<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1998
REGISTRATION NO. 333-42225
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- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. TWO TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
RUSHMORE FINANCIAL GROUP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
TEXAS 6411 75-2375969
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
D. M. MOORE, JR., CHIEF EXECUTIVE
13355 NOEL ROAD, SUITE 650 OFFICER
DALLAS, TEXAS 75240 RUSHMORE FINANCIAL GROUP, INC.
(972) 450-6000 13355 NOEL ROAD, SUITE 650
(ADDRESS AND TELEPHONE NUMBER, DALLAS, TEXAS 75240
INCLUDING AREA CODE, OF REGISTRANT'S (972) 450-6000
PRINCIPAL EXECUTIVE OFFICER) (NAME, ADDRESS AND TELEPHONE NUMBER,
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
----------------
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 register 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. ...................................... [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 29, 1998
, 1998
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 to be 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.
------------
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.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
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Minimum Total.................................. $ $ $
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Maximum Total.................................. $ $ $
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</TABLE>
(1) The Company has agreed to issue to First Southwest Company as the
Representative of the Underwriters warrants exercisable for five years
after the first anniversary of 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, with 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
<PAGE>
[Logo of Rushmore Financial Group appears here]
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 115 securities representatives in 27 states
and 1,300 insurance agents in 39 states.
[Map of United States showing headquarters, branch offices and states
represented.]
Rushmore Financial Group is expanding
across the United States through its
network of Securities Representatives
and insurance agents.
Rushmore Securities Licensed States
Independent Insurance Agents
<PAGE>
[Photo]
[Logo of Rushmore Financial Group
appears here]
Kimberly Greely - Marketing Assistant
G.A. Brunott, Jr. - President of Rushmore Agency
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,
which has 115 registered representatives in 27 states. In addition, Rushmore
Investment Advisores, Inc. provides fee-based advisory services, using a
proprietary asset allocation program known as RushMap.
[Photo]
Deanna Moncus - Director of Compliance and Licensing
Clifton Sneed - Independent Insurance Agent
[Organizational chart appears here]
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."
<PAGE>
[Photo]
D.M. (Rusty) Moore, Jr. - President and CEO of Rushmore, Jim W. Clark -
President of Rushmore Securities, F.E. (Fritz) Mowery - President of Rushmore
Advisors, Thomas G. Coleman, Jr. - Vice President of Rushmore Securities
The Company's insurance services business selects and markets a wide range of
life, disability, accident and health insurance and annuity products
distributed through 22 exclusive and more than 1,300 independent agents of its
affiliated agency, Rushmore Insurance Services, Inc. In addition, Rushmore
Life Insurance Company 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.
[Photo]
Benjamin H. Dean - Director of RushMAP, Randi Floyd - Administrative Assistant
Bob Waggoner - Director of Funds Management
<PAGE>
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. See the "Glossary of Insurance Terms" on page G-1 for a
definition of certain insurance related terms used herein.
THE COMPANY
Rushmore is a financial services holding company formed as a Texas
corporation in September 1990 that provides a wide range of investment and
insurance services and products to its clients through a national distribution
network of 115 securities representatives operating in 27 states and 1,300
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, a
Texas corporation formed in July 1980 ("Rushmore Securities"), which has 115
registered representatives in 27 states. In addition, Rushmore Investment
Advisors, Inc., a Texas corporation formed in January 1996 ("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 22 exclusive and more than 1,300 independent agents of its
affiliated agency, Rushmore Insurance Services, Inc., a Texas corporation
formed in May 1991 ("Rushmore Agency"). Rushmore Agency is owned by D. M.
Moore, Jr., the Company's President and Chief Executive Officer, due to
regulatory requirements that prohibit a corporation from owning a life
insurance agency in Texas. Although the financial statements of Rushmore Agency
are not consolidated with those of the Company, all revenues and expenses are
passed through to the Company under an Overhead Services Agreement. See "The
Company" and Note 2 to the Financial Statements of the Company. In addition,
Rushmore Life Insurance Company, an Arizona life insurance company formed in
January 1989 ("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. One additional subsidiary, Rushmore
Financial Corporation, was formed in November 1993 to act as a mortgage
company, and was discontinued in March 1997. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Discontinued Operations."
As of September 30, 1997, the Company's total assets were $35,681,066 and
shareholders' equity was $1,404,712.
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 by the public 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
3
<PAGE>
over $20.45 trillion at year end 1996, a 12.4% 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:
. 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;
. providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;
. 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;
. upgrading its management information system to allow its agents and
representatives to maintain an efficient and orderly flow of sales
orders; and
. 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
<TABLE>
<S> <C>
Common Stock offered by the
Company
Minimum...................... 750,000 shares
Maximum...................... 1,250,000 shares
Common Stock to be outstanding
after the Offering(1)(2)
Minimum...................... 2,856,664 shares
Maximum...................... 3,356,664 shares
Estimated net proceeds(3)
Minimum...................... $3,495,000
Maximum...................... $6,025,000
Use of proceeds................ Invest $300,000 in Rushmore Life's surplus
capital, allocate $1,500,000 to $2,000,000 to
Rushmore Agency to support the addition of new
agents, allocate $500,000 to $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 to
provide additional operating capital and fund
possible acquisitions. See "Use of Proceeds".
Proposed Nasdaq SmallCap Market
Symbol........................ RFGI
</TABLE>
- --------
(1) Excludes 178,573 shares of Common Stock subject to stock options with an
exercise price averaging $1.34 per share and warrants to the Representative
to acquire 50,000 shares of Common Stock. Does not include any Preferred
Stock outstanding. See "Capitalization," "Management--1997 Stock Option
Plan," and "--1993 Option Plan" and "Underwriting."
(2) Includes 101,176 shares issued after September 30, 1997.
(3) After subtracting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
4
<PAGE>
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," "Capitalization" 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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- --------- ------- ------------ ------------ -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
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 6,346 286 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 6,194 32 2,867 4,430
General and
administrative
expenses............... 346 431 663 663 512 630 630
------- ------- ------- ---------- ------- -------- --------
Total expenses........ 1,051 1,251 2,001 8,182 1,409 4,982 6,544
Loss from continuing
operations............. (20) (234) (120) (302) (116) (5) (14)
Net loss................ (31) (210) (171) (158) (149) (31) (14)
Net income (loss)
applicable to common
shareholders........... (36) (216) (181) (168) (155) (44) (26)
Net income (loss) per
share of common stock
after dividends on
preferred stock........ (.09) (.18) (.13) (.09) (.11) (.03) (.01)
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...... -- -- -- $1,018,723 -- $978,480 $978,480
Insuance in force
retained net of
reinsurance
agreements............. -- -- -- 435,442 -- 420,132 420,132
Premium income.......... -- -- -- 5,237 -- 2,845 3,949
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
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ----------------------------------
AS ADJUSTED, AS ADJUSTED,
ACTUAL PRO FORMA ACTUAL MINIMUM MAXIMUM
------- --------- ------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.... $ 118 $ 1,368 $ 1,426 $ 4,921 $ 7,451
Amounts on deposit with
Insurers............... -- 28,095 28,894 28,894 28,894
Total assets............ 543 35,744 35,681 39,176 41,706
Policy reserves......... -- 33,436 33,258 33,258 33,258
Total indebtedness...... 39 39 48 48 48
Shareholders' equity.... 351 1,409 1,405 4,900 7,430
</TABLE>
5
<PAGE>
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 $180,778, 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 applicable to
common shareholders of $43,545, 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 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 to impose, among others, "sales practices" rules which regulate
sales representatives' conduct, investor suitability rules, escrow funds
handling, and stringent record 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.
6
<PAGE>
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. The
Company believes that, as of the date of this Prospectus, it is in material
compliance with all laws, rules and regulations. See "Business--Regulation."
Rushmore Agency Option Agreement
Texas insurance law does not permit a life insurance agency to be owned by a
corporation. As a result, Rushmore Agency is owned 100% by D. M. Moore, Jr.,
and its financial statements are not consolidated with those of the Company.
Pursuant to an Administrative Services Agreement, all revenues and expenses of
Rushmore Agency are passed through to the Company as permitted by regulation.
In addition, Mr. Moore has granted the Company an irrevocable option for the
Company to appoint any other qualified person to acquire the capital stock of
Rushmore Agency on its behalf. The Company believes it has taken all available
steps to obtain the benefits of ownership of Rushmore Agency, although greater
control could be obtained if the Company were permitted to own Rushmore
Agency. See "Business--Insurance Services--Rushmore Insurance Services,
Incorporated."
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. In 1996, approximately 97.6%
of the Company's revenues were derived from commissions generated by
securities 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,
7
<PAGE>
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. Such employment
agreements are terminable only upon death, disability or for cause, including
resignation. Upon termination for any reason other than disability or for
cause, the executive is entitled to three years' severance pay. 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."
Control by Management
After completion of this Offering, the executive officers and directors of
the Company will own approximately 35% of the shares of Common Stock
outstanding if the minimum number of shares is sold, and 30% if the maximum
number of shares is sold. Accordingly, and because there is no cumulative
voting for directors, the executive officers and directors of the Company will
be in a position to influence strongly the election of all of the directors of
the Company and to control through their stock ownership the business of the
Company. See "Management" and Principal Shareholders."
Increase in Employees
As described in "Use of Proceeds," the Company intends to apply a
significant amount of the net proceeds of this Offering to the addition of
personnel to support the growth of its insurance services, broker dealer and
investment advisor units. While the Company believes that such additions are
needed in order to achieve the Company's growth objectives, the addition of
personnel involves a lag in the creation of revenues from such proceeds, which
could have an adverse effect on the Company's potential for earnings. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
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. No affiliate
or member of management will purchase any shares of Common Stock in the
Offering in order for the Company to meet the minimum Offering requirement.
The remaining 2,106,663 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 228,573 shares of Common
Stock. See "Shares Eligible for Future Sale," "Description of Capital Stock"
and "Principal Shareholders."
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
1,505,502 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
8
<PAGE>
Prospectus. In addition, all directors, officers and persons owning more than
5% of shares outstanding have agreed pursuant to State Blue Sky Law
requirements to subject certain of their shares to a lock-in agreement until
the Company meets certain earnings or other requirements.
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 additional shares of 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 will be 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 to be considered in determining the initial
public offering price. Among the factors to be considered in determining the
price will be 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 will 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, although the funds invested by them will be returned with interest.
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, and believes that it will meet all criteria to
become listed and to continue its listing after 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. In addition,
to obtain a listing the Company is required to maintain at least three market
makers in the Company's Common Stock. The Representative has indicated that it
will act as a market maker, and the Company believes it will have at least
three market makers by the closing of the Offering. If the Company is unable
in the future to satisfy the requirements for continued quotation on the
Nasdaq SmallCap Market, trading in the Common Stock offered hereby would be
conducted only 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.
9
<PAGE>
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 first anniversary of 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. The Representative will have the
opportunity to profit from a rise in the market price of the Common Stock, if
any, without assuming the risk of ownership. 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
Representative 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. In addition, the shares of Preferred Stock
outstanding are entitled to a preference over the Common Stock in the payment
of dividends. 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 $3.38 per
share of Common Stock, or 61.5%, as a result of the maximum Offering, and $3.92
per share of Common Stock or 71.3% as a result of the minimum 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."
10
<PAGE>
The Articles 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. Such provisions could also exert a negative influence on the
value of the Common Stock and of a shareholder's ability to receive the highest
value for the Common Stock in a transaction that may be hindered by the
operation of these provisions. 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. In addition, directors may be removed only for "good
cause" as defined in the Company's bylaws, and such bylaws require an action by
more than two-thirds of shares outstanding to call a special meeting of
shareholders. 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."
Outstanding Preferred Stock
As of the date of this Prospectus, the Company had outstanding two series of
Preferred Stock having a total liquidation value of $180,920 and bearing a
cumulative dividend rate of 9% per year. Such shares of Preferred Stock are
entitled to a preference over the Common Stock upon any liquidation of the
Company and to a preference in the payment of dividends. In addition, the Board
of Directors is authorized, without shareholder approval, to create additional
classes and series of Preferred Stock out of the total of 100,000 shares
authorized as described above in "--Anti-Takeover Provisions." Also see
"Description of Securities."
Stabilization Transactions
The Representative has informed the Company that certain persons
participating in this Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock including entering
stabilizing bids. 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.
Neither the Company nor the Representative makes any representation or
predictions as to the direction or magnitude of any effect that such
stabilizing transactions, if any, may have on the price of the Common Stock. In
addition, neither the Company nor the Representative makes any representations
that the Representative will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice. See
"Underwriting."
11
<PAGE>
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 management. Since 1991, the Company has acquired the stock or assets
of four companies totaling more than $35 million in assets and 180 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 (then known as First Financial Life Insurance Company) 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. One additional
subsidiary, Rushmore Financial Corporation, was formed in November 1993 to act
as a mortgage company and was discontinued in March 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Discontinued Operations." 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
INVESTMENT SECURITIES INSURANCE LIFE
ADVISORS, CORPORATION SERVICES, INSURANCE
INC. 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. The financial statements
of Rushmore Agency are not consolidated with those of the Company;
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 regulations. See Note 2 to the Financial
Statements. In addition, Mr. Moore has granted the Company an irrevocable
option for the Company to appoint any other qualified person to acquire
the capital stock of Rushmore Agency on its behalf.
12
<PAGE>
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.
The following table demonstrates the intended application of the minimum and
maximum amount of proceeds available from this Offering.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
INDENDED USE OFFERING PERCENT OFFERING PERCENT
------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Contribution to Rushmore Agency to
support the addition of new agents...... $1,500,000 42.9 $2,000,000 33.2
Contribution to Rushmore Life capital
surplus to enable the increase of
retained coinsurance.................... 300,000 8.6 300,000 5.0
Contribution to Rushmore Securities to
support the addition of new
representatives......................... 500,000 14.3 1,000,000 16.6
Contribution to Rushmore Advisors to
support the addition of marketing and
advisory personnel...................... 500,000 14.3 500,000 8.3
Operating capital, general corporate
purposes and possible acquisitions,
including:
Leasehold improvements, equipment and
software.............................. 120,000 3.4 200,000 3.3
Advertising and printing............... 40,000 1.1 100,000 1.7
Unspecified acquisitions............... 250,000 7.2 1,100,000 18.3
General working capital................ 285,000 8.2 825,000 13.7
---------- ----- ---------- -----
$3,495,000 100.0 $6,025,000 100.0
</TABLE>
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 for the next twelve months.
DIVIDEND POLICY
The Company paid one dividend on its Common Stock in March 1995 in the
amount of $0.04 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.
13
<PAGE>
DILUTION
As of September 30, 1997, the net tangible book value of the Company was
$868,053 or $.43 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 the minimum and maximum number of shares of
Common Stock at the assumed 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, representing an immediate increase in net
tangible book value to current holders of Common Stock, and an immediate
dilution to new investors, as illustrated in the following table.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERING
---------- ----------
<S> <C> <C> <C> <C>
Assumed Offering price per share......................... $5.50 $5.50
Net tangible book value per share before this
Offering.............................................. .43 .43
Increase per share attributable to new investors....... 1.15 1.69
Adjusted net tangible book value per share after this
Offering................................................ 1.58 2.12
----- -----
Dilution per share to new investors...................... $3.92 $3.38
===== =====
</TABLE>
The following table summarizes, as of September 30, 1997, 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 at the minimum and maximum levels, after deduction of the
underwriting discounts and commissions and offering expenses payable by the
Company:
MINIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 2,005,488 72.8 $ 1,958,716 35.9 .98
New Shareholders................ 750,000 27.2 3,495,000 64.1 4.66
--------- ----- ------------ -------
Total......................... 2,755,488 100.0 $ 5,453,716 100.0
========= ===== ============ =======
MAXIMUM OFFERING
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 2,005,488 61.6 $ 1,958,716 24.5 .98
New Shareholders................ 1,250,000 38.4 6,025,000 75.5 4.82
--------- ----- ------------ -------
Total......................... 3,255,488 100.0 $ 7,983,716 100.0
========= ===== ============ =======
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth the 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>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------
AS ADJUSTED
ACTUAL(1) MINIMUM MAXIMUM
------------ ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long term debt:........................ -- -- --
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;
2,005,488 shares issued and
outstanding, actual; 2,755,488
shares issued and outstanding, as
adjusted at the minimum level;
3,255,488 shares issued and
outstanding, as adjusted at the
maximum level....................... 20 28 33
Additional paid-in capital........... 1,938 5,425 7,950
Accumulated deficit.................. (563) (563) (563)
Shareholder loans and due from
affiliate........................... (172) (172) (172)
----------- ----------- -----------
Total shareholders' equity......... 1,405 4,900 7,430
----------- ----------- -----------
Total capitalization............... $ 1,405 $ 4,900 $ 7,430
=========== =========== ===========
</TABLE>
- --------
(1) Derived from the Company's unaudited consolidated financial statements
included elsewhere in this Prospectus. See "Financial Statements."
15
<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 nine months
ended September 30, 1997 and the pro forma information are derived from
unaudited financial statements that are included elsewhere in this Prospectus.
Such unaudited information, together with the unaudited information for the
year ended December 31, 1994, includes, 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>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- --------- ------- ------------ ------------ -------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
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 6,346 286 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 6,194 32 2,867 4,430
General and administrative
expenses.................... 346 431 663 663 512 630 630
------- ------- ------- ---------- ------- -------- --------
Total expenses............. 1,051 1,251 2,001 8,182 1,409 4,982 6,544
Loss from continuing
operations.................. (20) (234) (120) (302) (116) (5) (14)
Net loss..................... (31) (210) (171) (158) (149) (31) (14)
Net income (loss) applicable
to common shareholders...... (36) (216) (181) (168) (155) (44) (26)
Net income (loss) per share
of Common Stock after
dividends on Preferred
Stock....................... (.09) (.18) (.13) (.09) (.11) (.03) (.01)
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........... -- -- -- $1,018,723 -- $978,480 $978,480
Insurance in force retained
net of reinsurance
agreements.................. -- -- -- 435,442 -- 420,132 420,132
Premium income............... -- -- -- 5,237 -- 2,845 3,949
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
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ----------------------------------
AS ADJUSTED, AS ADJUSTED,
ACTUAL PRO FORMA ACTUAL MINIMUM MAXIMUM
------- --------- ------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents......... $ 118 $ 1,368 $ 1,426 $ 4,921 $ 7,451
Amounts on deposit with
Insurers.................... -- 28,095 28,894 28,894 28,894
Total assets................. 543 35,744 35,681 39,176 41,706
Policy reserves.............. -- 33,436 33,258 33,258 33,258
Total indebtedness........... 39 39 48 48 48
Shareholders' equity......... 351 1,409 1,405 4,900 7,430
</TABLE>
16
<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 115 securities representatives operating in
27 states and 1,300 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 $562,579. 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. 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:
NUMBER OF AGENTS AND REPRESENTATIVES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Insurance agents................... 481 645 839 1,127 1,271 1,341
Securities representatives......... 48 71 97 112 105 125
</TABLE>
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 commissions 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
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
$36,134 $37,138 $51,500 $48,382 $59,584 $57,528
</TABLE>
17
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues. Total revenues increased 284% from $1,296,565 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 settlement of litigation for back-
commissions from an Insurer (as defined below) 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 revenues of Rushmore Life,
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 do not pass through 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 revenue increased from the
first nine months of 1997 (87.9%) to the first nine months of 1996 (85.9%).
Direct overhead associated with investment services increased 252% 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. During the nine months ended
September 30, 1997, the average credited interest rates on outstanding
universal life policies was 5.38% (as compared to 5.69% for the year ended
1996).
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 applicable to
common shareholders for the nine months ended September 30, 1997 decreased
71.9% from $155,178 or $0.11 per share to $43,545 or $0.03 per share. The net
loss in 1997 included $12,212 of preferred dividends paid compared to $5,816
in 1996.
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
showing 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.
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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, more 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 revenue
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 to legal fees and expenses associated with litigation.
Operating Loss.
Operating loss decreased 49.9% from $231,439 to $115,852. The Company's net
loss applicable to common shareholders decreased 16.3% from $216,065 or $0.18
per share in 1995 to $180,778 or $0.13 per share in 1996. Net loss in 1996 of
$180,778 included a loss from discontinued operations of $50,504 and preferred
dividends paid of $9,887 compared to income from discontinued operations of
$24,207 and preferred dividends paid of $5,844 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.
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Operating Loss.
Operating loss increased 1,069% from $19,798 in 1994 to $231,439 in 1995. The
Company's net loss applicable to common shareholders increased 510.2% from
$35,406 or $0.09 per share in 1994 to $216,065 or $0.18 per share in 1995. Net
loss included preferred dividends paid of $5,844 in 1995 compared to preferred
dividends paid of $4,730 in 1994. 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 discontinued 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 $26,752. For the nine months ended September 30,
1997, the net loss of $31,333 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 $134,309.
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 and received cash of $1,329,149 in the acquisition.
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 raised $62,188 from the sale
of Common Stock. The remaining changes in both periods resulted from loan
principal payments, additional borrowings and dividends. Rushmore Life
generates significant cash flow from operations deficiencies from charges in
connection with mortality and administration of universal life and investment
products, however, such deficiency is offset by receipts from universal life
products constituting cash flows from financing activities.
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
for at least the next twelve months.
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.
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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 115 securities representatives in 27 states
and 1,300 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 115 registered representatives in 27
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 22 exclusive and 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 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%. 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 12.4%
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:
. 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;
. providing its sales force with a wide range of financial products and
services, including exclusive insurance and investment products;
. 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;
. upgrading its management information system to allow its agents and
representatives to maintain an efficient and orderly flow of sales
orders; and
. 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
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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.
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 $500,000 to $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 cross-selling 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
See the "Glossary of Insurance Terms" on page G-1 for a definition of
certain insurance terms used below.
Securities Brokerage--Rushmore Securities Corporation. Rushmore Securities
provides investment services to its clients through a network of 115
registered representatives in 27 states, as of the date of this Prospectus.
Rushmore Securities conducts its activities in 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. The Company currently has clearing agreements with
Southwest Securities, Inc. and the Representative. 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.
Most of Rushmore Securities' registered representatives are 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.
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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 $17 million under management. As of the date of this
Prospectus, the Company had two portfolio managers to serve its clients.
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, Inc. 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 arrangements (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 38 other life insurance companies, of which
most are rated "A" or better by A.M. Best, that have appointed Rushmore Agency
and its agents to sell on their behalf (the "Other Insurers"). 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.
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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 the capital stock of 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 (universal life products are flexible premium life
insurance policies under which the policyholder may change the death benefit
from time to time and vary the amount or timing of premium payments); health
insurance including cancer insurance, major medical, group health; fixed and
variable annuities; and group and 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 administer
AFFA and serve as 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 the date of this Prospectus, the Company either
employed or contracted with more than 1,300 insurance agents in 39 states.
With the exception of 22 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, 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
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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.
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 1,300 independent agents to
market life insurance in 39 states.
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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. Certain of the Company's registered representatives maintain
facilities comprising 5,190 square feet as branch offices of Rushmore
Securities. The Company believes these facilities are adequate to meet its
requirements for the foreseeable future, although it may open additional
branch offices.
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.
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
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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.
27
<PAGE>
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>
<CAPTION>
TERM AS
NAME AGE POSITION(S) DIRECTOR EXPIRES
---- --- ----------- ----------------
<S> <C> <C> <C>
Dewey 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
Frederick E. (Fritz)
Mowery................. 42 President of Rushmore Advisors and Director 1998
Robert W. Hendren....... 45 Chief Financial Officer
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
<CAPTION>
KEY EMPLOYEES
-------------
<S> <C> <C>
Christine E. Miller..... 59 Vice President of Administration
Howard M. Stein......... 49 Controller
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
</TABLE>
- --------
(a) Will become a director and member of Audit Committee and Compensation
Committee following the closing of the Offering.
Dewey 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. Mr. Moore graduated with a bachelor in business
administration degree from Southern Methodist University in 1971.
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. Mr. Clark is a graduate of Texas
Tech University with a bachelor of arts degree.
Frederick 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 and a graduate of Texas Tech University with a bachelor in business
administration degree.
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. He holds a bachelor of arts degree from Florida Atlantic
University.
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. He holds a bachelor of science degree from California
State University.
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
28
<PAGE>
insurance and investment services to Public Safety Unions throughout
California. Mr. Adler is a 1978 graduate of San Diego State University with a
bachelor of arts degree.
Harlan T. (Tra) Cardwell, III has served as a director of the Company since
April 1997. He served from 1983 to 1992 as a loan officer for Herring Bank. He
is also director of the Company's annuity division since April 1992 and is a
certified financial planner. Mr. Cardwell holds a bachelor of science degree
from Texas Tech University and a master of science degree from Southwestern
University.
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 with a
bachelor of business administration degree from Texas Tech University.
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. He is a graduate of East
Texas State University with a bachelor of science degree.
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.
Robert W. Hendren began serving as Chief Financial Officer in January 1998.
Prior to that he served from June 1997 to December 1997 as Chief Financial
Officer of United Benefit Managed Care Corp. and from September 1985 to June
1997 as Chief Financial Officer of National Health Corporation. Mr. Hendren is
a certified public accountant, a Fellow of the Life Management Institute and
holds a bachelor of business administration degree from Oklahoma State
University.
Howard M. Stein has served as Controller of the Company since February 1995
and was Chief Financial Officer until January 1998. Prior to joining the
Company, from 1987 until 1992 he was a Controller for First Gibraltar Bank and
from 1992 to 1994 he was Controller and Chief Financial Officer of FTS Life
Insurance Agency, Inc. He is a certified public accountant in the State of
Texas and holds a bachelor of business administration degree from the
University 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. He holds a bachelor of arts degree from Washington University
and a master of theology degree from Dallas Theological Seminary.
Thomas G. Coleman, Jr. has served as Vice President of Rushmore Securities
in charge of its discount brokerage division since February 1994. From 1988 to
1994 he was a registered representative with Ellsworth Investments, Inc. Mr.
Coleman is a certified public accountant and holds a bachelor of business
administration degree from Southern Methodist University.
Benjamin H. Dean has served as director of RushMAP since July 1996. From
November 1992 until May 1996, he was manager of advisory services for 1st
Global Capital Corp. Mr. Dean is a certified financial planner. Mr. Dean holds
a bachelor of business administration degree from the University of North
Texas.
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.
29
<PAGE>
COMMITTEES OF DIRECTORS
Following the completion of the Offering, the Board of Directors will have
the following committees:
<TABLE>
<CAPTION>
COMMITTEE MEMBERS
--------- -------
<S> <C>
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
</TABLE>
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. Messrs. Fehleison and Tinsley are considered to be independent
directors for these and other purposes.
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
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
SALARY BONUS OTHER LONG TERM UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) ($) COMPENSATION AWARDS OPTIONS (#)
- --------------------------- ------- ----- -------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
D. M. Moore, Jr......... $60,000 -- $114,124(1) -- 23,823
</TABLE>
- --------
(1) Constitutes commissions paid for sales of securities and insurance.
The Company has hired Robert W. Hendren to be the Company's Chief Financial
Officer beginning in February 1998, at an annual salary of $108,000, and has
granted him 10,000 shares of Common Stock at par value and options to purchase
15,000 shares of Common Stock at the price per share in the Offering. The
shares and options will vest in installments over five years.
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 nonqualified 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.
30
<PAGE>
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.
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 from $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 assumed 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.
The Company has entered into Indemnification Agreements with each officer
and director in which the Company agrees to indemnify such persons to the
fullest extent allowed by the TBCA and defines the procedures for paying
indemnity costs and expenses, including advance payments thereof.
31
<PAGE>
As of the 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 each of Messrs.
Moore and Clark, which provide for an annual salary of $138,000 and $96,000,
respectively, which may be adjusted upwards annually. Both employment
agreements provide for three year terms. Mr. Moore's agreement renews monthly,
and Mr. Clark's renews annually. In addition, each of Messrs. Moore and Clark
are entitled to additional compensation from commissions and overrides for
accounts serviced by the employee as a broker, and an override commission on
commissions earned by persons introduced by the employee to the Company and
its subsidiaries (such annual salary and additional compensation are referred
to as the "Combined Compensation").
Each employment agreement also provides that if the employee dies, his
estate shall be entitled to receive three years' Combined Compensation either
in 36 monthly installments or in cash. In addition, in the event that
employee's employment is terminated by the Company except for cause, death or
disability, the employee shall be entitled to receive three years' annual
salary, plus any additional compensation due to such employee in 36 monthly
installments.
CERTAIN TRANSACTIONS
The Company believes that all of the transactions set forth below, which
were approved by the full Board of Directors of the Company, which included
independent directors, 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 of Directors, including a majority of the independent
and disinterested outside directors who will have access at the Company's
expense to the Company's or independent legal counsel, 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
Overhead Services 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 the capital stock of 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.
32
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus
(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>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
------------------------------------------------------------
PERCENTAGE PRIOR PERCENTAGE AFTER PERCENTAGE AFTER
NAME SHARES TO OFFERING MINIMUM OFFERING MAXIMUM OFFERING
---- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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)......... 86,241 4.1 3.0 2.6
F. E. Mowery(3)......... 32,057 1.5 1.1 1.0
Timothy J. Gardiner..... 26,041 1.2 * *
Harlan T. Cardwell,
III.................... 11,250 * * *
James Fehleison......... 5,000 * * *
Gayle C. Tinsley........ 12,000 * * *
All executive officers
and directors and
prospective directors
as a group
(9 persons)............ 1,005,382 47.7 35.2 30.0
</TABLE>
- --------
* Less than 1%
(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 1,505,502
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. All of the foregoing persons and
certain other persons have agreed pursuant to State Blue Sky requirements to
subject certain of their shares to a lock-in agreement until the Company meets
certain earnings or other requirements.
33
<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.
The Transfer Agent and Registrar for the Company's Common Stock is UMB Bank,
N.A.
PREFERRED STOCK
Rushmore has authorized 100,000 shares of preferred stock, par value $10.00
per share, of which two series totaling 18,092 shares will be outstanding
immediately following this Offering with a combined liquidation value of
$180,920. The Preferred Stock may be issued in series or classes as determined
by the Board of Directors from time to time without shareholder approval,
although the Directors do not anticipate any additional issuances of preferred
stock. 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 of $10.00 per share.
Conversion. Shares of 9% Cumulative Preferred Stock are not convertible into
any other security of the Company.
Additional Issuances. No further issuances of Preferred Stock of the
existing or any new series will be made without the approval of the Audit
Committee of the Board of Directors, which is comprised of independent
directors. No issuances of any Preferred Stock will be issued to any officer,
director or holder of more than 5% of the outstanding Common Stock on any
terms different from issuances to other nonaffiliated purchasers.
34
<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.
35
<PAGE>
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
163,574 shares for issuance upon exercise of options granted under the
Company's Stock Option Plans, of which 156,074 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 the date the Company becomes subject to the reporting requirements
of the Exchange Act, although 1,505,502 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."
36
<PAGE>
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, a wholly owned subsidiary of the Company (together 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 with any interest earned
thereon and without any deduction for commissions or expenses. The purchasers
will not receive stock certificates until the termination of the Offering. No
affiliate or member of management will purchase any shares of Common Stock in
the Offering in order to enable the Company to achieve the minimum 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 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 one
year after 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
37
<PAGE>
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 will be determined by negotiation between the Company and the
Representative. Among the factors to be considered in such negotiations will
be 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.
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.
38
<PAGE>
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.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
Independent Auditor's Report............................................ F-2
Balance Sheets as of December 31, 1996 and September 30,1997
(unaudited)............................................................ F-4
Statements of Income for the two years ended December 31, 1996 and the
nine months ended September 30, 1997 (unaudited)....................... F-5
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
Statement 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-9
FIRST FINANCIAL LIFE COMPANIES, INC.
Independent Auditor's Report............................................ F-18
Consolidated Balance Sheet as of December 31, 1996...................... F-19
Consolidated Statement of Operations for the two years ended December
31, 1996............................................................... F-20
Consolidated Statement of Stockholders' Equity for the two years ended
December 31, 1996...................................................... F-21
Consolidated Statement of Cash Flows for the two years ended December
31, 1996............................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES PRO FORMA FINANCIAL DATA
Statement of Financial Condition as of September 30, 1997 (unaudited)... F-28
Statement of Operations for the nine months ended September 30, 1997
(unaudited)............................................................ F-29
Statement of Shareholders' Equity for the nine months ended September
30, 1997 (unaudited)................................................... F-30
Statement of Cash Flows for the nine months ended September 30, 1997
(unaudited)............................................................ F-31
Pro Forma Consolidated Balance Sheet.................................... F-32
Pro Forma Consolidated Statements of Operations......................... F-34
Notes to Pro Forma Consolidated Financial Statements.................... F-36
</TABLE>
F-1
<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 Companies' 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.
Cheshier & Fuller, L.L.P.
Dallas, Texas
October 10, 1997
(November 12, 1997 as to Note 12)
F-2
<PAGE>
To the Board of Directors and Shareholder 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.
Cheshier & Fuller, L.L.P.
Dallas, Texas
November 25, 1997
F-3
<PAGE>
RUSHMORE FINANCIAL GROUP INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
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
Net deferred federal income taxes................... 95,226
--------- -----------
Total assets.................................. $ 543,086 $35,681,066
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
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 2,005,488 issued and
outstanding at September 30, 1997................ 14,193 20,055
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 1,938,434
Retained earnings (deficit)....................... (531,246) (562,579)
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 1,404,712
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 543,086 $35,681,066
========= ===========
</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>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Revenue from Insurance
Services
Insurance policy income.... 2,092,002
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
---------- ---------- ---------- ----------
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... 167
---------- ---------- ---------- ----------
Net income (loss).............. $ (210,221) $ (170,891) $ (149,362) $ (31,333)
========== ========== ========== ==========
Net income (loss) applicable to
common shareholders (Note 8).. $ (216,065) $ (180,778) $ (155,178) $ (43,545)
========== ========== ========== ==========
Net income (loss) per share of
common stock after dividends
on Preferred Stock (Note 8)... (.18) (.13) (.11) (.03)
========== ========== ========== ==========
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>
<CAPTION>
COMMON ADDITIONAL RETAINED SHAREHOLDER/
PREFERRED COMMON STOCK PAID IN EARNINGS AFFILIATE
STOCK STOCK SUBSCRIBED CAPITAL (DEFICIT) LOANS TOTAL
--------- ------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<CAPTION>
COMMON ADDITIONAL RETAINED SHAREHOLDER/
PREFERRED COMMON STOCK PAID IN EARNINGS AFFILIATE
STOCK STOCK SUBSCRIBED CAPITAL (DEFICIT) LOANS TOTAL
--------- ------- ---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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,
586,195 shares......... 5,862 1,107,038 1,112,900
Common stock subscribed,
22,657 shares.......... 227 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)....... (31,333) (31,333)
-------- ------- ----- ---------- --------- --------- ----------
Balance, September 30,
1997................... $180,920 $20,055 $ 227 $1,938,434 $(562,579) $(172,345) $1,404,712
======== ======= ===== ========== ========= ========= ==========
</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>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------------
1995 1996 1996 1997
--------- --------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss)................. $(210,221) $(170,891) $ (149,362) $ (31,333)
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
Dividends from equity
investment............... 29,982
CHANGE IN ASSETS AND
LIABILITIES NET OF
EFFECTS FROM PURCHASE OF
RUSHMORE LIFE:
(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) (257,675)
Deferred policy
acquisition costs...... 776,335
Deposits with
reinsurer.............. (532,685)
Uncollected premiums.... (99,575)
Increase (decrease) in
liabilities:
Accounts payable........ (22,680) 23,481 109,062 138,776
Accrued liabilities..... 23,502 72,854 27,568 880
Future policy benefits.. 3,928
Universal Life
liabilities............ 118,607
Claims payable.......... 5,188
Income tax liability.... 3,453
Deferred revenues....... (4,600) 13,054
--------- --------- ----------- -------------
Net cash flows provided
(used) by operating
activities................. (160,228) (79,558) (13,595) 134,309
--------- --------- ----------- -------------
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)
Cash acquired in
acquisition of Rushmore
Life...................... -- -- -- 1,329,149
Increase in equity
investment................ (44,050)
--------- --------- ----------- -------------
Net cash flows provided
(used) by investing
activities................. (76,748) (82,503) (179,027) 1,100,342
--------- --------- ----------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from sale of
Common Stock.............. 249,002 136,180 101,114 62,188
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 73,974
--------- --------- ----------- -------------
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>
Non-cash supplementary disclosure of investing activities:
The Company acquired the remaining 74.6% of Rushmore Life on April 8, 1997
for 508,144 shares of common stock, cash of $119,353 and a payable of $18,547.
