SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.___)
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
RUSHMORE FINANCIAL GROUP, INC.
(Name of Registrant as Speficified in Charter)
---------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
- PRELIMINARY PROXY -
RUSHMORE FINANCIAL GROUP, INC.
13355 NOEL ROAD, SUITE 650
DALLAS, TEXAS 75240
September _____, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the holders of
common stock of Rushmore Financial Group, Inc. to be held on October 4, 1999, at
the company's offices at 650 One Galleria Tower, 13355 Noel Road, Dallas, Texas
75240, commencing at 10:00 a.m., local time. At this meeting you will be asked
to consider and vote upon the approval of the issuance of up to 3,127,271 shares
of our common stock (constituting approximately 50% of the issued and
outstanding shares after giving effect to such issuance) upon conversion or
exercise of Series B Convertible Preferred Stock and common stock purchase
warrants being issued in a private placement. Neither Texas law nor Rushmore's
Articles of Incorporation or Bylaws require shareholder approval of the issuance
of the shares. However, the rules of the Nasdaq Stock Market require prior
shareholder approval for the issuance of shares that will result in an increase
in outstanding common stock of 20% or more. Consequently, you are being asked to
approve the issuance of the shares upon closing of the private placement.
Management of Rushmore Financial Group, Inc. and their affiliates and
associates holding more than 50% of outstanding shares have signified their
intention to vote for approval, which will insure that the issuance of the
shares will be approved.
Enclosed with this letter are a Notice of Special Meeting of
Shareholders and a Proxy Statement which describes in detail the issuance. We
urge you to consider all of the materials in the Proxy Statement and give it
your careful attention.
It is important that your shares be represented at the Special Meeting,
regardless of the number of shares you hold. Therefore, please sign, date and
return the enclosed proxy as soon as possible, whether or not you plan to attend
the Special Meeting. If you attend, you may vote in person if you wish, even
though you have previously returned your proxy.
Sincerely,
D.M. ( Rusty ) Moore, President
<PAGE>
RUSHMORE FINANCIAL GROUP, INC.
13355 NOEL ROAD, SUITE 650
DALLAS, TEXAS 75240
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held on
October 4, 1999
Dear Shareholders of Rushmore Financial Group, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders
of Rushmore Financial Group, Inc. to be held at 10:00 a.m., local time on
October 4, 1999, at the company's offices at 650 One Galleria Tower, 13355 Noel
Road, Dallas, Texas 75240 to consider and vote upon a single proposal to approve
the issuance of up to 2,818,181 shares of common stock of Rushmore pursuant to a
private placement of Series B Convertible Preferred Stock and related common
stock purchase warrants, and the issuance of 309,090 shares of common stock in
exchange for certain assets.
The accompanying Proxy Statement forms a part of this Notice. Pursuant
to rules of the Nasdaq Stock Market, which require shareholder approval of any
increase in outstanding common stock of 20% or more, you are being asked to
approve the issuance of the shares in the private placement. See "Approval of
Issuance of Shares" in the accompanying Proxy Statement for a discussion of the
effect of such approval.
Only shareholders of record at the close of business on September 10,
1999 who own common stock will be entitled to vote at the Special Meeting or
any adjournments thereof. The affirmative vote of the holders of more than 50%
of the outstanding shares of our common stock present and voting at the Special
Meeting on such date is necessary to approve the issuance of the shares.
All holders of common stock, whether or not they expect to attend the
Special Meeting in person, are requested to complete, sign, date and return the
enclosed form of proxy in the accompanying envelope (which requires no
additional postage if mailed in the United States). Your proxy will be
revocable, either in writing or by voting in person at the Special Meeting, at
any time prior to its exercise.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT WITHOUT
DELAY IN THE ENCLOSED ENVELOPE. ANY HOLDER OF COMMON STOCK ATTENDING THE MEETING
MAY VOTE IN PERSON EVEN IF A PROXY HAS BEEN RETURNED.
By Order of the Board of Directors
D.M. (Rusty) Moore, President
_______________________, 1999
<PAGE>
RUSHMORE FINANCIAL GROUP, INC.
