<PAGE> 1
UNITED STATES
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition Period from to
---------------- ----------------
Commission file number 000-24057
Rushmore Financial Group, Inc.
---------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2375969
-------- ---------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13355 Noel Road, Suite 650, Dallas, Texas 75240
-------------------------------------------------------------
972-450-6000
-----------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by the court.
Yes No
------ ------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
State the number of shares outstanding of each of the issuer's classes
of common equity as of June 30, 1999: 3,007,499 shares of common stock, $0.01
par value.
Transitional Small Business Disclosure Format;
Yes No X
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE> 3
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and cash equivalents $ 648,021 $ 613,814
Certificates of deposit 703,903 1,201,284
Amounts on deposit with reinsurer 4,536,299 32,785,657
Bonds available for sale; amortized cost $203,883 at December 31, 1998 -- 204,641
Equity securities available for sale; cost of $50,000 50,000 --
----------- ------------
Total investments 5,938,223 34,805,396
----------- ------------
Deferred policy acquisitions costs 48,240 1,989,174
Accounts receivable and due from reinsurers 571,440 1,328,659
Prepaid expenses and deposits 263,997 270,894
Equipment, net of accumulated depreciation 445,927 470,837
Deferred federal income taxes -- 91,674
Goodwill 28,624 246,326
Other assets 383 628
----------- ------------
Total assets $ 7,296,834 $ 39,203,588
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 5,113 $ 87,393
Universal life contract liabilities 4,510,115 34,189,968
Present value of future profits -- 610,519
Claims payable -- 128,216
Notes payable 64,621 60,352
Due to reinsurers 88,377 1,127,099
Accrued expenses & other liabilities 330,360 383,291
----------- ------------
Total liabilities 4,998,586 36,586,838
----------- ------------
Shareholders' Equity:
Preferred stock-9% cumulative preferred stock, $10 par value, 2,000
shares issued and outstanding 20,000 20,000
Preferred stock-Series A cumulative preferred stock, $10 par value;
13,687 shares issued and outstanding 136,870 136,870
Common stock-$0.01 par value, 10,000,000 shares authorized,
3,096,972 shares issued and 3,007,499 outstanding at June 30, 1999;
10,000,000 shares authorized and 3,066,597 issued and 2,977,124
shares outstanding at December 31, 1998 30,970 30,666
Common stock subscribed-8,000 shares at $0.01 at June 30, 1999;
10,000 shares at $0.01 at December 31, 1998 80 100
Additional paid in capital 6,114,187 6,086,850
Treasury stock; 89,473 shares at cost (116,345) (116,345)
Retained earnings (deficit) (3,849,084) (3,453,470)
Accumulated other comprehensive income -- 758
Shareholder/subscription receivables:
Common stock subscriptions receivable (38,430) (43,920)
Shareholder loans -- (44,759)
----------- ------------
Total shareholders' equity 2,298,248 2,616,750
----------- ------------
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,296,834 $ 39,203,588
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Revenue from Insurance Services:
Insurance policy income $ 290,782 $ 812,699 $ 419,095 $ 1,674,782
Net Investment income 94,064 550,101 187,055 1,074,018
Agency Management fee 86,595 3,877 126,833 4,581
Gain on sale of insurance block -- -- 1,016,268 --
Revenue from Investment Services:
Commissions and fees 872,183 616,806 1,552,446 1,116,630
Asset management 73,431 53,823 139,053 99,478
Other 1,153 52,341 12,473 68,337
----------- ----------- ----------- -----------
Total revenues 1,418,208 2,089,647 3,453,223 4,037,826
----------- ----------- ----------- -----------
Expenses:
Insurance Services Expenses:
Other insurance services expenses 249,699 270,309 383,329 584,747
Policyholder benefits 110,806 686,636 178,906 1,128,575
Amortization of deferred policy
acquisition costs 23,451 210,320 116,315 428,863
Amortization of present value of insurance in force -- 369,932 -- 702,147
Investment services expenses:
Commission expense 719,780 518,611 1,323,173 978,069
Other investment services expenses 80,394 29,299 124,133 54,183
General and administrative 854,519 503,273 1,566,303 793,606
----------- ----------- ----------- -----------
Total expenses 2,038,649 2,588,380 3,692,159 4,670,190
----------- ----------- ----------- -----------
Operating loss (620,441) (498,733) (238,936) (632,364)
Interest expense 3,760 5,144 3,931 13,408
----------- ----------- ----------- -----------
Loss before income taxes (624,201) (503,877) (242,867) (645,772)
Provision for income taxes (10,636) 2,760 152,747 2,760
----------- ----------- ----------- -----------
Net loss $ (613,565) $ (506,637) $ (395,614) $ (648,532)
=========== =========== =========== ===========
Net loss applicable to common shareholders $ (617,095) $ (510,707) $ (402,673) $ (656,673)
=========== =========== =========== ===========
Basic and diluted:
Net loss per share of common stock,
after dividends on preferred stock $ (0.20) $ (0.17) $ (0.13) $ (0.26)
=========== =========== =========== ===========
Weighted average common shares outstanding 3,004,659 2,984,617 3,006,079 2,566,240
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (395,614) $ (648,532)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Gain on sale of insurance block net of federal income tax (806,637) --
Realized (gains) and losses net (3,933) --
Depreciation and amortization 59,150 6,694
CHANGE IN ASSETS AND LIABILITIES, NET OF EFFECTS OF
SALE OF INSURANCE BLOCK:
(Increase) decrease in assets:
Accounts receivable and due from reinsurers (238,502) (107,008)
Prepaid expenses and deposits 6,897 (69,722)
Deferred policy acquisition costs 37,638 151,877
Amounts on deposit with reinsurer (162,688) 170,499
Net deferred federal income taxes -- (77,464)
Increase (decrease) in liabilities:
Accrued expenses and other liabilities 63,108 (119,364)
Due to reinsurers 152,301 (544,675)
Future policy benefits 500 3,787
Universal Life liabilities 117,496 (197,763)
Present value of future profits -- 702,147
Claims payable -- (136,906)
----------- -----------
Net cash flows (used) by operating activities (1,170,284) (866,430)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (32,845) (29,169)
Purchase of equity securities available for sale (50,000) (111,283)
Purchase of bonds available for sale -- (803,638)
Decrease in certificates of deposit 497,381 --
Sales of bonds available for sale 207,816 --
Cash received on sale of insurance block 500,000 --
----------- -----------
Net cash flows provided (used) by investing activities 1,122,352 (944,090)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to officers and affiliate 44,759 (45,036)
Proceeds from sale of Common Stock, net of offering cost 40,170 3,766,141
Preferred Stock dividends paid (7,059) (8,141)
Preferred Stock redeemed -- (24,050)
Payments on notes payable (30,991) (85,000)
Proceeds from notes payable 35,260 --
----------- -----------
Net cash flows provided by financing activities 82,139 3,603,914
----------- -----------
Change in cash and cash equivalents 34,207 1,793,394
Cash and cash equivalents at beginning of period 613,814 1,222,820
----------- -----------
Cash and cash equivalents at end of period $ 648,021 $ 3,016,214
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,582 $ 9,361
Cash paid for income taxes $ -- $ 86,558
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included herein have been prepared by Rushmore
Financial Group, Inc. ("Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures contained herein are adequate to make the information
presented not misleading. In the opinion of management, the information
furnished in the unaudited consolidated financial statements reflects all
adjustments which are ordinary in nature and necessary to present fairly the
Company's financial position, results of operations and changes in financial
position for such interim period. These interim financial statements should be
read in conjunction with the Company's financial statements and the notes
thereto as of December 31, 1998, included in the Company's annual report on Form
10-KSB for the year ended December 31, 1998.
Rushmore Insurance Services, Incorporated ("Rushmore Agency") is an insurance
agency and an affiliate of the Company by means of service agreements. The
Company has entered into an administrative services agreement whereby net
revenues and expenses are charged via a management fee to the Company. Rushmore
Agency has been consolidated in the accompanying consolidated financial
statements. All financial information contained herein has been reclassified,
where applicable, to include these net revenue and expenses for the three months
ended June 30, 1998 and the six months ended June 30, 1998.
6
<PAGE> 7
2. Sale of Insurance Block
On January 22, 1999 the Company executed a termination and recapture agreement
with Conseco Life Insurance Company ("CLIC") effective January 1, 1999. Under
the terms of the agreement all reinsurance is terminated and all risks formerly
assumed by CLIC were recaptured. On March 9, 1999 CLIC paid $500,000 to the
Company as consideration and in settlement of the amounts due CLIC from the
Company and the amounts due the Company from CLIC. The following table
summarizes the categories of net asset changes relating to this sale:
<TABLE>
<CAPTION>
Assets Increase Decrease
- ----------------------------------------- --------------- --------------
<S> <C> <C>
Cash $ 500,000 $ --
Amounts on Deposit With Reinsurers -- 28,412,046
Accounts Receivable -- 995,721
Deferred Federal Income Tax -- 91,674
Deferred Policy Acquisition Costs -- 1,903,296
Goodwill -- 216,552
</TABLE>
<TABLE>
<CAPTION>
Liabilities Decrease Increase
- ----------------------------------------- --------------- --------------
<S> <C> <C>
Future Policy Benefits $ 82,780 $ --
Universal Life Policy Liabilities 29,797,349 --
Present Value of Future Profits 610,519 --
Claims Payable 128,216 --
Due to Reinsurers 1,191,023 --
Accrued Expenses & Other Liabilities 116,039 --
</TABLE>
<TABLE>
<CAPTION>
Net Income Decrease Increase
- ----------------------------------------- --------------- --------------
<S> <C> <C>
Gain on Sale of Insurance Block $ -- $ 1,016,268
Provision for Federal Income Tax 209,631 --
</TABLE>
3. Industry Segment Information
The following summarizes the Company's industry segment data of identifiable
assets as of June 30, 1999:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Insurance Agency $ 555,263
Insurance Company 5,815,389
Investment Services 296,951
Other 629,231
===========
Total $ 7,296,834
-----------
</TABLE>
The corresponding information regarding income segments is contained in the
following management discussion and analysis of financial condition and results
of operations.
7
<PAGE> 8
4. Comprehensive Income (Loss)
Comprehensive income (loss) for the periods ending June 30, 1999 and 1998
consists of:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net (Loss) $ (613,565) $ (506,637) $ (395,614) $ (648,532)
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities, net
of reclassification adjustment -- 25 (758) 868
---------- ---------- ---------- ----------
Comprehensive (loss) $ (613,565) $ (506,612) $ (396,372) $ (647,664)
========== ========== ========== ==========
</TABLE>
5. Subsequent Event
On July 15, 1999, the Company acquired via merger The John Vann Company, a Texas
corporation engaged in business as a registered investment advisor (Vann). The
transaction is structured as a merger of the Company's wholly owned subsidiary,
Rushmore Investment Advisors, Inc., into Vann in exchange for 550,000 shares of
the Company's common stock. The surviving corporation changed its name in the
merger back to Rushmore Investment Advisors, Inc. The purchase price was
determined by means of arms-length negotiations between the Company and the
shareholder of Vann. Vann is a privately owned corporation owned by an affiliate
of Mr. John A. Vann of Dallas. Mr. Vann will remain with the advisory firm as
its chairman, chief executive officer and chief investment officer, pursuant to
a three year Employment Agreement. The transaction was accounted for as a
purchase.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended June 30, 1999 and 1998
Revenues
The following table sets forth the components of the Company's revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ 336,785 $ 37,945
Insurance Company 134,656 1,328,732
Investment Services 945,614 670,629
Other 1,153 52,341
----------- -----------
Total $ 1,418,208 $ 2,089,647
=========== ===========
</TABLE>
Total revenues decreased 32% from $2,089,647 for the second quarter of 1998 to
$1,418,208 during the second quarter of 1999. On January 22, 1999 the Company
executed a termination and recapture agreement with Conseco Life Insurance
Company ("CLIC") effective January 1, 1999. Revenues associated with that
business accounted for $1,226,028 during the second quarter of 1998. Excluding
those revenues, all other revenue increased $554,589 or 64%. Insurance Agency
revenues have increased 788% as the company has begun to earn commissions and
fees relating to the sale of accident and health insurance policies that were
sold over the previous four quarters. The 41% increase in investment services
revenue was generally attributable to revenues of $63,182 associated with the
Company's entry into the on-line trading market coupled with an increase in
retail brokerage income of $129,120
8
<PAGE> 9
and an increase in commissions on annuity and variable life products of $55,098.
These increases are the result of continued additions of new representatives.
As a result of the insurance block sale, insurance company revenue decreased
from $1,328,732 in 1998 to $134,656. Insurance premium income decreased $738,039
to $40,592 and net investment income decreased from $550,101 to $94,064 as a
result of the sale discussed above.
Expenses
The following table sets forth the components of the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ 346,856 $ 90,044
Insurance Company 174,124 1,506,426
Investment Services 1,129,356 719,452
Other 388,313 272,458
----------- -----------
Total $ 2,038,649 $ 2,588,380
=========== ===========
</TABLE>
Insurance agency expenses increased from $90,044 in 1998 to $346,856 in 1999.
Commission expenses associated with the commission revenue described above
totaled $174,432. Expenses to acquire sales leads rose to $34,358 in 1999 from
zero in 1998. Payroll and employee benefit costs incurred to support additional
sales volume rose to $60,257 in 1999 from $27,730 in 1998.
Insurance company expenses decreased from $1,506,426 in 1998 to $174,124 in 1999
due primarily to the sale of reinsurance business to CLIC.
Investment services expenses increased 57% from $719,452 in 1998 to $1,129,356
in 1999. Commissions paid as a percentage of commission revenue decreased
slightly from 84.1% in 1998 to 82.5% in 1999 as a result of adding new account
representatives at lower commission payout rates. Non-commission expenses rose
from $200,841 in 1998 to $409,576 in 1999. During the most recent quarter the
Company incurred expenses of $121,829 in developing and marketing its Internet
based services. Legal and settlement costs also increased $94,588 including an
arbitration ruling that ordered the Company to pay $40,000 as a result of
transactions which occurred in 1995 and 1996.
Other expenses increased 43% from $272,458 in 1998 to $388,313 in 1999 due
primarily to increases in professional fees, expenses of the annual meeting of
shareholders and depreciation. In 1998 the Company's annual meeting was held
later in the year. Professional fee increases included Directors fees of $11,500
in 1999 versus none in 1998, legal fees of $18,645 in 1999 versus $6,869 in
1998, investor relations costs of $13,208 in 1999 versus none in 1998, and
consulting fees of $29,777 versus $8,255 in 1998.
