall accumulate and whether the shares in such class or series shall
be entitled to preference or priority over any other class or series of stock of
the Corporation with respect to payment of dividends; (c) the terms and
conditions, including price or a mariner for determining the price, of
redemption, if any, of the shares of such class or series; (d) the terms and
conditions of a retirement or sinking fund, if any, for the purchase or
remdemption of the shares of such class or series, (e) the amount which the
shares of such class or Series shall be entitled to receive if any, in the event
of any liquidation, dissolution or winding up of the Corporation and whether
such shares shall be entitled to a preference or priority over shares of another
class or series with respect to amounts received in connection with any
liquidation, dissolution or winding up of the Corporation; (f) whether the
shares of such class or series shall be convertible into, or exchangeable for,
shares of stock of any other class or classes, or any other series of the same
or any other class or classes of stock, of the Corporation and the terms and
conditions of any such conversion or exchange; (g) the voting rights if any, of
shares of stock of such class or series in addition to those granted herein; (h)
the status as to reissuance or sale of shares of such class or series redeemed,
purchased or otherwis reacquired, or surrendered to the Corporation upon
conversion; (I) the conditions and restrictions, if any,on the paymentt of
dividends or on the making of other distributions on, or the purchase,
redemption or other acquisition by the Corporation or any subsidiary, of any
other class or series of stock of the Corporation ranking junior to such shares
as to dividends or upon liquidation; (j) the conditions, if any, on the creation
of indebtedness of the Corporation, or any subsidiary; and (k) such other
preferences, rights, restrictions and qualifications as the Board of Directors
may determine.
All shares of the Common Stock shall rank equally, and all shares of the
Preferred Stock shall rank equally, and be identical within their classes in all
respects regardless of series, except as to terms which may be specified by the
Board of Directors pursuant to the above provisions. All shares of any one
series of a class of Common or Preferred Stock shall be of equal rank and
identical in all respects, except that shares of any one series issued at
different times may differ as to the dates which dividends thereon shall accrue
and be cumulative.
Except as otherwise provided in any resolution or resolutions adopted by
the Board of Directors providing for the issuance of a class or series of Common
Stock, the Common Stock shall (a) have the exclusive voting power of the
corporation; (b) entitle the holders thereof to one vote per share at all
meetings of the stockholders of the Corporation; (c) entitle the holders to
share ratably, without preference over any other shares of the Corporation in
all assets of the Corporation in the event of any dissolution, liquidation or
winding up of the Corporation; and (d) entitle the record holders thereof on
such record dates as are determined, from time to time, by the Board of
Directors to receive such dividends, if any, if, as and when declared by the
Board of Directors."
Article Three
The number of shares of the Corporation outstanding at the time of such
adoption entitled to vote thereon was 2,876,886.
<PAGE>
Article Four
The holders of 2,078,489 shares outstanding and entitled to vote on said
amendment have voted in favor of said amendment
EXECUTED as of the day and year first above written.
RUSHMORE CAPITAL CORP.
BY: /s/ D.M. Moore
------------------------------
D.M. Moore, Jr. President
BY: /s/ Jim W. Clark
------------------------------
Jim W. Clark, Secretary
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
JAN. 7, 1993
RUSHMORE FINANCIAL GROUP-D.M. RUSTY MOORE
15851 DALLAS PARKWAY, STE. 1155
DALLAS ,TX 75248
RE:
RUSHMORE CAPITAL CORPORATION
CHARTER NUMBER 01167469-00
IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ARTICLES OF
AMENDMENT, A COPY OF THE INSTURMENT FILED IN THIS OFFICE IS ATTACHED FOR YOUR
RECORDS.
THIS LETTER WILL ACKNOWLEDGE PAYMENT OF THE FILING FEE.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
VERY TRULY YOURS,
/s/ John Hannah Jr.
---------------------
Secretary of State
[STAMPED SEAL OF THE STATE OF TEXAS]
<PAGE>
EXHIBIT 3.1
[stamped seal of the State of Texas]
The State of Texas
Secretary of State
CERTIFICATE OF AMENDMENT
FOR
RUSHMORE CAPITAL CORPORATION
CHARTER NUMBER 01167469
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CON TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT.
DATED JAN. 4. 1993
EFFECTIVE JAN. 4, 1993
[STAMPED SEAL OF THE STATE OF TEXAS]
/s/ John Hannah Jr.
----------------------
Secretary of State
<PAGE>
EXHIBIT 3.1 FILED
In the Office of the
Secretary of State Texas
of Texas
JAN 04 1993
Corporations Section
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION OF
RUSHMORE CAPITAL CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Rushmore Capital Corporation.
ARTICLE TWO
The following amendments to the Articles of Incorporation were adopted by a
special meeting of the shareholders of the corporation on December 4, 1992:
Amendment I. This amendment alters Article 6 of the original Articles of
Incorporation to change the street address of its registered office to: 15851
Dallas Parkway, Suite 1155, Dallas, Texas, 75248.
Amendment II. This amendment is an addition to Article 4 of the original
Articles of Incorporation; to authorize the corporation to issue 3,000,000
Common Shares in addition to the 1,000,000 Common Shares originally authorized
so that the corporation shall have authority to issue a total of 4,000,000
shares of Common Stock of the par value of $0.01. (one cent)
ARTICLE THREE
The number of shares of the corporation outstanding and entitled to vote at the
time of such adoption was 342,390.
ARTICLE FOUR
The number of shares voted for such amendments was 264,524; and the number of
shares voted against such amendments was none (0); and the number of shares not
present to vote or abstained from voting was 77,866. Therefore all such
amendments were adopted by the shareholders of the corporation on the 4th day of
December, 1992.
Rushmore Capital Corporation
By /s/ Dewey Malone Moore
---------------------------------
Dewey Malone Moore, Jr., President
And /s/Joe M. Ellis
----------------------------------
Joe M. Ellis, Secretary
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
SECRETARY OF STATE
OCT. 8, 1991
BUTLER & BINION, RONALD L. BROWN
3200 NCNB CENTER TOWER I, 300 NORTH ERVAY
DALLAS , TX 75201
RE:
RUCHMORE CAPITAL CORPORATION
CHARTER NUMBER 02267469-00
IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ESTABLISHMENT OF A
SERIES OF SHARES. THE APPROPRIATE EVIDENCE IS ATTACHED FOR YOUR FILES, AND THE
ORIGINAL HAS BEEN FILED IN THIS OFFICE.
PAYMNET OF THE FILING FEE IS ACKNOWLEDGED BY THIS LETTER.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
VERY TRULY YOURS,
[STAMPED SEAL OF THE STATE OF TEXAS]
/s/ John Hannah Jr.
---------------------
Secretary of State
<PAGE>
EXHIBIT 3.1
FILED
In the Office of the
Secretary of State of Texas
OCT 03 1991
Corporations Section
DESIGNATION OF PREFERRED STOCK
1. The name of the corporation is Rushmore Capital Corporation.
2. A copy of a resolution of the Board of Directors fixing all rights and
preferences of the Corporation's Series A Preferred Stock, par value $10.00 per
share, is attached hereto as Exhibit A and incorporated by reference.
3 The date of adoption of such resolution was September 5, 1991.
4. The resolution was adopted by all necessary corporate action on behalf
of the corporation.
Dated: September 5, 1991.
Rushmore Capital Corporation
By: /s/ Dewey Malone Moore, Jr.
---------------------------
Dewey Malone Moore, Jr.
President
By: /s/ Christine E. Miller
---------------------------
Christine E. Miller
Secretary
<PAGE>
EXHIBIT 3.1 [STAMPED SEAL OF THE STATE OF TEXAS]
THE STATE OF TEXAS
SECRETARY OF STATE
MAY 17, 1991
RUSHMORE FINANCIAL GROUP (DEWEY MOORE, JR.)
15851 DALLAS PARKWAY, SUTIE 675
DALLAS ,TX 75248
RE:
RUSHMORE CAPITAL CORPORATION
CHARTER NUMBER 01167469-00
ASSUMED NAME:
RUSHMORE FINANCIAL GROUP
FILE DATE: MAY 17, 1991
DEAR SIR OR MADAM,
THE ASSUMED NAME CERTIFICATE FOR THE ABOVE REFERENCED INCORPORATED BUSINESS
OR PROFESSION HAS BEEN FILED IN THIS OFFICE. THIS LETTER MAY BE USED AS EVIDENCE
OF THE FILING.
IN ADDITION TO FILING WITH THE SECRETARY OF STATE, CHAPTER 36 OF THE TEXAS
BUSINESS AND COMMERCE CODE REQUIRES FILING OF THE ASSUMED NAME CERTIFICATE WITH
THE COUNTIES IN WHICH THE REGISTERED OFFICE AND THE PRINCIPAL OFFICE OF THE
CORPORATION ARE LOCATED.
VERY TRULY YOURS,
[STAMPED SEAL OF THE STATE OF TEXAS]
/S/ John Hannah Jr.
----------------------
Secretary of State
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
FOR
RUSHMORE CAPITAL CORPORATION
FORMERLY
DOMINION ASSOCIATES CORPORATION
CHARTER NUMBER 01167469
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT ARTICLES OF AMENDMENT HAVE BEEN RECEIVED IN THIS OFFICE AND ARE
FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, ISSUES THIS CERTIFICATE AND
ATTACHES HERETO A COPY OF THE ARTICLES OF AMENDMENT.
DATED APR. 15, 1991
[STAMPED SEAL OF THE STATE OF TEXAS]
/S/ John Hannah Jr.
----------------------
Secretary of State
<PAGE>
EXHIBIT 3.1
FILED
In the Office of the
Secretary of State of Texas
APR 15 1991
CORPORATIONS SECTION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is DOMINION ASSOCIATES CORPORATION.
ARTICLE TWO
The following amendments to the Articles of Incorporation were adopted by a
special meeting of the shareholders of the corporation on April 5, 1991:
Amendment I. This amendment alters Article 1 of the original Articles of
Incorporation to change the name of the corporation to: RUSHMORE CAPITAL
CORPORATION.
Amendment II. This amendment alters Article 6 of the original Articles of
Incorporation to change the street address of its registered office to: 15651
Dallas Parkway, Suite 675, Dallas, Texas, 75248.
Amendment III. This amendment is an addition to Article 4 of the original
Articles of Incorporation; to authorize the corporation to issue Preferred Stock
in addition to the Common Stock authorized. The aggregate number of preferred
shares which the corporation shall have authority to issue is 100,000 shares of
9% Cumulative Preferred Stock of the par value of $10.00 each.
<PAGE>
ARTICLE THREE
The number of shares of the corporation outstanding and entitled to vote at the
time of such adoption was 200,000.
ARTICLE FOUR
The number of shares voted for such amendments was 180,000; the nuMber of shares
voted against such amendments was none (0); and the number of shares abstained
from voting was 20,000. Therefore, all such amendments were adopted by the
shareholders of the corporation on this 5TH day of April, 1991. and
Dominion Associates Corporation
By /s/ Dewey Malone Moore
------------------------------
Dewey Malone Moore, Jr., President
And /s/ Christine E. Miller
-----------------------------
Christine E. Miller, Secretary
-2-
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
Secretary of State
APR. 17, 1991
RUSHMORE FINANCIAL GROUP, D.M. RUSTY MOORE
15851 DALLAS PARKWAY,STE. 675
DALLAS ,TX 75248
RE:
RUSHMORE CAPITAL CORPORATION
CHARTER NUMBER 01167469-00
IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ARTICLES OF
AMENDMENT. THE APPROPRIATE EVIDENCE IS ATTACHED FOR YOUR FILES, AND THE ORIGINAL
HAS BEEN FILED IN THIS OFFICE.
PAYMENT OF THE FILING FEE IS ACKNOWLEGED BY THIS LETTER.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
VERY TRULY YOURS,
[STAMPED SEAL OF THE STATE OF TEXAS]
/s/ John Hannah Jr.
---------------------
Secretary of State
<PAGE>
[STAMPED SEAL OF THE STATE OF TEXAS]
EXHIBIT 3.1
The State of Texas
Secretary of State
FEB. 28, 1991
DEWEY M. MOORE, JR.
P.O. Box 795755
Dallas, TX 75379
RE:
RUSHMORE CAPITAL CORPORATION
PENDING NUMBER 00106491-09
ENCLOSED IS THE CERTIFICATE OF RESERVATION FOR THE ABOVE CORPRORATE NAME. THE
NAME IS RESERVED FOR A PERIOD OF 120 DAYS, FROM THE DATE SHOWN ON THE
CERTIFICATE.
IF NO ACTION HAS BEEN TAKEN TO INCORPORATE UNDER THE ABOVE NAME IN THE 120 DAY
PERIOD,OTHER PARTIES' REQUESTS, IF ANY, FOR THE NAME WILL BE HONORED. THE NAME
CANNOT BE RESERVED FOR ANY ADDITIONAL 120 DAY PERIOD UNLESS THERE ARE NO OTHER
APPLICATIONS FOR THAT NAME.
IF WE CAN OF BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
VERY TRULY YOURS,
[STAMPED SEAL OF THE STATE OF TEXAS]
/s/ John Hannah Jr.
---------------------
Secretary of State
<PAGE>
[STAMPED SEAL OF THE STATE OF TEXAS]
EXHIBIT 3.1
The State of Texas
Secretary of State
CERTIFICATE OF RESERVATION OF
CORPORATE NAME OF
RUSHMORE CAPITAL CORPORATION
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ABOVE CORPORATE NAME HAS BEEN RESERVED IN THIS OFFICE FOR THE
EXCLUSIVE USE OF
DEWEY M. MOORE JR
FOR A PERIOD OF ONE HUNDRED TWENTY DAYS, PURSUANT TO THE PROVISIONS OF ARTICLE
2.06 OF THE TEXAS BUSINESS CORPORATION ACT.
THIS CORPORATE NAME RESERVATION DOES NOT AUTHORIZE THE USE OF A CORPORATE
NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE FEDERAL
TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS OR
PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATED FEB. 28, 1991
[STAMPED SEAL OF THE STATE OF TEXAS]
/s/ John Hannah Jr.
---------------------
Secretary of State
<PAGE>
Exhibit 3.1
February 25, 1991
To The Secretary of State
of the State of Texas
Corporations Divisions
P.O. Box 13697
Austin, Texas 78711
RE: Reservation of Corporate Name Dear Sir/Madam:
Pursuant to the provisions of Article 2.06 of the Texas
Business Corporation Act, the undersigned hereby applies for reservation of the
following corporate name for a period of one hundred and twenty (120) days:
RUSHMORE CAPITAL CORPORATION
Enclosed is my check for $25.00 and a copy of this letter. Please return the
copy as confirmation of my request. Thank you.
Sincerely,
/s/ Dewey M. Moore, Jr.
- -----------------------
Dewey M. Moore, Jr.
cm
Enc.
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
Secretary of State
OF
DOMINION ASSOCIATES CORPORATION
CHARTER NUMBER 01167469
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT ARTICLES OF INCORPORATION FOR THE ABOVE CORPORATION, DULY SIGNED
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSSUES THIS CERTIFICATE OF
INCORPOPATION AND ATTACHES HERETO A COPY OF THE ARTICLES OF INCORPORATION.
ISSUANCE OF THIS CERTIFICATE OF INCORPORATION DOES NOT AUTHORIZE THE USE OF
A CORPORATE NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE
FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS OR
PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATED SEP. 24, 1990
[STAMPED SEAL OF THE STATE OF TEXAS]
/S/ George S. Bayord Jr.
-------------------------
Secretary of State
<PAGE>
EXHIBIT 3.1
[STAMPED SEAL OF THE STATE OF TEXAS]
The State of Texas
Secretary of State
SEP. 25, 1990
THE DOMINION COMPANIES
14860 MONTFORT DR. STE 150
DALLAS ,TX 75240
RE:
DOMINION ASSOCIATES CORPORATION
CHARTER NUMBER 01167469-00
IT HAS BEEN OUR PLEASURE TO APPROVE AN PLACE ON RECORD THE ARTICLES OF
INCORPORATION THAT CREATED YOUR CORPORATION. WE EXTEND OUR BEST WISHES FOR
SUCCESS IN YOUR NEW VENTURE.