The accompanying notes are an integral part of these financial statements.
F-8
<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 as Dominion Associates Corporation 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.
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.
F-9
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-10
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<S> <C>
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.
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 personal guarantee of D.M. Moore, Jr. .............. $ 24,024
========
</TABLE>
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.
Cumulative Preferred Stock dividends are $5,844 and $9,887 for the years
ended December 31, 1995 and 1996, respectively, and $5,816 and $12,212 for the
nine months ended September 30, 1996 and 1997, respectively.
F-11
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................... $ 131,471
1998........................................................... 278,938
1999........................................................... 278,938
2000........................................................... 266,962
Thereafter..................................................... 190,648
----------
$1,146,957
==========
</TABLE>
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-12
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES
The provision for income taxes for the year ended December 31, 1996 consists
of the following:
<TABLE>
<S> <C>
Current............................................................ $ --
Deferred expense (benefit)......................................... (52,948)
Change in valuation allowance...................................... 52,948
--------
$ --
========
</TABLE>
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
<TABLE>
<S> <C>
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
===========
</TABLE>
F-13
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIRST FINANCIAL LIFE COMPANIES, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
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
----------- -----------
Policy holder 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)
=========== ===========
</TABLE>
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.
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.
F-14
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
a. Summary of Significant Accounting Policies:
. 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.
. 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.
. 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.
. 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.
. 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.
. 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 policy holder account
balances and benefit claims incurred in excess of policyholder account
balances.
F-15
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
. 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.
. 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.
. 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.
. 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. The universal life
contract liabilities recorded on the consolidated balance sheet at
September 30, 1997 also include amounts that have been assessed to
compensate the Company for services to be performed in the future. Such
amounts are not earned in the period assessed. Such unearned revenue
amounts are recognized in income over the period benefited using the same
assumptions and factors used to amortize deferred acquisition costs.
Amounts that are assessed against the policyholder balance as consideration
for origination of the contract, often referred to as initiation or front-
end fees, are unearned revenues.
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.
F-16
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<S> <C>
Wabash fees........................................................ $154,802
FMI fees........................................................... $ 15,531
MGL & SWL policy maintenance fees.................................. $228,699
</TABLE>
c. Stockholders' Equity and Restrictions:
At September 30, 1997 substantially all the net assets of Rushmore Life
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 issued. 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-17
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
e. Other Operating Statement Data:
Changes in deferred acquisition costs were as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Balance, April 1, 1997......................................... $5,057,695
Additions...................................................... 264,992
Amortization related to operations............................. (1,041,328)
----------
Balance, end of year........................................... $4,281,359
==========
</TABLE>
f. Federal Income Taxes:
Deferred federal income taxes were comprised of the following at
September 30, 1997:
<TABLE>
<S> <C>
Deferred federal income tax assets:
Life reserves................................................... $12,199,842
Accrued expenses................................................ 113,976
Alternative minimum tax credit carryforward..................... 69,344
-----------
Total deferred income tax assets 12,383,162
-----------
Deferred income tax liabilities:
Funds on deposit................................................ (9,824,067)
Deferred acquisition costs...................................... (2,461,411)
Other........................................................... (2,458)
-----------
Total deferred income tax liabilities.......................... (12,287,936)
-----------
Net deferred federal income tax asset.......................... $ 95,226
===========
</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-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders Rushmore 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.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
November 20, 1997
F-19
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<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-20
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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)
Provision for federal income taxes.................... (144,463) (73,819)
---------- ----------
Net loss............................................ $ (50,860) $ (130,904)
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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
Cash and short-term investments at beginning of
year................................................ 1,241,969 668,486
----------- -----------
Cash and short-term investments at end of year....... $ 1,395,904 $ 1,241,969
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<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.
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>
<CAPTION>
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
- ----- ---------- ---------- -------------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
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.
F-24
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
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
F-25
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. The
universal life contract liabilities recorded on the consolidated balance sheet
at December 31, 1996 also include amounts that have been assessed to compensate
the Company for services to be performed in the future. Such amounts are not
earned in the period assessed. Such unearned revenue amounts are recognized in
income over the period benefited using the same assumptions and factors used to
amortize deferred acquisition costs. Amounts that are assessed against the
policyholder balance as consideration for origination of the contract, often
referred to as initiation or front-end fees, are unearned revenues.
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:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Wabash fees............................................... $213,426 $209,714
FMI fees.................................................. 21,369 22,928
MGL and SWL policy maintenance fees....................... 318,547 293,094
</TABLE>
3. INVESTMENTS AND INVESTMENT INCOME:
For the years ended December 31, 1996 and 1995, net investment income
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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
F-26
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
In most reinsurance situations, the direct writer is contingently liable for
claims reinsured if the assuming company is unable to pay. The Company assumes
insurance and also retrocedes a portion back to the direct writer. Management
believes that it is unlikely that the Company would be liable for any amount in
excess of the Company's quota share.
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-27
<PAGE>
FIRST FINANCIAL LIFE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. FEDERAL INCOME TAXES:
First Financial Life Companies, Inc. and First Financial Life Insurance
Company file separate federal income tax returns.
Deferred federal income taxes were comprised of the following at December 31,
1996:
<TABLE>
<S> <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
===========
</TABLE>
For the years ended December 31, 1996 and 1995, respectively, the provision
(benefit) for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
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.
8. OTHER OPERATING STATEMENT DATA:
Changes in deferred acquisition costs were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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.................................. $ 5,445,861 $ 6,662,154
=========== ===========
</TABLE>
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-28
<PAGE>
FIRST FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
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 uncollected premiums................ 695,416
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
===========
</TABLE>
F-29
<PAGE>
FIRST FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Revenues:
Insurance policy income........................................... $3,112,369
Net investment income............................................. 1,567,071
Other income...................................................... 42,440
----------
Total Revenues.................................................. 4,721,880
Benefits and expenses:
Insurance policy benefits......................................... 1,805,949
Amortization of deferred policy acquisition costs................. 1,561,992
Other operating expenses.......................................... 1,343,277
----------
Total benefits and expenses..................................... 4,711,218
Income before income taxes.......................................... 10,662
Provision for income taxes.......................................... (2,304)
----------
Net income.......................................................... $ 12,966
==========
</TABLE>
F-30
<PAGE>
FIRST FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
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
==========
</TABLE>
F-31
<PAGE>
FIRST FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income........................................................ $ 12,966
Items not requiring (providing) funds:
Adjustments relating to universal life and investment products:
Interest 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 acquisition 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
==========
</TABLE>
F-32
<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-33
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
COMPANY RUSHMORE ADJUSTMENTS
ACTUAL LIFE ACTUAL DR (CR) PROFORMA
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment
Cash and short-term
investments.............. $ 117,738 $ 1,395,904 $ (137,900)(1) $ 1,368,104
(7,638)(3)
Amounts on deposit with
reinsurer................ 28,095,288 28,095,288
--------- ----------- -----------
Total investments......... 117,738 29,491,192 29,463,392
Deferred policy acquisition
costs..................... 5,445,861 5,445,861
Notes, account receivable
and uncollected premiums.. 27,459 154,068 (10,515)(3) 171,012
Receivable from brokers and
dealers................... 27,255 27,255
Prepaid expenses and
advances.................. 17,019 (15,951)(3) 1,068
Equity investment in
subsidiary................ 275,346 1,196,599 (1) -0-
(1,471,945)(2)
Equipment, net of
accumulated depreciation.. 67,894 6,825 74,719
Deferred federal income
taxes..................... 169,210 169,210
Goodwill................... 381,688 (2) 381,688
Other assets and
intangibles............... 10,375 495 (576)(3) 10,294
--------- ----------- ---------- -----------
TOTAL ASSETS.............. $ 543,086 $35,267,651 $ (66,238) $35,744,499
========= =========== ========== ===========
Liabilities
Future policy benefits.... $ 93,908 $ 93,908
Universal life contract
liabilities.............. 33,436,198 33,436,198
Claims payable............ 225,319 225,319
Notes payable............. $ 24,024 24,024
Due to affiliated
companies................ 15,220 15,220
Current federal income
taxes.................... 41,439 41,439
Other liabilities......... 152,905 367,637 21,377 (3) 499,165
--------- ----------- ---------- -----------
Total liabilities......... 192,149 34,164,501 21,377 34,335,273
--------- ----------- ---------- -----------
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, 1,419,293
shares issued and
outstanding.............. 14,193 9,150 (5,081)(1) 19,274
9,150 (2)
Common stock subscribed,
17,593 shares at $1.50
per share................ 176 176
Additional paid in
capital.................. 826,547 1,510,817 1,510,817 (2) 1,880,165
(1,053,618)(1)
Treasury stock............ (471,827) (471,827)(2) -0-
Retained earnings
(deficit)................ (531,246) 55,010 42,117 (2) (531,656)
13,303 (3)
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 1,103,150 44,861 1,409,226
--------- ----------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY..... $ 543,086 $35,267,651 $ 66,238 $35,744,499
========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL DATA
(UNAUDITED)
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma statements of operations have been derived
from the statements of operations 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 operations 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 Operations 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-35
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------------------ --------------------------------------------------
RUSHMORE RUSHMORE
COMPANY LIFE ADJUSTMENTS COMPANY LIFE ADJUSTMENTS
ACTUAL ACTUAL DR (CR) PROFORMA ACTUAL ACTUAL DR (CR) PROFORMA
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Revenue from
Insurance Services
Insurance policy
income.............. $4,154,362 $4,154,362 $2,092,002 (1,020,367)(4) $3,112,369
Net investment
income.............. 1,776,869 1,776,869 1,050,052 (517,019)(4) 1,567,071
Aging management
fee................. $ 346,968 346,968 $ 104,167 (16,239)(4) 120,406
Other income......... 67,372 67,372 -0-
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 15,342 26,201 41,543
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Total revenues...... 1,885,492 5,998,603 -0- 7,884,095 1,812,729 3,168,255 (1,553,625) 6,534,609
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Expenses
Insurance Services
Expenses
Other insurance
services expenses... 1,482,975 1,482,975 697,655 364,005(4) 1,061,660
Insurance policy
benefits............ 2,343,850 2,343,850 1,128,230 677,719(4) 1,805,949
Amortization of
deferred policy
acquisition costs... 2,367,101 2,367,101 1,041,328 520,664(4) 1,561,992
Equity in subsidiary
loss................ 12,893 (12,893)(2) -0- -0-
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 (356)(3) 662,816 629,514 629,514
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Total Expenses...... 2,001,344 6,193,926 (13,249) 8,182,021 2,114,782 2,867,213 1,562,388 6,544,383
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)............... (115,852) (195,323) (297,926) (302,053) 301,042 (9,774)
Interest expense..... 4,535 4,535 4,163 4,163
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing
operations........... (120,387) (195,323) (302,461) (306,216) 301,042 (13,937)
Discontinued
operations (net).... (50,504) 50,504(3) -0- (25,992) (25,992)(3) -0-
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
federal income tax... (170,891) (195,323) (302,461) (332,208) 301,042 (13,937)
Provision for federal
income tax (expense)
benefit............. 144,463 144,463 (167) (167)
---------- ---------- ------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ (170,891) $ (50,860) (63,753) $ (157,998) $ (332,208) $ 300,875 (17,229) $ (14,104)
========== ========== ======= ========== ========== ========== ========== ==========
Net income (loss)
applicable to common
shareholders......... $ (180,778) $ (167,885) $ (344,420) $ (26,316)
========== ========== ========== ==========
Earnings (loss) per
share of common stock
after dividends on
Preferred Stock...... $ (.13) $ (.09) $ (.20) $ (.01)
========== ========== ========== ==========
Weighted average
common shares
outstanding.......... 1,376,777 1,912,015 1,737,588 $1,975,472
========== ========== ========== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
F-36
<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, 508,144 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.
(3) 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.
(4) 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-37
<PAGE>
GLOSSARY OF INSURANCE TERMS
COINSURANCE. The sharing of an insurance risk. In life insurance this arises
most frequently in connection with reinsurance where the company which is the
direct issuer of insurance passes some of it onto another company, the
reinsurer, in order to avoid a disproportionately large risk on one insured.
The reinsurer receives a proportionate part of the premiums less commissions
and is liable for a corresponding part of all payments (dividends, cash
values, death claims) made by the direct issuing company. The reinsurer must
provide for its share of the policy reserves.
DEFERRED POLICY ACQUISITION COSTS. Expenses that vary with and are directly
related to producing or issuing insurance contracts, including commissions,
premium taxes, and other costs. Under statutory accounting principles, these
costs are expensed as incurred. Under generally accepted accounting principles
(GAAP), these costs are deferred and amortized in relation to the future gross
profits or premiums.
MODIFIED COINSURANCE. This differs from coinsurance in that it requires the
ceding company to maintain all of the life insurance reserves. At year-end the
reinsurer owes the ceding company an amount equal to the increase in the mean
reserve on reinsured policies, and since the ceding company has held the
reserve funds, it owes the reinsurer interest on the prior year's mean reserve
at a rate specified in the agreement. The result is a net transfer of funds
from the reinsurer (that is, a transfer of the difference between these
amounts); this is referred to as the "modified coinsurance reserve
adjustment." In all other respects, the agreement is the same as other
coinsurance and provides similar benefits to the ceding company.
NET AMOUNT AT RISK. Face amount of the policy less the terminal reserve.
PREMIUM. The payment, or one of the periodic payments, a policyholder agrees
to make for an insurance policy.
QUOTA SHARE REINSURANCE. A form of pro-rata (proportional) reinsurance
indemnifying the ceding company for a fixed percentage of loss on each risk
covered in the contract in consideration of the same percentage of the premium
paid to the ceding company. The reinsurer also agrees to pay a ceding
commission to cover the acquisition costs of business assumed.
RESERVE. The amount required to be carried as a liability in the financial
statements of an insurer, to provide for future commitments under policies
outstanding.
TERMINAL RESERVE. The policy reserve at the end of the policy year. It is
equal to the amount of the reserve at the beginning of the policy year (the
initial reserve) plus interest on the reserve for one year and less the cost
of insurance for the respective policy year.
UNIVERSAL LIFE INSURANCE. A flexible-premium life insurance policy under
which the policyholder may change the death benefit from time to time (with
satisfactory evidence of insurability for increases) and vary the amount or
timing of premium payments. Premiums (less expense charges) are credited to a
policy account from which mortality charges are deducted and to which interest
is credited at rates that may change from time to time.
G-1
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
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 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 SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
HEADING PAGE
- ------- ----
<S> <C>
Prospectus Summary....................................................... 3
Forward-Looking Information.............................................. 6
Risk Factors............................................................. 6
The Company.............................................................. 11
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Selected and Pro Forma Consolidated Financial Information................ 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 20
Management............................................................... 27
Certain Transactions..................................................... 30
Principal Stockholders................................................... 31
Description of Securities................................................ 32
Shares Eligible for Future Sale.......................................... 34
Underwriting............................................................. 35
Legal Matters............................................................ 36
Experts.................................................................. 36
Available Information.................................................... 37
Index to Financial Statements............................................ F-1
Glossary................................................................. G-1
</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.
UP TO 1,250,000 SHARES
COMMON STOCK
OFFERING PRICE
$
PER SHARE
[LOGO]
PROSPECTUS
, 1998
FIRST SOUTHWEST COMPANY
RUSHMORE SECURITIES CORPORATION
<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. Such procedures are set forth in a series of Indemnification
Agreements between the Registrant and each officer and director, as contained
in Exhibit 10.11 of this Registration Statement.
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:
<TABLE>
<S> <C>
S.E.C. registration fees........................................... $ 2,028
N.A.S.D. filing fees............................................... 1,200
NASDAQ SmallCap application and listing fees....................... 8,357
*State securities laws (Blue Sky) legal fees and expenses.......... 45,000
*Printing and engraving expenses................................... 55,000
*Legal fees and expenses........................................... 60,000
*Accounting fees and expenses...................................... 45,000
*Transfer agent's and registrar's fees and expenses................ 5,000
*Underwriter expense allowance..................................... 75,000
*Miscellaneous..................................................... 3,415
--------
Total.......................................................... $300,000
========
</TABLE>
- --------
* Estimated
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.
<TABLE>
<CAPTION>
NUMBER OF OFFERING EXEMPTION
DATE SHARES PRICE CLAIMED
---- --------- -------- ---------
<S> <C> <C> <C>
November 1997(2)................................ 182,448 $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)
</TABLE>
- --------
(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, and as to the investors' sophistication
to analyze the risks and merits of the investment; 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 505 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
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
*1.1 Form of Underwriting Agreement between Registrant and First
Southwest Company
*1.2 Form of Representative's Warrant Agreement
*1.3 Escrow Agreement with Bank One Investment Management Group
1.5 Form of Letter Agreement 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. (revised)
*10.1.2 Employment Agreement with Jim W. Clark (revised)
10.2.1 Modified Coinsurance Agreement with Massachusetts General Life
Insurance Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
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
*10.2.5 Coinsurance 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 Management Service Agreement between Registrant and Rushmore Life
10.6.1 Option Agreement regarding Rushmore Agency
10.6.2 Overhead Services Agreement between Registrant and Rushmore Life
*10.6.3 Overhead Services Agreement between Registrant and Rushmore
Securities
*10.6.4 Overhead Services Agreement between Registrant and Rushmore
Advisors
*10.6.5 Overhead Services Agreement between Registrant and Rushmore Agency
*10.7 Registered Representative Agreement between Registrant and Kenneth
Anderson. Identical form of agreement has been signed with all
registered representatives.
*10.8 Professional Advisory Agreement between Registrant and Marjorie M.
Chapman. Identical form of agreement has been signed with all
advisory clients.
*10.9 Affiliation Agreement with John Diller. Identical form of
agreement has been signed with all 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 Indemnification Agreement between Registrant and D. M. Moore, Jr.
Identical form of Agreement has been signed with all officers and
directors
*10.12 Overhead Services Agreement with American Financial Freedom
Association
*10.13 National Marketing Agreement with Great Southern Life Insurance
Company
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
*27.2 Financial Data Schedule
*27.3 Financial Data Schedule
*27.4 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
II-3
<PAGE>
(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.
(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 January 28, 1998.
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 Executive January 28,
D. M. MOORE, JR. Officer and 1998
Director (Principal
Executive Officer)
/s/ Robert W. Hendren Chief Financial January 28,
- ------------------------------------- Officer (Principal 1998
ROBERT W. HENDREN Financial and
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
* /s/ Jim W. Clark Director and January 28,
- ------------------------------------- Secretary 1998
JIM W. CLARK
* /s/ F. E. Mowery Director January 28,
- ------------------------------------- 1998
F. E. MOWERY
* /s/ Timothy J. Gardiner Director January 28,
- ------------------------------------- 1998
TIMOTHY J. GARDINER
* /s/ H. Gary Curry Director January 28,
- ------------------------------------- 1998
H. GARY CURRY
* /s/ Mark S. Adler Director January 28,
- ------------------------------------- 1998
MARK S. ADLER
* /s/ Harlan T. Cardwell, III Director
- ------------------------------------- January 28,
HARLAN T. CARDWELL, III 1998
* By /s/ D. M. Moore, Jr. Attorney-in-Fact January 28,
- ------------------------------------- 1998
D. M. MOORE, JR.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement between Registrant and First
Southwest Company
*1.2 Form of Representative's Warrant Agreement
*1.3 Escrow Agreement with Bank One Investment Management Group
1.5 Form of Letter Agreement 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. (revised)
*10.1.2 Employment Agreement with Jim W. Clark (revised)
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
*10.2.5 Coinsurance 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 Management Service Agreement between Registrant and Rushmore Life
10.6.1 Option Agreement regarding Rushmore Agency
10.6.2 Overhead Services Agreement between Registrant and Rushmore Life
*10.6.3 Overhead Services Agreement between Registrant and Rushmore
Securities
*10.6.4 Overhead Services Agreement between Registrant and Rushmore
Advisors
*10.6.5 Overhead Services Agreement between Registrant and Rushmore Agency
*10.7 Registered Representative Agreement between Registrant and Kenneth
Anderson. Identical form of agreement has been signed with all
registered representatives.
*10.8 Professional Advisory Agreement between Registrant and Marjorie M.
Chapman. Identical form of agreement has been signed with all
advisory clients.
*10.9 Affiliation Agreement with John Diller. Identical form of
agreement has been signed with all 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 Indemnification Agreement between Registrant and D. M. Moore, Jr.
Identical form of Agreement has been signed with all officers and
directors
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*10.12 Overhead Services Agreement with American Financial Freedom
Association
*10.13 National Marketing Agreement with Great Southern Life Insurance
Company
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
*27.2 Financial Data Schedule
*27.3 Financial Data Schedule
*27.4 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
<PAGE>
EXHIBIT 1.1
RUSHMORE FINANCIAL GROUP, INC.
Up to
1,250,000 Shares of Common Stock
UNDERWRITING AGREEMENT
----------------------
January __, 1998
First Southwest Company
Rushmore Securities Corporation
c/o First Southwest Company
1700 Pacific Avenue, Suite 500
Dallas, Texas 75201
Gentlemen:
Rushmore Financial Group, Inc., a Texas corporation (the "Company"),
proposes to issue and sell up to 1,250,000 shares (the "Shares") of the
Company's Common Stock, $.01 par value ("Common Stock"). The Company hereby
appoints First Southwest Company and Rushmore Securities Corporation
(collectively, the "Underwriters") as its exclusive agents for the purpose of
finding purchasers for and selling the Shares, subject to the terms and
conditions of this Agreement on a "best efforts basis," with at least 750,000
Shares required to be sold if any are sold.
The term "Representative," as used herein, shall mean First Southwest
Company. Whether or not so expressed, all obligations of the Underwriters and of
the Company are several in accordance with their respective interests, and not
joint, and nothing herein contained shall constitute the Underwriters or the
Company partners of one another.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company represents and warrants as follows:
-1-
<PAGE>
(i) The Company has carefully prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form
SB-2 (Registration No. 333-42225) with respect to the Shares in conformity
with the requirements of the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder (collectively referred
to as the "Act"). Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements
of Rule 430A of the Act) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore
been delivered by the Company to you. Such registration statement, herein
collectively with the exhibits, schedules and financial statements,
referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has been declared effective
by the Commission under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
The form of prospectus first filed by the Company with the Commission
pursuant to its Rule 424(b) and Rule 430A is herein referred to as the
"Prospectus." Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Texas, with
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement; the subsidiaries of the Company
listed in Exhibit 21 to the Registration Statement (collectively, and
including Rushmore Insurance Services, Inc., the "Subsidiaries") are the
only subsidiaries of the Company, each of which has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation; each of the Subsidiaries has the power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of their business requires such qualification; the
outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and non-assessable and
are owned by the Company, another Subsidiary, or, in the case of Rushmore
Insurance Services, Inc., by D.M. Moore, Jr., free and clear of all liens,
encumbrances and security interests; and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) All of the outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable and are free of any preemptive or similar rights; the Shares to
be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid,
non-assessable and free of any lien, security interest or other
encumbrance; and no preemptive rights of shareholders exist with respect to
any of the Shares or the issue and sale thereof.
-2-
<PAGE>
(iv) The securities of the Company conform to all statements with
regard thereto contained in the Registration Statement, and the Company has
an authorized and outstanding capitalization as set forth in the
Prospectus.
(v) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form SB-2 under the Act. The Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement
contains and the Prospectus and any amendments or supplements thereto will
contain all statements which are required to be stated therein by, and in
all respects conform or will conform, as the case may be, to the
requirements of, the Act. Neither the Registration Statement nor any
amendment thereto, and neither the Prospectus nor any supplement thereto,
contains or will contain, as the case may be, any untrue statement of a
material fact or omits or will omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of either Underwriter through the Representative specifically for
use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, and the consolidated financial statements of First Financial
Life Companies, Inc. and its subsidiary First Financial Life Insurance
Company, together with their respective related notes and schedules thereto
included or incorporated by reference to the Registration Statement and
the Prospectus (and any amendment or supplement thereto), present fairly
the financial positions and the results of operations of the Company and
the Subsidiaries consolidated and First Financial Life Insurance Company
and its subsidiary consolidated, respectively, as of the dates and for the
periods therein specified. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied throughout the periods involved, and all adjustments necessary for
a fair presentation of results for such periods have been made. The
summary financial and statistical data included in the Registration
Statement and the Prospectus (any amendment or supplement thereto) present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein and the books
and records of the Company.
(vii) The pro forma financial information and the related notes
thereto included in the Registration Statement (and any amendment or
supplement thereto) have been prepared in accordance with the applicable
requirements of the Act, include all adjustments necessary to present
fairly the pro forma financial condition and results of operations at the
respective dates and for the respective periods indicated and are based
upon good faith estimates and assumptions believed by the Company to be
reasonable.
-3-
<PAGE>
(viii) The execution and delivery of, and the performance by the
Company of its obligations under this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights to indemnity and contribution hereunder
may be limited by federal or state securities laws.
(ix) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
neither the Company nor any of the Subsidiaries has incurred any liability
or obligation, direct or contingent, or entered into any transaction, not
in the ordinary course of business, that is or, would be material to the
Company and the Subsidiaries taken as a whole, and there has not been any
change in the capital stock, or material increase in the short-term debt or
long-term debt, of the Company or any of the Subsidiaries, or any material
adverse change, or any development involving or which may reasonably be
expected to involve, a prospective material adverse change, in the
condition (financial or other), business, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(x) Except as disclosed in the Prospectus, neither the Company nor
any of its Subsidiaries are in violation of any directive or order from or
agreement or understanding with any state or federal securities or
insurance department or commission, including but not limited to the
National Association of Securities Dealers, Inc. (the "NASD"), and the
Arizona Department of Insurance or any governmental authority to make any
material change in the method of conducting or that restricts their
respective businesses. There are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against the Company or any
of the Subsidiaries, including but not limited to actions, suits or
proceedings at law or in equity before any court, regulatory body or
administrative agency, domestic or foreign, which might, individually or in
the aggregate, prevent or adversely affect the transactions contemplated by
this Agreement or result in any material adverse change in the business or
condition of the Company and of the Subsidiaries taken as a whole, except
as set forth in the Registration Statement.
(xi) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company or any of its
Subsidiaries, or to which the Company or any of the Subsidiaries, or to
which any of their respective properties is subject, that are required to
be described in the Registration Statement or the Prospectus but are not
described as required, and there are no agreements, contracts, indentures,
leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or filed as required by
the Act.
-4-
<PAGE>
(xii) The Company and the Subsidiaries have good and indefeasible
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except those reflected in such financial statements (or as
described in the Registration Statement) or which are not material in
amount. The Company occupies all leased property under valid, subsisting
and enforceable leases.
(xiii) The Company and the Subsidiaries have filed all tax returns
which have been required to be filed, which returns are complete and
correct, and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes
have become due.
(xiv) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has
not been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a
whole or the earnings, business affairs, management or business prospects
of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into by the Company or the Subsidiaries, other
than transactions in the ordinary course of business and changes and
transactions contemplated by the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no material
contingent obligations which are not disclosed in the Registration
Statement, as it may be amended or supplemented.
(xv) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date or (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectuses, the Prospectuses or other materials, if any,
permitted by the Act.
(xvi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xvii) To the Company's knowledge, neither the Company nor any of the
Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which
payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectuses.
-5-
<PAGE>
(xviii) No holder of any security of the Company has or, will have
any right to require registration of shares of Common Stock or any other
security of the Company because of the filing of the Registration Statement
or consummation of the transactions contemplated by this Agreement.
(xix) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets
and rights described in the Prospectuses as being owned by them or any of
them or necessary for the conduct of their respective businesses, except
where the failure so to own or possess will not have, individually or in
the aggregate, a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"), and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the
Subsidiaries with respect to the foregoing, except as otherwise disclosed
in the Prospectuses and except such claims or challenges as will not have,
individually or in the aggregate, a Material Adverse Effect.
(xx) The Company is not now, and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectuses under the caption "Use of Proceeds" will not
be, an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as
amended.
(xxi) The Company has complied with all provisions of Florida
Statutes, (S)517.075, relating to issuers doing business with Cuba.
(xxii) Neither the Company nor any of the Subsidiaries is in default
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it or any of its properties
is bound and which default is of material significance in respect of the
business or financial condition of the Company and the Subsidiaries taken
as a whole. The execution and delivery of this Agreement, the Warrant
Agreement to be executed and delivered (the "Warrant Agreement"), the Stock
Purchase Warrant (the "Warrant") to be delivered pursuant to the Warrant
Agreement, the consummation of the transactions herein and therein
contemplated and the fulfillment of the terms hereof and thereof will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or any Subsidiary is a
party, or of the Articles of Incorporation, as amended, or bylaws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction.
(xxiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in
-6-
<PAGE>
connection with the execution and delivery by the Company of this Agreement
and the consummation of the transactions herein contemplated has been
obtained or made and is in full force and effect.
(xxiv) The Company and each of the Subsidiaries hold all licenses,
certificates and permits from governmental authorities that are necessary
to the ownership of properties and the conduct of their businesses as
described in the Registration Statement; and neither the Company nor any of
the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of
the Company and the Subsidiaries taken as a whole.
(xxv) Each of the Company and the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("Permits") as are necessary to own its respective properties
and to conduct its business in the manner described in the Prospectuses,
subject to such qualifications as may be set forth in the Prospectuses,
except where the failure to have such Permits would not have, individually
or in the aggregate, a Material Adverse Effect; the Company and each of the
Subsidiaries has fulfilled and performed all its material obligations with
respect to such Permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other revocation or termination thereof or results in any
other impairment of the rights of the holder of any such permit which might
have, individually or in the aggregate, a Material Adverse Effect, subject
in each case to such qualification as may be set forth in the Prospectuses;
and, except as described in the Prospectuses, none of such permits contains
any restriction that is materially burdensome to the Company or any of the
Subsidiaries.
(xxvi) Cheshier & Fuller, L.L.P. and Coopers & Lybrand, L.L.P.,
each of whom have rendered reports on certain of the financial statements
filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act.
(xxvii) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including but not limited to all applicable local,
state and federal securities and insurance laws and regulations and all
regulations, decisions, directives, orders and policies of the NASD and any
state or federal securities or insurance department or commission; except
where failure to be so in compliance would not materially adversely affect
the condition (financial or otherwise), business, results of operations or
prospects of the Company and the Subsidiaries taken as whole.
(xxviii) The Company has all requisite power and authority, and has
taken all necessary corporate action, to authorize, execute, deliver and
perform the Warrant Agreement, to execute, issue, sell and deliver the
Warrant and a certificate or certificates evidencing the Warrant, to
authorize and reserve for issuance and, upon payment from time to time of
the exercise price, to issue, sell and deliver, the shares of the Common
-7-
<PAGE>
Stock issuable upon exercise of the Warrant, and to perform all of its
obligations under the Warrant Agreement and the Warrant. The Warrant
Agreement has been duly executed and delivered by the Company and is a
legal, valid and binding agreement of the Company enforceable in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and by general principles of equity. No
authorization, approval, consent or other order of any governmental
authority is required for such authorization, issue or sale except to the
extent required by applicable federal and state securities laws.
(xxix) The Warrant, when delivered to the Underwriter, will be duly
authorized, executed and delivered and will be a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except
to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally and by general principles of equity. The shares of Stock of the
Company, when issued upon exercise of the Warrant, will have been duly
authorized for issuance and, when issued in accordance with the terms of
the Warrant Agreement, will be validly issued and outstanding, fully paid
and nonassessable and free of statutory preemptive rights.
2. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) Subject to the terms and conditions herein set forth, the Company
hereby appoints the Underwriters as its exclusive agents for a period of 45 days
(which period may be extended up to 15 days by written agreement between the
Representative and the Company) commencing on the effective date under the Act
of the Registration Statement (the "Effective Date") for the purpose of offering
the Shares as provided in this Agreement on a "best efforts basis," with at
least 750,000 Shares required to be sold if any are sold. The Underwriters
agree to use their best efforts to sell the Shares as the Company's agent. It
is understood and agreed that there is no firm commitment on the Underwriters'
part to purchase any of the Shares.
The Underwriters will offer on behalf of the Company, the Shares
hereunder at a price of $5.50 per share. The Underwriters will be entitled to a
commission of 8% on each Share sold by the Underwriters on behalf of the
Company, such commission payable by the Company on the Closing Date from the
funds deposited in the special bank escrow account described in paragraph (b)
hereof. The Underwriters may, in their discretion, offer a part of the Shares
to dealers who are members of the NASD, selected by the Underwriters, at such
price less a concession not to exceed $______ per share and the Underwriters may
form and manage a selling group of such selected dealers.
(b) All funds received from subscribers of Shares will be deposited
by the Underwriters in a special noninterest bearing escrow account (or, if
invested, such investment will only be made in permissible investments under SEC
Rule 15c2-4) to be maintained by the Underwriters for the account of the Company
at Bank One Texas, N.A., Dallas, Texas. All funds, represented by check or
otherwise, shall be made payable to "Rushmore Financial Group, Inc. Escrow
Account." On the Closing Date, the Representative will distribute the funds then
-8-
<PAGE>
deposited in such special bank escrow account, as their interests may appear, to
the Company, selected dealers and to the Underwriters.
In the event this Agreement is terminated prior to the Closing Date
for any reason whatsoever, the Underwriters shall promptly refund to the
subscribers of the Shares all funds which have been received from them by the
Underwriters without interest.
All costs, expenses and charges incurred in connection with the
special bank escrow account shall be paid by the Company.
(c) It is understood and agreed that if at least 750,000 Shares are
not sold by the Underwriters pursuant to this Agreement during the offering,
this Agreement shall terminate and all funds deposited in the special bank
escrow account described in paragraph (b) hereof shall be promptly refunded in
full to the subscribers without interest or deduction. In such event neither
party hereto shall have any liability to the other hereunder except that the
Company shall pay to the Underwriters their non-accountable expense
reimbursement in connection with the offering of $75,000.00.
(d) Closing of the offering will take place at the offices of Glast,
Phillips and Murray at 9:00 a.m., Central Time, on the earlier of (i) five days
from the date on which all of the Shares have been sold, or (ii) 45 days from
the Effective Date (which date may be extended up to 15 days from the Effective
Date by written Agreement between the Underwriters and the Company), said date
being herein called the "Closing Date." Certificates for the Shares registered
in such a manner and in such denominations as the Underwriters may request will
be delivered to the Underwriters so that the Underwriters may examine and
package such certificates for delivery no later than ten full business days
after the Closing Date.
3. Covenants of the Company. The Company covenants and agrees with the
------------------------
Underwriters that:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) of the Act a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Act and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Underwriters shall not
previously have been advised and furnished with a copy and such reasonable
amount of time as is necessitated by the complexity of such amendment or
supplement or to which the Underwriters shall have reasonably objected or which
is not in compliance with the Act.
(b) The Company will furnish to the Underwriters and dealers selected
by the Underwriters as soon as possible after the Effective Date and thereafter
from time to time during the period of 90 days after the initial public offering
of the Shares (or for such longer period after the Effective Date as in the
opinion of the Underwriters' counsel, the Prospectus is required by law to be
delivered in connection with sales of the Shares by the Underwriters or a
dealer) as many copies of the Prospectus (and of any amended or supplemented
Prospectus) as the
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Underwriters may reasonably request. The Company consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdiction in which the Shares are offered and by all dealers to whom the
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with the sale of the Shares by you or any dealer.
If during such period any event occurs as a result of which, in the judgment of
the Company or in the opinion of counsel for the Underwriters, the Prospectus,
as then amended or supplemented, would include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading,
or it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Act, the Company will promptly notify the Underwriters thereof
and on the Underwriters' request prepare and furnish to the Underwriters and
dealers selected by the Underwriters, in such quantity as the Underwriters and
such dealers may reasonably request, an amendment or supplement which will
correct such statement or omission or cause the Prospectus to comply with law
and with the Act, so that the Prospectus as so amended or supplemented will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with any law. In the event that you and the
Company agree that the Prospectus should be amended or supplemented, the
Company, if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or supplement.