9
<PAGE> 10
Operating income (loss)
The following table sets forth the components of the Company's net income for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ (10,071) $ (55,045)
Insurance Company (28,832) (180,454)
Investment Services (183,861) (48,823)
Other (390,801) (222,315)
----------- -----------
Total $ (613,565) $ (506,637)
=========== ===========
</TABLE>
The Company had a net loss of $613,565 for the second quarter of 1999 compared
to a net loss of $506,637 for the same period in 1998. The net loss applicable
to common shareholders for the second quarter of 1999 was $617,095, or $0.20 per
share (basic and diluted). For 1998, the net loss applicable to common
shareholders of $510,707 was $0.17 per share (basic and diluted). The
performance of the insurance company has improved as a result of sale of
reinsurance business to CLIC. Those policies produced a net loss of $68,437
during the second quarter of 1998. Losses of the investment services division
increased by $135,038 as a result of expenses of $121,829 in developing and
marketing its Internet based services.
Six Months Ended June 30, 1999 and 1998
Revenues
The following table sets forth the components of the Company's revenues for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ 478,386 $ 64,212
Insurance Company 1,270,865 2,689,169
Investment Services 1,691,499 1,216,108
Other 12,473 68,337
----------- -----------
Total $ 3,453,223 $ 4,037,826
=========== ===========
</TABLE>
Total revenues decreased 14% from $4,037,826 for the first half of 1998 to
$3,453,223 during the first half of 1999. On January 22, 1999 the Company
executed a termination and recapture agreement with Conseco Life Insurance
Company ("CLIC") effective January 1, 1999. Revenues associated with that
business accounted for $1,016,268 and $2,490,000 during the first six months of
1999 and 1998 respectively. Excluding those revenues, all other revenue
increased $889,129 or 57%. Insurance Agency revenues have increased $414,174 or
645% as the Company has begun to earn commissions and fees relating to the sale
of accident and health insurance policies that were sold over the previous four
quarters. The investment services division also experienced significant growth
in that revenues increased $475,391 or 39% from the year earlier period. That
increase in investment services revenue was generally attributable revenues of
$80,237 associated with the Company's entry into the on-line trading market
coupled with an increase in retail brokerage income of $178,534 and an increase
in commissions on annuity and variable life products of $153,735. These
increases are the result of continued additions of new representatives.
As a result of the insurance block sale, insurance company revenue decreased
from $2,689,169 in 1998 to $1,270,865 (including $1,016,268 in gain on the sale
to CLIC). Insurance premium income decreased $1,547,609 to $67,542; and net
investment income decreased $886,963 to $187,055 as a result of the sale
discussed above.
10
<PAGE> 11
Expenses
The following table sets forth the components of the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ 604,202 $ 121,426
Insurance Company 349,970 2,808,097
Investment Services 1,966,625 1,350,059
Other 771,362 390,608
----------- -----------
Total $ 3,692,159 $ 4,670,190
=========== ===========
</TABLE>
Insurance agency expenses increased from $121,426 in 1998 to $604,202 in 1999.
Agents' commissions and personnel costs increased $201,251 and $113,139
respectively as a direct result of the 645% increase in agency revenue.
Expenses to acquire sales leads rose $84,187 in 1999.
Insurance company expenses decreased from $2,808,097 in 1998 to $349,970 in 1999
due primarily to the sale of reinsurance business to CLIC.
Investment services expenses increased 46% from $1,350,059 in 1998 to $1,966,625
in 1999. Commissions paid as a percentage of commission revenue decreased
slightly from 87.6% in 1998 to 85.2% in 1999 as a result of adding new account
representatives at lower commission payout rates. Non-commission expenses rose
from $371,990 in 1998 to $643,452 in 1999. During the first half of 1999 the
Company incurred expenses of $152,005 in developing and marketing its Internet
based services. Legal and settlement costs also increased $106,186. An
arbitration ruling ordered the Company to pay $40,000 as a result of
transactions which occurred in 1995 and 1996.
Other expenses increased 97% from $390,608 in 1998 to $771,362 in 1999 due
primarily to increases in legal, professional, and personnel costs. Legal,
professional, and accounting fees increased to $147,726 in 1999 from $79,637 in
1998. These increases included Directors fees of $11,500 in 1999 versus none in
1998, legal fees of $25,665 in 1999 versus $8,425 in 1998, investor relations
costs of $24,073 in 1999 versus none in 1998, and consulting fees of $50,780
versus $8,255 in 1998. Compensation and benefits increased $125,108 due mainly
to additional personnel. As a result of acquiring additional computer and office
equipment, and expanding office space, depreciation and amortization expense
increased from $6,694 in 1998 to $57,538 in 1999.
Operating income (loss)
The following table sets forth the components of the Company's net income for
the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Insurance Agency $ (125,816) $ (63,073)
Insurance Company 768,148 (121,688)
Investment Services (275,245) (133,951)
Other (762,701) (329,820)
----------- -----------
Total $ (395,614) $ (648,532)
=========== ===========
</TABLE>
The Company reported a net loss of $395,614 for the six months ended June 30,
1999 compared to a net loss of $648,532 for the same period in 1998. The net
loss applicable to common shareholders for the first half of 1999 was $402,673,
or $0.13 per share (basic and diluted). For 1998, the net loss applicable to
common shareholders of
11
<PAGE> 12
$656,673 was $0.26 per share (basic and diluted). The decrease in net loss is
attributable to the pre-tax gain of $1,016,268 on the disposition of the block
of reinsurance policies, offset by increased expenditures in general &
administrative expenses of $772,697 and an increase in the provision for income
taxes of $149,987. Personnel costs increased $350,009 and were the single
largest factor in the increase in general and administrative expenses. The
provision for income taxes was primarily the result of the sale of the insurance
block by Rushmore Life Insurance Company. Although the Company has significant
net operating loss deductions available, it is unable to consolidate Rushmore
Life Insurance Company for tax purposes. The increase in provision for income
taxes includes the result of an increase in additions to the deferred tax asset
valuation allowance of $421,264.
Liquidity
Registrant's requirements for normal cash expenditures will be met through cash
flow from operations. Additional cash to complete the acquisition and
enhancement of the proprietary software to be used in Registrant's on-line
trading service will require infusions of capital through equity investment, and
registrant is planning a private placement of convertible preferred stock during
the third and fourth quarter of 1999.
Year 2000
The Year 2000 will have a broad impact on the business environment in which the
Company operates. This is due to the possibility that many computerized systems
across all industries will be unable to process information containing dates
beginning in the Year 2000. The Company established an enterprise-wide program
in the first quarter of 1998 to prepare its computer systems, applications, and
transactional bridges between internal systems and external agents for the Year
2000. The Company is utilizing both internal and external resources to identify,
correct, and test the systems for Year 2000 compliance. The majority of its
inventory, research, and modifications were completed by December 31, 1998.
Further validations through testing and follow-up procedures will be conducted
throughout calendar year 1999. As of June 30, 1999, all mission-critical systems
have been tested with no significant difficulties encountered. Furthermore,
because of recent acquisitions and the affiliations with other companies, the
Company's Year 2000 Project scope has been enlarged. Preliminary research and
verification of newly acquired mission-critical systems have shown Year 2000
compliance. Further research, testing, and any remediation will be completed by
September 30, 1999.
Because third party failures could have a material impact on the Company's
ability to conduct business, questionnaires were sent to all of the Company's
vendors including the clearing firms and primary insurers to certify that plans
are being developed to address the Year 2000 issue. The questionnaires were
assessed by the Company, and categorized based upon readiness for the Year 2000
issues. They were prioritized in order of significance to the business of the
Company. The Company intends to make every reasonable effort to assess the Year
2000 readiness of the critical business partners and to create actions plans to
address the identified risks.
In addition to safeguarding against internal and external possible malfunctions,
the Company is developing a contingency plan to operate independent of systems
that could be affected by the Year 2000 problem. The plan, which includes backup
telephone systems and manual routing of transactions such as security trades,
will be in place by August 31, 1999.
Remaining testing and remediation of all of the Company's systems and
applications is expected to cost approximately $10,000. All estimated costs have
been budgeted, and are expected to be funded by cash flows from operations.
Total costs of testing and remediation relating to the Year 2000 project are not
expected to exceed $25,000.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates.
These estimates were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
12
<PAGE> 13
modification plans and other factors. Unanticipated failures by clearing firms
and primary insurers, as well as the failure by the Company to execute its own
remediation efforts could have a material adverse effect on the cost of the
project and its completion date. As a result, there can be no assurance that
these forward-looking estimates will be achieved and the actual cost and vendor
compliance could differ materially from those plans, resulting in material
financial risks.
Forward looking statements
This document includes statements which may constitute "forward-looking"
statements, usually containing the words "believe", "estimate", "project",
"expect" or similar expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
Factors that would cause or contribute to such differences include, but are not
limited to, continued acceptance of the Company's products in the marketplace,
competitive factors, changes in regulatory environments, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission. By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions or changes
after the date of this filing.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither Rushmore Financial Group, Inc. nor its subsidiaries is a party to any
pending legal proceedings which management believes would have a material effect
upon the operations or financial condition of Rushmore Financial Group, Inc.
Item 2. Defaults Upon Senior Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
Information concerning the Company's annual meeting of shareholders held May 7,
1999 was disclosed in the Company's Form 10QSB for the quarter ended March 31,
1999 and is incorporated by reference.
Item 5. Exhibits and Reports on Form 8K
(a) Exhibits. Exhibit 2.3 - Asset Purchase Agreement -
Block Trading, Inc.
Exhibit 2.4 - Asset Purchase Agreement -
Millennium Daqcom/Dallas LP
Exhibit 2.5 - Asset Purchase Agreement -
Daqcom International, LLC
Exhibit 11 - Earnings per share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8k - On July 15, 1999, the Company acquired via
merger The John Vann Company, a Texas corporation engaged in business
as a registered investment advisor (Vann). The transaction is
structured as a merger of the Company's wholly owned subsidiary,
Rushmore Investment Advisors, Inc., into Vann in exchange for 550,000
shares of the Company's common stock. The surviving corporation
changed its name in the merger back to Rushmore Investment Advisors,
Inc. The purchase price was determined by means of arms-length
negotiations between the Company and the shareholder of Vann. Vann is
a privately owned corporation owned by an affiliate of Mr. John A.
Vann of Dallas. Mr. Vann will remain with the advisory firm as its
chairman, chief executive officer and chief investment officer,
pursuant to a three year Employment Agreement. The transaction was
accounted for as a purchase.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Rushmore Financial Group, Inc.
Dated: August 16, 1999 By /s/ Robert W. Hendren
-------------------------------------
By Robert W. Hendren
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.3 Asset Purchase Agreement - Block Trading, Inc.
2.4 Asset Purchase Agreement - Millennium Daqcom/Dallas LP
2.5 Asset Purchase Agreement - Daqcom International, LLC
11 Earnings per share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
AGREEMENT dated June 15, 1999, by and among BLOCK TRADING, INC., a Texas
corporation ("Seller"), and RUSHMORE SECURITIES CORPORATION, a Texas
corporation ("Purchaser").
Subject to the approval of the United States Bankruptcy Court for the
Southern District of Texas, Houston Division, and the other terms and
conditions of this Agreement, Purchaser desires to acquire certain assets of
Seller and Seller is willing to sell such assets on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Transfer and Assignment of Assets. At the Closing (as hereinafter
defined), Seller agrees to convey, transfer, assign and deliver to Purchaser
certain of the assets and properties used by it in its securities trading and
software development business (the "Business") as conducted from its facilities
in Houston, Texas, and Purchaser agrees to accept the same. The assets and
properties so conveyed and transferred are hereinafter referred to as the
"Purchased Assets" and shall consist of the following, except as set forth in
Section 2:
(a) Furniture, Fixtures and Equipment. All furniture,
fixtures and equipment and all parts, accessories, tools and supplies
pertaining thereto (the "Furniture, Fixtures and Equipment"), the
principal items of which as of June 1, 1999, are described in Schedule
1(a) attached hereto.
(b) Prepaid Expenses. All prepaid expenses and deposits, but
only to the extent that the benefits thereof shall accrue to Purchaser
on and after Closing (the "Prepaid Expense Items"), the principal
items of which as of June 1, 1999, are described in Schedule 1(b)
attached hereto.
(c) Software. All computer hardware and software, including
the software designed for the purpose of providing quote information,
executions, trader support and back office record keeping for traders
who access the securities, option, futures or commodities markets
electronically, including the object (machine-readable) and source
(human-readable) code, and all rights thereto.
(d) Name. The right to use the name "BLOCK TRADING" and any
variation thereof. At Closing, Seller shall execute and deliver to
Purchaser an Amendment to Seller's Articles of Incorporation to delete
the name "Block Trading" from its corporate name.
(e) Warranties. All warranties, guarantees and the like of
manufacturers, contractors, sellers or suppliers which pertain to the
Purchased Assets.
(f) Telephones. Seller's interest in the telephone numbers
and all listings pertaining to Seller in Houston area telephone books
and directories.
(g) Receivables. All of Seller's accounts and notes
receivable, purchase orders and contract rights for the receipt of
money ("Receivables"), a listing of which along with the amount
thereof as of June 1, 1999, is to be set forth in Schedule 1(h) to be
prepared by Seller and attached hereto.
(h) Going Concern. The business of Seller as a going concern
including the goodwill, if any, contract rights, and all records,
books, customer lists, brochures, office supplies, literature, general
intangible rights, credit information and any and all other operating
data of Seller.
(i) Intellectual Property. Full and exclusive rights, subject
only to that certain Software Assignment and Settlement Agreement
dated April 8, 1999, unencumbered by any other licenses or grants
<PAGE> 2
of rights to any third party, to any patents, patents pending, patent
applications, trademarks, copyrights, service marks, trade names,
nondisclosure agreements, a listing of which shall be prepared by
Seller and attached as Schedule 1(j), and in addition all trade
secrets, inventions, engineering designs, product specifications and
processes pertaining to the Purchased Assets.
2. Excluded Assets. Notwithstanding the generality of the foregoing,
Purchaser shall not acquire the following assets of Seller:
(a) Cash. Any of Seller's cash, investments or cash
equivalents, including any tax refunds and amounts received by Seller
from Penson Financial.
(b) Avoidance Powers. Seller does not by this Agreement agree
to transfer to Purchaser any bankruptcy avoidance powers or other
causes of action with respect to the Purchased Assets or otherwise,
all of which shall be retained by Seller.
3. Assumed Obligations. Buyer shall assume on the Closing Date only
the obligations, contracts, liabilities and commitments of Seller (the "Assumed
Obligations") which are listed on Schedule 3 attached hereto. Buyer shall
execute an assumption agreement with respect thereto, in an appropriate form
approved by the parties. Buyer shall not assume, be liable for or discharge any
debts, liabilities or obligations of Seller of any kind or character which are
not specifically listed on Schedule 3.
4. Purchase Price.
(a) Amount. The purchase price for the Purchased Assets shall
be the sum of $800,000.