AS A CORPORATION, YOU ARE SUBJECT TO STATE TAX LAWS. SOME NON-PROFIT
CORPORATIONS ARE EXEMPT FROM THE PAYMENT OF FRANCHISE TAXES AND MAY ALSO BE
EXEMPT FROM THE PAYMENT OF SALES
AND USE TAX ON THE PURCHASE OF TAXABLE ITEMS. iF YOU FEEL THAT UNDER THE LAW
YOUR CORPORATION IS ENTITLED TO BE EXEMPT YOU MUST APPLY TO THE COMPTROLLER OF
PUBLIC ACCOUNTS FOR THE EXEMPTION. THE SECRETARY OF STATE CANNOT MAKE SUCH
DETERMINATION FOR YOUR CORPORATION.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
[STAMPED SEAL OF THE STATE OF TEXAS]
/S/ George S. Bayord Jr.
-------------------------
Secretary of State
<PAGE>
Exhibit 3.1
[STAMPED
FILED
In the Office of the
Secretary of State of Texas
SEP 24 1990
Corporations Section
ARTICLES OF INCORPORATION
OF
DOMINION ASSOCIATES CORPORATION
The undersigned, acting as incorporator of a corporation the Texas Business
Corporation Act (the "Act"), does hereby the following Articles of
Incorporation for such corporation:
1. NAME. The name of the corporation is Dominion Associates Corporation.
2. DURATION. The period of its duration is perpetual.
3. PURPOSE. The purpose for which the corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Act.
4. SHARES. The aggregate number of shares which the corporation shall have
authority to issue is 1,000,000 shares of Common Stock of the par value of $0.01
each.
5. COMMENCEMENT OF BUSINESS. The corporation will not commence business
until it has received for the issuance of its shares consideration of the value
of at least One thousand Dollars ($1,000.00), consisting of money, labor done
or property actually received.
6. REGISTERED OFFICE AND AGENT. The street address of its initial
registered office is 14860 Montfort, Lock Box 10, Suite 150, Dallas, Texas,
75240 and the name of its initial registered agent at such address is Dewey
Malone Moore, Jr.
7. INITIAL DIRECTORS. The number of directors constituting the initial
Board of Directors is (5); thereafter, the number of directors of the
Corporation shall be fixed in accordance
<PAGE>
with the Bylaws. The names and addresses of the persons who are to serve as
directors until the first annual meeting of the shareholders or until their
successors are elected and qualified are:
C. Dewey Elliott, III - 14860 Montfort, Ste. 150, Dallas, TX 75240
H. Robinson 1~owdey - 14860 Montfort, Ste. 150, Dallas, TX 75240
Robert S. Hague-Rogers - 14860 Montfort, Ste. 150, Dallas, TX 75240
Dewey M. Moore, Jr. - 14860 Montfort, Ste. 150, Dallas, TX 75240
Douglas C. Powell - 14860 Montfort, Ste. 150, Dallas, TX 75240
8. INCORPORATOR. The name and address of the incorporator is: Dewey Malone
Moore, Jr., 14860 Montfort, Lock Box 10, Suite 150, Dallas, Texas, 75240.
9. PRE-EMPTIVE RIGHTS. No Shareholder shall have any preemptive rights to
purchase shares of the Corporation.
10. NON-CUMULATIVE VOTING. Cumulative voting is expressly prohibited.
Directors shall be elected by majority vote of the shares represented at any
meeting at which a quorum is present.
11. BYLAWS. The power to alter, amend or repeal the Bylaws or to adopt new
Bylaws, shall be vested in either the shareholders or the Board of Directors of
the corporation.
12. LIABILITY OF DIRECTORS. A director of the Corporation shall not be
liable to the Corporation or its shareholders or members for monetary damages
for an act or omission in the directors capacity as director, except that this
Article does not eliminate or limit liability of a director for:
(a) a breach of the director's duty of loyalty to the Corporation or its
shareholders or members;
(b) an act or omission not in good faith or that
-2-
<PAGE>
involves intentional misconduct or a knowing violation of law;
(c) a transaction for 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;
(d) an act or omission for which the liability of a director is expressly
provided for by statute; or
(e) an act related to an unlawful stock repurchase or payment of a
dividend.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of September,
1990.
/s/ Dewey Malone Moore, Jr.
----------------------------
Dewey Malone Moore, Jr.
Incorporator
STATE OF TEXAS )
COUNTY OF DALLAS )
Before me, a notary public, on this day personally appeared Dewey M. Moore,
Jr., known to me to be the person whose name is subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
Given under my hand and seal of office this 21st day of September, 1990.
[Notary seal] SANDRA BIGHAM /s/ Sandra Bigham
COMMISSION EXPIRES ------------------------
FEBRUARY 17, 1991 Notary public, State of Texas
My commission expires:
2-l7, 1991
-3-
<PAGE>
Exhibit 3.2
BYLAWS
OF
RUSHMORE CAPITAL CORPORATION
October 13, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I OFFICES ............................................1
Section 1.1 Registered Office...................................1
Section 1.2 Other Cffices.......................................1
Section 1.3 Registered Agent....................................1
ARTICLE II MEETINGS OF SHAREHOLDERS............................1
Section 2.1 Annual Shareholder Meetings.........................1
Section 2.2 Special Shareholder Meetings........................1
Section 2.3 Location of Shareholder Meetings ...................2
Section 2.4 List of Shareholders................................2
Section 2.5 Notice of Shareholder Meetings......................2
Section 2.6 Waiver of Notice....................................2
Section 2.7 Quorum..............................................2
Section 2.8 Majority May Conduct Business.......................3
Section 2.9 Voting of Shares....................................3
Section 2.10 Voting for Directors................................3
Section 2.11 Proxies.............................................3
Section 2.12 Shareholder Action Without Meeting..................3
Section 2.13 Voting of Shares of Certain Holders.................3
Section 2.14 Record Dates........................................4
Section 2.15 Nominations for Director............................5
Section 2.16 Order of Business...................................5
Section 2.17 Chairman of Meeting.................................6
ARTICLE III DIRECTORS...........................................6
Section 3.1 Powers..............................................6
Section 3.2 Number and Election of Directors....................6
Section 3.3 Removal of Directors................................7
Section 3.4 Elections to Fill Vacancies.........................7
Section 3.5 Location of Meetings................................7
Section 3.6 First Meeting of Newly Elected Board of Directors...7
Section 3.7 Regular Meetings of the Board of Directors..........7
Section 3.8 Special Meetings of the Board of Directors..........7
Section 3.9 Notice of, and Waiver of Notice For; Special
Meetings of the Board of Directors..................7
Section 3.10 Director Quorum.....................................8
Section 3.11 Directors, Manner of Acting.........................8
Section 3.12 Executive Committee.................................8
Section 3.13 Other Committees...................................10
<PAGE>
Section 3.14 Director Action Without Meeting .....................10
Section 3.15 Compensation of Directors............................10
ARTICLE IV OFFICERS.............................................10
Section 4.1 Number of Officers...................................10
Section 4.2 Election.............................................10
Section 4.3 Other Officers.......................................10
Section 4.4 Compensation.........................................11
Section 4.5 Term of Office and Removal of Officers...............11
Section 4.6 Chairman of the Board and President..................11
Section 4.7 Added Powers of the President........................11
Section 4.8 vice Presidents......................................11
Section 4.9 Secretary............................................11
Section 4.10 Assistant Secretaries...............................12
Section 4.11 Treasurer...........................................12
Section 4.12 Disbursements and Accounting........................12
Section 4.13 Treasurer's Bond....................................12
Section 4.14 Assistant Treasurers................................12
ARTICLE V CERTIFICATES REPRESENTING SHARES....................13
Section 5.1 Description.........................................13
Section 5.2 Shares Without Certificates.........................13
Section 5.3 Facsimile Signatures................................14
Section 5.4 Lost Certificates...................................14
Section 5.5 Transfer of Shares..................................14
Section 5.6 Registered Owners...................................14
ARTICLE VI GENERAL PROVISIONS..................................15
Section 6.1 Distributions.......................................15
Section 6.2 Contracts...........................................15
Section 6.3 Loans...............................................15
Section 6.4 Reserves............................................15
Section 6.5 Financial Reports...................................15
Section 6.6 Signatures..........................................15
Section 6.7 Fiscal Year.........................................15
Section 6.8 Corporate Seal......................................15
ARTICLE VII INDEMNIFICATION OF DIRECTORS AND OFFICERS...........15
(ii)
<PAGE>
ARTICLE VIII AMENDMENTS..........................................16
ARTICLE IX EMERGENCY BYLAWS....................................16
(iii)
<PAGE>
Exhibit 3.2
BYLAWS
OF
RUSHMORE CAPITAL CORPORATION
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office shall be located in
Dallas County, Texas. The address of the registered office may be changed from
time to time.
Section 1.2 Other Offices. The corporation may also have offices at such
other places within or without the State of Texas as the Board of Directors may
from time to time determine, or as the business of the corporation may require.
Section 1.3 Registered Agent. The corporation shall have and continuously
maintain in the State of Texas a registered agent, which agent may be either an
individual resident of the State of Texas whose business office is identical
with the corporation's registered office, or a domestic corporation, or a
foreign corporation authorized to do business in the State of Texas which has a
business office identical with the corporations registered office. The
registered agent may be changed from time to time by the Board of Directors or
an officer of the corporation so authorized by the Board of Directors.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Annual Shareholder Meetings. An annual meeting of shareholders
shall be held on the third Wednesday in May in each year, commencing in the year
1998, if not a legal holiday, and if a legal holiday, then on the next business
day following. The date and time of the annual meeting of shareholders may be
changed by appropriate resolutions of the Board of Directors, to a time within
sixty (60) days before or following the date and time stated herein. At this
meeting, the shareholders shall elect a Board of Directors, and may transact
other business properly brought before the meeting.
Section 2.2 Special Shareholder Meetings. Special meetings of the
shareholders, for any purpose or purposes, described in the meeting notice, may
be called by the President, the Board of Directors, or the Chairman of the Board
of Directors, and shall be called by the President at the request of the holders
of not less than 66-2/3 % of all outstanding shares of the corporation entitled
to be cast on any issue at such meetings.
BYLAWS Page 1
<PAGE>
Section 2.3 Location of Shareholder Meetings. Meetings of shareholders
shall be held in the County of Dallas, State of Texas, or at the location
specified in the notice of the meeting or in a duly executed waiver thereof.
Meetings of shareholders may be held by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting, except where a person participates in the meeting 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 2.4 List of Shareholders. At least ten (10) days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
said meeting arranged in alphabetical order, with the address of each and the
number of voting shares held by each, shall be prepared by the officer or agent
having charge of the stock transfer book. This list 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 for a period of ten (10)
days prior to such meeting. This list shall be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting.
Section 2.5 Notice of Shareholder Meetings. A written or printed notice
stating the place, day and hour of any annual or special shareholder meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than fifty
(50) 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 the meeting and
to any shareholder entitled by the Texas Business Corporation Act or the
articles of incorporation to receive notice of the meeting. If mailed, notice
shall be deemed to be delivered when deposited, postage prepaid, in the United
States mail, addressed to the shareholder at his address as it appears on the
stock transfer books of the Corporation.
Section 2.6 Waiver of Notice. Whenever any notice is required to be given
to any shareholder under the provisions of applicable statutes, 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 therein,
shall be equivalent to the giving of notice.
Section 2.7 Quorum. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at meetings
of shareholders except as otherwise provided by statute, the Articles of
Incorporation or these Bylaws. If, however, a quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be represented. At any adjourned and
BYLAWS Page 2
<PAGE>
Section 2.8 Majority May Conduct Business. When a quorum is present at any
meeting, the vote of the holders of a majority of all the shares present,
whether in person or by proxy, shall be the act of the shareholders' meeting,
unless the vote of a greater number is required by statute, the Articles of
Incorporation or these Bylaws.
Section 2.9 Voting of Shares. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
the shareholders, except to the extent that the voting rights of the shares of
any class shall be limited or denied by the Articles of Incorporation and except
as otherwise provided by statute. Redeemable shares are not entitled to vote
after the date fixed for redemption by Board of Directors resolution.
Section 2.10 Voting for Directors. Unless otherwise provided in the
articles of incorporation, directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Cumulative voting is prohibited.
Section 2.11 Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or which is executed by his duly
authorized attorney-in-fact. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
secretary to the corporation prior to, or at the time of, the meeting.
Section 2.12 Shareholder Action Without Meeting. Any action required by
statute to be taken at a meeting of the shareholders, or any action which may be
taken at a meeting of the shareholders, may be taken without a meeting if one or
more consents in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof and are delivered to the corporation for inclusion in the minute book.
Section 2.13 Voting of Shares of Certain Holders.
(a) Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the Bylaws of such corporation may
authorize, or in the absence of such authorization, as the Board of
Directors of such corporation may determine.
(b) Shares held by an administrator, executor, guardian or conservator
may be voted by him so long as such shares are in the possession and
forming a part of the estate being served by him, either in person or by
proxy, without a transfer of the shares into his name. Shares standing in
the name of a trustee may be voted by him, either in person
BYLAWS Page 3
<PAGE>
or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of the shares into his name as trustee.
(c) Shares standing in the name of a receiver may be voted by the
receiver, and shares held by or under the control of a receiver may be
voted by him without the transfer thereof into his name if authority to do
so is contained in an appropriate order of the court by which he was
appointed.
(d) A shareholder whose shares are pledged shall be entitled to vote
such shares until they have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the transferred
shares.
(e) Treasury shares, shares of its own stock owned by another
corporation, the majority of the voting stock of which is owned or
controlled by it, and shares of its own stock held by the corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
Section 2.14 Record Dates. 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 payment of any distribution or
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
shall be closed for a stated period not to exceed fifty (50) days. If the stock
transfer books are closed for the purpose of determining shareholders entitled
to notice of, or to vote at, a meeting of shareholders, the books shall be
closed for at least ten (10) days immediately preceding the meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix
in advance as the record date for determination of shareholders, a date in any
case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring the determination of shareholders is to be taken.
If the stock transfer books 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 entitled to receive payment of a dividend, the date
on which notice of the meeting is mailed and the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof,
BYLAWS Page 4
<PAGE>
except where the determination has been made through the closing of stock
transfer books and the stated period of closing has expired.
Section 2.15 Nominations for Director.Any shareholder proposing to nominate
a person for election to the Board of Directors shall provide the Corporation 60
days prior written notice of such nomination, stating the name and address of
the nominee and describing his qualifications for being a Director of the
Corporation. Such notice shall be sent or delivered to the principal office of
the Corporation to the attention of the Board of Directors, with a copy to the
President and Secretary of the Corporation.
Section 2.16 Order of Business. The order of business at annual meetings,
and so far as practicable at other meetings of shareholders, shall be as follows
unless changed by the Board of Directors:
(a) Call to order
(b) Proof of due notice of meeting
(c) Determination of quorum and examination of proxies
(d) Announcement of availability of voting list
(e) Announcement of distribution of annual statement
(f) Reading and disposing of minutes of last meeting of shareholders
(g) Reports of Officers and committees
(h) Appointment of voting inspectors
(i) Unfinished business
(j) New business
(k) Nomination of Directors
(1) Opening of polls for voting
(m) Recess
(n) Reconvening: closing of polls
(o) Report of voting inspectors
(p) Other business
(q) Adjournment
Section 2.17 Chairman of Meeting. At any meeting of shareholders, the
Chairman or Vice Chairman (or in the event there might be more than one vice
chairman, the vice chairman in the order designated by the directors or, in the
absence of any designation, in the order of election) of the Corporation (in
such order) shall act as the chairman of the meeting, and the shareholders shall
not have the right to elect a different person as chairman of the meeting. The
chairman of the meeting shall have the authority to determine (i) when the
election polls shall be closed in connection with any vote to be take at the
meeting, and (ii) when the meeting shall be recessed. No action taken at a
meeting shall become final and binding if any group of shareholders representing
33-1/3% or more of the shares entitled to be voted for such action shall contest
the validity of any proxies or the outcome of any election.