13355 NOEL ROAD, SUITE 650
DALLAS, TEXAS 75240
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement and the accompanying proxy card are being
furnished to the holders of common stock of Rushmore Financial Group, Inc. in
connection with the solicitation of proxies by the Board of Directors of
Rushmore from the shareholders for use at a Special Meeting of shareholders of
Rushmore. At the Special Meeting, the shareholders of Rushmore will be asked to
consider and vote upon a single proposal to approve the issuance of up to
2,818,181 shares of common stock that will be issued upon conversion of up to
100,000 shares of Series B Preferred Stock and upon exercise of warrants to
purchase 1,000,000 shares of common stock being issued in connection with a
private placement of such Series B Preferred Stock and warrants. The approval
will also extend to the issuance of 309,090 shares of common stock to the
sellers of certain assets to Rushmore. Neither Texas law nor Rushmore's Articles
of Incorporation or Bylaws require shareholder approval of the issuance of the
shares. However, the rules of the Nasdaq Stock Market require prior shareholder
approval for the issuance of shares that will result in an increase in
outstanding common stock of 20% or more. Consequently, you are being asked to
approve the issuance of the shares. See "Approval of Issuance of Shares" for a
discussion of the effect of such approval. This Proxy Statement and the enclosed
forms of proxy are being mailed on or about September 13, 1999.
Rushmore is a financial services holding company that provides a wide
range of investment and insurance services and products to its clients over the
Internet and through a national distribution network of securities
representatives and insurance agents. Its investment services consist of
securities brokerage services, mutual fund distribution, variable life insurance
annuity sales, fee-based advisory services, and other financial services. The
company's insurance services select and market a wide range of life, disability,
accident and health insurance and annuity products. The company is headquartered
in Dallas, Texas, and its common stock trades on the Nasdaq SmallCap Market
under the symbol "RFGI."
VOTING AND PROXY INFORMATION
The Board of Directors of Rushmore has fixed the close of business on
September 10, 1999 , as the record date for determining the holders of common
stock entitled to receive notice of and to vote at the Special Meeting. At the
close of business on the record date, there were outstanding 3,557,000 shares of
common stock, the only outstanding securities of Rushmore entitled to vote at
the Special Meeting. Such shares were held by approximately _________
shareholders of record.
For each share held on the record date, a holder of common stock is
entitled to one vote on all matters properly brought before the shareholders at
the Special Meeting. Such votes may be cast in person or by proxy. Abstentions
may be specified as to the approval of the issuance of shares. Under the rules
of the Nasdaq, brokers holding shares for customers have authority to vote on
certain matters when they have not received instructions from the beneficial
owners, and do not have such authority as to certain other matters (so-called
"broker non-votes"). The Nasdaq rules prohibit member firms of the National
Association of Securities Dealers, Inc. from voting on the approval of the
issuance of shares without specific instructions from beneficial owners. The
affirmative vote, either in person or by proxy, of the holders of more than 50%
of the shares of common stock present and voting at the Special Meeting, voting
as one class, is necessary to approve the issuance of the shares. Accordingly,
if a shareholder abstains from voting certain shares on the approval of the
issuance of shares, it will have the effect of a negative vote, but if a broker
indicates that it does not have authority to vote certain shares, those shares
will not be considered as shares present and entitled to vote with respect to
the approval of the issuance of shares and therefore will have no effect on the
outcome of the vote.
1
<PAGE>
On the record date, _____________ shares of common stock, representing
approximately ________ % of shares outstanding, were held by officers and
directors of Rushmore and their affiliates and associates. All such persons have
indicated they will vote their shares outstanding for the approval of the
issuance of the shares, which will insure such approval by the shareholders.
All shares of common stock that are represented at the Special Meeting
by properly executed proxies received by Rushmore prior to or at the Special
Meeting and not revoked will be voted at the Special Meeting in accordance with
the instructions indicated in such proxies. Unless instructions to the contrary
are specified in the proxy, each such proxy will be voted FOR the proposal to
approve the issuance of the shares.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Rushmore, before the vote is taken at the Special
Meeting, a written notice of revocation bearing a date later than the date of
the proxy, (ii) duly executing and delivering a subsequent proxy relating to the
same shares, or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation should be sent to:
Corporate Secretary, Rushmore Financial Group, Inc. 13355 Noel Road, Suite 650,
Dallas, Texas 75240.