(b) Form of Payment. The purchase price (the "Purchase
Price") shall be paid as follows:
(i) A sum equal to $50,000 shall be deposited in
cash, with Sheinfeld, Maley & Kay, attorneys for seller, to
be held in an interest bearing account, to be released to the
Seller at Closing upon satisfaction of all conditions and
requirements of this Agreement, or to be returned to
Purchaser if this Agreement fails to close pursuant to its
terms;
(ii) A sum of cash equal to the amount released from
escrow and such additional amount required to fund the
Purchase Price.
5. Representations and Warranties of Seller. Seller makes no
representations or warranties about the nature or condition of the Purchased
Assets. The sale hereby shall have been approved by order of the United States
Bankruptcy Court for the Southern District of Texas, Houston Division, and the
Purchased Assets will be transferred to Purchaser free and clear of all
pre-petition and post-petition liens, claims, encumbrances and taxes.
6. Conditions Precedent. All obligations of Purchaser and Seller under
this Agreement are subject to the fulfillment prior to or on the Closing of
each of the following conditions, unless waived in writing by both. Purchaser
and Seller shall each have the right to terminate this Agreement if all such
conditions are not fulfilled prior to the Closing, and Purchaser and Seller
shall use their best efforts to cause each of the following to be fulfilled:
(a) Bankruptcy Court Approval. Seller shall have received
final and nonappealable approval of the United States Bankruptcy Court
for the Southern District of Texas, Houston Division, of this
Agreement and the sale provided for herein, in a proceeding under
Section 363 of the United States Bankruptcy Code, 11 U.S.C. Sec. 363.
<PAGE> 3
(b) Performance by Purchaser and Seller. Purchaser and Seller
shall have performed and complied with all agreements, covenants and
obligations required by this Agreement to be performed or complied
with by them prior to or on the Closing.
(c) No Material Adverse Changes. There shall have been no
material adverse change in Seller's business, financial results,
relationships with suppliers and distributors, financial condition, or
the condition of the Purchased Assets.
(d) Satisfaction with Review. Purchaser shall in its sole
discretion be satisfied with its due diligence review of the Purchased
Assets and the Business.
(e) Delivery of Items. Seller shall have delivered to
Purchaser all items required by this Agreement.
(f) Closing Date. Closing of the purchase and sale hereby
shall have occurred not later than 30 days following delivery to
Purchaser of all requested due diligence information.
7. Other Agreements and Covenants. In addition to the Agreements set
forth herein, the parties hereto agree as follows:
(a) Expenses and Commissions. Each party to this Agreement
shall bear its own legal, accounting and other related expenses in
connection with the transactions provided for herein. Each of the
parties hereto agrees to hold the other harmless from and against any
liability for broker's or finder's fees in connection with the
purchase and sale provided for herein arising out of contracts,
express or implied, which may be asserted against the noncontracting
parties.
(b) Future Transactions. During the period from and after the
date of this Agreement through the Closing Date, Seller covenants and
agrees that, without Purchaser's prior written consent to the
contrary, Seller will operate so as:
(i) To carry on the Business in substantially the
same manner as heretofore carried on, and not to make any
purchase or sale, or enter into any agreement or lease
(whether as a lessor or lessee), or introduce any new method
of management or operation in respect of any such business,
except in the ordinary course of business and in a manner not
inconsistent with prior practice and with the terms of this
Agreement;
(ii) Not to acquire, sell, transfer, lease,
mortgage, pledge, encumber or otherwise dispose of any fixed
asset (other than inventory that is sold in the ordinary and
usual course of business) having a present value in excess of
$1,000;
(iii) Not to change or alter the physical contents
or character of the Business or result in a change of the
total valuation thereof, other than as a result of
transactions in the ordinary course of business or as
required under the terms of this Agreement;
(iv) To maintain and preserve its business
organization and goodwill intact and maintain its
relationships with suppliers, customers, creditors, employees
and others having business relationships with it;
(v) Not to make any changes or modifications in any
agreement to which it is a party which affects the Purchased
Assets, except in the ordinary course of business or in an
amount not exceeding $1,000 in any one transaction or as
required by this Agreement;
<PAGE> 4
(vi) Not to make any commitment for any capital
expenditures for a single item exceeding $500 and not to make
commitments for capital expenditures exceeding $1,000 in the
aggregate.
(c) Future Assistance. Seller will assist and cooperate with
Purchaser in assuming the Business of the Seller. Purchaser shall have
the right, but not the obligation, to retain any or all of the current
employees of the Seller.
(d) Notice. Any notice, instruction, document or other
communication required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
delivered personally or by facsimile as follows:
If to Purchaser, to:
D. M. Moore, Jr., Chief Executive Officer
Rushmore Securities Corporation
13355 Noel Road, Suite 300
Dallas, Texas 75240
Fax: (972)450-6001
With copies to:
Ronald L. Brown, Esq.
Glast, Phillips & Murray, P.C.
13355 Noel Road, Suite 2200
Dallas, Texas 75240
Fax: (972)419-8329
If to Seller, to:
Jeffrey Burke, President
Block Trading, Inc.
5085 Westheimer, Suite 4850
Houston, Texas 77056
Fax: (713) 621-5490
With copies to:
Ed Ripley
Sheinfeld, Maley & Kay
1001 Fannin Street, Suite 3700
Houston, Texas 77002
Fax: (713) 658-9756
Any party may change its address or addresses for purposes of
this Section by written notice of such change to the other party in
the manner herein provided for giving notice.
(e) Non-Solicitation. Neither the Seller, nor its officers
and directors will solicit or entertain offers from or negotiate with
any person or entity regarding the sale of the Business or assets upon
execution of this Agreement. Seller may only solicit or entertain
offers if this Agreement is terminated.
(f) Access to Information. From and after the date hereof,
Purchaser and its representatives shall be provided with access to the
assets, financial statements, employment files, books, records and
<PAGE> 5
employees of Seller and shall have the right to inspect such property
and to inspect and copy all such books and records of Seller.
(g) Liquidated Damages. Upon termination of this Agreement
upon the occurrence of either of the following events, Seller shall
pay to Purchaser the direct out-of-pocket expenses incurred by
Purchaser in conducting its due diligence and paying legal fees and
other costs of the transaction hereby, in the maximum amount of
$150,000, as liquidated damages and not as a penalty: (i) Seller shall
be in breach of any provision of this Agreement, which breach results
in the failure to close the sale hereby; or (ii) this Agreement shall
be terminated upon the failure of Seller to satisfy a condition to
closing, and at any time during 12 months thereafter, Seller shall
conclude a transaction for the sale of Seller or its assets with any
other party.
8. Closing.
(a) Closing. The Closing shall take place at the offices of
Purchaser as set forth above, at such time as the parties may mutually
agree upon, but in no event later than the date set forth in Section
6(f) (the "Closing Date"). The Closing Date may be extended upon the
joint approval of the parties or by the parties if necessary in order
to obtain Bankruptcy Court approval.
(b) Delivery of Items by Seller. At or prior to the Closing,
Seller shall deliver to Purchaser:
(1) A Bill of Sale covering all of the Purchased
Assets.
(2) An order of the Bankruptcy Court authorizing the
transactions contemplated hereby, in form satisfactory to
counsel to Purchaser.
(3) All other books, records, papers, evidences of
title or interest and documents relating to the Purchased
Assets and assumed liabilities.
(c) Delivery of Items by Purchaser. Purchaser shall deliver
to Seller at the Closing:
(1) The consideration set forth in Section 4.
(2) An assumption of liabilities as described in
Section 3.
(d) Allocation of Price. The purchase price shall be
allocated among the Assets as set forth on Schedule 8(d).
9. General.
(a) Section and Subsection headings contained in this
Agreement have been inserted for reference purposes only and shall not
in any way affect the meaning or interpretation of this Agreement.
This Agreement may not be amended, modified or terminated except by
writing signed by executive officers of both Purchaser and Seller.
This Agreement represents the culmination of substantial negotiations
between the parties and is the entire final Agreement between them
pertaining to the subject matter hereof. No waiver of any breach of
any term hereof shall be effective unless made in writing, signed by
the party against whom enforcement of the waiver is sought, and no
such waiver shall be construed as a waiver of any subsequent breach of
that term or of any other term of the same or different nature.
(b) This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
<PAGE> 6
(c) If any section or portion of this Agreement is held to be
illegal or otherwise void or invalid, the remainder of this Agreement
shall not be affected and shall remain in full force and effect.
(d) THIS AGREEMENT SHALL BE INTERPRETED UNDER AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(e) All exhibits, schedules and statements which are attached
to the Agreement are incorporated in this Agreement as though fully
set forth at the respective points indicated in this Agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement this 15th day of June, 1999
SELLER:
BLOCK TRADING, INC.
By: /s/ Jeffrey A. Burke
------------------------------------
Jeffrey A. Burke, President
PURCHASER:
RUSHMORE SECURITIES CORPORATION
By: /s/ D.M. Moore, Jr.
------------------------------------
D. M. Moore, Jr., Chief Executive Officer
<PAGE> 1
Exhibit 2.4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of June 30, 1999
among Millennium Daqcom/Dallas LP, a Texas limited partnership (the "Seller");
Millennium Daqcom, LP, the owner of 99% of the outstanding limited partnership
interests of the Seller (the "Owner"), RushTrade.com, inc., a Texas corporation
("Purchaser"); and Rushmore Financial Group, Inc., a Texas corporation, and the
parent of Purchaser ("Parent").
WHEREAS, the respective governing boards of the Purchaser and the
Seller and Owner have duly approved the acquisition of substantially all of the
assets of the Seller pursuant to the terms of this Agreement, it is therefore
agreed as follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Agreement to Sell. Subject to the terms and conditions
hereinafter set forth, at the Closing the Seller shall sell, assign, transfer,
convey and deliver to Purchaser, and Purchaser shall purchase from the Seller
for the purchase price specified in Article II of this Agreement, the assets
listed in Section 1.2 (the "Assets") free and clear of all liens, claims,
charges, and encumbrances of any nature whatsoever, except as agreed by
Purchaser. In addition, all leases, contracts and agreements constituting part
of the Assets shall be assigned to and assumed by Purchaser and shall be at
Closing in full force and effect without any existing defaults (or event or
conditions, which with notice or lapse of time, or both, would constitute a
default) thereunder.
SECTION 1.2 Included Assets. The Assets purchased hereunder shall be
all business, assets, properties and rights relating to the Seller's securities
trading operation in Dallas, Texas (the "Business") and, except as set forth in
Schedule 1.3, shall include, without limitation:
(i) all fixed assets, including equipment, vehicles,
furniture and fixtures and all other personal property owned
by the Seller and related to the Business, together with all
warranties and guaranties thereon (such personal property
being more particularly described in Schedule 1.2(i));
(ii) all contracts, purchase orders, leases, royalty
agreements, instruments, permits, licenses, franchises,
confidentiality agreements and other agreements attributable
to the Business, specifically including all contracts
described in Section 3.14, which Contracts are more
particularly described in Schedule 1.2(ii) (the "Contracts");
(iii) all trade secrets, customer lists, and all
other rights and documents owned, required for or incident to
the performance of the Business and all books and records
incident thereto, which, however, shall not include any stock
books and corporate minute books of the Seller;
(iv) such rights as the Seller has to use its
present telephone numbers related to the Business from and
after the Closing Date; and
(v) rights to insurance proceeds arising from any
loss or damage relating to the Assets.
SECTION 1.3 Excluded Assets. Notwithstanding anything in this
Agreement to the contrary, Purchaser shall not purchase or receive or be under
any obligation with respect to any cash, investments, accounts receivable,
notes receivable, deposits, prepaid expenses or other assets, equipment or
contracts which are set forth in Schedule 1.3 (the "Excluded Assets").
<PAGE> 2
SECTION 1.4 Liabilities of the Seller. Except for the liabilities set
forth on Schedule 1.4, Purchaser will not assume any liability or other
obligation of Seller and shall acquire the Assets free and clear of any lien,
claim, charge or encumbrance. Seller agrees to pay and discharge at or prior to
Closing its indebtedness and all of its other liabilities as they pertain to
the Business and present evidence thereof to Purchaser.
SECTION 1.5 Closing. The Closing of the purchase and sale hereby shall
take place at the offices of Purchaser's attorney, Glast, Phillips & Murray,
P.C., 2200 One Galleria Tower, 13355 Noel Road, Dallas, Texas 75240 at a date
and time mutually agreeable to Seller and Purchaser as soon as possible upon
satisfaction of all conditions set forth in Article VI hereof. At the Closing,
each party shall execute and deliver the documents and take the actions
required or contemplated by this Agreement in order to complete the transfer of
the Assets to Purchaser. The Closing shall occur simultaneously with the
closing of the Asset Purchase Agreement dated the date hereof between Purchaser
and Seller of the assets and business of Daqcom International LLC (the "Houston
Agreement"),the Note Purchase Agreement attached hereto as Exhibit A, and the
Asset Purchase Agreement dated June 15, 1999 for the purchase of certain assets
of Block Trading, Inc..
ARTICLE II.
PURCHASE PRICE
The Purchase Price for the Assets shall consist exclusively of the
assumption by Purchaser of the liabilities set forth on Schedule 1.4 and the
sum of $1,000,000, of which $150,000 shall be paid in cash by wire transfer at
Closing, pursuant to the wire transfer instructions set forth in Schedule 2,
and the balance of $850,000 shall be paid in the form of 154,545 shares of
Parent's restricted common stock, par value $0.01 per share.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller and Owner jointly and severally represent and warrant to
the Purchaser as follows:
SECTION 3.1 Organization and Qualification. The Seller is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Texas. The Seller has no Subsidiaries or interests in any
other entity. The Seller has all requisite power and authority to own or
operate its properties and conduct its Business as it is now being conducted.
The Seller is duly qualified and in good standing as a foreign entity
authorized to do business in each of the jurisdictions in which the character
of the properties owned or held under lease by it or the nature of the Business
transacted by it makes such qualification necessary.
SECTION 3.2 Authority Relative to this Agreement. The Seller has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the requisite
action of the Partners of the Seller, and no other corporate proceedings on the
part of the Seller are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by the Seller and, assuming this Agreement constitutes a
valid and binding obligation of Purchaser, this Agreement constitutes a valid
and binding agreement of the Seller, enforceable against the Seller in
accordance with its terms.
SECTION 3.3 Consents and Approvals; No Violation. Except as described
in the Disclosure Schedule, neither the execution and delivery of this
Agreement by the Seller nor the consummation of the transactions contemplated
hereby nor compliance by the Seller with any of the provisions hereof will (a)
conflict with or result in any breach of any provision of the Certificate of
Limited Partnership, Partnership Agreement, or other organization documents of
the Seller, (b) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental authority, (c) result in a
default (with or without due notice or lapse of time or both) (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, Contract,
license, agreement or other instrument or obligation to which the Seller is
<PAGE> 3
a party or by which the Seller any of its assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained, (d) result in the creation or
imposition of any lien, charge or other encumbrance on the assets of the
Seller, or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Seller or any of its assets.