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Exhibit 3.2
ARTICLE III
DIRECTORS
Section 3.1 Powers. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all powers of the
corporation and do all 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.
Section 3.2 Number and Election of Directors. The business and affairs of
the Corporation shall be managed by a board of directors, which shall have and
may exercise all of the powers of the Corporation, except such as are expressly
conferred upon the shareholders by law, by the Articles of Incorporation or by
these Bylaws. Subject to the rights of the holders of shares of any series of
preferred stock then outstanding to elect additional directors under specific
circumstances, the Board of Directors shall consist of not less than three nor
more than twenty-one persons. The exact number of directors within the minimum
and maximum limitations specified in the preceding sentence shall be fixed from
time to time by either (i) the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors, (ii) the affirmative
vote of the holders of 66-2/3 % or more of the voting power of all of the shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, or (iii) the Articles of Incorporation. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. The directors shall be divided into
three classes, as nearly equal in number as possible, with the term of office of
the first class to expire at the 1998 annual meeting of shareholders, the term
of the second class to expire at the 1999 annual meeting of shareholders and the
term of the third class to expire at the 2000 annual meeting of shareholders,
and with the members of each class to hold office until their successors have
been elected and qualified. At each annual meeting of shareholders following
such initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of shareholders after their election.
Section 3.3 Removal of Directors. Subject to the rights of the holders of
any series of preferred stock then outstanding, any director, or the entire
Board of Directors, may be removed from office at any time only for cause and
only by the affirmative vote of the holders of 66-2/3 % or more of the voting
power of all of the shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. o!Cause!l shall be
exclusively defined to mean: (a) conviction of a felony, (b) proof beyond a
reasonable doubt of the gross negligence or willful misconduct of such director
which is materially detrimental to the Corporation, or (c) proof beyond a
reasonable doubt of a breach of fiduciary duty of such director which is
materially detrimental to the Corporation.
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Section 3.4 Elections to Fill Vacancies. Subject to the rights of holders
of any series of any preferred stock then outstanding, newly-created
directorships resulting from any increase in the authorized number of directors
and any vacancies in the Board of the Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled by a majority vote of the directors then in office even though
less than a quorum or by a sole remaining director and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
Section 3.5 Location ofMeetings of the Board of Directors. Meetings of the
Board of Directors, regular or special, may be held either within or without the
County of Dallas or the State of Texas.
Section 3.6 First Meeting of Newly Elected Board of Directors. The first
meeting of each newly elected Board of Directors shall be held at such time and
place as shall be fixed by the vote of the shareholders at their annual meeting,
and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided that a quorum shall be
present. In the event of failure of the shareholders to fix the time and place
of the first meeting of the newly elected Board of Directors, or in the event
the meeting is not held at the time and place so fixed by the shareholders, such
meeting may be held at the time and place specified in a notice given as
provided for special meetings of the Board of Directors, or as specified in a
written waiver signed by all of the directors.
Section 3.7 Regular Meetings of the Board of Directors. Regular meetings of
the Board of Directors may be held without notice at such times and places as
shall, from time to time, be determined, by resolution, by the Board of
Directors.
Section 3.8 Special Meetings of the Board of Directors. Special meetings of
the Board of Directors may be called by the Chairman of the Board of Directors
or the President, and shall be called by the Secretary on the written request of
any two (2) directors.
Section 3.9 Notice of and Waiver of Notice For; Special Meetings of the
Board of Directors. Unless the articles of incorporation provide for a longer or
shorter period, notice of special meetings of the Board of Directors shall be
given personally, in writing or by telegram, facsimile or other electronic means
to each director at least two (2) days before the date of the meeting. If
mailed, notice of any director meeting shall be deemed to be effective at the
earlier of: (1) when received; (2) five days after deposited in the United
States mail, addressed to the director's business office, with postage thereon
prepaid; or (3) the date shown on the return receipt if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the director. Any director may waive notice of any meeting. Except as
provided in the next sentence, the waiver must be in writing, signed by the
director entitled to the notice, and filed with the minutes or corporate
records. The attendance of a director at a meeting
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shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business and at the beginning of the meeting (or promptly upon his arrival)
objects to holding the meeting or transacting business at the meeting, and does
not thereafter vote for or assent to action taken at the meeting. Unless
required by the Articles of Incorporation, statute or these Bylaws, neither the
business to be transacted at, nor the purpose of, any special meeting of the
board of directors need be specified in the notice or waiver of notice of such
meeting.
Notice shall be given by the person calling the meeting or by the
Secretary. 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 any
notice or waiver of notice, except as may otherwise be expressly provided by
statute, the Articles of Incorporation, or these Bylaws.
Section 3.10 Director Quorum. A majority of the directors prescribed by
resolution shall constitute a quorum for the transaction of business, and the
act of a majority of the directors present at a meeting at which a quorum is
present when the vote is taken shall be the act of the Board of Directors,
unless a greater number is required by statute, the Articles of Incorporation or
these Bylaws. If a quorum shalt not be present at any meeting of the Board 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 3.11 Directors, Manner ofActing. Unless the Articles of
Incorporation provide otherwise, any or all directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
Section 3.12 E~ecutive Committee. The Board of Directors, by resolution
adopted by a majority of the entire Board of Directors may designate two (2) or
more directors to constitute an executive committee. Vacancies in the membership
of the committee shall be filled by a majority of the entire Board of Directors
at a regular or special meeting. The executive committee shall keep regular
minutes of its proceedings and shall report the same to the Board of Directors
when required. The designation of the executive committee and the delegation
thereto of authority shall not relieve the Board of Directors, or any of its
members, of any responsibility imposed by Jaw.
This committee, unless its authority is expressly limited by such
resolution, shall have and may exercise all of the authority of the Board of
Directors in the business and affairs of the corporation except where action of
the Board of Directors is required by statute, the Articles of Incorporation or
these Bylaws. Provided, however, this committee may not:
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(1) amend the Articles of Incorporation pursuant to the authority of
directors;
(2) propose a reduction of the stated capital of the corporation;
(3) approve a plan of merger or share exchange of the corporation;
(4) recommend to the shareholders the sale, lease, or exchange of all or
substantially all of the property and assets of the corporation
otherwise than in the usual and regular course of its business;
(5) recommend to the shareholders a voluntary dissolution of the
corporation or a revocation thereof;
(6) amend, alter, or repeal the Bylaws of the corporation or adopt new
Bylaws of the corporation;
(7) fill vacancies in the board of directors;
(8) fill vacancies in or designate alternate members of any such
committee;
(9) fill any directorship to be filled by reason of an increase in the
number of directors;
(10) elect or remove officers of the corporation or members or alternate
members of any such committee;
(11) fix the compensation of any member or alternate members of such
committee; or
(12) alter or repeal any resolution of the board of directors that by its
terms provides that it shall not be so amendable or repealable.
Section 3.13 Other Committees. The Board of Directors may create such other
committees as it shall determine are necessary or proper to the effective
governance of the Corporation or the elimination or reduction of the adverse
effect of any conflict of interest. Such committees may include, without
limitation, an audit committee, compensation committee, nominating committee,
stock option committee and conflicts of interest committee. Each such committee,
if any, shall be appointed by the Board of Directors, and membership in such
committee shall be limited to members of the Board of Directors.
Section 3.14 Director Action Without Meeting. Unless the Articles of
Incorporation provide otherwise, any action that may be taken by a committee or
the Board of Directors at a
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meeting may be taken without a meeting if a consent in writing setting forth the
actions so taken shall be signed by all of the members of a committee or all of
the directors. Action taken by consent is effective when the last director signs
the consent, unless the consent specifies a different effective date. A signed
consent has the effect of a meeting vote and may be described as such in any
document.
Section 3.15 Compensation of Directors. Directors, as such, shall not
receive any salary for their services, but, by resolution of the Board, may
receive a fixed sum and necessary expenses of attendance of each regular or
special meeting of the Board. Members of a committee, by resolution of the Board
of Directors, may be allowed like compensation for attending committee meetings.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
Section 4.1 Number of Officers. The officers of the corporation shall
consist of a President, a Secretary, a Treasurer and such other officers as are
contemplated by Section 4.3 hereof, each of whom shall be elected by the Board
of Directors. One or more Vice Presidents may also be elected at the discretion
of the Board of Directors. Any two or more offices may be held by the same
person.
Section 4.2 Election. The Board of Directors, at its first meeting after
each annual meeting of shareholders, shall elect a President, one or more Vice
Presidents (if any), a Secretary and a Treasurer, none of whom needs to be a
member of the Board and may appoint a member of the Board of Directors as
Chairman of the Board.
Section 4.3 Other Oficers. Such other officers and assistant officers and
agents as may be deemed necessary may be elected or appointed by the Board of
Directors.
Section 4.4 Compensation. The compensation of the Chairman, President, Vice
Presidents, the Secretary and the Treasurer shall be fixed by the Board of
Directors, but the compensation of all minor officers and all other agents and
employees of the corporation may be fixed by the Chairman or President, unless
by resolution the Board of Directors shall determine otherwise; provided,
however, that without the express approval of the Board of Directors, the
Chairman or President may not enter into any employment agreement on behalf of
the corporation with any person which may not be terminated by the corporation,
either at will or upon thirty (30) days written notice.
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Section 4.5 Tenn office and Removal of Officers. Each officer of the
corporation shall hold office until his successor is chosen and qualifies, or
until his death or removal or resignation from office. Any officer, agent or
member of a committee elected or appointed by the Board of Directors may be
removed by a majority vote of the entire Board of Directors, whenever in its
judgment 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. Any vacancy occurring in an office of the corporation for any reason
may be filled by the Board of Directors. Appointment of an officer or agent
shall not itself create contract rights.
Section 4.6 Chairman of the Board and President. The Board of Directors may
designate whether the Chairman of the Board, if one is appointed, or the
President shall be the chief executive officer of the corporation. In the
absence of a contrary designation, the President shall be the chief executive
officer. The chief executive officer shall preside at all meetings of the
shareholders, and the Board of Directors unless a Chairman of the Board is
appointed, and shal~ have such other powers and duties as usually pertain to his
office or as may be assigned to him from time to time by the Board of Directors.
The President shall have such powers and duties as usually pertain to that
office, except as the same may be modified by the Board of Directors. Unless the
Board of Directors shall otherwise direct, the President shall have general and
active management responsibility for the business of the corporation, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect.
Section 4.7 Added Powers of the President. The President, and the Chairman
of the Board, in the event that he shaH have been designated chief executive
officer, shall execute with the secretary or any other officer of the
corporation authorized by the Board of Directors, certificates for shares of the
corporation, and any deeds, mortgages, bonds, contracts or other instruments
that the Board of Directors has authorized for execution, except when the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the corporation
or shall be required by law to be otherwise signed or executed.
Section 4.8 Vice Presidents. In the event that the Board of Directors shall
provide for Vice Presidents, then each of the Vice Presidents, in the order of
his seniority, unless otherwise determined by the Board of Directors, shall in
the absence or disability of the President, serve in the capacity of the
President and perform the duties and exercise the powers of the President. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors shall from time to time prescribe.
Section 4.9 Secretary. The Secretary shall: (a) attend all meetings of the
Board of Directors and of the shareholders, and shall record all votes and keep
the minutes of all such proceedings in one or more books kept for that purpose;
(b) perform like services for any committee; (c) give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors; (d) keep in safe custody the seal of the corporation, and when
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authorized by the Board of Directors, affix the same to any instrument requiring
it and when so affixed, it shall be attested by the Secretary's signature, or by
the signature of the Treasurer, any Assistant Secretary or Assistant Treasurer;
and (e) perform aJI duties incidental to the office of Secretary and such other
duties as, from time to time, may be assigned to the Secretary by the President
or Board of Directors, under whose supervision the Secretary shall function.
Section 4.10 Assistant Secretaries. Each Assistant Secretary, if any, in
the order of his seniority, unless otherwise determined by the Board of
Directors, may perform the duties and exercise the powers of the Secretary, and
shall perform such other duties and have such other powers as the Board of
Directors may, from time to time, prescribe.
Section 4.11 Treasurer. The Treasurer shall have custody of the corporate
funds and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, shall deposit all money 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 and shall
perform ~l such other duties as, from time to time, may be assigned to the
Treasurer by the Board of Directors.
Section 4.12 Disbursements and Accounting. The Treasurer shall disburse
such funds of the corporation as may be ordered by the Board of Directors,
taking proper vouchers for all disbursements, and shall render to the President
and the Directors at the regular meetings of the Board, or whenever the Board of
Directors may require, an account of all of his transactions as Treasurer, and
of the financial condition of the corporation.
Section 4.13 Treasurer's Bond. If required by the Board of Directors, the
Treasurer shall give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of his office, and for the restoration to the corporation, in case of
his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the corporation.
Section 4.14 Assistant Treasurers. Each Assistant Treasurer, if any, in the
order of his seniority unless otherwise determined by the Board of Directors,
shall in the absence or disability of the Treasurer perform the duties and
exercise the powers of the Treasurer, and shall perform such other duties and
have such other powers as the Board of Directors may, from time to time,
prescribe.
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ARTICLE V
CERTIFICATES REPRESENTING SHARES
Section 5.1 Description. The corporation shall deliver certificates
representing all shares to which shareholders are entitled. Certificates shall
be signed by the Chairman, President or a Vice President, and the Secretary or
an Assistant Secretary of the corporation, and may be seated with the seal of
the corporation or a facsimile thereof. No certificate shall be issued for any
share until the consideration therefor has been fully paid. Each certificate
shall be consecutively numbered and shall be entered in the stock transfer books
of the corporation as issued. Each certificate representing shares shall state
upon the face thereof the name of the issuing corporation, that the corporation
is organized under the laws of the State of Texas, the name of the person to
whom issued, the number and class of shares and the designation of the series,
if any, which such certificate represents, and the par value of each share or a
statement that the shares are without par value, and shall further contain on
the face or back of the certificate a statement of all additional information
required by statute to be set forth.
Section 5.2 Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the Articles of
Incorporation or these Bylaws provide otherwise, the board of directors may
authorize the issue of some or all the shares of any or all of its classes
or series without certificates. The authorization does not affect shares
already represented by certificates until they are surrendered to the
corporation.
(b) Information Statement Required. Within a reasonable time after the
issue or transfer of shares without certificates, the corporation shall
send the shareholder a written statement containing at minimum:
(1) the name of the issuing corporation and that it is organized
under the law of this state;
(2) the name of the person to whom issued;
(3) the number and class of shares and the designation of the series,
if any, of the issued shares, and the par value of each share or
a statement that the shares are without par value; and
(4) all additional information required by statute to be set forth or
stated on certificates.
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Section 5.3 Facsimile Signatures. The signatures of the Chairman, President
or Vice President, and the Secretary or Assistant Secretary upon a certificate
may be facsimiles, if the certificate is countersigned by a transfer agent or
assistant transfer agent, or registered by a registrar other than the
corporation or any employee of the corporation. In the event that an officer who
has signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before the certificate is issued, the certificate may
be issued by the corporation wi'th ihe same effect as if he were such officer at
the date of the issuance.
Section 5.4 Lost Certificates. The Board of Directors may direct new
certificate(s) to be issued in place of any certificate(s) 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(s) to be lost or
destroyed. When authorizing such issuance of new certificate(s), the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of the lost or destroyed certificate(s), or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum and form and with such sureties as it
may direct as an indemnity against any claim that may be made against the
corporation with respect to the certificate(s) alleged to have been lost or
destroyed.