APPROVAL OF ISSUANCE OF SHARES
Neither Texas law nor Rushmore's Articles of Incorporation or Bylaws
require shareholder approval of the issuance of the shares or any of the
transactions that will be funded by the issuance of the shares. However, the
rules of the Nasdaq Stock Market require prior shareholder approval for an
issuance of shares which will result in an increase in outstanding common stock
of 20% or more, including in this instance of shares of common stock issuable
upon exchange or conversion of warrants and convertible securities.
Consequently, the shareholders are being asked to approve the issuance of the
shares in the private placement. Under Texas law, any shareholder voting in
favor of the issuance of the shares may be deemed to have waived any rights to
challenge such transactions, while shareholders voting against such transactions
or abstaining from voting may continue to retain those rights. It should be
noted, however, that under Texas law shareholders do not have dissenters'
appraisal rights in connection with the issuance of the shares or any of the
transactions that will be funded by the issuance of the shares, nor do
shareholders have preemptive rights to acquire any of the shares.
THE TRANSACTION
The Private Placement
Rushmore is currently offering its securities in a private placement
transaction to a small number of persons who are "accredited investors" as
defined by the rules of the Securities and Exchange Commission. Such placement
consists of $10,000,000 of Series B Convertible Preferred Stock, issued in
100,000 shares with an issue price of $100 per share. Such shares will bear a 7%
annual cumulative dividend and are convertible into common stock of Rushmore at
the rate of 70% of the market price of the common stock on Nasdaq, with a
minimum conversion price of $5.50 per share. The other terms and provisions of
the Series B Preferred Stock are set forth under the caption, "Description of
Securities." For each share of preferred stock subscribed for in the offering,
the subscriber will receive a Stock Purchase Warrant to purchase ten shares of
Rushmore common stock for an exercise price of $8.25 per share at any time
during two years from the date of issue. Rushmore may call the warrants for
redemption at a nominal price if the price of the common stock exceeds $16.50
for ten consecutive trading days during such two years, which will have the
effect of compelling the exercise of the warrants.
2
<PAGE>
The private placement of preferred stock and warrants will continue
until all shares have been sold or October 31, 1999, unless extended by Rushmore
to not later than December 31, 1999. Pending receipt of shareholder approval for
the issuance of the shares at the Special Meeting, all subscription funds are
being deposited into escrow with Lone Star Bank, Dallas, Texas. If such approval
is not given, the subscription funds will be returned to subscribers without
deduction and with any interest earned, and the private placement will be
terminated. In such event, the company will be unable to pursue the strategies
described under "---- Use of Proceeds."
Registration Rights
The shares being issued in the private placement are not being
registered under federal and state securities laws by virtue of applicable
private placement exemptions from registration in such laws. Consequently,
transfer of the shares will be restricted and may take place only in accordance
with the rules and regulations of the SEC and state securities laws. Rushmore
will agree with all purchasers of Series B Preferred Stock to register the
common stock underlying the Series B Preferred Stock and the Warrants for resale
into the open market on a Form SB-2 or S-3 registration statement and to file
such registration statement within 45 days after closing the offering. The
Company will use diligence to have the registration statement declared effective
within 135 days of filing and will pay all registration expenses. There is no
similar right granted to the parties acquiring the 309,090 shares in the asset
purchases.
Reasons for the Placement
Rushmore concluded its initial public offering of common stock in April
1998, in which it raised $4,480,000 upon the issuance of 815,341 shares at an
offering price of $5.50 per share. Rushmore operated at a loss through 1998, in
the amount of $2,127,774, and has posted a net loss during the first six months
of 1999 in the amount of $395,614. The company's cash reserve at June 30, 1999
was $1,352,000. Such financial condition does not give Rushmore the ability to
engage in the kind of acquisitions and investments it needs to increase the base
of its business and become a more prominent player in the financial services
industry. The Board of Directors therefore concluded that it would pursue a more
aggressive business strategy, requiring the commitment of additional capital to
be raised through sales of the company's securities.