SECTION 3.4 Litigation, etc. Except as described in the Disclosure
Schedule, (a) there is no action, claim, or proceeding pending or, to the
knowledge of the Seller threatened, to which the Seller is or would be a party
before any court or governmental authority acting in an adjudicative capacity,
or any arbitrator or arbitration tribunal; (b) the Seller is not subject to any
outstanding order, writ, injunction or decree; and (c) since December 31, 1998,
there have been no claims made or actions or proceedings brought against any
officer or manager of the Seller arising out of or pertaining to any action or
omission within the scope of his employment or position with the Seller. All
litigation and other administrative, judicial or quasi-judicial proceedings to
which the Seller is a party or to which it has been threatened to the Seller's
knowledge to be made a party, are described in the Disclosure Schedule.
SECTION 3.5 Changes. Except as expressly contemplated by this
Agreement or as reflected in the Disclosure Schedule or in the Seller Financial
Statements, since December 31, 1998, the Seller has conducted its Business only
in the ordinary and usual course, and, except as set forth in the Disclosure
Schedule or in the Seller Financial Statements, none of the following has
occurred, except as shall have occurred in the ordinary course of its Business:
(a) any material adverse change in the condition (financial
or other), results of operations, Business, assets (including the Assets),
customer, supplier and employee relations of the Seller;
(b) any change in accounting methods, principles or practices
by the Seller materially affecting its assets (including the Assets),
liabilities or Business, except insofar as may have been required by a change
in generally accepted accounting principles;
(c) any damage, destruction or loss, whether or not covered
by insurance, materially adversely affecting the condition (financial or
other), Business, or operations of the Seller;
(d) any entry by the Seller into any commitment or
transaction material to the condition (financial or other), Business or
operations of the Seller, which is not in the ordinary course of business and
consistent with past practice;
(e) any revaluation by the Seller of any of its respective
Assets, including without limitation, writing down the value of Assets or
writing off notes or accounts receivables other than in the ordinary course of
business and consistent with past practice; or
(f) any agreement by the Seller to do any of the things
described in the preceding clauses (a) through (e), other than as expressly
contemplated or provided for herein.
SECTION 3.6 Environmental Matters. During the period of Seller's
ownership, and to the best of Seller's knowledge (without conducting any
investigation), at all times prior thereto, none of the real property owned,
leased, managed, operated or otherwise utilized by Seller is on any federal or
state "Superfund" list or has been the site of any activity that would violate
any federal, state, local or foreign environmental law, ordinance, rule,
regulation, judgment, order, writ, injunction or decree, past or present,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act, as
amended by the Hazardous and Solid Waste Amendment of 1984 ("RCRA"), the Clean
Air Act, the Clean Water Act of 1977, the Toxic Substances Control Act, or any
other federal, state, local or other law, ordinance, rule, regulation,
judgment, order, writ, injunction or decree relating to air pollution, water
pollution, noise control and/or the handling, discharge, disposal or recovery
of on-site or off-site hazardous substances (as defined in CERCLA), solid waste
(as defined in RCRA) or other pollutants, nor has Seller received notice of any
potential violation of any such law, ordinance, rule, regulation, judgment,
order, writ, injunction or decree concerning, directly or indirectly, Seller or
the Assets. To the best of Seller's knowledge (without conducting any
investigation), no hazardous substances (as defined in CERCLA), solid waste (as
defined in the RCRA) or other pollutants of any nature have been handled,
<PAGE> 4
stored, treated, recycled or disposed of on or from any such real property that
could have been released (as defined in CERCLA) or leaked, spilled or otherwise
contaminated any such property or any other real property.
SECTION 3.7 Condition of Assets. As of the date of Closing, the Assets
will be in good repair and working order, normal wear and tear excepted, and
will not be in immediate need of any major repair or capital expenditure except
as noted on the Disclosure Schedule.
SECTION 3.8 Employee Benefits.
(a) The Disclosure Schedule hereto contains a true and
complete list of all of the following agreements or plans of Seller which are
in effect and which pertain to any of the Personnel:
(i) "employee welfare benefit plans" and "employee
pension benefit plans", as defined in Section 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA");
(ii) any other pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, health,
hospitalization, medical, life insurance, vision, dental,
prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care,
scholarship, group legal benefits, fringe benefits, or other
employee benefit plan, program, policy, or arrangement,
whether written or unwritten, formal or informal, which
Seller maintains or to which Seller has any outstanding,
present, or future obligation to contribute to or make
payments under, whether voluntary, contingent, or otherwise
(the plans, programs, policies, or arrangement described in
clauses (i) or (ii) are herein collectively referred to as
the "Seller Plans").
(b) Seller does not presently contribute and/or has never
contributed or been obligated to contribute to a multiemployer plan as defined
in section 3(37)(A) of ERISA.
(c) No Seller Plan is subject to Title IV of ERISA.
(d) No Seller Plan has been terminated nor has any
accumulated funding deficiency (as defined in Code Section 412(a)) been
incurred, nor has any waiver from the Internal Revenue Service been received or
requested.
SECTION 3.9 Taxes, Tax Returns.
(a) The Seller has delivered to Purchaser copies of the
federal income tax returns of the Seller for each of the last two fiscal years
and all schedules and exhibits thereto. Except as set forth on the Disclosure
Schedule, the Seller has duly and timely filed in correct form all federal,
state and local information returns and tax returns required to be filed by
them on or prior to the date hereof (all such returns to the best of knowledge
of Seller being accurate and complete in all material respects) and, to the
best knowledge of the Seller, has duly paid or made provision for the payment
of all taxes and other governmental charges which have been incurred or are due
or claimed to be due from them by any governmental authority (including,
without limitation, those due in respect of their properties, income, business,
capital stock, franchises, licenses, sales and payrolls) other than taxes or
other charges (i) which are not yet delinquent or are being contested in good
faith and set forth in the Disclosure Schedule and (ii) have not been finally
determined.
(b) To the best knowledge of the Seller, (i) proper and
accurate amounts have been withheld by the Seller from its employees and others
for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Seller for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes and (iii) the amounts shown on such
returns to be due and payable have been paid in full, or adequate provision
therefore has been included by the Seller in the most recent Seller Financial
Statements.
<PAGE> 5
SECTION 3.10 Tax Audits. Except as disclosed in the Disclosure
Schedule, (i) no audit of any material federal, state or local U.S. return of
the Seller is currently in progress, nor has the Seller been notified that such
an audit is contemplated by any taxing authority, (ii) the Seller has not
extended any statute of limitations with respect to the period for assessment
of any federal, state or local U.S. tax, and (iii) the Seller does not
contemplate the filing of an amendment to any return, which amendment would
have a material adverse effect on the Seller.
SECTION 3.11 Undisclosed Liabilities. The Seller is not liable for or
subject to any material Liabilities (as hereinafter defined), except (a)
liabilities disclosed or reserved for in the most recent Seller Financial
Statements and not heretofore paid or discharged, (b) liabilities under any
Contract specifically disclosed on the Disclosure Schedule, none of which
liabilities under any such Contract were required under generally accepted
accounting principles consistently applied to have been adequately and
specifically disclosed or reserved for in the most recent Seller Financial
Statements, or (c) liabilities incurred, consistent with past practice, in or
as a result of the ordinary course of business of the Seller, and in accordance
with this Agreement, since the date of the most recent Seller Financial
Statements. As used in this Agreement, the term "Liability" or "Liabilities"
includes any direct or indirect liability, indebtedness, obligation, guarantee
or endorsement (other than endorsements of notes, bills, and checks presented
to banks for collection or deposit in the ordinary course of business), whether
actual, accrued, absolute, or contingent.
SECTION 3.12 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, the
Seller is not in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, (i) any mortgage, loan
agreement, indenture, evidence of indebtedness or other instrument evidencing
borrowed money to which the Seller is a party or by which its properties are
bound, (ii) any judgment, order or injunction of any court, arbitrator or
governmental agency or (iii) any other agreement, Contract, lease, license or
other instrument.
(b) Except as set forth in the Disclosure Schedule, the
Seller has complied with all laws, regulations, orders, judgments or decrees of
any federal or state court or governmental authority applicable to the
Business.
SECTION 3.13 Contracts and Commitments. Except as listed and described
in the Disclosure Schedule, the Seller is not a party to, nor is its assets
bound by, any written or oral covenant, contract, agreement or understanding (a
"Contract") that will affect the Business after the Closing or that will not be
discharged and terminated at or prior to Closing.
(a) Each Contract is a valid agreement, without any material
default of Seller thereunder, and to the knowledge of Seller, without any
default on the part of any other party thereto. To the knowledge of Seller, no
event or occurrence has transpired which with the passage of time or giving of
notice or both will constitute a default under any Contract. True and correct
copies of the Contracts (and any amendments thereto) have been provided to
Purchaser. At the time of Closing, Seller shall have made all payments and
performed all obligations due through the Closing Date under each Contract.
(b) No Contract has been assigned by Seller or any interest
granted therein by Seller to any third party, or is subject to any mortgage,
pledge, hypothecation, security interest, lien, or other encumbrance or claim,
all of which shall be released at or prior to Closing.
(c) The Contracts have been entered into in the ordinary
course of Seller's business.
SECTION 3.14 Compliance with Law and Permits. The Seller has owned and
operated its properties and assets in substantial compliance with the
provisions and requirements of all laws, orders, regulations, rules and
ordinances issued or promulgated by all governmental authorities having
jurisdiction with respect thereto. All necessary governmental certificates,
consents, permits, licenses or other authorizations with regard to the
ownership or operation by the Seller of its properties and assets have been
obtained, and no violation exists in respect of such licenses, permits or
authorizations. None of the documents and materials filed with or furnished to
any
<PAGE> 6
governmental authority with respect to the properties, Assets or Business of
the Seller contains any untrue statement of a material fact or fails to state a
material fact necessary to make the statements therein not misleading.
SECTION 3.15 Title to Property. Except as disclosed on the Disclosure
Schedule, the Seller has good and marketable title, insured with respect to
properties and Assets which currently are of a type for which insurance is
generally available, free and clear of all security interests, liens,
encumbrances and encroachments of a material nature, to its real property and
other property and Assets that are material to Seller's Business.
SECTION 3.16 Insurance. The Disclosure Schedule sets forth a complete
and accurate list and description of all of Seller's insurance policies in
force, naming the Seller or any employees of the Seller as an insured or
beneficiary or as a loss payable payee or for which the Seller has paid or is
obligated to pay all or part of the premiums. The Seller has not received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Seller is in compliance with all conditions
contained therein, the noncompliance with which could result in termination of
insurance coverage or increased premiums for prior or future periods. There are
no pending material claims against such insurance by the Seller as to which
insurers have denied liability, no defenses provided by insurers under
reservations of rights, and no material claim under such insurance that has not
been properly filed by the Seller. Purchaser and Seller shall endeavor to
transfer all such insurance coverages to Purchaser or the Transferee.
SECTION 3.17 Employees. The Disclosure Statement sets forth a list of
the employees of the Seller, stating with respect to each the name, date of
hire and rate of compensation. Except as described in the Disclosure Statement,
there are no claims or disputes pending with any employee regarding workers'
compensation, unemployment benefits, discrimination (including discrimination
based on any disability), or compensation, and no employment or collective
bargaining agreements is in effect covering any such person.
SECTION 3.18 Financial Statements. Seller has previously delivered to
Purchaser unaudited statements of operations and balance sheet as of April 30,
1999 and as of all fiscal months thereafter for which such statements are
available, along with the forecasts for the months of May and June 1999 (the
"Seller Financial Statements"). The Seller Financial Statements have been
prepared in accordance with Seller's historical practices and fairly present
the operations of the Business for the periods presented and as of their
respective dates.
SECTION 3.19 Trade Names, Trademarks, and Copyrights. The Disclosure
Schedule sets forth all trade names, trademarks, service marks, and copyrights
and their registrations, owned by the Seller or in which it has any rights or
licenses, together with a brief description of each. The Owner has no knowledge
of any infringement or alleged infringement by others of any trade name,
trademark, service mark, or copyright owned by Seller. The Seller has not
infringed, nor is now infringing, on any trade name, trademark, service mark,
or copyright belonging to any other person, firm, or corporation. Except as set
forth in the Disclosure Schedule, the Seller is not a party to any license,
agreement, or arrangement, whether as licensor, licensee, franchisor (other
than as franchisor pursuant to the franchise agreements set forth in the
Disclosure Schedule), franchisee, or otherwise, with respect to any trade
names, trademarks, service marks, or applications for them, or any copyrights.
Except as set forth in the Disclosure Schedule, the Seller owns, or holds
adequate licenses or other rights to use, all trade names, trademarks, service
marks, and copyrights necessary for its respective business as now conducted by
it, and that use does not, and will not, conflict with, infringe on, or
otherwise violate any rights of others. The Seller has the right to sell or
assign to Purchaser all owned trade names, trademarks, service marks, and all
such licenses and other rights.
SECTION 3.20 Millennium Compliance. The Computer hardware and software
systems used for the storage and processing of data ("Systems") by the Seller
are Millennium Compliant. To the best knowledge of Owner, without having made
any investigation, all of the suppliers and third party providers of the
Business are Millennium Compliant. The Seller is taking or has taken all
necessary and appropriate action to address and remedy any deficiencies in
Systems from becoming Millennium Compliant. For purposes of this Section 3.20,
"Millennium Compliant" shall mean the ability of Systems to provide the
following functions, without human intervention, individually and in
combination with other products or systems currently in use by Seller: (a)
consistently handle date information before, during, and after January 1, 2000,
including but not limited to accepting date input, providing date output, and
performing calculations on dates or portions of dates; (b) function accurately
and without interruption before, during, and after January 1, 2000 (including
leap year computations), without any change in operations associated the advent
of a new century; (c) respond to two-digit date input in a way that
<PAGE> 7
resolves any ambiguity as to century in a disclosed, defined, and predetermined
manner; and (d) store and provide output of date information in ways that are
unambiguous as to century.
SECTION 3.21 Interests in Customers, Suppliers, Etc. Except as set
forth in the Disclosure Schedule, no Owner, officer, or manager or affiliate of
the Seller possesses, directly or indirectly, any financial interest in, or is
a director, officer, employee or affiliate of, any corporation, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee or competitor of such Seller. Ownership of securities of a
corporation whose securities are registered under the 1934 Act not in excess of
five percent (5%) of any class of such securities shall not be deemed to be a
financial interest for purposes of this Section.