(c) The Company will use its best efforts to cause the Registration
Statement to become effective and will promptly advise the Underwriters, and
will confirm such advice in writing, (i) when the Registration Statement or any
post effective amendment thereto shall have become effective, and when any
amendment of or supplement to the Prospectus is filed with the Commission; (ii)
when the Commission shall make a request or suggestion for any amendment to the
Registration Statement or for supplement to the Prospectus or for additional
information and the nature and substance thereof; (iii) the receipt of any
comments from the Commission or any state securities commission or regulatory
authority that relate to the Registration Statement or requests by any state
securities commission or regulatory authority for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information; (iv) as soon after the execution and delivery of this Agreement as
practicable and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a Prospectus is required by the Act to be
delivered in connection with the sale of the Shares, of any change in the
Company's condition (financial or other), business, prospects, properties, net
worth or results of operations, or of the happening of any event, which makes
any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law; and (v) of the issuance by the Commission of a stop order
suspending the effectiveness of the Registration Statement or the suspension of
the qualification of the Shares for sale in any jurisdiction, or of the
initiation or threatening of any proceedings for that purpose, and will use
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its best efforts to prevent the issuance of such a stop order, or if such order
shall be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(d) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by you and by dealers under the securities or Blue Sky
laws of such jurisdictions as you may designate and will file such consents to
service of process or other documents necessary or appropriate in order to
effect such registration or qualification and take all action necessary during
the period of twelve months after the Registration Statement becomes effective
to keep qualification of the Shares in good standing under such laws ; provided
that, in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising out of
the offering or sale of the Shares in any jurisdiction where it is not now so
subject. Said qualification of the Shares under the securities laws of the said
states shall be effected by the Underwriters' counsel and the Company shall pay
the legal fees therefor and all other expenses incident thereto.
(e) The Company will deliver to the Underwriters at or before the
Closing Date, three signed copies of the Registration Statement as originally
filed with the Commission and all amendments thereto including all financial
statements, exhibits and schedules filed therewith, and will deliver to the
Underwriters such number of conforming copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Underwriters may
reasonably request.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, a consolidated
earnings statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section ll(a) of the Act and Rule 158 of the Act and will advise
the Underwriters in writing when such statement has been so made available.
(g) The Company will for a period of five years from the Closing
Date, deliver to the Underwriters copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
shareholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Underwriters similar reports with respect to
significant subsidiaries, as that term is defined in the Act, which are not
consolidated in the Company's financial statements.
(h) For one hundred eighty days after the Closing Date neither the
Company nor any of the officers, directors and significant shareholders of the
Company, will, without the Representative's prior written consent, sell or
otherwise dispose of any Common Stock of the Company except pursuant to a "Lock-
Up Agreement" acceptable to the Representative.
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<PAGE>
(i) The Company will apply for and utilize the proceeds from the sale
of the Shares in the manner described in the Prospectus.
(j) The Company will apply for and use its best efforts to obtain
authorization for including the Shares in The Nasdaq SmallCap Market and will
register under Section 12(g) of the Securities Act of 1934, each as of the
earliest practicable time after completion of the Offering.
(k) The Company will, within one hundred and twenty days from
completion of the offering, apply for "listing" in national recognized corporate
reports or manuals conforming for trading under certain Blue-Sky laws and
maintain such "listing" on a current basis.
(l) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(m) Except as stated in this Agreement and in the Preliminary
Prospectus, the Company has not taken, nor will it take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
4. Costs and Expenses. The Company will pay all costs, expenses and fees
------------------
incident to the performance of the obligations of the Company under this
Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses incident to securing
any required review by the NASD of the terms of the sale of the Shares; the
application fee of The Nasdaq SmallCap Market and the expenses, including but
not limited to the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws and an accountable expense allowance payable to the
Underwriters to cover the Underwriters' expenses incidental to the offering. The
cumulative total amount of all expenses which the Company shall reimburse to you
shall be $75,000.00 (exclusive of blue-sky registration and legal fees which
shall be paid by the Company) paid on a non-accountable basis. The Company will
pay the Underwriters the balance of this accountable expense allowance at the
closing. Except as otherwise provided above, the Company shall not be required
to pay for any of the Underwriters' expenses except that, if this Agreement
shall not be consummated because the conditions in Section 5 hereof are not
satisfied, or because this Agreement is terminated by the Representative
pursuant to Section 9 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of the Underwriters, then the Company
shall reimburse the Underwriters for reasonable out-of-pocket
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expenses, including but not limited to fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder,
but the Company shall not in any event be liable to any of the Underwriters for
damages on account of loss of anticipated profits from the sale by it of the
Shares.
5. Conditions of Obligations of the Underwriters. The obligations of
---------------------------------------------
the Underwriters are subject to the accuracy, as of the Closing Date, of the
representations and warranties of the Company contained herein, and to the
performance by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated by the Commission.
(b) The Representative shall have received on the Closing Date the
opinion of Glast, Phillips & Murray, counsel for the Company, dated the Closing
Date, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Texas, with
power and authority to own or lease its properties and conduct its business
as described in the Prospectus; each of the Subsidiaries, has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with power and authority
to own or lease its properties and conduct its business as described in the
Prospectus.
(ii) The Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the failure to qualify
would have a materially adverse effect upon the business of the Company and
the Subsidiaries taken as a whole; and the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the Company,
another Subsidiary, or, in the case of Rushmore Insurance Services, Inc.,
by D.M. Moore, Jr., free and clear of all liens, encumbrances and security
interests; and, to the best of such counsel's knowledge, the outstanding
shares of capital stock of the Subsidiaries are owned free and clear of all
liens, encumbrances and security interests, and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital stock or of
ownership interests in the Subsidiaries are outstanding.
(iii) The execution and delivery of, and the performance by the
Company of its obligations under this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company
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<PAGE>
in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws.
(iv) The Company has authorized and outstanding capital stock as set
forth under the caption "Description of Securities" in the Prospectus; the
authorized shares of its Common Stock have been duly authorized; the
outstanding shares of its Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; all of the Shares
conform to the description thereof contained in the Prospectus; the
certificates for the Shares are in due and proper form; the shares of
Common Stock to be sold by the Company pursuant to this Agreement have been
duly authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of shareholders exist with respect to any of the Shares
or the issue and sale thereof.
(v) No holder of any security of the Company other than First
Southwest Company has or, will have any right to require registration of
shares of Common Stock or any other security of the Company because of the
filing of the Registration Statement or consummation of the transactions
contemplated by this Agreement.
(vi) The Registration Statement and all post-effective amendments,
if any, have become effective under the Act, and no stop order suspending
the effectiveness of the Registration Statement, as amended from time to
time, shall have been issued and no proceedings with respect thereto have
been instituted or are pending or indicated by the Commission under the
Act. In addition, any required filing of the Prospectus pursuant to Rule
424(b) has been made.
(vii) The Company is not now, and after sale of the Shares to be sold
by it hereunder and application of the net proceeds from such sale as
described in the Prospectuses under the caption "Use of Proceeds" will not
be, an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as
amended.
(viii) The Registration Statement, all Preliminary Prospectuses, the
Prospectus and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the Act (except that such
counsel need express no opinion as to the financial statements, schedules
and other financial information included therein).
(ix) The statements under the captions "Business", "Description of
Securities" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of documents referred to
therein or matters of law, are accurate summaries and fairly and correctly
present the information called for with respect to such documents and
matters.
(x) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement
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<PAGE>
or the Prospectus which are not so filed or described as required, and such
contracts and documents as are summarized in the Registration Statement or
the Prospectus are fairly summarized in all material respects.
(xi) Except as disclosed in the Prospectus, neither the Company nor
any of its Subsidiaries are in violation of any directive or order from or
agreement or understanding with any state or federal securities or
insurance department or commission, including but not limited to the NASD
and the Arizona Department of Insurance, or any governmental authority to
make any material change in the method of conducting or that restricts
their respective businesses. Such counsel knows of no actions, suits or
proceedings pending or threatened against the Company or any of the
Subsidiaries, including but not limited to actions, suits or proceedings at
law or in equity before any court, regulatory body or administrative
agency, domestic or foreign, which might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement
or result in any material adverse change in the business or condition of
the Company or the Subsidiaries taken as a whole, except as set forth in
the Registration Statement.
(xii) The execution and delivery of this Agreement, the Warrant
Agreement and the consummation of the transactions herein and therein
contemplated do not and will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, the Articles
of Incorporation, as amended, bylaws, or other organizational documents, of
the Company or any of its Subsidiaries, or any agreement or instrument
known to such counsel to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries may be bound or,
violate any law, statute, judgment, decree, order, rule or regulation of
any court or governmental body having jurisdiction over the Company or any
of its Subsidiaries or any of its or their property; there is no regulatory
cease and desist order or other order, memorandum of understanding or
agreement between the Company or any of its Subsidiaries and any state or
federal securities or insurance department or commission, including, but
not limited to, the NASD, that would govern, limit or prohibit the Company
from entering into and performing its obligations under this Agreement.
(xiii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body, including but not limited to any state or federal
securities or insurance department or commission, including, but not
limited to, the NASD, is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
State securities or Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xiv) Neither the Company nor any of the Subsidiaries is in violation
of its respective certificate or articles of incorporation or bylaws, or
other organizational documents.
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<PAGE>
(xv) The Company has not been advised, and has no reason to
believe, that either it or any of its Subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business, including, without
limitation, all applicable local, State and Federal environmental laws and
regulations and all regulations, decisions, directives, orders and policies
of applicable state or federal securities or insurance department or
commissions, including but not limited to the NASD and the Arizona
Department of Insurance; except where failure to be so in compliance would
not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and the
Subsidiaries taken as whole.
(xvi) The Company has all requisite corporate power and authority,
and has taken all necessary corporate action, to authorize, execute,
deliver and perform the Warrant Agreement, to execute, issue, sell and
deliver the Warrant and a certificate or certificates evidencing the
Warrant, to authorize (and adopt resolutions that approve and adopt the
terms of the Warrant Agreement, including the obligation to reserve for
issuance the Shares issuable upon the Warrant) and, upon payment of the
exercise price, to issue, sell and deliver, the shares of the Stock
issuable upon exercise of the Warrant, and to perform all of its
obligations under the Warrant Agreement and the Warrant. The Warrant
Agreement has been duly executed and delivered by the Company and will be a
legal, valid and binding agreement of the Company enforceable in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally, by general principles of equity. No
authorization, approval, consent or other order of any governmental
authority is required for such authorization, issue or sale except to the
extent required by applicable federal and state securities laws.
(xvii) The Warrant, when delivered to the Underwriter, will be duly
authorized, executed and delivered and will be a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except
to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally, by general principles of equity. The shares of Common Stock of
the Company, when issued upon exercise of the Warrant, will have been duly
authorized for issuance and, when issued in accordance with the terms of
the Warrant Agreement, will be validly issued and outstanding, fully paid
and nonassessable and free of statutory preemptive rights.
(xviii) Such counsel has discussed the Registration Statement and the
Prospectus with the officers of the Company and has participated in the
preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof, and based thereon nothing
has come to the attention of such counsel that has caused him to believe
that the Registration Statement at the time the Registration Statement
became effective, or the Prospectus, as of its date and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that any amendment or
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supplement to the Prospectus, as of its respective date, and as of the
Closing Date contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements
and the notes thereto and the schedules and other financial and statistical
data included in the Registration Statement or the Prospectus).
(xix) To the best knowledge of such counsel, neither the Company nor
any of the Subsidiaries is in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note,
line of credit or other evidence of indebtedness, or in any contract,
agreement, lease or other instrument to which the Company or any of the
Subsidiaries is a party, or by which any of them or any of their respective
properties is bound that is an exhibit to the Registration Statement or to
any document incorporated by reference, or is known to such counsel after
reasonable inquiry, or will result in the creation or imposition of any
lien, charge or incumbrance upon any property or assets of the Company or
any of the Subsidiaries, except as may be disclosed in the Prospectus, and
except for such defaults as would not have, individually or in the
aggregate, a Material Adverse Effect.
In rendering such opinion Glast, Phillips & Murray may rely as
to matters governed by the laws of states other than Texas or Federal laws on
local counsel in such jurisdictions, provided that in each case Glast, Phillips
& Murray shall state that they believe that they and the Underwriter are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that the
Registration Statement, as of the time it became effective under the Act, the
Prospectus or any amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b) and the Registration Statement and the Prospectus, or
any amendment or supplement thereto, as of the Closing Date, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(except that such counsel need express no view as to financial statements,
schedules and other financial information included therein). With respect to
such statement, Glast, Phillips & Murray may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received on the Closing Date the
opinion of Thompson & Knight, P.C., counsel for the Underwriters, dated the
Closing Date, addressed to the Underwriters substantially to the effect
specified in subparagraphs (i), (iii), (vi) and (xvii) of Paragraph (b) of this
Section 5, and such other related matters as you may request.
(d) The Company and Representative shall have received at or prior
to the Closing Date from Thompson & Knight, P.C. a memorandum or summary, in
form and substance satisfactory to the Representative, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representative
may reasonably have designated to the Company.
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<PAGE>
(e) The Representative shall have received on the Closing Date a
signed letter from Cheshier & Fuller, L.L.P. and Coopers & Lybrand, L.L.P. dated
the date hereof and the Closing Date substantially in form and substance
satisfactory to the Representatives.
(f) The Representatives shall have received on the Closing Date a
certificate or certificates of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing Date,
each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the Commission.
(ii) He does not know of any litigation instituted or threatened
against the Company of a character required to be disclosed in the
Registration Statement which is not so disclosed; he does not know of any
material contract required to be filed as an exhibit to the Registration
Statement which is not so filed; and the representations and warranties of
the Company contained in Section 1 hereof are true and correct as of the
Closing Date.
(iii) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and
Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading
and, in his opinion, since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment.
(g) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and warranties
contained herein and related matters as the Representative may reasonably have
requested.
(h) The Shares have been approved for designation upon notice of
issuance on The Nasdaq SmallCap Market.
(i) The Company shall have executed and delivered to the
Representative the Warrant pursuant to and in the form of the Warrant Agreement.
(j) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the
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Prospectus (or any amendment or supplement thereto); (iii) there shall not have
been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date, and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 5(f) and in Section
5(g) hereof.
(k) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(l) Each condition to the closing of the Common Stock offering shall
have been satisfied or, with the Underwriters' specific approval, waived. On
the Closing Date, the closing of the Common Stock offering shall have been
consummated on terms that conform in all material respects to the description
thereof in the Registration Statement and Prospectus and the Underwriters shall
have received evidence satisfactory to the Underwriters of the consummation
thereof.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representative and to Thompson & Knight,
P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 5
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date. In such event, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 4 and 7 hereof).
6. Conditions of the Obligations of the Company. The obligations of the
--------------------------------------------
Company to sell and deliver the portion of the Shares required to be delivered
as and when specified in this Agreement are subject to the conditions that at
the Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor initiated
or threatened.
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7. Indemnification.
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(a) The Company agrees to indemnify and hold harmless each
Underwriter, its agents, directors, officers and each person, if any, who
controls such Underwriter within the meaning of the Act against any losses,
claims, damages or liabilities to which such Underwriter or controlling person
may become subject under the act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse each Underwriter and each such controlling person for any legal
or other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that (i) the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Underwriters specifically
for use in the preparation thereof and (ii) such indemnity with respect to any
related Preliminary Prospectus shall not inure to the benefit of any Underwriter
(or any person controlling the Underwriter) from whom the person asserting any
such loss, claim, damage or liability purchases Common Stock if such person did
not receive a copy of the Prospectus at or prior to the confirmation of the sale
of such Common Stock to such person in any case where such delivery is required
by the Act and the untrue statement or omission of material fact contained in
the related Preliminary Prospectus was corrected in the Prospectus, unless such
failure to deliver the Prospectus was a result of the Company's failure to
deliver the Prospectus to the Underwriters in requisite quantity on a timely
basis to permit such delivery or sending. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter will jointly and severally indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made; and will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement
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<PAGE>
or omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Underwriters specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) In case any proceeding (including but not limited to any
governmental investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 7(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 7(a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including but not limited to any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated
in writing by you in the case of parties indemnified pursuant to Section 7(a)
and by the Company and the Selling Shareholders in the case of parties
indemnified pursuant to Section 7(b). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits
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<PAGE>
received by the Company on the one hand and the Underwriter on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 7(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriter on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (with in the meaning of Section ll(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriter's obligations in this Section 7(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 7 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
8. Notices. All communications hereunder shall be in writing and, except
-------
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to First Southwest Company, 1700
Pacific Avenue, Suite 500, Dallas,
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<PAGE>
Texas 75201, Attention: Michael Nguyen; if to the Company, to Rushmore Financial
Group, Inc., 13355 Noel Road, Suite 650, Dallas, Texas 75240, Attention: D.M.
Moore, Jr.
9. Termination. This Agreement may be terminated by you by notice to the
-----------
Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement.
(b) at any time prior to the Closing Date if any of the following has
occurred (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business affairs, management or business prospects of
the Company and its Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, (ii) any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment, make
the offering or delivery of the Shares impracticable, (iii) suspension of
trading in securities on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such exchange, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your reasonable opinion materially and adversely affects or will materially or
adversely affect the business or operations of the Company, (v) declaration of a
banking moratorium by either federal or New York state authorities, or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affaire which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Section 5 of this Agreement.
10. Qualified Independent Underwriter. The Company hereby confirms that
---------------------------------
at its request First Southwest Company has without compensation acted as a
"qualified independent underwriter" (in such capacity, the "QIU") within the
meaning of Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. in connection with the offering of the Shares. The
Company will indemnify and hold harmless the QUI, and its agents, officers,
directors and each person, if any, who controls such QUI within the meaning of
the Act against any losses, claims, damages or liabilities, joint or several, to
which the QIU may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon the QUI's acting (or alleged failing to act) as such
"qualified independent underwriter" and will reimburse the QUI for any legal or
other expenses reasonably incurred by the QUI in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred.
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<PAGE>
11. Survival of Indemnities, Representations and Warranties. All
-------------------------------------------------------
representations, warranties, agreements, covenants and indemnities contained
herein of the Company and of the Underwriters remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of their respective officers, directors,
partners or any controlling person and shall survive the delivery of and payment
for the Shares or termination of this Agreement pursuant to Section 9 hereof.
12. Parties in Interest. This Agreement shall inure to the benefit of and
-------------------
be binding upon the Company and the Underwriters, the officers, directors and
partners of such parties, each controlling person of the Company and the
Underwriters, and their respective successors and assigns. Nothing in this
Agreement is intended or shall be construed to give to any person, firm or
corporation, other than the parties hereto and their respective successors and
assigns and the controlling persons and officers and directors of the Company
and the Underwriters, any legal right, remedy or claim under or in respect to
this Agreement or any provision herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and such controlling persons, directors and officers, and for the
benefit of no other person or corporation.
The term "successor" as used in this Agreement shall not include any
purchaser, as such purchaser, of any shares from the Underwriter or any selected
dealer.
This Agreement constitutes the entire agreement among the parties
concerning the subject matter hereof, and supersedes any letter of intent
previously entered into.
13. Miscellaneous. The reimbursement, indemnification and contribution
-------------
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Texas.
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<PAGE>
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and you in
accordance with its terms.
Very truly yours,
RUSHMORE FINANCIAL GROUP, INC.
By:
____________________________________
D.M. Moore, Jr.
Chairman and Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
FIRST SOUTHWEST COMPANY
RUSHMORE SECURITIES CORPORATION
By: FIRST SOUTHWEST COMPANY
By:___________________________________
Authorized Officer
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<PAGE>
EXHIBIT 1.2
RUSHMORE FINANCIAL GROUP, INC.
WARRANT AGREEMENT
-----------------
January ___, 1998
First Southwest Company
1700 Pacific Avenue, Suite 500
Dallas, Texas 75201
Gentlemen:
Rushmore Financial Group, Inc., a Texas corporation (the "Company"), hereby
agrees to issue and sell to you, and you hereby agree to purchase from the
Company at a purchase price of $10.00, a stock purchase warrant entitling the
holder to purchase 50,000 shares of Common Stock, to be evidenced by an
instrument in the form attached hereto as Exhibit A (hereinafter referred to as
the "Warrant," and the Warrant and all instruments hereafter issued in
replacement, substitution, combination or subdivision thereof being hereinafter
collectively referred to as the "Warrants"). The number of shares of Common
Stock purchasable upon exercise of the Warrants is subject to adjustment as
provided in Section 7 below. The Warrants will be exercisable by you or any
other Warrantholder as to all or any lesser number of shares of Common Stock
covered thereby at the per share Purchase Price (as defined below) at any time
and from time to time during a four-year period commencing at 9:00 a.m., Dallas
time, on the date which is one year after the date hereof and ending at 5:00
p.m., Dallas time, on the fifth anniversary of the date hereof (the "Term").
The purchase and sale of the Warrant shall take place at such time and
place as you and the Company mutually agree, at which time you shall deliver a
check for the full purchase price of the Warrant. At such time, the Company will
deliver to you such certificates of its officers with respect to this Warrant
Agreement and the Warrant as you may reasonably request.
1. Definitions.
-----------
As used herein the following terms, unless the context otherwise requires,
shall have for all purposes hereof the following respective meanings:
(a) Common Stock. The term "Common Stock" refers to the common stock, par
------------
value $0.01 per share, of the Company and all other securities of any class or
classes (however designated) of the Company, now or hereafter authorized, the
holders of which shall have the right, without limitation as to amount, either
to all or to a part of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily in the absence
of contingency be entitled to vote generally in an election of directors of the
Company (even though the right so to vote has been suspended by the occurrence
of a contingency).
<PAGE>
(b) Other Securities. The term "Other Securities" refers to any stock
----------------
(other than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time shall
be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 7 below or otherwise.
(c) Purchase Price. The term "Purchase Price" refers to the per share
--------------
purchase price of the shares of the Underlying Common Stock subject to this
Warrant Agreement and the Warrants, as set forth in the form of Warrant attached
hereto as Exhibit A, as adjusted pursuant to Section 7 below.
(d) Act. The term "Act" refers to the Securities Act of 1933, as amended
---
from time to time.
(e) Commission. The term "Commission" refers to the Securities and
----------
Exchange Commission.
(f) Underlying Common Stock. The term "Underlying Common Stock" refers to
-----------------------
the shares of Common Stock (or Other Securities) issuable under this Warrant
Agreement and the Warrants pursuant to the exercise, in whole or in part, of the
Warrants.
(g) Warrantholder. The term "Warrantholder" refers to First Southwest
-------------
Company and any transferee or transferees of First Southwest Company permitted
under Section 3(a) below.
2. Representations and Warranties.
------------------------------
The Company represents and warrants to you as follows:
(a) Incorporation; Qualification. The Company has been duly organized and
----------------------------
is validly existing as a corporation in good standing under the laws of the
State of Texas, with power and authority to own or lease its properties and
conduct its business as currently conducted; the subsidiaries of the Company
listed on Schedule 2(a) attached hereto (collectively, the "Subsidiaries") are
the only subsidiaries of the Company, each of which has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation; each of the Subsidiaries has the power and
authority to own or lease its properties and conduct its business as currently
conducted; the Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their business
requires such qualification; the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company or another Subsidiary free and
clear of all liens, encumbrances and security interests; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Subsidiaries are outstanding.
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<PAGE>
(b) Capitalization. All of the outstanding shares of Common Stock of the
--------------
Company have been duly authorized and validly issued and are fully paid and non-
assessable; and no preemptive rights of shareholders exist with respect to the
Common Stock or the issue and sale thereof.
(c) Corporate and Other Action. The Company has all requisite power and
--------------------------
authority, and has taken all necessary corporate action, to authorize, execute,
deliver and perform this Warrant Agreement, to execute, issue, sell and deliver
the Warrant and a certificate or certificates evidencing the Warrant, to
authorize and reserve for issuance and, upon payment from time to time of the
Purchase Price, to issue, sell and deliver, the shares of the Underlying Common
Stock issuable upon exercise of the Warrant, and to perform all of its
obligations under this Warrant Agreement and the Warrant. This Warrant Agreement
has been duly executed and delivered by the Company and is a legal, valid and
binding agreement of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. No authorization, approval, consent or
other order of any governmental authority is required for such authorization,
issue or sale except to the extent required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and applicable federal and state securities laws.
(d) No Violation. The execution and delivery of this Warrant Agreement,
------------
the consummation of the transactions herein contemplated and the compliance with
the terms and provisions of this Warrant Agreement and of the Warrant will not
conflict with, or result in a breach of, or constitute a default or an event
permitting acceleration under, any statute, the Articles of Incorporation or
Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank
loan, credit agreement or any material franchise, license, lease, permit, or any
other material agreement, understanding or instrument, or any judgment, decree,
order, statute, rule or regulation to which the Company is a party or by which
it is bound.
(e) Validity. The Warrant, when delivered to you, will be duly
--------
authorized, executed and delivered and will be a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. The shares of Underlying Common Stock of
the Company, when issued upon exercise of the Warrant, will have been duly
authorized for issuance and, when issued in accordance with the terms of this
Warrant Agreement, will be validly issued and outstanding, fully paid and
nonassessable and free of statutory preemptive rights.
3. Representations of Warrantholders. You represent and warrant to the
---------------------------------
Company that you are an "accredited investor" within the meaning of Regulation D
under the Act and that the Warrant and the shares of Underlying Common Stock are
being acquired for investment purposes only and not with a view to the
distribution or resale thereof. You represent that the Company has informed you
that neither this Warrant nor the securities which may be purchased pursuant to
this Warrant have been registered with or approved by the Commission under the
Act or the securities
-3-
<PAGE>
laws of any state and may not be sold or transferred in the absence of an
effective registration statement or an exemption from such registration
requirements. You agree that, during the one-year period commencing on the date
hereof, the Warrant will not be transferred, sold, assigned or hypothecated,
except to (i) persons who are officers or directors of you; (ii) the respective
successors to you in a merger or consolidation; (iii) the respective purchasers
of all or substantially all of your assets; or (iv) your respective shareholders
only in the event you are liquidated or dissolved. You agree not to make any
sale or other disposition of either the Warrant or the Underlying Common Stock
or Other Securities except pursuant to a registration statement which has become
effective under the Act, setting forth the terms of such offering, the
underwriting discount and the commissions and any other pertinent data with
respect thereto, unless you have provided the Company with an opinion of counsel
reasonably acceptable to the Company that such registration is not required.
4. Registration.
------------
(a) Piggyback Registrations. If at any time after the first anniversary
-----------------------
of the date of this Warrant Agreement and prior to the fifth anniversary hereof
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders of the Company other than the
Warrantholders or the holders of Underlying Common Stock (you and any person who
acquires Warrants or Underlying Common Stock in accordance with Section 3 are
collectively referred to in this Section 4 as the "Holders")) any shares of
Common Stock or Other Securities under the Act for sale within such four-year
period (other than registration for issuance or sale in connection with (i)
employee or non-employee director compensation or benefit programs, (ii) an
exchange offer or an offering of securities solely to the existing shareholders
or employees of the Company, (iii) an acquisition, merger or other business
combination using a registration statement on Form S-4 or any successor or other
appropriate or similar form), (iv) a registration statement on Form S-8 or
similar form or (v) a shelf registration pursuant to Rule 415 promulgated under
the Act) (each such registration with respect to which registration rights shall
apply being an "Applicable Registration"), the Company will give prompt written
notice (which, in any event, shall be given no less than 30 days prior to the
filing of a registration statement with respect to such offering) to the Holders
of its intention so to do and, upon the written request of any Holder sent
within 20 days after receipt of any such notice, the Company will use its best
efforts to cause all Underlying Common Stock as to which any such Holder shall
have so requested registration to be registered under the Act, all to the extent
necessary to permit the sale in such offering of the Underlying Common Stock so
registered on behalf of any such Holder in the same manner as the Company (or
shareholder other than the Holders, as the case may be) proposes to offer its
shares of Common Stock or Other Securities. The Company shall use commercially
reasonable efforts to cause the managing underwriter or underwriters of an
Applicable Registration that is a proposed underwritten offering to permit the
Underlying Common Stock so requested by any Holder to be included in the
registration for such offering on the same terms and conditions as the shares of
Common Stock or Other Securities of the Company (or other shareholders if no
shares are to be offered on behalf of the Company) included therein.
Notwithstanding the foregoing, if the managing underwriter of such offering
delivers a letter to the Company and the Holders requesting registration that
the total number
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<PAGE>
of shares of Common Stock or Other Securities which such Holders or the Company,
and any other person, intend to include in such offering will in the good faith
opinion of such managing underwriter materially and adversely affect the success
of such offering, then the number of shares of Underlying Common Stock to be
offered for the account of the Holders and the shares of Common Stock or Other
Securities to be offered for the account of such other shareholder, if any,
shall be reduced pro rata based upon the number of shares of Common Stock
proposed to be sold by the Holders and other persons to the extent necessary to
reduce the total number of shares of Common Stock or Other Securities to be
included in such offering to the number of shares recommended by such managing
underwriter.
(b) Demand Registration. At any time after the first anniversary of the
-------------------
date of this Warrant Agreement and prior to the fifth anniversary hereof the
Holders of not less than 50% of the Underlying Common Stock not theretofore
registered under the Act pursuant to Section 4(a) hereof may make one demand
(the "Demand Registration") for the Company to register such Underlying Common
Stock under the Act. The Company shall promptly give notice of the proposed
Demand Registration to all Holders (other than Holders whose Underlying Common
Stock was theretofore registered under the Act), and all such notified Holders
shall thereafter have 20 days after the giving of such notice by the Company to
notify the Company if such Holders desire to participate in the proposed Demand
Registration. The Company shall thereafter promptly proceed with the
registration of all Underlying Common Stock to be included in the proposed
Demand Registration in accordance with the registration procedures set forth in
Section 4(c) hereof; provided, however, (i) no such registration shall be deemed
a Demand Registration unless and until the applicable registration statement
becomes effective; (ii) the Company shall have no obligation to file a shelf
registration statement under Rule 415 promulgated under the Act; and (iii) the
Company may delay the filing of a requested Demand Registration for up to 90
days if, in the good faith judgment of the Company's Board of Directors after
consultation with legal counsel, such delay is necessary in order to avoid
interference with a pending material transaction or other corporate event to
which the Company is a party or by which it is directly affected. The
Warrantholders shall collectively only be entitled to one Demand Registration.
(c) Company's Obligations in Registration. In the event you timely elect
-------------------------------------
to participate in an offering by including shares of Underlying Common Stock
under a registration statement pursuant to Section 4(a) above, or if you make or
timely elect to participate in a Demand Registration pursuant to Section 4(b)
above, the Company shall:
(i) notify you as to the filing of any registration statement or
prospectus and of all amendments or supplements thereto filed prior to the
effective date of such registration statement and of all post-effective
amendments or supplements thereto;
(ii) comply in all material respects with all applicable rules and
regulations of the Commission;
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<PAGE>
(iii) notify you immediately, and confirm the notice in writing, (1)
when the registration statement becomes effective, (2) of the issuance by
the Commission of any stop order or of the initiation, or the threatening,
of any proceedings for that purpose, (3) of the receipt by the Company of
any notification with respect to the suspension of qualification of the
Underlying Common Stock for sale in any jurisdiction or of the initiation,
or the threatening, of any proceedings for that purpose, and (4) of the
receipt of any comments, or requests for additional information, from the
Commission or any state regulatory authority. If the Commission or any
state regulatory authority shall enter a stop order or order suspending
qualification at any time, the Company will use all commercially reasonable
efforts to obtain the lifting of such order at the earliest possible
moment;
(iv) during any time when a prospectus is required to be delivered
under the Act during the period required for the distribution of the
Underlying Common Stock, use its best efforts to comply with all
requirements imposed upon it under the Act and the rules and regulations
promulgated thereunder, so far as necessary to permit the continuance of
sales of or dealings in the Underlying Common Stock pursuant to a
prospectus complying with Section 10(a)(3) of the Act. If at any time when
a prospectus relating to the Underlying Common Stock is required to be
delivered under the Act and any event shall have occurred as a result of
which, in the opinion of counsel for the Company or your counsel, the
prospectus relating to the Underlying Common Stock as then amended or
supplemented includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend such
prospectus to comply with the Act and the rules and regulations of the
Commission promulgated thereunder, the Company will promptly prepare and
file with the Commission an appropriate amendment or supplement in form
satisfactory to you and your counsel;
(v) use all commercially reasonable efforts, in cooperation with
you, at or prior to the time the registration statement becomes effective,
to register or qualify the Underlying Common Stock for offering and sale
under the securities laws relating to the offering or sale of the
Underlying Common Stock in such jurisdictions as you may reasonably
designate and to continue the qualifications in effect so long as required
for purposes of the sale of the Underlying Common Stock; provided, however,
that no such qualification shall be required in any jurisdiction where, as
a result thereof, the Company would be subject to service of process for
all purposes. In each jurisdiction where such qualification shall be
effected, the Company will, unless you agree that such action is not at the
time necessary or advisable, file and make such statements or reports at
such times as are or may reasonably be required by the laws of such
jurisdiction;
(vi) make generally available to its security holders as soon as
practicable an earnings statement which shall satisfy the provisions of
Section 11(a) of the Act and any applicable rules and regulations of the
Commission thereunder covering a period of at least 12 months beginning
after the effective date of the registration statement;
-6-
<PAGE>
(vii) use the Company's best efforts to cause the independent
certified public accountants of the Company to deliver to you, and to the
underwriters if the Underlying Common Stock is being sold through
underwriters, letters dated the date that the registration statement
becomes effective and the date the Underlying Common Stock is delivered to
the underwriters for sale pursuant to such registration or, if the
Underlying Common Stock is not being sold through underwriters, on the date
that the registration statement becomes effective, stating that they are
independent certified public accountants within the meaning of the Act and
the rules and regulations of the Commission thereunder, and that, in their
opinion, the financial statements and other financial data of the Company
included in the registration statement or prospectus, or any amendment or
supplement thereto, comply as to form in all material respects with the
applicable accounting requirements of the Act, and such other financial and
accounting matters as the underwriters, if any, or you may reasonably
request;
(viii) after the effective date of such registration statement,
prepare, and promptly notify you of the proposed filing of, and promptly
file with the Commission, each and every amendment or supplement thereto or
to any prospectus forming a part thereof as may be necessary to make any
statements therein not misleading in any material respect; provided,
however, that no such amendment or supplement shall be filed if you shall
advise the Company in writing that, in your reasonable opinion, such
amendment or supplement does not comply with the Act;
(ix) furnish to you, as soon as available, copies of any such
registration statement and each preliminary or final prospectus, or
supplement or amendment prepared pursuant thereto, all in such quantities
as you may from time to time reasonably request in order to facilitate the
public sale or other disposition of the Underlying Common Stock; and
(x) make such representations and warranties to any underwriter of
the Underlying Common Stock and to the holders thereof, and use the
Company's commercially reasonable efforts to cause the Company's legal
counsel to render, at the time or times of the letters referred to in
subparagraph (vii) above, such opinions to such underwriters, if any, and
to you, as such underwriters or you may reasonably request.
(d) Agreements by Warrantholder. In connection with the filing of a
---------------------------
registration statement pursuant to this Section 4, if Underlying Common Stock is
being registered on your behalf under the Act, you shall:
(i) furnish the Company all material information requested by the
Company concerning yourself and your holdings of securities of the Company
and the proposed method of sale or other disposition of the Underlying
Common Stock and such other information and undertakings as shall be
reasonably required in connection with the preparation and filing of any
such registration statement covering all or part of the
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<PAGE>
Underlying Common Stock and in order to ensure full compliance with the Act
and the rules and regulations of the Commission promulgated thereunder;
(ii) if in connection with a piggyback registration pursuant to
Section 4(a) the Company is at the time entering into an underwriting
agreement covering its Common Stock, enter into an underwriting agreement
in customary form with the same underwriter or underwriters who are parties
to such underwriting agreement with the Company, provided that the sales of
Common Stock by you and the Company thereunder are at the same price and
upon the same terms and conditions; and
(iii) cooperate in good faith with the Company and its underwriters,
if any, in connection with such registration, including placing the shares
of Underlying Common Stock to be included in such registration statement in
escrow or custody to facilitate the sale and distribution thereof.
(e) Expenses of Registration. All expenses incurred in connection with a
------------------------
registration, filing or qualification pursuant to this Section 4, including,
without limitation, registration, filing and qualification fees, printers' and
accounting fees, and the fees and disbursements of counsel for the Company,
shall be borne and paid by the Company, with the exception of fees and
disbursements of any separate counsel to the Holders, which shall be borne by
the Holders. In addition, the Holders whose shares of Underlying Common Stock
are so registered shall bear and pay all underwriting discounts and selling
commissions attributable to sales of such shares of Underlying Common Stock.