In February 1999, Rushmore announced the opening of its online trading
division, known as RushTrade.com, inc. (http://www.rushtrade.com), believed to
be the first publicly traded company to offer customers, via the Internet, Level
I and Level II quotes with highly efficient direct execution order routing to
the stock exchanges and electronic clearing networks without the usual several
minute delay. A Level I quote displays the high bid and low offer for a stock on
a real-time basis. A Level II quote additionally provides information about the
underlying quotations of all market makers in the stock. Most of the online
brokerage firms offer delayed or static quotes and process customer orders
through a browser based software that routes the order through the firm's
trading desk or to third-party wholesales. RushTrade.com was met with enthusiasm
both by customers and by the reaction of the market reflected in a spike in the
price of Rushmore's common stock followed by a fairly steady market in the $4.00
to $7.00 range. The stock had been trading below $2.00 prior to the
announcement.
In structuring the private placement, Rushmore did not obtain an
independent evaluation of the terms of the securities being offered or a
fairness opinion regarding the fairness of the offering to the other common
shareholders of Rushmore. In the absence of an opinion by an independent entity
as to the fairness of the transaction, and in the absence of dissenters rights
of appraisal, the Board considered that the minority shareholders will have no
basis upon which to decide their vote other than management's recommendation and
this Proxy Statement. However, the Board did not believe such limitation
justified the expense of such an opinion, and did not believe that the absence
of a fairness opinion adversely affected its internal determination of fairness;
therefore, the Board determined to proceed without an opinion. Based upon all
the foregoing factors discussed, the Board of Directors determined that the
issuance of securities is fair to, and in the best interests of, the Rushmore
shareholders and approved the issuance of securities and recommended that the
issuance be approved by the shareholders.
3
<PAGE>
Use of Proceeds
The net proceeds of the private placement will be a maximum of
$9,200,000, after deducting offering costs and commissions. Such net proceeds
are anticipated to be used as follows, although Rushmore may reallocate the
proceeds among other areas of its operations.
$2,500,000 - The largest specified use of funds will be to
fund the advertising and public relations campaign to attract customers to
RushTrade.com. There are more than 100 online brokerage firms offering trades at
prices ranging from $7 to $30. Most of these do not offer real-time quotations
or Level I or II access, and Rushmore believes it offers superior products at
competitive prices. However, most of these competitors are much larger firms
with greater capitalization than ours. For Rushmore to compete effectively, it
will need to get its message out to the investing public through media such as
radio, newspaper, banner ads on the Internet and industry publications. In its
first phase of advertising, Rushmore will adopt an "underdog" image of competing
against the big players while doing "what's right for the customer."
$1,550,000 - The next major category of offering proceeds will
be applied to increasing the net capital of Rushmore Securities Corporation, the
company's broker-dealer subsidiary, and to upgrade its customer service call
center and operating systems to handle the anticipated increased order flow.
$1,000,000 - Rushmore will use approximately $1 million to
acquire certain software and related assets from Block Trading, Inc., a company
currently undergoing liquidation under bankruptcy court supervision. Pursuant to
an Asset Purchase Agreement dated June 15, 1999, Rushmore agreed, subject to
bankruptcy court approval, to buy the interest of Block Trading in its online
trading software for a purchase price of $800,000. Following the completion of
its programming and enhancement to our specifications, such software will give
RushTrade.com a proprietary trading system not requiring the payment of
royalties such as to its current software vendor.
$1,500,000 - The next priority will be to complete the
development and testing of Rushmore's software, including the enhancements to be
made by Rushmore and its interfacing with all exchanges, electronic clearing
networks and Internet access. If, for any reason, Rushmore is unsuccessful in
completing the acquisition of the Block Trading software out of bankruptcy,
which could occur if we are outbid by a competing acquiror, we will instead
allocate the proceeds now allocated to acquire and enhance the software
($2,500,000) to the creation of our own proprietary software package using
internal resources and outsourced capabilities. Rushmore believes it could
accomplish such alternative software implementation, although it would likely
take somewhat longer than if it could buy and enhance the Block Trading
software.
$300,000 - Rushmore has agreed to purchase certain assets of
two companies associated with Block Trading Company, Inc., Daqcom International,
LLC, and Millennium Daqcom/Dallas, LP, for a purchase price of $300,000 and
309,090 shares of common stock. Such purchase is conditional upon receipt of
bankruptcy court approval and closing of the purchase of the Block Trading
assets. The assets of the two acquired Daqcom companies will be integrated with
RushTrade.com, inc. and they will become local trading offices in Dallas and
Houston primarily catering to the day traders who are now using those
facilities. Rushmore is not acquiring any right to use the Daqcom names or any
financial assets or assuming any liabilities.