SECTION 3.22 Investment Purpose. The Owner and Seller represent that
they are acquiring and will acquire, as the case may be, the shares of Parent
issuable to them pursuant hereto solely for their own account for investment
purposes only and not with a view toward resale or distribution thereof other
than pursuant to an effective registration statement or applicable exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"). The Owner and Seller understand that such shares of
Parent common stock will be issued in reliance upon an exemption from the
registration requirements of the Securities Act and that subsequent sale or
transfer of such securities is prohibited absent registration or exemption from
the provisions of the Securities Act. The Owner and Seller hereby agree that
they will not sell, assign, transfer, pledge or otherwise convey any of the
shares of the Parent common stock issuable to them pursuant hereto, except in
compliance with the provisions of the Securities Act and in accordance with any
transfer restrictions or similar terms set forth on the certificates
representing such securities or otherwise set forth herein.
<PAGE> 8
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND PARENT
Purchaser and Parent jointly and severally represent and warrant to
the Seller and Owner as follows:
SECTION 4.1 Organization and Qualification. Purchaser and Parent are
corporations duly organized, validly existing and in good standing under the
laws of the State of Texas. Purchaser and Parent have all requisite power and
authority to own or operate their properties and conduct their businesses as
they are now being conducted. Purchaser and Parent are duly qualified and in
good standing as a foreign corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under
lease or the nature of the business transacted by them makes such qualification
necessary.
SECTION 4.2 Authority Relative to this Agreement. Purchaser and Parent
have all requisite power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Purchaser and Parent, and no other proceedings on the part of
Purchaser or Parent are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Purchaser and Parent, and, assuming this Agreement
constitutes a valid and binding obligation of the Seller, this Agreement
constitutes a valid and binding agreement of Purchaser and Parent, enforceable
against Purchaser and Parent in accordance with its terms.
SECTION 4.3 Consents and Approvals; No Violation. Except as described
in the Disclosure Schedule, neither the execution and delivery of this
Agreement by Purchaser and Parent nor the consummation of the transactions
contemplated hereby nor compliance by Purchaser or Parent with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of Purchaser or Parent,
(ii) require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, (iii) result in a default (with
or without due notice or lapse of time or both) (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Contract, license,
agreement or other instrument or obligation to which the Purchaser or Parent is
a party or by which any of its respective assets may be bound, (iv) result in
the creation or imposition of any lien, charge or other encumbrance on the
assets of the Purchaser or Parent, or (v) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Purchaser or Parent or
any of their respective assets.
SECTION 4.4 Parent Common Stock
(1) Parent has, and will have as of the Closing, complete and
indefeasible title to the stock (the "Stock") which is being given as part of
the Purchase Price pursuant to Article II, above, free and clear of all liens,
claims, encumbrances and restrictions of every kind or nature;
(2) Parent has, and will have as of the Closing, the complete and
unrestricted right, power and authority to convey the Stock to the Seller and
Owner;
(3) The transfer of the Stock to Seller and Owner will not violate any
of the provisions of any agreements to which Parent is a party or by which
Parent or the Stock is otherwise bound and will not violate any state or
federal rule or regulation;
(4) Parent has not made, and will not have made as of the Closing, any
prior assignment, hypothecation, pledge or transfer of all or any portion of
the Stock; and
(5) The Stock has been, or will have been as of the Closing, duly
authorized to have been issued by Parent.
<PAGE> 9
ARTICLE V.
COVENANTS
SECTION 5.1 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
SECTION 5.2 Consents. Purchaser and Seller will use commercially
reasonable efforts to obtain on or before July 31, 1999, such consents of third
parties to agreements which would otherwise be violated by any provisions
hereof, to take all actions as are reasonably necessary to effect the
transactions contemplated hereby, and to make such filings with governmental
authorities necessary to consummate the transactions contemplated by this
Agreement including, without limitation, the execution and delivery of any
additional instruments (including any required supplemental indentures)
necessary to consummate the transactions contemplated by this Agreement.
SECTION 5.3 Public Announcements. Purchaser and the Seller will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the existence of this Agreement and shall
not issue any such press release or make any such public statement prior to
such consultation.
SECTION 5.4 Employees. Upon the Closing Date, the Seller shall
terminate all of its employees without incurring any obligation for severance
pay, unemployment compensation or vesting of employee benefits. Simultaneously,
Purchaser shall employ such persons as it shall determine to be needed for its
operation of the Business after the Closing, and shall provide such persons
with comparable rates of compensation and credit for prior service for purposes
of employee benefits and accruals.
SECTION 5.5 Noncompete Agreements.
(a) For a period of two years following the date of Closing neither
Seller nor Owner shall directly or indirectly (i) act or serve as an employee
(except in a capacity which does not involve management, executive,
policy-making, sales, marketing, product development, finance, or accounting
activities or advice to management, sales, marketing, development or accounting
personnel), officer, director, manager, trustee, agent, operator, advisor, or
consultant for any Competing Business (as defined below) operating within the
Area; (ii) have any beneficial ownership or equity interest (except for an
ownership interest of less than one percent in any company subject to the
reporting requirements of the Exchange Act) in any Competing Business operating
within the Area, whether such interest is derived as a sole proprietor,
partner, Owner, beneficiary, or otherwise, or have any right, option,
agreement, understanding, or arrangement to acquire any such interest; (iii)
solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate
to or for a Competing Business the business of any person or entity located
within the Area which was a customer of the Seller on or within one year prior
to the Closing Date (or later termination of employment) or the business of
which the Seller had solicited within one year prior to the Closing Date (or
later termination of employment).
(b) For the purposes of this Section 5.5, "Competing Business" means
any business which is engaged in the marketing of investment securities, in the
manner being conducted on the date hereof at the offices of Seller in Dallas,
Texas or in any business which solicits any customer or client of Parent and
its subsidiaries. "Area" shall mean the state of Texas.
(c) If Seller commits a breach, or threatens to commit a breach of the
provisions of subsection (a) above, Purchaser shall have the right and remedy
to have the provisions of subsection (a) specifically enforced by any court
having jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to Purchaser and that money
damages will not provide an adequate remedy to Purchaser.
<PAGE> 10
(d) If any of the covenants contained in subsection (a) above, or any
part thereof, are hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
(e) If any of the covenants contained in subsection (a) above, or any
part thereof, are held to be unenforceable because of the scope or duration of
such provision of the geographic area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the scope,
duration, or area of such provision and, in its reduced form, said provision
shall then be enforceable.
SECTION 5.6 Conduct of Business of the Seller. Except as contemplated
by this Agreement or disclosed in the Disclosure Schedule, during the period
from the date of this Agreement to the Closing Date, the Seller will conduct
its operations according to its ordinary and usual course of business and
consistent with past practice. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement or
disclosed in the Disclosure Schedule, the Seller will not, prior to the Closing
Date, without the prior written consent of Purchaser (a) authorize, recommend,
propose or announce an intention to authorize, recommend or propose, or enter
into an agreement in principle or an agreement with respect to, any merger,
consolidation or business combination (other than the sale hereby), any
acquisition of a material amount of assets or securities, any disposition of a
material amount of assets or securities or any material change in its
capitalization, or any entry into a material contract or any release or
relinquishment of any material contract rights, not in the ordinary course of
business; (b) propose or adopt any amendments to its charter or by-laws; (c)
enter into, assign or terminate, or amend in any material respect, any Contract
other than in the ordinary course of business; (d) acquire, dispose of,
encumber or relinquish any material asset; (e) waive, compromise or settle any
right or claim that would adversely affect the ownership, operation or value of
any Asset; (f) make any capital expenditures other than pursuant to existing
capital expenditure programs that are disclosed in the Disclosure Schedule; (g)
allow or permit the expiration, termination or cancellation at any time prior
to the Closing Date of any insurance policies or coverages or surety bonds
currently maintained by or on behalf of the Seller unless replaced with a
policy, coverage or bond having substantially the same coverage and similar
terms and conditions; (h) increase, directly or indirectly, the salary or other
compensation of any officer or Owner of management of Seller or enter into any
employment agreement with any person or pay or enter into any agreement to pay
any bonuses or other extraordinary compensation to any officer of the Seller to
any Owner of management or other employees, or institute any general increase
in rates of compensation for its employees, or increase, directly or
indirectly, any provisions or other benefits of any of such persons; or (i)
waive, settle or compromise any material litigation or other claim on a basis
materially adverse to the Seller.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE PURCHASE
The respective obligations of each party to effect the Closing are
subject to the satisfaction by all parties, or waiver by Purchaser where
permissible, at or prior to the Closing of the following conditions. Failure by
a party to comply with any such condition shall give the other party the right
to terminate this Agreement and to return the parties to their status preceding
the execution hereof.
(a) This Agreement and the transactions contemplated hereby
shall have been adopted by the requisite affirmative vote of the Partners of
the Seller.
(b) There shall have been no material adverse change in the
Business or Assets of Seller;
(c) All parties shall have delivered all documents and taken
all other actions required by this Agreement.
(d) All representatives and warranties of any party shall be
true and effective as of the Closing.
(e) All consents of third parties required for the
transactions hereby shall have been received on or before July 31, 1999.
<PAGE> 11
(f) Purchaser and the other parties to the Asset Purchase
Agreement dated June 15, 1999 shall have satisfied all conditions to be able to
close the acquisition of certain assets of Block Trading, Inc. pursuant to such
agreement, including the obtaining of approval of the U.S. Bankruptcy Court in
Houston, Texas.
(g) Purchaser shall be satisfied in its sole discretion on or
before July 31, 1999 with its due diligence review of the Assets and the
Business.
(h) Purchaser and El Dorado Publishing, Inc. shall have
closed the Note Purchase Agreement for the purchase by the Purchaser of
$710,000 in promissory notes payable to El Dorado, in the form attached hereto
as Exhibit A.
(i) Purchaser and Owner shall have closed the Houston
Agreement.
(j) The Common Stock of Parent shall have closed at an
average sales price of $5.50 per share during the ten trading days preceding
the Closing.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 Purchaser's Right to Indemnification. Seller and Owner
shall and do hereby jointly and severally indemnify and hold harmless, Parent,
Purchaser and their stockholders, directors, officers, employees, agents and
representatives from any and all liabilities, obligations, claims,
contingencies, damages, costs and expenses (including all court costs and
reasonable attorneys' fees) that any such indemnified party may suffer or incur
as a result of or relating to: (a) the breach or inaccuracy, or any alleged
breach or inaccuracy, of any of the representations, warranties, covenants or
agreements made by Seller herein or pursuant hereto; (b) any lawsuit, claim or
proceeding of any nature relating to Seller existing at or prior to the Closing
or arising out of any act, transaction, circumstance or fact relating to Seller
occurring prior to the Closing; (c) any income or related tax arising out of or
resulting from the operations of Seller prior to the Closing, any transaction
or activity of Seller prior to the Closing or any income derived by Seller
prior to the Closing; (d) any wages, salaries or other compensation, and other
liabilities, obligations, claims or contingencies of any nature due or payable
at any time whatsoever to the Owner, or an officer, employee, agent or
representative of Seller, including any of such persons terminated by Seller at
or prior to the Closing and any of such persons hired by Purchaser as of the
Closing, in connection with their services to or employment by the Seller prior
to the Closing; (e) any loss, claim or liability resulting from the operation
of the Business prior to the Closing.
SECTION 7.2 Seller's and Owners' Right to Indemnification. Purchaser
and Parent shall and do hereby jointly and severally indemnify and hold Seller
and Owner, and their directors, officers, partners, employees, agents and
representatives harmless from any and all liabilities, obligations, claims,
contingencies, damages, costs and expenses (including all court costs and
reasonable attorneys' fees) that Seller or any such indemnified party may
suffer or incur as a result of or relating to: (a) the breach or inaccuracy, or
any alleged breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by Purchaser and Parent herein or pursuant hereto;
and (b) those liabilities, obligations, claims, contingencies and encumbrances
accruing or arising after the Closing in connection with the Business of the
Purchaser, except to the extent that such liabilities, obligations, claims,
contingencies or encumbrances are attributable to actions taken or omitted to
be taken by Seller and/or the Owner prior to the Closing.
SECTION 7.3 Notices. The party seeking indemnification hereunder
("Indemnitee") shall promptly, and within 30 days after notice to it (notice to
Indemnitee being the filing of any action, receipt of any claim in writing or
similar form of actual notice) of any claim as to which it asserts a right to
indemnification, notify the party from whom indemnification is sought
("Indemnitor") of such claim. Indemnitee shall bill Indemnitor for any such
claims no more frequently than on a monthly basis, and Indemnitor shall
promptly pay (or cause to be paid) Indemnitee upon receipt of any such bill.
The failure of Indemnitee to give the notification to Indemnitor contemplated
above in this Section shall not relieve Indemnitor from any liability or
obligation that it may have pursuant to this Agreement unless the failure to
give such notice within such time shall have been materially prejudicial to it,
and in no event
<PAGE> 12
shall the failure to give such notification relieve Indemnitor from any
liability it may have other than pursuant to this Agreement.
SECTION 7.4 Third-Party Claims. If any claim for indemnification by
Indemnitee arises out of an action or claim by a person other than Indemnitee,
Indemnitor may, by written notice to Indemnitee, undertake to conduct the
defense thereof and to take all other steps or proceedings to defeat or
compromise any such action or claim, including the employment of counsel;
provided that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate, at its own expense, in such proceedings, but
control of such proceedings shall remain exclusively with Indemnitor.
Indemnitee shall provide all reasonable cooperation to Indemnitor in connection
with such proceedings. Counsel and auditor costs and expenses and court costs
and fees of all proceedings with respect to any such action or claim shall be
borne by Indemnitor, except in cases in which the Indemnitee chooses to
participate at its cost. If any such claim is made hereunder and Indemnitor
does not elect to undertake the defense thereof by written notice to
Indemnitee, Indemnitee shall be entitled to control such proceedings and shall
be entitled to indemnity with respect thereto pursuant to the terms of this
Article VII. To the extent that Indemnitor undertakes the defense of such claim
by written notice to Indemnitee and diligently pursues such defense at its
expense, Indemnitee shall be entitled to indemnification hereunder only to the
extent that such defense is unsuccessful as determined by a final judgment of a
court of competent jurisdiction, or by written acknowledgment of the parties.
SECTION 7.5 Offset. In addition to any other right of recovery
available to any party hereto, any claim for indemnity pursuant to this Article
VII may be offset against its right to recover any obligations owed by the
offsetting party to the party against which indemnification is claimed.
SECTION 7.6 Access to Records. Seller, Owner, and their agents, shall
be afforded reasonable access to the books and records of Purchaser during
normal business hours upon reasonable notice for the purpose of verifying any
claim against Seller hereunder and any other reasonable purpose. Seller, Owner,
or their agents may be required to sign an appropriate confidentiality
agreement prior to any inspection of books and records hereunder.