Section 5.5 Transfer of Shares. Shares of stock shall be transferable only
on the books of the corporation by the holder thereof in person or by his duly
authorized attorney-in-fact. Upon surrender to the corporation or the transfer
agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty 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 5.6 Registered Owners. The corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and shall not be bound
to recognize any equitable or other claim to, or interest in, such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Texas.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 Distributions. The Board of Directors may declare and the
corporation may make distributions (including dividends on its outstanding
shares) in cash, property or its own shares, pursuant to law and subject to the
provisions of its Articles of Incorporation.
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Section 6.2 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or to execute and deliver
any instrument in the name, and on behalf of, the corporation. This authority
may be general or confined to specific instances.
Section 6.3 Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. This authority may be
general or confined to specific instances.
Section 6.4 Reserves. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any purpose or purposes, and may
abolish any such reserve in the same manner.
Section 6.5 Financial Reports. The Board of Directors must, when required
by the holders of at least one-third of the outstanding shares of the
corporation, present written reports concerning the situation and business of
the corporation.
Section 6.6 Signatures. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or other person or
persons as the Board of Directors may, from time to time, designate.
Section 6.7 Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution by the Board of Directors.
Section 6.8 Corporate Seal. The corporate seal shall have inscribed thereon
the name of the corporation and shall be in the form determined by the Board of
Directors. The seal may be used by causing it, or a facsimile thereof, to be
impressed, affixed or in any other manner reproduced.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall be empowered to indemnify directors, officers, agents
and employees to the maximum extent permitted by Article 2.02-1 of the Texas
Business Corporation Act.
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<PAGE>
ARTICLE VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed, and new Bylaws may be
adopted by the affirmative vote of a majority of either the Board of Directors
or the shareholders, present at any meeting at which a quorum of each respective
body is present, provided that notice of the proposed alteration, amendment,
repeal or adoption shall be contained in the notice of the meeting. This power
to alter, amend or repeal the Bylaws, and to adopt new Bylaws, may be modified
or divested by action of shareholders representing a majority of the stock of
the corporation taken at any regular or special meeting of the shareholders.
Notwithstanding any other provision contained in these Bylaws to the contrary,
Sections 2.1, 2.2, 2.15 and 2.18 of Article II, Sections 3.2 and 3.3 of Article
Ill, and this Article VIII of these Bylaws may be amended, supplemented, or
repealed only by the affirmative vote of 66-2/3 % or more of all of the shares
of the Corproation entitled to vote generally in the election of directors,
voting together as a single class.
ARTICLE IX
EMERGENCY BYLAWS
Unless the Articles of Incorporation provide otherwise, the following
provisions of this Article X, "Emergency Bylaws" shall be effective during an
emergency which is defined as when a quorum of the corporation's directors
cannot be readily assembled because of some catastrophic event.
During such emergency:
(a) Notice of Board Meetings. Any one member of the board of directors
or any one of the following officers: president, any vice-president,
secretary, or treasurer, may call a meeting of the board of directors.
Notice of such meeting need be given only to those directors whom it is
practicable to reach, and may be given in any practical manner, including
by publication and radio. Such notice shall be given at least six hours
prior to commencement of the meeting.
(b) Temporary Directors and Quorum. One or more officers of the
corporation present at the emergency board meeting, as is necessary to
achieve a quorum, shall be considered to be directors for the meeting, and
shall so serve in order of rank, and within the same rank, in order of
seniority. In the event that less than a quorum (as determined by Article
Ill, Section 3.10) of the directors are present (including any officers who
are
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to serve as directors for the meeting), those directors present (including
the officers serving as directors) shall constitute a quorum.
(c) Actions Permitted to Be Taken. The board as constituted in
paragraph (b), and after notice as set forth in paragraph (a) may:
(1) Officers' Powers. Prescribe emergency powers to any officer of
the corporation;
(2) [)elegation of Any Power. Delegate to any officer or director,
any of the powers of the board of directors;
(3) Lines of Succession. Designate lines of succession of officers
and agents, in the event that any of them are unable to discharge
their duties;
(4) Relocate Principal Place of Business. Relocate the principal
place of business, or designate successive or simultaneous
principal places of business;
(5) All Other Action. Take any other action, convenient, helpful, or
necessary to carry on the business of the corporation.
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<PAGE>
Exhibit 5.1
<TABLE>
<CAPTION>
GLAST, PHILLIPS & MURRAY
A PROFESSIONAL CORPORATION
<S> <C>
2200 ONE GALLERIA TOWER
ATTORNEYS AND COUNSELORS 13355 NOEL ROAD, L.B. 48
RONALD L. BROWN, P.C. DALLAS, TEXAS 75240-6657
DIRECT DIAL NUMBER: TELEPHONE: (972) 419-8300
(972) 419-8302 FAX: (972) 419-8329
</TABLE>
December 15, 1997
Rushmore Financial Group, Inc.
13355 Noel Road, Suite 650
Dallas, Texas 75240
Re: Form SB-2 Registration Statement relating to the registration of up to
1,250,000 shares of common stock, $0.01 par value of Rushmore Financial
Group, Inc.
Gentlemen:
We are acting as counsel for Rushmore Financial Group, Inc., a Texas
corporation (the "Company"), in connection with the filing under the Securities
Act of 1933, as amended, of a Registration Statement for the Company on Form
SB-2 filed with the Securities and Exchange Commission ("SEC") (the
"Registration Statement"), covering an aggregate of up to 1,250,000 shares (the
"Shares") of common stock, par value $0.01 per share (the "Common Stock"), of
the Company.
In that connection, we have examined the Form SB-2 Registration Statement
in the form to be filed with the SEC. We have also examined and are familiar
with the originals or authenticated copies of all corporate or other documents,
records and instruments that we have deemed necessary or appropriate to enable
us to render the opinion expressed below.
We have assumed that all signatures on all documents presented to us are
genuine, that all documents submitted to us as originals are accurate and
complete, that all documents submitted to us as copies are true and correct
copies of the originals thereof, that all information submitted to us was
accurate and complete and that all persons executing and delivering originals or
copies of documents examined by us were competent to execute and deliver such
documents. In addition, we have assumed that the Shares will not be issued for
consideration less than the par value thereof and that the form of consideration
to be received by the Company for the Shares will be lawful consideration under
the Texas Business Corporation Act.
Based on the foregoing and having due regard for the legal considerations
we deem relevant, we are of the opinion that the Shares, or any portion thereof,
when issued as described in the Registration Statement, will be validly issued
by the Company, fully paid and nonassessable.
This opinion is limited in all respects to the laws of the United States of
America and the Texas Business Corporation Act.
<PAGE>
Rushmore Financial Group, Inc.
December 9, 1997
Page 2
We advise you that members of this firm own a total of 5,434 shares of
Common Stock of the Company.
This opinion may be filed as an exhibit to the Registration Statement.
Sincerely,
/s/ Glast, Phillips & Murray
-------------------------
GLAST, PHILLIPS & MURRAY, P.C.
<PAGE>
Exhibit 10.1.1
EXECUTIVE COMPENSATION AGREEMENT
This Executive Compensation Agreement dated as of the 18th day of November,
1997, between Rushmore Financial Group, Inc., a Texas Corporation (hereinafter
referred to as "Rushmore") and Dewey M. (Rusty) Moore, Jr., (hereinafter
referred to as "Officer").
WITNESSETH:
WHEREAS, Officer is President and Chief Executive Officer of Rushmore
Financial Group, Inc., a Texas corporation (Rushmore and its subsidiaries are
hereinafter collectively referred to as the "Companies"), and Officer has
direct supervisory responsibility for all functions of the Companies; and
WHEREAS, Rushmore desires that Officer continue to use his experience and
abilities in the business of the Companies in a capacity similar to that in
which he has heretofore served; and
WHEREAS, Officer desires to accept such employment upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby aclmowledged, it is hereby agreed as follows:
1. Emplovment. Rushmore hereby agrees to continue to employ Officer and
Officer hereby agrees to continue to serve Rushmore as President and Chief
Executive Officer of Rushmore Financial Group, Inc. and in other capacities
similar to those in which he has heretofore served, for the term and on the
conditions hereinafter set forth, Officer shall have such executive duties
to Companies during the term of this Agreement as shall be determined by
the Board of Directors of Rushmore; however, Officer shall not be assigned
to a position which shall substantially diminish his prestige or
responsibility compared to that which he has heretofore enjoyed with
Rushmore. Subject to the foregoing, Officer hereby agrees to serve in any
comparable executive position in the State of Texas to which he shall be
directed by the Board of Directors of Rushmore, excluding service in the
insurance related businesses of Rushmore, and further agrees to use his
best efforts to promote the efficient and profitable operation of the
business of Rushmore.
2. Term of Emplovment. The term of Officer's employment shall continue subject
to the provisions of this Agreement, commencing as of the date hereof until
December 31, 2000. Beginning January 1, 1998, and on the first day of each
month thereafter, the term shall automatically be extended for successive
additional one month periods, unless either party notifies the other that
it intends to terminate this Agreement. If such a notice is given, this
Agreement will terminate on the last day of the term of this Agreement.
3. Compensation.
a. Base Compensation. As base compensation for services provided pursuant
to this Agreement, Rushmore shall initially pay Officer compensation
at the rate of $138,000.00 per year, beginning January 1, 1998. Within
three months prior to each January 1st, the Board of Directors of
Rushmore will evaluate the performance of Officer and the compensation
paid to executives in other companies in the Financial Services Sector
of similar size and scope of operations, during the previous year and
fix his Base Compensation for the next following year at an amount
which shall not be less than the prior year's Base Compensation as
determined by the Board of Directors. When a new Base Compensation is
2
<PAGE>
fixed by the Board of Directors of Rushmore under this paragraph, it
shall become the new Base Compensation and thereafter the Base
Compensation shall not be less than that amount, without regard to any
elective deferral of compensation made by Officer at the sole
discretion of the Officer. The Base Compensation provided for in this
Paragraph 3 shall be payable in equal semi-monthly installments on the
first and fifteenth business day of each month.
b. Additional Comnensation. Officer shall also earn commissions and
overrides for accounts serviced by him personally as broker, and an
override commission on commissions earned by persons introduced by
Officer to Rushmore and its subsidiaries, in accordance with the
corrunission rates applicable to him, which shall be paid semimonthly
as provided above. The Board of Directors of Rushmore reserves the
right to pay to Officer compensation and any other bonus or incentive
compensation, in money, stock options, or any other form, as the Board
in its discretion deems appropriate. The total of the Base
Compensation and Additional Compensation shall be Combined
Compensation hereunder. In any year in which the Officer shall elect
to defer a portion of the Base Compensation to which he is entitled,
such deferred amount shall be paid to Officer in the following year of
this agreement or at its termination.
c. Reimbursement for Expenses and Automobile. Rushmore shall provide
Officer with an automobile, or an allowance for such, for his business
use and pay all expenses of operating it. So long as Officer shall be
employed by Rushmore, he shall be entitled and authorized to incur
reasonable and necessary expenses in connection
3
with or related to his business duties, including without limitation,
expenses for travel, entertainment, maintaining membership in various
clubs and similar expenses. Rushmore will pay all such expenses
directly or will reimburse Officer for them.
4. Participation in EmDloyee Benefit Pro~ams. Officer will be entitled to
participate on the same basis as other executive employees in any
employee benefit programs presently in force or subsequently adopted
by Rushmore, including such pension and profit-sharing plans,
hospitalization, medical and health and accident insurance programs,
policies and benefits, life insurance programs and pension and
retirement benefit plans as may from time to time be in effect.
5. Payments Upon Death or Disability
a. In the event that Officer should die, Rushmore shall pay to the
beneficiary as may have been designated in writing by Officer or,
failing such designation, to Officer's estate, the sum of three
(3) years' Combined Compensation at the then existing rate. Such
payment shall be made either in thirty-sixty (36) equal monthly
installments or in cash (after the amount is discounted at the
rate of 9%) within one hundred twenty (120) days after Officer's
death or disability, as determined by Rushmore.
b. Rushmore shall acquire for the benefit of Officer, disability
insurance to pay to Officer a benefit of 75% of his Base
Compensation for the last complete year of employment, in the
event Officer shall become totally disabled. Officer's occasional
absence from work for reasonable periods of time because of
sickness (not resulting in total disability) shall not result in
any adjustment in his compensation or rights under this
Agreement. For the purpose of this Agreement, the term "totally
disabled"
4
<PAGE>
or "total disability" mean Officer's inability on account of
sickness or accident to regularly engage or to adequately perform
his assigned duties under this Agreement.
6. Severance Pay Upon Termination. In the event Officer's employment is
terminated by Rushmore, except for "cause" and except for Officer's
death or total disability, Rushmore shall pay to Officer as severance
pay the sum of three years' Base Compensation at the then existing
rate, plus any sums due as Additional Compensation pursuant to
Paragraph 3(b) hereof. Such payment shall be made in thirty-sixty (36)
equal monthly installments. Termination for "cause" shall mean
termination by Rushmore for any of the following reasons:
a. Willfully and significantly damaging Rushmore's property,
business, reputation or goodwill;
b. The commission of a felony;
c. Stealing, dishonesty, fraud or embezzlement;
d. Deliberate neglect of duty, or resignation. Notwithstanding
any other provision of this Agreement, if during any period
of time, Officer receives severance pay pursuant to this
Paragraph 6 and concurrently therewith is paid any Combined
Compensation (as defined in Paragraph 3(1,) hereof), then
the amount of severance pay to which Officer would otherwise
be entitled hereunder shall be reduced during such period by
an amount equal to the Combined Compensation paid during
such period.
7. Agreement Not to Compete. Upon voluntary termination of Officer's
employment by Officer, or by termination by Rushmore, for "cause," and
for a period of one (1) year from the date of any such termination,
Officer hereby specifically agrees to refrain from:
5
<PAGE>
a. Entering into any other employment contract, or other agreement
or understanding, whether written or oral, of like nature, to
perform services similar to those performed hereunder, either
with or on behalf of any person whose products, services,
business, including ownership of 75% or more of a competing
company which its business or other activities shall be
determined exclusively by Rushmore, to be in direct competition
with any of the operations of either of the Companies or inimical
to their interests;
b. Hiring, attempting to hire or to assist any other person or
entity in hiring or attempting to hire an employee of Rushmore or
one the Companies, or any person who was an employee of Rushmore
or one of the Companies within the six-month period prior to the
hire, attempted hire or assistance in hiring or attempting to
hire;
c. Soliciting, in competition with Rushmore or one of the Companies,
the business of any customer of Rushmore or one of the Companies,
except for those with which Officer had direct dealings during
his employment with Rushmore or one of the Companies.
This agreement not to compete shall extend throughout the State of Texas in
cities which Rushmore maintains a retail office.
8. Vacation/Sick Days. Officer shall be entitled to an annual vacation of
three (3) weeks each year at full compensation at a time mutually
satisfactory to Rushmore and Officer. Unused vacation and sick days
may be accrued indefinitely. 9. Approval bv the Board of Directors.
This Agreement has been approved by the Board of Directors of
Rushmore, at a meeting held on the ____ day of_________, 1997.
6
<PAGE>
10. Agreement is Personal. This Agreement is a personal agreement and the
rights and interests hereunder (except that of Rushmore) may not be
sold, transferred, assigned, pledged or hypothecated. This Agreement
shall be binding on the heirs, executors and administrators of Officer
and on the successors and assigns of Rushmore. During Officer's
lifetime, the parties hereto by mutual agreement may amend, modify or
rescind this Agreement without the consent of any other person.
11. Severability of Provisions. If any of the provisions of this Agreement
shall be held invalid, the remainder of this Agreement shall not be
affected thereby.
12. Governing Law. This instrument contains the entire agreement between
the parties and shall be governed by the laws of the State of Texas.
It may be amended only by agreement in writing signed by each of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RUSHMORE FINANCIAL GROUP, INC.