(f) Indemnification.
---------------
(i) The Company shall indemnify and hold harmless you and any
underwriter (as defined in the Act) for you, and your agents, directors,
officers and each person, if any, who controls you or such underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against
any loss, liability, claim, damage and expense whatsoever (including but
not limited to any and all expense reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever), joint or several, to which any of you or such
underwriter or such controlling person becomes subject, under the Act or
otherwise, insofar as such loss, liability, claim, damage or expense (or
actions in respect thereof) arise out of or are based upon (1) any untrue
statement or alleged untrue statement of any material fact contained in (A)
a registration statement covering the Underlying Common Stock, in the
prospectus contained therein, or in an amendment or supplement thereto or,
(B) in any application or other document or communication (in this Section
4(f) collectively called an "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company and filed in any jurisdiction in order to qualify the Underlying
Common Stock under the securities laws thereof or filed with the
Commission, or (2) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the
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<PAGE>
circumstances under which they were made, not misleading; provided,
however, that the Company shall not be obligated to indemnify you in any
such case to the extent that any such loss, claim, damage, expense or
liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon, and
in conformity with, written information duly executed and furnished by you
or such underwriter or such controlling person specifically for use in any
such registration statement or prospectus, or any amendment or supplement
thereto, or any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of the
action, including the employment of counsel (satisfactory to the
indemnified person in its or his reasonable judgment) and payment of
expenses. The indemnified person shall have the right to employ its or his
own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified person unless the employment of
such counsel shall have been authorized in writing by the Company in
connection with the defense of the action, or unless the Company shall not
have promptly employed counsel to have charge of the defense of the action
or unless the indemnified person shall have reasonably concluded that there
may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of the action on behalf of
the indemnified person), in any of which events these fees and expenses
shall be borne by the Company. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any
claim or action effected without its written consent, which shall not be
unreasonably withheld.
The Company's indemnity agreements contained in this Section 4(f)
shall remain in full force and effect regardless of any investigation made
by or on behalf of any indemnified person and shall survive any termination
of this Warrant Agreement. The Company agrees promptly to notify you of the
commencement of any litigation or proceedings against the Company or any of
its officers or directors in connection with the registration statement
pursuant to this Section 4(f). The omission to notify you promptly of the
commencement of any action against the Company or its officers and
directors based upon an alleged act or omission, which, if proven, would
result in your having to indemnify the Company pursuant to Section 4(f)(ii)
below, if prejudicial to your ability to defend such action, shall relieve
you of any liability to indemnify the Company under Section 4(f)(ii).
The Company further agrees that, if the indemnity provisions of the
foregoing paragraphs are held to be unenforceable, you, your underwriter or
any person controlling you or your underwriter ("your controlling persons")
may recover contribution from the Company in an amount which, when added to
contributions you or your underwriter or your controlling persons have
theretofore received or concurrently receive from officers and directors of
the Company or controlling persons of the Company, will reimburse you or
your underwriter or
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<PAGE>
your controlling persons for all losses, claims, damages or liabilities and
legal or other expenses; provided, however, that if the full amount of the
contribution specified in this paragraph is not permitted by law, then you,
your underwriter and your controlling persons shall be entitled to
contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
(ii) If you choose to include all or a part of the Underlying Common
Stock in a public offering pursuant to Section 4(a), or if you include
Underlying Common Stock in a Demand Registration pursuant to Section 4(b),
then you agree to indemnify and hold harmless the Company and each of its
directors and officers who have signed any such registration statement or
amendment thereto, and (in the case of a piggyback registration pursuant to
Section 4(a) hereof) any underwriter for the Company (as defined in the
Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 4(f), but only with respect to untrue or alleged
untrue statements or omissions or alleged omissions, if any, made in such
registration statement, in any prospectus contained therein, or in any
amendment or supplement thereto, or in any application, made or omitted in
reliance upon, and in conformity with, written information duly executed
and furnished by you to the Company specifically for use in the
registration statement, the prospectus contained therein, any amendment or
supplement thereto, or any application, as the case may be. In case any
action shall be brought in respect of which indemnity may be sought against
you, you shall have the rights and duties given to the Company, and the
persons so indemnified shall have the rights and duties given to you, by
the provisions of Section 4(f)(i).
(g) Certain Definitions. Unless the context otherwise requires,
-------------------
references in this Section 4 to "you" or "your" shall mean and include a
Warrantholder or a holder of Underlying Common Stock, as the case may be.
(h) Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Warrant Agreement, the Company shall not, without your prior
written consent, enter into any agreement with any holder or prospective holder
of any securities of the Company which grants registration rights under the Act
on terms and conditions more favorable than the rights granted in this Warrant
Agreement unless substantially similar rights are granted to the Warrantholders.
Except as listed on Schedule 4(h) to this Warrant Agreement, the Company is not
-------------
a party to any currently subsisting agreement with respect to its securities
granting any registration rights to any person.
(i) Benefit of Registration Rights. The right to cause the Company to
------------------------------
register shares of Underlying Common Stock pursuant to Sections 4(a) and (b)
shall inure to the benefit of each person that is now or may hereafter become a
Holder.
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<PAGE>
5. Exercise of Warrants; Partial Exercise.
--------------------------------------
(a) Exercise in Full. Each of the Warrants may be exercised in full by
----------------
the holder thereof during the Term hereof by surrender of such Warrant, with the
form of subscription at the end thereof duly executed by such Warrantholder, to
the Company at its principal office at 13355 Noel Road, Suite 650, Dallas, Texas
75240, accompanied by payment, in cash or by certified or bank cashier's check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of the Underlying Common Stock represented by such Warrant or
Warrants by the Purchase Price (after giving effect to any adjustments as
provided in Section 7 below). If this Warrant is not exercised prior to
expiration of its Term, it shall become null and void and all rights granted
hereunder shall cease.
(b) Partial Exercise. Each of the Warrants may be exercised in part by
----------------
the holder thereof during the Term hereof by surrender of such Warrant, with the
form of subscription at the end thereof duly executed by such Warrantholder, in
the manner and at the place provided in Section 5(a) above, accompanied by
payment in cash or by certified or bank cashier's check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of the
Underlying Common Stock designated by the Warrantholder in the form of
subscription attached to such Warrant by the Purchase Price (after giving effect
to any adjustments as provided in Section 7 below). Upon any such partial
exercise, the Company at its expense (except as set forth below) will, upon
surrender of the relevant Warrant, forthwith issue and deliver to or upon the
order of the Warrantholder stock certificates representing the Common Stock
issuable upon such partial exercise and a new Warrant of like tenor, in the name
of the Warrantholder thereof or such other person as the Warrantholder (upon
payment by such Warrantholder of any applicable transfer or similar taxes) may
request, subject to Section 3, giving the Warrantholder or such other person, as
the case may be, the right to purchase that number of shares of the Underlying
Common Stock (as such number may be adjusted from time to time pursuant to
Section 7) equal to the number of such shares called for on the face of the
Warrant so surrendered (after giving effect to any adjustment herein as provided
in Section 7 below) minus the number of such shares designated by the
Warrantholder in the aforementioned form of subscription.
(c) Company to Reaffirm Obligations. The Company will, at the time of any
-------------------------------
exercise of any Warrant, upon the request of the holder thereof, acknowledge in
writing its continuing obligation to afford to such Warrantholder any rights
(including without limitation any right to registration under the Act and state
securities laws of the shares of the Underlying Common Stock issuable or issued
upon such exercise) to which such Warrantholder shall continue to be entitled
after such exercise in accordance with the provisions of this Warrant Agreement;
provided, however, that if the Warrantholder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Warrantholder any such rights.
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<PAGE>
6. Delivery of Stock Certificates, etc., on Exercise.
-------------------------------------------------
Any exercise of Warrants pursuant to Section 5 shall be deemed to have been
effected immediately prior to the close of business on the date on which the
Warrants with the subscription form and the check for the aggregate Purchase
Price shall have been received by the Company. At such time, the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such exercise shall be deemed to have become
the holder or holders of record of the shares of Common Stock so purchased. As
soon as practicable after the exercise of any Warrant in full or in part, and in
any event within ten days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of, and delivered to, the purchasing Warrantholder, a certificate or
certificates for the number of fully paid and nonassessable shares of the
Underlying Common Stock to which such Warrantholder shall be entitled upon such
exercise, plus cash in lieu of any fractional share to which such Warrantholder
would otherwise be entitled in an amount determined pursuant to Section 8(h),
together with any other stock or other securities and property (including cash,
where applicable) to which such holder is entitled upon such exercise pursuant
to Section 7 below or otherwise.
7. Anti-dilution Provisions.
------------------------
The Warrants are subject to the following terms and conditions during the
term thereof:
(a) Stock Distributions, Splits and Combinations; Adjustments. In case (i)
---------------------------------------------------------
the outstanding shares of Common Stock (or Other Securities) shall be subdivided
into a greater number of shares, (ii) a dividend in Common Stock (or Other
Securities) shall be paid in respect of Common Stock (or Other Securities) or
(iii) the outstanding shares of Common Stock (or Other Securities) shall be
combined into a smaller number of shares, then the Purchase Price in effect
immediately prior to such subdivision or combination or at the record date of
such a dividend or distribution shall simultaneously with the effectiveness of
such subdivision or combination or immediately after the record date of such
dividend or distribution be adjusted to equal the product obtained by
multiplying the Purchase Price by a fraction, the numerator of which is that
number of shares of Common Stock (or Other Securities) outstanding immediately
prior to such combination or subdivision, or dividend or distribution record
date, and the denominator of which is that number of shares of Common Stock (or
Other Securities) outstanding after giving effect to such combination,
subdivision, dividend or distribution. Any dividend or distribution paid or
distributed on the Common Stock (or Other Securities) in stock or any other
securities convertible into or exercisable for shares of Common Stock (or Other
Securities) shall be treated as a dividend paid in Common Stock (or Other
Securities) to the extent that shares of Common Stock (or Other Securities) are
issuable upon the conversion or exercise thereof.
Whenever the Purchase Price is adjusted as provided in the immediately
preceding paragraph, the number of shares of the Underlying Common Stock
purchasable upon exercise of the Warrants immediately prior to such Purchase
Price adjustment shall be adjusted, effective simultaneously with such Purchase
Price adjustment, to equal the product obtained (calculated to the nearest full
share)
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<PAGE>
by multiplying such number of shares of the Underlying Common Stock by a
fraction, the numerator of which is the Purchase Price in effect immediately
prior to such Purchase Price adjustment and the denominator of which is the
Purchase Price in effect upon such Purchase Price adjustment, which adjusted
number of shares of the Underlying Common Stock shall thereupon be purchasable
upon exercise of the Warrants until further adjusted as provided herein.
(b) Reorganizations and Recapitalizations. In case the Company shall be
-------------------------------------
reorganized or recapitalized by reclassifying its outstanding Common Stock (or
Other Securities) into a stock with a different par value or by changing its
outstanding Other Securities with par value to stock without par value, then, as
a condition of such reorganization or recapitalization, as the case may be,
lawful and adequate provision shall be made whereby each Warrantholder shall
thereafter have the right to purchase, upon the terms and conditions specified
herein, in lieu of the shares of Common Stock (or Other Securities) or assets
theretofore purchasable upon the exercise of the Warrants, the kind and amount
of shares of stock, other securities or assets receivable upon such
reorganization or recapitalization by a holder of the number of shares of Common
Stock (or Other Securities) which the Warrantholder might have purchased
immediately prior to such recapitalization. If any consolidation or merger of
the Company with another corporation, or the sale of all or substantially all of
its assets to another corporation, shall be effected in such a way that holders
of Common Stock (or Other Securities) shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock (or Other
Securities), then, as a condition of such consolidation, merger or sale, lawful
and adequate provisions shall be made whereby the Warrantholders shall have the
right to purchase and receive in lieu of the shares of the Underlying Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the Warrants, the number or amount, as the case may be, of such shares of stock,
securities or assets as may be issuable or payable in respect of or in exchange
for the number of shares of Underlying Common Stock purchasable and receivable
upon the exercise of the Warrants had such consolidation, merger or sale not
occurred; and in any such case appropriate provision shall be made with respect
to the rights and interests of the Warrantholders hereunder so that the
provisions hereof (including without limitation provisions for adjustment of the
Purchase Price and of the number of shares purchasable and receivable upon the
exercise of the Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of such stock or securities, or such assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to the registered holder
of each Warrant at the last address of such Warrantholder appearing on the books
of the Company, the obligation to deliver to such Warrantholder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Warrantholder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the Person (as hereinafter defined)
having made such offer or with any Affiliate (as hereinafter defined) of such
Person, unless prior to the consummation of such consolidation, merger or sale
the Warrantholders shall have been given the right to elect to receive upon the
exercise of Warrants, either the stock, securities or assets then
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<PAGE>
issuable with respect to the Common Stock (or Other Securities) of the Company
or the stock, securities or assets, or the equivalent issued to previous holders
of the Common Stock in accordance with such offer. The term "Person" as used in
this Section 7(b) shall mean and include an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof. For the purposes of this
Section 7(b), an "Affiliate" of any Person shall mean any Person directly or
indirectly controlling, controlled by or under common control with, such other
Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
(c) Effect of Dissolution or Liquidation. In case the Company shall
------------------------------------
dissolve or liquidate all or substantially all of its assets, all rights under
this Warrant Agreement and the Warrants shall terminate as of the date upon
which a certificate of dissolution or liquidation shall be filed with the
Secretary of State of Texas (or, if the Company theretofore shall have been
merged or consolidated with a corporation incorporated under the laws of another
state, the date upon which action of equivalent effect shall have been taken);
provided, however, that (i) no dissolution or liquidation shall affect the
rights under Section 7(b) of any Warrantholder and (ii) if the Company's Board
of Directors shall propose to dissolve or liquidate the Company, each
Warrantholder shall be given written notice of such proposal at the earlier of
(1) the time when the Company's shareholders are first given notice of the
proposal and (2) the time when notice to the Company's shareholders is first
required.
(d) Notice of Change of Purchase Price. Whenever the Purchase Price or the
----------------------------------
kind or amount of securities or assets purchasable under the Warrants shall be
adjusted pursuant to any of the provisions of this Warrant Agreement, the
Company shall forthwith thereafter cause to be sent to each Warrantholder a
certificate setting forth the adjustments in the Purchase Price and/or in such
number of shares, securities or assets purchasable upon exercise of the Warrants
and also setting forth in detail the facts requiring such adjustments, including
without limitation a statement of the consideration received or deemed to have
been received by the Company for any additional shares of stock or other
securities issued by it requiring such adjustment.
(e) Notice of a Record Date. In the event of (i) any taking by the Company
-----------------------
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or assets, or to receive
any other right, (ii) any reorganization of the Company, or any reclassification
or recapitalization of the capital stock of the Company, or any transfer of all
or substantially all of the assets of the Company to, or consolidation or merger
of the Company with, any other person or (iii) any voluntary or involuntary
dissolution or liquidation of the Company, then and in each such event the
Company will mail or cause to be mailed to each Warrantholder a notice
specifying not only the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and stating the amount and
character
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<PAGE>
of such dividend, distribution or right, but also the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other Securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the proposed record date therein specified.
(f) Acceleration of Exercisability. If any of the events described in
------------------------------
Section 7(b) or (c) hereof shall occur prior to the first anniversary of the
date of this Warrant Agreement, the Warrants shall become immediately
exercisable.
8. Further Covenants of the Company.
--------------------------------
(a) Impairments. The Company will not, by amendment of its articles of
-----------
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrants or of this Warrant Agreement, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholders against impairment. Without limiting the generality of the
foregoing, the Company:
(i) shall at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of the
Underlying Common Stock from time to time issuable upon the exercise of the
Warrants and shall take all necessary actions to ensure that the par value
per share, if any, of the Underlying Common Stock is at all times equal to
or less than the then effective Purchase Price;
(ii) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock (or Other Securities) upon the
exercise of the Warrants from time to time outstanding; and
(iii) will not transfer all or substantially all of its properties
and assets to any other person or entity, or consolidate with or merge into
any other person or entity or permit any such person or entity to
consolidate with or merge into the Company (if the Company is not the
surviving corporation), unless such other person or entity shall expressly
assume in writing and will be bound by all the terms of this Warrant
Agreement and the Warrants.
(b) Title to Stock. All shares of the Underlying Common Stock delivered
--------------
upon the exercise of the Warrants shall be validly issued, fully paid and
nonassessable; each holder of a Warrant shall receive good and marketable title
to the Underlying Common Stock, free and clear of all voting and other trust
arrangements, liens, encumbrances, equities and claims whatsoever by or
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<PAGE>
through the Company; and the Company shall have paid all stamp, stock transfer
or similar taxes, if any, in respect of the issuance thereof.
(c) Listing on Securities Exchanges; Registration. The Company will, at
---------------------------------------------
its expense, list on the Nasdaq Stock Market's SmallCap Market or any other
securities exchange on which the Common Stock is listed, upon official notice of
issuance upon the exercise of the Warrants, and maintain such listing of, all
shares of the Underlying Common Stock from time to time issuable upon the
exercise of the Warrants, and the Company will so list on any securities
exchange, will so register and will maintain such listing of, any Other
Securities if and at the time that any securities of like class or similar type
shall be listed on such securities exchange by the Company.
(d) Remedies. The Company stipulates that the remedies at law of the
--------
Warrantholders or any holder of Underlying Common Stock in the event of any
default or threatened default by the Company in the performance of or compliance
with any of the terms of this Warrant Agreement or the Warrants are not and will
not be adequate and that such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or in the Warrants or
by an injunction against a violation of any of the terms hereof or thereof or
otherwise.
(e) Exchange of Warrants. Subject to Section 3 hereof, upon surrender for
--------------------
exchange of any Warrant to the Company, the Company at its expense will promptly
issue and deliver to or upon the order of the holder thereof a new Warrant of
like tenor, in the name of such holder or as such holder (upon payment by such
Warrantholder of any applicable transfer taxes) may direct, providing the holder
the right to purchase the aggregate number of shares of the Underlying Common
Stock indicated on the face or faces of the Warrant or Warrants so surrendered
as being purchasable thereunder, subject to adjustment under Section 7. Any
Warrant and all rights thereunder are transferable in whole or in part upon the
books of the Company by the registered holder thereof subject to the provisions
of Section 3, in person or by duly authorized attorney, upon surrender of such
Warrant, duly endorsed, at the principal office of the Company.
(f) Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company, at the expense of the Warrantholder, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(g) Reporting by the Company. The Company agrees that during the term of
------------------------
the Warrants it will keep current in the filing of all forms and other
materials, if any, which it may be required to file pursuant to the Exchange Act
and will use its best efforts to keep current in the filing of all other forms
and reports required to be filed with any governmental securities regulatory
authority having jurisdiction over the Company.
-16-
<PAGE>
(h) Fractional Shares. No fractional shares of Underlying Common Stock are
-----------------
to be issued upon the exercise of any Warrant, but the Company shall pay cash in
lieu of any fraction of a share which would otherwise be issuable upon exercise
of the Warrant in an amount equal to such fraction multiplied by the highest
market price per share of Underlying Common Stock on the day of exercise, as
determined by the highest sale price, regular way, or, if there shall have been
no sale on such day, the average of the highest reported bid and lowest reported
asked price, in each case as officially reported on the principal securities
exchange on which the Underlying Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any securities exchange, the average
of the highest reported bid and lowest reported asked price as furnished by the
National Quotation Bureau Incorporated, all as adjusted; provided, however, that
if the Underlying Common Stock is not traded in such manner that the quotations
referred to herein are available, the market price shall be deemed to be the
fair market value of such Underlying Common Stock.
9. Other Warrantholders.
--------------------
The Warrants are issued upon the following terms, to all of which each
holder or owner thereof by the taking thereof consents and agrees: (a) any
person who shall become a transferee, within the limitations on transfer imposed
under Section 3 hereof, of a Warrant properly endorsed shall take such Warrant
subject to the provisions of Section 3 hereof and shall represent to the Company
that he is the absolute owner thereof and, subject to the restrictions contained
in this Warrant Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Warrant in favor of each such permitted bona fide purchaser, and each
such permitted bona fide purchaser shall acquire absolute title thereto and to
all rights represented thereby; (c) until such time as the relevant Warrant is
transferred on the books of the Company, the Company may treat the registered
holder thereof as the absolute owner thereof for all purposes, notwithstanding
any notice to the contrary; and (d) all references to the words "you" or "your"
in this Warrant Agreement shall be deemed to apply with equal effect to any
person to whom a Warrant has been transferred in accordance with the terms
hereof, and where appropriate, to any person holding shares of the Underlying
Common Stock.
10. Miscellaneous.
-------------
All notices, certificates and other communications from or at the request
of the Company to any Warrantholder shall be mailed by first class, registered
or certified mail, postage prepaid, to such address as may have been furnished
to the Company in writing by such Warrantholder, or, until an address is so
furnished, to the address of the last holder of such Warrant who has so
furnished an address to the Company, except as otherwise provided herein. This
Warrant Agreement and any of the terms hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is
-17-
<PAGE>
sought. This Warrant Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Texas (without reference to the
conflicts of laws provisions thereof). The headings in this Warrant Agreement
are for purposes of reference only and shall not limit or otherwise affect any
of the terms hereof. This Warrant Agreement, together with the forms of
instruments annexed hereto as Exhibit A and the information on outstanding
registration rights in Schedule 4(h), constitutes the full and complete
-------------
agreement of the parties hereto with respect to the subject matter hereof.
* * *
-18-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
executed on this ____ day of January, 1998, in Dallas, Texas, by its proper
corporate officers, thereunto duly authorized.
RUSHMORE FINANCIAL GROUP, INC.
By: ________________________________
D.M. Moore, Jr.
Chief Executive Officer
The above Warrant Agreement is
confirmed this ____ day of
January, 1998.
FIRST SOUTHWEST COMPANY
By: ______________________________
Name:
Title:
-19-
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES WHICH MAY BE PURCHASED PURSUANT TO THIS
WARRANT HAVE BEEN REGISTERED WITH OR APPROVED BY THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES WHICH MAY BE
PURCHASED PURSUANT TO THIS WARRANT ARE BEING OFFERED AND SOLD IN RELIANCE UPON
CERTAIN EXEMPTIONS AFFORDED BY SUCH ACTS AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS OR AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
FIRST SOUTHWEST COMPANY
COMMON STOCK PURCHASE WARRANT
-----------------------------
THIS IS TO CERTIFY THAT First Southwest Company ("First Southwest") or its
registered assigns, is entitled to purchase at any time or from time to time
after 9:00 o'clock a.m., Dallas, Texas time, on January __, 1999 until 5:00
o'clock p.m., Dallas, Texas time, on January ___, 2003, up to 50,000 shares of
Common Stock, par value $0.01 per share, of Rushmore Financial Group, Inc., a
Texas corporation (the "Company"), at a purchase price per share (at the time in
effect as adjusted pursuant to the Warrant Agreement referred to herein) of
$6.05 (the "Purchase Price"). This Warrant is issued pursuant to a Warrant
Agreement, dated January ___, 1998 (the "Warrant Agreement"), between the
Company and First Southwest, and all rights of the holder of this Warrant are
subject to the terms and provisions of the Warrant Agreement, copies of which
are available for inspection at the offices of the Company.
Transfer of this Warrant is restricted as provided in the Warrant
Agreement.
Subject to the provisions of the Securities Act of 1933, as amended, and of
the Warrant Agreement, this Warrant and all rights hereunder are transferable,
in whole or in part, at the offices of the Company, at 13355 Noel Road, Suite
650, Dallas, Texas 75240, by the holder hereof in person or by his or its duly
authorized attorney, upon surrender of this Warrant, together with the
Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder as the owner hereof for all
purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
Dallas, Texas this ___ day of January, 1998 by its proper corporate officers
thereunto duly authorized.
RUSHMORE FINANCIAL GROUP, INC.
By:
_____________________________________
D.M. Moore, Jr.
Chief Executive Officer
ATTEST:
_______________________________
Name:__________________________
Title:_________________________
-2-
<PAGE>
Exhibit 1.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of the _____
day of _____________, 1998, by and among Rushmore Financial Group, Inc., a Texas
corporation (the "Issuer"), First Southwest Company, a Texas corporation, as
representative (the "Representative") of the underwriters (the "Underwriters"),
and Bank One, Texas, NA ("Escrow Agent").
R E C I T A L S:
A. The Underwriters propose to offer and sell on behalf of the Issuer a
minimum of 750,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), aggregating $4,125,000, and a maximum of 1,250,000 shares of Common
Stock, aggregating $6,875,000, each share of Common Stock being offered at a
price of $______ per share, payable at the time of subscribing for a share of
Common Stock. The shares of Common Stock being offered by the Company are
referred to herein as the "Shares."
B. The Underwriters intend to sell the Shares on a best-efforts "minimum
or none" basis in a public offering (the "Offering") by delivering to each
subscriber a Prospectus (the "Prospectus") describing the Offering.
C. The Issuer and the Underwriters desire to establish an escrow account
in which funds received from subscribers for the Shares would be deposited
pending completion of the Escrow Period (as defined below). Bank One, Texas, NA
agrees to serve as the Escrow Agent in accordance with the terms and conditions
set forth herein.
D. As used herein, the term "Selected Dealer" shall include the
Underwriters and other Selected Dealers as part of its selling group. All
Selected Dealers shall be bound by this Agreement.
E. The Shares shall be offered to the general public pursuant to the
Registration Statement filed under Form SB-2 with the United States Securities
and Exchange Commission, under the Securities Act of 1933, as amended, and
pursuant to various state securities laws. The Prospectus constitutes part of
the Registration Statement.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. The Issuer and the Representative hereby appoint Bank One, Texas, NA
as the Escrow Agent and the Escrow Agent shall establish an escrow account (the
"Escrow Account") on its books styled "Rushmore Financial Group, Inc. - Escrow
Account." Commencing upon the execution of this Agreement, The Escrow Agent
shall act as Escrow Agent and hereby agrees to receive and disburse the proceeds
from the Offering of the Shares in accordance with the terms hereof. The Issuer
and the Representative agree to notify the Escrow Agent promptly of the Closing
of the Offering and the sale of the Shares.
<PAGE>
2. The Underwriters and the Selected Dealers shall cause all checks
received from subscribers for Shares to be promptly deposited into the Escrow
Account. The Underwriters and the Selected Dealers shall deliver to the Escrow
Agent checks of the subscribers made payable to the order of the Rushmore
Financial Group, Inc. - Escrow Account. Any checks that are received by The
Escrow Agent that are not made payable to the Rushmore Financial Group, Inc. -
Escrow Account shall be returned to the Representative. The Underwriters and the
Selected Dealers shall furnish to the Escrow Agent at the time of each deposit
of the above-mentioned funds a list containing the name of each subscriber, the
subscriber's address, the number of Shares purchased, the subscriber's tax
identification number and the amount of the check being delivered to the Escrow
Agent. Prior to the receipt of the Minimum (as defined below), each of the
Issuer and the Representative is aware and understands that, except as otherwise
provided by this Agreement, it is not entitled to any proceeds from
subscriptions deposited into the Escrow Account and no amounts deposited in the
Escrow Account during the Escrow Period shall become the property of the Issuer,
the Representative or any other entity, or be subject to the Debts of the
Issuer, the Representative or any other entity.
3. The Escrow Period shall commence on the date hereof and shall terminate
ten (10) business days following the earlier to occur of the following dates:
(a) The date upon which the Escrow Agent confirms upon written request of
the Issuer that it has received into the Escrow Account and collected
gross subscription proceeds from the sale of seven hundred fifty
thousand (750,000) Shares aggregating 4,125,000 in deposited funds (the
"Minimum"); or
(b) The "Cessation Date," which for the purposes of this Agreement shall be
45 days after the effective date of the Prospectus, unless (i) the
Issuer and the Representative elect to continue to offer the Shares for
sale for 15 days thereafter, as permitted by the Prospectus, and (ii)
the Issuer and the Representative notify the Escrow Agent in writing no
later than _____________, of such extension specifying the extended
Cessation Date; or
(c) The date upon which a determination is made by the Issuer and the
Representative to terminate the Offering prior to the sale of the
Minimum, as communicated to The Escrow Agent in writing.
Notwithstanding anything to the contrary contained herein, the
Cessation Date is intended to signify the date of the cessation of the
Offering as provided in the Memorandum, and not the termination of the
Escrow Period of this Agreement, and upon the occurrence of any of the
events described in (a), (b) or (c) above, the Escrow Period shall continue
for such ten (10) business-day period solely for the limited purposes of
collecting subscribers' checks that have been deposited prior to such event
and disbursing funds from the Escrow Account as provided herein. The
Escrow Agent will not accept deposits of subscribers' checks after notice
that any of the events described in subparagraphs (a), (b) and (c) has
occurred.
2
<PAGE>
4. The Escrow Agent will deposit the subscribers' checks for collection
and credit the proceeds to the Escrow Account to be held by it under the terms
of this Agreement. The Escrow Agent shall hold the subscription proceeds in
trust as the Escrow Agent only and shall not claim or be entitled to ownership
of such funds. Notwithstanding anything to the contrary contained herein, the
Escrow Agent is under no duty or responsibility to enforce collection of any
checks delivered to the Escrow Agent hereunder. The Escrow Agent shall forward
each check for collection and deposit the proceeds in the Escrow Account. The
Escrow Agent may telephone the bank on which the check is drawn to confirm that
the check has been paid. Additionally, to insure that such funds have cleared
normal banking channels for collection, the Escrow Agent is authorized to hold
for ten (10) business days funds to be released. The Issuer shall immediately
reimburse the Escrow Agent any monies paid to it if thereafter the subscriber's
check is returned unpaid. Any item returned unpaid to the Escrow Agent on its
first presentation for payment shall be returned to Representative and need not
be again presented by the Escrow Agent for collection. The Issuer agrees to
reimburse the Escrow Agent for the cost incurred with any returned check. The
Escrow Agent shall not be required to invest any funds deposited in the Escrow
Account and shall in no event be liable for any investment loss. If
subscription funds are invested, such investments shall only be made in
investments permissible under SEC Rule 15c2-4. For purposes of this Agreement,
the term "collected funds" or the term "collected" when referring to the
proceeds of subscribers' checks shall mean all funds received by the Escrow
Agent that have cleared normal banking channels and are in the form of cash.
The Escrow Agent shall maintain records of all subscription funds received and
deposited into the Escrow Account. The records shall separately identify the
name and mailing address of each subscriber, the number of shares subscribed
for, the date on which the subscription funds were received by the Escrow Agent
and the date on which the proceeds of the subscription funds were collected by
the Escrow Agent.
5. If prior to the Cessation Date, subscriber's checks in an amount of at
least the Minimum have been deposited in the Escrow Account, upon request from
the Issuer and the Representative, the Escrow Agent will confirm the amounts
collected by it from subscriber's checks. If such amount is at least equal to
the Minimum, the Issuer and the Representative may send the Escrow Agent a
written notice providing a list of all accepted subscribers, specifying the
total amount of their subscription to be remitted to the Issuer, and containing
a request to terminate the Escrow Period and remit such amount, less any fees or
other amounts then owing from the Issuer to the Escrow Agent hereunder, to the
Issuer as promptly as possible, but in no event later than ten (10) business
days after such termination, by issuing its bank check payable to the Issuer or
by depositing such amount directly into the account of the Issuer maintained
with Bank One, Texas, NA, as designated in writing by the Issuer to the Escrow
Agent. The Escrow Period shall not terminate upon receipt by the Escrow Agent
of such notice, but shall continue for such (10) business-day period solely for
the limited purposes of collecting subscribers' checks that have been deposited
prior to the Escrow Agent's receipt of such notice and disbursing funds from the
Escrow Account as provided herein. Escrow Agent will not accept deposits of
subscriber's checks after receipt of such notice.
3
<PAGE>
If, on the Cessation Date, the Minimum Amount has not been deposited with
the Escrow Agent and collected, or if the Issuer and the Representative notify
the Escrow Agent in writing that the Issuer and the Representative elect to
terminate the Offering as provided in paragraph 3(c) above, the Escrow Agent
shall then issue and mail its bank checks to the subscribers in the amount of
the subscribers' respective checks, without deduction, penalty or expense to the
subscriber, and shall, for this purpose, be authorized to rely upon the names
and addresses of subscribers furnished it as contemplated above. Each
subscriber shall be paid interest, if any, with respect to such deposited funds.
The purchase money returned to each subscriber shall be free and clear of any
and all claims of the Issuer and any of its creditors. For each subscription
for which the Escrow Agent has not collected funds but has submitted the
subscriber's check for collection, the Escrow Agent shall promptly issue a check
to such subscriber in the amount of the collected funds from such subscriber's
check after the Escrow Agent has collected such funds. If Escrow Agent has not
yet submitted such subscriber's check for collection, the Escrow Agent shall
promptly remit the subscriber's check directly to such subscriber.
At such time as Escrow Agent shall have made the payments and remittances
provided in the Agreement, the Escrow Agent shall be completely discharged and
released of any and all further liabilities and responsibilities hereunder.
6. As consideration for its agreement to act as Escrow Agent as herein
described, the Issuer agrees to pay the Escrow Agent an administration fee of
__________ upon execution of this Agreement, plus the fees described on the
attached fee schedule. Further, the Issuer agrees to pay all disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder, including reasonable fees, expenses and disbursements of its counsel,
all in accordance with the attached fee schedule or the other provisions of this
Agreement. No such fees or reimbursements shall be paid out of or chargeable to
the funds on deposit in the Escrow Account until such time as the Minimum has
been collected.
If the Issuer rejects any subscription for which Escrow Agent has already
collected funds, the Escrow Agent shall promptly issue a refund check to the
rejected subscriber in the amount of the subscriber's check. If the Issuer
rejects any subscription for which the Escrow Agent has not yet collected funds
but has submitted the subscriber's check for collection, the Escrow Agent shall
promptly issue a check in the amount of the collected funds from the
subscriber's check to the rejected subscriber after the Escrow has cleared such
funds. If the Escrow Agent has not yet submitted a rejected subscriber's check
for collection, the Escrow Agent shall promptly remit the subscriber's check
directly to the subscriber.
7. This Agreement shall automatically terminate upon the earlier of (i)
twenty (20) days after the Cessation Date or (ii) twenty (20) days after the
date upon which the Escrow Agent has delivered the final portion of Escrow
Account funds pursuant to the terms of this Agreement.
8. The Escrow Agent reserves the right to resign hereunder, upon thirty
(30) days prior written notice to the Issuer. In the event of said resignation,
and prior to the effective date thereof,
4
<PAGE>
the Issuer and the Representative, by written notice to the Escrow Agent, shall
designate a successor escrow agent to assume the responsibilities of the Escrow
Agent under this Agreement, and the Escrow Agent immediately shall deliver any
undisbursed Escrow Account funds to such successor escrow agent. If the Issuer
and the Representative shall fail to designate such a successor escrow agent
within such time period, the Escrow Agent may deliver any undisbursed funds into
the registry of any court having jurisdiction.