SECTION 7.7 Limitation of Actions. No action for indemnification under
this Section Article VII shall be brought later than two years from the date of
Closing, provided that such survival period shall extend to the expiration of
the applicable statute of limitation for claims involving taxation and
environmental matters. No party shall have any indemnification obligation in
excess of the Purchase Price set forth in Article II.
SECTION 7.8 Arbitration. All disputes under this Article VII shall be
settled by arbitration in Dallas, Texas, before one arbitrator pursuant to the
rules of the American Arbitration Association. The parties shall seek to agree
to a single arbitrator, and if they cannot agree, an arbitrator will be
appointed by the Dallas office of the American Arbitration Association.
Arbitration may be commenced at any time by any party hereto giving written
notice to each other party to a dispute that such dispute has been referred to
arbitration under this Section 7.7. Any award rendered by the arbitrator shall
be conclusive and binding upon the parties hereto; provided, however, that any
such award shall be accompanied by a written opinion giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties and the decision of the arbitrator shall be final and binding and there
shall be no right of appeal therefrom. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that if in the opinion of the arbitrator any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of its award, all or any part of the arbitration
expenses of the other party (including reasonable attorney's fees) and of the
arbitrator against the party raising such unreasonable claim, defense or
objection.
ARTICLE VII.
MISCELLANEOUS
SECTION 8.1 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 8.2 Brokerage Fees and Commissions. All parties represent that
they have incurred no obligation for brokerage commissions.
<PAGE> 13
SECTION 8.3 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise without the consent of the other party hereto.
SECTION 8.4 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect.
SECTION 8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by facsimile telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to the Seller:
Millennium Daqcom/Dallas LP
c/o Robert G. Bailey
3306 Sul Ross
Houston, Texas 77098
If to Purchaser:
RushTrade.com, inc.
13355 Noel Road, Suite 610
Dallas, Texas 75240
Attention: D. M. Moore, Jr.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF. ANY DISPUTE ARISING UNDER THIS AGREEMENT NOT OTHERWISE SUBJECT TO
ARBITRATION SHALL BE REFERRED TO THE STATE COURTS IN DALLAS COUNTY, TEXAS.
SECTION 8.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning of interpretation of this Agreement.
SECTION 8.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 8.9 Expenses. Except as otherwise provided herein, each of the
parties shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial or other consultants, investment
bankers, accountants and counsel.
SECTION 8.10 Survival. All of the covenants, representations and
warranties of any party hereto shall survive the Closing.
SECTION 8.11 Disclosure Schedule. Within ten business days hereafter,
the Seller and the Purchaser shall deliver the Disclosure Schedule to each
other. The Disclosure Schedule shall contain all information required to
disclose fully any exception or qualification to this Agreement and shall cross
reference the section of this Agreement so qualified.
<PAGE> 14
SECTION 8.12 Termination. This Agreement may be terminated by either
party without penalty if the Closing has not occurred on or before August 31,
1999.
SECTION 8.13 Time. Time is and shall be of the essence of this
Agreement.
SECTION 8.14 Fax Signatures. This Agreement and any agreement or
document contemplated hereby may be signed and delivered by a party by
facsimile, such facsimile shall be deemed to be an original signature.
SIGNATURES FOLLOW
<PAGE> 15
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year set forth above.
MILLENNIUM DAQCOM/DALLAS, LP
By: Daqcom Management, LLC, General Partner
By: /s/ Albert E. Butler
---------------------------------------------
Albert E. Butler, President
MILLENNIUM DAQCOM LP
By Daqcom Management LLC, General Partner
By /s/ Albert E. Butler
---------------------------------------------
Albert E. Butler, President
RUSHMORE FINANCIAL GROUP, INC.
By /s/ D. M. Moore, Jr.
---------------------------------------------
D. M. Moore, Jr., President
RUSHTRADE.COM, INC.
By /s/ D. M. Moore, Jr.
---------------------------------------------
D. M. Moore, Jr., President
<PAGE> 1
EXHIBIT 2.5
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of June 30, 1999
among Daqcom International, LLC, a Nevada limited liability company (the
"Seller"); Millennium Daqcom, LP, the owner of 100% of the outstanding
ownership interests of the Seller (the "Member"), RushTrade.com, inc., a Texas
corporation ("Purchaser"); and Rushmore Financial Group, Inc., a Texas
corporation, and the parent of Purchaser ("Parent").
WHEREAS, the respective governing boards of the Purchaser and the
Seller and Member have duly approved the acquisition of substantially all of
the assets of the Seller pursuant to the terms of this Agreement, it is
therefore agreed as follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Agreement to Sell. Subject to the terms and conditions
hereinafter set forth, at the Closing the Seller shall sell, assign, transfer,
convey and deliver to Purchaser, and Purchaser shall purchase from the Seller
for the purchase price specified in Article II of this Agreement, the assets
listed in Section 1.2 (the "Assets") free and clear of all liens, claims,
charges, and encumbrances of any nature whatsoever, except as agreed by
Purchaser. In addition, all leases, contracts and agreements constituting part
of the Assets shall be assigned to and assumed by Purchaser and shall be at
Closing in full force and effect without any existing defaults (or event or
conditions, which with notice or lapse of time, or both, would constitute a
default) thereunder.
SECTION 1.2 Included Assets. The Assets purchased hereunder shall be
all business, assets, properties and rights relating to the Seller's securities
trading operation in Houston, Texas (the "Business") and, except as set forth
in Schedule 1.3, shall include, without limitation:
(i) all fixed assets, including equipment, vehicles,
furniture and fixtures and all other personal property owned
by the Seller and related to the Business, together with all
warranties and guaranties thereon (such personal property
being more particularly described in Schedule 1.2(i));
(ii) all contracts, purchase orders, leases, royalty
agreements, instruments, permits, licenses, franchises,
confidentiality agreements and other agreements attributable
to the Business, specifically including all contracts
described in Section 3.14, which Contracts are more
particularly described in Schedule 1.2(ii) (the "Contracts");
(iii) all trade secrets, customer lists, and all
other rights and documents owned, required for or incident to
the performance of the Business and all books and records
incident thereto, which, however, shall not include any stock
books and corporate minute books of the Seller;
(iv) such rights as the Seller has to use its
present telephone numbers related to the Business from and
after the Closing Date; and
(v) rights to insurance proceeds arising from any
loss or damage relating to the Assets.
SECTION 1.3 Excluded Assets. Notwithstanding anything in this
Agreement to the contrary, Purchaser shall not purchase or receive or be under
any obligation with respect to any cash, investments, accounts receivable,
notes receivable, deposits, prepaid expenses or other assets, equipment or
contracts which are set forth in Schedule 1.3 (the "Excluded Assets").
SECTION 1.4 Liabilities of the Seller. Except for the liabilities set
forth on Schedule 1.4, Purchaser will not assume any liability or other
obligation of Seller and shall acquire the Assets free and clear of any lien,
claim,
<PAGE> 2
charge or encumbrance. Seller agrees to pay and discharge at or prior to
Closing its indebtedness and all of its other liabilities pertaining to the
Business and present evidence thereof to Purchaser.
SECTION 1.5 Closing. The Closing of the purchase and sale hereby shall
take place at the offices of Purchaser's attorney, Glast, Phillips & Murray,
P.C., 2200 One Galleria Tower, 13355 Noel Road, Dallas, Texas 75240 at a date
and time mutually agreeable to Seller and Purchaser as soon as possible upon
satisfaction of all conditions set forth in Article VI hereof. At the Closing,
each party shall execute and deliver the documents and take the actions
required or contemplated by this Agreement in order to complete the transfer of
the Assets to Purchaser. The Closing shall occur simultaneously with the
closing of the Asset Purchase Agreement dated the date hereof between Purchaser
and Seller of the assets and business of Millennium Daqcom/Dallas LP (the
"Dallas Agreement"), the Note Purchase Agreement attached hereto as Exhibit,
and the Asset Purchase Agreement dated June 15, 1999 for the purchase of
certain assets of Block Trading, Inc.
ARTICLE II.
PURCHASE PRICE
The Purchase Price for the Assets shall consist exclusively of the
assumption by Purchaser of the liabilities set forth in Schedule 1.4 and the
sum of $1,000,000, of which $150,000 shall be paid in cash by wire transfer at
Closing, pursuant to the wire transfer instructions set forth in Schedule 2,
and the balance of $850,000 shall be paid in the form of 154,545 shares of
Parent's restricted common stock, par value $0.01 per share.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller and Member jointly and severally represent and warrant to
the Purchaser as follows:
SECTION 3.1 Organization and Qualification. The Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Nevada. The Seller has no Subsidiaries or interests in
any other entity. The Seller has all requisite power and authority to own or
operate its properties and conduct its Business as it is now being conducted.
The Seller is duly qualified and in good standing as a foreign entity
authorized to do business in each of the jurisdictions in which the character
of the properties owned or held under lease by it or the nature of the Business
transacted by it makes such qualification necessary.
SECTION 3.2 Authority Relative to this Agreement. The Seller has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Managers and
Members of the Seller, and no other corporate proceedings on the part of the
Seller are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Seller and, assuming this Agreement constitutes a valid
and binding obligation of Purchaser, this Agreement constitutes a valid and
binding agreement of the Seller, enforceable against the Seller in accordance
with its terms.
SECTION 3.3 Consents and Approvals; No Violation. Except as described
in the Disclosure Schedule, neither the execution and delivery of this
Agreement by the Seller nor the consummation of the transactions contemplated
hereby nor compliance by the Seller with any of the provisions hereof will (a)
conflict with or result in any breach of any provision of the Articles of
Organization, Regulations or other organization documents of the Seller, (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental authority, (c) result in a default (with or
without due notice or lapse of time or both) (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Contract, license,
agreement or other instrument or obligation to which the Seller is a party or
by which the Seller any of its assets may be bound, except for such defaults
(or rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained, (d) result in the creation
<PAGE> 3
or imposition of any lien, charge or other encumbrance on the assets of the
Seller, or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Seller or any of its assets.
SECTION 3.4 Litigation, etc. Except as described in the Disclosure
Schedule, (a) there is no action, claim, or proceeding pending or, to the
knowledge of the Seller threatened, to which the Seller is or would be a party
before any court or governmental authority acting in an adjudicative capacity,
or any arbitrator or arbitration tribunal; (b) the Seller is not subject to any
outstanding order, writ, injunction or decree; and (c) since December 31, 1998,
there have been no claims made or actions or proceedings brought against any
officer or manager of the Seller arising out of or pertaining to any action or
omission within the scope of his employment or position with the Seller. All
litigation and other administrative, judicial or quasi-judicial proceedings to
which the Seller is a party or to which it has been threatened to the Seller's
knowledge to be made a party, are described in the Disclosure Schedule.
SECTION 3.5 Changes. Except as expressly contemplated by this
Agreement or as reflected in the Disclosure Schedule or in the Seller Financial
Statements, since December 31, 1998, the Seller has conducted its Business only
in the ordinary and usual course, and, except as set forth in the Disclosure
Schedule or in the Seller Financial Statements, none of the following has
occurred, except as shall have occurred in the ordinary course of its Business:
(a) any material adverse change in the condition (financial
or other), results of operations, Business, assets (including the Assets),
customer, supplier and employee relations of the Seller;
(b) any change in accounting methods, principles or practices
by the Seller materially affecting its assets (including the Assets),
liabilities or Business, except insofar as may have been required by a change
in generally accepted accounting principles;
(c) any damage, destruction or loss, whether or not covered
by insurance, materially adversely affecting the condition (financial or
other), Business, or operations of the Seller;
(d) any entry by the Seller into any commitment or
transaction material to the condition (financial or other), Business or
operations of the Seller, which is not in the ordinary course of business and
consistent with past practice;
(e) any revaluation by the Seller of any of its respective
Assets, including without limitation, writing down the value of Assets or
writing off notes or accounts receivables other than in the ordinary course of
business and consistent with past practice; or
(f) any agreement by the Seller to do any of the things
described in the preceding clauses (a) through (e), other than as expressly
contemplated or provided for herein.
SECTION 3.6 Environmental Matters. During the period of Seller's
ownership, and to the best of Seller's knowledge (without conducting any
investigation), at all times prior thereto, none of the real property owned,
leased, managed, operated or otherwise utilized by Seller is on any federal or
state "Superfund" list or has been the site of any activity that would violate
any federal, state, local or foreign environmental law, ordinance, rule,
regulation, judgment, order, writ, injunction or decree, past or present,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act, as
amended by the Hazardous and Solid Waste Amendment of 1984 ("RCRA"), the Clean
Air Act, the Clean Water Act of 1977, the Toxic Substances Control Act, or any
other federal, state, local or other law, ordinance, rule, regulation,
judgment, order, writ, injunction or decree relating to air pollution, water
pollution, noise control and/or the handling, discharge, disposal or recovery
of on-site or off-site hazardous substances (as defined in CERCLA), solid waste
(as defined in RCRA) or other pollutants, nor has Seller received notice of any
potential violation of any such law, ordinance, rule, regulation, judgment,
order, writ, injunction or decree concerning, directly or indirectly, Seller or
the Assets. To the best of Seller's knowledge (without conducting any
investigation), no hazardous substances (as defined in CERCLA), solid waste (as
defined in the RCRA) or other pollutants of any nature have been handled,
stored, treated, recycled or disposed of on or from any such real property that
could have been released (as defined in CERCLA) or leaked, spilled or otherwise
contaminated any such property or any other real property.
<PAGE> 4
SECTION 3.7 Condition of Assets. As of the date of Closing, the Assets
will be in good repair and working order, normal wear and tear excepted, and
will not be in immediate need of any major repair or capital expenditure except
as noted on the Disclosure Schedule.
SECTION 3.8 Employee Benefits.
(a) The Disclosure Schedule hereto contains a true and
complete list of all of the following agreements or plans of Seller which are
in effect and which pertain to any of the Personnel:
(i) "employee welfare benefit plans" and "employee
pension benefit plans", as defined in Section 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA");
(ii) any other pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, health,
hospitalization, medical, life insurance, vision, dental,
prescription drug, supplemental unemployment, layoff,
automobile, apprenticeship and training, day care,
scholarship, group legal benefits, fringe benefits, or other
employee benefit plan, program, policy, or arrangement,
whether written or unwritten, formal or informal, which
Seller maintains or to which Seller has any outstanding,
present, or future obligation to contribute to or make
payments under, whether voluntary, contingent, or otherwise
(the plans, programs, policies, or arrangement described in
clauses (i) or (ii) are herein collectively referred to as
the "Seller Plans").
(b) Seller does not presently contribute and/or has never
contributed or been obligated to contribute to a multiemployer plan as defined
in section 3(37)(A) of ERISA.
(c) No Seller Plan is subject to Title IV of ERISA.