/s/ Dewey M. (Rusty) Moore, Jr. By: /s/ Jim Clark
--------------------------- -------------------------
Dewey M. (Rusty) Moore, Jr. Jim Clark, Secretary
7
<PAGE>
Exhibit 10.2.1
EXHIBIT B
MODIFIED
COINSURANCE AGREEMENT
THIS MODIFIED COINSURANCE AGREEMENT, made and entered into as of the 23rd
day of February, 1989, by and between MASSACHUSETTS GENERAL LIFE INSURANCE
COMPANY ("Ceding Insurer"), a Massachusetts corporation, with principal offices
located at 7887 East Belleview Avenue, Englewood, Colorado 80111, and FIRST
FINANCIAL LIFE INSURANCE COMPANY ("Reinsurer"), an Arizona corporation, with
principal offices located at Tampa, Florida, and with administrative offices
located at 7887 East Belleview Avenue, Englewood, Colorado 80111.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, Ceding Insurer, Reinsurer, FACILITIES MANAGEMENT INSTALLATION, a
Delaware corporation and an affiliate of Ceding Insurer, FIRST FINANCIAL LIFE
COMPANIES and FIRST FINANCIAL MARKETING SERVICES, INC. ("Marketing Company"), a
Florida corporation and an affiliate of Reinsurer, entered into a Marketing
Agreement (herein so-called) as of the even date herewith, under which, among
other things, Ceding Insurer and Reinsurer agreed to enter into this Modified
Coinsurance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties hereto, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Definitions. Except as otherwise Indicated herein, all terms used In the
Marketing Agreement shall have the same meaning in this Modified Coinsurance
Agreement. In addition, the following terms shall mean:
<PAGE>
1.1 "Abatement" means the termination of the provisions of this Modified
Coinsurance Agreement relating to the cession of additional Insurance Business
Produced, but excludes the termination of the remaining provisions of the
Modified Coinsurance Agreement
1.2 "Accounting Period" means each calendar quarter ending on March 31,
3une 30, September 30 and December 31 of each year.
1.3 "Beginning Calendar Year" means the period commencing with the
effective date of this Modified Coinsurance Agreement and ending December
31, 1986.
1.4 "Calculation Period" means the Beginning Calendar Year, the Ending
Calendar Year and each Calendar Year occurring in between them.
1.5 "Calendar Year" means the each twelve month period beginning 3anuary
1st and ending December 31st.
1.6 "Ending Calendar Year" means the period commencing on 3anuary 1st of
the year in which this Modified Coinsurance Agreement is Abated and ending on
the date of Abatement.
1.7 "First Year Paid Life Insurance Premiums" means the life insurance
premiums received by the Ceding Insurer on the Policies reinsured hereunder
during the first year each of such Policies is In effect, exclusive of (i)
lump-sum cash deposits In excess of published premium rates, (ii) premiums for
flexible premium life Insurance contracts In excess of control premiums and
(lii) premiums for single pay contracts.
1.8 "Gross Rate of Interest " for any Accounting Period shall be the amount
of basis points over the effective annual rate of interest credited by Ceding
Insurer on interest-sensitive life insurance Policies (as hereinafter defined)
as dictated in Schedule A by product type as authorized by Ceding
<PAGE>
Insurer's Board of Directors and in effect on the first day of each Accounting
Period.
1.9 "Gross Investment Income" for any Accounting Period shall be an amount
equal to:
(a) Twenty-five percent of the Gross Rate of Interest multiplied
by an amount equal to (i) Reinsurer's Quota Share of the Reserve
Liability at the beginning of such Accounting Period less (ii) an
amount equal to Reinsurer's Quota Share of the principal amount
of all policy loans on the Policies reinsured hereunder ("Policy
Loans") at the beginning of the Accounting Period less (iii) any
unpaid settlements due to the Ceding Insurer plus (iv) any unpaid
settlements due to the Reinsurer:
Plus
(b) An amount equal to Reinsurer's Quota Share of the interest
received by Ceding Insurer during such Accounting Period on all
Policy Loans.
1.10 "Gross Premium" means all of the paid premiums received by Ceding
Insurer on the Policies reinsured hereunder including (I) lump sum cash deposits
in excess of published premium rates, (ii) premiums for flexible premium life
insurance contracts in excess of control premiums and (iii) premiums for single
pay contracts.
1.11 "Insurance Business Produced" means one hundred percent (1007.) of
Ceding Insurer's liability under all insurance policies and contracts
("Policies") Issued by Ceding Insurer on the basis of applications solicited by
General Agents Included under the General Agents list, Exhibit A of the
Marketing Agreement. Only that business produced by General Agents while they
are included in Exhibit A shall be reinsured hereunder. For example, if a
<PAGE>
Producing Agent is terminated or otherwise removed from Exhibit A, any as
insurance business produced by that Producing Agent after the date of
termination or removal will be excluded from this agreement, but insurance
business produced by that Producing Agent prior to the date of termination or
removal will remain in force under this agreement.
1.12 "Quota Share" means for any given Calculation Period, a fifty percent
(50%) undivided interest in the Insurance Business Produced.
1.13 "Reserve Liability" means the actuarial reserves relating to the
Policies reinsured hereunder as reported in Exhibit "8" of Ceding Insurer's
Annual Statement prepared on forms prescribed by the National Association of
Insurance Commissioners ("NAIC Statement"). Such reserves shall be determined on
the same basis as that used by the Ceding Insurer in computing its Reserve
Liability.
1.14 "Termination" means the termination of all of the provisions of this
Modified Coinsurance Agreement and Includes the recapture by Ceding Insurer of
all Policies previously reinsured hereunder. This Agreement shall not become
effective until such time as Reinsurer is issued a Certificate of Authority by
the Arizona Insurance Commissioner to engage in the business of life
reinsurance.
2. Reinsurance. Ceding Insurer agrees to cede to Reinsurer and Reinsurer
agrees to assume and reinsure from Ceding Insurer, on a modified coinsurance
basis, Reinsurer's Quota Share of the Insurance Business Produced on the terms
and conditions stated herein.
2.1 This Modified Coinsurance Agreement Is an Indemnity reinsurance
agreement solely between the Ceding Insurer and the Reinsurer and, except as
otherwise provided herein, the performance of the obligations of each party
hereunder shall be rendered solely to the other party. Except as otherwise
<PAGE>
provided herein, no person other than Ceding Insurer and Reinsurer shall have
any rights under this Modified Coinsurance Agreement and the Ceding Insurer
shall be and remain solely liable to any insured, policyowner, or beneficiary
under the Policies reinsured hereunder.
2.2 Reinsurer shall, except for Reserves, Policy Loans and Policy Issue
Expenses and Policy Maintenance Expenses, share with the Ceding Insurer, on the
basis of Reinsurer's Quota Share, in all transactions relating to the Policies
reinsured hereunder, including without limitation:
(a) All premium transactions effected;
(b) All commissions, fees and bonuses paid to or for the benefit of
the General Agents.
(c) All policy benefits paid.
(d) All policyholder dividends paid.
(e) All premium taxes paid.
(f) All nonforfeiture benefits paid.
2.3 Except as provided herein, the liability of Reinsurer with respect to
the Policies reinsured hereunder shall begin and end simultaneously with the
liability of the Ceding Insurer.
2.4 Reinsurer's Quota Share of reinsurance hereunder shall be maintained In
force as to the Policies reinsured hereunder without reduction so long as the
amount of insurance for which the Ceding Insurer is obligated under such
Policies remains in force without reduction.
3. Reserves. Ceding Insurer shall be solely responsible for furnishing all
of the assets necessary to satisfy the Reserve Liability on the Policies
reinsured hereunder ("Reserves").
<PAGE>
3.1 Ceding Insurer shall retain ownership of all assets held as Reserves on
the Policies reinsured hereunder and Reinsurer shall have no legal, equitable or
security interest in such assets.
3.2 Reinsurer shall not participate in any long or short term capital gains
or losses incurred by Ceding Insurer with respect to such assets and no part of
any such gains and losses of Ceding Insurer from, or considered as being from,
the sale or exchange of any asset shall be treated as gains or losses from the
sale or exchange of assets owned by or belonging to the Reinsurer.
3.3. Reinsurer shall be solely responsible for paying all Federal, State
and local income taxes, if any, relating to the Gross Investment Income paid by
the Ceding Insurer to the Reinsurer hereunder.
4. Expenses. Except as otherwise provided herein, Ceding Insurer shall bear
all expenses relating to the issuance and maintenance of the Policies reinsured
hereunder.
4.1 For purposes of this Modified Coinsurance Agreement, Policy Issue
Expenses (herein so-called) for each new Policy reinsured hereunder and Policy
Maintenance Expenses (herein so-called) for each Policy reinsured hereunder are
detailed in Schedule A (attached). Reinsurer shall reimburse the Ceding Insurer
for Policy Issue Expenses and Policy Maintenance Expenses in an amount equal to
Reinsurer's Quota Share of the Policies reinsured hereunder, expressed as a
percentage of the Policy Issue Expenses and the Policy Maintenance Expenses.
4.2 Service Fees shall be paid by the reinsurer as detailed in Exhibit C,
the Administrative Services Agreement, as long as the business described herein
remains in force.
<PAGE>
5. Payments by Ceding Insurer. Within sixty (60) days after the end of each
Accounting Period, Ceding Insurer shall deliver to Reinsurer an accounting with
respect to all Policies reinsured hereunder and Ceding Insurer shall pay to
Reinsurer, if such amount is greater than zero, the excess of Profit, as defined
in paragraph 5.1, over the absolute value of the Experience Account Balance, as
defined in Schedule B, at the beginning of the Accounting Period accumulated.
with interest at the Experience Account Interest Rate. 5.1 With respect to each
Accounting Period, the Profit will be equal to the sum of:
(a) Reinsurer's Quota Share of Gross Premiums for such Accounting Period;
(b) The Gross Investment Income for such Accounting Period;
(c) Reinsurer's Quota Share of any decrease in Reserve Liability for such
Accounting Period;
minus the sum of:
(d) Reinsurer's Quota Share of all disbursements made by Ceding Insurer
with respect to the policies for such Accounting Period (other than
disbursements relating to Policy Issue Expenses, Policy Maintenance
Expenses, Reserves, and Policy Loans), including, without limitation,
all death benefits, nonforfeiture benefits, matured endowments,
disability waiver premium benefits, policyholder dividends, premium
taxes, commissions, and renewal bonuses, and Reinsurer agrees that it
will pay all costs and expenses incurred by it and on its behalf in
connection with the retrocession of any liability on the policies
reinsured hereunder.
(e) Reinsurer's Quota Share of all Increases in Expenses and all Policy
Maintenance Expenses for such Accounting Period.
<PAGE>
(f) Reinsurer's Quota Share of all increases in Reserve Liability for such
Accounting Period.
(g) Reinsurer's retrocession premium, allowances and claims calculated in
the Reinsurance Agreement Exhibit D.
6. Payments by Reinsurer. If the Profit, as calculated in paragraph 5.1, is
negative, the absolute value of such amount shall be paid by the Reinsurer to
the Ceding Insurer.
7. Retrocession. The Reinsurer's risk in excess of the Reinsurer's normal
retention shall be addressed in Exhibit D, Reinsurance Agreement.
8. Oversiqht. It is understood and agreed that if failure to comply with
any terms of this Modified Coinsurance Agreement is shown to be unintentional
and the result of misunderstanding or oversight on the part of either the Ceding
Insurer or Reinsurer, both the Ceding Insurer and Reinsurer shall be restored to
the positions they would have been in had no such misunderstanding or oversight
occurred.
9. Reinstatement. If a Policy reinsured hereunder lapses for nonpayment of
premium and is subsequently reinstated by the Ceding Insurer under its regular
rules, Reinsurer will automatically reinstate its reinsurance with respect to
such Policy. The Ceding Insurer will promptly notify Reinsurer regarding any
such reinstatement and will pay to Reinsurer its share of premiums in arrears,
with interest at the same rate and in the same manner as received by the Ceding
Insurer in connection with the reinstatement.
10. Misstatement of Age or Sex. If there Is an increase or reduction in any
Policy reinsured hereunder because of an overstatement or understatement of age
or misstatement of sex being established either before or after the death of the
life insured, Ceding Insurer and Reinsurer shall share in such
<PAGE>
increase or reduction in proportion to their respective liabilities under the
Policy.
11. Settlement of Claims.
11.1 The Ceding Insurer shall give the Reinsurer prompt notice of any claim
submitted on a policy reinsured hereunder and prompt notice of any instigation
of any legal proceedings in connection therewith. Copies of proofs of other
documents bearing on such claim or proceeding shall be furnished to the
Reinsurer when requested.
11.2 The Reinsurer shall accept the good faith decision of the Ceding
Insurer in settling any claim or suit and shall pay, at its Home Office, its
share of net reinsurance liability upon receiving proper evidence of the Ceding
Insurer's having settled with the claimant. Payment of net reinsurance liability
on account of death or dismemberment shall be made in one lump sum. In
settlement of reinsurance liability for Waiver of Premium benefits, the
Reinsurer shall pay to the Ceding Insurer its proportionate share of the gross
premium waived.
11.3 If the Ceding Insurer should contest or compromise any claim or
proceeding, and the amount of net liability thereby be reduced. the Reinsurer's
reinsurance liability (net of any retrocession to Ceding Insurer or any
affiliate of Ceding Insurer) shall be reduced in the proportion that the net
liability of the Reinsurer bore to the sum of the retained net liability of the
Ceding Insurer and the net liability of other reinsurers existing as of the
occurrence of the claim.
11.4 Any unusual expenses incurred by the Ceding Insurer in defending or
investigating a claim for policy liability or in taking up or rescinding a
policy reinsured hereunder shall be participated in by the Reinsurer in the same
proportion as described in Section 11.3, above.
<PAGE>
11.5 In no event shall the following categories or expenses or liabilities
be considered, for purposes of this agreement, as "unusual expenses" or items of
"net reinsurance liability":
(a) routine investigative or administrative expenses;
(b) expenses incurred in conjunction with a dispute or contest arising out
of conflicting claims of entitlement to policy proceeds or benefits
which the Ceding Insurer admits are payable;
(c) expenses, fees, settlements, or judgments arising out of or in
conjunction with claims against the Ceding Insurer for punitive or
exemplary damages;
(d) expenses, fees, settlements, or judgments arising out of or in
conjunction with claims made against the Ceding Insurer and based on
alleged or actual bad faith, failure to exercise good faith, or
tortuous conduct.
11.6 For purposes of this agreement, penalties, attorney's fees, and
interest imposed automatically by statute against the Ceding Insurer and arising
solely out of judgment being rendered against the Ceding Insurer in a suit for
policy benefits reinsured hereunder shall be considered "unusual expenses".
11.7 In the event that the amount of insurance provided by a policy or
policies reinsured hereunder is increased or reduced because of a misstatement
of age or sex established after the death of the insured, the net reinsurance
liability of the Reinsurer shall increase or reduce in the proportion that the
net reinsurance liability of the Reinsurer bore to the sum of the net retained
liability of the Ceding Insurer and the net liability of other reinsurers
immediately prior to the discovery of such misstatement of age or sex.
Reinsurance policies in force with the Reinsurer shall be reformed on the
<PAGE>
basis of the adjusted amounts, using premiums and reserves applicable to the
correct age and sex. Any adjustment in reinsurance premiums shall be made
without interest.
11.8 The Reinsurer shall refund to the Ceding Insurer any reinsurance
premiums, without interest, unearned as of the date of death of the life
reinsured hereunder.
11.9 If the Ceding Insurer pays interest from a specific date, such as the
date of death of the insured1 on the contractual benefit of a policy reinsured
under this agreement, the Reinsurer shall indemnify the Ceding Insurer for the
Reinsurer's share of such interest. Interest paid by the Reinsurer under this
paragraph shall be computed at the same rate and commencing as of the same date
as that paid by the Ceding Insurer. The computation of interest paid by the
Reinsurer under this paragraph shall cease as of the earlier of (a) the date of
payment of the Reinsurer's share of reinsurance liability and (b) the date of
termination of the period for which the Ceding Insurer has paid such interest.
12. Inspection of Records. Each party shall have the right at any
reasonable time during normal business hours to inspect, at the office of the
other party, all books and documents relating to reinsurance under this Modified
Coinsurance Agreement.