9. The parties hereto agree that the following provisions shall control
with respect to the rights, duties, liabilities, privileges and immunities of
the Escrow Agent:
a. The Escrow Agent shall have no obligation to invest the Escrow Account.
b. The Escrow Agent shall have no responsibility except for the safekeeping
and delivery of the amounts deposited in the Escrow Account in
accordance with this Agreement. The Escrow Agent shall not be liable for
any act done or omitted to be done under this Agreement or in connection
with the amounts deposited in the Escrow Account, except as a result of
the escrow Agent's gross negligence, willful misconduct or fraud. The
Escrow Agent is not a party to nor is it bound by, nor need it give
consideration to the terms of provisions of, even though it may have
knowledge of, (i) any agreement or undertaking by, between or among the
Issuer and any other party, except this Agreement, (ii) any agreement or
undertaking that may be evidenced by this Agreement, (iii) any other
agreements that may now or in the future be deposited with the Escrow
Agent in connection with this Agreement. The Escrow Agent is not a party
to, is not responsible for, and makes no representation with respect to
the offer, sale or distribution of the Shares including, but not limited
to, matters set forth in any offering documents prepared and distributed
in connection with the offer, sale and distribution of the Shares. The
Issuer covenants that it will not commence any action against the Escrow
Agent at law, in equity, or otherwise as a result of any action against
the Escrow Agent at law, in equity, or otherwise as a result of any
action taken or thing done by the Escrow Agent pursuant to this
Agreement, or for any disbursement made as authorized herein upon
failure of the Issuer to give the notice within the times herein
prescribed. The Escrow Agent has no duty to determine or inquire into
any happening or occurrence of or of any performance or failure of
performance of the Issuer or of any other party with respect to
agreements or arrangements with any other party. If any question,
dispute or disagreement arises among the parties hereto and/or any other
party with respect to the funds deposited in the Escrow Account or the
proper interpretation of this Agreement, the Escrow Agent shall not be
required to act and shall not be held liable for refusal to act until
the question or dispute is settled, and the Escrow Agent has the
absolute right at its discretion to do either or both of the following:
(i) withhold and/or stop all further performance under this Agreement
until the Escrow Agent is satisfied, by receipt of a written
document in form and
5
<PAGE>
substance satisfactory to the Escrow Agent and executed and
binding upon all interested parties hereto (who may include the
subscribers), that the question, dispute or disagreement had been
resolved; or
(ii) file a suite in interpleader and obtain by final judgment,
rendered by a court of competent jurisdiction, an order binding
all parties interested in the matter. In any such suit, or should
the Escrow Agent become involved in litigation in any manner
whatsoever on account of this Agreement or the Escrow Account, the
Escrow Agent shall be entitled to recover from the Issuer its
attorneys' fees and costs.
The Escrow Agent shall never be required to post a bond in connection
with any services hereunder. The Escrow Agent may consult with counsel
of its own choice and shall have full and complete authorization and
protection for and shall not be liable for any action taken or suffered
by it hereunder in good faith and believed by it to be authorized
hereby, nor for action taken or omitted by it in accordance with the
advice of such counsel (who shall not be counsel for the Issuer).
c. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth in this Agreement and may rely and
shall be protected in acting or refraining from acting upon any written
notice, instruction or request furnished to it hereunder and believed by
it to be genuine and to have been signed or presented by the proper
party or parties and to take statements made therein as authorized and
correct without any affirmative duty of investigation.
d. The Issuer hereby agrees to indemnify the Escrow Agent for, and to hold
it harmless against, any loss, liability, or expense (including, without
limitation, all legal expenses incurred in enforcing any of the
provisions of this Agreement or otherwise in connection herewith)
incurred without gross negligence, willful misconduct or fraud on the
part of the Escrow Agent, arising out of or in connection with its
entering into this Agreement and carrying out its duties hereunder,
including the costs and expenses of defending itself against any claim
of liability hereunder or arising out of or in connection with the sale
of the Shares. This covenant shall survive the termination of this
Agreement.
e. The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, recision or supersession of this Agreement
unless the same shall be in writing and signed by all of the other
parties hereto and, if its duties as Escrow Agent hereunder are affected
thereby, unless it shall have given prior written consent thereto.
6
<PAGE>
10. Notices required to be sent hereunder shall be delivered by hand, sent
by an express mail service or sent via United States mail, postage
prepaid, certified, return receipt requested, to the following address:
If to the Issuer: Rushmore Financial Group, Inc.
Attn: Ms. Chris Miller
13355 Noel Road, Suite 650
Dallas, Texas 75240
If to the Representative: First Southwest Company
Attn: Mr. Michael Nguyen
1700 Pacific Avenue, Suite 500
Dallas, Texas 75201
If to Escrow Agent: Bank One, Texas, NA
Corporate Trust Department
8111 Preston Road, 2nd Floor
Dallas, Texas 75225
No notice to the Escrow Agent shall be deemed to be delivered until actually
received by the Escrow Agent. From time to time any party hereto may designate
an address other than the address listed above by giving the other parties
hereto not less than five (5) days advance notice of such change in address in
accordance with the provisions hereof.
11. Each of the parties hereto agrees that the Securities Administrator of
the North American Securities Administrators Association, Inc. (the
"Administrator") shall have the right to inspect and make copies of the records
of the Escrow Agent relating to the Escrow Account at the offices of the Escrow
Agent upon reasonable advance written notice.
12. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Texas and the laws of the United States applicable to
transactions in Texas.
EXECUTED on the date first written above.
ISSUER:
By:
-----------------------------------------
Title:
--------------------------------
REPRESENTATIVE:
By:
-----------------------------------------
Title:
--------------------------------
7
<PAGE>
ESCROW AGENT:
By:
-----------------------------------------
Title:
--------------------------------
8
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GLAST, PHILLIPS & MURRAY APPEARS HERE]
January 28, 1998
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.
January 28, 1998
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, P.C.
------------------------------------
GLAST, PHILLIPS & MURRAY, P.C.
RLB/mdg
<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 Moore, Jr., (hereinafter referred to as
"Officer").
WITNESSETH:
WHEREAS, Officer is President and Chief Operating Officer of Rushmore
(Rushmore, its subsidiaries and RSC are hereinafter collectively referred to as
the "Companies"), and Officer has direct supervisory responsibilities 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 acknowledged, it is hereby agreed as follows:
1. Employment. 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 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 Employment. 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 annually be extended for
a successive additional one-month period 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.
<PAGE>
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, which amount shall
be paid 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 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 by Officer. The Base Compensation provided for in
this Paragraph 3 shall be payable in equal semimonthly installments
on the first and fifteenth business day of each month.
b. Additional Compensation. Officer shall also earn commissions and
-----------------------
overrides for accounts serviced by him personally as broker, and
override commissions on commissions earned by persons introduced by
Officer to Rushmore and its subsidiaries or affiliates, in accordance
with the commission 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 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 its termination.
c. Reimbursement. 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 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 Employee Benefit Programs. 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
<PAGE>
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 cash within one hundred twenty (120) days
after Officer's death or disability, or in thirty-sixty (36) equal
monthly installments, 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 Combined
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" 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 in
respect of increases in Base Compensation pursuant to Paragraph 3(a) 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(b) 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.
<PAGE>
7. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of this
Agreement, Officer will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of
the business of Rushmore and its subsidiaries including RISI. Officer
acknowledges that such information constitutes valuable and confidential
information of the Rushmore. Officer shall not disclose any of the
aforesaid private company secrets, directly or indirectly, nor use them in
any way, either during the term of this Agreement or after termination of
employment. All files, records, electronic and magnetic files, documents,
specifications, equipment and similar information relating to the business
of Rushmore, whether prepared by Officer or otherwise coming into Officer's
possession, shall remain the exclusive property of Rushmore and shall not
be removed from the premises of Rushmore except as shall be necessary for
Officer to perform Officer's duties under this Agreement. Upon termination
of this Agreement for any reason, Officer will deliver all such materials
in his possession and all copies thereof to Rushmore.
8. RESTRICTIVE COVENANTS. In consideration the severance provisions of this
Agreement and of the provision to Officer of Rushmore's trade secrets and
confidential information, and in order to protect the rights of Rushmore
and its subsidiaries including RISI to its trade secrets, confidential
information, and client relationships, the Officer hereby agrees as
follows:
8.1 Officer agrees that during the term of this Agreement and for a
period of two (2) years following any termination of employment, Officer
shall not be an officer, director, employee, agent or representative, or an
owner of more than five percent (5%) of the outstanding capital stock of
any corporation, or an owner of any interest in, or employee, agent or
representative of, any other form of business association, sole
proprietorship or partnership that solicits, hires (whether or not
solicited) or otherwise attempts to induce any employees, agents or
representatives of Rushmore and its subsidiaries including RISI to
terminate their position as employee, agent or representative therewith.
8.2 Officer agrees that, during the term of this Agreement and for a
period of two (2) years following termination for any reason, Officer shall
not, directly or indirectly by being an officer, director, employee, agent,
representative or consultant, or a record or beneficial owner of more than
five percent of the outstanding capital stock of any corporation or an
owner of any interest in, or employee of, any other form of business
association, sole proprietorship or partnership, conduct a financial
services business or organization which engages or participates, directly
or indirectly, in any business or activity that is engaged in the sale of
insurance, securities or other investment products or otherwise competes
with Rushmore and its subsidiaries including RISI anywhere within the State
of Texas or any city of the United States in which the Rushmore and its
subsidiaries including RISI maintains a retail office.
8.3 In the event that any adjudicative body shall finally hold that this
Section 9 constitutes an unreasonable restriction upon Officer, the parties
hereby expressly agree
<PAGE>
that the provisions of this Section 9 shall not be rendered void, but shall
apply as to time and territory or to such other extent as such body may
indicate constitutes a reasonable restriction under the circumstances
involved.
8.4 Officer agrees that irreparable harm would occur if any of the
provisions of Section 7 or 8 were breached and that the Company shall be
entitled to obtain an injunction or other equitable relief to enforce
specifically the provisions thereof in any court of competent jurisdiction.
9. 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.
10. Approval by the Board of Directors. This Agreement has been approved by
----------------------------------
the Board of Directors of Rushmore.
11. 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.
12. 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.
13. 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.
By: /s/ Jim W. Clark
--------------------------------
Jim W. Clark, Secretary
/s/ Dewey M. (Rusty) Moore, Jr.
--------------------------------------
Dewey M (Rusty) Moore, Jr.
<PAGE>
Exhibit 10.1.2
EXECUTIVE COMPENSATION AGREEMENT
This Executive Compensation Agreement dated as of the 18th day of October,
1997, between Rushmore Financial Group, Inc., a Texas Corporation (hereinafter
referred to as "Rushmore") and Jim W. Clark, (hereinafter referred to as
"Officer").
WITNESSETH:
WHEREAS, Officer is President and Chief Operating Officer of Rushmore
Securities Corporation ("RSC"), a Texas corporation and licensed securities
brokerage, a wholly owned subsidiary of Rushmore, (Rushmore, its subsidiaries
and RSC are hereinafter collectively referred to as the "Companies"), and
Officer has other supervisory responsibilities for other 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 acknowledged, it is hereby agreed as follows:
1. Employment. Rushmore hereby agrees to continue to employ Officer and
----------
Officer hereby agrees to continue to serve Rushmore as President and Chief
Operating Officer of Rushmore Securities Corporation 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 Employment. 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 each
January 1st thereafter, the term shall annually be extended for a
successive additional one-year period unless either party notifies the
other at least ninety (90) days before any January 1st, or January 1st, of
any later year
<PAGE>
immediately following the year terminating a thirty-six month renewal
period, that it intends to terminate. If such a notice is given, this
Agreement will terminate on December 3 Ist following the date of the
notice.
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 $96,000.00 per year, which amount shall be
paid 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 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 by Officer. The Base Compensation provided for in this
Paragraph 3 shall be payable in equal semimonthly installments on the
first and fifteenth business day of each month.
b. Additional Compensation. Officer shall also earn commissions and
-----------------------
overrides for accounts serviced by him personally as broker for RSC,
and override commissions on commissions earned by persons introduced
by Officer to Rushmore and its subsidiaries or affiliates, in
accordance with the commission 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 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 its termination.
c. Reimbursement. 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 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.
<PAGE>
4. Participation in Employee Benefit Programs. 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 cash within one hundred twenty (120) days
after Officer's death or disability, or in thirty-sixty (36) equal
monthly installments, 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 Combined
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" 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 in respect of increases in Base Compensation pursuant to Paragraph 3(a)
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.
<PAGE>
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(b) 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. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of this
Agreement, Officer will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of
the business of Rushmore and its subsidiaries including RISI. Officer
acknowledges that such information constitutes valuable and confidential
information of the Rushmore. Officer shall not disclose any of the
aforesaid private company secrets, directly or indirectly, nor use them in
any way, either during the term of this Agreement or after termination of
employment. All files, records, electronic and magnetic files, documents,
specifications, equipment and similar information relating to the business
of Rushmore, whether prepared by Officer or otherwise coming into Officer's
possession, shall remain the exclusive property of Rushmore and shall not
be removed from the premises of Rushmore except as shall be necessary for
Officer to perform Officer's duties under this Agreement. Upon termination
of this Agreement for any reason, Officer will deliver all such materials
in his possession and all copies thereof to Rushmore.
8. RESTRICTIVE COVENANTS. In consideration the severance provisions of this
Agreement and of the provision to Officer of Rushmore's trade secrets and
confidential information, and in order to protect the rights of Rushmore
and its subsidiaries including RISI to its trade secrets, confidential
information, and client relationships, the Officer hereby agrees as
follows:
8.1 Officer agrees that during the term of this Agreement and for a period
of two (2) years following any termination of employment, Officer shall not
be an officer, director, employee, agent or representative, or an owner of
more than five percent (5%) of the outstanding capital stock of any
corporation, or an owner of any interest in, or employee, agent or
representative of, any other form of business association, sole
proprietorship or partnership that solicits, hires (whether or not
solicited) or otherwise attempts to induce any employees, agents or
representatives of Rushmore and its subsidiaries including RISI to
terminate their position as employee, agent or representative therewith.
8.2 Officer agrees that, during the term of this Agreement and for a
period of two (2) years following termination for any reason, Officer shall
not, directly or indirectly by being an officer, director, employee, agent,
representative or consultant, or a record or beneficial owner of more than
five percent of the outstanding capital stock of any corporation or an
owner of any interest in, or employee of, any other form of business
association, sole proprietorship or partnership, conduct a financial
services business or organization which engages or participates, directly
or indirectly, in any business or activity that is engaged in the sale of
insurance, securities or other investment products or
<PAGE>
otherwise competes with Rushmore and its subsidiaries including RISI
anywhere within the State of Texas or any city of the United States in
which the Rushmore and its subsidiaries including RISI maintains a retail
office.
8.3 In the event that any adjudicative body shall finally hold that this
Section 9 constitutes an unreasonable restriction upon Officer, the parties
hereby expressly agree that the provisions of this Section 9 shall not be
rendered void, but shall apply as to time and territory or to such other
extent as such body may indicate constitutes a reasonable restriction under
the circumstances involved.
8.4 Officer agrees that irreparable harm would occur if any of the
provisions of Section 7 or 8 were breached and that the Company shall be
entitled to obtain an injunction or other equitable relief to enforce
specifically the provisions thereof in any court of competent jurisdiction.
9. 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.
10. Approval by the Board of Directors. This Agreement has been approved by
----------------------------------
the Board of Directors of Rushmore.
11. 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.
12. 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.
13. 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.
By: /s/ Dewey M. Moore, Jr
---------------------------------------------
Dewey M. (Rusty) Moore, Jr., President
<PAGE>
/s/ Jim W. Clark
--------------------------------------------------
Jim W. Clark
<PAGE>
EXHIBIT 1O.2.5
COINSURANCE AGREEMENT
THIS COINSURANCE AGREEMENT, made and entered into as of the 1st day of
October, 1990, 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 Phoenix, Arizona, 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, WABASH LIFE INSURANCE COMPANY, a
Kentucky corporation and an affiliate of Ceding Insurer, and FIRST FINANCIAL
MARKETING SERVICES ("Marketing Company"), a Florida corporation and an affiliate
of Reinsurer, entered into a Marketing Agreement (herein so-called) effective
February 23, 1989;
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 Coinsurance
Agreement. In addition, the following terms shall mean:
1.1 "Abatement " means the termination of the provisions of this
Coinsurance Agreement relating to the cession of additional Insurance Business
Produced, but excludes the termination of the remaining provisions of the
Coinsurance Agreement.
<PAGE>
1.2 "Accounting Period" means each calendar quarter ending on March 31,
June 30, September 30 and December 31 of each year.
1.3 "Beginning Calendar Year" means the period commencing with the
effective date of this Coinsurance Agreement and ending December 31,1990.
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 each twelve month period beginning January 1st
and ending December 31st.
1.6 "Ending Calendar Year" means the period commencing on January 1st of
the year in which this 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 and (ii) premiums for
flexible premium life insurance contracts in excess of control premiums.
1.8 "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 and (ii) premiums for flexible premium life
insurance contracts in excess of control premiums.
1.9 "Quota Share" means for any given Calculation Period, a fifty percent
(50%) undivided interest in the Insurance Business Produced.
1.10 "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
<PAGE>
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.
1.11 "Termination" means the termination of all of the provisions of this
Coinsurance Agreement and includes the recapture by Ceding Insurer of all
Policies previously reinsured hereunder.
2 Reinsurance. The Ceding Insurer hereby agrees to cede and Reinsurer
-----------
agrees to assume and reinsure from Ceding Insurer, on a coinsurance basis,
Reinsurer's Quota Share of the life insurance policies listed in Appendix "1",
which is attached hereto and incorporated herein (hereinafter referred to as
"Policies"); all of which were previously issued or assumed by Ceding Insurer,
and which are in force as of the Effective Date hereof (as hereinafter defined).
2.1 This 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 provided
herein, no person other than Ceding Insurer and Reinsurer shall have any rights
under this 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 Policy Issue Expenses and Policy
Maintenance Expenses and Premium Taxes, 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.
<PAGE>
(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 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 Shore 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. Consideration and Reserves. Coding Insurer and Reinsurer agree as
--------------------------
follows:
3.1 Reinsurer agrees to pay to Ceding Insurer a ceding commission of
$2,984 cash.
3.2 Reinsurer agrees to assume and fund its Percentage Share of the
Reserve Liability on the Policies. Reinsurer's Percentage Share of the
Reserve Liability on the Policies as of the Effective Date was $18,148.
Ceding Insurer may inspect the books of Reinsurer at any reasonable time to
ascertain that such Reserve Liability is so maintained.
3.3 Ceding Insurer agrees to promptly assign, convey and transfer to the
Reinsurer assets deemed to be admitted assets and which qualify as reserve
assets within the meaning of the Massachusetts and Arizona Insurance Codes
("Admitted Assets") that have a value as determined in accordance with such
Insurance Codes ("Admitted Asset Value") of $18,148, which Admitted Assets
<PAGE>
shall include Reinsurer's Percentage Share of the net due and deferred premiums
on the Policies which, as of the Effective Date, was $0.
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 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
of the Marketing Agreement, effective February 23, 1989, (the Administrative
Services Agreement) for the duration the business described herein remains in
force.
4.3 Premium taxes shall be calculated as two percent (2%) of Collected
Quota Share Premium.
5. Payments By Ceding Insurer. Within 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 the sum of:
(a) Reinsurer's Quota Share of Gross Premiums for such Accounting
Period.
(b) Reinsurer's Quota Share of Policy loan interest for such
Accounting Period.
<PAGE>
5.1 All sums due Reinsurer shall be offset, to the extent applicable,
against all sums due Ceding Insurer under Paragraph 6 below.
6. Payments By Reinsurer. Within 60 days after the end of each Accounting
---------------------
Period, Reinsurer shall pay to Ceding Insurer the sum of:
(a) 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 and Policy
Maintenance Expenses and Premium Taxes) including, without limitation,
all death benefits, nonforfeiture benefits, matured endowments,
disability waiver of premium benefits, policyholder dividends, policy
loans, commissions and bonuses and Reinsurer agrees that it will pay
all costs and expenses incurred by it or on its behalf in connection
with the retrocession of any liability on the Policies reinsured
hereunder.
(b) Reinsurer's Quota Share of all Policy Issue Expenses, Policy
Maintenance Expenses, Premium Taxes and Service Fees for such
Accounting Period.
6.1 All sums due Reinsurer shall be offset, to the extent applicable,
against all sums due Reinsurer under Paragraph 5 above.
7. Reinsurance Accounting and Reporting
------------------------------------
7.1 Ceding Insurer shall administer the Policies and perform all
accounting. Accounting shall be on a bulk basis at the end of each Accounting
Period.
7.2 Ceding Insurer shall provide Reinsurer with all information, if any,
used in preparing Ceding Insurer's Federal Income Tax Return (Form 1120L) which
is necessary for Reinsurer to complete its return with respect to the
reinsurance hereunder on a timely basis.
<PAGE>
8. Retrocession. Reinsurer agrees that its retrocession of any liability
------------
on the Policies reinsured hereunder will not relieve Reinsurer from any
liability assumed hereunder by Reinsurer. Reinsurer agrees that it will pay all
costs and expenses incurred by it or on its behalf in connection with the
retrocession of any liability on the Policies reinsured hereunder.
9. Oversight. It is understood and agreed that if failure to comply with
---------
any terms of this 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.
10. 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.
11. Misstatement. If the insured's age or sex was misstated and the amount
------------
of insurance in the Ceding Insurer's policies is adjusted, Ceding Insurer and
Reinsurer will share the adjustment in proportion to the amount of liability of
each at the time of issue of the policies. Premiums will be recalculated for the
correct age or sex and amounts according to the proportion as above, and
adjusted without interest. If the insured is still alive, the method above will
be used for past years. The amount of reinsurance and premium will be adjusted
for the future to the amount that would have been correct at issue.
<PAGE>
In the event the amount of insurance provided by a policy or policies
reinsured hereunder is increased or reduced because of misstatement of age or
sex, which misstatement is established after the death of the insured, the net
insurance 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 immediately prior to the discovery of
such missstatement.
12. Settlement of Claims.
--------------------
12.1 The Ceding Insurer shall give the Reinsurer prompt notice of any
claim submitted on a policy reinsured hereunder and prompt notice of the
commencement of any legal proceedings in connection therewith. Copies of all
documents bearing on such claim or proceeding shall be furnished to the
Reinsurer when requested.
12.2 The Reinsurer shall accept the good faith decision of the Ceding
Insurer in settling any claim or suit and shall pay at the Ceding Insured's,
Home Office, the Reinsurer's 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.
12.3 If the Ceding Insurer should contest or comprise any claim or
proceeding, and the amount of net liability thereby be reduced, the Reinsurer's
reinsurance liability 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.
<PAGE>
12.4 Reinsurer shall share in the claim expense of any contest or
compromise of a claim in the same proportion that the net amount at risk
reinsured hereunder bears to the total net risk retained by the company and the
Reinsurer shall share in the total amount of any reduction in liability in the
same proportion. Claim expense shall include, but not be limited to the
following:
(a) Routine investigative and 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 judgements arising out of, or in
conjunction with claims against the Ceding Insurer for punitive or
exemplary damages;
(d) Expenses, fees, settlements, or judgements 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
tortious conduct; and
(e) Penalties, legal fees and interest including those items imposed
automatically by statute against the Ceding Insurer and arising out of
judgement(s) being rendered against the Ceding Insurer in a suit for
policy benefits reinsured hereunder.
12.5 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.
12.6 If the Ceding Insurer pays interest from a specific date, such as the
date of death of the insured, on the contractual benefit of a policy
<PAGE>
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 or (b) the date of
termination of the period for which the Ceding Insurer has paid such interest.
13. 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
Coinsurance Agreement.
14. Insolvency. In the event of the insolvency of the Ceding Insurer, all
----------
reinsurance shall be payable directly to the liquidator, receiver, or statutory
successor of said Ceding Insurer, without diminution because of the insolvency
of the Ceding Insurer; provided, however, that any obligations of the Cedings
Insurer to Reinsurer shall be offset against the obligations of Reinsurer to
Ceding Insurer.
14.1 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 the Reinsurer's own expense, enter an
appearance, in the proceeding where such claim is to be adjudicated and enter
any defense or defenses which it may deem
<PAGE>
available to the Ceding Insurer or its liquidator, receiver, or statutory
successor.
14.2 Any expense incurred under this Paragraph 14 by Reinsurer shall be
chargeable, subject to court approval, against the Ceding Insurer as part of the
expense of liquidation to the extent of the 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 majority in interest elect to interpose a defense or defenses to
any such claim, the resulting expense to Reinsurer shall be apportioned in
accordance with the terms of the reinsurance agreement as though such expense
had been incurred by the Ceding Insurer.
15. Abatement. This Coinsurance Agreement may not be Abated until such
---------
time as the Marketing Agreement has been terminated, after which time this
Coinsurance Agreement may be Abated:
(a) By the mutual consent of the Ceding Insurer and the Reinsurer; or
(a) By Ceding Insurer upon thirty (30) days' written notice to
Reinsurer; or
(c) By Reinsurer upon thirty (30) days' written notice to Ceding
Insurer.
16. Termination. This Coinsurance Agreement may not be terminated until
-----------
such time as the Marketing Agreement has been terminated, after which time this
Coinsurance Agreement may only be terminated:
(a) By the mutual consent of the Ceding Insurer and the Reinsurer; or
<PAGE>
(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 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.
17. Waiver. No delay or omission by either party hereto to exercise any
------
right or power arising upon any noncompliance or default by the other party
with respect to any of the terms of this Coinsurance Agreement shall be
construed as a waiver of the right to exercise any such right or power. A waiver
by any of the parties hereto of the fulfillment of any of the covenants,
conditions, or agreement 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 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.
18. Amendments. This 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.
19. Approvals, Consents, etc. In any instance where agreement, approval,
------------------------
acceptance or consent of any party is required to any provision of this
Coinsurance Agreement, such action shall not be unreasonably delayed or
withheld.
<PAGE>
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 nonperformance 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 fulfilment of its obligations hereunder.
21. Severability. If any provision of this Coinsurance 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 effect the remaining provisions of this Coinsurance Agreement, and all other
provisions hereof shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Coinsurance
Agreement to be signed and delivered by their respective officers thereunto duly
authorized as of the date first hereinabove written.
Attest: MASSACHUSETTS GENERAL LIFE INSURANCE
COMPANY
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- --------------------------------- -------------------------------------
Secretary President
Attest: FIRST FINANCIAL LIFE INSURANCE COMPANY
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- --------------------------------- -------------------------------------
Secretary President
<PAGE>
APPENDIX 1
<TABLE>
<CAPTION>
ISSUE ANNUAL FACE 09/30/90
POLICY NO. DATE PLAN PREMIUM AMOUNT RESERVES
- --------- ---- ---- ------- ------ --------
<S> <C> <C> <C> <C> <C>
10UL064793 Aug-90 19007 240 50,000 0
10Ul064530 Aug-90 19008 300 71,200 4
10UL023683 Sep-87 19R0A 438 50,000 1,253
10UL052043 Sep-89 19R0A 2,400 75,000 6,107
10UL040302 Sep-88 19R02 1,839 60,000 2,652
10UL020277 Sep-87 19R05 1,200 70,000 2,398
10UL046073 Mar-89 19R0A 4,347 100,000 20,236
10UL022071 Sep-87 19R0A 900 50,000 3,645
TOTAL 11,664 526,200 36,295
QUOTA SHARES 5,832 263,100 18,148
</TABLE>
<PAGE>
EXHIBIT 10.2.5
SCHEDULE A
Expense Allowances
<TABLE>
<CAPTION>
Policy Issue Expenses Policy Maintenance Expenses
---------------------------------- --------------------------------------------
Percent of
Per Annualized or Annual Per Per
Product Form No. Policy Control Premium Per Policy * Lapse Death
- ----------- ------------ ---------- ------------------- ------------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lifetime II UNF-86 27.50 + .35/unit 8% 32.50 + 2% of 12.50 25.00 + 2
premium in force per unit
Lifetime III BRUNF-86 27.50 + .35/unit 8% 32.50 + 2% of 12.50 25.00 + 2
premium in force per unit
</TABLE>
* Note: For flexible premium policies, the premium in force is defined as
current units in force multplied by the control premium per unit at
date of issue. The 2% charge is payable to Wabash Life Insurance
Company as dictated in Exhibit C -- Administration Services Agreement.
<PAGE>
EXHIBIT 10.3.2
EXHIBIT C
REINSURANCE AGREEMENT
This REINSURANCE AGREEMENT, made and entered into by and between FIRST FINANCIAL
LIFE INSURANCE COMPANY ("Life Company"), an Arizona stock life insurance
corporation with principal offices at 4830 West Kennedy Boulevard, One Urban
Center, suite 595, Tampa, Florida 33609 and SOUTHWESTERN LIFE INSURANCE COMPANY
("SWLIC"), a Texas corporation, with principal offices located at 500 North
Akard, Dallas, Texas 75221.
WITNESSETH:
The Life Company and SWLIC mutually agree to reinsure on the terms and
conditions set out below. This agreement is solely between the Life Company and
SWLIC, 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 Life Company or SWLIC have any rights under this agreement.
ARTICLE I. AUTOMATIC REINSURANCE
- --------------------------------
1. Insurance. The Life Company will cede (retrocede) and SWLIC will accept
---------
reinsurance under policies which are written by SWLIC and quota share
reinsured to the Life Company under a Modified Coinsurance Agreement whose
effective date is January 1, 1987. When the Life Company retains its
maximum limit of retention, as shown in Schedule A, attached, the Life
Company will retrocede (cede) and SWLIC will accept, automatically, amounts
in excess of the Life Company's retention.
<PAGE>
If SWLIC reinsures a portion of the mortality risk on any given individual
such that its total retained risk on that individual is less than its
maximum retention limit, then the remaining risk will be shared with the
Life Company in proportion to SWLIC respective maximum retention limits.
For example, if SWLIC has a maximum retention of $500,000 on any given life
and it issues a $521,000 policy, of which $500,000 is reinsured with a
third party reinsurer, the remaining mortality risk will be shared with the
Life Company in direct proportion to the companies' maximum retention
limits. The Life Company will keep 50,000/500,000 of the $21,000 retained
risk, or $2,100 and SWLIC will keep 450,000/500,000 of the $21,000 retained
risk, or $18,900.
2. Coverages. Life insurance, waiver of premium disability benefit for an
---------
amount not greater than the corresponding life insurance, and benefits
under associated riders are exclusively the coverages or risks reinsured
automatically under Paragraph 1 (to the extent that limits are specified in
Schedule A, attached). The life insurance includes both basic policies and
term riders providing life insurance protection.
3. Regular Limits of Retention. The regular limits of retention detailed in
---------------------------
Schedule A and referred to in this agreement may be modified by the Life
Company by thirty (30) days' written notice to SWLIC. The amount of
reinsurance to be ceded and accepted automatically after the new limits
take effect will be determined by mutual agreement.
4. Procedures to Effect Reinsurance. SWLIC will notify the Life Company
--------------------------------
quarterly of all new policies assumed by the Life Company where the Life
Company's quota share of the face amount exceeds the Life Company's
retention
2
<PAGE>
limit as detailed in Schedule A. These policies will be automatically ceded
(retroceded) to SWLIC.
ARTICLE II. LIABILITY
- ---------------------
1. Automatic Reinsurance Liability. The liability of SWLIC on any automatic
--------------------------------
reinsurance under this agreement begins and ends at the same time as that
of the Life Company.
ARTICLE III. AMOUNT OF INSURANCE
- --------------------------------
1. Amounts. Life insurance under this agreement shall be on a Yearly
-------
Renewable Term plan for the amount at risk under the policy reinsured. For
the purpose of this agreement, the amount at risk shall be defined at the
difference between the face amount of reinsurance and the corresponding
cash value (taken to the nearest dollar) as of the end of such policy year.
When the original policy is issued on a level term plan for twenty years or
less or on a reducing term plan for any period of years, the reinsurance
shall be for the face amount, and cash values, if any, shall be
disregarded. If desired, amount at risk may be determined by other methods
agreeable to the Life Company and SWLIC. Reinsurance amounts for waiver of
premium disability benefit, for additional indemnity for accidental death
or death by accidental means, and for benefits under associated riders are
on the same basis as the coverages assumed by the Life Company.
3
<PAGE>
2. Reductions and Terminations. Reinsurance amounts are calculated in terms of
---------------------------
coverages on the life of a person. If any of the Life Company's policies or
riders on the person are reduced or terminated, the reinsurance will be
reduced or terminated by the corresponding amount. The reduction will not
be applied, however, to force the Life Company to reassume more than its
regular retention limit at the time of the reduction for age at issue,
mortality rating and form of the policy or policies for which reinsurance
is being terminated.
3. Reinstatements. A policy which has been ceded to SWLIC on an automatic
--------------
basis, that was reduced, terminated or lapsed, if reinstated will be
reinstated automatically to the amount that would be in force had the
policy not been reduced, terminated or lapsed.
In connection with all such reinstatements, the Life Company shall pay
SWLIC all reinsurance premiums in arrears with interest at the same rate
and in like manner as the Life Company has been credited under its Modified
Coinsurance Agreement with SWLIC.
4. Nonforfeiture Benefits. Reduced paid-up will be treated as a reduction in
----------------------
accordance with Paragraph 2 above. Extended term will be continued on a
basis proportionate to the reinsurance risk before the extended term option
was effected. Approximations and methods to simplify handling may be agreed
upon by the Life Company and SWLIC.
4
<PAGE>
ARTICLE IV. PREMIUMS
- --------------------
1. Life Insurance. Premiums per $1,000 for life insurance rated standard by
--------------
age and duration are given in Schedule B. The premiums per $1,000 are
applied to the amount of life reinsurance as outlined in Article III.1.
When a flat extra premium is charged on a policy, whether alone or in
addition to a premium based on a multiple table, the Life Company will pay
this premium on the reinsurance amount in addition to the standard or
multiple table premium for the rating and plan of reinsurance.
2. Disability and Payor Benefits. Premiums for waiver of premium disability
-----------------------------
benefit and for payor benefit will be paid at the same rate as the Life
Company has been credited for the benefit on which reinsurance in SWLIC is
based.
3. Preliminary Term Insurance. If the Life Company issues a policy with
--------------------------
preliminary term insurance, the reinsurance premium for the preliminary
term period will be paid to SWLIC at the same rate the Life Company has
been credited for the policies on which reinsurance in SWLIC is based. This
rule applies to all benefits under the preliminary term insurance. For the
first policy year after the preliminary term period, the premiums for all
benefits will be computed at first year rates.
4. Payments. Premiums are payable quarterly in advance The Policy fee will be
--------
payable prorata each quarter. If reinsurance is reduced, terminated or
increased by reinstatement during the quarter, prorata adjustment will be
made by SWLIC and the Life Company on all premium items except policy fees.
5
<PAGE>
5. Procedure. Each calendar quarter SWLIC will send to the Life Company two
---------
copies of a statement of reinsurance due. The statement will show the
premium due on new reinsurance effected in the preceding quarter and on
existing reinsurance, the prorata adjustments for changes in reinsurance
and death claim benefits payable to the Life Company. The Life Company will
examine the statement and will return one copy with a check for the balance
indicated to SWLIC within a reasonable time. If a balance is due the Life
Company, it will be remitted promptly by SWLIC. The Life Company will note
to SWLIC any discrepancies and proper adjustment will be made. Except as
provided in Article V.3., the payment of reinsurance premiums shall be a
condition precedent to the liability of SWLIC under reinsurance covered by
this agreement. In the event of nonpayment of reinsurance premiums as
provided in this paragraph, SWLIC shall have the right to terminate the
reinsurance under all policies having reinsurance premiums in arrears.
6. Age or Sex Adjustment. If the insured's age or sex was misstated and the
---------------------
amount of insurance on the reinsured's policy is adjusted after his death,
the Life company and SWLIC will share the adjustment in proportion to the
amount of liability of each at the time of issue of the policies. Premiums
will be recalculated for the correct ages and amounts but according to the
proportion as above and adjusted without interest. If the insured is still
alive, the method above will be used for past years and the amount of
reinsurance and premium adjusted for the future to the amount that would
have been correct at issue.
6
<PAGE>
ARTICLE V. GENERAL PROVISIONS
- -----------------------------
1. Reinsurance Conditions. The reinsurance is subject to the same limitations
----------------------
and conditions as the insurance under the policy or policies reinsured is
based.
2. Errors and Omissions. It is expressly understood and agreed that if
--------------------
nonpayment of premiums within the time specified or failure to comply with
any terms of this contract is shown to be unintentional and the result of
misunderstanding or oversight on the part of either the Life Company or
SWLIC, both the Life Company and SWLIC shall be restored to the positions
they would have occupied had no such error or oversight occurred.
3. Insolvency. All reinsurance under this agreement will be paid by SWLIC
----------
directly to the Life Company, its liquidator, receiver, or statutory
successor, on the basis of the liability of the Life Company under the
policy or policies reinsured without diminution because of the insolvency
of the Life Company. In the event of the insolvency of the Life Company,
the liquidator, receiver, or statutory successor of the Life Company will
give written notice of pending claim against the Life Company on any policy
reinsured within a reasonable time after the claim is filed in the
insolvency proceedings. While the claim is pending, SWLIC may investigate
and interpose, at its own expense, in the proceedings where the claim is to
be adjudicated, any defenses which it may deem available to the Life
Company or its liquidation, receiver, or statutory successor. The expense
incurred by SWLIC will be charged subject to court approval, against the
Life Company as an expense of liquidation to the extent of a proportionate
share of the
7
<PAGE>
benefit that accrues to the Life Company as a result of the defenses by
SWLIC. Where two or more reinsurers are involved and a majority in interest
elect to defend a claim, the expenses will be apportioned in accordance
with the terms of the reinsurance agreement as if the expense had been
incurred by the Life Company.