(d) No Seller Plan has been terminated nor has any
accumulated funding deficiency (as defined in Code Section 412(a)) been
incurred, nor has any waiver from the Internal Revenue Service been received or
requested.
SECTION 3.9 Taxes, Tax Returns.
(a) The Seller has delivered to Purchaser copies of the
federal income tax returns of the Seller for each of the last two fiscal years
and all schedules and exhibits thereto. Except as set forth on the Disclosure
Schedule, the Seller has duly and timely filed in correct form all federal,
state and local information returns and tax returns required to be filed by
them on or prior to the date hereof (all such returns to the best of knowledge
of Seller being accurate and complete in all material respects) and, to the
best knowledge of the Seller, has duly paid or made provision for the payment
of all taxes and other governmental charges which have been incurred or are due
or claimed to be due from them by any governmental authority (including,
without limitation, those due in respect of their properties, income, business,
capital stock, franchises, licenses, sales and payrolls) other than taxes or
other charges (i) which are not yet delinquent or are being contested in good
faith and set forth in the Disclosure Schedule and (ii) have not been finally
determined.
(b) To the best knowledge of the Seller, (i) proper and
accurate amounts have been withheld by the Seller from its employees and others
for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Seller for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes and (iii) the amounts shown on such
returns to be due and payable have been paid in full, or adequate provision
therefore has been included by the Seller in the most recent Seller Financial
Statements.
<PAGE> 5
SECTION 3.10 Tax Audits. Except as disclosed in the Disclosure
Schedule, (i) no audit of any material federal, state or local U.S. return of
the Seller is currently in progress, nor has the Seller been notified that such
an audit is contemplated by any taxing authority, (ii) the Seller has not
extended any statute of limitations with respect to the period for assessment
of any federal, state or local U.S. tax, and (iii) the Seller does not
contemplate the filing of an amendment to any return, which amendment would
have a material adverse effect on the Seller.
SECTION 3.11 Undisclosed Liabilities. The Seller is not liable for or
subject to any material Liabilities (as hereinafter defined), except (a)
liabilities disclosed or reserved for in the most recent Seller Financial
Statements and not heretofore paid or discharged, (b) liabilities under any
Contract specifically disclosed on the Disclosure Schedule, none of which
liabilities under any such Contract were required under generally accepted
accounting principles consistently applied to have been adequately and
specifically disclosed or reserved for in the most recent Seller Financial
Statements, or (c) liabilities incurred, consistent with past practice, in or
as a result of the ordinary course of business of the Seller, and in accordance
with this Agreement, since the date of the most recent Seller Financial
Statements. As used in this Agreement, the term "Liability" or "Liabilities"
includes any direct or indirect liability, indebtedness, obligation, guarantee
or endorsement (other than endorsements of notes, bills, and checks presented
to banks for collection or deposit in the ordinary course of business), whether
actual, accrued, absolute, or contingent.
SECTION 3.12 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, the
Seller is not in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, (i) any mortgage, loan
agreement, indenture, evidence of indebtedness or other instrument evidencing
borrowed money to which the Seller is a party or by which its properties are
bound, (ii) any judgment, order or injunction of any court, arbitrator or
governmental agency or (iii) any other agreement, Contract, lease, license or
other instrument.
(b) Except as set forth in the Disclosure Schedule, the
Seller has complied with all laws, regulations, orders, judgments or decrees of
any federal or state court or governmental authority applicable to the
Business.
SECTION 3.13 Contracts and Commitments. Except as listed and described
in the Disclosure Schedule, the Seller is not a party to, nor is its assets
bound by, any written or oral covenant, contract, agreement or understanding (a
"Contract") that will affect the Business after the Closing or that will not be
discharged and terminated at or prior to Closing.
(a) Each Contract is a valid agreement, without any material
default of Seller thereunder, and to the knowledge of Seller, without any
default on the part of any other party thereto. To the knowledge of Seller, no
event or occurrence has transpired which with the passage of time or giving of
notice or both will constitute a default under any Contract. True and correct
copies of the Contracts (and any amendments thereto) have been provided to
Purchaser. At the time of Closing, Seller shall have made all payments and
performed all obligations due through the Closing Date under each Contract.
(b) No Contract has been assigned by Seller or any interest
granted therein by Seller to any third party, or is subject to any mortgage,
pledge, hypothecation, security interest, lien, or other encumbrance or claim,
all of which shall be released at or prior to Closing.
(c) The Contracts have been entered into in the ordinary
course of Seller's business.
SECTION 3.14 Compliance with Law and Permits. The Seller has owned and
operated its properties and assets in substantial compliance with the
provisions and requirements of all laws, orders, regulations, rules and
ordinances issued or promulgated by all governmental authorities having
jurisdiction with respect thereto. All necessary governmental certificates,
consents, permits, licenses or other authorizations with regard to the
ownership or operation by the Seller of its properties and assets have been
obtained, and no violation exists in respect of such licenses, permits or
authorizations. None of the documents and materials filed with or furnished to
any governmental authority with respect to the properties, Assets or Business
of the Seller contains any untrue statement of a material fact or fails to
state a material fact necessary to make the statements therein not misleading.
<PAGE> 6
SECTION 3.15 Title to Property. Except as disclosed on the Disclosure
Schedule, the Seller has good and marketable title, insured with respect to
properties and Assets which currently are of a type for which insurance is
generally available, free and clear of all security interests, liens,
encumbrances and encroachments of a material nature, to its real property and
other property and Assets that are material to Seller's Business.
SECTION 3.16 Insurance. The Disclosure Schedule sets forth a complete
and accurate list and description of all of Seller's insurance policies in
force, naming the Seller or any employees of the Seller as an insured or
beneficiary or as a loss payable payee or for which the Seller has paid or is
obligated to pay all or part of the premiums. The Seller has not received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Seller is in compliance with all conditions
contained therein, the noncompliance with which could result in termination of
insurance coverage or increased premiums for prior or future periods. There are
no pending material claims against such insurance by the Seller as to which
insurers have denied liability, no defenses provided by insurers under
reservations of rights, and no material claim under such insurance that has not
been properly filed by the Seller. Purchaser and Seller shall endeavor to
transfer all such insurance coverages to Purchaser or the Transferee.
SECTION 3.17 Employees. The Disclosure Statement sets forth a list of
the employees of the Seller, stating with respect to each the name, date of
hire and rate of compensation. Except as described in the Disclosure Statement,
there are no claims or disputes pending with any employee regarding workers'
compensation, unemployment benefits, discrimination (including discrimination
based on any disability), or compensation, and no employment or collective
bargaining agreements is in effect covering any such person.
SECTION 3.18 Financial Statements. Seller has previously delivered to
Purchaser unaudited statements of operations and balance sheet as of April 30,
1999 and as of all fiscal months thereafter for which such statements are
available, along with the forecasts for the months of May and June 1999 (the
"Seller Financial Statements"). The Seller Financial Statements have been
prepared in accordance with Seller's historical practices and fairly present
the operations of the Business for the periods presented and as of their
respective dates.
SECTION 3.19 Trade Names, Trademarks, and Copyrights. The Disclosure
Schedule sets forth all trade names, trademarks, service marks, and copyrights
and their registrations, owned by the Seller or in which it has any rights or
licenses, together with a brief description of each. The Member has no
knowledge of any infringement or alleged infringement by others of any trade
name, trademark, service mark, or copyright owned by Seller. The Seller has not
infringed, nor is now infringing, on any trade name, trademark, service mark,
or copyright belonging to any other person, firm, or corporation. Except as set
forth in the Disclosure Schedule, the Seller is not a party to any license,
agreement, or arrangement, whether as licensor, licensee, franchisor (other
than as franchisor pursuant to the franchise agreements set forth in the
Disclosure Schedule), franchisee, or otherwise, with respect to any trade
names, trademarks, service marks, or applications for them, or any copyrights.
The Seller owns, or holds adequate licenses or other rights to use, all trade
names, trademarks, service marks, and copyrights necessary for its respective
business as now conducted by it, and that use does not, and will not, conflict
with, infringe on, or otherwise violate any rights of others. Except as set
forth in the Disclosure Schedule, the Seller has the right to sell or assign to
Purchaser all owned trade names, trademarks, service marks, and all such
licenses and other rights.
SECTION 3.20 Millennium Compliance. The Computer hardware and software
systems used for the storage and processing of data ("Systems") by the Seller
are Millennium Compliant. To the best knowledge of Member, without having made
any investigation, all of the suppliers and third party providers of the
Business are Millennium Compliant. The Seller is taking or has taken all
necessary and appropriate action to address and remedy any deficiencies in
Systems from becoming Millennium Compliant. For purposes of this Section 3.20,
"Millennium Compliant" shall mean the ability of Systems to provide the
following functions, without human intervention, individually and in
combination with other products or systems currently in use by Seller: (a)
consistently handle date information before, during, and after January 1, 2000,
including but not limited to accepting date input, providing date output, and
performing calculations on dates or portions of dates; (b) function accurately
and without interruption before, during, and after January 1, 2000 (including
leap year computations), without any change in operations associated the advent
of a new century; (c) respond to two-digit date input in a way that resolves
any ambiguity as to century in a disclosed, defined, and predetermined manner;
and (d) store and provide output of date information in ways that are
unambiguous as to century.
<PAGE> 7
SECTION 3.21 Interests in Customers, Suppliers, Etc. Except as set
forth in the Disclosure Schedule, no Member, officer, or manager or affiliate
of the Seller possesses, directly or indirectly, any financial interest in, or
is a director, officer, employee or affiliate of, any corporation, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee or competitor of such Seller. Ownership of securities of a
corporation whose securities are registered under the 1934 Act not in excess of
five percent (5%) of any class of such securities shall not be deemed to be a
financial interest for purposes of this Section.
SECTION 3.22 Investment Purpose. The Member and Seller represent that
they are acquiring and will acquire, as the case may be, the shares of Parent
issuable to them pursuant hereto solely for their own account for investment
purposes only and not with a view toward resale or distribution thereof other
than pursuant to an effective registration statement or applicable exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"). The Member and Seller understand that such shares of
Parent common stock will be issued in reliance upon an exemption from the
registration requirements of the Securities Act and that subsequent sale or
transfer of such securities is prohibited absent registration or exemption from
the provisions of the Securities Act. The Member and Seller hereby agree that
they will not sell, assign, transfer, pledge or otherwise convey any of the
shares of the Parent common stock issuable to them pursuant hereto, except in
compliance with the provisions of the Securities Act and in accordance with any
transfer restrictions or similar terms set forth on the certificates
representing such securities or otherwise set forth herein.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND PARENT
Purchaser and Parent jointly and severally represent and warrant to
the Seller and Member as follows:
SECTION 4.1 Organization and Qualification. Purchaser and Parent are
corporations duly organized, validly existing and in good standing under the
laws of the State of Texas. Purchaser and Parent have all requisite power and
authority to own or operate their properties and conduct their businesses as
they are now being conducted. Purchaser and Parent are duly qualified and in
good standing as a foreign corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under
lease or the nature of the business transacted by them makes such qualification
necessary.
SECTION 4.2 Authority Relative to this Agreement. Purchaser and Parent
have all requisite power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Purchaser and Parent, and no other proceedings on the part of
Purchaser or Parent are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Purchaser and Parent, and, assuming this Agreement
constitutes a valid and binding obligation of the Seller, this Agreement
constitutes a valid and binding agreement of Purchaser and Parent, enforceable
against Purchaser and Parent in accordance with its terms.
SECTION 4.3 Consents and Approvals; No Violation. Except as described
in the Disclosure Schedule, neither the execution and delivery of this
Agreement by Purchaser and Parent nor the consummation of the transactions
contemplated hereby nor compliance by Purchaser or Parent with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of Purchaser or Parent,
(ii) require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, (iii) result in a default (with
or without due notice or lapse of time or both) (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Contract, license,
agreement or other instrument or obligation to which the Purchaser or Parent is
a party or by which any of its respective assets may be bound, (iv) result in
the creation or imposition of any lien, charge or other encumbrance on the
assets of the Purchaser or Parent, or (v) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Purchaser or Parent or
any of their respective assets.
<PAGE> 8
SECTION 4.4 Parent Common Stock
(1) Parent has, and will have as of the Closing, complete and
indefeasible title to the stock (the "Stock") which is being given as part of
the Purchase Price pursuant to Article II, above, free and clear of all liens,
claims, encumbrances and restrictions of every kind or nature;
(2) Parent has, and will have as of the Closing, the complete and
unrestricted right, power and authority to convey the Stock to the Seller and
Member;
(3) The transfer of the Stock to Seller and Member will not violate
any of the provisions of any agreements to which Parent is a party or by which
Parent or the Stock is otherwise bound and will not violate any state or
federal rule or regulation;
(4) Parent has not made, and will not have made as of the Closing, any
prior assignment, hypothecation, pledge or transfer of all or any portion of
the Stock; and
(5) The Stock has been, or will have been as of the Closing, duly
authorized to have been issued by Parent.
ARTICLE V.
COVENANTS
SECTION 5.1 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
SECTION 5.2 Consents. Purchaser and Seller will use commercially
reasonable efforts to obtain on or before July 31, 1999, such consents of third
parties to agreements which would otherwise be violated by any provisions
hereof, to take all actions as are reasonably necessary to effect the
transactions contemplated hereby, and to make such filings with governmental
authorities necessary to consummate the transactions contemplated by this
Agreement including, without limitation, the execution and delivery of any
additional instruments (including any required supplemental indentures)
necessary to consummate the transactions contemplated by this Agreement.
SECTION 5.3 Public Announcements. Purchaser and the Seller will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the existence of this Agreement and shall
not issue any such press release or make any such public statement prior to
such consultation.
SECTION 5.4 Employees. Upon the Closing Date, the Seller shall
terminate all of its employees without incurring any obligation for severance
pay, unemployment compensation or vesting of employee benefits. Simultaneously,
Purchaser shall employ such persons as it shall determine to be needed for its
operation of the Business after the Closing, and shall provide such persons
with comparable rates of compensation and credit for prior service for purposes
of employee benefits and accruals.
<PAGE> 9
SECTION 5.5 Noncompete Agreements.
(a) For a period of two years following the date of Closing neither
Seller nor Member shall directly or indirectly (i) act or serve as an employee
(except in a capacity which does not involve management, executive,
policy-making, sales, marketing, product development, finance, or accounting
activities or advice to management, sales, marketing, development or accounting
personnel), officer, director, manager, trustee, agent, operator, advisor, or
consultant for any Competing Business (as defined below) operating within the
Area; (ii) have any beneficial ownership or equity interest (except for an
ownership interest of less than one percent in any company subject to the
reporting requirements of the Exchange Act) in any Competing Business operating
within the Area, whether such interest is derived as a sole proprietor,
partner, Member, beneficiary, or otherwise, or have any right, option,
agreement, understanding, or arrangement to acquire any such interest; (iii)
solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate
to or for a Competing Business the business of any person or entity located
within the Area which was a customer of the Seller on or within one year prior
to the Closing Date (or later termination of employment) or the business of
which the Seller had solicited within one year prior to the Closing Date (or
later termination of employment).