13. Insolvency In the event of the insolvency of the Ceding Insurer, all
reinsurance shall be payable directly to the liquidator, receiver1 or statutory
successor of said Ceding Insurer, without diminution because of the insolvency
of the Ceding Insurer; provided, however, that any obligations of the Ceding
Insurer to Reinsurer shall be offset against the obligations of Reinsurer to
Ceding Insurer.
<PAGE>
13.1 In the event of the insolvency of the Ceding Insurer, the liquidator,
receiver, or statutory successor of the Ceding Insurer shall give the Reinsurer
written notice of the pendency of any claim on a Policy reinsured within a
reasonable time, to be not less than thirty days, after such claim is filed in
the insolvency proceeding. During the pendency of any such claim, Reinsurer may
investigate such claim and in the name of the Ceding Insurer (or its liquidator,
receiver, or statutory successor), but at its own expense, interpose in the
proceeding where such claim is to be adjudicated any defense or defenses which
it may deem available to the Ceding Insurer or its liquidator, receiver, or
statutory successor.
13.2 Any expense thus incurred by Reinsurer shall be chargeable, subject to
court approval, against the Ceding Insurer as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Ceding Insurer solely as a result of the defense undertaken by Reinsurer. Where
two or more reinsurers are participating in the same claim and a majority in
interest elect to interpose a defense or defenses to any such claim, the
resulting expense shall be apportioned In accordance with the terms of the
reinsurance agreement as though such expense had been Incurred by the Ceding
Insurer.
14. Abatement. This Modified Coinsurance Agreement may not be Abated until
such time as the Marketing Agreement has been terminated, after which time this
Modified Coinsurance Agreement may be Abated:
(a) By the mutual consent of the Ceding Insurer and the Reinsurer;
or
(b) By Ceding Insurer upon thirty (30) days written notice to
Reinsurer;
<PAGE>
(c) By Reinsurer upon thirty (30) days written notice to Ceding
Insurer.
15. Termination. This Modified Coinsurance Agreement may not be terminated
until such time as the Marketing Agreement has been terminated, after which time
this Modified Coinsurance Agreement may only be terminated:
(a) By the mutual consent of the Ceding Insurer and the Reinsurer;
or
(b) By Ceding Insurer in the event of a material breach hereof by
Reinsurer and such breach is not cured or eliminated within thirty
(30) days after receipt of written notice thereof to Reinsurer from
Ceding Insurer; or
(c) By Reinsurer in the event of a material breach hereof by Ceding
Insurer and such breach is not cured or eliminated within thirty (30)
days after receipt of written notice thereof to Ceding Insurer from
Reinsurer.
16. Recapture of Reinsured Business. If any Cumulative Production Goal is
not met by the Target Date applicable thereto, or if this Agreement is
terminated prior to the Completion Date pursuant to the provisions of Paragraph
15(a) or 15(b) above, the Ceding Insurer shall have the right, upon six months'
prior written notice to Marketing Company and Reinsurer, to recapture all of the
Insurance Business ceded by the Ceding Insurer to Reinsurer under this Modified
Coinsurance Agreement. No consideration shall be paid by the Ceding Insurer or
FMI to Marketing Company or to Reinsurer for the recapture of such insurance
business.
17. Right of First Refusal. Ceding Insurer shall have a right of first
refusal to reinsure the Policies reinsured hereunder to Reinsurer under the
<PAGE>
terms, conditions and provisions set forth in Paragraph 7 of the Marketing
Agreement.
18. Waiver. No delay or omission by any party hereto to exercise any right
or power arising upon any noncompliance or default by any other party with
respect to any of the terms of this Modified Coinsurance Agreement shall impair
any such right or power to be construed as a waiver thereof. A waiver by any of
the parties hereto of the fulfillment of any of the covenants, conditions, or
agreements to be performed by any other shall not be construed to be a waiver of
any succeeding breach hereof or of any other covenant, condition or agreement
herein contained. All remedies provided for in this Modified Coinsurance
Agreement shall be cumulative in addition to and not in lieu of any other
remedies available to any party at law, in equity or otherwise.
19. Amendments. This Modified Coinsurance Agreement may not be amended, nor
shall any waiver, change, modification, consent or discharge be effected, except
by an instrument in writing duly executed by the parties hereto or their
respective successors or permitted assigns.
20. Approvals, Consents, etc. In any instance where agreement, approval,
acceptance or consent of any party is required by any provision of this Modified
Coinsurance Agreement, such action shall not be unreasonably delayed or
withheld.
21. Force Majeure. Ceding Insurer or Reinsurer shall be excused from
performance hereunder for any period when either is prevented from performing
any services to be provided hereunder, in whole or In part, as a result of an
Act of God, fire, war, civil disturbance court order, insurance department
regulatory order, labor dispute, or other cause beyond its reasonable control,
and such nonperformance shall not be a ground for Termination hereof or
<PAGE>
assertion of default hereunder. In the event either party hereto shall be
excused from performance under this provision, said party shall use its best
efforts to provide, directly or indirectly, alternative and, to the extent
practicable, equivilent fulfillment of its obligations hereunder.
22. Severability. If any provision of this Modified Coinsurance Agreement
is declared or found to be illegal1 unenforceable or void by any administrative
agency, regulatory body, or court of competent jurisdiction, such finding shall
not affect the remaining provisions of this Modified Coinsurance Agreement, and
all other provisions hereof shall remain in full force and effect.
23. Governing Law. This Agreement shall be governed by and construed
enforced in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Modified
Coinsurance Agreement to be signed and delivered by their respective officers
thereunto duly authorized, all as the date first hereinabove written.
Attest: MASSACHUSETTS GENERAL LIFE INSURANCE COMPANY
Title: By: /s/
----------------------------------
Title: Chairman of the Board
Attest:
FIRST FINANCIAL LIFE INSURANCE COMPANY
/s/ Thomas A. Peterson By: /s/ Donald E. Ebbert
Title: Exec. Vice President -----------------------------------
Title: President
<PAGE>
Exhibit 10.2.1
SCHEDULE B
Experience Account Balance
The Experience Account Balance at the inception of the agreement is zero. With
respect to each Accounting Period, the Experience Account Balance at the end of
the Accounting Period will be equal to the sum of:
(a) The Experience Account Balance at the beginning of the Accounting
Period accumulated with interest at the Experience Account Interest
Rate;
(b) The Reinsurer's Quota Share of Gross Premiums for such Accounting
Period;
(c) The Gross Investment Income for such Accounting Period; minus the sum
of:
(d) The Reinsurer's Quota Share of any decrease in Reserve Liability for
such Accounting Period;
(e) The Reinsurer's Quota Share of all disbursements made by Ceding
Insurer with respect to the policies for such Accounting Period (other
than disbursements relating to Policy Issue Expenses, Policy
Maintenance Expenses, Reserves and Policy Loans), including, without
limitation, all death benefits, nonforfeiture benefits, matured
endowments, disability waiver of premium benefits, policyholder
dividends; premium taxes, commissions, bonuses and all costs and
expenses incurred by Reinsurer or on Its behalf in connection with
retrocession of any liability on the policies reinsured hereunder;
(f) Reinsurer's Quota Share of all Policy Issue Expenses and Policy
Maintenance Expenses for such Accounting Period;
<PAGE>
(g) Reinsurer's Quota Share of all increases in Reserve Liability for such
Accounting Period.
(h) Reinsurers retrocession premium, allowances, and claims. The
Experience Account Balance shall be increased for any payments by the
Reinsurer to the Ceding Insurer and decreased for any payments by the
Ceding Insurer to the Reinsurer. The Experience Account Balance at the
beginning of any Accounting Period will be equal to the Experience
Account Balance determined above at the end of the prior period,
adjusted for such payments Experience Account Balance shall be limited
to Five-Hundred Thousand Dollars ($500,000).
Experience Account Interest Rate. The Experience Account Interest Rate for any
Accounting Period shall be equal to the highest Gross Rate of Interest as
dictated in Schedule A of this reinsurance treaty for such Accounting Period
plus guaranteed maximum cost of three hundred basis points.
<PAGE>
SCHEDULE A
Expense Allowances and Gross Rates of Interest
Policy Issue Expenses Policy Maintenance Expenses
--------------------- -----------------------------
Percent of
Per Annualized or Annual Per Per
Product Policy Control Premium Per Policy Lapse Death
- ------- ------ --------------- ---------- ----- -----
Lifetrend 30.00 0% 30.00 0 0
250 Basis Points
(Interest-Sensitive
whole life form NP-82)
Lifetime 30.00 0% 30.00 0 0
250 Basis Points
(Flexible premium
adjustable life
form UN-84)
Expense allowances and Gross Rates of Interest for additional insurance products
must be made part of this treaty by amendment before such products can be
reinsured under this treaty.
<PAGE>
Exhibit 10.2.2
EXHIBIT C
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMiNISTRATIVE SERVICES AGREEMENT made and entered into as of the 23rd
day of February, 1989 by and between FACILITIES MANAGEMENT INSTALLATION ("FMI"),
a Delaware corporation with its principal Colorado offices located at 7887 East
Belleview Avenue, Englewood, Colorado 80111, and FIRST FINANCIAL LIFE INSURANCE
COMPANY ("Life Company"), am Arizona stock life insurance corporation with
principal offices at Tampa, Florida, and administrative offices at 7887 East
Belleview Avenue, Englewood, Colorado 80111.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, FMI, MASSACHUSETTS GENERAL LIFE INSURANCE COMPANY ("MGLIC"), FIRST
FINANCIAL MARKETING SERVICES, INC. "Company"), FIRST FINANCIAL LIFE COMPANIES,
INC. ("Parent") and Life Company have entered into a Marketing Agreement (herein
so-called) of even date herewith under which, among other things, FMI and Life
Company agreed to enter into this Administrative Services Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties hereto, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. All terms used in the Marketing Agreement shall have the
same meaning in this Agreement unless otherwise indicated herein.
2. Administrative Services. FMI agrees to provide to Life Company all
administrative services and to perform all functions necessary to fully process,
administer and account for all Insurance Business issued as a result of
applications solicited by General Agents which Insurance Business is ceded
<PAGE>
by MGLIC to and reinsured by Life Company under the Coinsurance Agreement and
Modified Coinsurance Agreements between Life Company and MGLIC (the "Reinsured
Business"). Such administrative services and functions shall include, without
limitation, all necessary actuarial, premium billing and collections,
accounting, financial reporting, regulatory compliance and claims services
required to fully process, administer and account for all of the Reinsured
Business. Notwithstanding any provision herein, FMI shall not be obligated
hereunder to process, administer or account for anY individual cession
reinsurance. This Agreement shall not become effective until such time as Life
Company is issued a Certificate of Authority from the Arizona Insurance
Commissioner to engage in the business of life reinsurance.
3. Service Fee. As consideration for rendering the administrative services
and performing the functions specified in Paragraph 2 above, Life Company agrees
to pay to FMI a monthly Service Fee (herein so-called) equal to one-sixth of one
percent (.1677.) of the premiums on the policies of MGLIC in force each month
and reinsured by Life Company. For purposes of this calculation, premiums in
force shall consist of (i) annualized premiums for all fixed premium policies in
force, excluding single premium whole life and (ii) units in force multiplied by
the control premium at date of issue for all universal life policies. The
Service Fee shall be payable to FMI within sixty (60) days after the end of each
Accounting Period as defined in the certain Coinsurance Agreement and Modified
Coinsurance Agreement of even date herewith and shall constitute full
compensation to FMI for the rendition of such administrative services and the
performance of such functions, including FMI's costs and expenses related to
such services. Such Service Fee shall be payable to FMI in addition to any fees,
expenses or allowances payable by Life Company to MGLIC under the said
Coinsurance Agreement and Modified Coinsurance
<PAGE>
Agreement. In the event that such payment would he in violation of applicable
insurance or state laws, FMI shall not accept the payment and shall be released
from future obligations under this Agreement.
4. Investments. As part of the consideration for the Service Fee, and if
requested by Life Company's Board of Directors, FMI agrees to invest the assets
of Life Company in accordance with the directions of Life Company's Board of
Directors.
5. Supervision of Life Company. All services performed by FMI hereunder
shall at all times be subject to the review, control and supervision of Life
Company's Board of Directors. FMI shall at all times act in a fiduciary capacity
with respect to Life Company. FMI shall prepare and submit to Life Company such
reports as to services provided and costs incurred as Life Company may
reAsonably request. FMI shall allow representatives of Life Company to inspect
and copy, at all reasonable times, FMI's financial and other records pertaining
to services provided to Life Company.
6. Third Party Agreements. Life Company acknowledges that FMI may, as a
part of its normal business, perform similar services and functions for its
affiliates and for other nonaffiliated third parties ("Other Parties") and that
FMI may utilize the same office space, equipment and personnel to perform such
services and functions for its affiliates and Other Parties as it utilizes to
perform such services and functions for Life Company.
7. Responsible Officer. Life Company shall designate an officer who shall
be authorized to direct FMI in the performance of its duties hereunder.
8. Other Business. Upon the written request of Life Company, FMI agrees to
enter into a separate agreement with Life Company on such terms as may be
mutually agreeable, to provide all administrative services and to perform all
functions necessary to fully process, administer and account for
<PAGE>
other insurance business which may be ceded to and reinsured by Life Company or
written directly by Life Company: provided, however, that FMI shall not be
obligated to administer, process or account for any individual cession
reinsurance. As consideration for the rendition of such services, under such
separate agreement, Life Company shall agree to pay to FMI an amount equal to
FMI's actual cost of rendering such services plus an amount equal to 25% of
such actual costs.
9. Termination. This Agreement may not be terminated until such time as all
Coinsurance Agreements an Modified Coinsurance Agreements between MGLIC and Life
Company have been terminated, after which this Agreement may only be terminated:
(a) By the mutual consent of the parties hereto; or
(b) By FMI in the event of a material breach hereof by Life Company and
such breach is not cured or eliminated within thirty (30) days after
receipt of written notice thereof to Life Company from FMI; or
(c) By Life Company in the event of a material breach hereof by FMI and
such breach is not cured or eliminated within thirty (30) days after
receipt of written notice thereof to FMI from Life Company.
10. Further Assurance. Upon the sale of Parent of Life Company, the sale of
all or substantially all the assets of Parent, or upon the sale or transfer of
any Insurance Business ceded to Life Company for which FMI provides
administrative services, FMI will cooperate and cause its affiliates to
cooperate to effect the orderly transition of the business, operations, or
affairs (as the case may be) of Parent or Life Company (as the case may be)
<PAGE>
and will take such action as Life Company reasonably requests in connection
therewith.
11. Miscellaneous.
(a) Assignments. This Agreement shall be binding on the parties hereto
and their respective successors and permitted assigns, but no party may
assign this Agreement without the prior written consent of the other
parties.
(b) Counterparts. This Agreement may be executed in two or
counterparts, each of which shall be deemed; an original, but all of taken
together shall constitute one and the same instrument.
(c) Section Headings. The headings set forth herein are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
(d) Waiver. No delay or omission by any party hereto to exercise any
right or power arising upon any noncompliance or default by any other party
with respect to any of the terms of this Agreement shall impair any such
right or power to be construed as a waiver thereof. A waiver by any of the
parties hereto of the fulfillment of any of the covenants, conditions, or
agreements to be performed by any other shall not be construed to be a
waiver of any succeeding breach thereof or of any other covenant,
condition, or agreement herein contained. All remedies provided for in this
Agreement shall be cumulative in addition to and not in lieu of any other
remedies available to any party at law, in equity or otherwise.
(e) Amendments. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected, except by
an instrument in writing duly executed by the parties hereto or their
respective successors or permitted assigns.
<PAGE>
(f) Relationship of Parties. In furnishinq services to Life Company,
FMI shall be deemed to be acting as an independent contractor. FMI does not
undertake by this Agreement or otherwise to perform any obligation of Life
Company, whether regulatory or contractual, except as provided herein. FMI
shall not be deemed to be joint venturer with, or an employee, of Life
Company.