ARTICLE VI. RECAPTURE
- ---------------------
1. Recapture. If the Life Company increases its limits of retention, it may
---------
make a corresponding reduction in the reinsurance in force under this
agreement on all persons where the Life Company has maintained its in limit
of retention as detailed in Schedule A. If the direct face amount of a
policy being reinsured is greater than $500,000, then no reinsurance shall
be reduced under this provision before the end of the tenth policy year of
the reinsured's policy, and no reinsurance may be recaptured where the Life
Company retained less than its maximum retention in effect at the time the
policy was issued.
2. Method of Recapture. If the Life Company elects to recapture, it will
-------------------
notify SWLIC in writing within 90 days from the effective date of its
increase in retention. At the next anniversary (or the tenth anniversary,
if later) of the reinsured's policy, the reinsurance will be reduced to
increase the total retained by the Life Company to its new maximum.
Recapture is allowed on only one retention during any twelve month period
and the amount of retention detailed in Schedule A. If reinsurance on any
policy for any person is reduced under this provision, all must be reduced.
8
<PAGE>
ARTICLE VII. ARBITRATION
- ------------------------
1. Agreement. All differences between the Life Company and SWLIC on which an
---------
agreement cannot be reached will be decided by arbitration. The arbitrators
will determine the interpretation of the Agreement in accordance with the
usual business and reinsurance practices rather than strict technicalities.
2. Method. Three arbitrators will decide the differences. They must be
------
officers of life insurance companies other than the two parties to this
agreement. One of the arbitrators is to be appointed by the Life Company
and one by SWLIC, and these who will select a third. If the two are unable
to agree on a third, the choice will be left to the President of the
American Council of Life Insurance, or its successor.
3. Effect. The arbitrators are not bound by rules of law. Their decision will
------
be by majority vote and no appeal will be taken from it. The costs of the
arbitration will be borne by the losing party unless the arbitrators decide
otherwise.
ARTICLE VIII. DURATION OF AGREEMENT
- -----------------------------------
1. Duration of Agreement. This agreement will be effective on and after the
---------------------
effective date stated in Article IX. It is unlimited induration but may be
amended by mutual consent of the Life Company and SWLIC. It may be
terminated as to new reinsurance by either party giving 90 days' written
notice to the
9
<PAGE>
other. Termination as to new reinsurance does not affect existing
reinsurance. That reinsurance will remain in force until termination of the
Life Company's policy or policies on which the reinsurance is based in
accordance with the terms of this agreement.
ARTICLE IX. EXECUTION
- ---------------------
In witness of the above, this agreement is signed in duplicate at the dates and
places indicated with an effective date of January 1, 1987.
Date: 27 September, 1991 FIRST FINANCIAL LIFE INSURANCE
------------------------------
COMPANIES. INC.
Places: Tampa, Florida By: [SIGNATURE ILLEGIBLE]
---------------------------- -------------------------
Title
Witness: [SIGNATURE ILLEGIBLE]
----------------------------
Date: 6/1991 SOUTHWESTERN LIFE INSURANCE
------------------------------
COMPANY
Place: Dallas, Texas By: [SIGNATURE ILLEGIBLE]
----------------------------- -------------------------
Title PRESIDENT
Witness: /s/ C. DOUGLAS WARD
----------------------------
SR. VICE PRESIDENT--FINANCE
10
<PAGE>
SCHEDULE A
The maximum retention on any one life for FIRST FINANCIAL LIFE INSURANCE COMPANY
is $25,000.
<PAGE>
SOUTHWESTERN-TEXAS UNIVERSAL LIFE MALE--ALB
---------
SELECT (NONSMOKER)
ZERO FIRST YEAR PREMIUM
NO POLICY FEE
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE PREMIUM AGE PREMIUM AGE PREMIUM AGE PREMIUM
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.04417 25 0.06140 50 0.21076 75 2.38152
1 0.04417 26 0.05698 51 0.23330 76 2.55181
2 0.04417 27 0.05477 52 0.25894 77 2.74051
3 0.04417 28 0.05477 53 0.28856 78 2.95836
4 0.04417 29 0.05654 54 0.32085 79 3.21573
5 0.04417 30 0.06008 55 0.35489 80 3.52393
6 0.04417 31 0.06273 56 0.39028 81 3.89835
7 0.04417 32 0.06405 57 0.42699 82 4.35499
8 0.04417 33 0.06361 58 0.46681 83 4.91318
9 0.04417 34 0.06273 59 0.51106 84 5.58887
10 0.04417 35 0.06228 60 0.56107 85 6.33727
11 0.04417 36 0.06449 61 0.61507 86 6.99163
12 0.04417 37 0.06847 62 0.67528 87 7.48220
13 0.04815 38 0.07377 63 0.74171 88 7.70714
14 0.05433 39 0.07951 64 0.81347 89 8.06424
15 0.06140 40 0.08526 65 0.89278 90 8.47150
16 0.06140 41 0.09277 66 0.98586 91 9.11418
17 0.06140 42 0.09984 67 1.09760 92 10.14069
18 0.06140 43 0.10867 68 1.23335 93 11.67121
19 0.06140 44 0.11839 69 1.39092 94 13.65805
20 0.06140 45 0.12988 70 1.56146 95 15.91431
21 0.06140 46 0.14402 71 1.73568 96 19.86317
22 0.06140 47 0.15905 72 1.90377 97 25.42208
23 0.06140 48 0.17496 73 2.06396 98 35.37334
24 0.06140 49 0.19219 74 2.22069 99 44.16666
</TABLE>
<PAGE>
SOUTHWESTERN-TEXAS UNIVERSAL LIFE MALE-ALB
STANDARD
ZERO FIRST YEAR PREMIUM
NO POLICY FEE
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE PREMIUM AGE PREMIUM AGE PREMIUM AGE PREMIUM
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.05000 25 0.08151 50 0.43582 75 3.27427
1 0.05000 26 0.07751 51 0.47537 76 3.44669
2 0.05000 27 0.07551 52 0.51895 77 3.63489
3 0.05000 28 0.07801 53 0.56854 78 3.85258
4 0.05000 29 0.08401 54 0.62114 79 4.10945
5 0.05000 30 0.09202 55 0.67526 80 4.41779
6 0.05000 31 0.09902 56 0.72938 81 4.79248
7 0.05000 32 0.10452 57 0.78352 82 5.24851
8 0.05000 33 0.10702 58 0.84118 83 5.80156
9 0.05000 34 0.10852 59 0.90336 84 6.46339
10 0.05000 35 0.11152 60 0.97207 85 7.17427
11 0.05000 36 0.11953 61 0.05184 86 7.91506
12 0.05000 37 0.13103 62 1.13866 87 8.47042
13 0.05450 38 0.14654 63 1.23303 88 8.72506
14 0.06151 39 0.16354 64 1.33195 89 9.12932
15 0.06951 40 0.18155 65 1.44145 90 9.59038
16 0.06951 41 0.19757 66 1.56859 91 10.31794
17 0.06951 42 0.21407 67 1.71992 92 11.48003
18 0.06951 43 0.23259 68 1.90301 93 13.21269
19 0.06951 44 0.25411 69 2.11342 94 15.46194
20 0.07151 45 0.27763 70 2.33555 95 18.01620
21 0.07351 46 0.30466 71 2.55433 96 22.48661
22 0.07551 47 0.33268 72 2.75610 97 28.77971
23 0.07751 48 0.36372 73 2.93782 98 40.04530
24 0.07951 49 0.39776 74 3.10700 99 50.00000
</TABLE>
<PAGE>
SOUTHWESTERN-TEXAS UNIVERSAL LIFE FEMALE-ALB
SELECT (NONSMOKER)
ZERO FIRST YEAR PREMIUM
NO POLICY FEE
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE PREMIUM AGE PREMIUM AGE PREMIUM AGE PREMIUM
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.03534 25 0.03534 50 0.14535 75 1.32433
1 0.03534 26 0.03534 51 0.15551 76 1.45930
2 0.03534 27 0.03534 52 0.16744 77 1.60589
3 0.03534 28 0.03534 53 0.18070 78 1.77480
4 0.03534 29 0.03534 54 0.19529 79 1.97229
5 0.03534 30 0.03799 55 0.20899 80 2.20510
6 0.03534 31 0.04108 56 0.22358 81 2.48805
7 0.03534 32 0.04241 57 0.23949 82 2.82933
8 0.03534 33 0.04373 58 0.25585 83 3.23719
9 0.03534 34 0.04461 59 0.27486 84 3.74690
10 0.03534 35 0.04506 60 0.29652 85 4.32492
11 0.03534 36 0.04859 61 0.31996 86 4.85200
12 0.03534 37 0.05257 62 0.34738 87 5.28325
13 0.03534 38 0.05787 63 0.37656 88 5.54512
14 0.03534 39 0.06361 64 0.40930 89 5.92736
15 0.03534 40 0.06979 65 0.44425 90 6.37165
16 0.03534 41 0.07554 66 0.48628 91 7.00614
17 0.03534 42 0.08084 67 0.53894 92 7.93772
18 0.03534 43 0.08747 68 0.60445 93 9.27645
19 0.03534 44 0.09409 69 0.68591 94 11.00356
20 0.03534 45 0.10160 70 0.77582 95 12.94239
21 0.03534 46 0.11044 71 0.87683 96 16.19092
22 0.03534 47 0.11972 72 0.98054 97 22.24345
23 0.03534 48 0.12767 73 1.08785 98 33.11840
24 0.03534 49 0.13695 74 1.20184 99 44.16666
</TABLE>
<PAGE>
SOUTHWESTERN--TEXAS UNIVERSAL LIFE FEMALE--ALB
STANDARD
ZERO FIRST YEAR PREMIUM
NO POLICY FEE
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE PREMIUM AGE PREMIUM AGE PREMIUM AGE PREMIUM
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.04000 25 0.04000 50 0.22658 75 1.87484
1 0.04000 26 0.04000 51 0.24310 76 2.01726
2 0.04000 27 0.04050 52 0.26161 77 2.18241
3 0.04000 28 0.04050 53 0.28264 78 2.37235
4 0.04000 29 0.04100 54 0.30466 79 2.59165
5 0.04000 30 0.04450 55 0.32868 80 2.84745
6 0.04000 31 0.04850 56 0.35171 81 3.12823
7 0.04000 32 0.05101 57 0.37673 82 3.46085
8 0.04000 33 0.05300 58 0.40277 83 3.88601
9 0.04000 34 0.05401 59 0.43281 84 4.37010
10 0.04000 35 0.05551 60 0.46636 85 4.89613
11 0.04000 36 0.06050 61 0.50392 86 5.49283
12 0.04000 37 0.06601 62 0.54299 87 5.98103
13 0.04000 38 0.07351 63 0.58858 88 6.27750
14 0.04000 39 0.08201 64 0.63517 89 6.71021
15 0.04000 40 0.09052 65 0.68929 90 7.21319
16 0.04000 41 0.10001 66 0.75445 91 7.93148
17 0.04000 42 0.10952 67 0.83015 92 8.98610
18 0.04000 43 0.12103 68 0.93145 93 10.50164
19 0.04000 44 0.13303 69 1.04?83 94 12.45686
20 0.04000 45 0.14654 70 1.18634 95 14.65176
21 0.04000 46 0.16154 71 1.32090 96 18.32934
22 0.04000 47 0.17755 72 1.45502 97 25.18126
23 0.04000 48 0.19406 73 1.58970 98 37.49253
24 0.04000 49 0.21058 74 1.72897 99 50.00000
</TABLE>
<PAGE>
Exhibit 10.4.1
NATIONAL MARKETING AGREEMENT
This Agreement entered into this 1st day of December, 1997, is made between
Innovative Producers, Inc.("Master General Agent"), a Master General Agent for
Legion Insurance Company ("Company") and Rushmore Insurance Services, Inc.
("National Marketer").
A. DESIGNATION & APPOINTMENT
1. Designation
Innovative Producers, Inc. named above is herein referred to as Master
General Agent, We, Our, or Us. Legion Insurance Company named above is
herein referred to as Company or It. Pat Haney & Son Administrators, Inc.,
dba Haney Group Services designated administrator for the Company is herein
referred to as Administrator. The National Marketer named above is herein
referred to as National Marketer, You, Your or Yourself. Sub-agents are
agents, brokers, writing agents, or soliciting brokers under Contract with
You and approved by the Company and are herein referred to as Sub-agents.
This National Marketer's Contract and all supplements, amendments, and
schedules attached are referred to as the or this Contract and is entered
into between You and the Master General Agent in consideration for the
mutual agreement set forth herein.
2. Appointment
You are hereby appointed a National Marketer of the Company for the purpose
of soliciting personally or through Sub-agents, applications for insurance
for the Company. This Contract does not grant exclusive rights in any
territory or for any products.
B. RESPONSIBILITIES & LIMITATIONS
1. General
During the continuation of this agreement You agree to:
a. Be responsible for the prompt delivery of Certificates of Insurance
sent to You or Your Sub-agents, in accordance with the Company's
rules and instructions.
b. Follow and cause Your Sub-agents to follow all Company rules and
instructions.
c. Solicit only in the state(s) in which You and Your Sub-agents are
licensed and appointed with the Company and where the Company is
authorized to do business.
d. Comply with all State and Federal laws, orders, rules and
regulations.
e. Be responsible for obtaining and maintaining the necessary licenses
and appointments to solicit the Company's products in the states in
which You operate, whether resident or non-resident, including the
payment of all fees or taxes required by any state or municipal
laws and the renewal thereof.
<PAGE>
2. Relationship
Nothing contained herein is intended to create the relationship of employer
and employee between You and the Master General Agent or the Company, and
You shall at all times be an Independent Contractor. You shall be free to
exercise Your own judgement as to the time, place and means of performing
all acts hereunder, but You shall conform to the Company's rules,
regulations and instructions concerning the solicitation and delivery of
insurance polices or certificates.
3. Monies Held in Trust - Bond
All monies You or Your Sub-agents receive or collect for or on behalf of the
Company shall be held in a fiduciary capacity for Its benefit, and shall be
immediately forwarded to the Company. You are not authorized to endorse or
cash checks, drafts or money orders payable to the Company. The Company
reserves the right to require a surety bond or errors and omissions coverage
of an amount satisfactory to the Company.
4. Limits of Authority - Advertising
You are not authorized to waive, alter or change any provision or condition
of the Company's insurance policies or certificates, Sub-agent's Contracts,
literature or receipts; modify or extend the amount of time of any premium
payment due to the Company; or receive any money due or to become due the
Company except initial premiums and/or additional first year premium
collected when a policy or certificate is delivered. You shall not enter
into any Contract, incur any expense or obligation of any character
whatsoever, or cause or permit the insertion or distribution in any
publication or otherwise, any advertising or publicity matter which in any
way involves the Company without the prior written authority of the Company.
You are not to publish, or cause to be published or printed, anything
concerning Its business, nor advertise Its policies or certificates or
services without the Company's prior written approval which will not he
withheld unreasonably. All accounting records maintained by You relating to
Our business are subject to inspection at any reasonable time during
business hours by Our authorized representatives.
5. Applications & Policies
The Company may at Its discretion without liability to You reject
applications or refund premiums for insurance submitted by You or Your Sub-
agents without specifying the cause, and may withdraw, substitute, or change
any insurance policy, certificate, or premium rate used by the Company;
provided, however, that Master General Agent will give National Marketer
notice of any such rejections, withdrawals, substitutions or changes within
5 business days of any such action taken of which Master General Agent has
knowledge. All certificates issued by the Company must be delivered by You
to the certificate holder within ten (10) days of Your receipt and while the
applicant is in good health and premiums have been paid in full.
6. Sub-agent's Contracts
You shall use without alteration Our printed Contracts when Contracting a
Sub-agent. No such Sub-agent Contract shall be in force until: (1.) the
Contract is properly executed by the Sub-agent, (2.) the Sub-agent is
properly licensed to solicit for the Company, and (3.) the Sub-agent is
notified in writing that he/she is authorized to solicit for the Company.
Any Sub-agent appointed by You, and subsequently approved by the Company,
will remain exclusively Your Sub-agent unless You provide the Master General
Agent in writing an authorization for release.
7. Indebtedness
You shall be responsible for the payment to the Company of all monies which:
(1.) You or Your Sub-agents collect on the Company's behalf; (2.) are due to
the Company because of compensation paid to You or Your Sub-agents upon
premiums which the Company thereafter returned; (3.) are paid directly or on
behalf of You or Your Sub-agents which are not due You or Your Sub-agents
under this Contract. Until the Company receives all such monies from You,
the same shall be a debt payable on demand and for which You are liable and
at the Company's option, no commissions are payable to You or Your Sub-
agents until such indebtedness is satisfied.
<PAGE>
8. Lien
As additional security for the payment of any indebtedness under this
Contract or any other Contract with the Company, the Company shall have a
first and prior lien against the compensation due You under this Contract.
The Company's lien is superior to all other liens under this contract. The
Company may, at any time, offset any such indebtedness against compensation
due You under the Contract or any Contract You have with the Company. If the
Company does elect to offset, the offset shall not constitute a waiver or an
election by the Company to forego any legal remedies to collect the
indebtedness.
9. Indemnification
Each party hereto shall indemnify, defend, and hold harmless the other party
against claims, actions or liabilities, including judgments, penalties, and
fines, which either party may become obligated to pay as a result of-
(i) the failure of the other party to comply with any law, regulation
or rule of any governmental jurisdiction;
(ii) any grossly negligent or fraudulent act committed by the other
party or its employees causing loss to the third party;
(iii) any breach of this Agreement by the other party but only to the
extent the party seeking indemnification has not by its own
actions, independent of the directives of the other party,
caused, contributed to, or compounded the loss, damage, or
liability for which indemnification is sought.
10. Company Property
Sales brochures, applications, rate cards and booklets, and any other
supplies furnished by the Company, along with any copies thereof, will
remain Company property. They are to be accounted for and returned by You on
demand or termination of this contract. You are to be responsible for any
misuse or i-misrepresentation thereof.
C. COMPENSATION ACCOUNTING
1. Compensation
a. You shall be paid compensation according to the terms of this
Contract as set forth in the attached Exhibit A (which is
incorporated by reference into this Contract) and herein referred
to as Commission Schedule. The Commission Schedule is subject to
change by the Company upon notice in writing to You, but the change
shall not affect any policies, certificates or contracts issued
upon applications You or Your Sub-agents solicited prior to the
effective date of the change. All commissions or other remuneration
earned by Your Sub-agents who are under direct Contract to You,
shall be paid directly by the Administrator to You. The
Administrator shall have no obligation to Your Sub-agent for
payment of commissions. National Marketer agrees to hold the Master
General Agent harmless for all commissions that are earned by Your
Sub-agents and paid directly to you. Comniissions shall accrue and
be paid monthly to You as premiums are received and earned by the
Company.
b. Commissions shall not be owed or paid:
1. On policies or certificates continued in force under any
waiver of premium provision of any policy or certificate; or
2. On collected premiums that are subsequently refunded by the
Company or
3. On policies or certificates issued under a group policy
conversion privilege; or
<PAGE>
4. On policies or certificates that are reinstated after forty-
five (45) days from their lapse date.
5. On unearned or unpaid premiums or on extra premiums, premiums
waived, or premium increases.
2. Vested Commissions
a. Subject to the provisions of the Contract, all earned commissions
are immediately and truly vested for life and thereafter to Your
successors and assigns.
b. Any vested commissions forfeited by Your Sub-agents under
Termination For Cause as described in paragraph D.2. shall be
transferred to and payable to You, after the Company has recovered
any indebtedness incurred by said Sub-agent including any License
termination fee imposed by any state or municipal law.
3. Accounting
The Company shall mail to Your last known address as reflected on records or
deliver to You a monthly statement showing compensation and deductions made
within the accounting period. Each statement is deemed to be correct and
accurate unless You object in writing thereto within thirty (30) days after
it has been mailed or delivered. If commissions due You total less than
$50.00 in A calendar month, then commissions payable will be deferred until
accrued commissions exceed $50.00. If the total amount of earned
compensation payable to You during any six (6) consecutive months, in
aggregate, is not at least $200.00, no further compensation shall be payable
to You under this contract. Further, in the event You breach any provision
of this Contract or You are Terminated For Cause under Paragraph D.2. of
this Contract, no further compensation shall be payable to You under this
Contract.
D. TERMINATION
1. Termination Without Cause
a. At any time either You or the Master General Agent may terminate
this Contract without Cause by giving one hundred twenty (120) days
notice in writing sent to the last known address of the other. If
You are an individual, this Contract shall immediately terminate
without Cause upon Your death. If You are a partnership, the death
of either partner shall not terminate this Contract but it shall
continue in force and effect in favor of the surviving partner. If
You are a corporation, this Contract shall immediately terminate
upon Your dissolution, sale, bankruptcy or insolvency, or sale, to
the extent such sale was not approved in writing in advance by
Master General Agent (which approval shall not be unreasonably
withheld); provided, however, that any such termination shall not
serve to terminate any vested commissions at the time of such
termination.
b. This Agreement shall terminate in the event of the notification to
the Master General Agent from the Company of the termination of
reinsurance of the Company on business covered by this Agreement
and the failure to replace such reinsurance on terms and conditions
substantially similar to the terms and conditions in the
reinsurance Agreement. The Master General Agent shall give National
Marketer prompt notice of termination of reinsurance, and shall
attempt to give such notice at least 30 days prior to such
termination.
c. Without notice this Contract may be immediately terminated and all
commissions and claims whatsoever accruing hereunder shall be
forfeited and void if You earn less than the required amount of
compensation as stated in Paragraph C.3. of this Contract for any
six (6) consecutive months.
<PAGE>
2. Termination For Cause
Without notice this Contract shall immediately terminate for cause and all
commissions and claims whatsoever accruing hereunder shall be forfeited
and void if You:
a. Fail to comply with any provision of this Contract, which failure
is not cured by You within 30 days of notice to You of such
failure.
b. Violate any material law or regulation regarding the sale of
insurance or fail to comply with any court order.
c. Knowingly or intentionally induce or attempt to induce
policyholders or certificateholders of the Company to reduce or
discontinue any premium payment to It.
d. Withhold or convert Company property.
e. Commit any other willful or dishonest act with the intent to injure
the Company.
f. Fail to maintain the necessary licenses and appointments to solicit
the Company's products in the states in which you operate, whether
resident or non-resident, not including any immaterial defect
capable of cure within 30 days.
3. Forfeiture
If this Contract is terminated without cause but the Company discovers that
during Your association with the Company or afterwards that You have
committed any of the acts described in paragraph D. 2., then You shall
forfeit to the Company all right, title and interest in any compensation
under this Contract. A forfeiture under this paragraph shall not constitute
a waiver or an election by the Company to forego any claim It may have
against You.
E. MISCELLANEOUS PROVISIONS
1. Injunction
You agree that if during this Contract or within two years after
termination, You do any of the acts described in paragraph D.2. sub-
paragraphs (c), (d), or (e) of this Contract, that damages, if any, and
remedies at Law for doing such acts would be inadequate. Therefore, in the
event You do any such acts the Company shall be entitled to an injunction,
without the necessity of finishing bond, restraining You from any such act.
You agree that any such act would result in continuing irreparable harm and
damage to the Company, but nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to It,
including the recovery of damages from You.
2. Assignment & Modification
No assignment of this Contract or any compensation due hereunder shall be
valid unless in writing and approved, in advance, by the Master General
Agent and the Company. No modification of this Contract shall be binding on
the Master General Agent and the Company unless in writing and signed and
approved by the Master General Agent and an authorized Officer of the
Company.
<PAGE>
3. Bankruptcy
If You should take or be placed in bankruptcy to the extent of any amount
due the Company under this or any other Contract with the Company, no
compensation shall be payable under this Contract, and such compensation
shall immediately become the Company's property, until and unless all such
amount due the Company shall be recouped by or repaid to the Company in
full.
4. Arbitration; Enforceability; Place of Payment
In consideration of the execution of this Contract and other valuable
considerations, You agree that any controversy or claim arising out of, or
relating to, this Contract, or its breach, shall be settled by arbitration
in Dallas, Texas, in accordance with the rules, then obtaining, of the
American Arbitration Association, and judgement on the award rendered may be
entered in any court having competent jurisdiction. In the event that this
arbitration clause is deemed invalid, illegal, or unenforceable, You agree
that any litigation resulting from the violation of the terms and conditions
of this Contract by You or the Master General Agent or the Company shall be
brought in Dallas County, Texas. This Contract is made subject to the laws
of the State of Texas, and all compensation payable hereunder shall be
payable at Dallas, Texas.
5. Priority; No Waiver; Cumulative Remedies
This Contract supersedes and replaces any Contract or agreement previously
entered into between You and the Master General Agent and the Company with
respect to any future transactions for products sold through the Master
General Agent. However, any rights You and the Company have under any
previous Contract are otherwise unaffected except as expressly provided in
this Contract. Neither any failure nor any delay on the part of the Company
in exercising any right, power or privilege hereunder, nor any course of
dealing between the National Marketer and Company, shall operate as a waiver
thereof; nor shall a single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
6. Severability
In case any one or more of the provisions contained in this Contract should
be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in
any way be affected or impaired thereby.
7. Survival of Representations and Warranties
All covenants, representations and warranties made herein shall survive the
execution and delivery hereof and shall continue in full force and effect
during the term of this Agreement and after the termination thereof.
8. Entire Contract
This Contract contains the entire agreement between You and the Master
General Agent. The Contract shall become effective only when first executed
by You and thereafter accepted by the Master General Agent at Dallas, Texas.
9. Effective Date
This Contract becomes effective on the date it is accepted by the Master
General Agent.
<PAGE>
NATIONAL MARKETER
Name: Rushmore Insurance Services, Inc.
Address: 650 One Galleria Tower
City: Dallas, Texas Zip: 75240
By: /s/ Dewey M. Moore, Jr. 1/26/98
Title:
SPONSORING AGENT
Name: Innovative Producers, Inc.
By: /s/ John A. Bonnet
Innovative Producers, Inc., MASTER GENERAL AGENT
A MEMBER OF THE HANEY GROUP, INC.
12222 Merit Dr., Suite 850
Dallas, Texas 75251
(972) 960-1081
(972) 960-8245 (Fax)
COMMISSION SCHEDULE
EXHIBIT A
This Commission Schedule, herein referred to as Schedule, is attached to and
made a part of the National Marketing Agreement with Innovative Producers, Inc.
("Master General Agent") and Rushmore Insurance Services, Inc. ("National
---------------------------------
Marketer, You, Your"). The effective date of this Schedule shall be the 1st day
of December, 1997. You shall receive total compensation in the aggregate for
--------
You and Your Sub-Agents (as defined IN the National Marketing Agreement) in
accordance with the terms of Your National Marketing Agreement and this Schedule
as follows:
COMMISSION
----------
POLICY FORM A70004:
Year 1 45 %
Year 2 and Later 12 %
Association Dues AND INITIAL Enrollment Fees Are Not Eligible for Commission
<PAGE>
EXHIBIT 10.6.3
OVERHEAD SERVICE AGREEMENT
THIS AGREEMENT ("Agreement") entered into between Rushmore Capital Corporation,
a Texas Corporation, and Rushmore Securities Corporation ("RSC") , a Texas
Corporation , as follows:
WITNESSETH:
WHEREAS, RSC has requested and Rushmore Capital Corporation has agreed to make
available certain facilities and provide for performance of certain services for
RSC for consideration upon the terms and conditions herein set forth:
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, Rushmore Capital Corporation and RSC agree as
follows:
1. PERSONAL PROPERTY. At all times during the term of this Agreement,
Rushmore Capital Corporation agrees to provide and make available for use by RSC
at the leased premises referred to in Section 3 hereof those certain desks,
tables, chairs, typewriters, copying machines, dictating machines, and all other
items of personal property required to conduct business on a daily basis (herein
collectively called "Personal Property") Rushmore Capital Corporation agrees to
undertake to perform and bear all costs relating to periodic maintenance and
repairs for Personal Property in order that same shall at all times be in good
operating condition and repair and suitable and adequate for the purpose
intended. RSC agrees to utilize the Personal Property in the proper manner and
for the purpose intended, and promptly to notify Rushmore Capital Corporation of
any defect or malfunction in which event Rushmore Capital Corporation agrees
promptly to undertake to provide and diligently pursue effecting any needed
repairs or replacement of the Personal Property.
2. STAFF. At all times during the term of this Agreement, Rushmore Capital
Corporation shall provide RSC personnel to perform services as receptionists,
telephone answering, stenographic, secretarial, accounting and bookkeeping and
such other support services as customarily are required in the conduct of
securities and investment business as RSC may require.
<PAGE>
3. OFFICE SPACE. At all times during the term of this Agreement, Rushmore
Capital Corporation shall make available to RSC by means of assignment,
subletting or such other means as Rushmore Capital Corporation shall select, the
leased premises commonly designated as ("Premises") such utilization by RSC to
be upon and subject to the terms and conditions set forth in that certain Lease
Agreement executed ("Lease") between Rushmore Capital Corporation and the
therein stated Landlord, EXCEPT ONLY as such terms and conditions may be altered
or amended by the terms and conditions of this Agreement. Rushmore Capital
Corporation and RSC further agree as follows:
a. Rushmore Capital Corporation agrees to be solely responsible for
obligations of the lessee as set forth in the Lease with regard to repairs and
maintenance of the Premises as may be necessary at any time or from time to time
during the term of this Agreement, except only for any such repairs which may be
due to the negligence or willful misconduct of RSC or any of its partners,
employees or agents.
b. Rushmore Capital Corporation and RSC acknowledge and agree that, if
required by the Lease, Rushmore Capital Corporation's making the Premises
available to RSC as herein set forth shall be subject to, and require consent
and approval of Landlord, and Rushmore Capital Corporation and RSC covenant and
agree promptly to request and to use their best efforts to obtain such consent
(provided, however that such consent shall not be subject to any conditions or
limitations imposed by Landlord not acceptable to Rushmore Capital Corporation
or RSC.).
4. GENERAL AND ADMINISTRATIVE EXPENSES: Commencing on February, 1, 1996,
Rushmore Capital Corporation shall incur the following general and
administrative expenses for the benefit of RSC.
Rent
Payroll
Office Supplies
Equipment and Servicing and Maintenance
Postage
Depreciation on Furniture, Equipment & Capital Leases
Office Utilities
Other Miscellaneous Expenses
5. TERM: This Agreement shall be for a term of one year commencing on the
effective date hereof and shall thereafter be automatically renew on a year-to-
year basis unless and until terminated by Rushmore Capital Corporation or RSC on
written notice given not less than thirty (30) days prior to expiration of an
annual term hereof.
6. COMPENSATION: RSC agrees to pay to Rushmore Capital Corporation as
mutually agreed, in December of each year, for the use of the Personal Property,
services provided, general and administrative expenses incurred, and for the use
and occupancy of the Premises, pursuant to Sections 1, 2, 3, and 4 as an
overhead reimbursement expense.
<PAGE>
This amount may be increased to reflect Rushmore Capital Corporation's pro-rata
share of all escalations in such rental or of the pass-through by Landlord of
increases in utility costs, taxes, and like, all determined as provided in the
Lease. Rushmore Capital Corporation and RSC may re-determine giving due
consideration to any expansion or adjustment of the service or any change in the
Personal Property provided hereunder and to Rushmore Capital Corporation's
actual experience in fulfilling its obligations hereunder. This payment shall,
unless otherwise expressly stated, be made in cash on the last day of December
in each calendar year during the term of this Agreement. All past-due sums shall
bear interest at 10% (ten percent) from due date until paid.
7. NOTICES: Any notices permitted or required under the terms of this
Agreement shall be in writing and shall be deemed duly given if personally
delivered or mailed, United States Mail, first class, certified or registered,
return receipt requested, postage prepaid, addressed to their parties at their
address as any party may hereafter communicate to the other by notice as
hereafter communicate to the other by notice as herein provided.
8. MISCELLANEOUS: This represents the entire agreement between Rushmore
Capital Corporation and RSC regarding the subject matter hereof and supersedes
all prior agreements and understandings between the parties. This Agreement may
not be amended except by an instrument in writing executed by the party against
whom any such amendment or modification is sought to be enforced. This
Agreement shall be governed and construed in accordance with the laws of the
State of Texas.
WITNESS THE EXECUTION of this Agreement March 19, 1996 and EFFECTIVE FOR ALL
PURPOSES AS OF February 1, 1996.
Rushmore Securities Corporation
Rushmore Capital Corporation
By: /s/ Jim W. Clark By: /s/ D. M. Moore, Jr.
------------------------- --------------------------
President President
<PAGE>
EXHIBIT 10.6.4
OVERHEAD SERVICE AGREEMENT
THIS AGREEMENT ("Agreement") entered into between Rushmore Capital Corporation,
a Texas Corporation, and Rushmore Investment Advisors, Inc. , a Texas
Corporation, as follows:
WITNESSETH:
WHEREAS, Rushmore Investment Advisors, Inc. has requested and Rushmore Capital
Corporation has agreed to make available certain facilities and provide for
performance of certain services for Rushmore Investment Advisors, Inc. for
consideration upon the terms and conditions herein set forth:
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, Rushmore Capital Corporation and Rushmore
Investment Advisors, Inc. agree as follows:
1. PERSONAL PROPERTY. At all times during the term of this Agreement,
Rushmore Capital Corporation agrees to provide and make available for use by
Rushmore Investment Advisors, Inc. at the leased premises referred to in Section
3 hereof those certain desks, tables, chairs, typewriters, copying machines,
dictating machines, and all other items of personal property required to conduct
business on a daily basis (herein collectively called "Personal Property")
Rushmore Capital Corporation agrees to undertake to perform and bear all costs
relating to periodic maintenance and repairs for Personal Property in order that
same shall at all times be in good operating condition and repair and suitable
and adequate for the purpose intended. Rushmore Investment Advisors, Inc.
agrees to utilize the Personal Property in the proper manner and for the purpose
intended, and promptly to notify Rushmore Capital Corporation of any defect or
malfunction in which event Rushmore Capital Corporation agrees promptly to
undertake to provide and diligently pursue effecting any needed repairs or
replacement of the Personal Property.
2. STAFF. At all times during the term of this Agreement, Rushmore Capital
Corporation shall provide Rushmore Investment Advisors, Inc. personnel to
perform services as receptionists, telephone answering, stenographic,
secretarial, accounting and bookkeeping and such other support services as
customarily are required in the conduct of investment business by Rushmore
Investment Advisors, Inc. may require.
<PAGE>
3. OFFICE SPACE. At all times during the term of this Agreement, Rushmore
Capital Corporation shall make available to Rushmore Investment Advisors, Inc.
by means of assignment, subletting or such other means as Rushmore Capital
Corporation shall select, the leased premises commonly designated as
("Premises") such utilization by Rushmore Investment Advisors, Inc. to be upon
and subject to the terms and conditions set forth in that certain Lease
Agreement executed ("Lease") between Rushmore Capital Corporation and the
therein stated Landlord, EXCEPT ONLY as such terms and conditions may be altered
or amended by the terms and conditions of this Agreement. Rushmore Capital
Corporation and Rushmore Investment Advisors, Inc. further agree as follows:
a. Rushmore Capital Corporation agrees to be solely responsible for
obligations of the lessee as set forth in the Lease with regard to repairs and
maintenance of the Premises as may be necessary at any time or from time to time
during the term of this Agreement, except only for any such repairs which may be
due to the negligence or willful misconduct of Rushmore Investment Advisors,
Inc. or any of its partners, employees or agents.
b. Rushmore Capital Corporation and Rushmore Investment Advisors, Inc.
acknowledge and agree that, if required by the Lease, Rushmore Capital
Corporation's making the Premises available to Rushmore Investment Advisors,
Inc. as herein set forth shall be subject to, and require consent and approval
of Landlord, and Rushmore Capital Corporation and Rushmore Investment Advisors,
Inc. covenant and agree promptly to request and to use their best efforts to
obtain such consent (provided, however that such consent shall not be subject to
any conditions or limitations imposed by Landlord not acceptable to Rushmore
Capital Corporation or Rushmore Investment Advisors, Inc.).