$2,350,000 - The balance of proceeds, if any, will be applied
to Rushmore's working capital and unspecified acquisitions. We will also
probably apply approximately $157,000 to redeem the other two series of
preferred stock outstanding.
4
<PAGE>
DESCRIPTION OF SECURITIES
The following is a summary of Rushmore's capital stock.
Common Stock
Rushmore has authorized 10,000,000 shares of common stock of which
approximately 3,557,000 shares were outstanding on the date of this Proxy
Statement. Holders of common stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. All shares of common stock have equal voting rights on the basis of
one vote per share on all matters to be voted upon by shareholders. Cumulative
voting for the election of directors is not permitted, so that the holders of a
majority of shares outstanding have the power to elect the entire Board of
Directors. Shares of Rushmore common stock have no preemptive, conversion,
sinking fund or redemption provisions and are not liable for assessment. Each
share of Rushmore common stock is entitled to share proportionately in any
assets available for distribution upon liquidation of Rushmore.
The Transfer Agent and Registrar for Rushmore's common stock is UMB
Bank, N.A.
Preferred Stock
Rushmore has authorized 100,000 shares of preferred stock, par value
$10.00 per share. The preferred stock maybe issued in series or classes as
determined by the Board of Directors from time to time. There are two series of
preferred stock now outstanding totaling 6,274 shares having a liquidation
preference of $10.00 per share, totaling $62,740. If the maximum offering is
subscribed for in the private placement, Rushmore will redeem these preferred
shares in order to have sufficient shares of Series B Preferred Stock to be
issued. The Board of Directors has designated an authorized series of 25,000
preferred shares, called 9% Cumulative Preferred Stock, which was sold at a
price of $10.00 per share and an authorized series of 10,000 preferred shares,
called Series A Cumulative Preferred Stock, which was sold at a price of $10.00
per share. Both outstanding series of preferred stock have the following rights
and preferences:
Dividends. Rushmore pays a 9% quarterly dividend on its par value
($0.225 per share per quarter) each January 15, April 15, July 15, and October
15 of each year. Dividends will be paid if funds are lawfully available, and, if
not, will be cumulated and paid on the next dividend date when funds are
available, plus interest at the 9% dividend rate. No dividends will be payable
on common stock if any payment of a preferred stock dividend has been missed.
Voting. Shares of preferred stock carry no voting rights.
Liquidation Preference. Holders of preferred stock are entitled to
receive a payment in the amount of $10.00 per share plus any cumulated but
unpaid dividends in the event Rushmore is liquidated, before any payment is made
by Rushmore to the holders of Rushmore common stock with respect to their
shares.
Redemption. Rushmore may call the preferred stock for redemption at a
redemption price of $10.00 per share.
Conversion. Shares of 9% Cumulative preferred Stock and Series A
Preferred Stock are not convertible into any other security of Rushmore.
5
<PAGE>
Series B Preferred Stock
Voting Rights. Holders of Series B Preferred Stock will have no right
to vote their shares, except as mandated by law and except that holders of
Series B Preferred Stock, voting as a separate class by majority vote, must
approve any amendment to the Designation of Rights and Preferences of Series B
Preferred Stock, and any action of the Board of Directors, if such amendment or
action would (i) increase or decrease the number of authorized shares of Series
B Preferred Stock, (ii) increase or decrease the Issue Price (which is $100.00
per share), (iii) effect an exchange, reclassification or cancellation of all or
part of the shares of Series B Preferred Stock, (iv) effect an exchange, or
create a right of exchange, of all or any part of the shares of another class
into shares of Series B Preferred Stock, (v) change the designations,
preferences, limitations, or relative rights of the Series B Preferred Stock,
(vi) change the shares of Series B Preferred Stock into the shares of another
class, or (viii) cancel or otherwise affect accumulated but undeclared dividends
on the Series B Preferred Stock.
Preemptive Rights. No holder of Series B Preferred Stock is entitled as
a matter of right to subscribe or receive additional shares of any class of
stock of the company or any bonds, debentures or other securities convertible
into such stock.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of Rushmore, holders of Series B Preferred Stock are entitled to be
paid an amount per share equal to the Issue Price, plus any accumulated and
unpaid dividends, prior to any payments or distributions to the holders of
common stock, but on a pro rata basis with holders of other preferred stock.