(g) Approvals, Consents, etc. In any instance where agreement,
approval, acceptance or consent of any party is required by any provision
of this Agreement, such action shall not be unreasonably delayed or
withheld.
(h) Force Maleure. FMI or Life Company shall be excused from
performance hereunder for any period when either is prevented from
performing any services to be provided hereunder, in whole or in part, as a
result of an Act of God, fire, war, civil disturbance, court order,
insurance department regulatory order, labor dispute, and such
nonperformance shall not be a ground for termination hereof or assertion of
default hereunder. In the event FMI shall be excused from performance under
this provision, FMI shall use its best efforts to provide, directly or
indirectly, alternative and, to the extent practicable, equivalent
fulfillment of its obligations hereunder.
(i) Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void by any administrative agency,
regulatory body, or court of competent jurisdiction, such finding shall not
affect the remaining provisions of this Agreement, and all other provisions
hereof shall remain in full force and effect.
(j) Arbitration. All disputes, controversies, claims, and other
matters in question between the parties hereto arising in connection with
this Agreement or the breach hereof shall be submitted to arbitration
pursuant to the procedure set forth in Paragraph 8 of the Marketing
Agreement.
<PAGE>
(k) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
IN WITNESS WHERE0F, the parties hereto have caused this Agreement to
be signed and delivered by their respective officers thereunto duly
authorized, all as of the date first hereinabove written.
Attest: FACILITIES MANAGEMENT INSTALLATION
By: /s/
---------------------------------
Title: Title
Attest: FIRST FINANCIAL LIFE INSURANCE COMPANY
/s/ By: /s/
--------------------------- ---------------------------------
Title: Title: President
<PAGE>
Exhibit 10.2.3
EXHIBIT F
REINSURANCE AGREEMENT
THIS REINSURANCE AGREEMENT, made and entered into as of the 1st day of April,
1990, by and between FIRST FINANCIAL LIFE INSURANCE COMPANY, an Arizona
insurance corporation with principal offices located at Phoenix, Arizona,
(hereinafter called Ceding Insurer) and MASSACHUSETTS GENERAL LIFE INSURANCE
COMPANY, a Massachusetts insurance corporation with principal offices located at
7887 East Belleview Avenue, Englewood, Colorado 80111 (hereinafter called
Reinsurer).
WHEREAS: Reinsurer has entered into automatic reinsurance agreements with Life
Re Assurance Company (hereinafter called Life Re) dated April 1, 1990 and
Connecticut General Life Insurance Company (hereinafter called CIGNA) dated
April 1, 1990; and
WHEREAS: Ceding Insurer and Reinsurer are desirous of entering into a
Reinsurance Agreement for new business issued on or after April 1 1990;
NOW, THEREFORE, WITNESSETH that in consideration of the premises and mutual
promises of the parties hereto and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree to reinsure new business written on or after April 1, 1990 on the terms
and conditions set out below. This agreement is solely between Ceding Insurer
and Reinsurer and performance of the obligations of each party under this
agreement shall be rendered solely to the other party. In no instance shall
anyone other than the Ceding Insurer or Reinsurer have any rights under this
agreement.
Article 1
APPLICATION OF AGREEMENT
Reinsurance under this agreement will be limited to the Insurance Plans
listed in Schedule D attached to this agreement.
Article 2
AUTOMATIC REINSURANCE
Whenever Ceding Insurer requires reinsurance for the excess risk over its
retention of life insurance risk, then Reinsurer shall accept, on an
automatic basis, all excess risk Reinsurer has ceded to Ceding Insurer
pursuant to the Modified Coinsurance Agreements between the parties dated
February 23, 1989 and the Reinsurance Agreement between the parties dated
February 23, 1989. Ceding Insurer shall retain its maximum level of
retention of risk as shown in Schedule A attached hereto.
CONTINUATION OF REINSURANCE
Any policy issued in exchange or conversion of a prior policy will be
reinsured under this agreement provided that the original policy was
reinsured in Reinsurer and further provided that underwriting guidelines
<PAGE>
and rate schedules specific to such exchanges and/or conversions are
mutually agreed upon between the two companies.
SUPPLEMENTARY BENEFITS
Reinsurance under this provision will include the supplementary disability
waiver of premium benefit for an amount not greater than that corresponding
to the accompanying life reinsurance provided that Ceding Insurer is
retaining its maximum limit of retention for such benefit as shown in
Schedule A.
OPTED INSURANCE
Reinsurance accepted under this provision will include the excess over
Ceding Insurer's then maximum limit of retention of standard insurance
issued by Ceding Insurer under the provisions of a Guaranteed Insurability
rider provided that the policy to which the rider is attached was issued on
a standard basis and while this agreement was in effect.
Future modifications or cancellations of this provision will not alter
Ceding Insurer or Reinsurer obligations to reinsure, as herein provided,
insurance issued by Ceding Insurer under Guaranteed Insurability riders
attached to policies issued by Reinsurer while this provision is in effect.
NEW RETENTION LIMITS
Ceding Insurer will have the right to modify its limits affecting
reinsurance by giving Reinsurer thirty days' notice in writing. The amount
of reinsurance to be ceded automatically to Reinsurer on any life after
such new limits take effect will be determined by mutual agreement between
the two companies.
Article 3
FACULTATIVE REINSURANCE
Whenever Ceding Insurer desires reinsurance on a risk not eligible for
automatic cession under the provisions of Article 2, Ceding Insurer may
apply to Reinsurer for facultative reinsurance.
FACULTATIVE REINSURANCE PROCEDURE
Whenever Ceding Insurer applies to Reinsurer for facultative reinsurance,
it will forward Reinsurer the original application~ medical examiners'
reports, inspection reports, and all other papers bearing on the
insurability of the risk. Reinsurer will examine the papers immediately
upon receipt of such application and, as soon as possible, notify Ceding
Insurer of its decision.
NOTIFICATION
Ceding Insurer will notify Reinsurer when reinsurance is not required on a
risk for which reinsurance has been applied on a facultative basis.
<PAGE>
Article 4
LIABILITY OF REINSURER
The liability of Reinsurer on any reinsurance under this agreement, subject
to the prior approval of Reinsurer in the case of facultative reinsurance,
will commence simultaneously with that of Ceding Insurer. Subject to the
provisions of Articles 9, 12, and 16, and subject to the payment of
reinsurance premiums as provided under Articles 7 and 10 of this agreement,
each reinsurance will be continued in force as long as Ceding Insurer is
liable under its respective policy and will terminate when the liability of
Ceding Insurer terminates.
Article 5
CONDITIONS OF REINSURANCE
Reinsurance under this agreement will be subject to all the applicable
provisions contained in the respective policies of Ceding Insurer.
Reinsurer will not be called upon to participate in policy loans on
policies reinsured hereunder.
Ceding Insurer will furnish Reinsurer with specimen copies of all of its
current application, policy and rider forms, and tables of rates and values
which may be required for the proper administration of the reinsurance
under this agreement and will advise Reinsurer of all subsequent
modifications thereof and new forms under which reinsurance may be
effected. In addition, Ceding Insurer will promptly notify Reinsurer of any
non-contractual modifications of its policy forms and any systematic
revision of available benefits.
Article 6
YEARLY RENEWABLE TERM
Life reinsurance under this agreement will be on the Yearly Renewable Term
plan for the amounts at risk on the portion of the original policy
reinsured in Reinsurer.
AMOUNTS AT RISK
At the end of each month, the reinsured risk amount shall be determined as
follows:
a. If Death Benefit Option A:
Reinsured (Ceded)* (1 - Value of the Accumulation Account*)
----------------------------------
Risk Amount (Amount) ( Death Benefit )
*not less than zero
<PAGE>
b. If Death Benefit Option B:
Reinsured = Ceded
Risk Amount Amount
In the case of policies which do not have an accumulation account
provision, the reinsured risk amount is equal to the ceded amount.
Notwithstanding the above, in the case of universal life - or interest
sensitive-type plans, the percentage relationship of reinsurance to total
original issue will be determined at issue and will then remain constant
for the given death benefit. The reinsurance amount at risk will be the
amount equal to the death benefit at issue less the cash value less the
amount Ceding Insurer is retaining on the policy.
Increases in the death benefit that are underwritten in accordance with
Ceding Insurer's usual underwriting standards for individually selected
risks for new issues will be considered as new insurance for the purpose of
determining the reinsurance amount at risk.
Article 7
PREMIUM RATES
Premiums for reinsurance under this agreement will be computed at the rates
shown in Schedule C, attached hereto. The renewal rates which are
guaranteed for life reinsurance, however, are those shown in Schedule C,
except that where such rates are less than the 1980 CSO net premiums at
5.5% for the applicable rating, it is such net premium rates which are
guaranteed.
ACCIDENTAL DEATH BENEFITS
The Ceding Insurer shall cede 100% of its Quota Share of Accidental Death
Benefits to Reinsurer and will be "Bulk Reported" to Reinsurer on an annual
basis. The total amount of such Accidental Death Benefits in force as of
December 31 in any year, shall be determined from line 41, Page 15
(Exhibits of Life Insurance), as shown in the Ceding Insurer's annual
statement filed with the State Insurance Department.
The premium due Reinsurer from the Ceding Insurer will be determined for
each calendar year as follows:
a. At the beginning of each calendar year an advance premium at the rate of
$0.60 per $1,000 of Accidental Death Benefits in force on December 31st
immediately preceding the beginning of each calendar year shall be payable;
and
b. at the close of such calendar year, premium at the rate of $0.30 per
$1,000 of increase of such insurance in force, from the preceding December
31st to the current December 31st, shall be payable.
<PAGE>
PREMIUM PAYMENTS BASIS
Reinsurance premiums will be calculated on a monthly basis payable on a
quarterly basis and in accordance with the provisions of Article 10.
Whenever reinsurance hereunder is reduced or terminated, Reinsurer will
refund the unearned reinsurance premium.
Whenever reinsurance hereunder is reinstated, Ceding Insurer will pay
Reinsurer the reinsurance premium for the proportionate part of the month
following the date of reinstatement. Thereafter, reinsurance premiums will
be payable in accordance with Articles 7 and 10.
In the event of Disability, Ceding Insurer will continue to pay to
Reinsurer the Schedule C premiums for all coverages which continue during
disability, notwithstanding any payments made by Reinsurer to Ceding
Insurer under the provisions of Article 11.
PREMIUMS FOR OPTED INSURANCE
The basic premiums payable for reinsurance of opted insurance issued under
the provisions of guaranteed insurability riders will be calculated at the
rates effective for regular new reinsurance ceded under this agreement at
the date of option. A single extra payment will also be payable for such
reinsurance and will be calculated at the rates shown in Schedule E,
attached hereto. This extra payment will be payable at issue of the opted
policy and will not be subject to refund for any reason.
Article 8
PREMIUM TAX REIMBURSEMENTS
Reinsurer will not reimburse Ceding Insurer for any premium taxes.
Article 9
CHANGES
Whenever a change is made in the underwriting classifications of a policy
reinsured hereunder which effects the rate charged for the individual
policy, a corresponding change shall be made in the reinsurance rates
charged under this agreement. If such reinsurance was effected on a
facultative basis, then any corresponding change will be made subject to
the prior approval of Reinsurer. It is hereby understood that Ceding
Insurer shall pay to Reinsurer the same rate charged to Reinsurer by life
Re and/or CIGNA for any reinsurance described in Article 2 - Automatic
Reinsurance which Reinsurer shall cede to Life re and/or CIGNA.
REDUCTIONS AND TERMINATIONS
Reductions and terminations of Ceding Insurer's policies, riders or
benefits will reduce or terminate the reinsurance thereon in a
corresponding amount as of the effective date of such reduction or
termination. If reinsurance applies to more than one policy, the
reinsurance to be terminated or reduced will be determined by
<PAGE>
chronological order in which the reinsurance was first reinsured, whereby
Ceding Insurer will maintain the same retention in effect prior to the
decrease in reinsurance.
REINSTATEMENTS
Whenever a policy reinsured hereunder lapses, or is continued on the
paid-up or extended term insurance basis, and is later approved for
reinstatement by Ceding Insurer in accordance with its usual underwriting
standards, reinsurance of the excess over Ceding Insurer original retention
resulting from such reinstatement will be automatically reinstated by
Reinsurer for an amount not exceeding that part of the policy originally
reinsured in Reinsurer.
Ceding Insurer will promptly notify Reinsurer of such reinstatement, and
the reinsurance so reinstated will become effective as of the date of
Ceding Insurer's underwriting approval of reinstatement.
Article 10
ACCOUNTING STATEMENTS
The monthly premiums for life reinsurance will be computed in accordance
with the rates contained in Schedule C, using the applicable modal factor.
On or before the 45th day following the last day of the preceding calendar
quarter, Reinsurer will forward Ceding Insurer an itemized statement, in
substantial accord with Schedule B - Section I, attached hereto, covering
the following for the quarter immediately preceding:
a. First year premiums due on new reinsurance.
b. Renewal premiums due on existing reinsurance with renewal
anniversaries during the previous month.
c. Premium adjustments outstanding on changes in reinsurance and previous
accounting statement entries.
Ceding Insurer will settle with the Reinsurer, on a quarterly basis, any
balance due Reinsurer under this agreement. This said settlement shall be
calculated in conjunction with the settlement of any monies owed pursuant
to the Modified Coinsurance Agreement between the parties dated February
23. 1989.
The payment of reinsurance premiums in accordance with the terms of the
preceding paragraph will be a condition precedent to the liability of
Reinsurer under reinsurance covered by this agreement. If reinsurance
premiums due Reinsurer are not paid by Ceding Insurer within sixty days of
the date described above, Reinsurer will have the right to terminate the
reinsurance under the cessions for which premiums are in default. If
Reinsurer elects to exercise its right of termination, it will give Ceding
Insurer thirty days' written notice of termination. If all reinsurance
premiums in default, including any which may become in default during the
thirty-day period, are not paid before the expiration of such period,
<PAGE>
Reinsurer will thereupon be relieved of future liability under all
reinsurance for which premiums remain unpaid.
DATA REQUIREMENTS
Ceding Insurer will provide Reinsurer with details pertaining to the
policies reinsured hereunder when and as requested by Reinsurer.
Article 11
SETTLEMENT OF CLAIMS
Reinsurer shall be liable to Ceding Insurer for the insurance and annuity
benefits reinsured under this agreement as Ceding Insurer shall be liable
for such benefits and all claim settlement shall be subject to the terms
and conditions of the particular form of policy or contract under which
Ceding Insurer is liable. At such time as Ceding Insurer is advised of a
claim under a policy or contract reinsured hereunder, it shall promptly
notify Reinsurer and, upon request, shall deliver to Reinsurer copies of
all papers connected with the claim. Reinsurer will accept the decision of
Ceding Insurer on payment of a claim under a policy or contract reinsured
hereunder. Ceding Insurer shall promptly advise Reinsurer of its intention
to contest, compromise or litigate a claim under a policy or contract
reinsured hereunder, and Reinsurer shall, at the request of Ceding Insurer,
advise and assist Ceding Insurer in its determination of liability and in
the best procedure to follow with respect to any such claim of doubtful
validity. Ceding Insurer and Reinsurer shall share pro rata all unusual
expenses incurred in connection with contesting. compromising or settling
claims under policies or contracts reinsured hereunder. If Reinsurer
declines to participate in the contest of or assertion of defenses to any
such claim. Reinsurer promptly shall discharge all of its liability for the
claim, or any expenses, damages, fees or costs connected therewith by
payment of the full amount of reinsurance of the policy or contract under
which the claim is asserted against Ceding Insurer
Article 12
MISSTATEMENT OF AGE OR SEX
Whenever the amount of insurance on a policy reinsured hereunder is
increased or reduced because of a misstatement of age or sex established
after the death of the insured, the two companies will share in such
increase or reduction in proportion to the respective net liabilities
carried by the two companies on the policy immediately prior to the
adjustment.