(b) For the purposes of this Section 5.5, "Competing Business" means
any business which is engaged in the marketing of investment securities, in the
manner being conducted on the date hereof at the offices of Seller in Houston,
Texas or in any business which solicits any customer or client of Parent and
its subsidiaries. "Area" shall mean the state of Texas.
(c) If Seller commits a breach, or threatens to commit a breach of the
provisions of subsection (a) above, Purchaser shall have the right and remedy
to have the provisions of subsection (a) specifically enforced by any court
having jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to Purchaser and that money
damages will not provide an adequate remedy to Purchaser.
(d) If any of the covenants contained in subsection (a) above, or any
part thereof, are hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
(e) If any of the covenants contained in subsection (a) above, or any
part thereof, are held to be unenforceable because of the scope or duration of
such provision of the geographic area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the scope,
duration, or area of such provision and, in its reduced form, said provision
shall then be enforceable.
SECTION 5.6 Conduct of Business of the Seller. Except as contemplated
by this Agreement or disclosed in the Disclosure Schedule, during the period
from the date of this Agreement to the Closing Date, the Seller will conduct
its operations according to its ordinary and usual course of business and
consistent with past practice. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement or
disclosed in the Disclosure Schedule, the Seller will not, prior to the Closing
Date, without the prior written consent of Purchaser (a) authorize, recommend,
propose or announce an intention to authorize, recommend or propose, or enter
into an agreement in principle or an agreement with respect to, any merger,
consolidation or business combination (other than the sale hereby), any
acquisition of a material amount of assets or securities, any disposition of a
material amount of assets or securities or any material change in its
capitalization, or any entry into a material contract or any release or
relinquishment of any material contract rights, not in the ordinary course of
business; (b) propose or adopt any amendments to its charter or by-laws; (c)
enter into, assign or terminate, or amend in any material respect, any Contract
other than in the ordinary course of business; (d) acquire, dispose of,
encumber or relinquish any material asset; (e) waive, compromise or settle any
right or claim that would adversely affect the ownership, operation or value of
any Asset; (f) make any capital expenditures other than pursuant to existing
capital expenditure programs that are disclosed in the Disclosure Schedule; (g)
allow or permit the expiration, termination or cancellation at any time prior
to the Closing Date of any insurance policies or coverages or surety bonds
currently maintained by or on behalf of the Seller unless replaced with a
policy, coverage or bond having substantially the same coverage and similar
terms and conditions; (h) increase, directly or indirectly, the salary or other
compensation of any officer or member of management of Seller or enter into any
employment agreement with any person or pay or enter into any agreement to pay
any bonuses or other extraordinary compensation to any officer of the Seller to
any member of management or other employees, or institute any general increase
in rates of compensation for its employees, or increase, directly or
indirectly, any provisions or other benefits of any of such persons; or (i)
waive, settle or compromise any material litigation or other claim on a basis
materially adverse to the Seller.
<PAGE> 10
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE PURCHASE
The respective obligations of each party to effect the Closing are
subject to the satisfaction by all parties, or waiver by Purchaser where
permissible, at or prior to the Closing of the following conditions. Failure by
a party to comply with any such condition shall give the other party the right
to terminate this Agreement and to return the parties to their status preceding
the execution hereof.
(a) This Agreement and the transactions contemplated hereby
shall have been adopted by the requisite affirmative vote of the Managers and
Members of the Seller.
(b) There shall have been no material adverse change in the
Business or Assets of Seller;
(c) All parties shall have delivered all documents and taken
all other actions required by this Agreement.
(d) All representatives and warranties of any party shall be
true and effective as of the Closing.
(e) All consents of third parties required for the
transactions hereby shall have been received on or before July 31, 1999.
(f) Purchaser and the other parties to the Asset Purchase
Agreement dated June 15, 1999 shall have satisfied all conditions to be able to
close the acquisition of certain assets of Block Trading, Inc. pursuant to such
agreement, including the obtaining of approval of the U.S. Bankruptcy Court in
Houston, Texas.
(g) Purchaser shall be satisfied in its sole discretion on or
before July 31, 1999 with its due diligence review of the Assets and the
Business.
(h) Purchaser and El Dorado Publishing, Inc. shall have
closed the Note Purchase Agreement for the purchase by the Purchaser of
$710,000 in promissory notes payable to El Dorado, in the form attached hereto
as Exhibit A.
(i) Purchaser and Member shall have closed the Dallas
Agreement.
(j) The Common Stock of Parent shall have closed at an
average sales price of $5.50 per share during the ten trading days preceding
the Closing.
<PAGE> 11
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 Purchaser's Right to Indemnification. Seller and Member
shall and do hereby jointly and severally indemnify and hold harmless, Parent,
Purchaser and their stockholders, directors, officers, employees, agents and
representatives from any and all liabilities, obligations, claims,
contingencies, damages, costs and expenses (including all court costs and
reasonable attorneys' fees) that any such indemnified party may suffer or incur
as a result of or relating to: (a) the breach or inaccuracy, or any alleged
breach or inaccuracy, of any of the representations, warranties, covenants or
agreements made by Seller herein or pursuant hereto; (b) any lawsuit, claim or
proceeding of any nature relating to Seller existing at or prior to the Closing
or arising out of any act, transaction, circumstance or fact relating to Seller
occurring prior to the Closing; (c) any income or related tax arising out of or
resulting from the operations of Seller prior to the Closing, any transaction
or activity of Seller prior to the Closing or any income derived by Seller
prior to the Closing; (d) any wages, salaries or other compensation, and other
liabilities, obligations, claims or contingencies of any nature due or payable
at any time whatsoever to the Member, or an officer, employee, agent or
representative of Seller, including any of such persons terminated by Seller at
or prior to the Closing and any of such persons hired by Purchaser as of the
Closing, in connection with their services to or employment by the Seller prior
to the Closing; (e) any loss, claim or liability resulting from the operation
of the Business prior to the Closing.
SECTION 7.2 Seller's and Members' Right to Indemnification. Purchaser
and Parent shall and do hereby jointly and severally indemnify and hold Seller
and Member, and their directors, officers, members, managers, employees, agents
and representatives harmless from any and all liabilities, obligations, claims,
contingencies, damages, costs and expenses (including all court costs and
reasonable attorneys' fees) that Seller or any such indemnified party may
suffer or incur as a result of or relating to: (a) the breach or inaccuracy, or
any alleged breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by Purchaser and Parent herein or pursuant hereto;
and (b) those liabilities, obligations, claims, contingencies and encumbrances
accruing or arising after the Closing in connection with the Business of the
Purchaser, except to the extent that such liabilities, obligations, claims,
contingencies or encumbrances are attributable to actions taken or omitted to
be taken by Seller and/or the Member prior to the Closing.
SECTION 7.3 Notices. The party seeking indemnification hereunder
("Indemnitee") shall promptly, and within 30 days after notice to it (notice to
Indemnitee being the filing of any action, receipt of any claim in writing or
similar form of actual notice) of any claim as to which it asserts a right to
indemnification, notify the party from whom indemnification is sought
("Indemnitor") of such claim. Indemnitee shall bill Indemnitor for any such
claims no more frequently than on a monthly basis, and Indemnitor shall
promptly pay (or cause to be paid) Indemnitee upon receipt of any such bill.
The failure of Indemnitee to give the notification to Indemnitor contemplated
above in this Section shall not relieve Indemnitor from any liability or
obligation that it may have pursuant to this Agreement unless the failure to
give such notice within such time shall have been materially prejudicial to it,
and in no event shall the failure to give such notification relieve Indemnitor
from any liability it may have other than pursuant to this Agreement.
SECTION 7.4 Third-Party Claims. If any claim for indemnification by
Indemnitee arises out of an action or claim by a person other than Indemnitee,
Indemnitor may, by written notice to Indemnitee, undertake to conduct the
defense thereof and to take all other steps or proceedings to defeat or
compromise any such action or claim, including the employment of counsel;
provided that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate, at its own expense, in such proceedings, but
control of such proceedings shall remain exclusively with Indemnitor.
Indemnitee shall provide all reasonable cooperation to Indemnitor in connection
with such proceedings. Counsel and auditor costs and expenses and court costs
and fees of all proceedings with respect to any such action or claim shall be
borne by Indemnitor, except in cases in which the Indemnitee chooses to
participate at its cost. If any such claim is made hereunder and Indemnitor
does not elect to undertake the defense thereof by written notice to
Indemnitee, Indemnitee shall be entitled to control such proceedings and shall
be entitled to indemnity with respect thereto pursuant to the terms of this
Article VII. To the extent that Indemnitor undertakes the defense of such claim
by written notice to Indemnitee and diligently pursues such defense at its
expense, Indemnitee shall be entitled to indemnification hereunder only to the
extent that such defense is unsuccessful as determined by a final judgment of a
court of competent jurisdiction, or by written acknowledgment of the parties.
<PAGE> 12
SECTION 7.5 Offset. In addition to any other right of recovery
available to any party hereto, any claim for indemnity pursuant to this Article
VII may be offset against its right to recover any obligations owed by the
offsetting party to the party against which indemnification is claimed.
SECTION 7.6 Access to Records. Seller, Member, and their agents, shall
be afforded reasonable access to the books and records of Purchaser during
normal business hours upon reasonable notice for the purpose of verifying any
claim against Seller hereunder and any other reasonable purpose. Seller,
Member, or their agents may be required to sign an appropriate confidentiality
agreement prior to any inspection of books and records hereunder.
SECTION 7.7 Limitation of Actions. No action for indemnification under
this Section Article VII shall be brought later than two years from the date of
Closing, provided that such survival period shall extend to the expiration of
the applicable statute of limitation for claims involving taxation and
environmental matters. No party shall have any indemnification obligation in
excess of the Purchase Price set forth in Article II.
SECTION 7.8 Arbitration. All disputes under this Article VII shall be
settled by arbitration in Dallas, Texas, before one arbitrator pursuant to the
rules of the American Arbitration Association. The parties shall seek to agree
to a single arbitrator, and if they cannot agree, an arbitrator will be
appointed by the Dallas office of the American Arbitration Association.
Arbitration may be commenced at any time by any party hereto giving written
notice to each other party to a dispute that such dispute has been referred to
arbitration under this Section 7.7. Any award rendered by the arbitrator shall
be conclusive and binding upon the parties hereto; provided, however, that any
such award shall be accompanied by a written opinion giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties and the decision of the arbitrator shall be final and binding and there
shall be no right of appeal therefrom. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that if in the opinion of the arbitrator any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrator may assess, as part of its award, all or any part of the arbitration
expenses of the other party (including reasonable attorney's fees) and of the
arbitrator against the party raising such unreasonable claim, defense or
objection.
ARTICLE VII.
MISCELLANEOUS
SECTION 8.1 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 8.2 Brokerage Fees and Commissions. All parties represent that
they have incurred no obligation for brokerage commissions.
SECTION 8.3 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise without the consent of the other party hereto.
SECTION 8.4 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect.
SECTION 8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by facsimile telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
<PAGE> 13
If to the Seller:
Daqcom International, L.L.C.
c/o Robert G. Bailey
3306 Sul Ross
Houston, Texas 77098
If to Purchaser:
RushTrade.com, inc.
13355 Noel Road, Suite 610
Dallas, Texas 75240
Attention: D. M. Moore, Jr.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF. ANY DISPUTE ARISING UNDER THIS AGREEMENT NOT OTHERWISE SUBJECT TO
ARBITRATION SHALL BE REFERRED TO THE STATE COURTS IN DALLAS COUNTY, TEXAS.
SECTION 8.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning of interpretation of this Agreement.
SECTION 8.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 8.9 Expenses. Except as otherwise provided herein, each of the
parties shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial or other consultants, investment
bankers, accountants and counsel.
SECTION 8.10 Survival. All of the covenants, representations and
warranties of any party hereto shall survive the Closing.
SECTION 8.11 Disclosure Schedule. Within ten business days hereafter,
the Seller and the Purchaser shall deliver the Disclosure Schedule to each
other. The Disclosure Schedule shall contain all information required to
disclose fully any exception or qualification to this Agreement and shall cross
reference the section of this Agreement so qualified.
SECTION 8.12 Termination. This Agreement may be terminated by either
party without penalty if the Closing has not occurred on or before August 31,
1999.
SECTION 8.13 Time. Time is and shall be of the essence of this
Agreement.
SECTION 8.14 Fax Signatures. This Agreement and any agreement or
document contemplated hereby may be signed and delivered by a party by
facsimile, such facsimile shall be deemed to be an original signature.
<PAGE> 14
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year set forth above.
DAQCOM INTERNATIONAL, L.L.C.
By: /s/ Albert E. Butler
------------------------------------------------
Albert E. Butler, President
MILLENNIUM DAQCOM LP
By Daqcom Management LLC
By: /s/ Albert E. Butler
------------------------------------------------
Albert E. Butler, President
RUSHMORE FINANCIAL GROUP, INC.
By /s/ D. M. Moore, Jr.
------------------------------------------------
D. M. Moore, Jr., President
RUSHTRADE.COM, INC.
By: /s/ D.M. More, Jr.
------------------------------------------------
D. M. Moore, Jr., President
<PAGE> 1
Exhibit 11 - Earnings per share
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Income (loss) $ (395,614) $ (648,532)
Less dividends on preferred stock (7,059) (8,141)
----------- -----------
Net Income (loss) applicable to common shareholders $ (402,673) $ (656,673)
=========== ===========
Weighted average common shares outstanding 3,006,079 2,566,240
Dilutive Potential Common Shares 0 0
Net income (loss) per common share
Basic $ (0.13) $ (0.26)
Diluted $ (0.13) $ (0.26)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 50,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,938,223
<CASH> 648,021
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 48,240
<TOTAL-ASSETS> 7,296,834
<POLICY-LOSSES> 4,486,059
<UNEARNED-PREMIUMS> 29,169
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 64,621
0
156,870
<COMMON> 30,970
<OTHER-SE> 2,110,408
<TOTAL-LIABILITY-AND-EQUITY> 7,296,834
419,095
<INVESTMENT-INCOME> 187,055
<INVESTMENT-GAINS> 3,933
<OTHER-INCOME> 2,843,140
<BENEFITS> 178,906
<UNDERWRITING-AMORTIZATION> 116,315
<UNDERWRITING-OTHER> 383,329
<INCOME-PRETAX> (242,867)
<INCOME-TAX> 152,747
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,614)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
<RESERVE-OPEN> (91,674)
<PROVISION-CURRENT> 152,747
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