4. GENERAL AND ADMINISTRATIVE EXPENSES: Commencing on February, 1, 1996,
Rushmore Capital Corporation shall incur the following general and
administrative expenses for the benefit of Rushmore Investment Advisors, Inc.
Rent
Payroll
Office Supplies
Equipment and Servicing and Maintenance
Postage
Depreciation on Furniture, Equipment & Capital Leases
Office Utilities
Other Miscellaneous Expenses
5. TERM: This Agreement shall be for a term of one year commencing on the
effective date hereof and shall thereafter be automatically renew on a year-to-
year basis unless and until terminated by Rushmore Capital Corporation or
Rushmore Investment
<PAGE>
Advisors, Inc. on written notice given not less than thirty (30) days prior to
expiration of an annual term hereof.
6. COMPENSATION: Rushmore Investment Advisors, Inc. agrees to pay to Rushmore
Capital Corporation as mutually agreed, in December of each year, for the use of
the Personal Property, services provided, general and administrative expenses
incurred, and for the use and occupancy of the Premises, pursuant to Sections 1,
2, 3, and 4 as an overhead reimbursement expense. This amount may be increased
to reflect Rushmore Capital Corporation's pro-rata share of all escalations in
such rental or of the pass-through by Landlord of increases in utility costs,
taxes, and like, all determined as provided in the Lease. Rushmore Capital
Corporation and Rushmore Investment Advisors, Inc. may re-determine giving due
consideration to any expansion or adjustment of the service or any change in
the Personal Property provided hereunder and to Rushmore Capital Corporation's
actual experience in fulfilling its obligations hereunder. This payment shall,
unless otherwise expressly stated, be made in cash on the last day of December
in each calendar year during the term of this Agreement. All past-due sums shall
bear interest at 10% (ten percent) from due date until paid.
7. NOTICES: Any notices permitted or required under the terms of this
Agreement shall be in writing and shall be deemed duly given if personally
delivered or mailed, United States Mail, first class, certified or registered,
return receipt requested, postage prepaid, addressed to their parties at their
address as any party may hereafter communicate to the other by notice as
hereafter communicate to the other by notice as herein provided.
8. MISCELLANEOUS: This represents the entire agreement between Rushmore
Capital Corporation and Rushmore Investment Advisors, Inc. regarding the subject
matter hereof and supersedes all prior agreements and understandings between the
parties. This Agreement may not be amended except by an instrument in writing
executed by the party against whom any such amendment or modification is sought
to be enforced. This Agreement shall be governed and construed in accordance
with the laws of the State of Texas.
WITNESS THE EXECUTION of this Agreement March 19, 1996 and EFFECTIVE FOR ALL
PURPOSES AS OF February 1, 1996.
Rushmore Investment Advisors, Inc. Rushmore Capital Corporation
by: /s/ F.E. Mowrey by: /s/ D. M. Moore, Jr.
------------------------ ---------------------------
President President
<PAGE>
EXHIBIT 10.6.5
OVERHEAD SERVICE AGREEMENT
THIS AGREEMENT ("Agreement") entered into between Rushmore Capital Corporation,
a Texas Corporation, and Rushmore Insurance Services Incorporated, a Texas
Corporation ("RIS"). as follows:
WITNESSETH:
WHEREAS, RIS has requested and Rushmore Capital Corporation has agreed to make
available certain facilities and provide for performance of certain services for
RIS for consideration upon the terms and conditions herein set forth:
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, Rushmore Capital Corporation and RIS agree as
follows:
1. PERSONAL PROPERTY. At all times during the term of this Agreement,
Rushmore Capital Corporation agrees to provide and make available for use by RIS
at the leased premises referred to in Section 3 hereof those certain desks,
tables, chairs, typewriters, copying machines, dictating machines, and all other
items of personal property required to conduct business on a daily basis (herein
collectively called "Personal Property") Rushmore Capital Corporation agrees to
undertake to perform and bear all costs relating to periodic maintenance and
repairs for Personal Property in order that same shall at all times be in good
operating condition and repair and suitable and adequate for the purpose
intended. RIS agrees to utilize the Personal Property in the proper manner and
for the purpose intended, and promptly to notify Rushmore Capital Corporation of
any defect or malfunction in which event Rushmore Capital Corporation agrees
promptly to undertake to provide and diligently pursue effecting any needed
repairs or replacement of the Personal Property.
2. STAFF. At all times during the term of this Agreement, Rushmore Capital
Corporation shall provide RIS personnel to perform services as receptionists,
telephone answering, stenographic, secretarial, accounting and bookkeeping and
such other support services as customarily are required in the conduct of
investment business by RIS may require.
<PAGE>
3. OFFICE SPACE. At all times during the term of this Agreement, Rushmore
Capital Corporation shall make available to RIS by means of assignment,
subletting or such other means as Rushmore Capital Corporation shall select, the
leased premises commonly designated as ("Premises") such utilization by RIS to
be upon and subject to the terms and conditions set forth in that certain Lease
Agreement executed ("Lease") between Rushmore Capital Corporation and the
therein stated Landlord, EXCEPT ONLY as such terms and conditions may be altered
or amended by the terms and conditions of this Agreement. Rushmore Capital
Corporation and RIS further agree as follows:
a. Rushmore Capital Corporation agrees to be solely responsible for
obligations of the lessee as set forth in the Lease with regard to repairs and
maintenance of the Premises as may be necessary at any time or from time to time
during the term of this Agreement, except only for any such repairs which may be
due to the negligence or willful misconduct of RIS or any of its partners,
employees or agents.
b. Rushmore Capital Corporation and RIS acknowledge and agree that, if
required by the Lease, Rushmore Capital Corporation's making the Premises
available to RIS as herein set forth shall be subject to, and require consent
and approval of Landlord, and Rushmore Capital Corporation and RIS covenant and
agree promptly to request and to use their best efforts to obtain such consent
(provided, however that such consent shall not be subject to any conditions or
limitations imposed by Landlord not acceptable to Rushmore Capital Corporation
or RIS).
4. GENERAL AND ADMINISTRATIVE EXPENSES: Commencing on February 1, 1996,
Rushmore Capital Corporation shall incur the following general and
administrative expenses for the benefit of RIS
Rent
Payroll
Office Supplies
Equipment and Servicing and Maintenance
Postage
Depreciation on Furniture, Equipment & Capital Leases
Office Utilities
Other Miscellaneous Expenses
5. TERM: This Agreement shall be for a term of one year commencing on the
effective date hereof and shall thereafter be automatically renew on a year-to-
year basis unless and until terminated by Rushmore Capital Corporation or RIS on
written notice given not less than thirty (30) days prior to expiration of an
annual term hereof.
6. COMPENSATION: RIS agrees to pay to Rushmore Capital Corporation as mutually
agreed, in December of each year, for the use of the Personal Property, services
provided, general and administrative expenses incurred, and for the use and
occupancy of the Premises, pursuant to Sections 1, 2, 3, and 4 as an overhead
reimbursement expense.
<PAGE>
This amount may be increased to reflect Rushmore Capital Corporation's pro-rata
share of all escalations in such rental or of the pass-through by Landlord of
increases in utility costs, taxes, and like, all determined as provided in the
Lease. Rushmore Capital Corporation and RIS may re-determine giving due
consideration to any expansion or adjustment of the service or any change in the
Personal Property provided hereunder and to Rushmore Capital Corporation's
actual experience in fulfilling its obligations hereunder. This payment shall,
unless otherwise expressly stated, be made in cash on the last day of December
in each calendar year during the term of this Agreement. All past-due sums shall
bear interest at 10% (ten percent) from due date until paid.
7. NOTICES: Any notices permitted or required under the terms of this
Agreement shall be in writing and shall be deemed duly given if personally
delivered or mailed, United States Mail, first class, certified or registered,
return receipt requested, postage prepaid, addressed to their parties at their
address as any party may hereafter communicate to the other by notice as
hereafter communicate to the other by notice as herein provided.
8. MISCELLANEOUS: This represents the entire agreement between Rushmore
Capital Corporation and RIS regarding the subject matter hereof and supersedes
all prior agreements and understandings between the parties. This Agreement may
not be amended except by an instrument in writing executed by the party against
whom any such amendment or modification is sought to be enforced. This
Agreement shall be governed and construed in accordance with the laws of the
State of Texas.
WITNESS THE EXECUTION of this Agreement March 19, 1996 and EFFECTIVE FOR ALL
PURPOSES AS OF February 1, 1996.
Rushmore Insurance Services, Inc. Rushmore Capital Corporation
by: /s/ D. M. Moore, Jr. by: /s/ D. M. Moore, Jr.
--------------------------- --------------------------
President President
<PAGE>
EXHIBIT 10.7
REPRESENTATIVE AGREEMENT
THIS REPRESENTATIVE AGREEMENT ("Agreement") is made and entered into this 9th
day of April, 1994 by and between Rushmore Securities, Inc. (RSC), a Texas
Corporation, with its principal office located at 15851 Dallas Parkway, Suite
1155, Dallas, Texas 75248 and the undersigned Kenny Anderson (Hereinafter
referred to as "RR")
WHEREAS, RSC is a duly qualified broker-dealer, and
WHEREAS, Registers Representative "RR" desires to engage in the sale of
securities the parties hereto that the RR conduct such sales activities as an
independent securities salesperson and not as an employee, as provided by
paragraph 6 of Mimeograph 6656, published by the office of the Commissioner of
Internal Revenue in Cumulative Bulletin 1951-1, page 108, subject to such
supervisory restrictions as are required by the SEC, NASD, Securities Commission
of the State of Texas or other applicable states, and other Regulatory
Authorities and Associations as are necessary to properly qualify the RR.
NOW, THEREFORE, it is agreed:
1. DEFINITIONS
(a) The term "Registered Representative" shall have the meaning provided
by schedule C of Article II of the By-Laws of the NASD.
(b) The term SEC shall mean the Securities and Exchange Commission.
(c) The term "NASD" shall mean the National Association of Securities
Dealers, Inc.
(d) The term "Regulatory Authority" shall mean the SEC, NASD, Securities
Commission of the applicable state(s) and any other organization, association or
governmental authority having jurisdiction over securities engaged in by RSC or
the RR by reason of any statute, rule or regulation or by reason of membership
of RSC in such organization or association.
2. TERM
This agreement and the association between parties may be terminated at any
time, for any reason, by either party upon written notice to the other party.
Upon termination of this agreement and the association, regardless of how such
termination may be brought about, RR will promptly return to RSC all
instruments, documents and other materials which RSC may have provided to RR or
which may have been otherwise acquired by RR in connection with or as a result
of the association with RSC.
3. SERVICE OF REPRESENTATIVE
RR shall have the right to solicit, promote and encourage sales and
purchases of, securities approved by RSC for the general public, as a Registered
Representative in accordance with the rules and regulations published by
Regulatory Authorities and governed by the specific securities license held by
the RR. However, RSC reserves the right to refuse any application, subscription
agreement or sale obtained by the RR. The RR status will be that of independent
contractor of RSC and nothing herein shall be construed to create the
relationship of employer and employee between RSC and RR. Subject to RR's strict
compliance with the requirements, terms, and conditions of this Agreement, RR
shall be free to exercise his or her own judgement and discretion as to: the
persons from whom the RR will solicit applications and orders for the purchase
and sale of Securities Products; the time, method and place of solicitation; the
location of, and all arrangements for, and all employees of, and all other
aspects of, RR's business.
<PAGE>
4. COMMISSIONS
Pursuant to paragraph 3 hereof, RSC agrees to pay RR commissions on the
sale of securities as provided for herein, such commission to be paid as set
forth in Exhibit "A" attached hereto, and incorporated herein by reference.
Commissions shall be considered earned only when commissions are received by RSC
from the issuer. RR specifically waives payment of any and all commissions due
them until such time as RSC is in receipt of the commission(s). All indebtedness
of RR to RSC shall be considered to be a prior lien against any commission due
RR and shall be deducted from proceeds payable to RR. If for Whatever reason, a
charge-back is levied against RSC by an issuer or another broker-dealer who has
paid a dealer re allowance or commission to RSC a proportionate charge-back does
not constitute grounds for refusal to pay RSC such amount on demand whether RR
is currently registered with RSC or not. RR will not receive any continuing
commissions (whether for business solicited by RR or for Override Commissions or
otherwise) after termination of this Agreement. After termination of this
Agreement, RR will receive only such commissions: as were actually earned prior
to termination; and such that would have been earned prior to termination but
had not been earned only because the had not been received by RSC; and as to the
latter, RR will receive those commissions only when they are received by RSC.
Any monies that may be paid by RSC to RR as an advance loan against RR's
commission or Override Commission, either or both of which are yet to be earned.
Any and all advance commissions are a loan to RR.
- -------------------------------------------------
5. EXPENSES
RR further agrees that any and all expenses which may be incurred by RR
shall be the sole and exclusive obligation of the RR, including but not limited
to, the payment of all fees, regulatory assessments, bonds, administrative
expenses of registration and license(s) maintenance incurred by RSC on behalf of
the RR; provided, however, that RSC will provide without charge standard
literature and other material relating to the securities being marketed at no
cost. It shall be the sole responsibility of the RR to pay overhead expenses
incident to his activities under the terms of this Agreement, including but not
limited to, secretarial, licensing, entertainment, education and transportation
expense, none of which shall be the responsibility of RSC. Neither shall RSC
provide to RR any other benefit or compensation other that the commissions
provided for in paragraph 4 above. As an independent contractor, RR shall be a
self employed-person and RSC shall not withhold or pay federal income or FICA
taxes, the payment of such taxes being the sole responsibility of RR.
6. OBLIGATIONS OF RSC
RSC agrees to maintain an effective and adequately capitalized broker-
dealership properly registered with all Regulatory Authorities. RSC further
agrees to furnish the RR facilities for execution and confirmation services. RSC
from time to time may choose to make reports or other services available, but it
is not obligated to do so. It may also agree from time to time to provide
additional services for an agreed upon fee to the RR.
7. OBSERVANCE OF REGULATORY REQUIREMENTS
RR agrees to maintain their operations in conformity with all applicable
laws, rules and regulations of Regulatory Authorities, including, but not
limited to those practices prescribed by the Manual of the NASD and the
currently effective RSC Supervisory Procedures Manual, the requirements of which
are incorporated herein by reference. RR will not conduct any business not
permitted under their license. They shall be responsible for adherence to all
applicable securities regulations. In the event that any liability is asserted
against his actions or omissions, RR agrees to reimburse, indemnify and hold
harmless RSC from any expense it may incur including attorney's fees by reason
of any breach of this
2
<PAGE>
paragraph 7 or paragraph 10 and of said laws, rules and regulations. The RR
shall observe such written procedures as are published by RSC.
RR is prohibited from, and agrees that RR shall not: (a) collect from
Customers, in payment of the purchase of securities, cash, or checks made
payable other than to RSC or to the appropriate custodian bank or transfer agent
relating to such purchases, all as designated by RSC; (b) offer or sell any
security unless it is a Securities Product; (c) offer or sell any security
unless there exists at the time of such offer or sale an effective dealer
agreement between RSC and the issuer, underwriter custodian or transfer agent of
said security; (d) make, alter or discharge on behalf of RSC any contract or
investment, or waive any provision other than in strict compliance with the
terms and conditions of the securities laws and in accordance with this
Agreement and the procedures, manuals, rules and regulations with this Agreement
and the procedures, manuals, rules and regulations of RSC; or (e) make any
misrepresentation, or improperly induce a Customer to purchase or sell any
security or any Securities Product.
8. TRANSACTIONS WITH OTHER BROKER-DEALERS
During the Term of this Agreement, RR shall not: (a) be associated with or
be a registered representative of any other broker-dealer; (b) maintain any NASD
registration other than with RSC; or (c) solicit or offer for purchase or sale
any securities, or investments except on behalf of RSC. RR agrees to immediately
notify RSC in writing if RR acquires or obtains any interest in or affiliation
with any other broker-dealer or engages in any employment relating to the sale
of securities or investments, either directly or indirectly, either alone or
with any person or entity other than RSC. RR shall immediately notify RSC if RR
becomes involved in any activity that would create the possibility of a conflict
of interest on the part of RR with respect to RSC or any Securities Product
offered by or on behalf of RSC RR shall not execute a securities transaction for
the account of any RR or employee (or close relative of either) of any other
broker-dealer without the prior written approval of RSC.
9. BREACH OF REGULATORY DUTIES
Notwithstanding the provisions of paragraph 2 hereto as to notice to
termination of this Agreement, RSC shall have the right to require RR to suspend
transactions in a particular security to the extent that any such transaction,
or the actions of the RR with respect hereto, could, in the opinion of RSC, be
considered a breach of any law, rule or regulation of any Regulatory Authority.
Provided Further, that said right to require suspension of any transaction or
transactions shall be enforceable by injunction by a court of competent
jurisdiction. Failure by RR to suspend transactions when notified by RSC shall
be deemed a material breach of this Agreement, and RSC may at its option
terminate this agreement on the occurrence of such breach.
10. USE OF RSC NAME; INDEMNIFICATION
The RR agrees to indemnify and save harmless RSC from any cost, expense or
damages, including reasonable attorney's fees to which RSC may become obligated
by reason of such grant of such status as a RR of RSC. If the RR operates under
any other name than RSC, he agrees not to advertise such name with respect to
the solicitation for or sale of securities. He further agrees that his clients
will be made aware that he is acting in the capacity of a RR of RSC.
Any advertising for the sale of securities must be approved by RSC to insure
that it adheres to the guidelines of the Regulatory Authorities. Nothing
contained herein shall be construed as a grant of authority to the RR, which
authority is specifically disclaimed.
11. CONSTRUCTION; SERVERABILITY
It is the intent of the parties hereto that the terms of this Agreement
shall be construed pursuant to the laws of the State of Texas, and in accordance
with the requirements of the SEC, NASD, and other Regulatory Authorities, to the
extent applicable hereto. To the extent that any of the provisions of this
3
<PAGE>
agreement shall be invalid or unenforceable, then this Agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
12. MODIFICATION
No change of this Agreement (including Exhibit A) shall be valid unless the
same be made in writing to RR by RSC.
13. ENTIRE AGREEMENT
This instrument is the entire Agreement of the parties, except to the
extent of any document incorporated herein by reference or any statutes rules
and regulations, clearing agreements or manuals referred to herein.
14. NON-ASSIGNABILITY; DEATH, DISABILITY
The services contracted hereunder are personal and dependent upon the
qualifications of the parties hereto and may not be assigned by either party
without the express consent of the other in writing. In the event of death,
disability or incapacity of the RR this agreement shall terminate.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT IN
DUPLICATE ORIGINALS THE DAY AND YEAR FIRST ABOVE WRITTEN.
REGISTERED REPRESENTATIVE RUSHMORE SECURITIES CORP.
/s/ Kenneth G. Anderson /s/ Jim W. Clark
- ---------------------------------- ---------------------------------
Signature Signature
/s/ Kenneth G. Anderson PRESIDENT - TITLE
- ---------------------------------- -------------------------
Print or Type Name of Signatory
EXHIBIT "A"
Commission payable to the RR will be 75% net of all clearing charges and/or
the dealer allowance paid to RSC on the following types of business:
Mutual Funds
Variable Annuities
Variable Life Products
Unit Investment Trusts
4
<PAGE>
EXHIBIT 10.8
RUSHMORE INVESTMENT ADVISORS. INC
================================================================================
PROFESSIONAL ADVISORY AGREEMENT
-------------------------------
Rushmore Investment Advisors, Inc. (Advisor) and Marjorie M. Chapman (Client)
enter into this Professional Services Agreement (the Agreement) on 8-25-97
(Date).
1. SERVICES PROVIDED:
Advisor agrees to direct, implement, monitor and manage the investment and
reinvestment of certain assets of the Client and the proceeds thereof. The
listing of assets included in this agreement is provided in attachment "A"
hereto. The parties agree that, upon addition or deletion of any asset
covered under this Agreement, Advisor will maintain an updated listing of
all assets covered under this Agreement. The revised asset listing as
maintained by Advisor will be considered as the revised attachment "A" to
this agreement.
2. PROGRAM AND ADVISORY AUTHORITY:
Advisor's authority with respect to the Client assets shall be one of the
following as indicated:
___ 1. INDIVIDUAL MANAGED ASSET PROGRAM (IMAP) Discretionary - Advisor
shall have authority to purchase and/or sell assets on behalf Client
without obtaining approval for any transaction.
______ Rushmore Managed Account
______ Third-Party Managed
X
--- 2. MUTUAL FUND MANAGED ASSET PROGRAM (MFMAP) Discretionary - Advisor
shall have authority to purchase and/or sell assets on behalf of client
without obtaining approval for any transaction.
3. ACCOUNT RESTRICTIONS:
Advisor agrees to observe any specific Client investment policy, guidelines
and/or restrictions as provided by Client.
4. REPORT TO CLIENT:
Advisor shall provide Client with quarterly written statements regarding
assets managed by Advisor, including the market value of current holdings,
purchases and sales, and any income or expense items (including any
advisory fees to be paid to Advisor). Client will receive an annual report
including all quarterly statements, meeting notes, and copies of all
correspondents.
5. PROXY VOTING:
Unless specifically directed by Client, Advisor shall not assume
---
responsibility for voting proxies on Client behalf.
6. BROKERAGE SERVICES:
Subject to Client approval, Advisor will select brokerage firms to execute
transactions on Client's behalf. Criteria used in selection process shall
include commission costs and execution capabilities. Advisor assumes
responsibility recommending brokerage firm and for negotiating brokerage
rates on Client's behalf. All brokerage commissions, stock transfer fees
and other
________________________________________________________________________________
13355 Noel Road, Suite 300 (214) 234-2829(Voice)
Dallas, TX 75240 (214) 234-8949 (FAX)
<PAGE>
similar charges relating to Client's investments shall be paid by Client.
Advisor shall not receive commissions for the sale or redemption of mutual
fund securities in Client's portfolio. Advisor may use an affiliated
broker/dealer to efficiently execute trades for Client's portfolio.
Transaction fees for mutual fund securities received by any affiliated
broker dealer shall not exceed the transaction charges on the Advisory Fee
Schedule in Exhibit A. In addition Advisor may receive administrative
service fees from various mutual fund sponsors for rendering specific
services to the mutual fund. This is separate from 12(b)1 administrative
service fee paid on some mutual funds to the broker/dealer of record.
7. CUSTODY OF ASSETS:
Client acknowledges that Advisor will not have custody of Client's funds.
Client retains responsibility for custodianship of all Client assets.
Client acknowledges that Advisor is only providing advisory services
described in this Agreement and that Advisor retains no custody or
possession of the assets in the Client's account and performs no depository
services with respect to Client's account.
8. CONFIDENTIALLY OF INFORMATION:
All advice as provided by Advisor is to be confidential, and not publicized
or communicated to any outside third party without the written consent of
Advisor and Client, except as required by applicable state or federal law.
9. FEES:
Fees payable to Advisor for advisory services shall be calculated as a
percentage of the average daily market value of the assets managed,
according to the fee schedule shown below. Fees shall become due payable at
the end of each calendar quarter in which the Client's assets are managed
by Advisor. A deposit, equal to the fees calculated according to the fee
schedule below, based on the balance at the beginning of each quarter, will
be retained by Advisor until the end of each quarter at which time the fees
are due and payable. Advisor shall notify Client in writing of the amount
of fees due, how the fees were calculated, and the value of the assets on
which the fees were computed. Client will provide for an automatic draft to
be established for payment of all fees. The base number for fee calculation
shall be the assets under management by Advisor as of the end of each
calendar quarter. Fees for a partial quarter shall be calculated on a pro
rata basis assuming 365 day year. Advisor does not offer any fee schedule
based on account performance. All Accounts are subject to a minimum
quarterly fee of $500.00.
FEE SCHEDULE
------------
<TABLE>
<CAPTION>
Assets Managed (average daily balance in quarter) Ann Rate Qtly Rate
------------------------------------------------ -------- ---------
<S> <C> <C>
Amounts equal to or less than $250,000 2.00% .5000%
Amounts greater than $250,000 or equal to $500,000 1.75% .4375%
Amounts greater than $500,000 but less than or equal to $1,000,000 1.50% .3800%
Amounts greater than $1,000,000 but less than equal to $3,000,000 1.00% .2500%
Amounts greater than $3,000,000 negotiable
</TABLE>
All fees are payable monthly or quarterly and are negotiable with Client.
Where advanced retainers are deposited, and are not for more than three
months in advance, and if the engagement is subsequently terminated, any
unearned fees will be refunded to Client. Client agrees that the
________________________________________________________________________________
13355 Noel Road, Suite 300 (214) 234-2829 (Voice)
Dallas, Tx 75240 (214) 234-8949 (FAX)
<PAGE>
Advisor may send bills for its fees for direct payment by the bank or firm
holding Client's securities and funds, provided that at the same time
Advisor sends a copy of its billing to Client showing the amount of the
fee, the value of the Client's assets on which the fee is based, and the
specific manner in which the fee is calculated.
10. ASSIGNABILITY:
This Agreement may not be assigned to any third party by without written
consent of Client. This agreement shall be binding upon and inure to the
benefit of the parties, and successors, heirs and assigns of Client.
11. DIVISIBILITY OF AGREEMENT:
If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without
being impaired or invalidated in any way.
12. TERM OF AGREEMENT:
This Agreement shall take effect as of the date of execution by both
parties, and shall continue in effect until terminated by either party, one
to the other, upon thirty days written notice.
13. APPOINTMENT OF RUSHMORE AS ATTORNEY-IN-FACT:
Subject to the elections in paragraph 2, Client agrees to appoint Advisor
its agent and attorney-in-fact in connection with assets managed by Advisor
for Client, including but not limited to, purchase and sale of securities,
clearance and settlement of securities transactions, transfer, receipt, and
delivery of securities or cash, and authorizes Advisor to give such
instructions and to act on behalf of the Client with respect to the managed
assets in the same manner and with the same force and effect as if the
Client acted directly. This Limited Power of Attorney shall remain in
effect until authority is revoked by Client upon receipt by Advisor of
written notice of such revocation. A copy of the Limited Power of Attorney,
once executed, will be attached hereto as exhibit B.
14. ENTIRE AGREEMENT:
This Agreement supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter and
contains all of the covenants and agreements between the parties with
respect to said matter. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement, statements, or
promises not contained in this Agreement shall be valid or binding.
I5. GOVERNING LAW:
This agreement shall be governed by and construed in accordance with the
laws of the State of Texas
16. NOTICES:
Notices under this Agreement shall be in written form, and directed to the
designated representatives of Advisor and Client as shown below. Both
Advisor and Client warrant that the
________________________________________________________________________________
13355 Noel Road Suite 300 (214) 234-2829(Voice)
Dallas, TX 75240 (214) 234-8949 (FAX)
<PAGE>
parties designated below and executing this Agreement are duly authorized
to enter into this Agreement on behalf of their respective entities.
17. RECOMMENDATIONS:
The recommendations to be provided under this agreement are advisory in
nature, and Client expressly agrees that Advisor shall not be held liable
in any manner with reference to the investment performance of Advisor's
recommendations, provided those recommendations are duly provided by
Advisor in good faith, with reasonable care and consideration for Client's
circumstances.
18. ARBITRATION:
Any controversy or claim arising out of or related to this agreement, or
any breach thereof, shall be settled by arbitration, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
Judgment upon the award rendered by the Arbitrator(s) may be entered into
any Court having jurisdiction thereof.
19. OTHER ACKNOWLEDGMENTS:
Client acknowledges that it has received at least 48 hours in advance of
signing this agreement, a disclosure statement from Advisor that includes
(i) any affiliations with any securities dealer or other investment advisor
and the nature of such affiliation, (ii) the Advisor's fee schedule and the
extent to which such fees are negotiable, (iii) the extent to which the
Advisor will also act as principal or as an agent to execute recommended
transactions in securities, and (iv) other information about Advisor. Such
disclosure may be satisfied by delivery to Client of Part II of the form
ADV of Advisor, as filed with the Securities and Exchange Commission.
RUSHMORE: CLIENT: PLEASE PRINT
NAME & ADDRESS
RUSHMORE INVESTMENT ADVISORS, INC. /s/Marjorie M Chapman
-------------------------
13355 NOEL ROAD, SUITE 300 10323 Cimmaren Tr.
-------------------------
DALLAS, TX 75240 Dallas TX 75243
-------------------------
ACCEPTED, this 5 day of September, 1997.
By: By:
/s/ F. E. Mowery /s/ Marjorie M. Chapman
- ------------------------------- -------------------------
Frederick E. Mowery, President Client
________________________________________________________________________________
13355 Noel Road, Suite 300 (214) 234-2829 (Voice)
Dallas, TX 75240 (214) 234-8949 (FAX)
<PAGE>
Exhibit 10.9
AFFILIATION AGREEMENT
This AFFILIATION AGREEMENT ("Agreement") is entered into and made effective
on the date set forth below, between John Diller ("Agent"), whose address is
indicated below, and Rushmore Insurance Services, Incorporated and/or, its
affiliates or assigns ("Rushmore"), whose address is 13355 Noel Road, Suite 650,
Dallas, Texas 75240.
R E C I T A L S
---------------
WHEREAS, Rushmore has entered into various National Marketing Agreements
with Insurance and Investment Companies, and has developed unique and
proprietary concepts, products, systems and agencies for the exclusive benefit
of Rushmore and its agents; and,
WHEREAS, Agent desires, individually and/or through other agents recruited
by Agent, to market insurance and other financial products and services, and to
utilize the concepts and systems provided through Rushmore and/or its
affiliates; and,
WHEREAS, Agent desires to receive loans or advances and is duly indebted to
Rushmore as a result of various Commission Advance, Cash Loan, or Annualization
Agreements which Rushmore may advance or guarantee from time to time at its
discretion (hereinafter referred to as the "Indebtedness"); and,
WHEREAS, In the event the Indebtedness or any portion thereof becomes
unrecoverable, Agent desires to assign any and all insurance commissions,
including first year and renewal, now due or which may become due to Agent from
each and every insurance company with whom the Agent is now licensed or becomes
licensed subsequent to the date of this Agreement (hereinafter referred to as
Companies").
NOW, THEREFORE, in consideration of the mutual benefits to be derived,
Agent and Rushmore agree as follows:
1. RESPONSIBILITY FOR LICENSE AND COMPLIANCE WITH APPLICABLE LAWS. Agent shall
be solely responsible (i) for complying with all state, federal and local laws
applicable and (ii) for obtaining any permits or licenses required under
applicable state, federal and local laws necessary to become affiliated with
Rushmore and to receive a fee for soliciting insurance or other financial
products. Agent agrees to promptly furnish to Rushmore a copy of such license(s)
prior to commencement of Agent's solicitation of any customer; and Agent agrees
to maintain and keep current such license(s) and to promptly notify Rushmore of
any changes in the licensing requirements applicable to Agent.
2. COMPLIANCE. Agent agrees to comply fully with all program guidelines, and
other policies, procedures and criteria established from time to time by
Rushmore or Companies. Further, Agent agrees to use only solicitation or other
materials approved by Rushmore or Companies and shall use no other solicitation,
advertising or similar materials when communicating or dealing with potential
customers.
3. USE OF RUSHMORE NAME. Rushmore agrees to permit Agent the use of the
Rushmore name, Logo, Trademarks, Copyrights, Materials, Systems, Forms, and
other proprietary information. Agent agrees to use all due diligence to protect
the good name and image of Rushmore, to treat all such information
confidentially, and not to disclose or distribute such information by any means
to unauthorized third parties.
4. CONFIDENTIAL INFORMATION. Agent acknowledges that the concepts, products,
systems and other materials provided to Agent by Rushmore are the sole property
of Rushmore, and Agent agrees not to use any such materials, directly or
indirectly, for any purpose whatsoever during the term of this Agreement, other
than the solicitation and referral of customers, and further agrees not to use
such materials, directly or indirectly, in any manner whatsoever after the
termination of this Agreement. With the exception of his or her own downline
agents, Agent agrees not to solicit or recruit, for any purpose, other agents
within Rushmore and to treat such agents as confidential and proprietary.
5. SUBMISSION OF APPLICATIONS. Agent hereby covenants and agrees not to submit
any application for a customer to replace a policy of insurance issued by a
company represented by Rushmore, and not to submit any application which Agent
knows or should have known to contain false, fraudulent or misleading
information.
6. FEES TO AGENT. Agent shall be paid a commission in connection with the sale
of various products in accordance with the commission and override schedule in
effect. Agent acknowledges receipt of same for each company represented and
agrees to the commission, override and Advance Agreement currently in effect.
Rushmore may at any time change or amend the commission, override or advance
schedule.
7. MANAGEMENT RESPONSIBILITY. Agent agrees to supervise and oversee the
activities of all downline agents, if any, for and in consideration of the
various management, generational or bonus overrides received; including but not
limited to, marketing and sales support, administrative support, training,
compliance, education, dissemination of bulletins, etc. from Rushmore or
Companies regarding policies and procedures, etc. Agent understands and agrees
that Agent is responsible for all downline debit balances and quality of
business and agrees to use all due diligence in recruiting, managing and
motivating downline agents.
8. SETOFF. If Agent has any indebtedness to Rushmore at any time, either as a
result of Agent's indemnification hereunder or under any other provision of this
Agreement or any provision of any other agreement with Companies or other
arrangement between Agent and Rushmore; Rushmore may setoff such indebtedness
against obligations of Rushmore to Agent under this Agreement.
9. ASSIGNMENT TO OFFSET INDEBTEDNESS. In the event any of the Indebtedness
remains unrecoverable after such setoff, Agent does hereby irrevocably assign,
transfer and set over to Rushmore all the Agent's right, title and interest in
and to any and all commissions now due or which may hereafter become due to
Agent from Companies due to any indebtedness to Rushmore. Commissions assigned
hereunder are those commissions payable to Agent pursuant to the terms of any
and all Commission Agreements for Agents or Brokers entered into by Agent and
Companies. Commissions shall also include any and all moneys to be received by
Agent from Companies as a result of Agent's insurance activities for and on
behalf of Companies.
<PAGE>
10. APPOINTMENT OF RUSHMORE. Agent hereby constitutes and appoints Rushmore its
true, lawful and irrevocable attorney-in-fact to demand, receive and enforce
payments and to give receipts, releases, satisfactions for and to sue for all
sums payable to Agent from Companies, and this may be done either in the name of
Agent or in the name of Rushmore with the same force and effect as the Agent
could do if this Agreement had not been made. Any and all sums of money subject
to this Agreement which may be received by Agent to which Rushmore is entitled,
will be received by Agent as trustee for Rushmore. This assignment shall be
effective from the date of this Agreement and shall remain in effect until all
the Indebtedness referred to herein is extinguished.
11. CREDITING COMMISSIONS. All sums of money received by Rushmore pursuant to
this Agreement shall be credited by Rushmore against any Indebtedness. Any funds
received by Rushmore from Companies in excess of the Indebtedness outstanding as
of the date of receipt of such funds will become the property of Agent.
Companies are not a party to this Agreement. Their only obligation upon their
acceptance of a copy hereof, will be the payment to Rushmore of any and all
commissions now due or hereafter to become due to Agent.
12. NO PRIOR LIENS. Agent represents, warrants and agrees that no prior
assignment, security interest or lien, other than as contained herein has been
created or exists with respect to the commission payable, under any Commission
Agreement described above; and Agent will not create or suffer to exist any such
assignment, security interest or lien, other than this Agreement.
13. INDEMNIFICATION. Agent hereby agrees to indemnify and hold Rushmore
harmless from all damages, losses, costs and expenses, including reasonable
attorneys' fees, which Rushmore may sustain as result of Agent's negligence,
intentional tort, or breach of any representation, covenant, agreement or
warranty contained herein.
14. INDEPENDENT CONTRACTORS. In performing Agent's responsibilities under this
Agreement, Agent is an independent contractor paying his or her own expenses and
all taxes as a self-employed person. This Agreement does not create, and shall
not be construed to create, a relationship of partner or joint venture or an
association for profit or an employer/employee relationship between Rushmore and
Agent.
15. SURVIVAL. Each of the representations and warranties set forth in this
Agreement shall survive the execution, delivery and termination of this
Agreement.
16. TERMINATION. This agreement may be terminated by Rushmore for cause or for
lack of production upon written notice to Agent. This Agreement may be
terminated by Agent for any reason upon 30 days written notice to Rushmore.
17. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas. Venue for any dispute arising
from this Agreement shall be set in Dallas County, Texas.