Conversion Rights. Each share of Series B Preferred Stock is
convertible, at the option of the holder thereof at any time prior to
redemption, into that number of shares of common stock (the "Conversion Rate")
determined by dividing the Issue Price by the greater of (i) $5.50 or (ii) 70%
of the average closing price of the common stock on Nasdaq for the five trading
days preceding the date upon which notice of conversion is given. The number of
shares issuable upon conversion is also subject to certain anti-dilution
adjustments for stock splits and combinations, reclassifications and mergers,
consolidations or sales of all or substantially all of the assets of the
company.
Dividends. The holders of Series B Preferred Stock are entitled to
receive annual dividends in the amount of 7% of the Issue Price, payable
quarterly in cash. Dividends are payable quarterly, and no dividend or other
distribution shall be paid on shares of common stock or any other class of stock
or series of preferred stock ranking equal or junior to the Series B Preferred
Stock until all cumulative dividends have been paid.
Redemption Rights. The Series B Preferred Stock is redeemable by the
company any time after two years from date of issue, so long as all dividends on
Series B Preferred Stock have been paid or set apart for payment. The redemption
price per share is the Issue Price of the shares redeemed, plus the amount of
any unpaid accumulated dividends to the date of redemption. Any record holder of
Series B Preferred Stock may convert such Series B Preferred Stock into common
stock prior to such date of redemption by delivering written notice to Rushmore
of such holder's election to convert all or a portion of such shares.
Optional Call Provision. Rushmore may call the Series B Preferred Stock
for redemption at the $100.00 per share issuance price at any time after the
closing price of the common stock or Nasdaq for ten consecutive trading days
equals or exceeds $16.50 per share, so long as all cumulative dividends have
been paid or set aside. The holder may convert the Series B Preferred Stock
prior to the date of redemption by delivering notice to the company of such
holder's election to convert all or a portion of such stock.
Warrants
Stock purchase warrants are being issued in the private
placement entitling the holder of a warrant to purchase ten shares of common
stock for a purchase price of $8.25 per share for each share of Series B
6
<PAGE>
Preferred Stock purchased at $100.00 per share. The warrants are exercisable in
whole or in increments of 100 shares at any time within two years from the date
of issue. Warrants will be redeemable by Rushmore for a price of $0.01 per share
of common stock covered by the warrant, at any time the closing price of the
common stock on Nasdaq trades at or above $16.50 per share for ten consecutive
trading days. Holders of the warrants are entitled to exercise the warrants for
cash or in lieu of cash to surrender shares of Series B Preferred Stock or
common stock at the average market price of the common stock or Nasdaq for five
trading days preceding the surrender.
Possible Anti-Takeover Provisions
Special Meetings of Shareholders; Director Nominees. Rushmore's bylaws
and Articles provide that special meetings of shareholders may be called by
shareholders only if the holders of at least 66-2/3% of the common stock join in
such action. The bylaws and Articles also provide that shareholders desiring to
nominate a person for election to the Board of Directors must submit their
nominations to the company at least 60 days in advance of the date on which the
last annual shareholders' meeting was held, and provide that the number of
directors to be elected (within the minimum-maximum range of 3 to 21 set forth
in the Articles and bylaws) shall be determined by the Board of Directors or by
the holders of at least 66-2/3% of the common stock. While these provisions of
the Articles and bylaws have been established to provide a more cost-efficient
method of calling special meetings of shareholders and a more orderly and
complete presentation and consideration of shareholder nominations, they could
have the effect of discouraging certain shareholder actions or opposition to
candidates selected by the Board of Directors and provide incumbent management a
greater opportunity to oppose shareholder nominees or hostile actions by
shareholders. The affirmative vote of holders of at least 66-2/3% of the common
stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal any of these provisions.
Removal of Directors. The Articles of Incorporation of Rushmore provide
that directors may be removed from office only for "cause" by the affirmative
vote of holders of at least 66-2/3% of the common stock. "Cause" means proof
beyond the existence of a reasonable doubt that a director has been convicted of
a felony, committed gross negligence or willful misconduct resulting in a
material detriment to Rushmore, or committed a material breach of such
director's fiduciary duty to Rushmore resulting in a material detriment to
Rushmore. The inability to remove directors except for "cause" could provide
incumbent management with a greater opportunity to oppose hostile actions by
shareholders. The affirmative vote of holders of at least 66-2/3% of the common
stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal this provision.