Article 13
INSOLVENCY
All reinsurance under this agreement will be payable by Reinsurer directly
to Ceding Insurer, its liquidator, receiver or statutory successor on the
basis of the liability of Ceding Insurer under the policy or policies.
without diminution because of the insolvency of Ceding Insurer. It is
<PAGE>
understood, however, that in the event of such insolvency, the liquidator
or receiver or statutory successor of Ceding Insurer will give written
notice of the pendency of a claim against Ceding Insurer on the policy
reinsured within a reasonable time after such claim is filed in the
insolvency proceedings, and that during the pendency of such claim
Reinsurer may investigate such claim and interpose, at its own expense, in
the proceedings where such claim is to be adjudicated, any defense or
defenses which it may deem available to Ceding Insurer or its liquidator or
receiver or statutory successor.
It is further understood that the expense thus incurred by Reinsurer will
be chargeable, subject to court approval, against Ceding Insurer as part of
the expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to Ceding Insurer solely as a result of the
defense undertaken by Reinsurer. Where two or more reinsurers are involved
in the same claim and a majority in interest elect to interpose defense to
such claim, the expense will be apportioned in accordance with the terms of
the Reinsurance Agreement as though such expense had been incurred by
Ceding Insurer.
Article 14
EXPERIENCE REFUNDS
Life reinsurance accepted under this agreement will not be eligible for
experience refunds.
Article 15
ARBITRATION
Any disagreement that should arise between Ceding Insurer and Reinsurer
regarding the rights or liabilities of either party under any transaction
pursuant to this agreement shall be referred to arbitrators. One arbitrator
is to be chosen by each party from among officers of other life insurance
companies, which said officers are familiar with reinsurance transactions.
A third arbitrator shall be chosen by the said two arbitrators before
entering into arbitration. An arbitrator may not be a present or former
officer, attorney, or consultant of Ceding Insurer or Reinsurer or either's
affiliates. If the arbitrators appointed by the two parties cannot agree on
a third person then either party may apply to the President of the American
Life Insurance Association for appointment of a third arbitrator. The
arbitrators' decision will be final and binding upon both parties.
The place of the meeting of the arbitrators will be decided by a majority
vote of the members thereof. All expenses and fees of the arbitrators will
be borne equally by Ceding Insurer and Reinsurer, unless the arbitrators
decide otherwise.
<PAGE>
Article 16
DURATION OF AGREEMENT
This agreement will take effect as of April 1, 1990. If Reinsurer shall
cease to cede to Ceding Insurer certain insurance risks pursuant to a
Modified Coinsurance Agreement between the parties dated February 23, 1989
and/or if the automatic reinsurance agreements between Reinsurer and Life
Re and Reinsurer and CIGNA shall be terminated, then in any such event this
agreement shall be terminated with respect to the issuance of new insurance
business. Such termination as to new reinsurance will not affect existing
reinsurance which will remain in force until the termination or expiry of
each individual reinsurance in accordance with the terms and conditions of
this agreement provided, however, that Reinsurer will not be liable under
this agreement for any premium refunds which are not reported to Reinsurer
within 180 days following the termination or expiry of all reinsurance
reinsured hereunder.
Article 17 WAIVER
No delay or omission by any party hereto to exercise any right or power
arising upon any non-compliance or default by any other party with respect
to any of the terms of this Agreement shall impair any such right or power
to be construed as a waiver thereof. A waiver by any of the parties hereto
of the fulfillment of any of the covenants, conditions or agreements to be
performed by any other shall not be construed to be a waiver of any
succeeding breach hereof or of any other covenant, condition or agreement
herein contained. All remedies provided for in this Agreement shall be
cumulative in addition to and not in lieu of any other remedies available
to any party at law, in equity or otherwise.
Article 18
AMENDMENTS
This Agreement may not be amended, nor shall any waiver, change,
modification, consent or discharge be effected, except by an instrument in
writing duly executed by the parties hereto or their respective successors
or permitted assigns.
Article 19
APPROVALS, CONSENTS, ETC.
In any instance where agreement, approval, acceptance or consent of any
party is required by any provision of this Agreement, such action shall not
be unreasonably delayed or withheld.
<PAGE>
Article 20
FORCE MAJEURE
Ceding Insurer or Reinsurer shall be excused from performance hereunder for
any period when either is prevented from performing any services to be
provided hereunder, in whole or in part, as a result of an Act of God,
fire, war, civil disturbance, court order, insurance department regulatory
order, labor dispute, or other cause beyond its reasonable control, and
such non-performance shall not be a ground for Termination hereof or
assertion of default hereunder. In the event either party hereto shall be
excused from performance under this provision. said party shall use its
best efforts to provide. directly, or indirectly, alternative and, to the
extent practicable, equivalent fulfillment or its obligations hereunder.
Article 21
SEVERABILITY
If any provision of this Agreement is declared or found to be illegal,
unenforceable or void by any administrative agency, regulatory body, or
court of competent jurisdiction, such finding shall not affect the
remaining provisions of this Agreement, and all other provisions hereof
shall remain in full force and effect.
Article 22 NOTICE
Any notices required or permitted under this agreement shall be in writing
and shall be deemed to have been duly given if delivered, telecopied or
mailed, by certified mail, return receipt requested to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
If to Ceding Insurer:
Donald E. Ebbert
President
First Financial Life Insurance Company
4830 West Kennedy Boulevard, Suite 595
Tampa, Florida 33609
If to Reinsurer:
Cathy A. Shinagawa
Vice President-Reinsurance
Massachusetts General Life Insurance Company
7887 East Belleview Avenue
Englewood, Colorado 80111
<PAGE>
Article 23
SECTION READINGS
The headings set forth herein are for reference purposes only and shall not
in any way affect the meaning or interpretation of this agreement.
Article 2
ASSIGNMENT
This agreement shall be binding on the parties hereto and their respective
successors and permitted assigns, but no party may assign this agreement
without the prior written consent of the other parties.
Article 25
GOVERNING LAW
This agreement shall be interpreted and enforced in accordance with the
laws of the State of Colorado; provided, however, that the services to be
rendered to Reinsurer shall be rendered in conformity with the laws of its
domiciliary states.
IN WITNESS WHEREOF, the parties hereto have caused this Reinsurance Agreement to
be signed and delivered by their respective officers thereunto duly authorized,
all as of the date first hereinabove written.
ATTEST: FIRST FINANCIAL LIFE INSURANCE COMPANY
/s/
------------------------------- By /s/ Donald E.Ebbert
-----------------------------------
Donald E.Ebbert, President
ATTEST: MASSACHUSETTS GENERAL LIFE INSURANCE
COMPANY
/s/ By /s/ Lee G. Baker
------------------------------- ----------------------------------
Witness Lee G. Baker, President
<PAGE>
RUSHMORE FINANCIAL GROUP, INC.
Exhibit 11.1
Statement regarding computation of earnings per share.
The computation of earnings per share can be clearly determined from the
information provided in the consolidated financial statements included in the
form SB-2. During a loss period, the assumed exercise of stock options have an
antidilutive effect. As a result, these shares are not included in the weighted
average shares outstanding until actual conversion to common stock occurs. All
shares in the earnings per share calculations are retroactively stated to
reflect capital structure change through October 17, 1997.
<PAGE>
Exhibit 15.1
Letter on unaudited interim financial information.
(see attached letter)
Exhibit 15.1
December 11, 1997
United States Securities
and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware of the inclusion of unaudited financial statements as of September
30, 1996 and 1997 and for the nine months ended September 30, 1997 in the Form
SB-2 registration statement dated December 15, 1997 covering up to 1,250,000
shares of common stock.
S/CHESHIER & FULLER, L.L.P.
------------------------
CHESHIER & FULLER, L.L.P.
<PAGE>
Exhibit 23.2
December 11, 1997
Rushmore Financial Group, Inc.
13355 Noel Road, Suite 650
Dallas, TX 75240
Gentlemen:
We hereby consent to the inclusion of our audit report dated November 12, 1997
covering the consolidated financial statements of Rushmore Financial Group, Inc.
as of December 31, 1996 and for the two years then ended and we also consent to
the inclusion of our review report dated November 25, 1997 covering the
consolidated financial statements of Rushmore Financial Group, Inc. as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997
into the Form SB-2 registration statement dated December 15, 1997 covering up to
1,250,000 shares of common stock.
/s/ Cheshier & Fuller L.L.P
-----------------------
CHESHIER & FULLER, L.L.P.
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-XXXX) of Rushmore Financial Group, Inc. of our report dated November 20,
1997, on our audits of the consolidated financial statements of First Financial
Life Companies, Inc. as of December 31, 1996 and for each of the two years in
the period then ended. We also consent to the references to our firm under the
caption "Experts."
/s/ Coopers & Lybrand
------------------------
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
December 11, 1997
<PAGE>
EXHIBIT 23.4
December 5, 1997
Mr. D. M. Rusty Moore, President
Rushmore Financial Group, Inc.
13355 Noel Road, Suite 650
Dallas, Texas 75240
Gentlemen:
I hereby consent to the use of my name as a prospective director of
Rushmore Financial Group, Inc. in the Company's registration statement being
filed with the SEC on Form SB-2.
Sincerely,
/s/ James Fehleison
James Fehleison
<PAGE>
EXHIBIT 23.5
December 5, 1997
Mr. D. M. Rusty Moore, President
Rushmore Financial Group, Inc.
13355 Noel Road, Suite 650
Dallas, Texas 75240
Gentlemen:
I hereby consent to the use of my name as a prospective director of
Rushmore Financial Group, Inc. in the Company's registration statement being
filed with the SEC on Form SB-2.
Sincerely,
/s/ Gayle C. Tinsley
Gayle C Tinsley
<PAGE>
Exhibit 27.1
Appendix D to Item 601(c) of Regulation S-B
Broker-Dealers and Broker Dealer Holding Companies
Financial Data Schedule BD
December 31, 1996 and for the Year Then Ended
Item
Number Item Description
101 cash and cash items $ 117,738
103 receivables from brokers and dealers,
customers and others 27,255
104 securities purchased under resale agreements -0-
104 securities borrowed -0-
108 financial instruments owned -0-
109 property, plant and equipment, net of depreciation 67,894
112 total assets 543,086
201 short term borrowings including commercial paper -0-
203 payable to customers, brokers/dealers (including
clearing brokers) and others 83,733
204 securities sold under agreements to repurchase -0-
205 securities loaned -0-
206 instruments sold, not yet purchased (at market) -0-
208 long-term debt 12,854
209 preferred stock-mandatory redemption -0-
210 preferred stock-no mandatory redemption 180,920
211 common stock 14,369
212 other stockholders' equity 155,648
213 total liabilities and stockholders' equity 543,886
301 revenue from trading activities -0-
302 interest and dividends -0-
303 commissions 1,493,908
304 revenues from investment banking activities -0-
305 revenues from asset management and other services 44,616
310 interest expense 4,535
311 compensation and employee related expense 1,241,476
313 income/loss before income tax (170,891)
314 income/loss before extraordinary items (170,891)
315 extraordinary items, less tax -0-
316 cumulative change in accounting principles -0-
317 net income or loss (170,891)
318 earnings per share-primary (.12)
319 earnings per share-fully diluted -0-
<PAGE>
Exhibit 27.1
Appendix B to Item 601(c) of Regulation S-B
Insurance Companies
Article 7 of Regulation S-X
September 30, 1997 and for the Nine Months Ended 1997
<TABLE>
<S> <C> <C>
Item
Number Item Description
7-03(1)(a) fixed maturities held for sale $ -0-
7-03(1)(a) fixed maturities held to maturity-carrying value -0-
7-03(1)(a) fixed maturities held to maturity-market value -0-
7-03(1)(b) investment in equity securities -0-
7-03(1)(c) mortgage loans on real estate -0-
7-03(1)(d) investment in real estate -0-
7-03(1)(h) total investments -0-
7-03(2) cash and cash equivalents 1,290,170
7-03(6) reinsurance recoverable on paid losses -0-
7-03(7) deferred policy acquisition costs 4,281,359
7-03(12) total assets 35,585,840
7-03(13)(a)(1) policy liabilities-future benefits, losses, claims 33,563,841
7-03(13)(a)(2) policy liabilities-unearned premiums -0-
7-03(13)(a)(3) policy liabilities-other claims and benefits -0-
7-03(14) other policy holder funds -0-
7-03(16) notes payable, bonds, mortgages and similar debt -0-
7-03(21) preferred stocks mandatory redemption -0-
7-03(22) preferred stock-not mandatory 180,920
7-03(23) common stock 25,043
7-03(24) other stockholders' equity 1,103,523
7-03(25) total liabilities and stockholders' equity 35,585,840
7-04(1) premiums (836,807)
7-04(2) net investment income -0-
7-04(3) realized investment gains and losses -0-
7-04(4) other income 4,052,413
7-04(5) benefits, claims, losses and settlement expenses 1,128,230
7-04(7)(a) underwriting acquisition and insurance expenses-
amortization of deferred policy acquisition costs 1,041,328
7-04(7)(b) underwriting acquisition and insurance expense-other 697,655
7-04(8) income or loss before income taxes (3,448)
7-04(9) income tax expense 63,594
7-04(12) income/loss continuing operations (20,778)
7-04(13) discontinued operations (25,992)
7-04(15) extraordinary items -0-
7-04(16) cumulative effect-changes in accounting principles -0-
7-04(17) net income or loss (84,413)
7-04(18) earnings per share-primary (0.5)
7-04(18) earnings per share-fully diluted -0-
</TABLE>
<PAGE>
Exhibit 27.1
Appendix D to Item 601(c) of Regulation S-B
Broker-Dealers and Broker Dealer Holding Companies
Financial Data Schedule BD
September 30, 1997 and for the Nine Months Then Ended
Item
Number Item Description
101 cash and cash items $ 131,652
103 receivables from brokers and dealers,
customers and others 46,432
104 securities purchased under resale agreements -0-
104 securities borrowed -0-
108 financial instruments owned -0-
109 property, plant and equipment, net of depreciation -0-
112 total assets 195,707
201 short term borrowings including commercial paper -0-
203 payable to customers, brokers/dealers (including
clearing brokers) and others 89,533
204 securities sold under agreements to repurchase -0-
205 securities loaned -0-
206 instruments sold, not yet purchased (at market) -0-
208 long-term debt -0-
209 preferred stock-mandatory redemption -0-
210 preferred stock-no mandatory redemption -0-
211 common stock -0-
212 other stockholders' equity -0-
213 total liabilities and stockholders' equity 285,240
301 revenue from trading activities -0-
302 interest and dividends -0-
303 commissions 1,620,543
304 revenues from investment banking activities -0-
305 revenues from asset management and other services 103,292
310 interest expense -0-
311 compensation and employee related expense 1,425,141
313 income/loss before income tax 10,388
314 income/loss before extraordinary items (10,388)
315 extraordinary items, less tax -0-
316 cumulative change in accounting principles -0-
317 net income or loss (42,186)
318 earnings per share-primary (.02)
319 earnings per share-fully diluted -0-
<PAGE>
Exhibit 27.1
Appendix F to Item 601(c) of Regulation S-B
Consolidated Totals for Registrants Filing Multiple
Financial Data Schedules
Financial Data Schedule CT
September 30, 1997 and for the Nine Months Then Ended
Item
Number Item Description
5-02(18) total assets $ 35,585,840
5-02(28) preferred stock-mandatory redemption -0-
5-02(29) preferred stock-no mandatory redemption 180,920
5-02(30) common stock 25,043
5-02(31) other stockholders' equity 1,103,523
5-02(32) total liabilities and stockholders' equity 35,585,840
5-03(b)1 total revenues 4,980,984
5-03(b)(11) income tax expense 95,393
5-03(b)(14) income/loss continuing operations (5,174)
5-03(b)(15) discontinued operations (25,992)
5-03(b)(17) extraordinary items -0-
5-03(b)(18) cumulative effect-changes in accounting principles -0-
5-03(b)(19) net income or loss (126,559)
5-03(b)(20) earnings per share-primary (.07)
5-03(b)(20) earnings per share-fully diluted -0-