I8. ENTIRE AGREEMENT. This Agreement represents the entire agreement between
Agent and Rushmore relating to the subject matter hereof and may not be amended,
other than provided in Paragraph 6, except by written instrument executed by
both parties. This Agreement and all rights and liabilities hereunder shall
inure to the benefit of Agent and Rushmore and its successors and assigns, and
shall be binding on the heirs, administrators, successors and assigns of each
party.
EXECUTED to be effective as of this 10th day of Dec., 1997.
AGENT INFORMATION AGENT
- ----------------- -----
(please print clearly)
JOHN [SIGNATURE ILLEGIBLE]
- ----------------------------------- --------------------------
First Name MI Signature
DILLER
- -----------------------------------
Last Name
411 LAWN DALE DR RUSHMORE
- ----------------------------------- --------
Mailing - Street Address
RICHARDSON TX 75080 By: /s/ Christine E. Miller
- ----------------------------------- ------------------------
City State Zip
972 783 4807
- -----------------------------------
Business Phone
SAME
- -----------------------------------
Fax#
45506 5668
- -----------------------------------
Social Security Number
/s/ Fritz Aldrene
- -----------------------------------
Upline Managing General Agent
<PAGE>
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Agreement, dated as of November __ 1997, is by and between Rushmore
Financial Group, Inc., a Texas corporation (the "Company"), and D. M. (Rusty)
Moore, Jr.("Indemnitee").
WITNESSETH:
WHEREAS, the Company desires to have qualified directors serving on its
Board of Directors and executive officers, who are willing to make decisions
that in their judgment are in the Company's best interest without any undue
threat of personal liability;
WHEREAS, the Company's Articles of Incorporation ("Articles of
Incorporation") and the Company's Bylaws ("Bylaws") require indemnification of
each director or officer of the Company in his capacity as a director or officer
and, if serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that may
be incurred by him in connection with or resulting from (a) any threatened,
pending, or completed action, suit, or proceeding whether civil, criminal,
administrative, arbitrative, or investigative (collectively, a "Proceeding"),
(b) an appeal in such a Proceeding, or (c) any inquiry or investigation that
could lead to such a Proceeding, to the fullest extent permitted by the Texas
Business Corporation Act ("Act"), as the same exists or may be hereafter
amended;
WHEREAS, the Company desires to grant to Indemnitee the maximum
indemnification for any Loss (hereinafter defined) permitted by the Articles of
Incorporation and Bylaws;
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy, and reliability of the protection afforded to persons intended to be
protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce Indemnitee
to serve or to continue serving, as a director and/or executive officer of the
Company, the Company has agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's consent to serve or
continuing to serve in the position of director and/or executive officer of the
Company, the parties hereto agree as follows:
1
<PAGE>
1 Indemnity of Indemnitee. The Company shall indemnify Indemnitee in his
-----------------------
capacity as director, and/or officer of the Company, as the case may be, and,
if serving at the request of the Company as a director, officer, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, trust partnership, joint venture, sole proprietorship, employee
benefit plan, or other enterprise, in each of those capacities, against any and
all liability and reasonable expense that may be incurred by Indemnitee in
connection with or resulting from (a) any Proceeding, (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, all to the fullest extent permitted by Article 2.02-1 of the Act.
2. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Company contained herein shall continue during the period Indemnitee is a
director, or officer of the Company, shall be retroactive to the date Indemnitee
first became a director, director nominee or officer covering all periods of
service from time to time, and shall continue thereafter so long as Indemnitee
shall be subject to any possible claim or threatened, pending, or completed
Proceeding, any appeal in a Proceeding, and any inquiry or investigation that
could lead to a Proceeding, by reason of the fact that Indemnitee was serving,
or had consented to serve, in any capacity referred to herein.
3. Notification and Defense of Claim. Promptly after receipt by
--------------------------- -----
Indemnitee of notice of any claim against Indemnitee or the commencement of any
Proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Company under this Agreement, notify the Company of the assertion of any
such claim or the commencement thereof; but the omission so to notify the
Company will not relieve it from any liability under this Agreement unless such
delay in notification actually prejudiced the Company (and then only to the
extent the Company was actually prejudiced thereby) and in addition, the Company
shall not be relieved from any liability which it may have to Indemnitee
otherwise than under this Agreement. With respect to any such Proceeding as to
which Indemnitee notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof and to employ
counsel reasonably satisfactory to Indemnitee. After notice from the
Company to the Indemnitee of its election so to assume the defense
thereof, the Company shall not be liable to the Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. The Indemnitee shall
have the right to employ counsel of his own choosing in such Proceeding but
the fees and expenses of such counsel incurred after notice from the
Company of assumption by the Company of the defense thereof shall be at the
expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been specifically authorized by the Company, such
authorization to be conclusively established by action by disinterested
members of the Board though less than a quorum; (ii) representation by the
same counsel of both the Indemnitee and the Company would, in the
reasonable judgment of the Indemnitee and the Company, be inappropriate
due to an actual or potential conflict of interest between the Company and
the Indemnitee in the conduct of the defense of such Proceeding, such
conflict of interest to be conclusively established by an opinion of
counsel to the Company to such effect; (iii) the counsel employed by the
Company and reasonably satisfactory to the Indemnitee has advised the
Indemnitee in writing that such counsel's representation of the Indemnitee
would likely involve such counsel in representing differing interests which
could adversely affect the judgement or loyalty of such counsel to the
Indemnitee, whether it be a conflicting, inconsistent, diverse or other
interest; or (iv) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be paid, as provided herein, by the Company. The
Company shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Company or as to which a conflict of
interest has been established as provided in subsection (ii) hereof; and
2
<PAGE>
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold their consent to any proposed
settlement.
4. Advances of Expenses. Reasonable expenses (other than judgments,
--------------------
penalties, fines and settlements) incurred by Indemnitee that are subject to
indemnification under this Agreement (and not paid, reimbursed or advanced by
others) shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding within 30 days after the Company receives a
written request by Indemnitee accompanied by substantiating documentation of
such expenses, a written affirmation by Indemnitee of his good faith belief that
he has met the standard of conduct necessary for indemnification under this
Agreement, and a written undertaking by or on behalf of Indemnitee to repay the
amount paid or reimbursed if it is ultimately determined that he has not met
those standards or that such reasonable expenses do not constitute a Loss. The
written undertaking described above shall be an unlimited general obligation of
Indemnitee and shall not be secured. Such undertaking shall be without reference
to the financial ability of Indemnitee to make repayment.
5. Right of Indemnitee to Indemnification Upon Application: Procedure
------------------------------------------------------------------
Upon Application. Upon the written request of Indemnitee to be indemnified
- ----------------
pursuant to this Agreement (other than pursuant to Section 4 hereof), the
Company shall cause the Reviewing Party (hereinafter defined) to determine,
within 45 days, whether or not the Indemnitee has met the relevant standards for
indemnification required by this Agreement. The termination of a Proceeding by
judgment, order, settlement, or conviction, or on a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that Indemnitee did not
meet the requirements for indemnification required by this Agreement. If a
determination of indemnification is to be made by Independent Legal Counsel
(hereinafter defined), such Independent Legal Counsel shall render its written
opinion to the Company and Indemnitee as to what extent Indemnitee will be
permitted to be indemnified. The Company shall pay the reasonable fees of
Independent Legal Counsel and indemnify and hold harmless such Indemnitee
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to the engagement of Independent Legal
Counsel pursuant hereto and the written opinion of such Independent Legal
Counsel.
6. Definitions. The terms defined in this Section 6 shall, for purposes
-----------
of this Agreement have the indicated meanings:
(a) "Loss" shall mean any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expense
(including attorneys' fees) actually incurred by Indemnitee, after
realization of or giving effect to all insurance, bonding, indemnification
and other payments or recoveries actually received by or for the benefit of
Indemnitee, directly or indirectly.
3
<PAGE>
(b) "Reviewing Party" means, if a Change in Control (hereinafter
defined) has not occurred (or if a Change in Control has occurred and such
Change in Control has been approved by a majority of the Board of Directors
of the Company who were directors of the Company immediately prior to such
Change in Control), (i) a majority of a quorum of directors of the Company
who at the time of voting upon a determination of indemnification are
neither officers or employees of the Company or members of the immediate
family of an officer or employee of the Company ("Interested Parties") nor
parties to that particular Proceeding to which Indemnitee is seeking
indemnification; or (ii) Independent Legal Counsel selected by a majority
of a quorum of directors who at the time of selecting such Independent
Legal Counsel are neither Interested Parties nor parties to that particular
Proceeding to which Indemnitee is seeking indemnification, or if such a
quorum cannot be obtained, by a majority vote of a committee of the Board
of Directors of the Company designated to select such Independent Legal
Counsel by a majority vote of all directors of the Company, consisting
solely of two or more directors who at the time of such selection are
neither Interested Parties nor parties in that particular Proceeding to
which Indemnitee is seeking indemnification, or if such a quorum cannot be
obtained and such a committee cannot be established, by a majority vote of
all directors of the Company. "Reviewing Party" means if a Change in
Control has occurred, Independent Legal Counsel selected in the manner set
forth in (ii) above.
(c) "Change in Control" shall mean an event which shall be deemed to
have occurred if: (i) a merger or consolidation of the Company with or into
another corporation occurs in which the Company shall not be the surviving
corporation (for purposes of this definition, the Company shall not be
deemed the surviving corporation in any such transaction if, as the result
thereof, it becomes a wholly-owned subsidiary of another corporation); (ii)
a dissolution of the Company occurs; (iii) a transfer of all or
substantially all of the assets or shares of stock of the Company in one
transaction or a series of related transactions to one or more other
persons or entities occurs; (iv) if any "person" or "group" as those terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than Excluded Persons, becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities; or (v) during any period of two consecutive years commencing on
or after January 1, 1998, individuals who at the beginning of the period
constituted the Board cease for any reason to constitute at least a
majority, unless the election of each director who was not a director at
the beginning of the period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period. The term "Excluded Persons"
means each of Jim W. Clark, F. E. Mowery, D. M. Moore, Jr. and Mark S.
Adler, and any person, entity, or group under the control of any of them,
or a trustee or other fiduciary holding securities under an employee
benefit plan of the Company.
(d) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 6(b) hereof, who shall not have
otherwise performed services for Indemnitee, the Company, any person that
controls the Company or any of the directors of the Company, within five
years preceding the time of such selection (other
4
<PAGE>
than in connection with seeking indemnification under this Agreement).
Independent Legal Counsel shall not be any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement, nor shall Independent
Legal Counsel be any person who has been sanctioned or censured for ethical
violations of applicable standards of professional conduct.
7. Enforceability. The right to indemnification or advances as provided
--------------
by this Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proof that indemnification is not appropriate shall
be on the Company. Neither the failure of the Company (including its Board of
Directors or Independent Legal Counsel) to have made a determination prior to
the commencement of such action that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard of conduct, nor
an actual determination by the Company (including its Board of Directors or
Independent Legal Counsel) that Indemnitee has not met such an applicable
standard of conduct, shall be a defense to the action or create a presumption
that Indemnitee has not met the applicable standard of conduct.
8. Partial Indemnity: Expenses. If the Indemnitee is entitled under any
---------------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines, and penalties, but not for the total
amount thereof, the Company shall indemnify Indemnitee for the portion thereof
to which Indemnitee is entitled. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Proceedings relating in whole or in part to
an event subject to indemnification hereunder or in defense of any issue or
matter therein, including dismissal without prejudice, Indemnitee shall be
indemnified against expenses incurred for any Loss in connection with such
Proceeding, issue or matter, as the case may be.
9. Repayment of Expenses. Indemnitee shall reimburse the Company for
---------------------
all reasonable expenses paid by the Company in defending any Proceeding against
Indemnitee in the event and only to the extent that it shall be ultimately
determined that Indemnitee is not entitled to be indemnified by the Company for
such expenses under the provisions of this Agreement.
10. Consideration. The Company expressly confirms and agrees that it has
-------------
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to consent to serve, and/or to continue
serving as a director, and acknowledges that Indemnitee is relying upon this
Agreement in consenting to serve and serving in such capacity.
11. Indemnification Hereunder Not Exclusive. The indemnification and
---------------------------------------
advancement of expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under any other
agreement, vote of shareholders, as a matter of law, or otherwise.
5
<PAGE>
12. Subrogation. If a payment is made under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the right of
recovery of such Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights.
13. Severability. Each of the provisions of this Agreement is a separate
------------
and distinct agreement and independent of the others, so that if any provision
thereof shall be held to be invalid or unenforceable for any reason such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereto.
14. Notice. Any notice, consent, or other communication to be given under
------
this Agreement by any party to any other party shall be in writing and shall be
either (a) personally delivered, (b) mailed by registered or certified mail,
postage prepaid with return receipt requested, (c) delivered by overnight
express delivery service or same-day local courier service, or (d) delivered by
telex or facsimile transmission to the address set forth beneath the signature
of the parties below, or at such other address as may be designated by the
parties from time to time in accordance with this Section. Notices delivered
personally, by overnight express delivery service, or by local courier service
shall be deemed given as of actual receipt. Mailed notices shall be deemed given
three business days after mailing. Notices delivered by telex or facsimile
transmission shall be deemed upon receipt by the sender of the answer back (in
the case of a telex) or transmission confirmation (in the case of a facsimile
transmission).
15. Governing Law: Binding Effect: Amendment and Termination:
---------------------------------------------------------
Reimbursement.
-------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas, without giving effect to Texas
principles of conflicts of laws.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors, and assigns, and shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representation,
and assigns and to the benefit of the Company, its successors, and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
RUSHMORE FINANCIAL GROUP, INC.
By: Jim W. Clark, Secretary
-------------------------------------
Name:
Its:
Address of Rushmore Financial Group, Inc.
13355 Noel Rd Ste 650
Dallas, TX 75240
Facsimile: 972-450-6001
/s/ D. M. Moore, Jr.
-------------------------------------
D. M. Moore, Jr., INDEMNITEE:
Address of Indemnitee:
____________________________
____________________________
Facsimile:
____________________________
7
<PAGE>
EXHIBIT 10.12
OVERHEAD SERVICE AGREEMENT
THIS AGREEMENT ("Agreement") entered into between Rushmore Insurance
Services, Inc., a Texas Corporation, and American Financial Freedom, a Texas
Corporation, as follows:
WITNESSETH:
WHEREAS, American Financial Freedom has requested and Rushmore Insurance
Services, Inc., has agreed to make available certain facilities and provide for
performance of certain services for American Financial Freedom for consideration
upon the terms and conditions herein set forth:
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, Rushmore Insurance Services, Inc., and American
Financial Freedom agree as follows:
1. PERSONAL PROPERTY. At all times during the term of this Agreement, Rushmore
Insurance Services, Inc., agrees to provide and make available for use by
American Financial Freedom at the leased premises referred to in Section 3
hereof those certain desks, tables, chairs, typewriters, copying machines,
dictating machines, and all other items of personal property required to
conduct business on a daily basis (herein collectively called "Personal
Property") Rushmore Insurance Services, Inc., agrees to undertake to
perform and bear all costs relating to periodic maintenance and repairs
for Personal Property in order that same shall at all times be in good
operating condition and repair and suitable and adequate for the purpose
intended. American Financial Freedom agrees to utilize the Personal
Property in the proper manner and for the purpose intended, and promptly to
notify Rushmore Insurance Services, Inc., of any defect or malfunction in
which event Rushmore Insurance Services, Inc., agrees promptly to undertake
to provide and diligently pursue effecting any needed repairs or
replacement of the Personal Property.
2. STAFF. At all times during the term of this Agreement, Rushmore Insurance
Services, Inc., shall provide American Financial Freedom personnel to
perform services as receptionists, telephone answering, stenographic,
secretarial, accounting and bookkeeping and such other support services as
customarily are required in the conduct of business by American Financial
Freedom may require.
<PAGE>
3. OFFICE SPACE. At all times during the term of this Agreement, Rushmore
Insurance Services, Inc., shall make available to American Financial
Freedom by means of assignment, subletting or such other means as Rushmore
Insurance Services, Inc., shall select, the leased premises commonly
designated as ("Premises") such utilization by American Financial Freedom
to be upon and subject to the terms and conditions set forth in that
certain Lease Agreement executed ("Lease") between Rushmore Insurance
Services, Inc., and the therein stated Landlord, EXCEPT ONLY as such terms
and conditions may be altered or amended by the terms and conditions of
this Agreement. Rushmore Insurance Services, Inc., and American Financial
Freedom further agree as follows:
A. Rushmore Insurance Services, Inc., agrees to be solely responsible for
obligations of the lessee as set forth in the Lease with regard to repairs
and maintenance of the Premises as may be necessary at any time or from
time to time during the term of this Agreement, except only for any such
repairs which may be due to the negligence or willful misconduct of
American Financial Freedom or any of its partners, employees or agents.
B. Rushmore Insurance Services, Inc., and American Financial Freedom
acknowledge and agree that, if required by the Lease, Rushmore Insurance
Services, Inc., making the Premises available to American Financial
Freedom as herein set forth shall be subject to, and require consent and
approval of Landlord, and Rushmore Insurance Services, Inc., and American
Financial Freedom covenant and agree promptly to request and to use their
best efforts to obtain such consent (provided, however that such consent
shall not be subject to any conditions or limitations imposed by Landlord
not acceptable to Rushmore Insurance Services, Inc., or American Financial
Freedom.
4. GENERAL AND ADMINISTRATIVE EXPENSES: Commencing on January 27, 1998,
Rushmore Insurance Services, Inc., shall incur the following general and
administrative expenses for the benefit of American Financial Freedom.
Rent
Payroll
Office Supplies
Equipment and Servicing and Maintenance
Postage
Depreciation on Furniture, Equipment & Capital Leases
Office Utilities
Other Miscellaneous Expenses
5. TERM: This Agreement shall be for a term of one year commencing on the
effective date hereof and shall thereafter be automatically renew on a
year-to-year basis unless and until terminated by Rushmore Insurance
Services, Inc., or American Financial Freedom on written notice given not
less than thirty (3O) days prior to expiration of an annual term hereof.
<PAGE>
6. COMPENSATION: American Freedom agrees to pay to Rushmore Insurance
Service, Inc., as mutually agreed, on or before the 15th of each month,
for the use of the Personal Property, services provided, general and
administrative expenses incurred, and for the use and occupancy of the
Premises, pursuant to Sections 1, 2, 3, and 4 as an overhead reimbursement
expense. This amount may be increased to reflect Rushmore Insurance
Services, Inc., pro-rata share of all escalations in such rental or of the
pass-through by Landlord of increases in utility costs, taxes, and like,
all determined as provided in the Lease. Rushmore Insurance Services, Inc.,
and American Financial Freedom may re-determine giving due consideration to
any expansion or adjustment of the service or any change in the Personal
Property provided hereunder and to Rushmore Insurance Services, Inc.,
actual experience in fulfilling its obligations hereunder. This payment
shall, unless otherwise expressly stated, be made in cash on the last day
of December in each calendar year during the term of this Agreement. All
past-due sums shall bear interest at 10% (ten percent) from due date until
paid.
7. NOTICES: Any notices permitted or required under the terms of this
Agreement shall be in writing and shall be deemed duly given if personally
delivered or mailed, United States Mail, first class, certified or
registered, return receipt requested, postage prepaid, addressed to their
parties at their address as any party may hereafter communicate to the
other by notice as hereafter communicate to the other by notice as herein
provided.
8. MISCELLANEOUS: This represents the entire agreement between Rushmore
Insurance Services, Inc., and American Financial Freedom regarding the
subject matter hereof and supersedes all prior agreements and
understandings between the parties. This Agreement may not be amended
except by an instrument in writing executed by the party against whom any
such amendment or modification is sought to be enforced. This Agreement
shall be governed and construed in accordance with the laws of the State of
Texas.
WITNESS THE EXECUTION of this Agreement January 27, 1998 and EFFECTIVE FOR ALL
PURPOSES AS OF January 1, 1998.
American Financial Freedom Rushmore Insurance Services, Inc.
by:/s/ William Barnett by: /s/ G. A. BRUNOTT, JR.
----------------------------- ------------------------------
President President
<PAGE>
EXHIBIT 10.13
NATIONAL MARKETING AGREEMENT
This NATIONAL MARKETING AGREEMENT, made and entered into as of the 15th day
of December, 1997, by and between GREAT SOUTHERN LIFE INSURANCE COMPANY ("GSL"),
a Texas stock life insurance corporation with principal offices at 500 N.
Akard, Dallas, Texas 75201, RUSHMORE LIFE INSURANCE COMPANY, an Arizona re-
insurance company ("Life Company"), and RUSHMORE INSURANCE SERVICES, INC., a
Texas corporation and licensed insurance agency, and/or its assigns ("Marketing
Company"), with its principal offices at One Galleria Tower, 13355 Noel Road,
Suite 650, Dallas, Texas 75240.
W I T N E S S E T H
WHEREAS, Marketing Company has recruited and developed various contractual
and business relationships with agents and agencies, as more specifically set
forth and identified in Exhibit "A" which is attached hereto, to market
insurance and other financial products and services by, through and for
Marketing Company or its affiliates, and Marketing Company, through its agents,
desires to market the life insurance products and services of GSL; and,
WHEREAS, GSL desires to increase its sale and issuance of life insurance
products and services ("Insurance Business") and to maximize the persistency
thereof through the sale of such products by affiliated agents of Marketing
Company (hereinafter called "Agents"), and the reinsurance by GSL to Life
Company of part of such Insurance Business, all in accordance with and subject
to the following terms, conditions and provisions;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual promises
of the parties hereto, and for other good and valuable consideration, paid by
each to the other, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. GENERAL AGENTS. Marketing Company agrees to use reasonable efforts,
--------------
to cause its Agents to become appointed to represent GSL, to the extent they
have not previously done so, and each Agent, including persons or other entities
recruited as Agents subsequent to the date hereof, shall likewise become
appointed and enter into a General Agents' Compensation Agreement (herein so-
called) in the form or similar form attached hereto as Exhibit "B" and
incorporated herein, to solicit applications for Insurance Business; provided,
however, that GSL shall not be obligated to enter into a General Agents'
Compensation Agreement with any given Agent unless such Agent meets the
reasonable appointment criteria for general agents applied by GSL in the
ordinary course of it's business. Such Agents are hereinafter individually
referred to as "General Agent" and collectively referred to as "General Agents".
2. REINSURANCE. Simultaneously with the execution of this Marketing
-----------
Agreement, GSL and Life Company shall enter into a reinsurance agreement on a
modified coinsurance basis, ("Modified Coinsurance Agreement") attached hereto
as Exhibit "C" and incorporated herein. Under the Modified Coinsurance Agreement
GSL will cede and Life Company will reinsure, on a quota share basis, certain
percentages of the Insurance Business produced by General Agents as more
specifically set forth in Exhibit "C" hereto. Life Company shall, upon the
execution of these Agreements referred to herein, place a deposit with GSL in
the amount of $25,000.00 which shall accrue interest at GSL's average crediting
rate. Such deposit, together with interest thereon, shall be refunded upon the
attainment of the first two years cumulative production goals referred to in
paragraph 3 of this Agreement or in the event this agreement is terminated in
accordance with sub-paragraph 7 (a) (iv)
2
<PAGE>
herein. If this Agreement is terminated for lack of production within the first
two years of this Agreement or terminated in accordance with subparagraph 7 (a)
(iii) herein then Life Company will forfeit and GSL will retain such deposit.
3. PRODUCTION GOALS. Marketing Company agrees to use reasonable efforts
----------------
to cause General Agents to solicit applications for Insurance Business to be
issued by GSL for not less than the following aggregate cumulative First Year
Premiums ("Cumulative Production Goals") on or before the following Target Dates
(herein so-called):
<TABLE>
<CAPTION>
TARGET DATES CUMULATIVE PRODUCTION GOALS
------------ ---------------------------
<S> <C>
December 31, 1998 $ 2,000,000
December 31, l999 $ 5,000,000
December 31, 2000 $ 8,000,000
December 31, 2001 $11,500,000
December 31, 2002 $15,000,000
</TABLE>
For the purposes of this Agreement, the term "First-Year Premiums" shall
mean the aggregate life insurance premiums payable during the first year a
policy or contract of insurance is in effect, exclusive of lump-sum cash
deposits in excess of published premium rates, and/or premiums for flexible
premium life insurance contracts in excess of control or target premiums. All
First-Year Premiums associated with any application for Insurance Business
submitted by a General Agent to GSL shall be counted in full unless and until
such application is rejected by GSL. All First-Year Premiums associated with
any rejected application shall cease to be counted as of the date of such
rejection.
Insurance policies and contracts which have been issued by GSL prior to the
date hereof as a result of applications for Insurance Business solicited by
General Agents shall be deemed to have been issued subsequent to the date hereof
but prior to December 31, 1998, for the purpose of calculating the aggregate
Cumulative First Year Premiums for the year ending December 31, 1998.
3
<PAGE>
4. COMPENSATION. In addition to the payments of commissions in accordance
------------
with GSL's published General Agents commission schedule, GSL agrees to pay
Marketing Company a commission or Internal Marketing Allowance ("IMA") of 6% on
all paid premiums collected within specified control premium plus an additional
1% IMA Bonus commission payable upon the attainment of $5,000,000 of annualized
paid production in any calendar year. GSL also agrees to pay Marketing Company
the Production Incentive Bonus and Accumulation Account Bonus or other bonuses
at the maximum level. All applicable bonuses, renewals or commissions due to
Marketing Company under this or any modification of this Agreement are to be
considered immediately vested and shall survive the termination of this
agreement.
5. EXCLUSIVE PRODUCTS. It is understood and agreed that "ULTRAFLEX",
------------------
"Family Income Benefit Plan" and any other trade names, plans or concepts
developed previously or in the future by Marketing Company are proprietary and
the property of Marketing Company.
6. RELEASE AND RE-APPOINTMENT. GSL understands and agrees that Marketing
--------------------------
Company has a prior and superior interest in its Agents and/or General Agents.
Further, it is agreed that GSL or any affiliated company of GSL, as long as
this agreement is in force, will not permit any Agent or General Agent of
Marketing Company to become appointed or re-appointed to represent GSL or any
affiliated company of GSL until such time as Agent or General Agent has obtained
a written release from Marketing Company or has been terminated from both
Marketing Company and GSL for at least one (1) year. GSL further agrees that it
will not code, recode, terminate, promote, demote or re-assign any Agent or
General Agent without the consent of Marketing Company and Marketing Company
agrees that its consent will not be unreasonably withheld.
7. TERMINATION. For the purpose of this Agreement, the term "Completion
-----------
Date" shall mean (i) December 31, 2002, or (ii) the date by which GSL has issued
Insurance Business as a result
4
<PAGE>
of applications solicited by General Agents with aggregate cumulative First-Year
Premiums in the amount of $15,000,000, whichever occurs first.
(a) PRIOR TO COMPLETION DATE. This Agreement may not be terminated prior
------------------------
to the Completion Date, except:
(i) By the mutual consent of the parties hereto; or
(ii) By GSL if Marketing Company fails to meet at least 50% of the
Cumulative Production Goals set forth herein by their respective Target
Dates, and then only upon six (6) months prior written notice by GSL to
Marketing Company and Life Company; or
(iii) By GSL in the event of a material breach on the part of
Marketing Company Life Company or any General Agent of this Agreement or
the Modified Coinsurance Agreement between GSL and Life Company or any
General Agents' Compensation Agreement and such breach is not cured or
eliminated within thirty (30) days after receipt of written notice thereof
to Marketing Company and Life Company from GSL; or
(iv) By Marketing Company and Life Company in the event of a
material breach on the part of GSL of this Agreement, the Modified
Coinsurance Agreement or any General Agents' Compensation Agreement and
such breach is not cured or eliminated within thirty (30) days after
receipt of written notice thereof to GSL from Marketing Company and Life
Company.
(b) AFTER COMPLETION DATE. This Agreement may not be terminated any time
---------------------
after the Completion Date except:
(i) By the mutual consent of the parties hereto; or
(ii) By GSL ninety (90) days after receipt of written notice
thereof to Marketing Company and Life Company from GSL; or
5
<PAGE>
(iii) By Marketing Company and Life Company upon ninety (90) days'
written notice to GSL.
8. RECAPTURE OF REINSURED BUSINESS. If this Agreement is terminated
-------------------------------
within the first two years of this agreement, except as provided in sub-
paragraph 7(a)(iv) above, GSL shall have the right, upon six months prior
written notice to Marketing Company and Life Company, to recapture all of the
Insurance Business ceded by GSL to Life Company under the Modified Coinsurance
Agreement.
9. RIGHT OF FIRST REFUSAL. In the event that Life Company receives an
----------------------
Offer (herein so-called) from an unaffiliated party ("Offeror") to purchase or
to reinsure all or part of the Insurance Business previously assumed and
reinsured by Life Company from GSL, before Offerees accept such Offer they shall
deliver a copy of the Offer to GSL. During the sixty (60) day period following
such delivery, GSL shall have a right of first refusal for either GSL or any of
its affiliates to elect to reinsure or acquire such Insurance Business, on the
same terms and conditions contained in such Offer. Upon the earlier of (i) the
delivery by GSL to Life Company of written notification of its intent not to
exercise such right of first refusal, or (ii) the expiration of such sixty (60)
day period without receipt by Life Company from GSL of written notice of its
intent not to exercise such right of first refusal, Life Company shall have the
right to accept the Offer.
If GSL elects to exercise such right of first refusal but fails to
consummate the purchase within ninety (90) days after receipt by Life Company of
GSL's written notice of exercise, and if such failure is for any reason other
than the refusal of Life Company to consummate the transaction in accordance
with the terms of the offer or the failure of GSL despite diligent efforts, to
obtain all necessary regulatory approval, GSL's right of first refusal shall
terminate completely and permanently. If, despite diligent efforts, GSL fails to
obtain all necessary regulatory approvals within
6
<PAGE>
the ninety (90) day period specified above, the right of first refusal shall
terminate on the earliest of (1) the date on which the receipt of regulatory
approvals is no longer possible or regulatory disapproval is announced, (2) the
date thirty days after the date on which regulatory approval is granted if the
purchase remains unconsummated (unless Life Company has refused to consummate
the transaction in accordance with the terms of the Offer), or (3) the date on
which GSL ceases to make diligent efforts to obtain all necessary regulatory
approvals. Such ninety (90) day period may be extended by mutual consent of GSL
and Life Company.
10. 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.
11. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
12. 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.
13. 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 or 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.
7
<PAGE>
14. 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.
15. ARBITRATION. Any disagreement that should arise between the parties
-----------
regarding the rights or liabilities of the parties under any transaction
pursuant to this Agreement shall be referred to binding arbitration in Dallas,
Texas. One arbitrator is to be chosen by GSL and one by Life Company and
Marketing Company from among officers of other life insurance companies, who are
familiar with reinsurance transactions. A third arbitrator shall be chosen by
the said arbitrators before entering into arbitration. An arbitrator may not be
a present or former officer, attorney, or consultant of the parties or their
affiliates. If the arbitrators appointed by the 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. All expenses and fees of
the arbitrators will be borne equally by the parties, unless the arbitrators
decide otherwise.
16. NOTICES. 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 GSL: Mr. Gary Muller
President
Great Southern Life Insurance Co.
500 North Akard
Suite 1100
Dallas, TX 75201
If to Life Company or Marketing Company: D. M. (Rusty) Moore, Jr.
8
<PAGE>
President
Rushmore Financial Group, Inc.
One Galleria Tower
13355 Noel Road, Suite 650
Dallas, TX 75240
All notices and other communications required or permitted hereunder that are
addressed as provided in this Section 17 will, if delivered personally or by
mail in the manner described above, be deemed given upon receipt, and will if
delivered by telecopy, be deemed delivered when confirmed.
17. APPROVALS, CONSENTS, ETC. In any instance where agreement, approval
------------------------
acceptance or consent of any parties is required by any provision of this
Agreement, such action shall not be unreasonably delayed or withheld.
18. GOVERNING LAW. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered by their officers thereunto duly authorized, all as of the
date first hereinabove written.
9
<PAGE>
ATTEST: GREAT SOUTHERN LIFE INSURANCE CO.
/s/ David Hill By: /s/ Gary Muller
- -------------------------- ------------------------------------------
Secretary Senior Vice President
ATTEST: RUSHMORE LIFE INSURANCE CO.
/s/ Jim W. Clark By: /s/ D. M. Moore, Jr.
- -------------------------- ---------------------------------------------
Secretary Chairman & CEO
ATTEST: RUSHMORE INSURANCE SERVICES, INC.
/s/ Jim W. Clark By: /s/ D. M. Moore, Jr
- --------------------------- -------------------------------------------
Secretary Chairman & CEO
10
<PAGE>
EXHIBIT 23.2
January 28, 1998
Rushmore Financial Group, Inc.
13355 Noel Road, Suite 650
Dallas, Texas 75240
Gentlemen:
We hereby consent to the inclusion of our report dated October 10, 1997
covering the consolidated financial statements of Rushmore Financial Group, Inc.
as of December 31, 1996 and for the two years then ended and 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
covering up to 1,250,000 shares of common stock.
/s/ Cheshier & Fuller
Cheshier & Fuller, LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITOR
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-42225) 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 L.L.P.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS AMENDED EXHIBIT 27.1 SHOULD BE CONSIDERED AS APPENDIX D TO ITEM 601(c) OF
REGULATION S-B (BROKER-DEALERS AND BROKER DEALER HOLDING COMPANIES) FOR THE
PERIOD DECEMBER 31, 1996 AND THE YEAR THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 117,738
<RECEIVABLES> 54,714
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 67,894
<TOTAL-ASSETS> 543,086
<SHORT-TERM> 0
<PAYABLES> 83,733
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 24,024
0
180,920
<COMMON> 14,369
<OTHER-SE> 155,648
<TOTAL-LIABILITY-AND-EQUITY> 543,086
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 0
<COMMISSIONS> 1,493,908
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 44,616
<INTEREST-EXPENSE> 4,535
<COMPENSATION> 1,461,049
<INCOME-PRETAX> (170,891)
<INCOME-PRE-EXTRAORDINARY> (170,891)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,778)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS AMENDED EXHIBIT 27.1 SHOULD BE CONSIDERED AS APPENDIX B TO ITEM 601(c) OF
REGULATION S-B INSURANCE COMPANIES FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND
FOR THE NINE MONTHS ENDED 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 1,294,711
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,281,359
<TOTAL-ASSETS> 35,485,359
<POLICY-LOSSES> 33,563,841
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
180,920
<COMMON> 20,055
<OTHER-SE> 1,203,737
<TOTAL-LIABILITY-AND-EQUITY> 35,485,359
2,092,002
<INVESTMENT-INCOME> 1,050,052
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 73,552
<BENEFITS> 1,128,230
<UNDERWRITING-AMORTIZATION> 1,041,328
<UNDERWRITING-OTHER> 697,655
<INCOME-PRETAX> (20,258)
<INCOME-TAX> 167
<INCOME-CONTINUING> (5,174)
<DISCONTINUED> (25,992)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,304)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS AMENDED EXHIBIT 27.1 SHOULD BE CONSIDERED AS APPENDIX D TO ITEM 601(c) OF
REGULATION S-B BROKER DEALER HOLDING COMPANIES FOR THE PERIOD SEPTEMBER 30,
1997 AND FOR THE NINE MONTHS THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 131,652
<RECEIVABLES> 46,432
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 195,707
<SHORT-TERM> 0
<PAYABLES> 89,533
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 195,707
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 0
<COMMISSIONS> 1,620,543
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 103,292
<INTEREST-EXPENSE> 0
<COMPENSATION> 1,680,721
<INCOME-PRETAX> 10,908
<INCOME-PRE-EXTRAORDINARY> (10,908)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,241)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> CT
<LEGEND>
THIS AMENDED EXHIBIT 27.1 SHOULD BE CONSIDERED AS APPENDIX F TO ITEM 601(c) OF
REGULATIONS S-B CONSOLIDATED TOTALS FOR REGISTRANTS FILING MULTIPLE FINANCIAL
DATA SCHEDULE FOR THE PERIOD SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS THEN
ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<TOTAL-ASSETS> 35,681,066
0
180,920
<COMMON> 20,055
<OTHER-SE> 1,203,737
<TOTAL-LIABILITY-AND-EQUITY> 35,681,066
<TOTAL-REVENUES> 4,980,984
<INCOME-TAX> 167
<INCOME-CONTINUING> (5,174)
<DISCONTINUED> (25,992)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,545)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