Classification of Directors. The Articles and bylaws divide the Board
of Directors into three classes, equal or approximately equal in number, serving
staggered three-year terms. The Board of Directors is presently comprised of
nine members (until subsequently changed by the Board of Directors or
shareholders in accordance with the procedures described above), with classes
having three members each. At each annual meeting of shareholders, directors in
the class whose terms are expiring shall be elected for three-year terms to
succeed those whose terms expired. The affirmative vote of holders of at least
66-2/3% of the common stock is necessary to amend, alter or adopt any provision
inconsistent with or repeal this provision.
The provisions regarding classification of directors were established
to provide orderly transition and continuity in the membership of the Board of
Directors. Such procedures could, however, have the effect of providing
incumbent management a greater opportunity to oppose hostile actions by
shareholders. Moreover, it requires two annual meetings of shareholders to
consider and vote upon reelection or removal of a majority of the members of the
Board, rather than at each annual meeting of shareholders. Also, the company's
bylaws provide that directors chosen to fill any vacancy (whether by increase in
the number of directors or as a result of resignation, removal or other events)
will serve until the next annual meeting at which their class is up for
reelection, rather than the next annual meeting at which any class is elected.
7
<PAGE>
PROXY SOLICITATION
Proxies are being solicited from Rushmore's shareholders by and on
behalf of the Board of Directors of Rushmore. The cost of solicitation of
proxies will be paid by Rushmore. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers, and employees of
Rushmore in person or by telephone, telegram, or other means of communication.
Such directors, officers, and employees will not be additionally compensated for
such services but may be reimbursed for out-of-pocket expenses incurred by them
in connection with such solicitation. Arrangements will also be made with
custodians, nominees, and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of Rushmore common stock held of record by such
persons.
SHAREHOLDER PROPOSALS
Proposals submitted by a shareholder of Rushmore for action at the 2000
annual meeting of Rushmore's shareholders must have been received by Rushmore at
its principal executive offices at 13355 Noel Road, Suite 650, Dallas, Texas
75240 , no later than January 1, 2000, in order to be included in Rushmore's
proxy materials relating to that meeting.
8
<PAGE>
- PRELIMINARY PROXY -
Common Stock Proxy
Rushmore Financial Group, Inc.
This Common Stock Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby (1) acknowledges receipt of the Notice of
Special Meeting of Shareholders of Rushmore Financial Group, Inc. (the
"Company") to be held at the offices of Rushmore, located at 650 One Galleria
Tower, 13355 Noel Road, Dallas, Texas 75240, on October 4, 1999, beginning at
10:00 a.m., local time, and the Proxy Statement in connection therewith and (2)
appoints D. M. (Rusty) Moore, Jr. and James W. Clark, and each of them, the
undersigned's proxies with full power of substitution for and in the name, place
and stead of the undersigned, to vote upon and act with respect to all of the
shares of Common Stock of the Company standing in the name of the undersigned,
or with respect to which the undersigned is entitled to vote and act, at the
meeting and at any adjournment thereof.
The undersigned directs that the undersigned's proxy be voted as
follows:
1. APPROVAL OF ISSUANCE OF UP TO 3,127,271 SHARES OF COMMON STOCK:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER WHICH MAY PROPERLY
COME BEFORE THE MEETING.
This proxy will be voted as specified above. If no specification is
made, this proxy will be voted for approval in item 1.
The undersigned hereby revokes any proxy heretofore given to vote or
act with respect to the Common Stock of the Company and hereby ratifies and
confirms all that the proxies, their substitutes, or any of them may lawfully do
by virtue hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
Please date, sign and mail this proxy to the Company.
Date __________________________ ____, 1999
-----------------------------------
Signature of Shareholder
-----------------------------------
Signature of Shareholder
Please date this proxy and sign your name exactly as it
appears hereon. Where there is more than one owner, each
should sign. When signing as an attorney, administrator,
executor, guardian or trustee, please add your title as
such. If executed by a corporation, the proxy should be
signed by a duly authorized officer.
